Aug 27 - Sep 02, 2007

In order to save the struggling textile industry, the government is taking some much delayed measures. An upcoming Textile Industry Development Policy 2007 is expected to contain attractive incentives for foreign investors such as a 10 year tax holiday in textile machine manufacturing and in establishment of bonded cotton warehouses.

The cabinet has also approved "Technology-based Industrial Vision and Strategy for socio-economic development," which calls for technology upgradation, human resource development, and establishment of a fully integrated chemical industry in the country to lessen dependence on foreign imports among other things. The textile export target for 2007 has been set at $12 billion and the Export Plan 2006-13 seeks to increase textile and garment sector's exports to $24.36 billion by 2013.

The textile industry in Pakistan has been facing a lot of difficulties in the past few years due to competition from China, India and also newcomers such as Bangladesh, Vietnam, Thailand and Malaysia. US home textile imports in the first half of 2007 reported an increase in the share of Chinese imports from 26% to 34%, while share of Pakistan's imports in the US market fell from 41% to 36% according to the preliminary data released by the US Department of Commerce. China's share of imports in the US market will most probably surge after 2009 as the quota on China's imports of 15% will be removed.

On the EU market Pakistan is also facing unfavourable conditions as compared to Bangladesh and India. Under the GSP plus scheme Bangladesh enjoys exemption of custom duty on imports whereas Pakistani exporters have to pay between 13 to 23 percent duty. The surge in Pakistani exports in November of 2006 highlights the challenge posed by Bangladesh when it was undergoing political turmoil which benefited Pakistani exporters by growth of 26 percent in exports during the month. Buyers moved back to Bangladesh as stability returned.


The demand for textiles in the world market has not receded and it is the Pakistani industry itself that is failing to take advantage. This may be due to the relaxed attitude of the industry during the 10 year period of fixed quotas under the WTO's Agreement on Textiles and Clothing which expired on January 2005. Under this agreement after the 10 year period ending in 2005, the textile trade would no longer be regulated by a quota system and all textile exporting countries would be free to access markets and compete with each other.

It was presumed by organisations such as the World Bank, WTO, and Asian Development Bank that the developed and developing countries would benefit from a removal of the quotas due to increased market access. This has been true for countries such as Bangladesh which has done surprisingly well after the quota restrictions. The WTO praised Bangladesh for its success in its Trade Policy Review saying Bangladesh has benefited from its "liberal, export-oriented and generous investment regime." The country was expected to not fare well with increased competition from China but this threat has weakened after the United States and EU reimposed limits on imports from China. Bangladesh's exports have also been supported by duty-free access to EU markets under the Everything But Arms provision of its GSP scheme. The US has still not offered it any such duty free access thus causing Bangladesh's exports to face more competition in US markets.


But for countries such as our own the post-quota period has not been so successful. The rising costs of production in Pakistan are causing textile companies to shift their businesses to Bangladesh. "There is an offer of a tax-free investment environment from Bangladesh for our industrialists to set up production units," admits Federal Textile Secretary Syed Masood Alam Rizvi. "We are challenged by a double-edged sword," says Shafqat Elahi, chairman of the All Pakistan Textile Mills Association (APTMA). "On one hand, we face tough competition, mainly from China as well as India and Bangladesh. On the other, our industry is bearing the highest production cost in the region."

The main reason for higher production costs in Pakistan as compared to regional countries is the high cost of electricity and gas which are also unbalanced across the industries. "The fertiliser industry pays PKR 81 per million BTUs (British thermal units), while the textile sector pays PKR 246 for the same," says Faisal Shaji a financial analyst. High export refinance rates and high interest rates on short term financing are also hurting the textile industry according to Zubair Motiwala, former President Karachi Chamber of Commerce and Industry (KCCI). Labour costs have also been increased with an increase in the minimum wage.

The high cost of production is causing Pakistani products to be more expensive in the markets. This can be seen from the fact that even in our own domestic market only 15% of the finished textile products are bought. As compared to imported clothing, Pakistani products are found to be more expensive. On the international markets, our products are more expensive as compared to those of China, India and Bangladesh.


Pakistan does not have a good industrial base in the textile and clothing sector and this situation is worsening. Textile machinery imports have been falling. The imports of textile machinery slumped substantially by 40.28 percent in December 2006 alone against the import figures of same month of last year, the Daily Times reports. "The high cost of doing business has made unviable for the textile industry to operate and I think all textile mills are on sale because of their inability to cope with the emerging situation of stiff competition, put up by their competitors," says Mushtaq Vohra Vice-Chairman All Pakistan Textile Mills Association (APTMA).

The Textile Industry Development Policy 2007 which is expected to offer a 10 year tax holiday to foreign investment in textile machinery is aimed at strengthening the industrial base so as to be bale to compete better with regional countries.


In the post-quota period, non tariff barriers will continue to remain in place which may assume greater importance. These relate to environmental issues which include consumer safety and worker safety related to chemical contamination, social issues such as forced and child labour and worker conditions, anti-dumping actions, and preferential rules of origin which allows countries to discriminate between imports from different countries based on signing of different treaties or agreements. Pakistan may have difficulty complying with such barriers given its not so impressive track record related to labour laws or environmental issues.