Opportunities and Threats for Pakistan ’ s Trade in Textiles and Clothing with European Union ( EU 27 )

The study is aimed at the investigation of trade implications for Pakistan in the milieu of European Union enlargement from EU15 onward. By doing so, it intends to trace out the place of Pakistan in the EU market in comparison to its competitors; EU’s major trading partners. The examination lends support to the view that though the EU’s external trade regime is complex, regionalized, discriminatory in nature, and complicated in operation, in practice, it has not retarded trade flows between its most favourable and less favourable trading partners. The study concludes that the pattern of trade preferences EU grants does not necessarily guarantee success in the export performance of the recipients. Verily, various other demand and supply side factors have played an important role in this regard. The empirical evidences, i.e., that the less favourable ones including Pakistan have shown high up export performance as opposed to favourable ones.are supporting this view. This carries both immense potential opportunities and serious threats for Pakistan in the years to come to cope with. The study suggested that augmented competitiveness of firms seems to be the key to success. It is truism that it is firms, not the countries that compete in the changing EU and international trading environment. This calls for the adoption of a properly designed strategy by the government and firms with a clear vision, hope, motivation and passion. So, government is to provide friendly investment/production and exporting air daring firms to compete on the internal and external porticos. And firms to create access, absorb, and adapt new technologies augmenting their competitiveness.


INTRODUCTION
The aim of this research is summed up in its title.It intends to look into the trade implications for Pakistan posed by EU enlargements.The progressive integration has been one of the most important characteristic aspects of worldwide economic development in the last few decades.While in Europe, it has found expression notably in the name of European Union (EU).Verily, the formation and enlargement of EU has had a direct and profound influence on the economies of members and non-members as well.
Since its inception 1957, the EU has progressed successfully towards the two most important notions of economic integration, i.e., deepening and widening.The EU has shown a remarkable dynamism in both these areas.It has been successful to integrate its goods, service, capital and factors markets by creating a single market and by establishing and integrating union's institutions.Integration is further enhanced by the complex interplay of economic and political actors with the creation of economic union.The Single Act (1987) codified the objectives of the completion of the single market, protection of the environment and improvement of social and economic cohesion.The Maastricht Treaty (1992) provided bases notably for an economic and monetary union and formalized the colloquial name 'European Community' and created 'European Union'.Moreover, the Treaty of Amsterdam (1997) extended the integration process into a number of non-economic fields like, foreign and security policy and justice and home affairs.At present, the number of its members has gradually been increased from six to twenty seven.This seems to be the result of the success of EU in the realization of its objectives.
The EU has come a long way since the original six members created European Economic Community (EEC) with the signing of the Treaty of Rome in 1957.The six original members were Germany, France, Italy and the Benelux states.Six became nine in 1973 when UK, Denmark and Ireland became member of the EU.In 1981, Greece was admitted, followed by Spain and Portugal in 1986.Sweden, Finland and Austria joined the EU in early 1990s (Archer, 1992).In May 2004, the number of the EU member states was increased up to 25.The new 10 members were Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia and in 2007 two new members joined EU named Bulgaria and Romania (Eurostat 2012).
The EU, operating as a single market, is not only the biggest trading bloc of the world; it is by far the largest trading partner of Pakistan accounting for around one third of the country's total trade.This makes it, as a bloc, the most prominent trading partner of the country.The widening aspects of EU have raised doubts about the future of Pakistan's trade with the enlarged market of EU.Hence, this study is devoted to the exploration of trade implications confronted by Pakistan due to the enlargement.In theory, the EU enlargement is likely to have strengthened trade within the EU and weakened it with other non-member countries.As per the prediction of economic integration theory, to the extent that their exports compete with those of new members, they will find themselves at a different disadvantage position in selling their exportable items to the EU market.How has this enlargement affected Pakistan's export flows to the enlarged EU market?Has the enlargement resulted in any trade diversion of EU's imports from Pakistan-a traditional source of supply-in favour of the new EU members?What are the possible long term dynamic trade implications of enlargement for Pakistan's exports to the EU market?The study intends to explore those implications and meditates to provide empirical evidences.
A large quantities of textiles (household and furnishing), and a huge variety, of textiles are used in an interior environment (homes, offices, hotels, etc.).In most publications, a distinction has been made between household and home or interior textiles.The term home textiles is much broader, and besides household and furnishing textiles, also includes floor-covering textiles, filling materials used in duvets, quilts, pillows, sleeping bags and mattresses.These products are excluded from this study.While, the following classification is used in this research: Household textile products includes blankets and travelling rugs, bed linen, pillowcases and quilt covers, bath linen, table linen, and kitchen linen.
Furnishing textiles includes articles, which are used for window coverings, bedspreads, other furnishing textiles, like decorative pillowcases, throw rugs, etc.

EU'S EXTERNAL TRADE REGIME AND PAKISTAN
The EU is Pakistan's single largest trading partner.For example, in 2010, the EU accounted for 15.8 % of Pakistan's total trade (the China accounted for 15.4 %).Pakistan is a major supplier of cotton, textiles, garments and leather products accounting for more than 75% of Pakistan's total exports to the EU market.Pakistan is among the top five largest suppliers of textiles and top ten of clothing to the EU.Pakistan is a major beneficiary of the EU's GSP (Generalized System of Preferences) scheme covering more than 70% of the country's total exports (European Commission Trade 2011).
The inclusion of the United Kingdom into the orbit of EEC (European Economic Community) in 1973 opened up new avenues for Pakistan's increased trade and economic relations with the EU (Vamvakindis, 1998).The examination of EU's trade regime points out that today it covers two closely associated and complementary aspects (Srinivasan, 1997):

•
The continuation and extension of trade regime with the developing countries in a regional context, i.e., the Lome Convention and association agreements with the countries of Mediterranean (or associated countries) and the Mashreq (Egypt, Lebanon, Jordan and Syria) and Maghreb (Morocco, Algeria and Tunisia).

•
The implementation of an overall policy at world level, including such instruments as GSP scheme, provision of financial and technical assistance, food aid, etc.
If one tries to find out the place of Pakistan in the EU's trade policy regime on a world scale, the following two remarks are of paramount importance (Naeem, 2006): (i) Pakistan is not included in the EU's regionalistic approach i.e., Lome Convention or the policy towards the Mediterranean, Mashreq and Maghreb countries.(ii) Pakistan appears to be at the forefront of the EU's interest within its global approach, i.e., the GSP scheme.
Since its inception 1971, Pakistan has been a major beneficiary of the EU's GSP.In this regard, we can conclude that all the instruments of EU's trade policy within the provision of GSP have been intensively applied in its trade relations with Pakistan.
The GSP allows manufactured products and some agricultural products exported by developing countries including Pakistan's access to the EU market with total or partial exemption from customs duties.It is thus an instrument of both the EU's trade policy and development policy.The purpose of the GSP is to help developing countries to reduce poverty by using tariff preferences to help them obtain from international trade through increased exports.
A Commercial Cooperation Agreement between Pakistan and the EU (then EEC) was concluded in June 1976 (see OJL No.168 of 28.06.1976).The agreement provided the legal basis for the evolution of Pakistan's trade and economic relations with the EU.However, economic cooperation agreement was limited to trade.To sum up, since 1971, Pakistan has been a major beneficiary of the EU's GSP scheme and all development cooperation instruments have been applied in case of Pakistan in the areas of mutual interest However, it is evident from the examination of EU's trade regime that Pakistan being at the bottom of EU's hierarchy of trade preferences, in principle, seems to be in a less favourable position in the enlarged EU27 market as compared to the ACP (African, Caribbean and Pacific) and Mediterranean countries.

PRODUCTION OF TEXTILES IN THE EU
The EU textile (including man-made fibres) and clothing industry employing more than 25 million people, represents an industrial sector of which household and furnishing textiles accounted for less than 10 percent.The share of textiles can be estimated at more than € 15 billion (Eurostat, 2012).
The EU textile industry was once a mainstay of the economy with a reputation for quality workmanship and innovative design.The level of imports of textiles has always been high; such is the competitive nature of the industry that more and more retailers are sourcing cheaper products overseas.Table 6.1 and 6.2 shows the structure of textiles and clothing industry in EU 27 .It indicates the relative importance of textile items in total production.The relative importance corresponds the changing in growth rates leading to changes in their market shares, 3.1%, and 2.7% respectively.Overall decline was on the average 2% over the years.

PAKISTAN'S EXPORT PERFORMANCE
In this section, we will examine, Pakistan's export performance in the per EU member country, the major export markets for Pakistan's textile exports.The trade data points out that among the EU27 member countries the UK, Germany, Italy, France, Spain, the Netherlands, and Belgium are of more prominent export markets for Pakistan.They together account for more than 90% of Pakistan's total textile exports to the EU27 market.Major trends of Pakistan's textile exports in relation to its competitors in the major EU trading partner countries, like UK, Germany, Italy, France, Spain, the Netherlands, and Belgium.

EU 27 : IMPORTS OF TEXTILES AND CLOTHING AND PAKISTAN
The EU27 imported textiles amounting to € 92.007 million in 2011.This indicates that the import of textiles by EU27 member countries is increasing daily.Table 3 shows both imports and exports of textiles and clothing by EU 27 for the most recent year for which the data in € is available.The data shows that, there exists great divergence between the import pattern of EU 27 member countries based upon their demand and consumption patterns.The factors, like population size, and its structure, developments in the housing market; socio-economic developments (level of GDP, per capita income level, level of disposable income, level of expenditure on household and furnishing textiles, etc.); prices of textiles goods relative to other products competing for consumer expenditure; consumer preferences for individual fibres, quality and brand names; climate, media and fashion influences on textiles; interior trends and other influences, etc., play an important role in shaping the demand, consumption and finally the imports pattern in a country.The effect of these factors is evident from the examination of data presented in above-mentioned table.
Similarly, Table 4 and 5 point out that the relative importance of member country in the total imports of textiles by the EU 27 .Accordingly, above tables enlists the major trading partners of EU 27 overall for the years 2007 to 2011.They together accounts for around 80 % of EU total imports of textiles and clothing.Among the major trading partners in textiles, the first four positions are occupied by the four developing countries.Out of four major suppliers, 3 major exporters are Asian developing countries and one from the Mediterranean.They are China, India, Pakistan and Turkey respectively.
The significance and strength of each supplier according to their comparative advantage based on their factor endowments is also evident from the above-mentioned table.The analysis of data tells us about the major competitors of Pakistan in supplying the textile items in the market of EU.It shows that China, Turkey and India are the major competitors of Pakistan.However, their strength in supplying the textile items varies from commodity to commodity.China played a more leading role in the imports of EU 27 .

SUMMARY AND CONCLUSION
Since its inception in 1957, the EU has progressed successfully towards the two most important notions of economic integration i.e., deepening and widening.Deepening process reflects the EU's commitment moving towards the greater economic and monetary integration and, in future, political union.In contrast, widening/enlarging process leads the expansion of EU by increasing the number of its members.This study was dedicated to examine the trade implications for Pakistan in the EU27 market in the context of EU's enlargement.
Examined in this context, the major findings of the study and a statement of conclusions can be summarized as follows: a) The study examined the EU's external trade regime.The examination lends support to the view that the EU external trade regime is complex, regionalised, and discriminatory in nature and complicated in operation.The very complexity of EU trade regime governing trade relations with developing countries is incredibly evident from the complex network of discriminatory tariff through GSP and country-specific or region-specific trade preferences.b) The export performance of Pakistan in the EU market showed an encouraging trend.In comparison, Pakistan export performance (measured in terms of growth and market share) has been far better in contrast to many GSP, the ACP and Mediterranean countries.The examination of data failed to show any visible negative impact of EU's external trade regime for Pakistan's textiles exports to the market of EU.The increase import demands of EU member countries are creating opportunity for Pakistan.c) The study highlighted two very important features of Pakistan's exports with the EU i.e., high concentration of exports both commodity and country-wise and projected to face a fierce competition in the enlarged market of EU in the years to come.The study also pointed out that the EU enlargement carries both immense opportunities and serious potential threats for Pakistan.Keeping this in view, the study intended to elaborate how far Pakistan can survive and compete within the coming tougher international competition environment with reference to the EU enlargement.The study pointed out that it is the firm/enterprise that would compete not the country in the changing trading environment of EU after the enlargement.To survive and compete internationally, augmented competitiveness of Pakistan's textiles industry as opposed to its competitors is pre-requisite.Otherwise, in the stiffer competition environment to come, no industrial firm/enterprise will grow; even survive, without being internationally competitive.To this end, firms/enterprises are required to use new technologies, upgrade the existing one and improve their organizational methods at best practice and link up with the changing economic/trading global and EU environment.

RECOMMENDATIONS: FACING THE FUTURE CHALLENGES
Any attempt to improve competitiveness in view of increased competition owing to EU enlargement will have to start from one basic acknowledgement: it is the firms themselves that have the key to success in their hands.Only if they adopt the right strategies, based on a clear vision of what and how they are producing?For whom they are producing and in which target market they intend to export and why, do they have a chance of succeeding?Therefore, those firms/enterprises wishing to be proactive require a supportive environment daring firms to compete within tougher competition environments to come.Public authorities have an important role to play in restoring hope through creating and monitoring a conductive-safe and healthy-business environment where Pakistani firms can effectively compete domestically and then in the EU market.The changing EU environment, therefore, needs to be both closely monitored and actively shaped.This is all the more necessary as the industrial textile process that will remain subject to long term investment cycles and sensitive to a coherent, stable and predictable regulatory framework.The provision of these rests with the government in the initiation of friendly policy measures aimed at improving the competitiveness of firms.Viewed in this context, the suggested recommendations are summarized briefly as follows: First, rapid technical change pervades all activities, rendering older technologies obsolete even in low wage countries.To remain viable, augmented competitiveness is vital.This is only possible with the use of new technologies.New 'technology' includes not just products and processes but also efficient organization of firms, improving the supply chains, better human resource management, better and continued technology links, and so on.Second, locations able to plug into dynamic value chains have seen large, sustained increase in production, exports and employment.Organizational structure and location of production are changing in response to technical change.In this regard, the role of Multi-National Corporations (MNCs) is becoming more and more prominent.Technical progress in transport and communication is allowing MNCs to locate and manage activities in far-flung parts of the globe.
Third, high cost and poorly functioning infrastructure can clearly impede the operation of firms/enterprises which may be efficient in terms of mastery of their own production processes.
Finally, technical progress in information, processing, communication and in organizational methods of firms/enterprises leads to shrink economic distance among countries.This means that international competition now appears quickly and intensely, pointing out that there are many new market opportunities also.With some exceptions, global markets are more open today than before and exporters can reach these new markets more quickly, cheaply and efficiently.To meet these challenges with success, increased competitiveness for Pakistani firms is toxic otherwise opposite results would appear.This requires immediate measures to be undertaken both at the government and firm levels.

BIBLIOGRAPHY
Figure 1: Pakistan's Major Markets in the EU In 1986, a new Commercial Cooperation and Economic Development agreement was signed 1 .This agreement was broader in scope and deep in quality.It defined areas of mutual interest other than trade as well.It provided provision of extended economic and development cooperation, industrial cooperation, transfer of technology, scientific and technological cooperation, and to provide financial support for Pakistan's development program (OJL, 108 of 25.04.86).In November 24, 2001, Pakistan and EU signed a '3rd Generation Agreement'.Again, this is a nonpreferential agreement and has no financial protocol.This agreement is broader in scope than previous one and covers areas like, trade and commercial cooperation, environment cooperation, industry and services cooperation, sectoral cooperation, science and technology cooperation, development and economic cooperation etc (Molle, 2001).

Table 2 : EU-27 Apparel Structural Data
Italy is the largest manufacturer of textiles and clothing in EU27 accounted for 26.8 % for the sector as a whole.Germany is second largest manufacturer and United Kingdom stands at third with 15.4 % and 10.2% respectively(Eurostat, 2011).Bulgaria, Lithuania, Romania and Italy are most specialist states in spinning of textile fibres.For weaving and spinning, Italy and Portugal are considered as top specialist while in case of manufacturing of other textiles Estonia, Slovenia, Portugal and Lithuania are on top(Eurostat, 2011).