Aa Brexit continues to be debated by the UK parliament, questions regarding
the future of Pakistan’s trade with the United Kingdom, and opportunities
present in the exit, abound. While some exporters are optimistic or
indifferent, others see dark clouds looming ahead.
Currently, Brexit is in confusion. Little-loved British Prime Minister Theresa
May had gone as far as to offer to step down if her twice rejected Brexit deal
was accepted. However, not only was this option not taken up, the
parliament also failed to agree on any one of at least eight possible ways
forward, which included giving up on Brexit altogether.
As the episode unrolls, it is desirable for Pakistan to keep an eye on
proceedings. At $1.7 billion in 2018, as per the International Trade Centre,
the UK is the third most important destination for Pakistani exports.
Courtesy of the GSP Plus, products of Pakistan’s export interest are entitled to duty free treatment. Given the confusion surrounding Brexit, the impact
on the country’s exports is unclear.
There appear to be mixed emotions amongst exporters regarding
continuation of exports and opportunities present. The bulk of Pakistan’s
exports to the European Union (including the UK) consist of textiles and rice.
While there may be a mild opportunity for an increase in rice exports, textile
exporters remain on the fence.
“Though there is a big market for rice in Europe, we do not expect demand
for Pakistani rice to be directly affected,” said Rice Exporters Association of
Pakistan (REAP) Chairman Safdar Hussain Mehkri.
Part of the rice milling capacity in the UK is used to export to Europe. Right
now it does not face any tariffs but it is likely that post-Brexit, rice going from
the United Kingdom to Europe will face some duties.
Meanwhile, Pakistan’s exports to the EU will continue to be given duty free
access under GSP Plus. Therefore, if the cost of UK rice goes up, Pakistan’s
rice exports may increase marginally to Europe, hoped Mr Mehkri.
On the other hand, the REAP chairman expected that some of the idle milling
capacity in Europe may come into play as well since the UK’s share may
decline. In that case, the market size will remain the same without any
significant impact on rice.
Previously, Pakistan had been able to increase its share of Basmati exports
to the EU as the Union had revised the maximum permissible residue level
of Tricyclazole from 1mg per kg to 0.01 mg per kg.
As Tricyclazole is the cheapest and most widely used fungicide in India, its
Basmati rice was restricted under the revision, allowing the only other
Basmati rice producer, Pakistan, to step in. If the UK lowers its food
standards post-Brexit, then the additional market share could be lost.
However, as yet various ministers have reassured that standards will not be
revised.
The opinions of textile exporters vary. Muhammad Abid Chinoy,
manufacturer and exporter of fabric and home textiles was wary of the new
procedures that may come in place post-Brexit.
“It is going to be a new story with new procedures in place. Previously, if our
exports did not find a market in one country in the EU, we could send them
to the UK and vice a versa. However, with new procedures, conforming will
be an issue. We would have to unpack cartons and change stickers and that
is too long and too arduous a process to be carried out,” he said.
However, Chairman Pakistan Hosiery Manufacturers and Exporters
Association Muhammad Jawed Bilwani did not share Mr Chinoy’s opinion.
While doubting whether Brexit would even take place, Mr Bilwani said that
even if procedures change, our exporters are savvy enough to comply with
new regulations.
“Bangladesh will lose its GSP status the same as Pakistan, while China does
not benefit from GSP, so it is not like Pakistan’s competition will
fundamentally change,” he said. Furthermore, trade with the UK is already
in pound sterling rather than in euros so there will be no currency change
either, he added.
Home textiles exporter Muhammad Ahsan Shah saw little change taking
place post-Brexit. While there is central buying for most countries within the
EU, the UK does not avail itself of the option. So for example, if Pakistan
exports to Carrefour or Makro, orders for their UK outlets are handled
separately from those going to other EU countries, he explained. Therefore,
it is unlikely to disrupt the current export procedures.
The Brexit confusion persists but the UK government has given repeated
assurances that Pakistan will continue to receive the same level of access it
did under the GSP plus scheme. This renders null any need of a free trade
agreement with the UK for preferential access.
While there are some fears that new, unexpected, regulations may create a
learning curve for exporters that could adversely impact the trade balance,
Mr Bilwani asserts that changes will take place gradually.
From the date of Brexit to Dec 31, 2020, the UK and the EU have agreed that
no major changes will take place so that businesses may adjust. This
transition period will allow Pakistani exporters to learn the ropes and adjust
protocols accordingly as well. It could be argued that imposition of tariffs by the EU on the Kingdom, if that
is the road that is chosen, could provide an opportunity for Pakistan’s
exports. However, other than a faint silver lining for rice, Pakistan and the
UK’s export profiles are diametrically different so there appears to be little
chance of exports receiving a windfall in the form of Brexit.
Source: The Dawn, Pakistan Monday, 01 April 2019