Pakistan’s apparel industry — one of the largest value-adding sub-sector to sliver fibre — till today, is reeling under the fallout of September 11 attacks on the US targets and the consequent US-led strikes on Afghanistan.

The US assurance to Pakistan for compensating the latter’s trade losses in the form of eased quota curbs and greater market access to textile exports are still not realized, thus leaving Islamabad in cold for extending logistics facilities to the US during the war on Afghanistan.

The European Union (EU), however, acted swift. In addition to increasing the textile import quota it also allowed duty exemptions for the textile made-ups. This appears to be a good business gesture to rehabilitate Pakistani exporters but “many may not know that the importers have slashed the prices of their product in proportion to the duty cut and the end-result for Pakistan remains the same”, one exporter says.

Foreign buyers advise exporters to tailor their prices which match the benefits in case the rupee is devalued, taking away the advantage of lower prices of products from the exporters.

The government devalues rupee partly to meet the IMF demand and partly to boost exports but it never works as the importers are too shrewd to pass on the benefit to their trading partners of the country of origin. There are very few who are willing to share the financial benefits of devaluation.

“The cotton yarn exporters add value to lint at the rate of $1.60 per kg but the knitted industry gets an export value of $9 to each kg”, a leading producer of the knitted hosiery industry Iqbal Dossa laments adding, “but it fails to get the official pat or duty concessions”.

The worst hit is the apparel industry, notably the knitted hosiery garment exporters as the prices of their products have been slashed by 20 per cent by the US and the European importers rather than increasing them. Other post-war curbs on exports from Pakistan have further added to the cost.

An addition to it is the appreciation of rupee against the US dollar, pulling it to Rs59.80 per dollar from the pre-September rate of Rs64 and its negative impact on exports as these have become more expensive and its consequent fall both in the volume and the value in terms of foreign exchange.

“The rupee during the last couple of months has been revalued by about 20 per cent against the US dollar, notably during the Afghan war as it was in oversupply position in the open market which is well-reflected in the fall of exports since then”, Iqbal Dossa claims.

Pakistan’s major competitors in textile sector are India and Bangladesh. Governments of both these countries reacted promptly to forestall any possible fall in exports and gave the needed incentives in various forms, including rebate and duty cuts to sustain exports after the post-September incidents. Not being a cotton producer, Bangladesh’s annual export of textile made-up is around $6 billion.

The vendor industries associated with it followed it as fall in exports, owing to uneconomic prices, caused the closure of many units while others suspended operations awaiting improvement in the prevailing situation and there was unemployment, too.

“Our share in the total annual exports of $6.5 billion is $1 billion”, claims Iqbal Dossa one of the leading hosiery garment producers, “but hopes raised by the president’s visit to the US about trade incentives and concessions failed to enthuse anyone of us”.

The apparel industry is a labour-intensive corporate sector as after creating lots of job opportunities, many allied vendor industries, notably thread suppliers, polythene bag, carton producers, knitters and stitching units thrive on it in various forms.

Having a capital outlay of well over Rs50 million, the hosiery industry alone provides jobs to hundreds of people in addition to making a significant contribution to the national exchequer, both in terms of taxes and foreign exchange earnings, industry sources claim.

Pakistan may not have any leverage on the perceptions and buying strategies of foreign buyers of textile, it could certainly make export competitive after removing tax anomalies and giving certain incentives to the apparel industry.

A look at taxes, which the knitted hosiery garment exporter has to pay, shows how products have become more expensive owing to high incidence of taxes in addition to the appreciated rupee.

A consignment of Rs5.614 million to the European Union, for instance, will have the tax net of over Rs0.123 million at the rate of 2.19 per cent. The details being as under: withholding tax deducted by banks at 0.75 per cent, export development surcharge at 0.25 per cent, terminal handling charges at 0.85.1/2 per cent and wharfage at 0.33.1/2 per cent, which in rupee terms comes to Rs0.123 million.

The US textile package may still be far away but the government has the option to come to the aid of the value-added sector by providing a relief in the form of cut in taxes and increase in the rate of rebate or other incentives to offset the negative impact of recent developments, industry sources say.