Reviving the dying garments industry

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The effects of unprecedented energy crisis have started appearing on the export horizons of Pakistan. The readymade garments export industry that was growing at a rapid pace until the recent years, is reported to be continuously nosediving since 2008-2009. The importance of the garment sector in the overall economic perspective is two fold. On the one hand the sector has the potential to be the engine of Pakistan textile export growth, while on the other the sector is the largest source of creating low cost employment in the country at all levels.

Dying export

Due to the obvious reasons, the garments sector has lost export orders worth $800 million so far in the current fiscal year and if the situation continued unabated it is feared that the exports would further decline in months to come. The last quarter of the year has always been a busy period for Pakistani manufacturers and exporters due to more than usual Christmas and New Year orders coming from EU and America. But this year the garments industry registered a decline of 15-20 per cent in terms of export orders due to uncertainty of shipments which are delayed due to electricity and gas load shedding.

Lateral impact

The garments industry that is a source of daily bread and butter to six million workers is unable to grant a job security to its manpower thus jeopardising the lives of more than one millions families depending on it. Pakistan is fast losing its share in the global garment market because of high cost of production. Garments exports from Pakistan’s traditional competitors in the region – Bangladesh, Sri Lanka, China and India – have picked up dramatically because the exporters of those countries are getting hidden subsidies from their respective governments. Export of readymade garments from Pakistan decreased form 42 million dozens worth $1.59 billion in 2007-08 to only 30 million dozens worth $1.23 billion in 2008-09, thus showing decline of 23 per cent in term of value.

Global factor

Apart from the domestic problems of Pakistan, there is yet another misfortune waiting for Pakistani exports in EU and American markets: the global crisis. It is significant to note that the key global markets are coping with the economic turmoil.
It is due to the compounded reasons that Pakistan Readymade Garments Manufacturers and Exporters Association (PRGMEA) is anticipating a sharp decline in apparel exports nearly to $3 billion this fiscal year by about 30 per cent for the big economic downturn both EU and US undergo at present.
The US, and Germany, UK, France and Spain in the EU bloc are all in the deep economic recessions these days, implicating the Pakistan’s conventional textile exports decline. Therefore, the country’s garments export is expected to remain $3 billion or just below as compared to $4.1 billion last year.
So far Pakistani exporters have ruled out disintegration of EU economic zone because it has consumed huge efforts of the member states and financial sacrifices by Germany and France at utmost level. They believed the EU economic zone crisis would have never hit Europe, if there had a comprehensive system of fiscal management in place.
In this context, the US economic crisis had also hit Pakistan’s textile exports this fiscal year as much as the EU had impacted them. Shelves at big chain stores in the US are vacant for financial decline, and buyers stopped placing orders with Pakistan’s exporters. Buyers of the EU are also reluctant to place their orders; rather they reduced their buying by half as uncertain economic crisis which at present looms large.

Inevitable option

Finding a solution to a global fiscal downturn is more difficult than overcoming our domestic energy crisis. Yet there is a light at the end of the dark economic tunnel. In this whole perspective, there is an only way out left for Pakistan to save its export industry: GSP Plus status. Generalized System of Preferences (GSP) is a preferential tariff system extended by developed countries (also known as preference giving countries or donor countries) to developing countries (also known as preference receiving countries or beneficiary countries). It involves reduced tariffs or duty free entry of eligible products exported by beneficiary countries to the markets of donor countries.

Deficits

It is ironical to note that Pakistan is an important economic and political partner of the EU but ranks at 52nd trading partners despite being 6th largest nation of the world. At present 49 countries are getting GSP Plus including several African countries but Pakistan is facing tough competition from Bangladesh and Cambodia. Their objections are based on the assumptions that in the event of granting the similar status to Pakistan, they will lose their market shares. It is to be remembered here that GSP-plus is not an international convention but a bilateral arrangement which could be also said to be a gift of the European Union to poor and needy nations.

Ratification

The analysts say that the European Union is currently working on a proposal for widening its scope by easing economic criterion, and it may help Pakistan upgrade itself from GSP to GSP-plus, but not before ratifying all the key international conventions. So far, Pakistan has been lagging behind and lot many key international conventions are not ratified or partially ratified. However, once they are ratified by Pakistan, it could qualify for GSP-plus by the year 2014.
Pakistan’s trade with EU mainly comprises textiles that are 55 per cent, followed by leather products. EU remains Pakistan’s largest trading partner receiving 18 per cent of Pakistan’s exports and providing nine per cent of its total imports. The overall volume of trade between the EU and Pakistan is worth $8,256 million with a trade surplus of $729 million in Pakistan’s favour.
European Union (EU) head of South Asia David Tirr during his recent visit to Pakistan said that Friends of Democratic Pakistan (FDP) during meeting in Brussels last year came out with a strategy message of fiscal, economic and tax reforms. Similarly, a lot more is needed to be done on the energy sector reforms, he added. The EU director of South Asia further said that Pakistan does need assistance but the question is how to go about it at a time when EU members are also faced with cash flow problem. As a preliminary homework to get the things in right direction, the dialogues are being held between Pakistan and EU on politics, security, proliferation, human rights, trade and investment and it is assumed that the procedure will be completed by the first half of next year. Pakistan was struck with devastating floods twice during 2010 and again in 2011, causing huge losses to agricultural and industrial sectors. Seeing the severity of the affects, the European Council presented a proposal to unilaterally suspend, for a limited period of time, duties on 75 items of important imports from Pakistan.

Unexpected stumbling

However, the proposed EU trade preferences for Pakistani textile products were opposed by India and it was considered the only stumbling point. Afterwards, the objection was withdrawn by India at the recent meeting of the Commerce Ministers of both countries. But unexpectedly, an objection from Bangladesh has effectively halted progress yet again. These trade benefits need to be cleared from the World Trade Organisation (WTO), where Bangladesh has raised objection, fearing Pakistan may capture its market. The fact of the matter is that hat Pakistan could never be a threat to the Bangladesh textile industry in the EU market. Bangladesh exports to the EU have reached $16 billion in the textile sector today from merely $2billion a few years back whereas Pakistan has a mere $1.5 billion in a market of $80 billion in total. Over the years, Bangladesh has developed strong inroads to the EU due to its Least Developed Country (LDC) status and therefore enjoys a favourable environment and market access.

Bottom line

Bangladesh and Pakistan have close history. We are SAARC and OIC members, and both countries are involved in various bilateral treaties and have supported each other on various occasions. Prime Minister and Foreign Minister of Pakistan have already taken up this matter at SAARC Conference in Maldives in their sideline meetings. It is hoped that Bangladesh will eventually withdraw their objection at WTO and the duty free exports of 75 items to EU would benefit Pakistan exports in the next 2-3 years.