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Challenges Facing Hosiery Industry

of Pakistan in WTO regime


Executive Summary

The research is on “Challenges Facing Hosiery Industry of


Pakistan in WTO regime”.

The research is to identify the effect and challenges of


WTO regime on the Hosiery Industry of Pakistan, the role of
Government in protecting the local industry from the WTO
regime, WTO opportunities, intensity of competition, impact
of free trade zone, threats and impact on Hosiery Industry
of Pakistan, what strategies to follow to protect Hosiery
Industry of Pakistan to cop with WTO regime.

Pakistan has emerged as one of the major cotton textile


product suppliers in the world market with a share in world
yarn trade of about 30 percent and 8 percent in cotton
cloth. The share of textiles in export earnings is 68
percent with a value of around $ 8 billion. The Hosiery is
playing pivotal role in value addition in textile sector.
Presently, about 10,000 different types of knitting
machines are available in the country with approximately 60
per cent capacity utilization. Pakistan Hosiery
Manufactures Association is the premier trade organization
representing the hosiery and knitwear industry accelerating
and providing growth in all sectors of the economy,
generating immense employment and promoting national self
reliance.

The World Trade Organization (WTO) deals with the rules of


trade between nations at a global or near-global level.
It’s an organization for liberalizing trade. It’s a forum

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for governments to negotiate trade agreements. It operates
a system of trade rules. Since 1948, the General Agreement
on Tariffs and Trade (GATT) had provided the rules for the
system. Whereas GATT had mainly dealt with trade in goods,
the WTO and its agreements now cover trade in services, and
in traded inventions, creations and designs (intellectual
property).

There are certain impacts of WTO on Pakistan Hosiery


Industry:

The Agreement on Textiles and Clothing (ATC), which


replaces MFA, provides for the removal of restrictions on
textiles in four phases over a period of 10 years. After
Phase out countries can impose trade restrictions based on
other agreements under GATT.

Integration means that trade in these products will be


governed by the general rules of GATT. Action under the
safeguard mechanism could be taken against individual
exporting countries if it were demonstrated by the
importing country that overall imports of a product were
entering the country in such increased quantities as to
cause serious damage - or to threaten it - to the relevant
domestic industry, and that there was a sharp and
substantial increase of imports from the individual country
concerned.

If a company exports a product at a price lower than the


price it normally charges on its own home market, it is
said to be “dumping” the product.

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Pakistan is the greatest sufferer from the quotas regime as
it has the highest percentage of textiles and clothing
exports among all developing countries. Pakistan can
therefore benefit greatly from the freer trade in textile
and clothing and this Agreement provides for possibilities
of expansion of its quota bound exports annually by 10
percent. Pakistan’s export of textile and clothing are
marred by another factor, as we are on a lower end of the
quality and unit prices for almost all textiles and
clothing exports. Under quota free environment, Pakistan
can get benefit in the export of textile raw material also.

Government has taken certain reforms for betterment of


textile industry. The Vision is aimed at establishing an
open market driven, innovative and dynamic Textile sector
which is internationally integrated, globally competitive
and fully equipped to exploit the opportunities created by
the quota free textile trade beyond January 2005.

Strategies which can be followed to protect Hosiery


Industry of Pakistan can be:
Remedy through foreign direct investment (FDI); Image
Building of Pakistan to Attract FDI; Focus on Value
Addition; Technology Up-gradation & capacity building;
Human Resources Development; Accreditation and
Certification; Reducing the cost of doing Business in
Pakistan; Need for Improving Textile Production; Should opt
for “Market Orientation” strategy; Diversification; Well-
developed infrastructure; Emphasizing more on finished
goods.

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Acknowledgement

I was provided assistance from many resources in the


completion of the thesis without which the completion of
the thesis was not possible. First of all thanks to
almighty Allah for the blessing he provided me with courage
to complete the task and power to think and decide. My
parents have also played major role in the thesis by
supporting morally. Special thanks to my project supervisor
Mr. TAHIR MASOOD for his guidance and support. I find no
words of gratitude for all those individual who have
provided related information for the thesis. I appreciate
their encouragement and help whenever needed. I thank all
of them.

This thesis is the guide towards the preparation for the


homework, which is required well before the implementation
of free trade regime. Otherwise, it would not be easy to
compete and sustain our share in hosiery globally.

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TABLE OF CONTETNTS

EXECUTIVE SUMMARY...........................................................................................................................I
ACKNOWLEDGEMENT...........................................................................................................................IV
1. INTRODUCTION......................................................................................................................................1
1.1 RESEARCH TITLE........................................................................................................................................1
1.2 RESEARCH PROBLEM...................................................................................................................................1
1.3 OBJECTIVES...............................................................................................................................................1
1.4 RATIONALE FOR THE RESEARCH....................................................................................................................2
1.5 BACKGROUND/IMPORTANCE OF THE PROPOSED WORK.......................................................................................2
METHOD........................................................................................................................................................5
2.1 QUANTITATIVE RESEARCH...........................................................................................................................5
2.2 QUALITATIVE RESEARCH.............................................................................................................................5
2.3 DESCRIPTIVE RESEARCH..............................................................................................................................6
3. TEXTILE INDUSTRY IN PAKISTAN....................................................................................................8
3.1 COTTON GINNING SECTOR.........................................................................................................................10
3.2 COTTON SPINNING SECTOR........................................................................................................................10
3.3 WEAVING AND MADE-UP SECTOR..............................................................................................................11
3.4 COTTON CLOTH SECTOR...........................................................................................................................11
3.5 TEXTILE DOWN STREAM INDUSTRY .............................................................................................................12
3.6 FILAMENT YARN MANUFACTURING INDUSTRY .............................................................................................14
3.7 ART SILK AND SYNTHETIC WEAVING INDUSTRY ..........................................................................................14
4. HOSIERY INDUSTRY OF PAKISTAN................................................................................................15
5. PAKISTAN HOSIERY MANUFACTURERS ASSOCIATION (PHMA).........................................19
5.1 PHMA CENTRAL OFFICE...........................................................................................................................22
6. WORLD TRADE ORGANIZATION (WTO).......................................................................................23
6.1 WHAT IS THE WORLD TRADE ORGANIZATION?............................................................................................23
6.2 IS IT A BIRD, IS IT A PLANE?.......................................................................................................................23
6.3 ABOVE ALL, IT’S A NEGOTIATING FORUM ….................................................................................................23
6.4 IT’S A SET OF RULES …............................................................................................................................24
6.5 AND IT HELPS TO SETTLE DISPUTES ….........................................................................................................25
6.6 BORN IN 1995, BUT NOT SO YOUNG............................................................................................................25
6.7 THE OBJECTIVES OF WTO.........................................................................................................................26
7. IMPACT OF WTO ON PAKISTAN’S HOSIERY INDUSTRY.........................................................28
7.1 AGREEMENT ON TEXTILE AND CLOTHING (ATC).........................................................................................28
7.2 INTEGRATION PROCESS..............................................................................................................................30
7.3 ANTI-DUMPING DUTIES ON TEXTILES AND CLOTHING...................................................................................33
7.3.1 Members applying Duties............................................................................................................34
7.3.2 Members affected.........................................................................................................................34
7.4 END OF TEXTILE QUOTA: IMPLICATIONS FOR PAKISTAN.................................................................................35
8. GOVERNMENT REFORMS FOR BETTERMENT OF HOSIERY INDUSTRY...........................40
8.1 TEXTILE CITIES PROJECT...........................................................................................................................41
9. CONCLUSION AND RECOMMENDATIONS ...................................................................................43

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9.1 REMEDY THROUGH FOREIGN DIRECT INVESTMENT (FDI).................................................................................43
9.2 IMAGE BUILDING OF PAKISTAN TO ATTRACT FDI .......................................................................................43
9.3 FOCUS ON VALUE ADDITION......................................................................................................................43
9.4 TECHNOLOGY UP-GRADATION & CAPACITY BUILDING....................................................................................44
9.5 HUMAN RESOURCES DEVELOPMENT ...........................................................................................................44
9.6 ACCREDITATION AND CERTIFICATION...........................................................................................................45
9.7 REDUCING THE COST OF DOING BUSINESS IN PAKISTAN .................................................................................45
9.8 NEED FOR IMPROVING HOSIERY PRODUCTION...............................................................................................45
9.9 SHOULD OPT FOR “MARKET ORIENTATION” STRATEGY..................................................................................46
9.10 DIVERSIFICATION...................................................................................................................................46
9.11 WELL-DEVELOPED INFRASTRUCTURE.........................................................................................................47
9.12 EMPHASIZING MORE ON FINISHED GOODS...................................................................................................47
9.13 MISCELLANEOUS...................................................................................................................................47
REFERENCES.............................................................................................................................................49

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TABLE OF FIGURES AND TABLES

FIGURE 1: INSTALLED AND CAPACITY WORKED IN WEAVING SECTOR.............................11


FIGURE 2: INSTALLED CAPACITY OF TEXTILE INDUSTRY.......................................................41
1. Introduction

1.1 Research Title

“Challenges Facing Hosiery Industry of Pakistan in WTO


regime”

1.2 Research Problem

• What will be the effect of WTO on the Hosiery Industry


of Pakistan?
• Is Hosiery Industry of Pakistan prepared for the
challenges of the WTO regime?
• What will be the role of QUALITY in WTO Scenario?
• Role of Government in protecting the local industry
from the WTO regime?
• Has Hosiery Industry of Pakistan able to identify WTO
opportunities, post-quota regime and global marketing
accesses?
• Will WTO have positive or negative impact on the
Hosiery Industry of Pakistan?
• What strategies to follow to protect Hosiery Industry
of Pakistan to cop with WTO regime?

1.3 Objectives

• To analyze nature of competition in the wake of the


WTO regime for Hosiery Industry of Pakistan.

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• To analyze the impact of Free Trade Zone on the
Hosiery Industry of Pakistan?
• What will be the role of Pakistan Manufactures
Association (PMHA) in the upcoming WTO Scenario?
• Strategies adopted to secure the future of Hosiery
Industry of Pakistan.
• To analyze the threats and opportunities for Hosiery
Industry of Pakistan regarding impact of WTO.
• Ways to promote products of Hosiery Industry of
Pakistan into foreign and local market.
• In the future it should be a positive sign or
disaster for Hosiery Industry of Pakistan.

1.4 Rationale for the Research

Pakistan haunting dilemma is the lack of foresight and


ignorance of ground realities on the part of policy makers.
Hardly ever does anyone understand the responsibilities
however grave the matter may be. This study aims to put the
responsibility on the shoulder of responsibility holders.
It is a thought provoking statement on what is happening
and what the future holds for us.

1.5 Background/Importance of the proposed work

Top government officials are optimistic that the country


will surpass the $12.4 billion export target for the
current fiscal year since the half-year target has already
been exceeded by about 6% but problems could also surface
during the second half of the year as WTO fears may hold

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industry back.

There is an apprehension that textile exports to Europe and


America might decline under the World Trade Order (WTO),
because of the low quality, but the government is taking
measures in this connection, said Tariq Ikram, Chairman
Export Promotion Bureau (EPB).

Mr. Ikram said the country is ready to face all the


challenges of WTO after 2005, adding that there is a need
of more restructuring and modernization in the textile
sector as the prices of textile products are in a downward
trend in the international markets. However, tariffs will
protect Pakistan and the local industries from dumping
problems.

The main issue facing the textile industry in 2004 would be


to prepare for the challenges of the WTO regime, says Waqar
Monnoo, Chairman, All Pakistan Textile Mills Association
(APTMA). Our spinning sector is all geared up to confront
the challenges, but the value-added sector has to focus
more to get ready for the free trade regime.

Muhammad Sohail, Head of Research at brokerage house Invest


Corp, also shares the view that increased competition in
the wake of the WTO regime would be a big challenge for
local industries. However, he maintained that even without
the WTO, China poses the greatest threat to the industries
all around the world, including Pakistan, be it the textile
sector or other areas.

Export Promotion Bureau (EPB) Chairman Tariq Ikram has said


that 63% of the country's exports will not be affected by
the WTO free trade era beginning from January 2005.

Addressing a seminar on 'Impact of WTO on Pakistan

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exports', organized by the Air Cargo Agents Association of
Pakistan (ACAAP), he said only 37% of external trade is in
textile quota exports, which would also have a fair chance
to grow in the new trade scenario, if the exporters adopt
modern technology to improve quality of products, develop
supply chains, reduce cost of business, and increase
productivity.

He said that foreign buyers and machinery suppliers have


confirmed that Pakistan was ahead of India, Sri Lanka,
China, and Vietnam in social compliance and in
modernization of the textile sector, which has received $4
billion investment to prepare for the WTO era.

Chairman, Pakistan Hosiery Manufacturers Association (PHMA)


warned in a press release said the export of knitwear was
the largest by the end of quota regime in 2005 and had
prepared itself to meet the new WTO challenges but
unfortunately, Government of Pakistan failed to provide a
level playing field to local industries, while the
neighboring countries enjoyed all the incentives offered by
their government to boost its exports in the post quota
free era.

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Method

Research methods can be classified in various ways; however


one of the most common distinctions is between qualitative
and quantitative research methods.

2.1 Quantitative Research


Quantitative research methods were originally developed in
the natural sciences to study natural phenomena. Examples
of quantitative methods now well accepted in the social
sciences include survey method, laboratory experiments,
formal methods (e.g. econometrics) and numerical methods
such as mathematical modeling.

2.2 Qualitative Research


Qualitative research methods were developed in the social
sciences to enable researchers to study social and cultural
phenomena. Examples of qualitative methods are action
research, case study research and ethnography. Qualitative
data sources include observation and participant
observation (fieldwork), interviews and questionnaires,
documents and texts, and the researcher’s impressions and
reactions.

The motivation for doing qualitative research, as opposed


to quantitative research, comes from the observation that,
if there is one thing which distinguishes humans from the
natural world, it is our ability to talk! Qualitative
research methods are designed to help researchers
understand people and the social and cultural contexts
within which they live. Kaplan and Maxwell (1994) argue

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that the goal of understanding a phenomenon from the point
of view of the participants and its particular social and
institutional context is largely lost when textual data are
quantified.

Although most researchers do either quantitative or


qualitative research work, some researchers have suggested
combining one or more research methods in the one study
(called triangulation).

As well as the qualitative/quantitative distinction, there


are other distinctions which are commonly made. Research
methods have variously been classified as objective versus
subjective (Burrell and Morgan, 1979), as being concerned
with the discovery of general laws versus being concerned
with the uniqueness of each particular situation, as aimed
at prediction and control versus aimed at explanation and
understanding, as taking an outsider versus taking an
insider perspective, and so on. Considerable controversy
continues to surround the use of these terms, however, a
discussion of these distinctions is beyond the scope.

2.3 Descriptive Research


The term descriptive is self-explanatory and terminology
synonymous to this type of research is: describe, write on,
depict. The aim of descriptive research is to verify
formulated hypotheses that refer to the present situation
in order to elucidate it.
Descriptive research is thus a type of research that is
primarily concerned with describing the nature or
conditions and degree in detail of the present situation

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(Landman 1988: 59). The emphasis is on describe rather than
on judge or interpret.

According to Klopper (1990: 64) researchers who use this


method for their research usually aim at:

• Demarcating the population (representative of the


universum) by means of perceiving accurately research
parameters; and
• Recording in the form of a written report of that
which has been perceived.

The aim of the latter is that when the total record has
been compiled, revision of the documents can occur so that
the perceptions derived at can be thoroughly investigated.
Because the total population during a specific
investigation can not be contemplated as a whole,
researchers make use of the demarcation of the population
or of the selection of a representative test sample. Test
sampling therefore forms an integral part of descriptive
research. In descriptive research the following steps
should be included:

• Problem selection and problem formulation. The


research problem being tested should be explicitly
formulated in the form of a question.
• Literature search. Intensive literature search
regarding the formulated problem enables the
researcher to divide the problem into smaller units.
• Problem reduction.
• Hypothesis/Objective formulation.

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• Information retrieval. The application of appropriate
information retrieval techniques to comply with the
criteria set for authenticity and competency is
relevant.
• General planning. Any research requires sound planning.
• Report writing. The report entails the reproduction of
factual information, the interpretation of data,
conclusions derived from the research and
recommendations.
• We should make sure that we understand the meaning of
the terminology used. Consult the recommended sources
for detailed explanations. However, further reference
must be made to aspects related to test sampling.

Data collection will be by extensive literature review


through Papers, Articles, Publications, Internet, and
Journals etc.
Information regarding organization will be collected from
newsletters, records, business magazines, annual reports
etc.

3. Textile Industry in Pakistan

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The textile sector has spearheaded the export bonanza of
manufactured goods for some time. Its share in the economy
along with its contribution to exports, employment, foreign
exchange earnings, investment and value added in industry;
make it the single largest determinant of the growth in the
manufacturing sector. It has a one-fifth weightage in the
quantum index of large-scale manufacturing and a 46 percent
share in overall manufacturing activity. Pakistan has
emerged as one of the major cotton textile product
suppliers in the world market with a share in world yarn
trade of about 30 percent and 8 percent in cotton cloth.
The share of textiles in export earnings is 68 percent with
a value of around $ 8 billion. The value addition in the
sector accounts for 9 percent of GDP and its share in
overall employment is 38 percent. During the last four
years, the government in collaboration with the private
sector has embarked upon a plan to combat the challenges of
opening up to foreign competition in the next calendar year
(WTO:2005) and then (SAFTA) when all quotas will be
abolished. Pakistan has been seeking the removal of these
quota barriers for some time and its vertically integrated
textile sector is all set to capitalize on this imminent
change in quota regime.

Textile production is comprised of cotton ginning, cotton


yarn, cotton fabric, fabric processing (grey-dyed-printed),
home textiles, towels, hosiery & knitwear and readymade
garments. These components are being produced both in the
large-scale organized sector as well as in unorganized
cottage / small & medium units. The performance of these
various ancillary textile industries is evaluated below:-

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3.1 Cotton Ginning Sector
There are 1221 Ginning factories in Pakistan of which
1075 are in the Punjab and the remaining 146 are in
Sindh. The total capacity is approximately 20 million
bales per year (assuming a 100 day ginning season).
Against capacity, the total production of ginned
cotton is 10.0 million bales suggesting an excess
capacity of ginning in the country. Ginning is the
sector which is first in the process of value addition
leading to readymade garments or other textile
products. Unfortunately, the ginning sector is out-
dated and needs modernization.

3.2 Cotton Spinning Sector


The spinning sector is the most important segment in
the hierarchy of textile production. At present, it is
comprised of 453 textile units (50 composite units and
403 spinning units) with 9.2 Million spindles and 147
thousand rotors in cooperation with capacity
utilizations of 83 percent and 47 percent
respectively, during July- March, 2003-04. The
production of cotton yarn has increased to 1456.4
thousand tones in July-March 2003-04 against 1429.1
thousand tones last year thus, registering a growth of
1.9 percent. The export of cotton yarn witnessed a
slight improvement in the quantity exported but a
tremendous increase in terms of value during July-
April 2003-04 owing to a 23.9 percent increase in the
unit value of the product. The quantity and value of
yarn exported increased by 0.3 percent and 24.3
percent, respectively.

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3.3 Weaving and Made-up Sector
The patterns in the weaving and made-up sector which
is comprised of hosiery, garments, towels, canvas, and
bed wear are different from those of the spinning
sector. The weaving and made-up sector has three
different sub sectors i.e. integrated textile units,
independent weaving units, and power loom units.
Problems facing power looms encompass poor technology,
scarcity of quality yarn and the lack of institutional
financing for their development from an unorganized to
an organized sector. The government under the Textile
Vision 2005 has focused more on providing credit and
other facilitative support to diversify the products,
especially to cater to the needs of the high value
added sector like the garment industry.

The installed and effective capacities in the sector


are given in Table below.

Figure 1: Installed and Capacity Worked in Weaving Sector

Source: - Economic Survey of Pakistan 2005

3.4 Cotton Cloth Sector


The production of cotton cloth in the mill sector has
increased at a tremendous pace by 15.6 percent during
July-March 2003-04 while the non-mill sector has
registered a modest growth of 5.9 percent in the same
period. The export of cotton cloth witnessed an
increase of 17.5 percent during July-June 2003-04 in

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value terms and 2.45 percent in quantitative terms.
The unit value of cotton cloth increased by 13.89
percent, which is partly compensation for a higher
input cost during the year under review. This sector
served as the main engine for downstream industries
like bed wear, made-ups and garments.

3.5 Textile Down stream industry


The down-stream industry spearheaded the activities in
the textile sector. Major products are hosiery,
towels, canvas and bed wear, tents, cotton bags,
readymade garments and fashion apparels. The
government has already declared down-stream industry
as a priority sector in the Textile Vision 2005. The
performance of the down stream sectors is analyzed
below:

a) Knitwear Industry: - There are about 24,000 knitting


machines working in the country with approximately 60
percent capacity utilization. The sector is not only
catering to domestic demand, but also has export
potential. There is a greater reliance on the
development of this industry because of the high value
addition content of knitwear. Exports from this sector
have witnessed a tremendous increase of 35 percent in
value terms and 41 percent in quantity terms and added
$ 1136 million to foreign exchange earnings during
July-June 2003-04 compared to $ 841 million during the
same period last year.

b) Readymade Garments: - The garment industry provides


the highest value addition in the textile sector and

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is distributed into small, medium and large-scale
units, most of them, having 50 machines or less. This
sector is attracting considerable investment and many
new units are coming up in the organized sector every
year. This sub-sector is facing multi-dimensional
problems like high value addition in competing
countries and its inelasticity in shifting the burden
of increased prices of yarn, cotton cloth or other
inputs to the end user. The sector performed poorly
during July-April 2003-04 because its exports declined
both in terms of quantity and value by 24.1 percent
and 7.5 percent respectively in spite of a 22 percent
increase in unit value in the international market.
The value of exports declined from $ 891.2 million
last year to $ 824.1 million this year.

c) Towel industry: - This industry is comprised of


about 6500 towel looms in the country in both the
organized and unorganized sectors and is export based.
It has a low demand within the country but exports
increased by 3.3 percent in quantity terms and by 10.1
percent in value terms, during July-April 2003-04.

d) Tarpaulin & Canvas: - The production capacity of


this highest raw cotton-consuming sector is 100
million sq. meters. It is a low value added sub-sector
and recorded a 2.9 percent decrease in the value of
exports and a 3.0 percent decline in quantity terms.
This sector is mainly export based with 90 percent of
its production exported.

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3.6 Filament Yarn Manufacturing Industry

There are 25 units engaged in the manufacturing of


three kinds of filament yarn, namely, acetate rayon
yarn (one unit with a capacity to manufacture 3
thousand tones), nylon filament yarn (3 units with an
installed capacity of 2 thousand tones) and polyester
filament yarn (21 units with an installed capacity of
95 thousand tones). The total installed capacity of
all these units is 100 thousand tones, against which
it produced approximately 78 thousand tones per annum.
Recently, the hosiery sector has started consuming
synthetic Yarn for the export of knitted garments
which are contributing to a high value addition, as
well as, diversification in exportable products.

3.7 Art Silk and Synthetic Weaving Industry


The art silk and synthetic weaving industry is mostly
concentrated in the informal sector and generally is
operated in the form of family owned power loom units
comprising 8 to 10 looms. There are approximately
90,000 power looms in operation that prepare synthetic
yarn in the country and about 30,000 looms are engaged
in the production of blended yarn while 60,000 produce
filament yarn. The export of synthetic textiles
decreased by 11.4 percent in terms of quantity and 7.5
percent in terms of value during July-April 2003-04
compared to last year. The importance accorded to
SME’S by the government would go a long way in
promoting this industry.

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4. Hosiery Industry of Pakistan

The Hosiery is plying pivotal role in value addition in


textile sector. The products made in Pakistan include T-
shirts, jogging suits, jerseys, pajamas, sport shirts,
children wear, gloves, nightgowns, tracksuits, sweaters,
socks, etc. The use of Hosiery has increased primarily due
to its low price as compared to cotton and blended cloth
shirts. It is a convenient wearing apparel and easy to
wash. It requires no vest or under garments due to its
inherent absorbent quality. The share of this industry in
the value added in the manufacture is obviously small. A
large part of the production process in this industry i.e.
bleaching, dyeing, stitching, finishing and packing is
labor intensive while knitting is a mechanized and thus it
is a small part of the total manufacturing operation.

Knitted garments are popular among all, especially in the


developed countries, due to their inherent qualities like
softness, coolness, sweat absorbent and durability because
of important improvement made during 1990 in knitting
technology and techniques in the processing and finishing
by which the dimensional stability of knitted fabrics have
been further improved. Limits of shrinkage have also been
narrowed. These advancement together with availability and
use of soft twisted spliced yarn have resulted since 1985
in the upsurge of world-wide consumption of knitted fabrics
for the manufacture of outer garments such as T-shirts,
sweaters/polo-shirts, cardigans, infant/children wear,
skirts/blouses, track suits, etc.

Presently, about 10,000 different types of knitting


machines are available in the country with approximately 60

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per cent capacity utilization. Out of these machines 35
percent are circular knitting, 15 per cent flat knitting
for manufacture of tubular/flat knitted fabrics, and
remaining 50 per cent are available for socks knitting. The
installation share of circular knitting machines in Sindh
is 59 per cent, in Punjab 39 per cent and in NWFP 2 per
cent.

Similarly, the installation share of flat knitting machine


in Sindh is 60 per cent, in Punjab 39 per cent and NWFP 1
per cent.

These machines include various types such as single-knit,


double-knit (interlock), loop-knit (terry/fleece), and
pique and rib body for garment accessories. Sinker body
machine is used for producing singe knit hosiery cloth,
which is lighter in weight per square meter and cheaper in
price; it is mostly for the local market. Interlock machine
is used to produce double knit hoister cloth, which is
heavier in weight per square meter and relatively costly.
On an average one machine out of eight machines is meant
for manufacture of collars, rib-boarders, etc. A large
portion of these constitute used and re-conditioned
machines, imported over last 15 years under "Non-
Repatriable Investment" (NRI) scheme.

At the start of the 1990s there has been new investment in


the Hosiery sector especially in and around Lahore. Ammar,
Klass textile, Ibex, Irfan, Style, Azam and Disco and
Crescent of Crescent group and the Regent knitwear of the
Saigol groups and all based in Lahore and have set the most
modern production of Hosiery with state of the art

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technology. These firms exclusively export a daily average
of 500 kgs knit fabrics and hosiery.

The total investment made in the re-conditioned and new


imported machine is estimated to be around Rs. 150-200
million. The addition of imported machines has contributed
to improvement in quality of knitted fabrics, which in
turn, helped the country to earn foreign exchange through
exports of knitted fabric as well as hosiery. Today,
knitwear industry alone provides direct employment of
20,000 persons, skilled, unskilled men and women.

According to estimates of Pakistan Hosiery Manufacturers


Association current production of knitwear is at the level
of 6,000 million on 1.5 shift basis. Out of this
production, 60 per cent comprising jersey, knitted fabric,
T-shirts, sweat shirts, polo shirts, jogging suits track
suits and children outer wear, etc.

The knitting technology is a unique and distinct part of


the textile industry. In general, textile mills which
manufacture knitted fabric, do not manufacture woven cloth.
The distinctive feature of knitting industry is that it
comprise highly specialized machinery and technical skills
required to produce various type of knits: for example
machinery used to manufacture sweater bodies cannot also be
used to make hosiery, even though both are knitted
products. The organization of the knitting industry ends to
follow the lines of the specialized machinery used in
specific kinds of production.

To understand the characteristics, properties, usage,


limitations and marketing structures of the various types

17
of knitted goods it is necessary to have deep knowledge and
technique of different type/style of circular knitting
machines according to required quality of fabrics. A number
of circulars knitting machines of different brands are
available in international markets. Pakistan has also been
manufacturing small size circular knitting machine at
Faisalabad.

Export of Hosiery increased from 1.0 million dozens worth


$274 million in 1989-90 to 39 million dozens worth $874
million in 1999-2000, thus showing an average increase of
20 per cent annum in terms of value.(Source: Export
Promotion Bureau, Government of Pakistan)

Both domestic and foreign demand for hosiery is increasing


rapidly. Domestic uses of undergarments such as vests and
underwear are common in all groups in urban areas and about
15 per cent of the total outputs are consumed domestically.
Export of knitwear's of USA and Multi Fibre Agreement (MFA)
governs ECC countries. Nonetheless, the items covering
knitwear products have shown sizeable potential for growth,
Pakistani knitwear products have a big scope for sale.

This indicates the radical shift in fashion in the


industrialized countries of the world. This trend is
expected to persist in the coming years especially in view
of the substitution of cotton fabrics for man made
materials.

18
5. Pakistan Hosiery Manufacturers Association
(PHMA)

Pakistan Hosiery Manufactures Association is the premier


trade organization representing the hosiery and knitwear
industry accelerating and providing growth in all sectors
of the economy, generating immense employment and promoting
national self reliance.

Its history dates back to the year 1960 when Pakistan


Hosiery Manufacture Association was established by few
dedicated industrialists and leading manufacturers of
hosiery and knitwear and registered with the ministry of
commerce under section 26 of the Companies Act 1913 on 7th
July 1960 and incorporated under the Companies Act 1913 on
the 31st August 1960 with the main object: “To promote,
develop, protect, stimulate and encourage the hosiery,
knitwear and all made-ups, fabrics, home textile products
of cotton, wool, silk or man made fibers and to raise the
standard of their production and enhance exports among
other aims and objects. Shortly thereafter north zone
office was opened in Lahore followed by offices in
Faisalabad and Sailkot to facilitate the members there and
to provide prompt and better services to the members and
exporters of Faisalabad, Sailkot and Multan.

The hosiery and knitwear industrial network comprises 3,500


large, medium and small units, 85% of which are small
enterprises, 10% medium ventures and only 5% large
integrated factories. The industry provides jobs to 700,000
people in an environment dominated by refinances and
downsizing in giant multinationals, foreign banks and big
corporations.

19
The industry sustains directly livelihood of 210,000
skilled workers and their families; 490,000 unskilled
workers and their kith and kin. Another 350,000 people
benefit in allied cottage industries. Thus the industry
provides directly and indirectly sustenance to well over a
million people.

Despite being a labour intensive industry, the investment


in the knitwear and hosiery units is estimated at Rs. Seven
billion and tops the list of the industries for value added
exports ranking as the second largest foreign exchange
earner in the country.

Knitwear exports consist of knitted and processed fabrics


knitted garments; knitted bed sheets, Socks etc. and has
the largest share of the nation’s textile exports. It is a
pride to mention here that all the exports of all above
knitted products is 35% of the nations exports. The
knitwear industry consequently emerges as the countries top
foreign exchange earner.

In the country’s present stage of economic development and


the chief executive General Pervaz Musaraf’s seven points
programme for the economic revival of the nation. The
knitwear industry plays a very significant role for the
boosting of the exports and towards realization of the
export target of $10 billion.

It is a labour intensive industry in a capital scarce and


labour surplus economy. Its role in broad basing
prosperity, alleviating poverty and in making domestic
market prosperous is matched by very few industries. It is
an established fact that today, knitwear and hosiery

20
products have the largest consumption. Observe and sports
event and one will find millions and millions of people
young and old, male and female, all wearing knitted
products. Large multinationals, all over the world
advertise their products with their messages printed on t-
shirts.

Today there are many countries where people live below


poverty line and spend first food, shelter and then
garments. Knitted garments are definitely cheaper than
woven ones’ easy to wash and trendy, being used all over
the world. The overall global production and consumption of
knitted garments is much higher than of woven garments. It
is also forecast that in future knit shirt will replace
woven shirt and will be in great demand always.

The industry is striving to build up the image of made in


Pakistan while spinners only manufacture yarn and export.
The exports of the products manufactured from this yarn by
third countries is printed as “Made in Bangladesh”; “Made
in Thailand” etc. whereas we, the value added sector
specially the knitwear people are the real entrepreneurs
working real hard and have succeeded in making knitted
garments with the label “Made in Pakistan” which is today
found in all best stores in the world of which the knitwear
industry is proud of. For the above stated preeminent
position created internationally by the knitwear and
hosiery industry is imperative that this industry be
accorded important status and definitely deserves special
support both from the government and the society at large
to help make Pakistan a prosperous country.

21
5.1 PHMA central office

PHMA central office is centrally located in ideal


surroundings at PHMA house office Sharah-e-Fasial in
P.E.C.H.S, block-6 just a kilometer away from EPB office.
It is elegantly furnished with specious reception lounge
for members, representatives and visitors. Large public
dealing counters with audio system and speakers. Completely
computerized modern and specious offices for quota
serving, quota management, accounts, membership, computer,
library and other departments including the secretariat on
the ground floor with most modern and elegantly furnished,
meeting and conference hall, auditorium for seminar with
audio visual system and chairmen room on the 1st floor of
PHMA house. PHMA house has a large porch and front yard
where large number of member’s cars can be parked and which
compound is also used for general body meetings of members.

22
6. World Trade Organization (WTO)
The WTO was born out of negotiations; everything the WTO
does is the result of negotiations

6.1 What is the World Trade Organization?

Simply put: the World Trade Organization (WTO) deals with


the rules of trade between nations at a global or near-
global level. But there is more to it than that.

6.2 Is it a bird, is it a plane?

There are a number of ways of looking at the WTO. It’s an


organization for liberalizing trade. It’s a forum for
governments to negotiate trade agreements. It’s a place for
them to settle trade disputes. It operates a system of
trade rules. (But it’s not Superman, just in case anyone
thought it could solve — or cause — all the world’s
problems!)

6.3 Above all, it’s a negotiating forum …

Essentially, the WTO is a place where member governments


go, to try to sort out the trade problems they face with
each other. The first step is to talk. The WTO was born out
of negotiations, and everything the WTO does is the result
of negotiations. The bulk of the WTO’s current work comes
from the 1986–94 negotiations called the Uruguay Round and
earlier negotiations under the General Agreement on Tariffs
and Trade (GATT). The WTO is currently the host to new

23
negotiations, under the “Doha Development Agenda” launched
in 2001.

Where countries have faced trade barriers and wanted them


lowered, the negotiations have helped to liberalize trade.
But the WTO is not just about liberalizing trade, and in
some circumstances its rules support maintaining trade
barriers — for example to protect consumers or prevent the
spread of disease.

6.4 It’s a set of rules …

At its heart are the WTO agreements, negotiated and signed


by the bulk of the world’s trading nations. These documents
provide the legal ground-rules for international commerce.
They are essentially contracts, binding governments to keep
their trade policies within agreed limits. Although
negotiated and signed by governments, the goal is to help
producers of goods and services, exporters, and importers
conduct their business, while allowing governments to meet
social and environmental objectives.

The system’s overriding purpose is to help trade flow as


freely as possible — so long as there are no undesirable
side-effects. That partly means removing obstacles. It also
means ensuring that individuals, companies and governments
know what the trade rules are around the world, and giving
them the confidence that there will be no sudden changes of
policy. In other words, the rules have to be “transparent”
and predictable.

24
6.5 And it helps to settle disputes …

This is a third important side to the WTO’s work. Trade


relations often involve conflicting interests. Agreements,
including those painstakingly negotiated in the WTO system,
often need interpreting. The most harmonious way to settle
these differences is through some neutral procedure based
on an agreed legal foundation. That is the purpose behind
the dispute settlement process written into the WTO
agreements.

6.6 Born in 1995, but not so young

The WTO began life on 1 January 1995, but its trading


system is half a century older. Since 1948, the General
Agreement on Tariffs and Trade (GATT) had provided the
rules for the system. (The second WTO ministerial meeting,
held in Geneva in May 1998, included a celebration of the
50th anniversary of the system.)

It did not take long for the General Agreement to give


birth to an unofficial, de facto international
organization, also known informally as GATT. Over the years
GATT evolved through several rounds of negotiations.

The last and largest GATT round, was the Uruguay Round
which lasted from 1986 to 1994 and led to the WTO’s
creation. Whereas GATT had mainly dealt with trade in
goods, the WTO and its agreements now cover trade in
services, and in traded inventions, creations and designs
(intellectual property).

25
6.7 The objectives of WTO

♦ To promote greater coherence


among member's economic policies as well as ensure
enhancement of LDCs (Lower Developing Countries) share
in the growth of international trade.

♦ To trade in services.

♦ To promote ‘sustainable development’ and to protect


and preserve the environment in a manner consistent
with various levels of national economic development.

The agreement establishing WTO provides that it should


perform the following main functions:

♦ It shall facilitate the implementation, administration


and operation of the Uruguay Round legal instruments and of
any agreements that may be negotiated in future.

♦ It shall provide a forum for further negotiations


among member countries on matters covered by the
Agreements, on new issues falling within its mandate, and
on further liberalization of trade.

♦ It shall be responsible for the settlement of


differences and disputes among its member countries.

♦ It shall be responsible for carrying out periodic


reviews of the trade policies of its member countries.

WTO covers agreements relating to goods, services and


intellectual property. These agreements are lengthy and
complex because these are legal texts covering a wide range

26
of activities. They deal with: agriculture, textiles and
clothing, banking, telecommunications, government
purchases, industrial standards, food sanitation
regulations, intellectual property, and much more. But a
number of simple, fundamental principles run throughout all
of these documents. These principles are the foundation of
the multilateral trading system. The main purpose of these
agreements is to ensure that international trade flows as
freely as possible and the rules are “transparent” and
“predictable.” They serve as a forum for trade
negotiations. These agreements, negotiated and signed by a
large number of the world’s nations make up the core of the
WTO. They are contractual, negotiated and signed by
governments binding them to keep their trade policies
within agreed limits.

27
7. Impact of WTO on Pakistan’s Hosiery Industry

7.1 Agreement on Textile and Clothing (ATC)

An important achievement of the Uruguay Round is the


decision to phase out restrictions on imports of textiles
and clothing. These restrictions were imposed by certain
developed countries mainly on imports from selected
developing countries under bilateral agreements negotiated
under the Multi-Fibre Arrangement (MFA), which provided an
exception to the GATT rules prohibiting the use of
discriminatory quantitative restrictions. The Agreement on
Textiles and Clothing (ATC), which replaces MFA, provides
for the removal of restrictions on textiles in four phases
over a period of 10 years. This phasing-out programme ended
on January 1, 2005. From then on, the trade in textiles is
completely integrated into GATT 1994 and is governed by its
rules.

The objective of this negotiation has been to secure the


eventual integration of the textiles and clothing sector -
where much of the trade was subject to bilateral quotas
negotiated under the Multifibre Arrangement (MFA) - into
the GATT on the basis of strengthened GATT rules and
disciplines.

Quantitative restriction imposed on textile imports under


MFA are phased out by Dec 2004.After Phase out countries
can impose trade restrictions based on other agreements
under GATT only Textiles, like agriculture, is one of the
hardest-fought issues in the WTO, as it was in the former

28
GATT system. It is now going through fundamental change
under a 10-year schedule agreed in the Uruguay Round. The
system of import quotas that has dominated the trade since
the early 1960s is being phased out.

From 1974 until the end of the Uruguay Round, the trade was
governed by the Multifibre Arrangement (MFA). This was a
framework for bilateral agreements or unilateral actions
that established quotas limiting imports into countries
whose domestic industries were facing serious damage from
rapidly increasing imports. The quotas were the most
visible feature. They conflicted with GATTs general
preference for customs tariffs instead of measures that
restrict quantities. They were also exceptions to the GATT
principle of treating all trading partners equally because
they specified how much the importing country was going to
accept from individual exporting countries.

Since 1995, the WTOs Agreement on Textiles and Clothing


(ATC) has taken over from the Mulltifibre Arrangement. By
1 January 2005, the sector is to be fully integrated into
normal GATT rules. In particular, the quotas will come to
an end, and importing countries will no longer be able to
discriminate between exporters. The Agreement on Textiles
and Clothing will itself no longer exist: it’s the only WTO
agreement that has self-destruction built in.

Any other restrictions that did not come under the


Multifibre Arrangement and did not conform with regular WTO
agreements by 1996 had to be made to conform or phased out
by 2005. If further cases of damage to the industry arise
during the transition, the agreement allows additional

29
restrictions to be imposed temporarily under strict
conditions. These transitional safeguards are not the same
as the safeguard measures normally allowed under GATT
because they can be applied on imports from specific
exporting countries. But the importing country has to show
that its domestic industry is suffering serious damage or
is threatened with serious damage. And it has to show that
the damage is the result of two things: increased imports
of the product in question from all sources, and a sharp
and substantial increase from the specific exporting
country.

7.2 Integration Process

Integration of the sector into the GATT would take place as


follows:

1 January 1995; each party would integrate into the GATT,


products from the specific list in the agreement, which
accounted for not less than 16 per cent of its total volume
of imports in 1990. Integration means that trade in these
products will be governed by the general rules of GATT.

At the beginning of phase 2, on 1 January, 1998, products


which accounted for not less than 17 per cent of 1990
imports would be integrated.

On 1 January 2002, products which accounted for not less


than 18 per cent of 1990 imports would be integrated. All
remaining products would be integrated at the end of the
transition period on 1 January 2005.

30
At each of the first three stages, products should be
chosen from each of the following categories: tops and
yarns, fabrics, made-up textile products, and clothing.

ALL MFA restrictions in place on 31 December 1994 would be


carried over into the new agreement and MAINTAINED until
such time as the restrictions are removed or the products
integrated into GATT. For products remaining under
restraint, at whatever stage, the agreement lays down a
formula for increasing the existing growth rates.

While the agreement focuses largely on the phasing-out of


MFA restrictions, it also recognizes that some members
maintain non-MFA restrictions not justified under a GATT
provision. These would also be brought into conformity with
GATT within one year of the entry into force of the
Agreement or phased out progressively during a period not
exceeding the duration of the Agreement (that is, by 2005).

It is clear from this schedule that half of the trade


liberalization, in volume terms, is going to take effect
right at the end of the ten years period. It may also be
mentioned that the most value-added items are likely to be
included in the latter half, and consequently in value
terms the liberalization in the ten years period may be
much lower than the 51% volume liberalization.

It also contains a specific transitional safeguard


mechanism which could be applied to products not yet
integrated into the GATT at any stage. Action under the
safeguard mechanism could be taken against individual
exporting countries if it were demonstrated by the

31
importing country that overall imports of a product were
entering the country in such increased quantities as to
cause serious damage - or to threaten it - to the relevant
domestic industry, and that there was a sharp and
substantial increase of imports from the individual country
concerned. Action under the safeguard mechanism could be
taken either by mutual agreement, following consultations,
or unilaterally but subject to review by the Textiles
Monitoring Body. If taken, the level of restraints should
be fixed at a level not lower than the actual level of
exports or imports from the country concerned during the
twelve-month period ending two months before the month in
which a request for consultation was made. Safeguard
restraints could remain in place for up to three years
without extension or until the product is removed from the
scope of the agreement (that is, integrated into the GATT),
whichever comes first.

The agreement includes provisions to cope with possible


circumvention of commitments through transshipment, re-
routing, false declaration concerning country or place of
origin and falsification of official documents.

The agreement also stipulates that, as part of the


integration process, all members shall take such actions in
the area of textiles and clothing as may be necessary to
abide by GATT rules and disciplines so as to improve market
access, ensure the application of policies relating to fair
and equitable trading conditions, and avoid discrimination
against imports when taking measures for general trade
policy reasons.

32
In the context of a major review of the operation of the
agreement to be conducted by the Council for Trade in Goods
before the end of each stage of the integration process,
the Council for Trade in Goods shall by consensus take such
decisions as it deems appropriate to ensure that the
balance of rights and obligations in this agreement is not
upset. Moreover, the Dispute Settlement Body may authorize
adjustments to the annual growth of quotas for the stage
subsequent to the review with respect to Members it has
found not to be complying with their obligations under this
agreement.

A Textiles Monitoring Body (TMB) oversees the


implementation of commitments and to prepare reports for
the major reviews mentioned above. The agreement also has
provisions for special treatment to certain categories of
countries - for example, those which have not been MFA
members since 1986, new entrants, small suppliers, and
least-developed countries.

7.3 Anti-Dumping Duties on Textiles and Clothing

If a company exports a product at a price lower than the


price it normally charges on its own home market, it is
said to be “dumping” the product. Is this unfair
competition? Opinions differ, but many governments take
action against dumping in order to defend their domestic
industries. The WTO agreement does not pass judgment. Its
focus is on how governments can or cannot react to dumping
— it disciplines anti-dumping actions, and it is often
called the “Anti-Dumping Agreement”. (This focus only on

33
the reaction to dumping contrasts with the approach of the
Subsidies and Countervailing Measures Agreement.)

The legal definitions are more precise, but broadly


speaking the WTO agreement allows governments to act
against dumping where there is genuine (“material”) injury
to the competing domestic industry. In order to do that the
government has to be able to show that dumping is taking
place, calculate the extent of dumping (how much lower the
export price is compared to the exporter’s home market
price), and show that the dumping is causing injury or
threatening to do so.

The agreement says member countries must inform the


Committee on Anti-Dumping Practices about all preliminary
and final anti-dumping actions, promptly and in detail.
They must also report on all investigations twice a year.
When differences arise, members are encouraged to consult
each other. They can also use the WTO’s dispute settlement
procedure.

7.3.1 Members applying Duties


Argentina, Brazil, Canada, the European Community, Japan,
Medico, New Zealand, the Philippines, the Republic of
Korea, South Africa, Turkey and the United State.

7.3.2 Members affected


Brazil, Egypt, Hong Kong (China), India, Indonesia, Japan,
Malaysia, Pakistan, Portugal, the Republic of Korea,
Romania, Thailand, Turkey and the United States.

34
7.4 End of Textile Quota: Implications for Pakistan

In the Post ATC era started from 2005 there would be


threats and opportunities for the Textile Industry of
Pakistan in the International Market place. Pakistan is the
greatest sufferer from the quotas regime as it has the
highest percentage of textiles and clothing exports among
all developing countries. Pakistan can therefore benefit
greatly from the freer trade in textile and clothing and
this Agreement provides for possibilities of expansion of
its quota bound exports annually by 10 percent. However,
Pakistan has not always been able to utilize existing
quotas due to the problems in quota administration but
there is opportunity for sustained expansion in quota free
exports provided by the Uruguay Round. Pakistan’s export of
textile and clothing are marred by another factor, as we
are on a lower end of the quality and unit prices for
almost all textiles and clothing exports. That dichotomy
i.e. almost 71% of total exports and globally at the low
end, does not bodes well for the future.

With regard to The Agreement on Textiles and Clothing


especially with reference to the dismantling of the quota
regime, price competitiveness would not be the only
determining factor for commanding a market position in this
large global market. Our textile industry currently enjoys
a protected market in the developed countries in the light
of the quotas allocated to the country. The question is can
it hold its own against competitive quality products from
around the world in a free market system.

35
With the abolition of quota, Pakistan will have greater
access to the world market, in general, and to the US
market, in particular. The new era will give a push to our
textile exports of those products, which are limited due to
quota constraints. At the moment, many Pakistani exporters
are manufacturing and exporting textile products from
countries, which have plenty of unutilized quota or
countries which are quota free like Myanmar and Bangladesh.
When the quota system will disappear, these Pakistanis may
come back to Pakistan. However, they may move to countries
where they could find tariff advantages. In this
forthcoming scenario, Pakistan government can provide
incentives to these entrepreneurs to move to Pakistan.
Under quota free environment, Pakistan can get benefit in
the export of textile raw material also.

As by January, 2005 quota system has ended following are


implications for that:

• The quota system covering about 2,400 specific


products or two-thirds of all the varieties of
clothes, yarns, fabrics and household linen in
its current form was introduced in 1974 and
called the ‘Multi-Fiber Arrangement’ (MFA).
Operationally, it works by dividing textile and
clothing products into large groups by basic
materials and type of goods. There are 147 such
groups, each including anywhere from ten to
several dozen products. Geographically, it
extends to 58 countries, ranging from very poor
nations to large middle-income countries but

36
developed countries remained out of the ambit of
the quota system. Today 130 countries are
producing textiles and clothing for export
markets comprised of about 30 nations.

• The net impact will be positive for developing


countries as a whole. This argument is backed by
the fact that during the 20 years since the MFA
was established the Industrialized Countries
(ICs) lost as much in market share as the listed
Developing Countries (DCs) gained (ICs lost 17.7
percentage points.; DCs gained 16.7 percentage
points). This shows that a reallocation took
place between the listed developed and developing
countries.

• The Uruguay Round finally came into effect in


1995 in Geneva and decided on the integration of
the Textile and Apparel into the mainstream by
the removal of all quotas over a 10 year phase
out. Three stages have been completed of the
total quota elimination. The fourth stage has
also completed Dec. 31, 2004 where all the
popular or ‘hot’ categories were phased out.

• The abolition of the quota in textile and


clothing is a key victory for efficient exporters
of textile and clothing like Pakistan. Pakistan
and other major developing countries exporters
have been seeking the abolition of quota for a
long time. The MFA guaranteed a market for a wide

37
range of poorer countries even though they were
not competitive. These marginal countries are
likely to be squeezed out in the post quota world.

• Countries like India & Pakistan have a great


advantage with a strong base of large cotton
cultivation & modern textile mills. Countries
that do not have a fabric base have to secure
their requirements of raw material. Without MFA
there will be a concentration of the industry in
countries with inherent advantages:

o Availability of fabric
o Infrastructure for Marketing and Transport
o Low Wages
o Favorable Trading Terms
o Proximity to the Market

• Tariff concessions are instrumental. Many


countries are negotiating Free Trade Agreements
(FTA) with the USA because of its huge share in
the textile trade to obtain better market access.

• Pakistan is already in the process of improving


the Enabling Environment by looking into Cost of
Utilities, Transaction Costs, Regional
Cooperation, Market Access, Image Building, Labor
Laws etc.

• The prospects of a country crucially depend on


continuous improvement & investment.

38
o At Factory Level
o Staff Training
o New Machinery & Technology

• Pakistan’s Textile industry has heavily invested


in modernization and the improvement of the
production base and at the same time skill
development has increased at a tremendous pace.
The textile industry has taken post 2005 as an
opportunity and a challenge requiring action.

39
8. Government Reforms for Betterment of Hosiery
Industry
Textiles which also include hosiery being export based are
a major earner of foreign exchange and have always remained
a priority. The government has been at the forefront of the
formulation of a high powered committee which has already
given its deliberations in the form of the “Textile Vision
2005”. The Vision is aimed at establishing an open market
driven, innovative and dynamic Textile sector which is
internationally integrated, globally competitive and fully
equipped to exploit the opportunities created by the quota
free textile trade beyond January 2005.

Pakistan has also started negotiations for bilateral trade


agreements with important trading partners to attain
greater market access. The European Union has enhanced
market access by 15 percent for all categories and has also
extended a zero rate of customs duty policy on Pakistani
products barring yarn and fabrics. The government has
announced its support for the local production of textile
machinery. A wide ranging campaign to produce contamination
free cotton in the country to promote value addition has
also been started. As a result, the cotton prices are now
being quoted on a PSCI grade standard basis. To ensure an
abundant supply within the country, cotton was allowed to
be imported and exported freely. To stabilize prices in the
domestic market, the Trading Corporation of Pakistan (TCP)
is being asked to intervene when needed. These policies
have led to the level of contamination declining from 26gm
to 6 gm on average. The profiles of various components of
the textile industry are given in the Table below.

40
Figure 2: Installed Capacity of Textile Industry

Source: - Economic Survey of Pakistan 2003-04

8.1 Textile Cities Project

Recognizing the importance of textile and to meet the


challenges of the post quota regime the government has
formed a company called the Pakistan Textile City Limited
(PTCL) with a mandate to establish three textile cities,
one each in Karachi, Lahore, and Faisalabad. The company
has already been listed with the Securities and Exchange
Commission of Pakistan (SECP) as a limited company to make
textile cities a reality. The first such city will be set
up near Port Qasim, Karachi. The company acquired 1250
acres of land from the Port Qasim Authority (PQA) and
initially 700 acres of land would be developed in order to
facilitate textile manufacturers and exporters. The rules
and regulations of the export processing zones would also
be applicable on the proposed “Textile City”.

Three Textile Cities are to generate 80,000 new jobs and


fetch about $ 1.5 billion additional export proceeds per
annum. The Textile City in Karachi will have a number of
supporting and ancillary industrial units in the area
including knitting, bleaching and dying units, adequate

41
infrastructure facilities, like water supply, a better
sewerage system and uninterrupted electricity supply etc.
The textile city will have other supporting services as
well like banking and finance, insurance and postal
services and Internet and E-commerce.

42
9. Conclusion and Recommendations

9.1 Remedy through foreign direct investment (FDI)

As the result of measures taken under vision 2005, the


fiscal year 2002-03 witnessed tremendous inflow of
investment in value added expansion and BMR. FDI in textile
sector during last four years has reached to US$4 billion
which has led to improvement in productivity, both in terms
of quality and quantity, in yarn, fabrics, home textiles
and garments, besides generating more than 300,000 new
jobs. However, the investment volume is not satisfactory as
compared with the potential available in our Textile
Sector. There is also an urgent need to set benchmark
investment requirements for the creation of new capacity
and up-gradation of the existing production base.

9.2 Image Building of Pakistan to Attract FDI

The Ministry of Commerce, Ministry of Foreign Affairs and


The Board of Investment should launch Joint Campaign to
build positive image of Pakistan as a quality textile
product supplier and to facilitate the international buyers
in Pakistan.

9.3 Focus on Value Addition

Pakistan is a leading exporting nation in raw yarn, cotton,


and fabrics. If we emphasis on the value added products

43
like garments, Hosiery, knitwear and other textile made-
ups, the export volume of textiles can be increased by
manifolds. In this respect top priority should be given to
stitching industry that leads to highest value addition and
employment generation.

9.4 Technology Up-gradation & capacity building

The establishment of Textile Cities in major Cities of the


country is an appreciable move. Government should either
set up joint ventures in textile related areas or should
provide subsidized credit to textile manufacturers to
upgrade their technology and capacity building through
'Technology Up gradation Fund' (TUF). It is also suggested
that smaller units of power looms (up to 50 looms) should
be upgraded to auto looms and power loom units larger than
50 looms into air jet looms.

9.5 Human Resources Development

The Textile Board should establish a separate training wing


as a Center of Human Resource Development where training
courses should be conducted for the capacity building of
Labour. There is also urgent need to increase the number of
such Vocational Institutions where modern technical
education is provided.

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9.6 Accreditation and Certification

We are fast approaching an era of Free Trade Regime, which


requires standardization complied with WTO regulations. At
present due to non-availability of testing laboratories,
Pakistani exporters have to spend huge money to get
certification from abroad. If WTO recommended Labs were
established in Pakistan a lot of valuable foreign exchange
could be saved. Ministry of Commerce and BOI (Board of
Investment) should set up such laboratories so that the
exporters can get these standards at comparatively
competitive prices.

9.7 Reducing the cost of doing Business in Pakistan

At present cost of doing business in Pakistan is higher as


compared to the regional countries, which has resulted in
bitter competitiveness to Pakistani Products in Foreign
Markets. China and India are the bigger competitors of
Pakistan. We fear if cost of doing business in Pakistan is
not brought at par with other Asian countries, our products
would find no place in Market both in terms of quality and
price. In the context of future trade, there is an urgent
need to bring all the utility charges and levy of taxes down
to the minimum level.

9.8 Need for Improving Hosiery Production

There is an urgent need to bring improvement in textile


production, especially in blended sector. Blended products

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made from a combination of natural and man-made fabrics,
are preferred in clothing the world over. In Pakistan 20%
protective duty on the import of Polyester Fibre is levied
on account of which 25% polyester fabrics is blended with
man-made fabrics, while a country like Bangladesh blend 35%
Polyester. This scarcity has resulted in the poor
contribution by Pakistan in this sector.

9.9 Should opt for “Market Orientation” strategy

Our producers in this particular industry should try to


adopt (just like in the West) the "demand for market-
oriented strategy" i.e., to increase their market power by
producing high price fashion clothing. They should go for
product differentiation through the promotion of brand
names and advertising, and should also try to increase the
efficiency of distribution. With an increase in market
power they can easily transfer rising cost to consumer in
the form of rising prices.

9.10 Diversification

Diversification is needed not only in quality but also in


the direction of trade. More than 50 per cent of Pakistan's
exports are directed towards Europe and North America. This
is one of the drawbacks for the low level of Pakistani
exports (especially of apparels). Given the protectionist
policies and technological superiority of the developed
countries, textiles would certainly be at a disadvantage in
their markets.

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9.11 Well-developed infrastructure

In addition to the quality, reliability, efficiency in


delivery schedules, sufficiency in well-developed
infrastructure in terms of communication, services, export
procedures, appropriately trained manpower, material inputs
and transport facilities, as well as stable enforceable
contracts with foreign investors are also needed. Otherwise
instead of any increase in the share or the maintenance of
the current share in the global market would be difficult.

9.12 Emphasizing more on finished goods

Instead of emphasizing too much on the spinning activity


our industry should focus more on the production of fine
quality cloth. Major portion of good quality yarn should be
utilized domestically in the organized mills sector for the
production of high value-added fabric of better quality.
And then later this fabric should be used in the production
of garments. As apparels/garments provide the highest
value-added product among the textile items, maximum focus
should be towards the units producing garments.

9.13 Miscellaneous

♦ Keeping in view the upcoming Free Trade regime,


Pakistan must bring into line all its economic
policies particularly tax rates, utility rates etc
with that of its neighboring and competitor countries
such as India and China.

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♦ A comparative study taking into account the inputs
costs, tax rates prevailing in the bordering countries
should be conducted.

♦ Guidance should be taken from the people who are


successful in their relevant field .Such people should
be consulted and benefit from their experience should
be taken and such information should be disseminated
at a broader basis.

♦ Seminar on WTO and its impact on textile industry


should be arranged in order to create awareness among
the general public.

♦ Government should develop required infrastructure at


Port Bin Qasim for buffer storage of cotton etc., and
private sector should be encouraged to play its due
role in this regard.

♦ Investment in garment sector should be encouraged by


providing special incentives, cluster facilities,
garmenting cities, one-window operations, etc.

♦ An appropriate price stabilization policy be made to


stabilize prices of cotton and all other fibers.

♦ Textile industry statistics should be collected more


systematically to be used for onward industrial
planning. In this connection, small units should also
get registered to have reliable and appropriate data.

♦ It is proposed that Ministry of Textiles be formed to


formulate policies for the protection and promotion of
Cotton and Textile Industry.

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References

 Understanding the WTO 3rd edition Previously


Published as “Trading into the Future” September 2003,
revised October 2005; Written and published by the
World Trade Organization
 Global scenario of textiles and position of Pakistan
by Dr. Mirza Ikhtiar Baig , Recipe for textiles in WTO
regime By Hammad Badar, Dawn 17 June 2002.
 “Textile Industry – Challenges after Quota Phase Out”
Government of Pakistan Ministry of Industries and
Production Textile Commissioner’s Organization by M.
Idrees Ahmed Textile Commissioner.
 Economic Survey of Pakistan 2003-04
 “Knitwear industry in Pakistan” By Dr. Noor Ahmed Memon
 All Pakistan Textile Mills Association (APTMA) website
 Pakistan Hosiery Manufactures Association (PHMA)
website
 “Knitwear industry to unravel in WTO regime” Textiles
& Clothing (ATC) 16-31 July 2003
 WTO, Globalization and Pakistan by Sh. Yousaf Haroon
Mujahid is currently Assistant Professor (Management)
at National Post Graduate Institute of
Telecommunications & Informatics Islamabad, PTCL, IT &
Telecom Division, MOST.

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