November 24, 2003	Monday	Ramazan 28, 1424

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 quantities 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? It is the objective of this article to assess this.

The global export of textiles and clothing, accounting for 6 per cent of global exports is estimated at $370 billion for 2003 of which the share of clothing is $210 billion or 57 per cent. This compares with 67 per cent of Pakistan’s exports being accounted for by textiles and clothing and clothing valued at $7.4 billion for 2002-2003 having only 30 per cent share for clothing. Yarn and cotton and MMF fabric alone accounted for 34 per cent.

Within the figure is another disparity that Pakistan’s share in MMF/Synthetic textiles is only 7 and 17 per cent if blends are included whereas globally the share of cotton textiles is much low, even as low as 40 per cent in case of some countries.

Presently, the EU, USA and Canada impose quantities restraint. Turkey on its insistence of being a candidate EU status country also imposes quota. The major players, vis-a vis quota is 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 in 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 accounts for 20 per cent of world’s import (second only to USA at 24 per cent ) it is also the world’s second largest textile and clothing exporter accounting for 11 per cent and second only to China.

The EU textile and clothing sector accounts for 4 per cent of EU manufacturing and accounts for 7 per cent of manufacturing employment in mainly 177,000 SMEs. With the enlargement, the EU’s employment in this sector will touch 2.5 million people.

While the EU will move to its core strength in high tech textiles and non-wovens like geo-textiles, industrial filters , textiles for automotive industry, high tenacity fibres and fashion labels , it will also create barriers for the traditional textiles particularly as the 10 new members will join.

Apart from the dreaded anti-dumping and countervailing duties, they can and probably use non-tariff barriers (NTBs) and compliance issues particularly labour, environment and technical. The most serious threat will be in the areas of human health relating to chemicals in dyes.

The EU is expected to soon pass a resolution (REACH) which stipulates that certain chemical substances (30,000 in numbers) used or imported into the EU above certain volumes will require registration or authorization or restriction procedures.

While the issue of labour and environment can be dragged on in the WTO by developing countries, the issue of chemical may take them by surprise. Another novel way is to create NTBs in what is called “buyers issues”, that it is the buyers who will insist on compliance labour , environment and other issues without the need to promulgate national laws.

These are some of the challenges Pakistani exporters will have to prepare for. Perhaps it would be wise on the part of the textile associations to join hands and hire consultants to brief them on this issue. Some of the cost can be subsidised by the Export Promotion Bureau.

The EU will also force exporting countries to lower their tariff on particularly MMF and synthetic textiles for reciprocal market access. Pakistan may also face threat from China in the EU as it is looking at the large Chinese market and will give some concessions to China in textiles.

The EU will also give preferential treatment to LDCs and other small countries enjoying quota free access in the EU. While Pakistan enjoys tariff concessions in GSP for effectively combating the production and trafficking of drugs, the EU’s position may be hardest on Pakistan and India in order to safeguard its threatened textile industry.

The only silver lining is that some EU companies may close down thus increasing the size of the cake for the exporters and consumer lobby preferring cheaper products from most efficient suppliers may counter some of these moves.

Another potential threat to Pakistani exporters in 2006 or earlier ifthe EU looses its case in the WTO is the withdrawal of 0 per cent 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 strong lobby for protection of 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 job lost since January 2002, mainly in the 5 states mentioned above.

Thus one can not 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 Jan-Sept 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.

The major threat to the USA textile industry is from China despite safeguard powers against it. ATMI, the major textile lobby of the USA, reports that the 3.6 billion square meter increase from China since 2001 was the largest increase in imports from any country in the U.S. history, with 96 per cent coming in products that have been eligible for action using the China textile safeguard.

During that period of time, China went from being the 4th largest exporter of textile products to the United States to the largest exporter - in fact, it is 50 per cent larger than its next closest competitor (Mexico). China’s share of the textile import market tripled, increasing from to 21 per cent.

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 quota increment it gave to Pakistan is not enough and not given in meaningful categories with few exception. The commerce minister reported to the National Assembly that its annual advantage was to the tune of $22 million only.

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 compliances. Pakistani exporters will have to be ready particularly on account on chemicals and dyes, labour and environment compliance issue.

In 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 textile and clothing is expected to cross the $8 billion mark in 2003-2004 from previous year’s nearly $7.5 billion exports, present high price of cotton not withstanding.

Pakistan also plans to increase its production of acrylic and viscose staple fibre, presently being confined to production of only polyester staple fibre in the MMF/synthetic textile sector. Of this export, approximately $3 billion will be exported under quota regime in 2003.

Table I: Quota countries’shares in Pakistan’s textile exports

USA EU Canada Turkey

44.5% 50.% 1.7% 3.6%

Table II: Composition of quota products is as under:

USA EU Canada Turkey

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%

Yarn Quota 2.1% Quota 1.3%

Free free 3.4%

44.5% 50.% 1.7% 3.6%

100%

Thus Pakistan will face both threats and opportunities from 1/1/2005. The central issues—which will impact exports in 2004 —but still not resolved are: (i) whether the EU and the USA will allow carry-forward in 2004 as demanded by all developing countries as compensation for no meaningful integration as per the spirit of the ATC, (ii) whether shipments arriving 1/1/2005 onwards will be released irrespective of the year of shipment or whether for these valid quota visas would be required or these goods may be sent back or confiscated by customs and (iii) how the EU plan to deal with free movements of goods from the 10 new member state who will join the EU on 1/5/2004.

There are possibility that it may be a violation of the ATC if quotas are imposed by these countries, thus the EU has still not decided on this issue. There is indeed a dilemma here for the EU as far as quota and the ATC is concerned. If no quotas are imposed on account of these new members, the EU will become virtually quota free or will have to restrict free movement of goods in imported textiles and clothing, an idea against the very concept of the EU integration.

On the other hand, if the EU imposes quotas for these countries by enlarging quota ceiling proportionately, it may be challenged in WTO and in any case it is easy to circumvent this imposition by shipping in abundance to the new countries before end April 2004, by those countries’ exporters in such categories where the quota rent is in excess of duty differential between EU 15 and the 10 new members.

If the Pakistan government and the private sector cooperate, the net balance is in favour of Pakistan. Supply of yarn and fabric to exporters, both within and outside the purview of DTRE should be treated as deemed exports for all purposes, production of MMF/Synthetic should be encouraged, private sector be encouraged to stock-pile and have buffer of cotton. The govt 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 has 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 it’s potentials.