News & Views

TEXTILE INDUSTRY TO GET RS 16 BILLION RELIEF

Local textile industry would get an Rs16 billion relief in the payment of sales tax in the fiscal year 2004-05 as the Federal government has withdrawn 15% tax on ginned cotton, a Senior Official at the Central Board of Revenue (CBR) said.
He said textile sector consumes about 80% of the ginned cotton every year to produce value added textile items for export. The industry used to pay around Rs 16 billion sales tax a year on the purchase of ginned cotton from the ginners.
In 2004-05 budget proposals, the CBR had recommended the withdrawal of this tax on the ginned cotton with the aim to relieve the export-oriented textile industry from this tax burden and to put an end to malpractices in the refund process.
He said that by abolishing sales tax on ginned cotton the Federal government has provided a major relief to the textile industry and added that the move would now strengthen the financial position of the manufacturers and enable them to expand their industry and exports in future.

NO SHORTAGE OF LOCALLY-MADE YARN IN COUNTRY
M. Waqar Monnoo, Chairman APTMA, stated that there is no shortage of locally manufactured yarn in the country for the value added textile sector. He said that production of cotton yarn/mmf yarn is more than its requirement and substantial quantity of 1.55 million metric tonnes i.e. 75% of the total production of yarn is annually available for local consumption.
He dispelled the impression that hosiery or weaving yarn is in short supply, as abundant quantity is available on competitive rates and any confusion on non-availability of required yarn being created by the textile sector associations is false.
He further informed that increase in yarn prices was mainly on account of escalation in raw cotton and man-made fiber prices in local as well as in international markets. Consumption of all fibers including local and imported available to the spinning industry indicates that 75% of yarn production during the last five years was available to the value added industry.
There has been growth in availability of yarn from 60% in year 1993-94 to 75% in 2002-03. Export of yarn during this period appears to be stagnant despite substantial increase in production of yarn due to industry expansion.
Chairman APTMA was of the view that if textile associations are facing difficulties in the export of their products due to competitiveness of their products and needs more facilitation/relief or require policy guidelines for value added sector in the post-quota scenario, they should not build up their case at the cost of yarn as it is a $1.0 billion export item. He advised them to approach the government in the matter.

BALOCHISTAN PRODUCES 98,000 BALES OF COTTON
Balochistan Province showed remarkable progress in cotton production recording an output of 98,000 bales of cotton during the current season. According to official sources this production was from 39,000 hectare of land.
Cotton sowing in Balochistan achieved 97% of the set target of 40,162 hectares during 2003-04. The Provincial government had undertaken collaborative efforts to introduce cotton cultivation in paddy growing areas of Khuzdar and Pat Feeder (Dera Murad Jamali). The cotton is exceptionally good and of excellent quality. The seeds of two varieties Nayab-78 and CIM-109 were cultivated, which gave remarkable results.
Three ginning factories have been set up in the cotton growing area for processing the commodity and to facilitate the cotton growers. The private sector is being encouraged to set up more ginning factories in Khuzdar area.

CUSTOMS SERVE NOTICES ON TOP TEXTILE EXPORTERS
The Pakistan Customs (Export Collectorate) has served notices on top textile exporters of the country for allegedly resorting to under-invoicing in the export of bed wear and fabrics. Customs sources said that the cases of these exporters have been referred to the Price Check Committee (PCC).
Sources said that 23 top exporting firms were the pioneers and leaders in developing and exploring new export markets for Pakistani bed wear and fabrics during eighties and nineties and have so far invested billions of dollars in balancing, modernisation and replacement (BMR) of their plants and secured both the European and American markets for their products.
These exporting units are of the opinion that since the rate of duty drawback is almost half of the rate of anti-dumping duty charged by the European Union countries, so logically they would not resort to under-invoicing. Since the European Union charges anti-dumping duty on export consignments at the rate of 13.1%, so the exporters would have no monetary advantage to resort to under-invoicing of their commodities.

PSF DEMAND, SUPPLY GAP NARROWS TO 0.1 MILLION TONNES
During the financial year ended June 30, 2004, performance of the polyester staple fibre (PSF) sector remained spirited with the demand-supply gap narrowing down to under 0.1 million tonnes. This primarily ensued from higher textile sector requirements and PSF exports contributing to stability on the domestic price front and minimal disagreements taking place amongst manufacturers over upward price movements in an effort to increase volumes and grab market share.
Sector observers said that no incentives to the local PSF manufacturers were provided in the budget 2004-05 by the government in the form of reduced tariff on PSF and its raw materials. PSF manufacturers were demanding zero rate of import on PTA raw materials and a 5% reduction in duty on the finished product.
Tanvir Abid, Head of Research at Jahangir Siddiqui Capital Markets pointed out that sales tax had been reduced from 20% to the uniform 15%. That would not have much bearing on the bottom-line, though it would go to improve cash flows.
On the global front, petrochemical prices firmed up earlier on the back of rocketing of crude oil prices and increase in regional demand. Domestic PSF prices followed suit, whereby prices were raised by Rs 2/kg to Rs 77/kg effective June 1, 2004. With the WTO regime to take effect from January 1, 2005, various industries were moving aggressively towards reducing input costs and improving production efficiencies to remain globally competitive.
One of the major producers of the PSF, ICI Pakistan proposes to expand its polyester fibre capacity by 15,000 tonnes. Presently the company produces around 110,000 tonnes of PSF with an 18% share of the local PSF market. PSF industry capacity utilization during the financial year ended June 30, 2004 had improved on growth in polyester demand propelled by higher cotton prices and increased requirements from the value-added textile sector.

TEXTILE SECTOR MAY SHOW FINER RESULT NEXT YEAR
Textile sector can look up to finer financial results next year, backed by BMR/expansion activities undertaken by mills. Contrary to market expectations, textile companies had managed to produce favourable financial results for the first quarter of 2004 (October-December 2003).
Analysts attributed the better-than- expected profit or lower losses from the textile companies. More help has now come from budgetary announcements.
Improved cash flows and BMR/expansion activities would respectively result from the sales tax removal/reduction in inputs and slash in import tariffs on plant and machinery. Moreover, measures such as reduction in industrial power rates would serve to improve the competitiveness of the sector, commented Tanvir Abid.
He said reduction in import duty on machinery imports will also benefit as companies have been aggressively expanding their capacities to prepare for post-2005 quota regime.

JOINT VENTURES IN TEXTILE STRESSED
Bangladesh's Deputy High Commissioner Abdul Hannan has suggested that Pakistan and Bangladesh should create complementarily in the textile sector by setting up joint ventures to minimize the cost of production. In a meeting with members of the Federation of Pakistan Chambers of Commerce and Industry, he says that today Bangladesh's exports of garments are more than that of Pakistan but if the quota system is abolished from January 2005 under the WTO conditionality, Bangladesh will be in problems.
FPCCI President Riaz Tata said that he was considering taking a business delegation to Bangladesh in October this year. Pakistan's exports to Bangladesh amounted to $114.356 million and imports stood at $32.638 million in 2002-03. The major items of exports from Pakistan include textile yarn, fabrics and rice, while major imports are raw jute, tea, jute cutting and betel leaves.

TURBULENT WORLD HITS TEXTILE BUSINESS
The Nishat Mills said in its half-yearly report that turbulence in the world had a negative effect on textile business. Factors like post-Iraq war; post- SARS and post-Afghan war situation affected the global economy which had a negative effect on textile business.
The unprecedented increase in the cotton prices, constant threat of imposition of trade barriers from Europe and high cost of quota acquisitions also hampered the growth and profit margins came under pressure in the first half of the year.
In the first half of year 2004, yarn and cotton prices stood at highest levels due to world shortage and low production of cotton. In international market, prices for conventional counts remained volatile especially 20 count combed yarn. All other counts from polyester/cotton were also affected due to high cotton prices. The demand for yarn in international market went down when prices touched the peak as buyers held their purchases in the hope of some recovery in market.
Despite all negative developments in world economy, the Home Textile Division continued to add more value into the supply chain and further strengthened its relationships with major clients. New investments in digital fabric printing machines, computerised Jiggers and automated sewing equipment were made to improve the service levels and to balance the existing production.
The company said it had earned gross profit of Rs 910.2 million showing a decrease of Rs 85.4 million i.e. 8.6% over the previous year.

COTTON GINNERS THREATEN FACTORY CLOSURE IN PROTEST
Pakistan Cotton Ginners Association (PCGA) has threatened to keep their factories closed during the next cotton season if government does not withdraw general sales tax on "Binola" (cottonseed) because it would create trouble not only for ginners but also the farmers who use it as seed for the next crop.
Vice Chairmen PCGA Mian Sajjad Ahmed said, it is not merely a threat but we are agreed unanimously to keep our business / factories closed till the withdrawal of GST on cotton-seed which would continue the interference of Sales Tax staff in ginning industry.
He said that manual ginning would be promoted in rural areas and every farmer would install his own wooden ginning device (Bailna) to exclude seed from the cotton and incidents of tax evasion would be increased resultantly and more than 2.0 million cotton bales would not reach in ginning factories and farmers would sell it out directly to the local traders to escape from the taxes.

TEXTILE SECTOR NEEDS GOVT SUPPORT
Federal Finance Minister Shaukat Aziz took the WTO threat lightly at recent budget seminar informing the businessmen that in 2005 only the textile quotas would be abolished under multi-fiber agreement. He conveniently ignored the fact that textiles account for 65% of country's exports.
He said that WTO is now a decade old reality and it has not pounced upon Pakistan suddenly. However, for majority of exporters the abolition of quota from January 1, 2005 is the real impact that WTO regime is going to have on them. They would for the first time face the challenges and threats of WTO from 2005.
The government must realize that most of the local industry became inefficient on the strength of past discriminative government policies. They need government encouragement and facilitation now to catch up with competitive international industries.

US INVESTORS TO INJECT MONEY IN PAK TEXTILE SECTOR
Some of the leading textile groups have sent their representatives to Pakistan to explore the possibility of joint ventures and re-location of their high tech industries in Pakistan. The industries based in the US would not be able to compete in quota-free world. A US textile group with textile imports of over $11 billion was seen contacting some leading textile groups of the country.
This group imports different textile products from China, India, and Pakistan. The group desires to relocate its units in Pakistan either independently or through joint venture.

TEXTILE SECTOR POSTS 2.5% LOSS IN A YEAR
Pakistan's fabulously rich textile tycoons have baffled the State Bank of Pakistan, financial experts, textile surveyors and also the lay man of Pakistan by declaring that they were losing by a margin of more than 2.5% in their business in a year.
The information and data given by 180 textile mills to a private textile consultant, who was commissioned by the State Bank to determine the business competitiveness in textile trade in post-2005 period, revealed that big, medium and small units were doing a business in Pakistan in which the return is negative.
It was in February last year that the SBP Governor approached the various stakeholders in textile business to prepare a strategy for the upcoming challenges that would be thrown by the WTO on termination of Multi Fibre Agreement after December 2004.
From January next year, Pakistan will be in the mainstream of textile business on termination of textile export quota regime and would be in direct competition with China, India, Malaysia, Vietnam, Sri Lanka, Bangladesh and Turkey.
The State Bank Governor remarked that he had taken an initiative of getting a study on textile competitiveness done through Associated Productivity Consultant, a reputed textile consultant. The survey focused on yarn, woven fabrics including denim, knitwear garments, towels, home textiles and woven garments.

10% VARIATION ALLOWED TO BED LINEN
The Collectorate of Customs (Export) said 10% variation is allowed in minimum export price of bed linen on the basis of quality and destination, characterised by high tariff countries.
Earlier, Pakistan Bed-wear Exporters Association (PBEA) Chairman in a letter to Collector, Exports, pointed out that the fixation of minimum export price of $0.60 per 100 gram was totally unfair and insufficient for high quality finished products exported to USA, Europe and Australia, since anti-dumping duty had been imposed in Europe on import of low-priced products from Pakistan.

LARGEST KNITWEAR UNIT INAUGURATED
The largest knitwear-cum-dyeing unit in Pakistan, involving an investment to the tune of $ 8 million, was inaugurated at the Raiwind Road. The inauguration came just six months ahead of the much-feared World Trade Organisation (WTO) regime amidst many predictions in air that investment in this part of the world is bound to dry out before the quota-free era.
Equipped with the latest German and Italian machinery that ensures minimum wastage, this concern will employ some 3,000 people, if operated at 80% capacity. Pakistan's knitwear sector, having a nearly two-decade old history of earning foreign exchange through sale of value-added products, currently contributes around $1.3 billion annually to the nation's foreign exchange earnings and is considered an important component of the prosperous textile sector.

TEXTILE TRADE IMPROVED AFTER ABOLITION OF QUOTA
Pakistan's textile industry will increase its volume and value of trade after the abolition of the quota regime in 2005, said Tanvir Abid, Head of Research at Jahangir Siddiqui Capital Markets (Pvt) Ltd.
This analysis is based on the fact, that textile industry has been following a sound and consistent investment policy of capital investment in the state of the art machinery in spinning, weaving and more recently in the value added sector of finishing and garments.
Moreover, measures such as reduction in industrial power rates in the Federal Budget 2004-05 would serve to improve the competitiveness of the sector.

PRODUCTION OF CONTAMINATION FREE COTTON
The Federal Government has launched production of contamination-free cotton programme and the provincial governments have been directed to make all necessary measures to ensure production of high quality contamination free cotton.
According to official sources the governments have been further advised to exercise their powers and ban the use of jute and Polypropylene bags for transportation of seed cotton. The arrival of cotton seed in ginning factories must be in cotton cloth bags or open trollies and market committees of the selected districts should be mobilised effectively to check contamination of cotton by traders during storage.

AFGHAN TEXTILE CITY PROJECT
Pakistan has planned to establish a textile city in Jalalabad (Afghanistan) and it would make an investment of $1.0 billion in Afghanistan till December 31, 2004, said Federal Finance Minister, Shaukat Aziz.
We are going to establish a textile city in Jalalabad (Afghanistan) to meet the requirements of Afghans and attractive incentives would be given to the local and foreign investors, while Pakistan has fixed a target of investment of $1.0 billion in Afghanistan from Ist January to December 31, 2004, Shaukat Aziz said.
He said that Pakistan was playing a key role in the rebuilding of Afghanistan besides meeting its food requirements and it would soon be able to stand on its own feet.

GOVT ALLOCATES RS 214 MILLION FOR COTTON RESEARCH
Pakistan has allocated Rs 214 million for the development and research of cotton crop and to increase cotton standardisation and its yield in order to face competition after the rules of the World Trade Organisation (WTO) come into effect after 2005.
The cotton strategy 2004-2005 includes four major projects of research in the cotton field. The projects include managing Burewala strain of cotton virus, managing reddening malaise of cotton leaves, integrated pest management in Sindh and integration of agricultural research and extension activities.

EXPO PAKISTAN FAIR OPPOSED
The stakeholders have expressed their apprehensions over the Export Promotion Bureau's decision to hold Expo Pakistan Exhibition in February 2005, at Karachi Expo Centre.
The Chairman, Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA), Tahir Aziz, said that the proposed event would not be at all successful in February as garment exporters' buyers would not be able to attend the fair in February. He said that it should be held either in October or in April.
February will be the peak selling time for autumn/winter season and all the prominent exporters are already attending popular and established international fairs. Most of significant international trade fairs occur around February/March period.
Buyers have already scheduled their visits to the high profile exhibitions. In such a situation even offering incentives will be futile in attracting prominent buyers since none of them will attend Expo Pakistan.

SECURITY CONDITIONS HURTING KNITWEAR EXPORTS
Knitwear exporters, struggling for survival in the wake of plunging unit prices of their products in the US and Europe, are trying hard to comply with the security requirements of buyers before the abolition of quotas from January 1 next year.
The security compliance condition was imposed by the US in the aftermath of tragic events of 9/11 to prevent entry of explosives that could be used for terror attacks on its soil in future.
Apart from the security issue, the abolition of textile quotas from January 1, 2005 is also worrying knitwear exporters. The buyers are already pressing for 5%-10% discount although we don't factor in the quota price in the price offered to them.
The former Pakistan Hosiery Manufacturers Association Chairman and a Member of the Quota Supervisory Council, Shahzad Azam Khan, says several units had closed down or forced to cut down their production due to the losses as a result of the decreasing prices, increasing production cost and liquidity crunch faced by them due to the stuck-up sales tax refunds.
The knitwear manufacturers almost doubled their production capacity during the last few years in anticipation of exploiting the quota free textile trade. But the situation obtaining in the region after 9/11 made most to operate far below their capacity, and lay off workers due to the losses.
The exporters feel that they can only offset their losses provided they get 10% duty drawbacks on their exports.

QUOTA PHASE-OUT RATE STANDS AT 25%-30%
Despite the fact that all the textile quotas would come to an end on December 31, 2004, most of the countries have so far phased out 25% to 30% quotas. Dr Manzoor Ahmad, Ambassador and Permanent Representative to the WTO, Geneva, stated this at a seminar on "Impact of WTO on Pakistan's economy."
He said even a big economy like the United States for that matter has single vote and no move could be adopted without full votes from all the member states. However, he said it was being wrongly reported in the local media that WTO regime would start from January 1, 2005.
He said textile quotas would come to an end from 2005, and the WTO regime based on various agreements reach between the member states was going on since 1995 when it was established to replace GATT.
The developing countries were seeking changes in WTO rules that governed such issues like anti-dumping, injury and dumping margin, which could be imposed upto two years. He said that the US was opposed to bringing any change and making such rules more difficult to use.

EU AGREES TO REVIEW DUTY ON BED LINEN
The European Union has agreed to review anti-dumping duty imposed in March this year on bed linen (Category 20) imports from Pakistan, officials said.
In order to review the 13.1% punitive duty imposed on bedlinen, the European Commission will have to once again carry out investigations after seeking quotations from cooperative companies or exporters to the European market.
The EU imposed the punitive duty on bedlinen after it claimed that the investigations carried out by the European Commission had found sufficient evidence that cheap imports from Pakistan was causing an injury to the European textile industry.

US MAY ABOLISH TEXTILE QUOTAS FOR PAKISTAN
The United States has indicated to abolish textile quotas from January next and terminate visa arrangements for textile and apparel trade with Pakistan. It, however, suggested that the visa offices would be maintained for the first six months of 2005 to handle shipments in transit. This was announced by the US government in a communication to the Pakistan Embassy in Washington.
It referred to the bilateral textile and apparel visa arrangements that currently applied to the exports of textile and apparel goods to the US, and said that in accordance with the termination clause contained in our visa arrangement, the US hereby informs your country of our intention to terminate in whole the visa arrangement effective January 1, 2005.
The US government, however, informed the Pakistan Embassy that for all shipments exported in 2004, regardless of the date of entry into the US, it would continue to require a properly completed visa, including all required information. Under the ATC, all textile and apparel products must be integrated into the General Agreement on Tariffs and Trade 1994 (GATT) on January 1, 2005.
The US government further said that the shipments exported in 2004 in excess of agreed limits violated the terms of ATC and other textile agreements, and the US was prepared to deny entry or to stage entry in 2005 to textile and apparel products exported in excess of 2004 annual quota limits.

INDIA SUPPORTS REGIONAL CARPET EXPO
The Indian government has expressed gratitude on organizing a regional hand-knotted carpet exhibition in Lahore from August 29 to September 01, under the aegis of Pakistan Carpet Manufacturers and Exporters Association (PCMEA). Mrs Tinioo Joshi, Indian Handicraft Development Commissioner, in a meeting with Major (retd) Akhtar Nazir in New Delhi said government of India will be happy to support and encourage the Indian carpet exporters' participation in the exhibition. She said such carpet fair was a welcome step and assured of India's support in such joint venture.
Earlier, Akhtar Nazir informed Joshi that this exhibition would attract buyers from around the world. China and Nepal have already confirmed their participation besides tremendous response from Indian carpet exporters.

THOUSANDS OF ACRES LIKELY TO BE DAMAGED
Thousand acres of the newly sown cotton crop has been hit by the Cotton Leaf Curl Virus (CLCV) in major cotton growing belts of Sanghar, Mirpurkhas and other districts of Sindh as the growers had sown banned Bt cotton and Nayab-78 in these areas.
The Bt cotton was sown at nearly 50,000 acres in the province that is acutely vulnerable to the pest attack and the stakeholders fear that the entire crop could be damaged. According to sources, as certified seed was not available in the markets during the sowing season, the growers went for the Bt cotton and Nayab-78.
On the other hand, a few cotton crops were also damaged by the recent thunderstorm in upper Sindh, especially Ghotki, which is the second largest cotton-growing district of Sindh after Sanghar.
The Pakistan Central Cotton Committee (PCCC) had discouraged the commercial cultivation of the imported Bt cotton terming it a great threat to cotton in the country and had advised the development of Bt cotton through indigenous means and capabilities.

PUNJAB MOVES TO ATTRACT INVESTMENT
Punjab government has embarked upon a dedicated path to boost the industrial sector by taking various steps to create conducive and business friendly environment that would enable the entrepreneurs to focus on their business with minimum interference from bureaucracy.
Punjab government this year would establish a new industrial estate of international standard at Sundar and renovate the existing Industrial Estates at Kot Lakhpat and Multan. In addition a 3000-acre garment city would be established at Faisalabad for which Rs1.5 billion have been sanctioned. The ginning sector would also be upgraded.
To boost the SMEs export processing zone for this sector at Gujranwala will be completed during the current year and the infrastructure in the existing Small Industrial Estates at Sahiwal, Daska, Gujrat, Jhelum, Bahawalpur, Sargodha, Chakwal, Gujar Khan and Faisalabad would be upgraded to make them model Industrial Estates.
Punjab Small Industries Corporation, which provided credit of Rs 1.2 billion to SMEs during the financial year 2003-04, will provide credit amounting to Rs2.0 billion to SMEs and Rs10 million to Artisans during the financial year 2004-05.