ANALYSIS: WTO to provide massive opportunities to textiles

The World Trade Organisation (WTO) would provide massive opportunities for established textile mills, senior analyst Faisal Shaji of Capital One Research said in his report on Friday.
“We earnestly feel that despite lingering uncertainties, WTO provides massive opportunities for established Pakistani textile mill owners, as they are all set to gain from massive demand emanating from important regions of the world,” said the analyst.

He said: “In our extensive coverage on textiles on periodic basis, we have been reiterating our optimistic stance on the sector especially with respect to key companies outlook.”

However, it is important to highlight some of the glaring facts embracing the textile scene in light of an end to the Multi Fibre Agreement (MFA) era and beginning of the quota free world, he said and added: “Moreover, recent developments pertaining to GSP by EU also heave some dampeners for key textile producers.”

While talking of the uncertainty part, many of the textile pundits tend to forget the demand side; which is expected to come alone from the huge US market.

Pakistani exports of value added textiles already surged in FY04 on account of trade concessions due to the front line status. As per international studies, the value of the global textile and apparel industry will go up to $250 billion by CY08, with countries like China, India and Pakistan would be the clear frontrunners.

Pakistan alone has the potential to grow from $5 billion to nearly $10 billion by CY08, which delineates that sales would be up by 6 per cent to about $4 billion in the fourth year of the post quota period.

Time and again, we have highlighted the looming ‘capacity rationalisation’ phenomenon coming in the US, which clearly indicates that existing capacities of the textile producers would not be good enough to meet the projected demand relating to value added textiles.

Despite this rosy picture, it is important to understand few under-mentioned dynamics that would follow suit in the post WTO period for Pakistan.

Worries about WTO: It is true that developed countries have agreed to remove quotas but they can still restrict textile imports from a developing country like Pakistan under the garb of creating legal lacunas by imposing regulations such as anti-dumping,environmental protection laws, product standards and quality compliance to attain relevant benchmarks, intellectual property protection etc.

In other words, by using said measures, developed nations can restrict more market access to Pakistan, which it badly needs.

The Government of Pakistan on its part is also a signatory to various such related agreements under WTO and needs a sea change in approach in running economic policies to maintain competitive edge in textile trade.

This aspect is particularly true in a sense that Pakistan faces a dilemma that it is not a part of any preferential regional agreement and thus cannot receive any preferential treatment as against regional countries close to the world’s major markets.

Likewise, looking at the domestic front, we feel that barring big players in the textile industry, middle and small tier producers still lack speed production, quality control management, marketing and time to market technology, which can hamper their profitable existence in the WTO era.

‘China safeguard’ measures from US not forthcoming, threatening Pakistan’sshare Until now, EU and US have not made significant efforts to curb value added imports from China, which is all set to take a 50 per cent share of the global textile market by CY08.

According to industry estimates, China’s apparel exports would increase to nearly 17 per cent per year to $125 billion in the same period.

Pakistan can also be a victim of quota removal and China’s persistent expansion, which also operates at an average productivity level of 55 per cent as against its own 15-16 per cent in accordance with US standards.

Concessions from EU going under GSP: It is being reported that Pakistani textile products would be subjected to normal custom tariffs from Jan 1 in 25 EU member states. Until now, Pakistan was getting exemptions on custom tariffs under Generalized System of Preference (GSP).

Pakistan, despite qualifying under the newly structured GSP, may not benefit from it, as it does not fall in the category of least developed countries (LDCs). Under this GSP arrangement, only those countries can avail exemptions whose exports to EU are less than one per cent, whereas Pakistan is a bigger supplier of textiles to EU and has a major share.

This implementation would add some vows among the big exporter to the region viz-a-viz Nishat Mills, Gul Ahmed Textiles, Al-Abid Silk Mills, M Farooq and Kohinoor Textile Mills, which would stand to loose the competitive advantage in pricing as against other world players due to high tariffs and existing anti-dumping duties in certain bed linen categories.

Courtesy: `Business Recorder

Muhammad Ramzan Rafique
Muhammad Ramzan Rafique

I am from a small town Chichawatni, Sahiwal, Punjab , Pakistan, studied from University of Agriculture Faisalabad, on my mission to explore world I am in Denmark these days..

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