7/2/2020 Recipe for textiles in WTO regime -DAWN - Business; 17 June, 2002

17 June 2002 Monday 05 Rabi-us-Saani 1423

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Recipe for textiles in WTO regime

By Hammad Badar

Global economic environment will be changed in the next two or three years with the
implementation of various agreements of the World Trade Organization (WTO).
Without going into details of obligations assumed by Pakistan as a member of the
WTO, only the most important aspects may be mentioned here. First is the change in
the import regime.

Import duties are required to be reduced to the minimum with maximum opening of
imports. On the export side the most important development is the planned end of
textile quota, which had provided a safe niche to the local textile industry. Quotas are
going to be phased out in four stages by 1.1.2005.

This will be replaced by "free for all", a totally new situation. The Agreement on
Textile and Clothings (ATC) has special significance for Pakistan. It provides for the
integration of multi-fibre arrangements (MFA) with the WTO system and its gradual
conformity with trade liberalization rules.

The textile sector has a very large share in Pakistani exports and the GDP, besides
employing about 40 per cent of the workforce. It is a major source of export earnings
and its share in merchandize exports of Pakistan (though substantially declined since
1970) is still above 50 per cent.

As far as the share in world total is concerned, it fell from 2.6 per cent in 1970 to 1.9
per cent in 1980. But since then it is rising and has reached 2.7 per cent in 1997 (with
minor fluctuations in the last few years). Apparel (clothing) exports are relatively new.
Its share in the total merchandize exports is around 22 per cent. But in the world total
from a marginal share of 0.08 per cent in 1970, it has risen to 1.0 per cent in 1997.

Major share of our textile exports goes to the US, the EU, Canada and Japan. The US
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is the largest market for our textile products. The exports to these economies (except
for Japan) are in the form of quotas.

In the year of 2000-01 the growth in quantity exported in textile sector was far more
impressive. The registered growth ranged from 2.8 per cent (knitwear) to 38.2 per cent
(synthetic textiles). But Pakistan's textile sector due to its precarious condition and
performance is continuously in danger of losing its share in the world export and the
country's GDP. Especially, the post quota period will prove real test of performance of
the textile industry.

Although, the new global trading system has reduced the chances of developed
countries adopting protection measures unilaterally, but still they can use their
economic clout to their advantage by imposing non-tariff barriers. But the fact is, the
WTO heralds much towards globalization, and the developing countries like Pakistan
will face new challenges. For instance doing away with the multi-fibre arrangements
in the textile and apparel sector would only benefit those countries who had export
potential but quota restrictions stood in their way. Those countries to whom quotas
provided a shield against their low competitive ability would lose out. The message
for developing countries is clear. In the new environment they can only go forward
through greater competitive edge.

In the WTO regime, the major share of textile trade will go to the NIC (newly
industrialized countries) like South Korea, Taiwan, Hong Kong and Singapore, Further
more the next beneficiaries will be middle income groups like Brazil, Argentina,
Indonesia, Thailand, Malaysia and the Philippines. Among the developing countries,
Pakistan and the rest of the countries will enjoy very little benefit. With its entry in the
WTO, China, too, is all set to give a very tough competition to Pakistan's textile
marketing in the European Union (EU) and North America. Therefore, at stake is more
than $ 4 billion annual export trade of Pakistan in the US and the European countries
which is now vulnerable to relatively much cheaper goods from China.

Pakistan will have to face severe competition from the above mentioned countries who
are likely to get major gains in the WTO regime due to their resourcefulness (in terms
of efficient methods of production, capital-intensive technology, and well-trained
manpower); adaptability to the changing conditions i.e., changes in the patterns of
world demand, changes in technology; and also the favourable government policies.

These countries have diversified their product range and had gone in for highly
automated capital-intensive technology. As a result they are producing close
substitutes of goods of the capital-intensive developed countries. But the exports of
Pakistan are not even remote substitutes to these countries' products.

All analysts and world observers are cynical about the performance of Pakistan's
textile sector and shed their doubts about its ability to compete in the world market,
especially in the post-quota period. Its fortune in the global economy depends on its
ability to adjust itself with the requirements and the new demands.

It is a well-established fact that the textile sector of Pakistan has potential to compete
in the world market but it's also correct that this does not look possible in the present
circumstances. Pakistani textile sector is in jeopardy due to its own performance and
the policies that come from the government. Presently, Pakistan has the tenth position
among exporters of textile and its position is continuously declining in terms of value.
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China earning $39 billion is at the top and India with $9 billion is fifth.

In the changed international trading regime, essential prerequisites for survival would
include obtaining knowledge and information about the new rules and of international
business and preparing strategic response. The onus would then lie not only on the
governments but also on the businesses and their associations alike.

There is a need to sensitise the businesses involved in the textile exports about the
ensuing task. They should cease to justify child labour and poor labour standards.
Rather they should be preparing themselves for the level-playing field that the
powerful in the west will negotiate next when the emphasis will swing strongly from
free trade to fair trade.

Poor work conditions are no more tenable even domestically as the LDC populations
become more aware in a world where at least the diffusion of information is faster
than that of material benefits.

With the passage of time, old norms and practices are fading away and are being
replaced by new rules and regulation. A very big agent of this change is undoubtedly
the behavior of the consumer especially of the developed world. People as well as the
governments of the developed world are becoming more and more conscious about the
quality of the products and their environmental impact.

This consciousness is playing a very important role in international trade and is

expected to gain ever more importance in the coming years. All these developments
have resulted in the creation of quality and environment standards (ISO 9000 and ISO
14000) that now the developed world is urging upon the developing countries to
adhere to.

Quality and cost competitiveness are both required vitally for international
competitiveness. For quality is not a mere function of inspection of products for
conformance. Rather quality is to be built into the products through quality of designs,
quality of processes, quality of human resources, quality of management, quality of
leadership and above all quality of strategic response to turbulent external
environment despite which businesses are expected to perform world over.

Therefore, to survive in that environment we need to go for modern technology and

should emphasize on the quality of finished products. The government should
introduce and monitor the global quality standards, the ISO 9000 and the ISO 14000 in
the production of textile products.

Instead of emphasizing too much on the spinning activity our industry should focus
more on the production of fine quality cloth. Major portion of good quality yarn
should be utilized domestically in the organized mills sector for the production of high
value-added fabric of better quality. And then later this fabric should be used in the
production of garments. As apparels/garments provides the highest value-added
product among the textile items, maximum focus should be towards the units
producing garments.

Our producers in this particular industry should try to adopt (just like in the West) the
"demand for market-oriented strategy" i.e., to increase their market power by
producing high price fashion clothing. They should go for product differentiation
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through the promotion of brand names and advertising. And should also try to increase
the efficiency of distribution. With an increase in market power they can easily
transfer rising cost to consumer in the form of rising prices.

In addition to the quality, reliability, efficiency in delivery schedules, sufficiency in

well-developed infrastructure in terms of communication, services, export procedures,
appropriately trained manpower, material inputs and transport facilities, as well as
stable enforceable contracts with foreign investors are also needed. Otherwise instead
of any increase in the share or the maintenance of the current share in the global
market would be difficult.

Finally, diversification is needed not only in quality but also in the direction of trade.
More than 50 per cent of Pakistan's exports are directed towards Europe and North
America. This is one of the drawbacks for the low level of Pakistani exports
(especially of apparels). Given the protectionist policies and technological superiority
of the DCs, textiles would certainly be at a disadvantage in their markets.

At present, the government is not realizing fully the impact of the WTO on Pakistan's
textiles. An infrastructure should be immediately built which should be in constant
contact with the WTO office in Switzerland, with the textile exporters' organization
and its embassy staff in the important foreign capitals as well as to have the correct
and complete picture of the situation.

The government should also be fully prepared to give, whatever concessions are
necessary to exporters so that they can counter the challenges posed by the WTO
regime. In brief, global competitiveness in terms of quality and cost is the only recipe
for survival in the WTO regime.

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© The DAWN Group of Newspapers, 2002

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