The current surge in import of cotton yarn from India has caused a face-off between the spinning and the value-added sectors of the textile industry, over whether these imports should be discouraged and subjected to customs duty or not.
The spinners favour the duty as they find their yarn losing market to cheaper imports from India, and want an immediate halt to the ‘dumping’ of the commodity from the neighbouring country.
Out of imports of 1.7 million bales so far in this fiscal year, approximately 1.2 million bales came from India, at a landed cost of 81-88 cents per pound. Imports from India save a lot of freight cost and transportation time.
In a recent communication to the federal textile secretary, the All Pakistan Textile Mills Association (Aptma) sought a minimum 5pc customs duty on cotton yarn imports from India. Since its price is 15-20pc lower than local yarn, it is preferred by the ancillary and value-added sectors.
Under the current policy, Pakistan allows duty-free import of yarn from India. On its part, the Indian government provides rebate, duty drawback subsidy and technology upgradation fund to its yarn exporters. The continuing rise in Indian imports is seen by local spinners as an act of dumping of their fine count yarn in the Pakistani market to the detriment of the local yarn industry.
But the value-added sector is opposing any customs duty on Indian imports because by blocking or discouraging them when global prices have started falling, local spinners, is it said, intend to sell their produce in the local market at higher prices.
If that happens, the chief coordinator of the Pakistan Readymade Garment Exporters Association says the garment industry would not be able to fully benefit from the duty-free access to the EU under the GSP Plus scheme, as it will make the raw material costly. The government, he says, must continue with the existing zero-rated yarn imports from India.
Meanwhile, the head of the apparel sector body has come up with a different proposal, saying the government should discourage the export of Pakistani cotton yarn, as the priority concern is the production of value-added textile items to achieve export targets under the GSP Plus scheme.
The problem arises from the fact that production of cotton yarn and other textile goods get costly gas and electricity.
Using cheaper imports of yarn from India is more prudent. And stakeholders of the value added sector support this proposal, he claims. Any tax on yarn will have a negative impact on apparel textile’s growth and exports, he warns.
The cotton market remains dull these days as leading spinners are reluctant to enter into any deal at this juncture, when they are already holding huge stocks of unsold cotton yarn. The general lethargy in cotton trading is also attributed to decreasing demand of cotton yarn from China.
But the textile industry is still optimistic about the Chinese market, which, it hopes, would look towards Pakistan when buying picks up, because Pakistani spinning industry has the best dyeing capability, and its yarn is cheaper as it is zero-rated in China under the bilateral free trade agreement.
However, Pakistan has fared well as far as export of yarn is concerned, which, despite some decline, crossed the one billion dollar-mark during the first half of this fiscal year. China happens to be the largest buyer of Pakistani cotton yarn. The industry sees the current lower Chinese demand only a passing phenomenon, and is confident that exports are likely to increase in the coming years.
According to official statistics, Pakistan exported cotton yarn worth $1.072 billion during the first half of 2013-14, compared to $1.1 billion in the corresponding period of the last fiscal year, depicting a slight dip of 3pc.