Cloud looms over textile exports

October 19, 2015


‘Our government has enough time to help our textile industry stand back on its feet.'—Reuters/File
‘Our government has enough time to help our textile industry stand back on its feet.'—Reuters/File
Courtesy: US Congressional Research Service
Courtesy: US Congressional Research Service

WITH the implementation of the Trans-Pacific Partnership — the free-trade agreement between 12 countries straddling the Pacific — still awaiting a nod by the US Congress, most non-TPP textile-producing nations have already started to assess the deal’s potential implications on their exports.

The 12 economies forming the TPP collectively represent 40pc of the world’s economic output. Though the deal’s relevant details are yet to be released by the TPP member countries, there is a broad consensus among experts that the “exports of textiles and apparel to the US from most non-TPP countries, including India, Bangladesh, Cambodia and Pakistan, will be hurt after the agreement”.

Vietnam, being a member of the TPP free-trade zone, is being tipped to emerge as the biggest winner from the deal, followed by Malaysia.

It was in anticipation of the conclusion of negotiations on the pact that Vietnam’s textile industry attracted more than $1bn in foreign investment in the first seven months of calendar year 2015.

WTO statistics quoted by foreign writers show that the 12 TPP partners altogether imported $65bn worth of textiles and $154bn worth of apparel in 2013 —accounting for 20pc and 32pc worth of global imports respectively. In 2014, 17pc of US textile and apparel imports of $17.8bn came from the TPP region.

“The impact of the deal on Pakistan’s textile and apparel exports is difficult to predict at the moment because we do not have the exact details of the deal,” M.I. Khurram, a major knitwear exporter, said.

A textile ministry official agreed, saying the ministry had so far not done any study on the possible impact of the TPP on the country’s textile and apparel exports.

“But the duty-free access that Vietnam will get to the American market will definitely affect us as it will erode our competitiveness in our second-biggest market after the European Union,” added Khurram.

‘Our government has enough time to help our textile industry stand back on its feet and make efforts to secure duty-free market access to the US market’

Indeed, Islamabad has been pressing Washington for granting duty-free access to its textile and apparel exports in the large American market for some years now. But the efforts have so far not produced any result.

“We have long been urging the (Pakistan) government to vigorously pursue the issue of market access for our textile exports to the US in anticipation of the conclusion of the TPP deal,” asserted Shahzad Azam Khan, chairman of the Pakistan Knitwear Association.

“We wouldn’t have to worry about the impact of the TPP on our exports to the US if we had made serious efforts and secured duty-free access to the American market in exchange for our frontline role in the war on terror. Unfortunately, the economy is nowhere on the priority list of the government,” he argued.

With the domestic textile industry nearly on the verge of collapse because of various internal and external factors, many exporters insist that the conclusion of the TPP deal would not ‘damage them much’.

“Our competitiveness has already been eroded because of energy shortages, high electricity prices, taxes on exports and the import of subsidised textiles and apparel from India and China. What difference will it make to us if Vietnam or any other country gets greater market access to the US,” asked the frustrated chief executive of a major vertically-integrated company on the condition of anonymity.

The textile industry gets electricity at a rate of around Rs13 a unit, compared to Rs8-9 per unit in rivals Bangladesh, India, Vietnam and Sri Lanka. Besides, it faces a tax burden of over 12pc on its exports. And many exporters, especially the small and medium ones, are facing a liquidity crunch because the government is delaying their tax and other refunds.

Pakistan’s textile exports tumbled by over 10pc during the last financial year and by 14pc in the first quarter of this year.

He said some textile producers had already sold their factories and many have put them on the market for sale. “At least 35 spinning and weaving factories in Punjab have already closed down owing to losses. Others are running just one to two shifts per day. The TPP may only make our fight for survival a bit more difficult,” he contended.

Azizullah Goheer, secretary of the Pakistan Textile Exporters Association (PTEA), agreed with the view. “The TPP isn’t a major threat for Pakistan’s value-added textile exports (to the US) in the near term, but our industry’s eroding competitiveness is.”

His argument that the TPP did not pose an immediate challenge for Pakistan was based on two factors. First, the deal will not be implemented unless the US Congress sanctions it, and this may take longer than anticipated by the pro-TPP forces in Washington.

And two, the rules of origin provided in the deal say only the products made from yarn and fabric produced in one of the TPP countries can qualify for duty-free access under the pact.

“These two factors give our government enough time to put in place policies that will help our textile industry stand back on its feet and to make efforts to secure duty-free market access to the US market,” he insisted.

“It will be a shame to see Vietnam capture a much larger share of the global textile market without even producing cotton (like Bangladesh).”

Published in Dawn, Business & Finance weekly, October 19th , 2015

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