SBP's quarterly report: Textile exporters fail to raise their share in US imports

Despite higher demand, Pakistani textile exporters failed to increase their share in US imports, mainly due to price competitiveness. The US's total textile and apparel imports grew at a higher rate in the first quarter of this fiscal year (Q1FY19) than they had last year, as robust economic growth and low unemployment encouraged consumers to spend more. Retail sales of clothing and accessories in the US rose 5.4 percent YoY in Q1FY19, as opposed to rising by 1.1 percent in Q1FY18.
However, the State Bank of Pakistan (SBP), in its recent report revealed that, despite higher imports by the US, Pakistan's overall textile and apparel exports to the country could not benefit and instead declined by 0.9 percent YoY in quantum terms.
Even within the cotton apparel segment, the growth in Pakistan's quantum exports in Q1FY19 was lower than last year, despite a rebound in the US' cotton apparel imports in the quarter under review.
Pakistan's non-cotton apparel exports to the US dropped by a sharp 14.6 percent in quantum terms, as the exporters found it hard to control costs in the wake of spiking polyester staple fiber (PSF) prices in local currency terms. PSF prices have risen more rapidly in Pakistan than they have in China and India, which made it harder for Pakistani exporters to compete against their peers.
At the same time, to Pakistan's detriment, a gradual shift in the US' sourcing of textile and apparel products also seems to be underway, both in response to the trade tensions with China and evolving consumer preferences. The report said that the ongoing trade tensions with China have induced US retailers to look for other low cost producers. This increasingly means countries that enjoy concessional or duty-free market access to the US, such as Cambodia. Usual suppliers like India and Vietnam have also benefited.
Pakistan is at a disadvantage on both counts, as its costs tend to skew upwards and it also does not enjoy duty-free access to the US. Even though Pakistan is a beneficiary under the US' GSP scheme, its textile and apparel products do not fall under the duty-free regime. In contrast to the US, Pakistani exporters did quite well in the EU, where they managed to increase their market share. While the growth in the EU's overall textile and apparel imports actually declined in Q1-FY19 in volume terms.
In fact, countries enjoying duty-free access to the EU, namely Bangladesh, Pakistan and Cambodia, experienced sizable export growth, at the expense of China and India. Moreover, Vietnam's exports to the EU also maintained their momentum, as the two parties edged closer to ratifying the free trade agreement. Going forward, the SBP has warned that Pakistan's textile exporters are likely to face a tough time, given the shifting dynamics in the US, and Vietnam's expected surge in the EU market.
First, in September, Bangladesh announced a 51.0 percent increase in the minimum wage for its garment workers, which will go into effect in January 2019. The wages were last increased in 2013. Any net increase in production costs in the country could allow Pakistani exporters to compete more effectively in the EU and possibly increase their market share at Bangladesh's expense.
Second, the EU launched a six-month review process in October 2018 to determine the continuity of Cambodia's duty free access to the bloc under the Everything-But-Arms (EBA) scheme, following controversial elections in the country in July. While the eventual outcome of this review is uncertain, Pakistani exporters would stand to gain if Cambodia's garment exports to the EU, which are rising quite rapidly, come under the normal duty regime, the report said.
Overall textile exports grew by 0.6 percent YoY and reached US$ 3.3 billion in Q1FY19, after rising by 7.9 percent in Q1FY18.