REGULATORY DUTY ON YARN EXPORT: RIGHT OR WRONG?
TARIQ AHMED SAEEDI
May 31 - June 6, 2010
A tug of war between textile value added sector and spinners assumed a complicated shape with the government until last week remained unable to broker an amicable deal between the two vital export sectors and foreign exchange earners for the economy.
Both the contenders have strong and cogent arguments. Value added sector favouring regulatory control over the prices of yarn favours measures to discourage exports of yarn from the country while textile mills term this an impingement on the free market mechanism.
Yasin Saddik, chairman (Sindh and Balochistan) All Pakistan Textile Mills Association (Aptma) says restricting export of yarns through any means is against free market mechanism. Particularly, when there is a surplus of yarn available in the country shortage cannot be a proper reason to justify discouraging exports through imposition of regulatory duty, he tells Page during an interview.
The government has imposed 15 per cent regulatory duty on export of cotton yarn for 60 days to apparently appease the value added textile sector that earns government 80 to 90 per cent of foreign exchange earned exports of raw cotton and cotton yarn and apparels, and which recently steered a campaign to proscribe exports of cotton from the country. Yearly exports of raw cotton and cotton yarn amounts to around $1.5 to $2 billion while exports of garments and other value added textile articles stand at $7 to $8 billion dollar. The volume of dollars generated by the value added sector may have prompted the government to give it first priority.
Regulatory duty on yarn exports was slapped at the behest of the value added sector that associates high price of yarn with its shortfall, lamented a textile miller.
Price of cotton yarn is highly volatile as indicated from its reaching record Rs7,000 per 40 kilogram recently. High price shoves the cost of production in textile manufacturing up and most importantly it gives a price competitive edge over Pakistani textile manufacturers to foreign counterparts whose yarn supply is under priced. Local price hike is attributed to hoardings of cotton. A highly placed source in the Aptma straightforwardly admits this, saying, "free trade will stop this". This clearly shows the height of anxiety the textile sector is nowadays going towards-a warfare in which no rule is a rule.
Government official said cotton production this year totals around 12.7 million bales, which are sufficient for local as well as international supplies.
Imposition of regulatory duty elicited strong protests from the spinning sector and textile mills association that said the industry was already on the verge of collapse because of long-hour electricity load shedding, and the duty proved a last straw on the camel's back. Power crisis has caused massive monetary losses to all industries in Pakistan.
Textile industry is the backbone of Pakistan's economy accounting for more than 50 per cent of the country's total exports. All components of overall textile industry are important from cotton producer, spinner, to manufacturers. All are hit gravely by the power crisis reducing customary working hours a day to have triggered unemployment. Hundred of spinning units are closed across the country owing to inadequate supply of power. The government has yet strangulated the industry by slapping tariff barrier, complains a mill owner.
Considering the records of tariff and non-tariff barriers the government levied on textile the regulatory duty this time was in fact akin to relaxing the muscle of under stress textile mills since earlier the government had fixed yarn export quota at 50,000 tonnes per month. And sometime earlier before that, the quota was 35,000 tonnes per month. This plainly implies that a quantity more than ceiling was not allowed. Perhaps, now at least yarn exporters can search for new international markets with good valuations of Pakistani yarn. A matter of fact is that only few countries import yarn from Pakistan and China is the biggest importer.
The government's prompt actions and response to clarion call of value added sector confirm that it wants to underpin down stream industry at the cost of upstream industry. The demand of value added sector is swelling up unabatedly. Even the withdrawal of custom duty on import of cotton yarn could not improve the situation.
Last week, Prime Minister took notice of the situation and planned to meet with the representatives of both value added sector and Aptma, informs Yasin, who expects reduction in regulatory duty on export to 0.5 per cent.
Value added sector is also highly hopeful the government would extend current export regulatory duty beyond 60 days. They are seeking revival of 30 per cent duty, which the government had cut to 15 on protests of textile mills in recent past. Their optimism was based on last decisions that lay besides their desires.
Chairman Pakistan Apparel Forum, Jawed Bilwani says NA Standing Committee on Textile favoured value added sector's stance on controlling prices of cotton yarn through discouraging exports. Senate Standing Committee on Textile after a meeting with both advocated the judgment given by the NA's body. "We are working for the national interests," he asserts. As far as the helm of value added sector is in his hand, he has a befitting set of mind to bear down on forceful tradeoffs.
Yasin Saddik refuses the demand of regulatory duty on export of cotton yarn is popular within the value added sector. Some of them want free market mechanism to flourish in the country, he says saying they give us moral support to fight our case. In fact, there is no shortfall, argues Yasin. Total production of cotton yarn per month is average 240,000 tonnes while demand of local market can be met with a little over 180,000 tonnes. On an average, the country exports 50,000 tonnes of yarn per month during last ten years. "We cannot throw the surplus in to the sea," remarks chairman Aptma (Sindh-Balochistan).
Local yarn gets good price in international market. It is obvious that when it does not receive good price in local market, spinners eye trade across the border. After all, they have invested a significant 5 to 6 billion dollars in the industry, "and seeking profits is their rights," wrote Dr Mirza Ikhtiar Baig, advisor to Prime Minister on Textile in his column in a local daily.
Dr Baig, who personally belongs to textile manufacturing sector, while apparently defending the desire of profits of spinners said that because of profits they had become able to pay off their debts and improve balance sheet positions.