WTO Threats on Textile Sector

• Muhammad Rasheed
• Asif Maqbool
• Dr. Zulfiqar Ahmad Gill
• Naeem Qasim

The textile sector has spearheaded the export bonanza of manufactured goods for some time. Its share in the economy along with its contribution to exports, employment, foreign exchange earnings, investment and value added in industry; make it the single largest determinant of the growth in the manufacturing sector. It has a one-fifth weight age in the quantum index of large-scale manufacturing and a 46 percent share in overall manufacturing activity. Pakistan has emerged as one of the major cotton textile product suppliers in the world market with a share in world yarn trade of about 30 percent and 8 percent in cotton cloth. The share of textiles in export earnings is 68 percent with a value of around $ 7 billion. The value addition in the sector accounts for 9 percent of GDP and its share in overall employment is 38 percent. During the last four years, the government in collaboration with the private sector has embarked upon a plan to combat the challenges of opening up to foreign competition in the year 2005.Pakistan has been seeking the removal of quota barriers for some time and its vertically integrated textile sector is all set to capitalize on this imminent change in quota regime.

With the implementation of WTO from January 01, 2005, world markets now open for free trade and all quota restrictions are being abolished now. Only those products will capture markets which are good in quality and are available at reasonable price.

Pakistan is a developing country. Its economy is a textile based single resource economy. In order to see the challenges faced by country’s exports in WTO regime, it is necessary to know the impact of the rules and regulations of WTO on the economy of Pakistan. In spite of the ignorance on the part of Government, the textile industry is improving and is in a position to earn a lot of foreign exchange.

First of all we see what World Trade Organization (WTO) is and what is the effect of Agreement on Textile & Clothing (ATC) on the economy of Pakistan. The WTO is the only international organization dealing with global rules of trade between nations. Pakistan has joined WTO in 1994 and one of the major benefits of it was the integration of Textile sector in the General Agreement on Tariff & Trade (GATT). As far as exports are concerned, the major impact of WTO is on Textile sector. The basic aim of the Agreement on Textiles and Clothing (ATC) is to secure the removal of restrictions currently applied by some developed countries to imports of textiles and clothing.

Let us see the impact of WTO agreements on exports of Pakistan with more emphasis on Textile products. Now developing countries are in a position to export their products to developed countries without duties. Likewise, developed countries will also have ready and easy access to market in underdeveloped countries as well.

Our industry is not in a position to compete with other country’s products. As for as our industrial sector is concerned, our textile industry is one of the prominent sectors, which will get a direct hit. Only future will tell how many millions of workers will lose their jobs and how many millions other will find new work as the industry will rise and fall because of competition.

Another issue is the abolishment of Multi-Fibre Agreement (MFA) in the year 2005. The ATC replaces MFA and stipulates the removal of restrictions on textile in four years over a period of 10 years. This phasing out programme has ended in January 01, 2005. If exporters maintain their standard and quality and utilize quota successfully, there are chances of rise of exports and hence the economy of Pakistan of Pakistan will improve. Quotas continue to play an important role in the trade in textile and clothing. It is clear to every one that quantity restrictions are now banned. This can provide an opportunity for Pakistani exporters to open and explore new markets for textile exports. This will result in increased competition among supplying counties, especially those which, under bilateral quota arrangements with certain markets (particularly the European Union, The United States and Canada), will fairly secure access of their products. Exporters who wish to maintain (or increase) their market access under future conditions of free competition should reduce their cost of goods or increase their marketing efforts.

Note that importing countries can use the following measures (available under the normal instruments of protection provided for in GATT), in the regime of phasing out of Multi- Fibre Arrangement in 2005, to limit imports of textile and clothing products:

·         The safeguard clause negotiated under GATT. Unlike the transitional safeguard clauses in the Agreement of Textile & Clothing (ATC), this must normally be applied against imports from all supplying countries.

·         Anti- dumping and countervailing duties.

·         An increase in tariff protection if the duty rate is bound in WTO, after consultations and negotiations with the main supplying countries and subject to the granting of trade compensation to these countries.

Pakistan will have to face opportunities as well as threats of phasing out this MFA. Now there is more competition than before. Cost of production will play a key role in this situation. Unfortunately, we are far behind in this field. Locally manufactured fabrics and garments can not compete with the foreign products on the basis of quality and price. How can we survive in this competitive world?

We can survive if we adopt ourselves according to the circumstances. As we know in the WTO, quality is the focal point. ISO has developed management standards like ISO 9000, Social Compliance and standard regarding environmental issues. Our exporters should strictly follow these standards, if they want to export more in WTO regime. They should be very careful in the use of chemicals, dyes and pigments. In order to gain access to the markets of the developed countries, these products should be ecologically safe. Importing countries can check our exports if our products don’t match the standards which are stated in ISO.Therefore, mills and factories should register themselves as ISO Certified.

WTO also gives emphasis on social aspects. It is necessary that the element of social compliance is followed strictly in Factories or Mills. What is social compliance? And why is it necessary for Mills to follow? These are the questions which may someone ask. Social Compliance is summarized as follows, “Daily work should not exceed 11 hours including one hour lunch-break and over time; wages should not be less than the prescribed level as mentioned in 'The Worker Compensation Act 1923; over-time be paid with double rates; freedom of association given to workers; substitute leave be given due to Sunday working; health/hygiene care; social security; education; group insurance; profit bonus/gratuity; human safety; provision of sufficient and separate wash rooms for either sex with one washroom for 20 persons; child labour should be strictly prohibited; no company should engage in or support the use of corporal punishment, mental or physical pressure, and verbal abuse, discrimination not allowed on the basis of race, caste national origin, religion, disability and gender”. The owners of factories and Mills should ensure that the requirements of social compliance are being fulfilled in National Environment Quality Standards (NEQS). If they don’t fulfill these pre-requisites then there is a possibility that our exports can be checked. Therefore, for survival in this competitive world, we should adopt those rules and regulations which are stated in WTO Agreements.

We should invest more in purchasing of latest technology. Unfortunately, Pakistan has no machinery making capacity. Pakistan depends mainly on imported machinery. Therefore, these imports can have a negative effect on the economy of Pakistan. We should depend on our resources and should try to make this machinery in our own country. After the elimination of quota from January01, 2005, competition among countries for getting more shares in the international markets will rise. Only those will be accepted by consumers which are good in quality and are available at reasonable price. China and India are our big competitors in this field. Both are economically better than us. They can make the textile machinery in their own countries. They have huge capacity in this field. Our Government should make certain policies to think upon this issue. Otherwise we will never be in a position to compete with other countries like China and India.

We should give more emphasis on human resource development. Our labour force is still not ready for the challenges of WTO. They are illiterate. How can we improve our quality and standard level if large no. of our labour force working in Factories and Mills are uneducated and don’t know the rules and regulations of Agreement on Textile &Clothing (ATC).

Government should play its role in up gradation of textile mills. It is very good sign that Pakistan Government opened a separate Ministry for Textile. But Government on her part should reduce the prices of utility bills. As we know the price of electricity is very high in our country. These high rates will raise cost of production of our textile products and become less competitive in international markets.

Finally, our Government should diversify its exports. Country totally depends upon the exports from textile products. We should enhance the exports of other commodities like rice, fruits, vegetables and sports goods. This will enhance our export earnings; hence we will be in a better position to give full attention to textile industry in WTO regime.