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Pakistan Removes Duty Exemption On Imported Cotton; Cotton Industry Struggles

Pakistan’s Economic Coordination Committee (ECC), an arm of the country’s Cabinet, decided to lift the current exemption from duties on imported cotton yarn.

According to a press release issued by Pakistan’s Ministry of Finance, the ECC eliminated measure SRO 15(I) 2010, which insulated imported cotton yarn from a 5 percent duty, “in order to check import of cotton yarn which is increasing rapidly” causing the industry to start “feeling the heat of the extraordinary [sic] liberal tariff regime.”

Many Pakistani economic officials have recently expressed anxiety about the cotton sector’s lagging competitiveness. Minister of Textile Industry Abbas Khan Afridi recently requested that the Pakistani government direct a new tranche of funds to the cotton market to contribute to its stabilization. Afridi stressed that the cotton market is the economic lynchpin of Pakistan’s maturing textile industry, and so a key component of the country’s strategy to become a major textile exporter over the next three years. Over the last ten years, Pakistan’s cotton production has lagged behind the country’s otherwise impressive economic growth, putting a drain on future improvements.

While Pakistan’s cotton market is full of promise, it suffered a fraught 2013, riddled with struggles. The crop missed its target of six million acres, already a figure adjusted down by estimates. In Punjab, acreage dipped to a historic low of 5.4 million. Additionally, unseasonably high temperatures in July decimated many crops. And while the heat wave was partially abated by subsequent rains, the damage was still extensive. And September brought a challenging combination of unusually high humidity and high temperatures, a disastrous combination for cotton farmers. This period normally lasts some three weeks, but last year it stretched on for nearly twice that.

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Many economists worry that Pakistan’s excessive reliance upon cotton renders the nation vulnerable to its short term vacillations. More than half of all Pakistan’s exports are attributable to cotton and cotton related products. Especially during a period of delicate political transition and general economic malaise, another underperforming cotton season could have wide reverberations.

Pakistan’s Ministry of Finance has been deep in deliberations about alleviating some of the pressure from the cotton industry through the imposition of new duties for some time now. Afridi publicly speculated about the possibility of imposing new duties on yarn imported from India at a recent meeting of the Faisalabad Chamber of Commerce and Industry. Afridi stressed that Pakistan would not even consider an outright ban on Indian yarn imports, raising the possibility that the duties eventually imposed might be prohibitively steep. Some within the industry, including the Pakistan Hosiery Manufacturers and Exporters Association, have denounced the plan, going as far as to request that all fabric imports from India be allowed duty free access to Pakistani markets.