With the commencement of much talked about WTO
regime, it is necessary to have a quick overview of the key principles
and with their implications for Pakistan's textile sector. Pakistan's
textile sector currently faces some stiff challenges. The country is
entangled with European Union to antidumping duty on bed-wear,
resistance to Pakistan's entry to the GSP Plus scheme and tough
competition from countries like India and Bangladesh. Despite all this,
analysts are optimistic of the performance of Pakistan's textile sector
in post textile quota regime. Availability of good quality cotton, cheap
and efficient manpower and recent investment by the sector in BMR, are
key competitive advantages. Companies that have engaged in forward
integration, are export focused and have invested in technology should
be the ones to reap the real rewards. The major textile units (both in
the composite and spinning sectors) are expected to perform well and
show robust growth over the years.
It must be remembers that in the post textile quota
regime the developed countries will try to restrict inflow of low cost
products from the developing countries. While the quantitative
restrictions may not be there, the new threats would be compliance to
social and environmental issue.
The Asian Development Bank has identified five key
Pakistani industries where, potentially, increasing pressure for
implementation of social and environmental standards by the foreign
buyers could have adverse impact on export business. These are textiles,
leather, sports goods, surgical instruments and carpets, which have been
identified after detailed consultation with the stakeholders and review
of the available literature by an ADB team that prepared a report on
"Social and Environmental Issues" in September 2004.
While textile and leather industries are amongst
Pakistan's most polluting industries, the ADB study observed that cloth
production in textiles and leather tanning are extremely polluting. The
ADB also proposed to enforce an environmental regulation as these
industries are major source of industrial waste water that is polluting
rivers and lakes. Only a small fraction of total industrial waste water
is treated, which is adversely impacting the human health and
environment. It refers to Pakistan Human Rights Commission report in
1998 which quantified loss to Pakistan economy by the environmental
degradation at $1.65 billion. This loss is in addition to the impact of
environmental degradation on health and lives.
Cloth production, the ADB study points out require
the use of a large number of detergents, dyes, acids, sodas, salts and
enzymes which lead to a large amount of wastewater. In leather tanning,
a large amount of chemicals such as sodium chloride, ammonium sulphate,
pigments and dyes are used. If not treated, waste-water from both cloth
manufacturing and leather tanning has serious consequences for
environment and human health.
Textile exports from Pakistan were around $8 billion
in fiscal year. Cotton fabric was the single largest component of
textile that earned $1.71 billion or 16.7 per cent of the total textiles
export earnings. Textiles constitute 46 per cent of Pakistan's total
manufacturing activities employing 38 per cent of the total industrial
labour and its value addition contributes 9 per cent to the GDP. Textile
exports share in Pakistan's total export has risen from 76.2% in 2001 to
76.7% in 2002, to 77.3% in 2003 and finally to 78.9% in 2004.
Carpets, surgical instruments and sport goods have
been subjected to severe scrutiny because of involvement of child labour
for last several years and their share in Pakistan's total export has
gradually been falling. The share of carpet exports have come down from
16% in 2001 to 10.2% in 2004. That of sports goods has come down from
15% in 2001 to 14.4% in 2004 and surgical goods from 6.9% to 5.7%.
The ADB study has also identified the markets, which
absorb Pakistani products. It found that EU absorbs 27.5% of Pakistan's
exports, US 23.5% and other developed countries like Canada, Japan,
Turkey, Korea and Australia import 9% of goods. It means that 60% of
Pakistan's exports are marketed in 21 countries. Equally important are
Asian markets Hong Kong, China, and Middle Eastern countries UAE and
Saudi Arabia. Although, buyers in these countries may demand compliance
with some environmental and social standards, they will, on the whole,
may be less exacting that those to be met in the OECD markets.
Hosiery manufacturers are still apprehending that
Pakistan's knitwear exports worth millions of dollars are at stake. They
say despite having discussed their problems with the Federal Commerce
Minister Humayun Akhtar, nothing has been done to get ride of them. The
hosiery manufacturers bluntly attribute the present crisis to the 'inapt
handling' of the quota issue by Ministry of Commerce and the sluggish
attitude of Export Promotion Bureau (EPB).
According to industry sources, buyers were canceling
export orders of knitted shirts (Cat-338) from the US because Pakistan
was unable to meet delivery schedules due to textile quota problems.
They said even air shipments, despite pledges made by the EPB, were not
certain to board in time as no firm information was available to the
exporters who thus find themselves totally helpless and stranded. They
also alleged that the EPB opted to confront with the private sector
instead of redressing the grievances of the foreign exchange earners for
In November 2004, the office-bearers of the Pakistan
Hosiery Manufacturers Association (PHMA), North Zone, had held a meeting
in this context with Humayun Akhtar and Vice Chairman EPB, whereby it
was noticed that 1.6 million dozens of Cat-338 quota was on books of
exporters, against which only 700,000 dozens could be exported as per
the record with the US Customs Authorities. Before this, the PHMA
members were heard raising a hue and cry over the discrepancy in EPB
record books and that of the US Customs Authorities.
According to a former PHMA chairman, the November
meeting between all the stakeholders and the officials had noted that
500,000 dozens quota was wrongly auctioned in 2003 by the Ministry,
although Pakistan never had an entitlement to this tune. He viewed that
instead of getting the scattered things arranged in a professional way,
EPB's steps aggravated the problems further.
The polyester staple fibre (PSF) industry has been
making a substantial contribution in boosting textile exports from
Pakistan. However, the industry is likely to remain under pressure due
to demand and supply gap. The industry margins are also under pressure
due to rising PTA and MEG prices in the international market. Primary
margins of the industry are dependent on international prices of PTA and
MEG. Their prices are continuously on the rise, owing to soaring
international oil prices and mammoth demand emanating from China.
The PSF producers have reduced per kg prices from Rs
95/per kg to Rs 90/per kg (exclusive of GST) for the month of January,
which would be a further blow to the industry, as it is already reeling
from depressed primary margins. The vague estimates of a bumper cotton
crop of 14-15 million bales are pouring in, as textile mill owners are
increasing their consumption of cotton lint at reasonably low prices,
thus surrogating PSF because of its ever high prices, which peaked at
Rs95/per kg in December 2004.
The prices of cotton on the other hand are as low as
Rs1, 800 to Rs1,900/maund. The PSF sales remained depressed in the last
quarter, owing to a sudden decline of bed linen exports in that period.
The recent sharp decline of exports in bed-linen categories has also
been attributed to the US embargo on account of over performance and
high anti-dumping barrier of 13.1 per cent in European Union.
Nevertheless, the PSF producers may get some respite from February
onwards, as most of the textile players are in the process of
de-stocking their PSF inventories and may start fresh buying from the
said month. Moreover, international prices of MEG have started
Despite looming squeezed margins, producers are
increasing the installed capacities from the present base of 609,000
tons per annum to nearly 862,000 tons per annum. The new capacity is
expected to come online in 2008. The consumption of PSF is increasing in
the country with an annual growth of 8 to 9 percent, which is expected
to surpass local supply due to rapid expansion in textile spinning
capacity (around 1 million spindles are expected to come online during
Ibrahim Fibres is doubling their installed base to
438,000 tons by 2007, whereas ICI is also contemplating to enhance its
base up to 125,000 tons. The current biggest player, Dewan Salman, may
also undertake debottlenecking in its existing base of 240,000 tons to
meet the local and export demand.
It is no secret that maintaining cordial diplomatic
relation plays a very vital role in boosting bilateral trade. The US and
the European Union are Pakistan's major buyers of textiles and clothing.
The US was reluctant to grant additional market access to Pakistan,
despite terming the country it major partner in the war against
terrorism. The EU enhanced quota but also imposed anti-dumping duties.
A business advocacy and awareness programme was
jointly organised by Young Entrepreneurs Organization, Fakhar Law
International and Market Access Promotion in Lahore, recently. The
participants debated on business advocacy on trade issues and the need
to change the industry mindset towards management and marketing. Though,
the initiative has come very late, it is never too late to mend.
The post textile quota regime offers enormous
opportunities but also poses some serious threats. However, keeping in
view the investment being made in the sector and changing mindset, the
threat is not as serious as being perceived by those who have thrived
only due to protective regime of the Government of Pakistan. Get ready
to face the challenge with courage by exploiting the strengths and
overcoming the weaknesses.
A snapshot of key WTO principles is as under:
•Most Favored Nation (MFN): The Most-Favored Nation
(MFN) obligation prevents WTO members from discriminating between
foreign goods or treating products from one WTO member country different
than those from another country. However, a major exception to this rule
is regional preferential arrangements.
•National Treatment: According to this principle,
imported and locally produced goods should be treated equally after the
foreign good has entered the domestic market.
•Tariff Protection and Binding: Member countries
are required to reduce existing tariffs and bind the reduced tariffs
against further increases. Complete ban or quantitative restrictions
(quotas) are prohibited. An important exception permits countries that
face serious balance of payment crises to restrict imports in order to
safeguard their financial position.