Two weeks from today, the global quota regime in the textile sector would fall apart. That event could transform the dynamics of international trade.
There is sure to be a reallocation of resources and markets. Until now a hostage to the quota regime, the textile industry could score new successes and, under the new circumstances, bring glad tidings for Pakistan - primarily a cotton and textile-based economy. How best we can use this opportunity depends on a host of factors. Textile tycoons are all set to seize the opportunities. But for people in general, it may not necessarily be a boon.
In this report, our team of economic reporters have attempted to provide readers an insight into the issue that should have been hotly discussed and debated on all forums, but has somehow remained shrouded in mystery.
KARACHI: The countdown has begun. Thirteen days from now, the world will witness the herald of the quota-free era. Though profound in effect and one of the major economic events, there is likely to be no fanfare. May be, also because the liberalization of textile trade serves the interest of cotton producing developing countries viz-a-viz high labour cost developed world.
The phasing out of the Multi Fibre Agreement (MFA) would not only affect the position of participants, but would also redesign the very ground on which the game is being played. From Jan 1, 2005, the international trade in textile and clothing would enter a new phase. In compliance with the Agreement on Textile and Clothing (ATC), developed countries will dismantle quota restrictions on imports of textile products from developing nations.
This event would affect both the volume and composition of trade. It would also lead to repositioning by all relevant trading countries and sectors with strong linkage to trade in this category. Pakistan, an active player, with an economy that is still primarily focussed on silver fibre, cannot but ebb and flow, depending on how the country is able to handle this new look business world that would offer, both: challenges as well as opportunities.
For Pakistan, the glass is half full. "Textile Vision" has been an obsession with the present government for quite some time; macroeconomic indicators are positive; the private sector has made enormous capital expenditures in balancing, modernization and expansion (BMR); and liquidity is not an issue since the economy has loads of funds waiting for investment in suitable and profitable avenues.
Pakistan can hope to gain immensely from this development. There is surely the possibility that entrepreneurs may opt to shift money out from other sectors to textiles, thus expanding the size of activity. However, the quality and quantity of these gains, barring unforeseen factors, would depend on the level of understanding and the involvement of stakeholders and management of policy implementation.
The academicians, who have an eye on the economic policy formulation and monitoring, reinforce the view that the country could and might succeed in increasing its share both in volume and value in the world textile trade initiating a multiplier effect on the economy at large.
"In general, countries that utilized 90 per cent of their textile quotas would possibly be the ones that eventually will reap the benefits of quota abolition," says Dr Qaisar Bengali of the Policy Development Institute of Social Sciences, a Karachi-based research organisation. He affirmed that such scale of utilization indicated that their textile sector was well positioned and Pakistan was one such country, where the opening up of market would bring positive results to its economy.
Dr Qaisar thought that the problem would soon arise not from the demand, but fro the supply side. "To meet the demand there will be a need to expand textile and allied industries and for that the government will have to make the investment environment more conducive by taking steps towards reducing the cost of doing business in the country," he said.
In Pakistan like in several other countries - where cotton has ruled as the king - the growth of textile and clothing sector has played a significant role in industrialization of the economy. It created immense number of jobs and helped in the urbanization, notwithstanding many instances of exploitative practices. Textile absorbs major portion of women workforce. The sector also contributes a significant share in the country's GDP.
Global export of textiles and clothing currently exceeds $350 billion per year. According to UNDP estimates, in the next 10 years the global trade might actually double to touch $600 billion by 2015. In all of that, Pakistan's share is just about $10 billion.
It has to be conceded that the government has, at least this time, adopted a forward-looking approach. It started as early as 1999 to carve out textile policies needed to sustain and develop in the quota-free environment. That helped in ship shaping of bigger textile industries to gear up to ride out the challenge. This was, however, not enough. The industrial landscape in this sector is dotted with medium and smaller units.
There are several thousands of entrepreneurs whose labour intensive units that employ millions of people could be out in cold without required preparations. The support given to them so far was much less than the requirement. The government is said to be contemplating different options to assist them. One hopes that the package is implemented before the panic attains the proportion of a crisis.
In the last five years, though the country was represented in the remotest corners of globe by favourite higher-ups, the information was not disseminated even in relevant quarters. From the feedback that we got in the course of preparation of this report, it transpired that in the federal capital, except for a small team in the commerce ministry no one knows where the country is heading and what could it actually translate into.
Even ministries and departments such as those of agriculture and industry and the Board of Investment were wilfully or otherwise kept out of the preparatory process. It has to be realized that one false step by the agricultural ministry could sink the country in the mire. No matter how much we invest in the BMR in the industry the fact remains that we would all but be fighting a loosing battle if the cotton crop and rural economy is neglected.
The preparations, if any, made by the textile ministry, are shrouded in mystery. Responsible people there groped for answers to probing questions and either they had nothing to say or were averse to lend comments for this report. More worrisome aspect, however, was almost complete exclusion of provincial governments from the exercise.
Implementation of policies is not possible without involvement of provinces unless policy papers are meant for consumption of conferences and meeting participants only and the authority neither has the will or the desire to implement them.
As for general awareness on the WTO, the situation appeared quite bleak. Even educated urbanites were at a loss to answer queries on the emerging world trade regime. The government, the individuals and the NGOs have had little interest to educate masses or launch campaigns to make them plan for the quota-free era. The changing world is not a board room issue of some ministry or business house. It is something that would affect all the people. The effects of a major change in textile sector could not be marginalized in an economy where textile has such a major share in economy.
To a layman, the WTO is a phenomenon that has made possible the entry of imported items in the local market. "I do not care for all the philosophy and whatever long-term effects it may lead to, of what you call this WTO, may mean," said Javed, a salesman at a local departmental store, after an impatient hearing to our preaching. "All I care about is that now I can afford to purchase a new Chinese TV, may be of lower quality. A top class brand of TV was and is beyond my reach. So I see no reason to oppose a process that makes me and my family feel good," he argued.
An earlier survey by Dawn revealed that the liberalization of trade has helped in creating a multi-tier consumer market. But on the specific issue of abolition of quota and its possible impacts, public awareness is next to nothing.
In this context, the private sector also failed to demonstrate the maturity and acumen that was expected of it. The entrepreneurs may have scrumptiously kept up their preparations to meet the day, but as a collective body, they made no efforts to channelize resources to institutionally assist their class. "Our chambers and federations are too deeply involved in petty politics and have continued to be used as launching pads by businessmen to jump into the limelight in pursuit of their personal interests," says a local businessman, Majyd Aziz.
"Just browse the website of the Federation of Indian Chamber of Commerce and Industry and you would come across loads of information based on research freely available to anyone who may be interested," he says. Another frustrated small businessman agreed, saying that "our business forums are dominated by rent-seekers and middlemen."
It is never too late to make amends. If all the stakeholders were to be brought on a single platform and an earnest hearing given to the voice of cotton growers, it would be to the benefit of all. Instead of looking towards the government for concessions and support, the private sector must act responsibly for the collective benefits that the change can bring about.
"We will have to change our mindset before we graduate to a more prominent place in terms of trade and development in the comity of nations," commented an analyst. It, however, is not a wise strategy to put all eggs in one basket. For a development process to be sustainable with a depth to absorb shocks, it is necessary to widen the base of both agriculture and industry. We must opt for diversification as opposed to concentration on a sole sector (textiles), no matter how crucial that might appear to be.
