TEXTILE MADE UPS

The second sector specific to this study is Textile Made Ups. TDAP categorizes Textile Made-Ups as products falling under HS Code Chapters 56 and 63 (excluding bed wear and towels.).

Items falling under Chapter 56 are: 56.01 56.02 56.03 56.04 56.05 56.06 56.07 Wadding of textile materials, sanitary towels and napkins Felt (whether or not coated) Non-wovens (whether or not coated) Rubber threads and textile yarns coated or covered in plastic Metalized Yarn Gimped Yarn Ropes, Twine and Cordage

Items under Chapter 63 listed by TDAP falling under the category of textile made-ups are: 6302.4000 6302.5110 6302.9110 6303 6304 6307 6308 Table Linen knitted or crocheted Table linen of other material Toilet or Kitchen Linen Curtains Bedspreads Dish Cloths, W ash Cloths, Shopping Bags, Prayer Mats, Mats, table linen, etc in retail packing

Chapter 56 No items falling under any digit of Chapter 56 are listed against exports to any of the ECO countries. This is not to say that there are no exports from Pakistan. Stakeholder interviews with manufacturers in Karachi revealed that traders based in Quetta and Peshawar place large orders, mainly in items falling under HS Codes 56011010, 56011020, 56011030, 56011040 and 56011090 (these are products of personal hygiene for women and infants).

The manufacturers advise that these goods are not sold in the Pakistan market because they already have their own distribution channels and market intelligence to track retail sales of their products. They further advised that, as they maintained consolidated sales figures in PKR, for Sales Tax purposes, they 3 would not be able to indicate what quantity of goods purchased from them were subsequently exported.

Where goods are exported to Afghanistan against PKR payment, no refund of duties and sales tax is allowed, consequently there is no revenue loss to government on such purchases and export. The study asked whether the possibility of direct exports to Afghanistan or the CAR had been explored by the manufacturers, the answer in all cases was that the problems associated with transport of the goods,

absence of banking channels and lack of market knowledge/business customs discouraged them from exploring the export possibilities in that region.

An analysis of trade in HS 56 indicates there is a match between Pakistans production capabilities and demand in ECO countries and strongly suggests deeper investigation of the export possibilities.

Table 22 Trade Flow in HS CODE 56 (US$ Million) Table 22-A HS CODE 5601 5602 5603 5607 5608 TOTAL: Pakistan Exports to the World 2008 25.95 Negligible Negligible 1.06 Negligible 27.01 2009 19.22 Negligible Negligible 1.05 Negligible 20.27 2010 24.32 Negligible Negligible 3.50 Negligible 27.82 2008 2441.7 1180.6 11171.1 1998.4 1153.6 17,945.8 World Exports 2009 2344.3 901.8 9669.6 1691.5 1044.8 15,652.0 2010 2649.3 1025.8 12055.2 1828.7 1217.2 18,776,2

Source: ITC Trade Map

Table 22-B HS CODE 5601 5602 5603 5607 5608 TOTAL

Turkeys Imports from the World 2008 43.23 20.21 298.33 18.54 9.11 417.24 2009 57.92 12.54 267.24 8.03 6.02 352.02 2010 39.69 16.33 313.93 10.29 9.84 290.08 2008 76.43 29.56

ECO Imports from World 2009 91.04 20.32 313.89 24.32 24.60 445.07 2010 62.81 27.60 365.01 23.95 31.90 511.27

345.90 33.76 20.30 505.95

Source: ITC Trade Map

Table 22-C HS 5602, 5603, 5607: Top 5 World Exporters (2010) China Germany USA Italy Japan Source: ITC Trade Map $2.68 Billion $2.58 Billion $2.09 Billion $1.55 Billion $1.02 Billion

As evident from the statistics, Pakistan has no exports of HS 56 to ECO. However, the statistics do reveal that Pakistani products in HS 5601 have export capability. Turkey has an average of 60% share of ECOs average annual imports of US$76.76 million in this product category, indicating that there is space for Pakistani exporters to explore the market in Turkey and other ECO countries.

HS 63 Pakistans world-wide exports of products of various categories at 4 digit level in HS 63 (Textile Made Ups) were US$480.138 million in 2008-09 and US$537.227 million in 2009-10. This volume of business would explain the TRTA projects interest in researching export potential of these products,

especially in view of the lack of customer and geographical diversification (90% of products are sold to ten countries, eight in the EU and two in North America) in a category in which Pakistans exports have crossed half a billion dollars (see table below)

Table 23 Pakistan export of textile made ups (US$000) 2008-09 Exports to the World USA UK Germany Other Western Europe and Canada Total to above 10 countries UAE Exports to ECO Afghanistan 683 (0%) 421 (0%)
Source: ITC Trade Map Figures in brackets represent share of exports to that destination as a percentage of Pakistans total exports of Textile Made-Ups

2009-10 537,227 340,499 (63.4%) 63,438 (11.8%) 19,200 (3.5%) 61,783 (11.5%) 484,920 (90.0%) 6,593 (1.2%)

480,138 302,476 (62.90%) 53,012 (11.04%) 15,064 (3.14%) 48,248 (10.05%) 412,280 (85.9%) 11,591 (2.4%)

An investigation at 6 digit level of ECO imports of these products reveals strong cause for intervention:

Table 24 Pakistan exports to the World HS 63 (6 digit)(US$ Million) HS CODE 630251 630291 630710 630790 630311 (to 99) 630392 630419 630492 630499 2008 25.86 22.68 292.72 25.9 111.08 5.79 18.57 6.92 12.44 2009 20.78 17.26 246.51 23.8 104.96 3.41 41.29 5.79 12.61 2010 20.81 18.05 324.80 25.1 114.89 3.96 56.01 8.11 9.61

Table 25 ECO Imports from the world HS 63 (US$ Million) HS CODE 630251 630291 630710 630790 630311 (to99) 630392 630419 630492 2008 2.43 5.79 12. 16 46.26 16.81 6.49 44.72 Negligible 2009 1.67 4.66 13.35 53.21 21.87 8.52 34.92 Negligible 2010 22.17 7.77 25.77 70.84 44.72 11.40 59.15 Negligible

630499

Negligible

Negligible

Negligible

Table 26 World Imports of HS 63 (US$ Million) HS CODE 630251 630291 630710 630790 630311 (to 99) 630392 634109 634092 630499 2008 799.37 722.78 1394.40 7450.7 1487.32 2145.96 431.91 693.53 376.40 2009 628.27 622.14 1302.26 7465.90 1307.95 2113.36 358.99 615.45 324.73 2010 611.55 611.55 1442.75 8213.10 1376.80 2390.12 376.80 670.70 294.04

Table 27 Comparison of ECO imports with Pakistans global exports of selected HS 63 categories HS Code 630710 630790 630311 (to 99) 630419 ECO Import Growth 2008-2010 100% 53% 160% 32% ECO share of World Imports 1.7% negligible 34% 15.7% Pak Share of World exports 22.5% Negligible 8.3% 14.8% Pak Export Growth 2008-10 11% X 3.4% 200%

Source for Tables 24-27 (ITC Trade Map)

ECO demand is seen in those HS codes where Pakistans export growth is modest, while ECO demand is less strong in HS Code 630419, in which Pakistans export growth has been spectacular. In any case, there is very high growth in ECO imports of HS60710 and 630419, in which Pakistan has a strong share of the global market. HS 6302 Two countries Turkey and Kazakhstan take up more than 80% of ECOs imports, which have increased from USD32.98 million in 2007 to USD49.31 million in 2010, i.e. by 52.5%. Pakistan has no exports to Kazakhstan, but does have a slice of Turkeys imports and this gives it a share ranging from 7.7% - 12.6% of the ECO import market in this category, while the increase in export value at 50% has kept pace with the ECO import growth in this item.

Major sources of import: Turkey Kazakhstan - China 42.3%, India 9.3, Pakistan 8.7%, Turkmenistan 8.4%, Free Zones 5.1% - China 29.1%, Turkey 23.7%, Russia19.6%, Italy 12.4%, Pakistan 3.5%

Pakistans exports to ECO peaked at USD8.63 million in 2008 (market share 19.7%) but have dropped off since then and this peak market share has not yet been recaptured.

HS 6303 - Turkey takes up on average more than 75% of the total ECO imports of this item. Pakistans exports to these markets during 2007-2009 amounted to a mere US100,620/00 and there were no recorded exports in 2010. The major sources of Import for Turkey in 2009 were Hungary (22.1%), Egypt (16.3%), China (18.4%), and Chinese Taipei (16%).

HS6304 - Turkey takes up approx 93% of the total ECO imports, which averages approx. US$33 million and rose to US$59 million in 2010. Pakistans global exports in this category have risen from US$39.16 million in 2007 to USD7373 million in 2010, but Pakistan has no exports of category to ECO, barring exports to Afghanistan which peaked at $50000 in 2010. Major sources of import for Turkey in 2009 were: China 63.6%, India 17.8%, France 5.9%, Moldova 2.6%

HS6307 - ECO imports have increased from USD58 million in 2007 to USD96 million in 2010, with Turkey and Kazakhstan accounting for 95% of all ECO imports in this category. Pakistans exports to ECO are negligible, peaking at 0.946 million in 2008. Major sources of import (2009) were for: Turkey Kazakhstan - China 17.5%, USA 12.3%, Russia 11.5%, Poland 9.1%, Germany 7.7% - Turkey 45%, China 16.7%, Italy 13%

HS 6308 this category covers goods exported in retail packing and the sales reflect the disconnect between Pakistan and ECO countries in the areas of retail-packed consumer textile goods.

Summary

The four highlighted categories accounted for US$519 million of exports from Pakistan in 2010 and US$200 million of imports in the ECO, yet there is practically no trade between the two.

The situation is further inexplicable because Pakistan is a world leader in two of these items, owning a 22.5% share of world exports in category 630710 and 14.8% in 630419 and a healthy 8.3% in 630311 (to 19). At the other end, ECO has high market shares in the world import market in two categories.

The products in these HS categories are value-added items, albeit not high on the value addition scale. They can be characterized as (i) disposable textile consumables and (ii) decorative textiles utilizing non automated finishing process, qualities that make them suitable for manufacture in low-wage countries and cost-effective for import by countries with higher per capita incomes.

For these reasons, in the ECO, more than 80% of the imports of HS63 products are taken up by Turkey and Kazakhstan, both with the highest per capita incomes and the major tourism and hospitality facilities in the bloc.

Pakistans advantages in the HS 63 product categories are (i) an established domestic production chain (ii) fully domestic raw materials and processing value chain. In addition, unlike apparels or fabrics purchased for processing overseas, HS 63 items are not time-sensitive; therefore the requirement of speedy logistics is not an issue. This is particularly true of products classified as HS6307, which are purchased in units of multiple container-loads for storage and B2B sale from warehouses.

On the plus side, export targets can be achieved without need for fresh capital investment for creation of a manufacturing chain. Sufficient existing capacity is available in weaving, knitting and processing industries.

The main suppliers to ECO are China and India; Pakistan can certainly match both countries for price and quality. It is not likely that businessmen in the trade do not have information on the ECO import potential; it is more likely that the factors ascertained through stakeholder interviews, i.e. lack of interest in the market, language barrier are the principal factors behind the absence of exports.

Transportation and banking should not be considered as an obstacle since the main market is Turkey, country neither of these factors is an issue. This applies also, with some reservations, to the second main market, Kazakhstan, but if Indian and Chinese competition is successfully selling to customers in those countries, it needs to be analyzed why Pakistani companies are not present in this US$ 200 million import market.

Increases in production and export of these items will have a positive impact on employment in the power loom sector, which is faced with an existential threat. A by-product will be increased demand and activity in the manufacturing of textile machinery spare parts and consumables.

On the negative side, most of the products in HS 6307 are sold in an intensively competitive and pricesensitive market environment, with low margins for buyer and seller, who depend on volumes to generate profits. The element of freight is critical and the high cost of transportation to Kazakhstan may be a deterrent.

Obstacles

An export drive for ECO countries will encounter the following obstacles:

Tariffs on textiles are considerably higher in ECO countries, thereby impacting export costing and product profitability.

Textiles products have a very low share in the import of all ECO countries, barring Turkey (5.1% of imports) and Afghanistan (4.8% of imports), therefore growth will be limited to a few markets rather than throughout the ECO.

The data shows that there is an existing import market of over US$ 160 million in Turkey and Kazakhstan, therefore the strategic thrust will be towards market entry rather than market creation

Further analysis

The prospects for increasing exports of textile made-ups to ECO countries need to be assessed in the perspectives of Pakistans overall export landscape, where, for the foreseeable future, the main driver of export growth will remain the textile sector, in which the country enjoys revealed comparative advantage. In the areas of textile and clothing, Pakistan has been losing world market share since the ending of the MFA.

Table 28 World Textile and Clothing Imports (US$ million) 1990 World Textiles World Clothing Total Pakistan Textile 104,354 108,129 212,483 2,663 2000 157,295 197,722 355,017 4,532 2004 195,541 260,569 456,110 6,125 2005 202,657 276,802 479,479 7,087 2006 220,367 30,9142 529,509 7,469 2007 240,364 345,830 586,194 7,371 2008 250,198 361,888 613,085 7,186

Pakistan Clothing Total % of World Trade

Source: Ministry of Textiles

1,014 3,677 1.73%

2,144 6,676 1.88%

3,026 9,151 2.01%

3,604 10,691 2.23%

3,907 11,376 2.15%

3,806 11,177 1.91%

3,906 11,092 1.81%

Pakistans market access to developed country imports of textiles products faces market access resistance. According to the Millennium Development Indicators by ITC, UNCTAD and WTO Goal 8, Indicator 8.6: Market Access, the proportion of Pakistan textile products allowed duty free into developed economies is much lower, both as a developing nation and as an ECO member, when compared with least developed countries:

Table 29 Proportion of ECO and Developing Economies textiles allowed duty free in Developed Countries 1999 Dev. Market LCD ECO 24 50 3 2000 24 47 3 2001 22 47 2 2002 26 57 3 2003 26 66 3 2004 38 68 67 2005 36 68 49 2006 36 70 49 2007 37 75 51 2008 37

78
51

LCD least developed countries; Dev market Developing Market Countries (Pakistan Included)
Source: Compiled from COMTRADE database.

With respect to the Central Asian market, as identified by Asiya Chaudhary in a study titled the Changing Structure of Indian Textiles Industry after MFA Phase out: A Global Perspective, the post MFA environment reveals that in 2006, Asian textiles and clothing exports to CIS countries increased by 95%, there was no growth in 2007 and Asian textile exports to CIS countries again increased by 16% in 2008.

Consequently, there is a case for Pakistan to aggressively establish new markets for its textiles outside its traditional W est European and North American partners. Pakistan missed the opportunity in 2006 and again in 2008 for capture market share in the CIS, meaning it will need to create the space for its products. The CIS include six of Pakistans ECO partners and Russia, which by 2008 had become the worlds fourth largest importer of textiles and clothing, taking up 6 percent of global imports.

There is a strong case for an aggressive push to promote textile products (including made-ups) in the ECO, with the objective of taking advantage of entry into the Russian market through the opening provided by its Customs Union with Kazakhstan.