The abolishing of China-specific safeguards in 2008 imposed by the US and EU against textile and clothing imports may pose a challenge for Pakistan's high value added textile items, which are presently under huge pressure and are in danger of being dislodged from their predominant position in traditional market observed Mian Zahid Aslam Chairman, Pakistan Textile Exporters Association (PTEA), in an analysis, here on Monday.
He said that the international trade has under gone revolutionary changes. Protective tariff and trade barriers are falling. An era of laissez fair, free trade and open market has set in. Artificial props are tumbling down and fierce competition is heralding the survival of the fittest, he added.
Commenting over the current situation, Mian Zahid Aslam, Chairman, Pakistan Textile Exporters Association (PTEA) said that textile industry is the backbone of the country's economy. Being a predominantly export industry and major source of foreign exchange earning sector, it presages some extra incentives and facilities to sustain its growth and remain competitive in the new international free trade regime and open competition.
Pakistani textiles are presently confronted with three types of irritants, external, internal and structural. Talking about "External Irritants", Chairman PTEA mentioned that Anti-dumping duty imposed by European Union (EU) on Pakistani Bedlinen 9.6 percent, while withdrawal of GSP concession by EU on Pakistani textile 10 percent (Cumulative effect 9.6 + 10 = 20 percent). Smuggling of textiles from China, Indonesia and Malaysia is yielding negative impact over the Pakistan's economy, he added.
Commenting over the "Internal Irritants", Zahid Aslam said that the rising cost of production is creating so many threats for Pakistani textile exports. Prices of inputs such as electricity, petroleum products and gas fuel are escalating during the year with cumulative effect according to an estimate of 20 percent increase upsetting the export price already committed with foreign buyers, he added.
Mian Zahid Aslam demanded that Taxable Income exemption should be raised to Rs 200,000, while medicine, books, relief may be allowed to individual. Textile exporters should be totally exempted from income tax to make them competitive in international market, he demanded.
Chairman PTEA mentioned that the prices of raw material are also subject to fluctuations through the year. When the cotton process go high, the exporters turn to polyester mix cotton, which also escalates on rising demand. Thus the exporters keep on struggling to sustain their quoted prices for export. Huge funds of exporters are blocked in sales tax refund regime even after zero-rating and they are constrained to borrow credit from banks at high rates of maintaining their liquidity. Rates of export refinance are still high by 2 points, while Income Tax on fabric exporters @ 1 percent of total turnover is on the higher side vis-à-vis other countries like Greece and Turkey where exporters are exempt from income and like India where 10 percent tax relief is allowed to exporters. Local taxes like social security, EOBI, machinery tax and professional tax are heavy burden on export. The exporters should be exempted from these levies, he demanded.
Meanwhile, the official update statistics reports, the high value added textile items ie hosiery and readymade garments constitute around 30 percent of the total textile exports of Pakistan, which are facing stiff competition from China, India, Bangladesh and Sri Lanka in both the US and the EU markets. In the EU market, Bangladesh and Sri Lanka enjoy duty free access under GSP plus facility whereas Pakistan is at a disadvantageous position in this market.
Moreover, unit prices of Pakistan 's high value added textile items are lower than that of its major competitors. In this backdrop, the robust exports growth of high value added textile items during July-March FY07 is really commendable. The exports of readymade garments increased by 8.6 percent during July-March FY07 against a 26.6 percent growth in the same period of FY06. More impressively, exports growth in hosiery items accelerated to 15.1 percent during July-March FY07 against a nominal growth of 4.8 percent in the same period of last year. The appreciable increase in the exports of these two items was contributed by increases in both the price and the volumes.
However, the positive effect of unit price was more pronounced in case of hosiery than that of readymade garments. The continuation of R&D subsidy of 6 percent for the readymade garments might have provided additional support to the product's exports.
The increase in the high value added textile items is important for two reasons, firstly, it fetches good price in the international market and secondly, there are better prospects for the expansion of high value added textile items. However, the abolishing of China specific safeguards in the year 2008 imposed by the US and EU against textile and clothing imports may pose a challenge for Pakistan's high value added textile items.
Statistics pointed out that after showing a remarkable performance in H1-FY06, the export growth of textile manufactures started deceleration since Q3-FY06 onward. However, after recording the lowest growth during Q1-FY07 of the last two years, textiles exports have started picking up from Q2-FY07 onward probably because of an increase in unit prices. Importantly, the increasing exports of high value textile items seem to be the driving force behind the export growth of textile group, although the exports of low value added textile exports also contributed in the overall growth of textile exports.
Cotton yarn and cotton fabrics constitute around 36 percent of the total textile exports, and the growth in the exports of both decelerated sharply during July-March FY07. Exports of the former recorded a nominal growth of 3.4 percent during July-March FY07, as compared to impressive growth of 31.8 percent during the same period of last year.
Similarly, the cotton fabrics exports declined by 6.9 percent during July-March FY07 against 17.3 percent growth in the same period of last year despite the considerable increase in its unit price and provision of a 3 percent Research and Development (R&D) subsidy. Official statistics mentioned that decline of US $108.9 million in cotton fabrics exports was more than offset by US $232 million increase in the synthetic textile exports (mainly fabrics of synthetic textile) during the same period.