Monday, 12 February 2018

Walking the walk


I have just noticed this article on the Politico website discussing the potential of Brexit to undermine Pakistan's integration in the European Union's GSP+ scheme. It notes:

"Britain prides itself on having won this sweetheart deal for its former colony, a country of 210 million people, where many families have relatives living in the U.K. British members of the European Parliament, who played a key role in lobbying for Pakistan’s GSP+ status, reckon that Pakistan would be increasingly isolated after Brexit. They said that they had to overcome resistance from EU heavyweights back in 2014, and warned that antipathy could well return when GSP+ comes up for renewal in January 2020.
The loss of GSP+ would be a big blow to Islamabad. Almost three-quarters of all European imports from the GSP+ program come from Pakistan. Some 82 percent of these purchases are textiles and clothing. Pakistan’s exports to the EU increased by 38 percent over the three years since it signed on in 2014, rising to €6.2 billion in 2016 (EU exports were valued at €5.3 billion). The bump in exports turned the EU into Pakistan’s largest trade partner."

Alas, I have caught the piece a few days late but nevertheless there are interesting points to be made about it. Firstly, for the sake of clarity, a Generalised Scheme of Preferences (GSP) is a program designed to offer developing countries preferential market access when trading with major economies. This preferential market access comes in the form of reduced or zero tariffs and focuses on encouraging economic growth and promoting liberalised conditions for trade. Eleven such schemes exist at the WTO, this is not a unique EU policy model.

Secondly it is important to note that the EU's GSP program is separate from GSP+. GSP+ countries enjoy more incentives to join but must comply with stricter joining requirements. Unlike with GSP countries, GSP+ countries are not subject to what is called 'graduation'. This occurs when the average imports of a product group from a country exceed 17.5% of GSP imports of the same products from all GSP countries during three years. The figure is 14.5% for textiles. The product type from one GSP country, therefore, 'graduates' by becoming competitive and does not need GSP preference.

The GSP+ scheme also demands that participating countries ratify 27 core international conventions relating to strengthening labour rights and environmental protection, and aim to encourage effective governmental implementation of these provisions. In order to qualify for the scheme, a candidate country must be "a vulnerable developing country with a non-diversified economy and low level of imports into the EU." The third criteria here is what ensures that what is essentially a violation of the Customs Union is acceptable. In other words, we don't buy a lot from them, so we'll let them off.

On Brexit, Pakistan will lose a key ally in the EU and there is no way to sugarcoat this. There is no way of knowing whether terms will be rearranged given the pressure from other EU member states not to afford Pakistan GSP+ status. A relegation to GSP is unlikely but possible, and in such a case would threaten the GSP preference eligibility of Pakistani textiles under the graduation system. Pakistani diplomats will need to convince the EU to allow for the preservation of their current terms. For this, human rights concerns will need to be addressed in order to instill confidence in Brussels.

Upon leaving the EU the UK has the chance to furnish its own Generalised Scheme of Preferences. If we are going to turn all the talk of championing free trade into something resembling policy, it might be wise to start here. Fiddling about with the CET, if indeed we have that freedom, will be arduous and in some sectors (see agriculture) not worth our time. We will be a young and inexperienced customs entity so biting off things we can chew will be necessary. A new UK GSP can be organised unilaterally and relatively easily, with templates aplenty to use as guides.

I do not see this as a hurdle. The UK is a major economy and certainly has a duty to help LDCs in any way that it can. The west has produced a number of instruments, like the Everything But Arms Agreement, which seek to open markets to the poorest people on the planet. Perhaps the focus on tariffs has at times been a little too much but at least good intentions are there. We also need to concentrate on diverting aid budgets and resources to enabling LDCs to knock down regulatory barriers to trade with developed countries. This ought to be an important priority too.

A GSP is a start and provides the UK with the ability to put its money where its mouth is. So far the most genuinely refreshing aspect to Brexit has been Gove's new wildflower proposals post-CAP. We need to compliment this with a commitment to aiding the world's poorest. Leaving the Customs Union does not magically produce free trade (whatever that is). We need to work to enhance free trade and familiarising ourselves with mechanisms designed to facilitate this seems to me a wise place to begin. 

2 comments:

  1. You worked for Vote Leave but support an EFTA Brexit. You must feel betrayed now that your own side says that there was never any talk of staying in the customs union or single market, despite the fact that the Norway option was mentioned many times by leading Brexiteers. Were Vote Leave blatently lying to get the votes of EFTA supporters?

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    1. We were just trying to simplify debate and talk about the many alternatives that exist in Europe to EU membership. We weren't trying to con EFTA supporters (of which I was not at this point).

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