LAHORE, Jan 16: Pakistan’s steel pipe exports to Sri Lanka have declined to between $1.5-2 million in the last one year from $5-6 million as a consequence of a free trade agreement signed by the Sri Lankan government with India in early 2001.

As a result of the free trade agreement, Sri Lanka has slashed the customs duty on its imports of G.I. pipes and rectangular and square tubes from India to a mere four per cent from the previous 14 per cent. The importers of Pakistani pipes still have to pay a duty of 14 per cent due to the absence of a free trade agreement, Mian Shafqat Ali, leading steel pipes producer and exporter, told Dawn here on Tuesday.

He said the “reduction in the customs duty on the Indian pipes had given the Indians a price advantage of close to $40 per ton”. Pakistan exports steel pipes to Sri Lanka and other nations at an f.o.b. price of $400 per ton — the international rate with a $5-10 per ton difference. “The Sri Lankan importers are ready to pay us a premium of five per cent on our products due to our superior quality,” Mian Shafqat asserted. “A free trade agreement with Sri Lanka in the near future can help us regain our lost market share there,” he said.

Pakistan’s annual exports of steel pipes — rectangular/square tubes used in furniture and windows, G.I. pipes used for domestic water and gas lines, and high pressure pipes used by the industry and gas and oil companies — stands around $10 million. Importing countries include Sri Lanka, Bangladesh, US, UAE, UK, Australia, etc.

Only two manufacturers of steel pipes — International Industries Ltd in Karachi, and Ramna Pipe and General Mills in Lahore — are in the export business.

The global export market of the steel pipes is stated to be close to $27 billion a year with the US, Western Europe, Australia, and Japan being the biggest importers. Major exporting nations include Indonesia, Malaysia, Thailand, and India.

“There are 10 steel pipes manufacturing units in the organized sector and about 40 in the unorganized sector having an installed production capacity of 200,000 tons,” said Mian Shafqat. He added all these units were operating on only about 50 per cent of their installed capacity. “Some three units in the organized sector and seven or eight in the informal sector have already been closed as result of huge gap between demand and supply (installed capacity) and many are facing problems.”

He said the units making high pressure pipes were operating on only 15-20 per cent of capacity due to lack of development in the oil and gas sector. Similarly, the units producing G.I. pipes are operating on about 60 per cent of their capacity because of lower than normal construction activity in the country.

Answering a question, Mian Shafqat said the reconstruction of neighbouring Afghanistan was not likely to open up “floodgates of business” for the steel pipe industry. “But we’re hopeful that it would help us increase our production if we succeed in selling our products in Afghanistan.”

However, there is a big “legal” hitch in exporting any item to Afghanistan by surface although the government has already waived 15 per cent sales tax on export there.

“The law does not allow us to export any item, let alone steel pipes, to Afghanistan or, for that matter, to any country without payment of customs duties and (six per cent) income tax on it. We aren’t allowed to avail the DTRE scheme if we export something by land. It raises our cost and price. If we export to Afghanistan, under SRO-450, our price would be around $600 per ton as compared to $400 per ton for other countries.