pakistan position on WTO textile and clothing agreement

Posted on October 8, 2013 Articles

Textile and clothing have played a very important role in the development of the country for many years. Textile industry usually concerned with the production of yarn cloth and subsequent design or manufacturing of cloth and there distributional activity. The role of textile and clothing (T&C) industries in growth and development strategies for developing countries are very important in both economic and social point of view. Because in the short run it provide jobs, income, female employment and as well as the source of foreign exchange earning while in the long run by providing the opportunity for sustained economic growth and development for a country.
The economic aspect of textile and clothing are studied through both static and dynamic point of view. In the static side we study the importance of textile and clothing in trade and foreign currency receipts, its share in gross domestic product and income and employment. While at dynamic side we study the role of textile and clothing in growth and development in the long run depend upon, Learning by doing and knowledge spillovers, linkages between assemblers and suppliers, and the role of value chains and foreign direct investment.

The social aspect of the textile and clothing concerned with wages of the employees, living standard of labors, and gender discrimination and poverty reduction strategies. The employment in Textiles and clothing provides greater opportunity to receive a formal wage which is very rare in developing counties whose labor markets mainly dominated by informal employment. The international labor organization (ILO) data on Pakistan and many other developing countries show that the wages of labors in manufacturing sector is higher than the wages in agriculture sector. The hourly wage rate in Pakistan, India, china and other development countries is lower than that of the developed countries.

There is no doubt that textile and clothing sector is the largest sector of Pakistan from the investment, employment and source of foreign exchange earning point of view. It account round about 27% of the total industrial production, its rank is 8th in Asia for the textile production. The textile contributes 9.5% to the total GDP and provides employment about 30% of the total employment level, which make 15 million out of 49 million labor force.
Pakistan made a greater priority to the development of manufacturing sector, for this purposes Pakistan give a major stress on agro based industries. For Pakistan which is one of the leading producers of cotton in the world, the development of textile industry making full use of its abundant resources of cotton has been priority area toward industrialization.

Comparison with the world trade in textile and clothing
The trade of textile and clothing has been increased from US$ 355.0 in 2000 to US$ 456.1 in 2004 and then it increase gradually from 2004 to 2008. In 2008 it was US$ 613.1, but it decrease after 2008 due to global financial meltdown and flood in Pakistan. While in this period the clothing sector continuously growing at a faster rate than other textiles as the world clothing export grew.

US$billions US $ billions
Years worldtextile world clothing total Pak textile Pak clothing total % of wrld trade
2000 157.3 197.5 355 4.5 2.1 6.7 1.88%
2004 195.5 260.6 456.1 6.1 3 9.1 2.01%
2005 202.7 276.8 479.5 7.1 3.6 10.7 2.23%
2006 220.4 309.1 529.5 7.5 3.9 11.4 2.15%
2007 240.4 345.8 586.2 7.4 3.8 11.2 1.91%
2008 250.2 361.9 613.1 7.2 3.9 11.1 1.81%
2009 211 316.9 527.1 6.5 3 9.5 1.80%
(Source Pakistan economics survey)
The data summarize the performance of Pakistan textile and clothing industries in the global market. If we look to the data statistics it clarify that the growth rate of clothing sector is much higher than the growth rate of textile sector. The clothing trade is grew from 197.5 US $ billions in 2000 to US $ 316 billion in 2009. While the trade in textile is grew from US $ 157.3 billion in 2000 to $ 211 billion in 2009. While these differences in Pakistan are not significantly occur. Pakistan share is increased in the world trade from 1.88% in 2000 to 2.15% in 2006 but after that its share in the world trade decreases. This is because of many factor which account for such adverse growth, such as financial crisis, flood in Pakistan and china which drive crop failures and the weaker demand in the developed economies limit the expansion of global trade, however due some series of economic stimulus packages, world trade started to pick-up again in march 2009 but world merchandise trade dropped by 23 per cent in 2009 in nominal term which is the highest ever decline in more than 50 years.
Research methodology
For this research I will follow the non parametric approach because it is a descriptive work. In mostly for such type of the research we use the non parametric methodology. The main sources of the data and information are the national and international organization their site, Pakistan bureau of statistics and most important one is the WTO official site.
WTO agreement on textile and clothing

The agreement on textile and clothing was take place on 1994. The period of agreement consist of ten year from 1994-2005. The main points of the agreement are consisting of the following.
Product coverage; the main product such as the yarn, textile product and clothing are included in this product coverage. It was decide that the agreement will covers all products which were subject to MFA and other restriction like MFA-type quotas in at least one importing country.
Integration process, in this process it was decided that all the product will be brought to the GATT rule 1994 within the period of ten year. The whole process was divided into four period in which all the product should bought under the GATT rule. In first period which start from first January 1995 about 16 percent of the product will be integrated into GATT. While in the second period 17 percent and at the third period about 18 percent of the product will be come into GATT. And at final period the remaining product will be integrate in the GATT. And there after the agreement on T & C will be terminate.

Quantitative Restriction: The quantitative restriction and other type of restriction which have the same effect as the QR for those who are not the member of MFN which are not proved by the GATT will required to finish them are brought to GATT within the period of ten years.

A special transitional safeguard mechanism: this was formed to protect Members from the loss faced due to import within the period of integration of the product in the GATT which was not initially integrate in the rule of GATT.
The Textiles Monitoring Bored; It has been established to control the implementation of the agreement and to clearly examine all the method that taken under it and also to ensure that they are in according to the rules.
The diminishing of quotas on textiles and clothing have larger effects on Pakistan’s textile and clothing exports. According to some experts views that Pakistan textile sector will benefit as textile exports will increase because of easy access in foreign markets. As according to a study made by an economist Mahmood (PIDE 1990) that Pakistan’s market access will increase by 60% and may benefit $1 billion.
But the trade liberalization create the competition among textiles exporting countries as every country has easy access to international markets equally and a country will benefit due to good quality products.
Pakistan has steadily improved its textiles exports market share, but it will have to face competition from country like China which has 22.3% of worlds textiles export and of Thailand which has 1.5% (2006). Pakistan has 3.4% of world’s textiles exports (2006). Pakistan is even behind Hong Kong and South Korea as they have 6.4% and 4.6% of world’s textiles exports respectively (2006). In such a fierce competition from neighboring countries, Pakistan will definitely face challenges in getting good market share on international level as Pakistan’s textiles and clothing sectors infrastructure and productivity level may not compete with the foreign products on the basis of quality and price.
Pakistan tariff structure
Pakistan revised his tariff structure remarkably to reduce the tariff and other trade barrier in the international trade. In the last two decade Pakistan reduce his simple average tariff rate from 55% to 17% in 2004. Both the simple and weighted average tariff was reduced by 22% in the duration from 1995 to 2003.
This decline in the tariff structure is large by recent historical standards by way of comparison. High income countries reduced tariff by 3.2 percent during the Uruguay Round while all low-income countries reduce it by 8.1 percent and other South Asian GATT members (like India and Sri Lanka) by 16.5 percent. At the regional level Pakistan average tariff is the lowest tariff as compare to Bangladesh, India and Sri-lanka. At global level Pakistan stand on 109 positions out 141 countries which is still very low rank, while on agricultural side Pakistan stand at 71 out of 141.
Pakistan current textile performance Jun-May (2012-13)
During the lost ten month the textile and clothing sector show a positive growth. The textile and clothing export grow by 6.14% and the total earning of the sector increased to 10.749 billion dollar as compare to the 10.127 billion dollar last year of the same period. According to Pakistan bureau of statistics the commodities sector contribute in the textile export boosting including cotton yarn which has an export of 1.851 billion dollar as compare to the export of 1.468 billion dollar last year showing the growth of 26%.
Similarly the export of cotton cloth increased from 2.004 billion dollar to 2.23 billion dollar their export is increased by the rate of 11.31%. While the other textile product also show a positive growth of approximately 13%, through the improvement from 29.476 billion dollar to 33.288 billion dollar. Due to which the country trade deficit decreased by 6.75% during the first ten month of the fiscal year 2012-13. While last year this was increased by 4.23% in the same period.

The Doha Development round.
It is the latest round of the WTO, in which the members come for negotiation on trade restriction. In this round the three main points were bought for negotiation and there implementation will benefit both the developed and developing countries. The three are the market access for non agricultural product, the problem of anti-dumping and the rule for investment.
The market access for non agricultural product;
The market access for non-agricultural product such as textile and clothing is the impotent issue in the doha development agenda. Even though the textile and clothing is already brought to GATT 1994 but it not shows that all the textile and clothing are free or lower tariff. There are still more than 30 percent of the tariff exists on textile and clothing not only by the developed countries but also some of the developing countries. Due such high tariff the development of the textile sector effect badly.
For this purposes the developing and the developed should come to the removal of such high tariff under the formula set by Swiss in 2008 in which it is decide that developed countries should bring their tariff up to 8% for sensitive product while below 3% for other non-agricultural and the developing countries can bring it in the interval of 12-14 percent. Now currently 40 member countries use the Swiss formula on non-agricultural product which accounts 90 percent of the world trade in textile and clothing.
The second one which can’t ignore is the problem of anti-dumping is highly impotent for the sector of textile and clothing in order to prevent the wrong consequences of the anti-dumping measure. Worldwide there are about 2500 of the anti-dumping cases comes in the international trade and about 10% of which occur against the textile and clothing. This use of anti-dumping is rise due after the removal of the quotas system. The removal of the negative consequences of the anti-dumping a quick measure is needed. But due to the investigation procedure of the anti-dumping and there complexity and non transparency the using countries of the anti-dumping are rarely accept it through investigation authority. Next the acceptance of the anti-dumping measure itself creates negative trade effect. The existing anti-dumping rules are not efficient to remove the negative impact of the anti-dumping. So for this purposes we should straighten the rule for anti-dumping to achieve the free trade.
Investment rule;
The increasing role of the foreign direct investment all around the world and there consequences on the economies are very important to be brought under the doha development agenda. Because due continues reduction of tariff the restriction on foreign direct investment largely removed especially in the manufacturing sector which makes the countries hostile. According to world report on investment in 2002 that in 2001 there are 208 regulatory measures were taken by round about 71 countries in which 17 to 18 measure were less favorable the foreign direct investment. The purposes of the investment rule in the doha development round was that to developed a such type of environment who enable the long term investment across the national boundaries. The main objective of the investment policy was the flow of the investment around the world, promoting peaceful environment around the world and decreasing the neighborhood hearting.

The textile policy of Pakistan (2009-2014)
The ministry of textile announced the new textile policy for Pakistan in the government of Pakistan people party, the policy was approved from the federal cabinet.
Main point of the textile policy
1. Textile investment support found.
A support found will be established who support the investment which is made in some specific area including the modernization of the machinery and technology, removing hurdle in the backwardness of infrastructure and use of information and communication technology.
2. The technology up-gradation fund.
Government will support the new investment and will up-grad the old technology through the technology up-gradation fund. Under this scheme, for high capital intensive projects, government will bear 50% of interest cost of new investment in plant. For small level of investments, government will support 20% of capital cost as in the form of grant. For this purpose, Government kept a budget of Rs.1.6 billion in the financial year 2009 for this scheme. This will be increase to Rs. 17 billion by 2014.
3. Infrastructure Development.
For this purposes Government will develop the cluster where the small investors can set the business. Government will also provide the facilities of research and development, storage facilities, testing laboratories and availability of input at lower cost.
4. Skills Development.
An inclusive training plan will be starting to improve the overall pool of skills in the textile value chain in close agreement with the industry and will be implemented. Government will give Rs. 1 billion during the current year for skill development activity.
5. Standardization.
Government will introduce a legal and developed framework for the specification of standards and testing requirements.
6. Export taxes and the rationalization of tariff structure.
Government will not taxed the export and use some mount of tariff to protect the local industries. Government will do an exercise to identify the rule and procedure which encourage the development of the sector.
7. Market Access.
Government will expand the existing market and also find the new market for Pakistani export through preferential accesses and as well as through FTAs.
8. Marketing Support and marketing insurance scheme
Government will support the industry in the area of marketing especially in the form of branding, labeling, and grading and for such other activities which will add the value to the textile chain. Government provides an insurance scheme to protect the exporters against unanticipated losses, which may arise due to failure of the buyer, bank or problems faced by the buyer country.
9. Export House Scheme.
For this purposes government will build big export houses. For this purpose, small producers will get 1% refund of tax levies on sales to the export houses. For this government kept an amount of Rs. 2 billion for the current year for this scheme.

Around the world the trends in textile and clothing show that clothing and textile product grow progressively. Due to the removal of the trade barrier and other type of restriction the textile and clothing become very highly competitive. The trend in Pakistan textile and clothing is reversed it is suffering from highly competitive economies like china India Bangladesh Korea Thailand etc. but recent trend in textile and clothing is very impressive. And it is generally expected that Pakistan will gain in this sector.
In order to improve the textile and clothing sector Pakistan should take the following steps.
• Pakistan should need to solve the energy crises which badly effect the sector
• There is a need of improvement in the technology
• Promote infrastructure facilities
• Improving the quality of the textile and clothing
• Standardization of the product will also important

by muhammad tufail
NBS (nust business school) national university of science and technology islamabad