At the outset I would like to present global scenario of the textile industry with particular reference to the position of Pakistan in the international textile market.
The demand for textiles in the world is around $18 trillion, which is likely to be increased by 6.5% in 2005. China was the leading textile exporter of the world's total exports of $400 billion in 2002.
COUNTRY-WISE MAJOR MARKET SHARES OF THE TEXTILE EXPORTING COUNTRIES ARE: China $55 billion, Hong Kong $38 billion, Korea $35 billion, Taiwan $16 billion, Indonesia $9 billion.
Though Pakistan has emerged as one of the major cotton textile product suppliers in the world market with share of world yarn trade about 30% and cotton fabric about 8%, having total export of $7.4 billion which accounts for only 1.2% of the overall share, out of which cotton fabric is 0. 02%, made-ups 0.18%, Garments 0.15%.
This is mainly due to the laxity towards the promotion of value-added sector. Pakistan should learn a lesson from Bangladesh, which by importing yarn and fabrics from Pakistan and other countries has increased the export volume of textiles made-ups.
If we desire to achieve the target of textile exports as envisaged in the textile vision 2005, we will have to promote value-added sector in textiles.
ROLE OF TEXTILE INDUSTRY IN NATIONAL ECONOMY: Textile products are a basic human requirement next only to food.
This industrial sector in Pakistan has been playing a pivotal role in the national economy.
Its share in the economy, in terms of GOP exports, employment, foreign exchange earnings, investment and contribution to the value-added industry makes it the single largest determinant of the growth in the manufacturing sector.
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Textile share of overall
manufacturing activity: 46%
Export earning: 68%
Value addition: 9% of GDP
Employment: 38%
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In spite of the government's efforts to diversify export as well as industrial base, textile remains the backbone of industrial activity in the country.
TEXTILE VISION 2005: Textile Vision-2005 has been directed towards an open, market-driven, innovative and dynamic textile sector, which is internationally integrated, globally competitive and fully equipped to exploit the opportunities created by the Multi-Fibre Arrangement (MFA).
It aims to enable the country to be amongst the top five textile exporting countries in Asia.
Pakistan, at present, holds the 8th position in textile exports in Asia. Pakistan can achieve 5th position in Asia in the textile exports as has been targeted in the Textile Vision -2005.
During the last three years, Pakistan's textile sector is preparing itself to face the challenges of the post-quota regime in 2005.
The Textile Board and Ministry of Commerce have geared up efforts for boosting the export targets of textile from the present $7.4 billion to $14 billion as envisaged by the Textile Vision-2005, which is quite encouraging.
FUTURE OF TEXTILE EXPORTS: After nearly four decades of derogation in GATT and imposition of quotas, unilaterally, bilaterally, multilaterally and voluntarily, the trade in textiles will be integrated into GATT on 1/1/2005, meaning there will be no quantitative quota restraints on textile products, except possibly on some categories for China's export to the USA and EU as a result of China's terms of accession to the WTO.
Where does Pakistan stand and what are its strengths and weaknesses?.
The global export of textiles and clothing, accounting for 6 percent of global exports was estimated at $370 billion for 2003 of which the share of clothing was $210 billion or 57 percent.
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Table I: Quota countries' shares in Pakistan's textile exports
USA EU Canada Turkey
44.5% 50.% 1.7% 3.6%
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Table II: Composition of quota products is as under:
USA EU Canada Turkey Total
Fabric 6.9% 12.4% Quota Free 2.2% 21.6%
Garments 30% 18.4% 1.1% 0 49.6%
Made ups 7.6% 17.2% 0.6% 0 25.3%
Quota free 2.1% Quota free 1.3% 3.4%
Yarn 44.5% 50.0% 1.7% 3.6% 100%
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This compares with 67 percent of Pakistan's exports being accounted for by textiles and clothing and clothing valued at $7.4 billion for 2002-2003 having only 30 percent share for clothing.
Yarn and cotton and MMF fabric alone accounted for 34 percent.
The major players vis-à-vis quota are EU and the USA.
How Pakistan and other competing countries will fare post-quota depends on the attitude mainly of USA and the EU.
The 15 EU member States are to take an additional 10 members on 1st May, 2004. These countries are also relatively cheap textile manufacturers where the EU companies have traditionally sub-contracted or relocated their units.
While the EU 15 account for 20 percent of world's import (second only to USA at 24 percent) they are also the world's second largest textile and clothing exporters accounting for 11 percent and second only to China.
The EU textile and clothing sector accounts for 4 percent of EU manufacturing and accounts for 7 percent of manufacturing employment in mainly, 177,000 SMEs. With the enlargement, the EU's employment in this sector will touch 2.5 million people.
Another potential threat to Pakistani exporters in 2006 or earlier if the EU loses its case in the WTO is the withdrawal of 0 percent duty presently granted under the EU's GSP scheme.
In the USA around one million people are employed in 5117 textile companies and 6134 textile plants.
The southern states particularly North and South Carolina, Georgia, Virginia and Alabama are strongly lobbying for protection of the textile sector in USA.
Since the Asian crisis and WTO's ATC, over 250 textile plants shut down and the USA lost around 200,000 jobs with 30,000 jobs lost since January 2002, mainly in the 5 states mentioned above.
Thus one cannot expect easy ride into the USA after 2005 without resistance.
The USA exports over $10 billion of textiles and nearly $6 billion of clothing. Its import on the other hand during January-September 2003 was $63 billion with $49 billion accounted for by clothing.
The major likely trend for USA for 2004 can be summed as following:
Net yarn exports and imports may be approximately $1.3 and $1.7 billion respectively; in fabric imports may be $8 billion with exports less than $6 billion; in made-up articles, $9.5 billion may be imported, with less than $2 billion exports and in apparel, $7 billion of exports against more than $63 billion of imports.
Like the EU, the USA will also concentrate on high tech textile products like non-woven, particularly hygiene products like diapers, wipes, feminine hygiene and adult incontinence and high-end fashion particularly for women wear.
There is every likelihood that quotas on safeguard categories will be in force beyond 2005 for China and Vietnam.
This will provide a breathing space to exporters in other developing countries as well.
For Pakistan, the competitor will not only be China and Vietnam but also countries whom USA has given preferential treatment like NAFTA, CBI, AGOA, etc. The USA has signed TIFA with Pakistan but it will not translate into preferential duties for Pakistani textiles in the near future.
The USA and the EU will on the one hand demand better market access for their textiles and also the implementation of WTO bindings particularly in tariffs and intellectual property rights and enforce strict rules of origin while on the other hand the buyers will make more demands for compliance's.
Pakistani exporters will have to be ready particularly on account of chemicals and dyes, labour and environment compliance issue.
In the case of USA, the security compliance may also put Pakistani exporters at a disadvantage.
The opportunities for Pakistan will be quota on China and Vietnam beyond 2005, closure of some EU and US companies dealing in basic textile, disadvantage to countries like Bangladesh and Sri Lanka who thrived due to quota regime and finally, the biggest advantage to Pakistan will be its vertically integrated cotton textile industry.
Pakistan's export of textiles and clothing is expected to cross the $8 billion mark in 2003-2004 from the previous year's nearly $7.5 billion exports, the present high price of cotton not withstanding.
If the Pakistan government and the private sector co-operate, the net balance is in favour of Pakistan.
Supply of yarn and fabric to the exporters, both within and outside the purview of DTRE, should be treated as deemed exports for all purposes, production of MMF/Synthetic should have been encouraged, the private sector be encouraged to stockpile and have buffer of cotton.
The government on the other hand should agree in the WTO to lowering of duties as it is difficult for Pakistan to have FTAs/RTAs with any relevant countries and blocs.
Pakistan will also have to concentrate on lowering of its cost of doing business for which the Ministry of Commerce and the State Bank have reportedly undertaken studies.
Finally, the 3 weakest links in Pakistan's textile chain, viz, ginning and dyeing and marketing initiatives will have to be improved to take maximum advantage of its potentials.
Administrative bottlenecks and deregulation strategy for new investment are:
Poor infrastructure; over-governed and over-monitored regime of different 27 government agencies harassing industry virtually every day; delay in sales tax refund causing serious cash flow liquidity problem for the industry; Pakistan's bad image portraited by the international media; adverse travelling advise by the foreign countries to their citizens discoursing to travel to Pakistan; Pakistan to sign international agreements providing protection to intellectual property rights and international arbitration agreements; lack of infrastructure required to meet challenges of the requirement of social compliance's after 2004; non-availability of good quality soft water for the textile industry; negative impact of SRO's culture; not providing our industrialists and exporters level playing field to procure raw material at the international rates viz-a-viz our regional competitors.
Our utilities rates are the highest in the region; arrangements to provide insurance guarantees to US investors on their investment in Pakistan.
SOME SPECIFIC RECOMMENDATIONS REMEDY THOUGH FDI: As a result of measures taken under Vision 2005, the fiscal year 2002-03 witnessed tremendous inflow of investment in value-added expansion and BMR.
FDI in textile sector during the last four years has reached $4 billion which has led to improvement in productivity, both in terms of quality and quantity, in yarn, fabrics, home textiles and garments, besides generating more than 300,000 new jobs.
However the investment volume is not satisfactory as compared to the potential available in our textile sector.
There is also an urgent need to set benchmark investment requirements for the creation of new capacity and up-gradation of the existing production base.
IMAGE BUILDING OF PAKISTAN TO ATTRACT FDI: The Ministry of Commerce, Ministry of Foreign Affairs and BoI should launch a joint campaign to build positive image of Pakistan as a quality textile product supplier and to facilitate the international buyers in Pakistan.
FOCUS ON VALUE ADDITION: Pakistan is a leading exporting nation in raw yarn, cotton, and fabrics. If we emphasise on the value-added products like garments, hosiery, knitwear and other textile made-ups, the export volume of textiles can be increased by manifold. In this respect top priority should be given to stitching industry that leads to the highest value addition and employment generation.
CREATION OF MINISTRY OF TEXTILES, INSTEAD OF TEXTILE BOARD: The government of Pakistan has established Textile Board for the promotion of textile industry as envisaged in Textile Vision 2005 but its performance is not upto the mark.
It will be quite productive if the long-awaited demand of the private sector regarding the creation of Ministry of Textiles is met on priority basis.
TECHNOLOGY UP-GRADATION AND CAPACITY BUILDING IN TEXTILE CITIES: The establishment of textile cities in the major cities of the country is an appreciable move.
The government should either set up joint ventures in textile related areas or should provide subsidised credit to textile manufacturers to upgrade their technology and capacity building through 'Technology Up-gradation Fund' (TUF).
It is also suggested that smaller units of power looms (upto 50 looms) should be upgraded to auto looms and power loom units larger than 50 looms into air jet looms.
HUMAN RESOURCES DEVELOPMENT: The Textile Board should establish a separate training wing as a centre of human resource development where training courses should be conducted for the capacity-building of labour.
There is also urgent need to increase the number of such vocational institutions where modern technical education is provided.
ACCREDITATION AND CERTIFICATION: We are fast approaching the era of free trade regime, which requires standardisation to comply with WTO regulations.
At present due to non-availability of testing laboratories, Pakistani exporters have to spend huge money to get certification from abroad.
If WTO recommended labs were established in Pakistan a lot of valuable foreign exchange could be saved.
The Ministry of Commerce and BoI should set up such laboratories so that the exporters can get these standards at comparatively competitive prices.
NEED FOR REDUCING COST OF DOING BUSINESS IN PAKISTAN: At present the cost of doing business in Pakistan is higher as compared to the regional countries, which has resulted in bitter competitiveness to Pakistani products in foreign markets. China and India are bigger competitors of Pakistani.
We fear if "Cost of doing business" in Pakistan is not brought at par with other Asian countries, our products would find no place in market both in terms of quality and price.
In the context of future trade, there is an urgent need to bring all the utility charges and levy of taxes down to the minimum level.
NEED FOR IMPROVING TEXTILE PRODUCTION: There is an urgent need to bring improvement in textile production, especially in the blended sector.
Blended products made from a combination of natural and man-made fabrics are preferred in clothing the world over.
In Pakistan 20% protective duty on the import of polyester fibre is levied on account of which 25% polyester fabric is blended with man-made fabrics while a country like Bangladesh blends 35% Polyester.
This scarcity has resulted in poor contribution by Pakistan in this sector. If this duty is removed, Pakistan can prepare blended cloth at par with International standards and requirements.
I would conclude with the perception that Pakistan's textiles have greater potential to capture considerable share in the world textile market provided all the recommendations and policies envisaged by Vision 2005 are implemented in the larger interest of the country.