RECOMMENDATIONS FOR

TRADE POLICY 2007-2008

BY

M.MUZZAMMIL HUSAIN
CHAIRMAN

TOWEL MANUFACTURERS ASSOCIATION OF PAKISTAN

77-A Sindhi Muslim Co-operative Housing Society, Karachi
Phone: 111-360-360 Fax: 4551628
E-Mail: tma@towelassociation.com
URL: www.towelassociation.com
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
BROAD OBJECTIVES

1. MAKING PAKISTAN A FREE TRADE ZONES AND

CREATING A SHIPPING & TRANSIT TRADE HUB.

2. ACHIEVING REAL PROGRESS IN SME’S SECTOR.

3. REDUCING COST OF DOING BUSINESS BY LOWERING

COSTS OF UTILITIES, INFRASTRUCTURE AND TAX
RATES
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
RE-EXPORT AND TRANSIT TRADE – THE KEY TO
TRADE CORRIDOR.
1. PAKISTAN HAS VIRTUALLY NO RE-EXPORT TRADE, DUE TO OUR
OBSOLETE TRADE POLICIES AND PROCEDURES

2. COUNTRIES LIKE DUBAI AND SINGAPORE HAVE THRIVED ONLY

ON RE-EXPORT TRADE FACILITATED BY FREE TRADE ZONES

3. PAKISTAN’S BUSINESS COMMUNITY IS VERY ENTERPRISING AND

CAPABLE OF HANDLING SUCH TRADE AND EARN HUGE
AMOUNTS OF FOREIGN EXCHANGE

4. WITH THE ADVENT OF GOWADAR PORT, PREAMPTIVE AND

PROACTIVE POLICIES BE PLANNED.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
FREE TRADE ZONE AT PORT QASIM - KARACHI
A FREE TRADE ZONE BE ESTABLISHED AT PORT QASIM,
KARACHI, OR EXISTING EPZ BE CONVERTED TO FREE TRADE
ZONE TO FACILITATE TRADING AND WAREHOUSING ON AN
INTERNATIONAL SCALE.
BENEFITS :
1. HELP TO BUILD BUFFER STOCKS OF RAW MATERIAL AND
COMMODITIES AT LOW PRICES.
2. TREMENDOUS OPPORTUNITIES OF RE-EXPORT TRADE, MAKING
PAKISTAN A REGIONAL TRADING HUB.
3. ENHANCE THE IMAGE OF PAKISTAN AS A FAVORED DESTINATION
FOR INVESTMENT.
4. PROVIDE CENTRAL ASIAN STATES, AFGHANISTAN, CHINA AND
OTHER COUNTRIES IN THE REGION WITH A TRADE CORRIDOR
5. SUBSTANTIAL FOREIGN EXCHANGE EARNINGS, EMPLOYMENT
AND PORT REVENUES.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
COST OF DOING BUSINESS
1. HIGH PRICES OF LAND
2. HIGH COST OF UTILITIES
3. NUMBER AND RATES OF TAXES
4. HIGHER PORT CHARGES AND COST OF TRANSPORT &
COMMUNICATIONS COMPARED TO OTHER REGIONAL PORTS
5. HIGH COST OF RAW MATERIALS DUE TO LACK OF BASIC
INDUSTRIES AND DEPENDENCE ON IMPORTS
6. RESTRICTIVE BUSINESS ENVIRONMENT DUE TO OVER
REGULATION.
PROPOSAL: TAXES OTHER THAN GST AND INCOME TAX BE
PHASED OUT TO REDUCE NUMBER OF TAXES AND COST OF
COLLECTION
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

RATES OF CUSTOM DUTY ON ELECTRIC GENERATING

SETS & ROTARY CONVERTERS

ISSUE: THE CURRENT CUSTOM DUTY ON ELECTRIC

GENERATING SETS AND ROTARY CONVERTERS HS.
CODE 8502.0000 AND PARTS THEREOF HS CODE NO.
8503.0000 ARE 5%,10% AND 20% DEPENDING UPON
THEIR CAPACITY AND POWER USED THEREIN.
PROPOSAL: IN VIEW OF HIGH POWER COST AND
FREQUENT LOAD SHEDDING AND LOW VOLTAGE,
CUSTOM DUTY ON ALL THESE ITEMS SHOULD BE 0%.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
CUSTOMS LICENCING OF CONSOLIDATOR/
FORWARDER

ISSUE : IN LAST BUDGET CARGO CONSOLIDATORS /

FORWARDERS WERE REQUIRED TO GET A LICENCE
FROM CUSTOMS,
CARGO CONSOLIDATORS / FORWARDERS ARE ALSO REQUIRED
REGISTRATION WITH D.G. PORT & SHIPPING VIDE S.B.P.
CIRCULAR NO. 19 DATED 16-12-2002.
OUTCOME: EXPORTERS FACE SERIOUS PROBLEMS FROM
UNLICENCED/UNREGISTERED CARGO CONSOLIDATORS /
FORWARDERS AS THEY ARE STILL WORKING AND IN CASE
COMPLAINTS,LICENCING AUTHORITY CAN NOT RESOLVE THE
PROBLEM TO THE SATISFACTION OF STAKEHOLDERS.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

CUSTOMS LICENCING OF CONSOLIDATOR/

FORWARDER
PROPOSAL:
1. LICENCING OF CARGO CONSOLIDATORS /FORWARDERS BY
THE COLLECTOR OF CUSTOMS (PREVENTIVE) MUST BE
COMPLIED WITH AND RULES BE FURTHER IMPROVED FOR
STRICT MONITORING OF CARGO CONSOLIDATORS
/FORWARDERS FOR SECURITY OF EXPORTERS’ CARGO
UNTILL SAFE DELIVERY AT DESTINATION.
2. SIMULTANEOUSLY REGISTRATION AND MONITORING WITH
D.G. PORT & SHIPPING FOR FREIGHT CONTRACTS
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

ISSUANCE OF ONE CARRIER B/L SIGNED BY

MASTER OF VESSEL OR AUTHORISED
AGENT OF EACH FCL EXPORT SHIPMENT
ISSUE : IN EXPORT TWO B/Ls ARE BEING ISSUED
UNAUTHORIZEDLY OF ONE EXPORT SHIPMENT
WHERE SHIPPERS AND CONSIGNEE (OWNERSHIP) FOR
FCL SHIPMENTS IS CHANGED IN FAVOUR OF
FORWARDER DIFFERING WHAT IS DECLARED ON E-
FORM AND GD.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

ISSUANCE OF ONE CARRIER B/L

OUTCOME: THIS EXERCISE TRANSFERS EXPORTER
TITLE ON GOODS AND FORWARDERS BECOME
OWNER OF GOODS AND FORWARDER FOR SAKE OF
BUSINESS/VESTED INTEREST DELIVERS GOODS
UNAUTHORIZEDLY, ULTIMATELY CAUSING LOSSES
TO EXPORTERS IN SHAPE OF DISCOUNT/CLAIMS,
DELAYED PAYMENTS OR TOTAL REFUSAL OF
PAYMENT.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

ISSUANCE OF ONE CARRIER B/L

PROPOSAL: MONITORING BY CUSTOMS THAT ON
EXPORT SHIPMENTS ONE CARRIER B/L DULY SIGNED
BY MASTER OF VESSEL OR AUTHORISED AGENT IS
ISSUED AND SHIPPER AND CONSIGNEE REMAINS
SAME AS DECLARED ON E-FORM AND GOODS
DECLARATION IN STRICT COMPLIANCE WITH
FOREIGN EXCHANGE ACT CHAPTER XII RULE 11.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
R&D SUPPORT TO TOWEL INDUSTRY
ISSUE:
EXPROT ORIENTED TOWEL INDUSTRY IS
UNDERGOING SEVEREST EVER CRISIS IN THE FACE
OF STIFF COMPETITION FROM COUNTRIES LIKE
CHINA, INDIA, BANGLADESH ETC.
PROPOSAL:
a. R&D SUPPORT TO TOWEL MANUFACTURING AND
EXPORTING UNITS BE INCREASED FROM 3-5% TO
10% TILL 2010 AS BANGLADESH IS ENJOYING LDC
STATUS TILL 2014 TO HAVE LEVEL PLAYING FIELD
IN COMPARISON TO BANGLADESH.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
R&D SUPPORT TO TOWEL INDUSTRY
b. AS R&D SUPPORT IS GRANTED TO EPZ UNITS, THERE
SHOULD BE SIMILAR STATUS (EPU) FOR TOWEL
INDUSTRY OUTSIDE EPZ FOR A LEVEL PLAYING
FIELD.
c. WITHOLDING TAX BE ZERO RATED FOR TOWEL
INDUSTRY UPTO 2015.
d. EXPORT REFINANCE RATE BE REDUCED BY 50% FOR
FIVE YEARS.
e. UTILITY CHARGES BE CAPPED TILL 2010 TO PLAN
MARKETING STRATEGY.
f. EDF BE SUSPENDED TILL 2010.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
WORKERS WELFARE FUND

2%W.W.F MAY BE ABOLISHED ALTOGETHER AS

THE COMPANIES ARE ALREADY PAYING HIGH
CORPORATE TAX OR MINIMUM TAX.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

WORKERS PROFIT PARTIPATION FUND (WPPF)

ISSUE: 5% WPPF IS VERY HIGH.

OUTCOME: IT RESULTS IN PAYMENT TO
GOVERNMENT TREASURY IN THE FORM OF LEFT
OVER AMOUNT.

PROPOSAL: WPPF BE BROUGHT DOWN FROM 5%

TO 2.5% AND THE ENTIRE AMOUNT MAY BE
DISTRIBUTED AMONG THE EMPLOYEES AS THIS IS
THE LEVY IN THE NAME OF WORKERS,
THEREFORE, THE EMPLOYEES SHOULD BE
BENEFITTED
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

INDUSTRIAL POLICY
1) INDUSTRIAL POLICY SHOULD BE FORMULATED IN
THE LIGHT OF OUR ASPIRATION FOR A
SUSTAINABLE AND DYNAMIC ECONOMIC
GROWTH AND OUR COMMITMENT UNDER WTO.
WE NEED TO DEVELOP STRATEGY TO GET
MAXIMUM BENEFIT FROM GLOBALIZATION.
2) THE COUNTRY URGENTLY NEEDS TO BUILD AND
STRENGTHEN THE LOCAL INDUSTRY TO PROTECT
IT FROM SUCH MEASURES AS AN ANTI-DUMPING,
COUNTERVAILING DUTIES, AND SUBSIDIES BY
FOREIGN GOVERNMENTS CREATING UNFAIR
COMPETITION.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
INDUSTRIAL POLICY

ESTABLISH A MACRO ECONOMIC AND

REGULATORY REGIME THAT SUPPORTS
EFFICIENT INDUSTRIAL DEVELOPMENT.
IMPROVE, ENHANCE,A ND DEVELOP HUMAN
CAPITAL THROUGH SKILL DEVELOPMENT AND
TECHNICAL ORIENTATION.
CREATE A STRONGER DOMESTIC BASE FOR
TECHNOLOGICAL DEVELOPMENT BY MAKING
GREATER EFFORTS TO PROMOTE R&D.
CAPACITY BUILDING, AND INDUSTRY –
ACADEMIA LINKS
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
INDUSTRIAL POLICY
1) SUPPORT SME, CAPACITY BUILDING THROUGH
INNOVATIVE SERVICES IN COOPERATION WITH
THE PRIVATE SECTOR AND TECHNICAL
ASISTANCE AGENCIES.
2) THE UNABATED, UNCHECKED, AND BLATANT
INFLOW OF SMUGGLED GOODS HAS HAD A VERY
NEGATIVE AND DISASTROUS EFFECT ON
DOMESTIC INDUSTRY.
3) ESTABLISHMENT OF INDUSTRIAL ESTATES,
SECTORAL VILLAGES AND INFORMATION
TECHNOLOGY PARKS ESPECIALLY AROUND
KARACHI, THE FINANCIAL AND COMMERCIAL
HUB OF PAKISTAN.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

FINANCING:

INTEREST RATES ARE VERY HIGH IN PAKISTAN

THEREFORE, NEED TO RATIONALIZE UP TO 2%
TO 3%. DUE TO HIGH MARK UP RATE THERE IS
DECLINE IN BANKING CREDIT TO PRIVATE
SECTOR. THEREFORE, MARK UP RATE BE
REDUCED TO 8% AND INFLATION BE CHECKED
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

SKILLED MANPOWER FOR OPERATIONS AND

MANAGEMENT BE ENSURED.
1) IT SHOULD BE NOTED THAT INDIAN OVERNMENT, IN
ITS 2005 BUDGET, HAS OFFERED 10%
UNCONDITIONAL EQUITY WITHOUT
REPRESENTATION ON THE BOARD OF DIRTECTORS
AND WOULD PROVIDE FINANCE FOR A TENURE OF
TEN YEARS (WITH THREE YEARS GRACE IN
REPAYMENT AND INTEREST REMISSION OF 5%) PLUS
UNINTERRUPTED AVAILABILITY OF UTILITIES. THE
SAME FACILITY BE PROVIDED TO LOCAL INDUSTRY.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
SKILLED MANPOWER FOR OPERATIONS AND
MANAGEMENT BE ENSURED.
• INSURANCE CREDIT GUARANTY SCHEME RATE IS
VERY HIGH IN PAKISTAN AS COMPARED TO INDIA,
WHICH APPROXIMATELY 0.35%. SO THE RATE IN
PAKISTAN SHOULD BE REDUCED. IT WILL BENEFIT
OUR EXPORTERS AND THEY WILL EXPORT ON RISK
BASIS.
• SESSI / EOBI / EDUCATION CESS BE ABOLISHED
AND IN PLACE GROUP INSURANCE BE
INTRODUCED.
• THE OTHER AGENCIES WHICH ARE NOT LINKED TO
GOVERNMENT REVENUE BE STOPPED TO VISIT /
INSPECT FACTORIES.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

INCREASE IN INPUT COST

 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

1. WAGES
2. CESSES
3. GAS
4. LOGISTICS
5. OTHERS

These increase with lower duty drawback

keeping negative impact in growth.
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

ON AVERAGE 40 FT.
CONTAINER FILLED WITH
9,000 KGS OF TERRY
TOWELS
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008
LABOUR REQUIRED TO PRODUCED 9,000 KGS OF TOWELS
Weaving 215
Winding 35
Warping 35
Folding 5
Loading 5
Processing 35
Cutting 10
Stitching 65
Cropping 65
Checking / Packing 15
TOTAL 485
 RECOMMENDATIONS FOR
TRADE POLICY 2007-2008

OTHERS
1. Income Tax
2. Mark-up
3. Forwarding
 SALE PROCEEDS FOR
9,000 KGS TOWELS
Year 2003 2004 2005 2006 Total Impact

Average US$ Kg 3.96 3.74 3.79 3.75

US$1= (Average) 57.70 57.50 58.40 60.00

Sale Proceeds for 9,000 2,056,428 1,935,450 1,992,024 2,025,000

Kg

Rcvd / Kg 228.49 215.05 221.34 225.00

Less: Raw Material etc. 57.12 53.76 55.33 56.25

%age +/- - (5.88) 2.92 1.66 (1.53)

 DUTY DRAW BACK
ON SALE OF 9,000 KGS
TOWELS
Year 2003 2004 2005 2006 Total
Impact
Average 2.29 1.30 1.30 0.82

To Sale 9,000 Kg
41,660 21,663 22,442 14,317

Rcvd / Kg Rs. 4.63 2.41 2.49 1.59

%age +/- - 3.60

(48.00) (36.20) (65.63)
 R & D ON SALE OF 9,000
KGS TOWELS
Year 2003 2004 2005 2006 Total
Impact
Average (W+D) (3+5%)
- - -

To Sale 9,000
Kg - - - 61,110

Rcvd / Kg (Rs.)
6.79 7.37
 INFLOW ON SALE OF
9,000 KGS TOWELS
Year 2003 2004 2005 2006

SALE PROCEEDS 57.12 53.76 55.33 56.25

DUTY DRAW BACK 4.63 2.41 2.49 1.59

R&D - - - 6.79

TOTAL Rs./ Kg of 61.75 56.17 57.83 64.63

Towel
 INFLOW ON SALE OF
9,000 KGS TOWELS
60 57.12
55.33 56.25
53.76

50

40

30

20

10 4.63
6.79
2.41 2.49 1.59
0 0 0
0
2003 2004 2005 2006

Sale Proceeds Draw Back R&D

 OUTFLOW ON SALE OF
9,000 KGS TOWELS
Year 2003 2004 2005 2006 Total Impact
WAGES 4.49 4.49 6.29 7.19
CESSES 0.54 0.54 0.75 0.93
GAS 2.53 2.67 3.03 3.89
LOGISTIC (FREIGHT) 26.36 29.90 29.52 31.00
INCOMETAX 1.71 1.61 1.66 2.25
EDS 0.57 0.54 0.55 0.56
BANK CHARGES 0.30 0.28 0.29 0.29
MARK-UP 12.34 11.61 11.95 15.19
LOGISTIC (FORWARDING) 0.94 1.06 1.17 1.56
Electricity 2.03 2.03 2.03 2.03
C/Store & R/Maintenance 1.50 1.50 2.00 2.00
Admin. Expenses 2.00 2.50 3.00 3.00
Contigency 1.00 1.00 1.50 2.00
TOTAL Rs./ Kg of Towel 56.32 59.73 63.74 71.89 15.57
 OUTFLOW ON SALE OF
9,000 KGS TOWELS
35
30
25
20
15
10
5
0
2003 2004 2005 2006
Wages Cesses Gas Freight Income Tax
EDF Bank Charges Mark-up Forwarding Electricity
C/Store/Maint Admin. Exp. Contigency
 NEED SUPPORT FROM
GOVERNMENT
Year 2003 2004 2005 2006

Realized / Kg of Towel 61.75 56.17 57.83 64.63

Cost incurred / Kg of Towel 56.32 59.73 63.74 71.89

(+ / -) / Kg of Towel 5.44 (3.56) (5.91) (7.26)

%age 8.80 (6.34) (10.23) (11.23)

 NEED SUPPORT FROM
GOVERNMENT
80
71.89
70 63.74 64.63
61.75
59.73
60 56.32 56.17 57.83

50
40
30
20
10 5.44
8.8

0 -3.56
-6.34 -5.91 -7.26
-10.23
-10 -11.23

-20
2003 2004 2005 2006

Received Expenses Net (+/-) %age (+/-)

 NEGATIVE GROWTH

INTERNAL FACTORS IN CMBINATION WITH

NEIGHBOURING COUNTRIES INCENTIVES
LEADS TO DECLINE EXPORTS
 EXPORT OF TOWEL & MADEUPS
1999-2006
ITEM 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
US$ ‘000’ US$ ‘000’ US$ ‘000’ US$ ‘000’ US$ ‘000’ US$ ‘000’ US$ ‘000’
Towels

195,627

241,688

267,715

374,839

403,500

501,642

599,721
MADE-UPS

307,555

330,904

350,906

359,775

416,604

475,456

410,441
TOTAL 503,182 572,592 618,621 734,614 820,104 977,098 1,010,162
 EXPORT OF TOWEL & MADEUPS
1999-00 TO 2005-06
1000000

800000

600000

400000

200000

0
1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

TOWE
LS MADE
-UPS TOTAL
 EXPORT OF TOWEL
& MADEUPS 07 Vs TARGET 07 & EXPORT 06

EXPORT OF TOWELS & MADEUPS (US$ '000')

TARGET VS EXPORT
Month Target 07 Export 07 Export 06 Balance +/- %age +/-
Jul $ 98,400 $ 66,135 $ 74,710 $ (32,265) (33)
Aug $ 98,400 $ 79,694 $ 92,223 $ (18,706) (19)
Sep $ 98,400 $ 78,685 $ 104,151 $ (19,715) (20)
Oct $ 98,400 $ 69,493 $ 83,406 $ (28,907) (29)
Nov $ 98,200 $ 77,970 $ 60,218 $ (20,230) (21)
Dec $ 98,200 $ 92,777 $ 84,282 $ (5,423) (6)
Jan $ 98,200 $ 63,192 $ 77,282 $ (35,008) (36)
Feb $ 98,200 $ 80,567 $ 76,585 $ (17,633) (18)
Mar $ 98,400
Apr $ 98,400
May $ 98,400
Jun $ 98,400
TOTAL $ 1,180,000 $ 608,513 $ 652,857 $ (177,887) (23)
 EXPORT OF TOWEL
& MADEUPS 07 Vs TARGET 07 & EXPORT 06

EXPORT OF TOWELS+MADEUPS Target 07

(Target Vs Export) Export 07
Export 06

$120,000

$100,000

$80,000
US$ 000

$60,000

$40,000

$20,000

$-
Jul Aug Sep Oct Nov Dec Jan Feb
Month
 SUPPORT NEEDED FROM
GOVERNMENT

15% ADDITIONAL R&D

REQUIRED FOR TOWEL
INDUSTRIES TO BREATH
NORMALLY.
RECOMMENDATION FOR
TOWEL INDUSTRIES

THANK YOU