The trade policy announced by the Commerce Minister sounds good as one can see an enhanced export target of $17 billion for the year 2005-06, an increase of 18% over the last fiscal year. There is no room for any doubt about achieving this target, which I would still call it modest, looking at the innovation growth of the textile industry in the past three years.
The Commerce Minister expressed the hope to go beyond $17 billion and to reach exports of $20 billion in 2005-06. The measures announced in the trade policy refer to FTA with Sri Lanka, which is an oft-repeated story. No progress seems to have been made in FTA with Bangladesh. One wonders what Pakistan has proposed for preferential trade agreement with China, and where we stand today with our closest friend and ally.
The private sector has never been consulted nor its views ascertained on this vital matter of interest to the private sector.
It is on record that China and India reached a "Comprehensive Economic Co-operation Agreement (CECA)" in March 2004 and worked on the framework and modalities of the functioning of Joint Study Group (JSG) as to how to avoid competitiveness in global markets.
I had referred to this development to the Commerce Minister on April 16, 2004 to form a similar Joint Study Group with China to pave the way to finalise Free Trade Agreement with China on the basis of what was achieved in the strategic Comprehensive Economic Co-operation Agreement with India. I was told by an EPB official in 2004 that such a study has been started. Same assurance was received by me from the State Bank of Pakistan. We hear only oral statements on such delicate issues which soon erases from the memory hardly without any tangible results.
The time from trial of our textile sector is fast coming and we sit as an idle spectator watching the world's spectacular march towards industrialisation and globalisation of trade. China and Pakistan have complementaries in more or less 49 textile product lines and the joint study could have evolved framework and modalities so as to avoid competition on the global scale. Alas! We are not as yet ready to face the coming catastrophe likely to be faced by value-added textile made-up and garments.
It is unfortunate that Pakistan has made no preparation to enter Free Trade Agreement or bilateral trade agreement with EU or any African or Asian countries.
India's textile exports are expected to touch 15 billion dollars mark in the current year. India's aim is to achieve growth of 25 percent in its global textile exports so as to touch 50 billion dollars mark by 2010. "China and India are emerging as the two biggest textile players", said Chairman of India's Cotton Textile Export Promotion Council. "We are working hard at developing a good understanding with China so that we do not undercut each other. "Business is booming", he added and there is enough room for both of us to flourish in the new competitive environment".
Our media and analysts quote India repeatedly in their write-ups, not necessarily because of 'Love' for that country but they see the rapid progress achieved within a couple of years by strategic approach of the Indian businessmen and supportive policies of its government. Such a situation leads to a sense of frustration in our business community and media as export base and environment of both Pakistan and India are more or less similar. Why then we cut a sorry figure! During the course of past 5 to 10 years, the Indians watch every development in international trade closely and follow up with corrective policies and carry out reforms. To quote a few instances, the Indian government concentrated on upgrading the power loom sector by technology transfer as there was realisation on the part of the manufacturers as well as bureaucracy and ministries that garments quality very much depends on the quality of raw materials; the main stream of improved quality of fabrics feeding small and medium-size textile industry.
Another example is India's strategic alliance with China, I have referred to CECA. China being the leader in textile exports, India seized the opportunity to capitalise on its improved relations with China.
Besides, a number of leading American importers have made long-term arrangement with India for 'outsourcing' their products. Full production of leading garment factories has been booked by major buyers/importers of USA for continuous supply round the year. Our Commerce Ministry has been harping on free trade agreement or preferential trade agreement with USA for a long time without reaching any understanding. Our textile industry has made substantial technological upgrading by pouring in huge investment by the private sector and today we can take pride in the quality of our cotton fabrics, which have been in demand in the West. The SME garment industry is depending on power looms which supply bulk of the fabrics production to the small units and combined strategic planning of large number of small and medium-size units can enhance exports without exaggeration to 20 billion US dollars within a year or two, provided our power loom sector is upgraded by addition of automatic looms and is gradually converted into shuttless looms. It is the responsibility of trade bodies to step up marketing research in support of textile sector.
With the inception of WTO from 1995 onwards and particularly phase out of the textile quota in January 2005, the countries which feared most the drop in their global trade, are frantically trying to remain in the race and evolving strategies to put them hack on the track. We have immense potential, the fourth largest cotton crop, very precious mining resources and prospects of vast agricultural growth. Our ministers spent huge foreign exchange going round the world and on return issue pompous statements of so-called 'success' of their tour to impress people.
The induction of massive cabinet of ministers is a great burden on the country's exchequer, unless each one plays its part with national zeal and let trade be benefited by unsolicited foreign tours on self-initiated missions by our ministers and bureaucracy in seasons and out of seasons.
CHALLENGES FACED BY EU RULES OF COUNTRY OF ORIGIN The European Union Commission has been contemplating to revise GATT rules of country of origins by virtue of which the Least Developing Countries can import raw materials, accessories etc under "Cumulation of Origin" from regional group countries. At present, 15 countries qualify for the immediate benefits of duty-free access for their exports into the EU under GSP Plus. There are however, 50 Least Developing Countries listed for special arrangement under GSP+ in time to come.
Bangladesh, Sri Lanka and Nepal, to some extent, are the immediate threat as they will go for the cheapest source of raw materials, cotton fabrics in this case and produce garments at lower price. Pakistan will have hard times to be competitive as both Bangladesh and Sri Lanka have cheap labour and have made laudable efforts to provide excellent infrastructure for smooth operation of their garment industry. The principle of revision and/or relaxation of GATT basic rules of "Country of origin" will hit developing countries and particularly Pakistan's export. It is heartening to note that both President and Prime Minister of Pakistan have been fully alive to this threat and directing Commerce Ministry to apprise EU Commission to withhold changes in "Cumulation of origin" which will have adverse effect on other developing countries. Private sector, though fully aware of coming challenges, are ill equipped to level up with giant competitors.
GENERALISED SYSTEM OF PREFERENCES:
EU has struck dual blow to developing countries by making changes in GSP Plus rules having far-reaching adverse impact on developing countries' export.
During 2002-2004, Pakistan exports entering EU countries enjoyed duty-free import. Buyers in those 15 countries and later on 25 countries had the benefit of exemption of 13% Import/Custom Duty. The new rules do not provide this facility to Pakistan, India and China exports of value-added garments as these countries' export to EU countries exceeded the ceiling of 1 percent and fall under the nomenclature of 'Graduated' are deprived of GSP benefit scheme with effect from 1st January 2005 whereas Least developing countries have the benefit of advancing GSP benefit with immediate effect ie 1st July 2005.
Looking at the facilities provided to Least Developing Countries, they are under GSP PLUS Scheme, enjoying both the facilities of Zero-rated import duty in EU countries and taking full advantage of Rules of 'Country of Origin' to import raw materials from cheapest source.
Pakistan Bed Linen has come under anti-dumping rules which imposes 13.5 percent anti-dumping duties on Pakistan's highly demanded product. It is a sheer illogical punitive action by the EU Commission to put our country in a tight corner. Not to mention how our textile industry's further development has been arrested by poor progress in providing infrastructure such as water, gas, power and communication.
Textile City and EPZ expansion of Garment City Schemes have yet to see the light of the day though six months have elapsed since phasing out of the textile quotas. In fact, planning of these projects should have been started three years earlier to provide a level playing field to private sector to compete with additional provision of aggressive access in the global market.
We have no dearth of men with vision and expertise to take us out of grim realities provided they had a free hand in planning, innovation and corrective measures. Nominating a few top private sector executives to head the institutions without arming them with authority and power, backed by adequate funds and without correcting age-old bureaucratic setup may not deliver any fruitful result.