17 April 2004	Saturday	26 Safar 1425

KARACHI, April 16: The apparel and clothing industry will have to raise productivity - either by improving the efficiency of the production process or the range and the quality of the products produced if it has to survive in the quota-free regime beginning January 2005.

According to the World Bank report on 'Textile and Clothing Policy: Implications for Pakistan of Abolishing Textile and Clothing Export Quotas," Pakistan can be confident of experiencing a significant increase in textile output and exports, but may suffer a significant fall in output and exports of clothing, a result of stronger competition from countries with higher productivity in this sector.

"Overall, the short-run impact of Multi-Fibre Arrangement (MFA) abolition will be positive on the textile sector, negative on clothing," observed the report. It further suggests that Pakistan will benefit substantially from abolition of its own quotas, with the benefits resulting from improved efficiency of resource allocation outweighing the loss of quota rents.

However, given that the quotas on all other exporters will be eliminated at the same time, the picture is less clear. But the implications for the apparel sector could be serious if no action is taken to improve productivity - output could decline by over 15 per cent, and exports by a quarter, the WB report observed.

The adverse impacts of increased competition, however, will be softened by the diversity of the industry, with many of the products in which Pakistan specializes, such as men's knit shirts, being much less important to competing countries.

While this diversity will help reduce the adverse impact of quota abolition in clothing, it does not appear to be sufficient to eliminate them - many important products for Pakistan, such as sweaters, are important to other exporters and face tight quota restrictions.

The report warned that Pakistan's real income would decline by perhaps 0.4 per cent, and real wages could decline slightly if no actions are taken to improve productivity.

It has further stated that after abolition of the quotas, markets will become much more price responsive - increasing the opportunities to expand when productivity rises.

By contrast, countries that lose competitiveness can expect to suffer larger losses in market shares. Thus, raising productivity - either by improving the efficiency of the production process or the range and the quality of the products produced - is key to reaping the benefits from the abolition of the MFA.

Analysis of the cost structure of textile and garment firms indicates that materials account for the majority of costs so that efficiencies in purchasing and use of materials would likely be necessary.

If, for example, Pakistan were able to increase its productivity level in textiles and clothing by around 60 per cent - to reach China's productivity levels - the welfare gain would be likely be over $1 billion per year.

By improving productivity Pakistan's apparel industry could make further gains by improving quality of the products exported, and the prices received. Substantially higher prices are clearly attainable - China currently receives export prices more than twice as high as Pakistan for textiles.

The World Bank has also pointed out that wages in both the textile and garment sectors in Pakistan are very low by international standards, improvements in productivity could lead to significant increases in output, employment and exports.