KARACHI: Pakistan being a single crop economy cannot afford to miss the opportunity the opining up of textile trade would create. Much, however, will depend on its players in the textiles and clothing along with the government.
Textile sector is the largest industrial sector of the country on all counts be it investment, employment or exports. It accounts for approximately 27 per cent of the total industrial output, absorbs about 38 per cent of the industrial labour force and contributes around 70 per cent of the national export earnings.
Beyond January 2005 the trade in textiles and clothing will no more have quantitative restrictions imposed by developed countries under the Multi-fibre Agreement (MFA) in 1974. However, these restrictions (textile quotas) under the Agreement on Textile & Clothing (ATC) reached in 1994, are being phased out in four stages over 10 years. This phasing out programme will end on December 31, 2004.
If the free quota regime under the WTO system, on the one hand, offer a good opportunity to expand and grow, on the other it poses serious threats and challenges to our trade and industry. The WTO regime will certainly impact different sectors and different countries very differently. The inefficient sectors of the economy will inevitably go under tremendous challenges and those with potential competitive advantage will flourish.
Although Pakistan produces around 8.9 per cent of the world cotton, our share in the global clothing trade, which is around $300 billion, is only 2.4 per cent. But it was more tragic that the country still lags behind in value-addition or apparel industry, which is the highest foreign exchange earning sector and provides largest employment opportunities.
According to estimates, if one bale of raw cotton was exported the country earns $100 and if the same bale is processed after value addition it can earn up to $1,300. The industry in the last four years invested huge amount of $4 billion through BMR in spinning, weaving and in expansion. If the same amount was invested in clothing industry, it would have not only ensured high earning in foreign exchange but also provided additional employment for 2.8 million workers. This could be easily substantiated on the ground that if $700 million is invested in spinning industry it would provide or create employment for 30,000 workers and if the same amount was invested in clothing units it would have given employment to 600,000 workers.
Over the year the World Bank (WB) had been pointing out in its reports that Pakistan stands better opportunity along with India and China in free market era but it is weak in its apparel industry and it needs to do a lot to strengthen this sector by removing difficulties it was confronted with and provide more facilities to ensure its survival in the post-quota regime.
But unfortunately, if the government on one hand has failed to do its job of protecting textile industry's interest in quota free market, the private sector, on the other, also remained lethargic and ignorant about the basic requirements to face the challenges. Despite the fact that $4 billion investment is a huge amount, this was mainly made by large groups.
The foremost problem the apparel industry is going to face is the high cost of production vis-à-vis their competitors from India and China. At present, the industry complains about blocking of huge funds towards sales tax refund, despite the fact that exports exempted from sales tax. This does not only deprive the industry from the much-needed working capital but was also a root cause of corruption-a certain percentage is to be paid for getting refund.
With regard to other inputs the electricity cost is the highest when compared wit regional countries, including India, China and Bangladesh. According to World Bank's cost structure of electricity the per unit cost of power in Pakistan is 3.5 cents, Bangladesh 0.7 cents, India 0.9 cents and China provides electricity free of cost to its apparel industry.
Similarly, little has been done to prepare the industry to meet the social compliance challenges which being feared could be used by the West (US and EU) as a potential trade barrier.
The government has not invested in such areas which could help the industry to face these challenges. There are effluent and industrial waste treatment plants. Some of the existing are either out of order or over-loaded. The infrastructure of existing industrial areas in the country is almost non-existent. The industry faces water shortage, power shortage, low voltage causing damage to plant and machinery. In other words, the basic requirement needed for smooth running of an industrial unit is either poor or not available. As a result of this, most of the industrial units have to make their own arrangements which results in higher cost of production. They have to purchase water, install their own generating units to keep their industry in operation.
Another irritant, which also results into higher cost of production, was the involvement of numerous numbers of federal and provincial departments and agencies in collecting levies and cess. There are as many as 29 provincial agencies and 14 federal government departments that keep exporters busy throughout the year for collecting their respective taxes. These agencies are vested with land revenue powers and can arrest any defaulter. Therefore, even after collecting official taxes they mostly go for illegal gratifications.
The government has failed to counter the ill effects of Regional Trade Agreements (RTAs) and Free Trade Agreements (FTAs) some of the developed countries has entered into in the heel of WTO to counter free market era. The US entered into regional trade agreement - NAFTA - and also entered into several regional trade agreements with many Middle East countries are going to benefit from them.
Similarly, the European Union (EU) has also developed Generalized System of Preference (GSP) under which it could select and also categorise countries to give them some preferences from customs duties so that they could have higher market access over other countries.
Despite the fact that Pakistan had been suffering a lot at the behest of the West for fighting proxy wars but in return it was not given any wroth-mentioning economic benefit. After fighting Afghan war the country's social fibre was totally shattered and drugs and arms culture was introduced. With this the society's tolerance also disappeared. Then came war against terrorism, and the West once again put Pakistan as front line state in this war. The country even today is suffering but the West instead of offering market access doled out couple of millions of dollars in aid and grants.
If the country is not going to ensure employments to the youth, the problem of law and order and other social evils could not be removed and for this the West has to ensure greater market access with special concessions and preferences.
