Do EU and US GSPs matter for the cotton and textiles products exports of Pakistan?

Author:Rabia Majeed, Zahoor Ul Haq, Muhammad Ishaq, Javed Iqbal, Zia Ullah
Position:Department of Economics, Abdul Wali Khan University Mardan, Mardan, Pakistan

Purpose This study aims to estimate and compare the effect of EU and US GSP schemes on the cotton and textile sectors of Pakistan. Design/methodology/approach The analysis used data from 2003 to 2014 for all the 14 categories of cotton and textile products at two-digit using HS commodity classification. Effects of the EU and US GSPs are estimated using a gravity trade model. F... (see full summary)

Do EU and US GSPs matter for the
cotton and textiles products
exports of Pakistan?
Rabia Majeed
Department of Economics, Abdul Wali Khan University Mardan,
Mardan, Pakistan
Zahoor Ul Haq
Department of Economics, Pakhtunkhwa Economic Policy Research Institute (PEPRI),
Abdul Wali Khan University Mardan, Mardan, Pakistan
Muhammad Ishaq
Pakistan Agricultural Research Council, Islamabad, Pakistan
Javed Iqbal
Department of Economics, Abdul Wali Khan University Mardan,
Mardan, Pakistan, and
Zia Ullah
Department of Hospitality and Tourism Management,
Abdul Wali Khan University Mardan, Mardan, Pakistan
Purpose This studyaims to estimate and compare the effect of EU andUS GSP schemes on the cotton and
textile sectorsof Pakistan.
Design/methodology/approach The analysis used datafrom 2003 to 2014 for all the 14 categories of
cotton andtextile products at two-digit using HS commodityclassication. Effects of the EU and US GSPs are
estimatedusing a gravity trade model.
Findings Both the concessions are statistically signicant determinants of wadding and nonwoven
special yarn, articles of apparel-knitted, articles of apparel-not-knitted and made-up textiles sectors. In
the rest of the sectors, the results are a mix. Among these, EU GSP is a statistically signicant
determinant of wool and animal hair and manmade laments yarn exports, while the US GSP is
important for the exports of cotton yarn and woven fabrics, manmade staple bers, carpets,
impregnated ber and knitted or crocheted fabrics.
Originality/value The research contributesin two major ways. First, it estimates the effectsof EU and
US GSPs on the textile sectorof Pakistan while controlling for the effect of tariffs. Second,the study tests joint
hypothesesabout the role of EU and US GSPs in the cotton and textile products exports of Pakistan.
Keywords Generalized system of preferences, Cotton and textile products,
Preferential trade agreements
Paper type Research paper
The article is based on the MS dissertation titled The eect of GSP Plus on textile exports of
Pakistan, Department of Economics, Abdul Wali Khan University Mardan, KP Pakistan, 2015.
Received30 September 2018
Revised25 December 2018
4 January2019
8 January2019
Accepted9 January 2019
Journalof International Trade
Lawand Policy
Vol.18 No. 1, 2019
pp. 2-18
© Emerald Publishing Limited
DOI 10.1108/JITLP-09-2018-0040
The current issue and full text archive of this journal is available on Emerald Insight at:
1. Introduction
Since early 1960s, the United NationsConference on Trade and Development (UNCTAD)
aims to promote exports of low-income countries to developed countries via preferential
market access under different preferential schemes such as generalized system of
preferences (GSPs) (Cipollina,2010). As a result, many developed countries have introduced
preferential schemesfor developing countries. For example, European Union (EU) and Japan
introduced tariff preferencesfor developing countries in 1971. Australia offered GSPin 1974
consisting of non-reciprocal preferential agreement for specic manufactured and semi-
manufactured goods that import from 56 least developing countries. However, the trade
preference programs offered by US and EU are the most comprehensive programs. The
USA eliminates duties on imports of about 5,000 products from 122 developing countries
and territories. These preferences are important because about 40 per cent of the values of
exports of developingcountries are shipped to US and EU annually (Nilsson, 2005). Pakistan
was the 62nd largest goods trading partner,with USA having US$1.6bn worth of exports in
2013. Similarly, Pakistanexported e3,900m worth of exports to EU in 2013. Cotton, yarn and
fabric are the top exporting sectors witha value of US$1.9bn to USA and US$9.5bn to EU in
2013 (EC, 2014; USTR, 2013). Cotton and textile exports account for more than one-half of
Pakistans exports, contribute 8.5 per cent to the countrys income and provide 40 per cent
jobs in manufacturing sector (GOP, 2014). Therefore, the US and EU trade concessions
directly affect the livelihoods and incomes of a large portion of the population of Pakistan.
These concessions become moreimportant for a country like Pakistan which is severely hit
by terrorism and extremism. However, verylittle is known about the effects of these policy
concessions on the exportsof cotton and textile sectors of Pakistan.
The EU introduced its rstGSP scheme in 1971, and it offered lower tariffs or completely
duty-free access for imports from 178 developing countries and territories into the EU
market. Among the all special benetshave been granted to the 49 least developed countries
and those who instigate certain labor or environmental standards. The facility of GSP is
granted to the countries on the condition that they are unilaterallyextendable. As it granted
preferential accessover WTO and most favored nation (MFN) rates, it has been predictedby
development economists that it would provide developing countries/economies with the
competitive advantage to grow their export markets throughdiversication. GSP has been
modied on several occasions. GSP is extended in three arrangements, including standard
GSP, Everything but Arms (EBA) and GSP-Plus. For non-sensitiveitems, the standard
GSP offers duty-free access,while for sensitiveitems, it offers preferential tariffs. As far as
EBA is concerned, it permits all products excluding arms for duty-free access without any
quantity restriction to EU markets.All the possible safeguard measures must be ensured in
all three arrangements. GSP-Plus arrangement is offered to trade vulnerable countries,
and excluding sensitivecategories,it extends tariff benets to all eligible items. Moreover,
all the sensitive items, e.g. textiles, agricultural and sheries products, are subject to
quantity restrictions. Moreover, these countriestop ve exported items constitute more
than 75 per cent of their exports to EU. Hence, it needs to see that whether Pakistans
exports of textile product benet or fall to quantitative restrictions. The scheme offered
supports the developingcountries in need.
Since 1971, the EU has made several revisions to scheme products such as product
coverage, quotas, ceilings, tariff cuts and administration, including changes in list of
beneciaries (Aiello and Demaria, 2009). However, no considerable changes were made
in the operating rules of EUs GSP from 1981 to 1995 (i.e. second phase). The third
10-year phase of EUs GSP scheme was introduced in 1995, and it offered benets in ve
Cotton and

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