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

• Date: 18 March 2019
• Published date: 18 March 2019
• DOI: https://doi.org/10.1108/JITLP-09-2018-0040
• Pages: 2-18
• Author: Rabia Majeed,Zahoor Ul Haq,Muhammad Ishaq,Javed Iqbal,Zia Ullah
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

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

Abstract

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 commodityclassification. Effects of the EU and US GSPs are

estimatedusing a gravity trade model.

Findings –Both the concessions are statistically significant 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 significant

determinant of wool and animal hair and manmade filaments yarn exports, while the US GSP is

important for the exports of cotton yarn and woven fabrics, manmade staple fibers, carpets,

impregnated fiber 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 effect of GSP Plus on textile exports of

Pakistan”, Department of Economics, Abdul Wali Khan University Mardan, KP Pakistan, 2015.

JITLP

18,1

2

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

1477-0024

DOI 10.1108/JITLP-09-2018-0040

The current issue and full text archive of this journal is available on Emerald Insight at:

www.emeraldinsight.com/1477-0024.htm

1. Introduction

Since early 1960s, the United Nations’Conference 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 specific 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

Pakistan’s exports, contribute 8.5 per cent to the country’s 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 firstGSP 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 benefitshave 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 throughdiversification. GSP has been

modified on several occasions. GSP is extended in three arrangements, including standard

GSP, Everything but Arms (EBA) and GSP-Plus. For “non-sensitive”items, the standard

GSP offers duty-free access,while for “sensitive”items, 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 “sensitive”categories,it extends tariff benefits to all eligible items. Moreover,

all the sensitive items, e.g. textiles, agricultural and fisheries products, are subject to

quantity restrictions. Moreover, these countries’top five exported items constitute more

than 75 per cent of their exports to EU. Hence, it needs to see that whether Pakistan’s

exports of textile product benefit 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

beneficiaries (Aiello and Demaria, 2009). However, no considerable changes were made

in the operating rules of EU’s GSP from 1981 to 1995 (i.e. second phase). The third

10-year phase of EU’s GSP scheme was introduced in 1995, and it offered benefits in five

categories:

Cotton and

textiles

products

exports

3