Published On: Tue, Oct 13th, 2015

Trans-Pacific Partnership deal spooks Pakistan’s textile makers

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Disgruntled Pakistan’s textile makers are fretting over prospect of duty-free access of Vietnamese exports into the United States as the latter struck a mega free trade deal, known as the Trans-Pacific Partnership (TPP), with 11 countries situated on the Pacific Rim.

Under the deal, as many as 18,000 tariffs may be removed on the products of the TPP participating countries.

China’s southern neighbour Vietnam, which is an arch trade rival of textile producing Pakistan, will also enjoy the preferential trade privilege under the TPP – a fact that spooks export-oriented sector of the south Asian country which fetches nearly half of its US$25 billion annual exports revenue from textile and garments.

“Presently, Pakistan’s textile products don’t have duty concessions in US,” said Jawed Bilwani, chairman of Pakistan Apparel Forum.

“We’re concerned about the TPP, and were discussing its potential fallouts a few days ago.”

 

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Muhammad Adrees of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI)

President Muhammad Adrees of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), the country’s apex trade body, concurred that textile exports will have a tough time in the US market in the wake of this new deal.

Exports to US dropped to $3.96 billion in the fiscal year of 2014/15 as against $3.95 billion a year ago. Textile products, knit apparel, woven apparel, cotton and yarn and fabric, and leather are the main exports.

The United States is the second largest export destination after 28-member European Union (EU) for Pakistan.

A senior outsourcing manager at Walmart said Pakistan’s textile exports to the US market are already down, “but that was not because of any change in the US policy.”

“The country is facing tough competition from China, India and Bangladesh,” said the official, requesting anonymity.

In spite of the competition, he added that Pakistan still dominates a core competency, “of cheap cotton much like India having core competency in finer yarn production.”

“We’re not seeing that much impact of TPP on Pakistan’s textile exports to US since Pakistan’s textile industry has an established infrastructure with an integrated supply chain from cotton ginning to shipping line,” said the official who has been buying textile merchandise from Asian region for its US retail behemoth for over a decade.

However, he shares the uneasiness of textile makers who are discontent with the Pakistan’s government’s industrial policy.

“Cost of doing business is high…prices of utilities are high,” Adrees rued.

He said the Prime Minister held a five-hour long meeting with the various industry people recently. The premier realised that the industry is in hot water.

But, he said in reality things are not turning “in favor of the industry.”

“Only two percent of the last announced textile package was materialised.”

The government pledged to the textile industry that it would announce a relief package for them by September-end amid high cost of doing business and falling textile exports.

Textile exports dropped to $13.527 in the fiscal year of 2014/15 billion from $13.658 billion in the preceding fiscal year though Pakistan’s 20 percent of exports enter the European Union at zero tariff and 70 percent at preferential rates under the generalised scheme of preferences (GSP) plus status. More than 60 percent of the country’s exports to EU are from textile sector.

Government pinned hopes on exports growth on the back of GSP plus, but energy crisis and other challenges hampered the industrial output.

Last week, the All Pakistan Textile Mills Association (APTMA), representing spinning, weaving and knitting factories, claimed that high electricity and gas tariffs increases cost of doing business by Rs170 billion every year.

Media reports said the association called a shutdown of its member companies on October 14 to protest against the delayed announcement of textile package and escalating production cost.

The reports cited the APTMA officials as saying that around 0.25 million spindles have already been closed as they were operating below break-even point.

Textile industry in Pakistan receives gas at a cost of US$6.7 to US$7.7 per million metric British thermal unit (mmBtu) as against an average $4.2 in India, $3.1 in Bangladesh and $4.2 in Vietnam.

Likewise, they bear electricity tariff of 15 cents/unit as compared to 8 to 9 cents/unit in the competing economies.

Besides, the government is not clearing payments in lieu of tax refunds and bills of electricity supplied by captive power plants to the industry, whined Abdul Razzak Agar, chief executive officer at Agar Textiles (Private) Limited, a spinning factory that also supplies power to the national grid.

“Actually, the economy is not right now a priority of the ruling class, which is mired in a political mess,” said a senior business leader.

Bilwani said the government is not addressing the genuine grievances of the industry, “and we’re tired of reiterating our problems.”

 

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