Pakistan’s exports from European perspective
by Dr. H.R. Sheikh, Professor Emeritus, Textile Institute of Pakistan
 

Mirza Qaiser Baig had served Pakistan in top most positions in public sector oganisations. He worked as Chairman Pakistan Steel, Chairman Export Promotion Bureau (now Trade Development Authority), Secretary Ministry of Commerce and Pakistan’s Ambassador to Italy. Mr. Irfan Hussain during his welcome address also thanked Mirza Qaiser Baig for his support and contribution during the building of the TIP campus.

Problems in Textile Exports
 

Mirza Qaiser Baig while highlighting the problems of the textile industry said that the average contribution of textile exports to total export uptil 2003-2004 has been about 66%. However, it declined to about 60% in 2005-06. Thus, the growth rate of textile exports is not satisfactory. On the other hand continuously rising import bill and Pakistan’s trade deficit of about 15 billion dollars is a matter of great concern. The main problems of textile exports are as follows:-

Availability of trained workers

Trained and skilled workers are indispensable for producing textile products conforming to the quality required by the end-users. For example, one industrialist arranged training of workers in his factory, but trained workers were taken away by other mills. Now he has employed about 50 Sri-Lankan workers and kept their passports in his custody. This industrialist, who is a friend of Mirza Qaiser Baig is in the business exporting ready-made garments to U.S.A. and has made enough profits in the knitwear sector. The price of one shirt in market of U.S.A. ranges from $250 to $300. Similarly, another friend is exporting textile from Pakistan to Italy successfully and has a factory in Pakistan as well as in Italy. Pakistani workers are trained by him in his factory in Italy. These two success stories were mentioned by Mirza Qaiser Baig but there are many other success stories in knitting industry, which are to be highlighted so that the sector can learn from their marketing skills and acumen.

Impact of WTO

WTO (Global Free Trade Regime) commenced with effect from 01.01.2005. Competition in the international export market has intensified and textile products from Pakistan and other developing countries can find access to markets of E.U., U.S.A solely on the basis of quality and competitive price.

The demand for textile exports from Pakistan to EU is unfavorable as currently, import duty of 9.6% is imposed on all categories of textile products from Pakistan and bedlinen in also subjected to an anti-dumping duty of 5.8% by the E.U. In contrast textile exports from Bangladesh being a least developed country (LDC) enjoy duty free access to the E.U. market.

Similarly, Sir-Lanka is also included in the GSP by the E.U. because of good record of social compliance and Sunami Disaster. Furthermore, E.U. has also started discussions with India for finalizing FTA, Free Trade Agreement. At present the prospects of such discussions with Pakistan are not bright inspite of initiatives by the Ministry of Commerce, Government of Pakistan.

Market Segmentation

The high quality, high price segment of the textile export market will continue to grow in EU, whereas, the low quality, low price segment is also emerging at the same time.

Foreign immigrants are increasing in Spain, Italy and Greece. For example, Italy has the highest number of Pakistani immigrants after U.K. and these immigrants from developing countries usually buy low quality low price textile products. The quality conscious European buys finest quality embroidered pillow cover @ Euro 1500. In contrast an immigrant buys low quality pillow cover @ Euro 10 only.

Unfortunately Pakistani textile exporters have in general traded on price and has not placed much emphasis on the basis of quality. Whenever problems are encountered they demand subsidy, and subsequently, the subsidy places less stress on quality improvement. Subsidies should be rolled back and in general Pakistani textile units are small size units and they do not enjoy economies of scale. Furthermore, some Pakistani manufacturers start price war and try to cut price if another Pakistani producer is about to get an export order! In other words Pakistanis are enemies of themselves.

Pakistan’s Image and Non-Tariff Barriers

Pakistan’s image is not favorably perceived in the developed countries and the foreign importers / buyers were reluctant to visit Pakistan due to law and order situation. Pakistani textile exporters have to travel to Dubai, Abu Dhabi, Europe, U.K, Hong Kong, Japan etc. for finalizing deals. Foreign buyers generally exploit the situation and offer lower prices.

With the commencement of WTO non-tariff barriers are being applied by the developed countries to reduce exports from developing countries to protect their indigenous textile industries. They demand that textile products should have been manufactured by processes which are environment and worker friendly and are free from substances which are harmful to the user. For unhindered access of garments or finished fabrics, the textile products must carry the label of OKO-Tex standard 100.

Furthermore, the products must have been manufactured by textile mills which fulfill the obligations of social compliance as envisioned in the relevant International Labour Organisation (ILO) conventions to which Pakistan is a signatory.

Question and Answer Sessions

Why curve of Pakistan’s Textile exports shows a growing trend if there are problems?

Although there is an increase in dollar value of exports, but during the last five years the curve of exports has been showing a declining trend in value. Last year growth was only 5.27%. In contrast, Chinese textile exports quadrupled. Textile exports from Sri-Lanka and Bangladesh tripled and from India doubled. Pakistani manufacturers must focus on value-addition to increase textile exports.

Why some of the top Pakistani Textile industrialists have shifted their production facilities to Bangladesh?

European GSP allows duty free access to textile exports from Bangladesh. Bangladesh is a major buyer of Pakistani yarn. In fact 75% of Pakistani yarn is sold to our competitors e.g., China, Bangladesh, Hong Kong, Taiwan and South Korea. The industrialists from Pakistan are shifting to Bangladesh and then buy yarn from Pakistan convert it into value-added products and prefer to export from Bangladesh, and most of them are following the precedent of Tata and Birla of India.

The Government of Pakistan (GoP) is trying very hard to improve market access for Pakistan’s exports. In this context GoP has finalized free trade agreements (FTAS) with China and Maldives. However, the really important markets for Pakistan’s textile exports are EU and USA and governments of these countries have regretted that on account of their pre-occupation they cannot start negotiations for FTA. However, U.S.A. has agreed to allow products manufactured in the proposed Reconstruction Opportunity Zones (ROZs) for export at zero custom duty to the U.S.A.

The Trade Development Authority (TDA) is planning to hire foreign experts for assisting the textile manufacturers to develop international brands which will promote textile exports from Pakistan. This is a step in the right direction. However, it it is not easy to develop brands, and Pakistan industrialists are in general reluctant because establishing a brand requires huge investment! It also requires R&D for brand design and generally the funds for R&D are utilized in spinning and weaving sectors and also the Denim units.

What is the status of social compliance in the textile industry of Pakistan?

The most important issues on which action is required by the textile mills are elimination of child labour, remuneration of female workers, gender equality and the right to from trade unions and collective bargaining . In general, fulfillment of obligations social compliance in conformity with International Norms is not satisfactory in the textile industry of Pakistan.

Is Pakistan’s textile industry on the right track with reference to product innovation?

Only imaginative technical professionals think about innovation, and very few industrialists think in this context, as the results from such investments take time to be profitable and on-stream in production process. However, for achieving long term results professional management must be empowered to formulate new products and services for the long term profitability of the company. Foreign importers demand just in time delivery and record of Pakistani exporters with respect to delivery schedules has been satisfactory, nevertheless, some buyers also make arrangements with alternative suppliers to be sure of just in time delivery.

What is your opinion about the potential of local market?

It is logical to argue that if there are margins for profit in the domestic market, why bother about exports. I believe domestic marker is improving and some manufacturers are concentrating on the domestic market and developing local brands as is being done by a prominent industrialist Mr. Bashir Ali Muhammed of Gul Ahmed Textile Mills Ltd, Afroze Lari of Bed & Bath and Mian Latif of Chenab Group. However, from national point of view total exports, including textile exports must grow at satisfactory rate so that imports can be financed.

Why inflation and load-shedding are not controlled in Pakistan and infrastructure is poor?

According to bench-marking of the World Bank competitiveness of Textile industry of Pakistan is low. In Singapore one merchant ship is cleared in two hours, whereas it takes one week in Pakistan. The price of Pakistani products in the international market is low because of low quality. For example, the comparison of average price of Pakistani bedlinen per ton with that from other countries is as follows:-

It is extremely urgent and important that Pakistan industrialists must concentrate on value-addition, and Government must also provide support and level playing field to the textile industry so that it can compete in the international market.