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Protests From Trade Groups Highlight Pakistan in Crisis

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Pakistani textile exports fell 22% in value and declined steeply in volume as well, bringing overall Pakistani exports down by nearly $1 billion from 2011 to 2012 and prompting warnings from Mohsin Aziz, chairman of All Pakistan Textile Mills Association (APTMA). He advised that trade normalization with India and double-digit interest rates for exporters have made the business environment very difficult for local industry. His statements followed other rumblings from various trade associations in Pakistan, making it appear that Pakistani exporters are near a breaking point.

Pakistan has also struggled with power outages lasting as long as 20 hours, and shortages of natural gas that can go on for days at a time. Many looms are idle, with Bloomberg Businessweek reporting that half of the Faisalbad’s 250,000 looms have gone out of business in the past twelve months. Ten percent of the spinning mills and fabric printing plants in that textile hub have also shut down.

The energy shortage and capacity shutdowns have seriously damaged Pakistan’s near-term prospects for growth, as the country has been unable to capture market share from China as Chinese wages have risen. Chinese garment and textile exports to the United States have been nearly flat, year over year, and Pakistan is seemingly positioned to take advantage of China’s struggles. The structural problems within the industry instead have instead meant that Pakistani exports to the United States have dropped off, with Vietnam capturing most of the gains.

Negative conditions for the textile and apparel sector have led to widespread questioning of government trade policies. Pakistani Readymade Garment Manufacturers and Exporters Assocation (PRGMEA) chairman Shehzad Salim pointed out that current government policies and international trade issues are coming to a head, at the expense of Pakistani exporters. He says that the government has been reducing or eliminating subsidies and the central bank has not been financing exports at workable interest rates. The current export financing scheme rate, or EFS rate, is 10% with a one point spread for commercial banks. That is only one point lower than the benchmark rate of 12%.

At the same time, several countries in the European Union have opposed granting Pakistan access to EU GSP facilities, which drew protests from the Pakistani Yarn Merchants Association, among others. The continued delay is expected to cause a 4% decline in Pakistan’s textile exports. Current concessions from the EU do not include bedware, readymade garments, or cotton fabrics, which make up the vast majority of Pakistani production.

PRGMEA chairman Salim also said that India will likely reap most of the benefits of its newly obtained Most Favored Nation status. Indian exports to Pakistan before MFN averaged between $1.7 and $1.9 billion per year, whereas Pakistani exports to India are generally between $350 and $400 million, according to an APTMA press release. Chairman Aziz ascribed much of this to an unequal schedule of duties between the two countries, and India’s failure to eliminate non-tariff trade barriers, which do not violate MFN provisions. APTMA has expressed concern that Pakistan will wind up selling fabric and fiber to India, while India will add all the value for international export markets.

In response to all these developments, Pakistani Textile Exporters Association (PTEA) chairman Rana Airf Tauseff has called for a six-month freeze in electricity prices and the abolition of a fuel adjustment surcharge. He said, “The industrial sector is already facing internal and external challenges and a constant increase in electricity prices is aggravating the economic crisis. Owing to high business cost in Pakistan, a large number of industrial units had already shifted to other countries.”

These issues, highlighted in the year over year export numbers, underscore the great difficulties facing the Pakistani textile and apparel sector. Prime Minister Yousuf Raza Gilani has failed to directly respond to this confluence of circumstances, though he has pledged to increase electricity generation and build more gas plants. It is unclear what the timeline for that construction will be, but Pakistani exporters may not have time to wait.

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