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Since the US and the EU economies are under tremendous pressure, not much could be expected.

Oct15 - 21, 2001

While soliciting suopprt of the GoP in the war against terrorism, the US and European Union (EU) hinted towards easing of quota restrictions and lowering of duties on textiles and clothing of Pakistan origin. Pakistani manufacturers have been anxiously waiting the formal announcement. However, it appears that probability of withstanding the promise is diminishing. Many analysts had expressed their apprehensions even when such indications were given.

To some extent apprehensions of these analysts were based on the past experience. However, this time it looks even more difficult for the respective governments to facilitate greater imports of textile products from Pakistan. It may not be true that these governments do not wish to fulfil their commitments. The harsh reality is that with the sudden and substantial drop in consumer spending it may not be considered advisable for these governments to create further competition for the local producers of textiles and clothing.

Analysts say that this is not an opinion but a fact. The outlook for economies of the developed countries has changed sharply. This change is due to: attacks causing devastating blow to the financial sector, overall disruption in economic activities, decline in consumer and business confidence and increase in cost due to security measures. They also say that full repercussions of the September 11 attacks remains unknown. The sectors adversely affected are airlines, insurance and banking. All these will have an spillover effect on manufacturing, retailing and technology sectors.

The September 11 attacks have caused serious jolts to the US economy which has always been consumption oriented. The fear of prolonged war in Afghanistan and potential threat of biochemical attacks on the US has resulted in war syndrome, which they have never experienced in the past. Added to this is increasing rate of unemployment. Though, the attacks on Afghanistan was aimed at restoring the confidence of US citizens, the swift shift in public opinion towards the US government policies, has become a serious threat. This was evident from anti-US demonstrations in many countries.

Despite a number of meetings of the US and EU officials with the GoP representatives from Pakistan, presumably these governments may not be able to ease quota restrictions and/or reduce duties. At the best they can increase quota ceilings. This belief is based on two factors: economies of these countries plunging into further recession and 2) particularly in case of the EU easing of quota restrictions was delayed due to toppling of the democratic government in October 1999. Waiver of these conditions may not be an easy task. Analysts refer to the recent decision of the US government regarding withdrawal of economic sanctions on Pakistan. They strongly believe that these governments face a dilemma. If they had to offer any incentives to Pakistan, they have to also offer similar facilities to India because both the countries export similar products to these countries.

Though, the data about Pakistan's export for the month of September does not indicate any substantial fall in outflow of textiles and clothing, analysts anticipate significant fall in quantum in the remaining three months of year 2001. This apprehension is based on the fact that Pakistani exporters are hardly getting any fresh orders from the two main buyers. The reduction in quantities is expected because of two factors: 1) lower demand in importing countries and 2) fear of delay due to the war in Afghanistan, also affecting working of the factories located in Pakistan.

Yet another factor potentially holding the decision in favour of Pakistan is prospects for bumper cotton crop and its lower prices in the country. These countries apprehend that easing quota restrictions and lowering of duties may open the flood gates for influx of textiles and clothing into these countries. They (importing countries) also anticipate that Pakistani exporters may also slash their prices in an effort to minimize their losses or to break-even.

At the same time analysts warn about two potential fallouts: 1) even if the prices are lowered, US importers may not be keen in placing orders with Pakistani exporters and 2) as a consequence of deeper recession in the US and the EU Pakistan's exports of textiles and clothing to other countries may also go down. The products which may witness substantial decline in quantities exported are 100 per cent cotton yarn and fabrics and poly-cotton products. However, they indicate probability of increase in quantum of tents due to influx of large number of refugees from Afghanistan.

Therefore, these analysts suggest that instead of waiting for any concessions from importing countries, Pakistani exporters should explore new markets, improve quality standards and competitiveness of their products. Cost cutting approach is not the solution.