LAHORE, June 5: The proposal to replace the existing six per cent across-the-board research and development (R&D) cash subsidy, enjoyed by the value-added apparel sector with a progressive duty drawback/rebate system, has created jitters among exporters of woven and knitwear garments.

Under the proposal, rate of rebate or duty drawback, to be received by an exporter, will depend on the volume of exports -- the higher the exports, the greater the rebate and vice versa.

“Over 90 per cent of the total woven garment exports from the country are achieved by small manufacturers whose individual export volume is less than $3 million.

The exporters whose exports are between $25 and $100 million form only one per cent of the entire industry,” said Ijaz Khokhar, former chairman of Pakistan Readymade Garments Manufacturers and Exporters Association, while talking to newsmen on Thursday.

“It simply means that replacement of the current across-the-board subsidy with some other system that benefits big exporters rather than the smaller ones would hit the latter hard and our efforts to increase apparel exports would suffer,” he said, adding, it would also undermine efforts to add more value to our textile exports.

Shahzad Azam Khan, former chairman of Pakistan Hosiery Manufacturers Association, also expressed his disappointment over the proposal.

“The knitwear industry is already suffering losses and trying to sustain in the global competition even after the closure of numerous units due to uneven playing field. If the R&D facility is withdrawn and replaced with the progressive rebate/drawback system, more units would become unviable and shut down,” he warned.

“Exports of readymade garments have grown over seven per cent in dollar value and nine per cent in unit price during the first 10 months of the current financial year to April in spite of political turmoil, energy shortages and rising inflation. “The increase in the unit price indicates that the R&D support is being used to increase value-addition and it is paying off. That makes a case for the continuation of the support for at least two to three years,” Mr Khokhar said.

He said the readymade garment exporters would meet Textile Minister Ahmed Mukhtar on Friday to convince him on continuation of the facility in its present form.

He said the proposal to cut rebate for smaller exporters and encourage bigger ones with higher rate of rebate was intended to encourage mergers in industry.

“But you cannot achieve this objective because the industry is scattered. This objective can best be achieved by establishing textile parks, garment cities and clusters with cloth development centres and training institutes to consolidate production,” he said.

He said the government must remember that it could not obtain growth in apparel sector unless it provided the smaller manufacturers cheaper loans for expansion.

“It is the small sector that can give you growth. The bigger textile players are already moving in to other more profitable ventures, like power-generation and cement production,” he argued.

Mr Khokhar said that the withdrawal or replacement of the current R&D support mechanism would deprive Pakistan of the chance to enhance its exports offered by spiking production costs in China and revaluation of currency in India.

“A lot of business is ready to come to Pakistan because of these two factors. But if the government withdraws the incentive given to the industry, it would not be able to cash in on the opportunity,” he warned.

He urged the government to fulfil the promises made in the budget and the trade policy for the current year – establishment of export processing units, and provision of financial assistance to exporters wishing to open offices or launch their brands in foreign markets.