KARACHI, May 31: The government is expected to reduce export refinance rates to give some relief to export trade, particularly textiles and clothing, which are facing tough competition from countries of the region.

The textiles and clothing industry wants the government to look into the rising cost of inputs that has almost eroded the profit margins in the post-quota world market.

According sources privy to the meeting held on Tuesday between the representative body of textile industry and Prime Minister Shaukat Aziz, there was a strong indication that the government would reduce export refinance rates to below five per cent. The reduction is expected to be announced in the budget for 2006-07.

“Soon you will hear that the entire textile industry has become sick and this would result in massive unemployment in the country if the government does not look into this brewing crisis and have a realistic approach towards the high input cost and rising tariffs of utilities,” exhorted a leading textile tycoon during a consultative meeting held recently with Textile Minister Mushtaq Ali Cheema.

Taking serious note of the emerging crisis, the minister immediately formed a representative body of the textile industry headed by Zubair Motiwala. Under a single point agenda, the team was asked to prepare recommendations and suggestion as to how to bring down the cost of inputs and ensure textile industry’s viability and export competitiveness in the world market.

“Undoubtedly, export volumes of textiles and clothing have increased manifold during the post-quota regime but profit margins have came down drastically, as other countries of the region are giving hidden subsidies to their industry or even introducing such trade and financial packages that could give them cushion from other trade activities,” pointed out a leading garment exporter.

Pakistan Bedwear Exporters Association Chairman Shabir Ahmed said the expected government move of reducing export refinance rates was too little to offer and it could hardly meet the situation, as the input costs were so high and varied that only a bold decision could sort out the issue.

He said the government was only looking at the costs appearing on papers and was not taking into account such hidden costs which the industry had to pay ever now and then on different accounts and to different provincial and federal governments’ departments.

“Reduction in export refinance rate will not help because at the most the government will cut it to five per cent or less from the present level of nine per cent, but the industry is presently confronted with greater gap and could not sustain any further,” he added.

Mr Shabir said that stamp duty in Sindh was higher at 0.3 per cent, whereas in Punjab it was only 0.2 per cent.

He said banks were now focussing on consumer financing where they got big margins and profits and were not interested in financing the export business.

Aslam Karsaz, former chairman of the Pakistan Hosiery Manufacturers Association, says the only way out is to declare all those units that export 80 per cent of their production as export processing units (EPU).

Presently, he said manufacturers and exporters had to engage themselves with such departments that were there only to harass and intimidate them and waste their time. “Instead of concentrating on product development and quality, our time is wasted with such departments.”

“Once these units are declared EPUs, most of their issues related to labour laws and dealing with 36 provincial and federal departments collecting levies and taxes would come to an end and they would get more time to concentrate on product development and quality improvement,” Mr Karsaz suggested.