TEXTILE INDUSTRY FACING NEW CHALLENGES

Authorities step up efforts to meet GSP regime

By Ashraf Khan
May 09 - 15, 2005

The pinching affects of post quota regime have started to take over the Pakistani textile industry, which lagged preparations for the abolition of quotas. These negative affects were bound to creep in as most of the industry which remained oblivious or did not pay much heed to what was inevitable. Still, the trends to shift over to value-addition are not desirably paced, many believe.

This could be substantiated with the statistical facts that show the share of low value-added goods declined by mere 15 percent in past eight years whereas the value-addition depicted the rise at the same rate.

In the first eight months of the current fiscal shows a fall in exports which include cotton cloth (Rs9,339 million), bedwear (Rs7,841 million), readymade garments (Rs6,104 million), knitwear (Rs5,654 million), cotton yarn (Rs5,606 million), made up articles (including other textile Rs2,550 million), and towels (Rs 2,541 million). Knitwear and garments have shown declines of 15 and 10 percent whereas cotton cloth has decline by 3 percent in the month of February 2005.

The falling trend in exports have alarmed the authorities in Islamabad who already planned reduction in some duties on textile exports as a rescue measure. It has already reduced six percent duty drawback, though, the government has estimated Rs8 billion shortfall in revenue collection on account of 6 percent exemption in compensatory duty to textile garment sector from next fiscal year.

A government committee headed by the Deputy Chairman of Planning Commission had recommended that support to the textile garment industry was necessary in view of new challenges in the backdrop of elimination of quotas and integration of textile in GAAT from January last. The committee had recommended 6 percent additional compensatory rebate for this sector to bear the shocks of post-quota regime, which may come into effect in the budget.

The issues like exemption to textile garment exporting units from all cess for EOBI, social security, welfare fund, relaxation on working hours for women, declaration of selected factories as training institutions and certification of this manpower by federal/ provincial authorities also being discussed.

The committee recommended that a corporate entity be set up, to be managed by private sector and funded by Export Development Fund (EDF), for designing, consultancy, financial restructuring, market training, advice and productivity enhancing expertise to the garment industry. It was also approved that selected garment factories would be declared as training institutions with arrangements whereby a testing and examining authority would be nominated both at the federal and provincial levels to certify the trained manpower of garment industry.

The committee, sources said, did not approve the suggestion of commerce ministry regarding establishment of separate corporate entity for providing designing consultancy, etc, and proposed the task to be entrusted to Smeda

ORIGINATION OF THE PROBLEM

Major setback came from European Union that has hurt the industry most. EU is the biggest buyer of Pakistani textiles and its imports account for 33% of Pakistani textiles and warranting unabated exports to European countries appears to be quite a challenge for the Pakistani authorities as well as the industry. Earlier, Pakistan had not only free access to the EU under the Generalized System of Preferences but the Union extended extra quota in the aftermath of the September 11, 2001. The quotas and free access came to an end in December 2004 with the annulment of GSP regime and dawning of World Trade Organisation (WTO). The Pakistani authorities have been stepped out to make all efforts to acquire room for Pakistani textile under newly designed GSP plus, which would come into force by the next fiscal year.

Bedwear industry, the most advanced and competitive textile segment of the country, is faced with the challenges, which popped up in the shape of EU duties. The industry source said that home textile had been under acute pressure of the duties with some 450 units closure in Karachi alone whereas capacity utilisation has drastically come down to 60 to 65 percent. Home textiles, which account for $1.4 billion in Pakistan's exports, have been hurt in the first seven months of the current fiscal year, falling 18%, to $639 million, though January. The main reason for this was the EU's imposition of a 13.1% anti-dumping duty on Pakistan's bed wear products in March, 2004. The industry believe that in case of fair and competitive atmosphere the exports of bedwear could easily be enhanced to two billion dollars mark as Pakistan-made products make about 30 percent of EU imports. Even if duty issues are resolved, the textile industry still has its work cut out for it as global competition heats up. Investments have to be ramped up further to ensure that Pakistan has sufficient productivity gains to allow it to compete with colossal China. Then, industrialists also have to work harder to ensure better working conditions and environmentally safe plants to keep getting business from overseas. And to speed up the pace of growth, Pakistan will have to reduce its dependence on cotton by increasing the use of synthetics, which currently make up just 20% of inputs (the other 80% is cotton).

Pakistani textile pundits were expecting a jump of 15 to 20 percent in garment exports after the tariff barriers were done away with. But many smaller textile mills, which make up the majority of Pakistan's exports, do not comply with international environment and labour laws and could face a setback after 2006.