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TEXTILE INDUSTY IN PAKISTAN - IV (IAR 198).

Only 6 hour gas Supply to Textile industry

TheAdvisor of Prime Minister on Petroleum and Natural Resource, Dr Asim Hussain, has ensured six hour per day gas supply to the textile sector of Punjab, during the next month (January 2013) to ease out power load shedding impact on the industry.

He said the Liquefied Natural Gas (LNG) would also be imported to overcome the gas shortage, while the government is also working on Iran-Pakistan gas pipeline, as Iran had already committed $500 million to Pakistan for the project. He denied that there is any pressure on Pakistan with regard to gas project with Iran.

The PM's Advisor also said that next month, January, would be the toughest one regarding supplies of gas, however, to tackle this problem some adjustments would be needed to ensure equitable supply to all consumers, he said.

He said the country's gas production was 4 billion cubic feet gas against a demand of 8bcft, while supply shortfall was one bcft. He admitted that bringing in more gas to the system would take time.

On the other hand, Mian ZahidAslam, President Faisalabad Chamber of Commerce and Industry (FCCI) criticized the SNGPL for suspending gas supply to industries in Faisalabad for prolonged period and urged to end the discriminatory attitude of gas supply to Faisalabad industrial sector. He said this is anti-industry and anti-worker policy and hampering the textile exports from this area.

Chamber Chief deplored that the industries particularly the textile industries in Faisalabad are out of gas supply for 10.5 days in the last 16 days of the month and when provided supply of gas for a day the pressure was too low to use it. The gas supply to industrial sector was curtailed due to enhance domestic consumption and city load on its system but this time the supply situation proved worst and he termed it bad management by the authorities, who have halted the industrial production to standstill.

He said that Faisalabad textile sector contributes about $4 billion to the national exchequer, besides meeting the domestic demand which has also risen due to increased requirement with the severe winter across the country for warm fabrics and clothing.

He said that with the India Pakistan trade liberalization and European Union allowing export from Pakistan under Autonomous Trade Preference Scheme (ATPS), textile industry is in a position to support the external sector with increased exports, if gas and electricity load shedding problem is solved by the authorities. He pointed out that there is no alternative available of gas for production process in textile manufacturing, therefore the Government and SNGPL authorities should improve the supply of gas to the Faisalabad textile industries immediately.

Tariff gap is also a cause of concern for the power based textile mills, paying Rs12 per unit while the cost of each unit is around Rs6 for the mills producing power for self use through gas supply from the system.

But the problem is that the power based mills are about 20 percent of the total and the rest 80 percent units have switched over to self generation of electricity through gas supply from the system after investing millions of rupees in the installation of Captive Power Plants (CPPs) since 2002.

He said presently majority of these mills are closed due to tariff problems coupled with unprecedented load shedding, haunting the industrial growth since November 2007. Not only this, these mills are also defaulting on bank payments one after another, remaining clueless as how they can get out of this quagmire.

These 20 percent of the total industry are financially weak to the extent that they are not able to lobby for their rights. APTMA said its members have been invited, a few months back, to give suggestions as how the APTMA should proceed further on the issue. The Prime Minister had constituted a committee to solve the issue, as it is the easiest way not to solve the problem and linger on the matter.

On the other hand, due to gas load shedding for industries in Faisalabad region has resulted closure of about 575 industrial units, most of them export oriented. Industrialists and workers also staged protest demonstration against Federal Government. Commenting over the prevailing situation, Mian Zahid Aslam President FCCI said that energy crisis, lack of good governance, deteriorating law and order situation were the major factors hampering mobilisation of domestic investment and to keep the foreign investors away from the country. He emphasised that increased risk factors about investing into Pakistan were hurting the entire economy and needed to be tacked through a methodical and visionary policy approach by involving all the stakeholders in the policy consultative process.

The FCCI president said that business and investment friendly policies should be evolved and be given the top priority by the Government to speed up economy, in order to gear up business, trade and industrial activities in the country. Resultantly, it would jack up the GDP and economic growth which is presently the lowest in the region. He also stressed that national economy needed to be deregulated because to run the businesses is not government's job. Government should encourage private sector through public-private partnership. He quoted that many institutions once in government control when privatized became profitable.

He said that looking towards multi laterals is a timely support and, therefore urged the government to realise the gravity of the situation and all stakeholders should be taken into confidence to identify ways and means to solve energy crisis and to mobilize domestic investment as the real solution to the ailing economic growth of the country.

Tex tile processors and exporters have complained that they are finding it difficult to meet their export orders as a result of suspension of gas supply that is incurring huge losses, while the country is also losing much needed foreign exchange. They added that industries are already running on 30 percent of their installed capacity due to six hours load shedding of electricity and the suspension of gas supply.

All Pakistan Textile MillsAssociation (APTMA) is also worried over the situation, demanding the government to increase electricity generation in the country so that industry can continue its operations in the absence of gas supply.

It was quoted that the government has reduced power supply to around 10,000MW against available capacity of 14000MW to cut down import bill of furnace oil. Moreover, the government is supplying available electricity to the domestic consumers on priority basis. Similarly, the SNGPL is also putting domestic consumers on priority, which means that the industry would not be able to get gas and electricity for at least next two months, and if it is available, it would be too little to utilize the capacities of their units.

Non availability of energy to the textile industry ahead of general elections is a worrisome situation, as the textile workers are not able to earn their both ends in the absence of industry production. Therefore, the government's move to appease the domestic consumers would prove futile, as mere electricity to domestic consumers would not solve their financial problems when they are denied jobs by the mills.

The industry demanded that the government should supply gas to Captive Power Plants on priority, as over 80 percent capacity in the Punjab is depending on CPPs to keep their operations intact or should generate electricity up to the optimum level using all resources.

Global textiles scenario

The demand for textile items in the world is about $18 trillion, which is growing at the rate of 6.5 percent per annum. China is the leading textile exporter of the world's total exports of $400 billion of which export of China was $55 billion, Hong Kong $38 billion, Korea $35 billion, Taiwan $16 billion and Indonesia $9 billion.

Pakistan has emerged as one of the major cotton textile suppliers in the world market. It has a share in world yarn trade of about 30 percent and in cotton fabric about 8 percent. However, its share was only 1.2 percent in total export and out of this cotton fabric share was 0.02 percent, made ups 0.18 percent and garments 0.15 percent.

Dr Mirza Ikhtiar Baig said Pakistan should learn a lesson from Bangladesh, which imports yarn and fabrics from Pakistan and other countries, has increased the export volume of textiles made ups many fold.

Textile products are one of the three basic human needs, next to food and shelter. It is playing important role in the economy, in many sectors such as exports, employment, foreign exchange earnings, investment and contribution to the value added industry; make it the single largest determinant of the growth in manufacturing sector.

Textile Vision-2005 has been directed towards 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 Multi FibreArrangement (MFA). Pakistan, at present, holds 8th position in textile exports in Asia. Pakistan can achieve the 5th position in Asia in the textile exports as has been targeted in the Textile Vision-2005.

The measures taken under vision 2005, in 2002-03 tremendous inflow of investment in value added expansion and BMR took place. FDI in textile sector during four years had reached to $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 was not satisfactory as compared with the potential available in the 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.

Future of textile exports

After nearly four decades of derogation in GATT and imposition of quotas, unilaterally, bilaterally, multilaterally and voluntarily, the trade in textiles was to be integrated into GATT on 1st January 2005, i.e., there will be no quota restraints on textile products, except possibly in some categories for China's exports to the US and EU as a result of China's terms of accession to the WTO.

to the WTO, China was the world's biggest exporter of textiles in 2010.

Shift of Global Textile Trade

For the last 40 years the developed countries, including the US and the EU, are trying to protect their textile and apparel industry from the competition of developing countries' exports. They made two multilateral agreements, i.e. the Multi-Fiber Agreement (MFA) and the Agreement on Textiles and Clothing (ATC). Quotas on imports from more than 70 countries limited the quantities of textiles, such as cotton yarns and synthetic fabrics, and specific garments like T-shirts and sweaters, which could enter in the US and the European Union (EU) markets each year, according to their allocated quota.

This system made it necessary for buyers of textile and apparel products to see the name of the countries for which quotas for particular products were allocated. This spread manufacturing to an ever increasing number of countries, instead of concentrating it where production was cheapest. However, the expiry of the ATC on January 1, 2005 eliminated all textile and apparel quotas for members of the World Trade Organization (WTO). Since then, buyers have been able to source from any WTO member country, subject only to tariffs.

The US tariffs on textile and apparel imports vary considerably from country to country, governed by bilateral and regional arrangements. The average US tariff rate in 2011 was 7.9 percent for textiles and 11.7 percent for clothing, but rates on particular products ranged as high as 32 percent. China has been a major force in textiles for decades, but its export growth accelerated following its 2001 accession to the WTO and the expiration of the ATC.

About 50,000 textile mills are operating in China. China's textile exports have more than quadrupled since 2000. The European Union and India ranked as the world's second and third largest exporters of textiles in 2010. In terms of textile imports, the EU ranked first followed by the US, China and Hong Kong. The share of top five importers is 33 percent

Apparel trade is more diversified than textile trade, as many countries have developed export oriented garments industries based on imported fabrics, without having large domestic textile production. Examples include countries in Central America, the Caribbean and Africa, as well as countries throughoutAsia, including Vietnam.

Technical textiles

Technical textiles are used from agriculture to defence. mobiltech, oekotech, packtech, protech and sportech. Packtech is the largest segment, share is 33 percent in 2010- 11. Meditech, sportech, geotech and oekotech are smaller in size.

The industry can be classified into 12 major segments like agrotech, buildtech, clothtech, geotech, hometech, indutech, meditech, The technical textiles industry is very small but important and is growing very fast and expected to grow sharply over the next 3 years. It was estimated that the domestic market size to be around Rs640 billion in 2010-11. The technical textile market includes meditech, sportech, geotech and oekotech, environment protection.

D&B Research Report indicated that developing countries have made an impressive progress in the clothing exports, as has been in the textiles exports.

Indian Textile Industry

India is the close competitor of Pakistan in textile trade in the international market. India is the 15th largest economy in the world with a GDP of $3.319 trillion and a GDP per capita of $2,900. It has the 2nd largest population, only behind China, with around 1.16 billion people (2008 estimates).

The Indian textile industry was valuing at $36 billion with exports of $17 billion in 2005-06. At the global level, India's textile exports accounted for just 4.72 percent of world textile and clothing exports. The export sector includes a variety of items like cotton yarn and fabrics, man made yarn and fabrics, wool and silk fabrics, made-up and garments.

Quota constraints and problems in producing value added fabrics and garments and the absence of latest design facilities were some of the challenges that have impacted textile exports from India.

India is an important player in the world market in the areas of fabrics and yarn. The country is the largest exporter of yarn and has a share of 25 percent in the world cotton yarn exports and accounts for 12 percent of the world's production of textile fibres and yarn.

In terms of spindle the industry was ranked second, after China, and accounted for 23 percent of the world's spindle capacity. About 6 percent of global rotor capacity is in India. The country has the highest loom capacity, including handlooms, with a share of 61 percent in world looms.

Cotton is one of the principal crops of the country and is the major raw material for the domestic textile industry. In 2008 the 14.4 percent of the country's export earnings were from cotton. Cotton textiles are the predominant of the Indian textile industry.

The CEO CRISIL Research analyzing the Indian textile industry said that the demand for textiles in the domestic market in 2011 for readymade garments may remain flat as against 6 to 7 percent growth seen in CY 2010. The growth was affected by the steep increase in apparel prices and slowdown in economic growth. Besides, hike in raw material prices and the imposition of excise duty on branded garments in the Union Budget for 2011-12. However, the increase in garments prices has enabled an 8 percent growth in turnover, over 2010.

India's total apparel exports were expected to be $12.6 billion that were about 14 percent higher than 2010. The growth in the export was due to a sharp increase in the prices of apparels. The price increase has impacted volumes, as Indian garments became less competitive, especially in the EU market, which is the largest export market for Indian apparels. India's exports to the EU grew16 percent in CY2011, reached $6.5 billion while volumes fell by about 5 percent.

Exports to the US also grew by 9 percent and to reach $3.4 billion while volumes fell by about 3.5 percent. However, in CY2012, it was expected that India's overall apparel exports to remain flat, in terms of US dollar, due to subdued demand in the main export markets and a reduction in raw material prices that is expected to bring down apparel prices.

Indian apparel are mainly exported to EU and the US. These markets contributed to almost 78 percent of India's apparel exports in 2011. Exports of readymade garments to countries, other than the US and EU-27, were estimated at $2.8 billion in 2011, that was 22 percent of its total RMG exports. India aims to increase this share to about 28 percent by 2016. However, to achieve this target, India has to compete with China, which has over 50 percent share of exports to most of these countries on cost basis and also done huge investments in marketing and promotion.

The experts say India's competitiveness in the export market is equal to other exporting countries, such as Vietnam and Bangladesh, but lower than C hi na. The main rea son for Indi a's low competitiveness was the lack of adequate investments in state-of-the-art weaving and processing sectors, which resulted to high production costs, after spinning. Moreover, other problems are non availability of quality raw material and less productive labour, the heavy skew towards cotton based apparels, limited diversification of export markets.

Bangladesh's performance was much better than

India and has surpassed Indian RMG exports of around $15 billon in 2010. Meanwhile, China continued to hold the 38 to 40 percent share of global RMG exports, in value terms.

Cotton

A report observed that globally, cotton prices increased sharply during the cotton season (CS) 2010-11 (October 2010 to September 2011). In 2010-11, the average international prices doubled to reach an all time high of $1.7 per pound. The surge in prices resulted in higher imports by China and limited availability of exportable surplus in the international market. In India, robust export demand pushed domestic cotton prices up to record high levels. Average domestic cotton prices rose almost 60 percent during this period.

However, the increase in domestic cotton prices was lower than the international market due to the restrictions imposed by the government on the quantity of cotton that could be exported from India.

The unprecedented increase in cotton prices had an impact on the prices of other competing fibres such as polyester and viscose, whose prices peaked during the year. The higher raw material prices trickled down to the end products, apparels and other textiles. The increase in apparel prices along with slower economic growth dented consumer demand across the country.

Reduction in demand and anticipation of higher cotton production in CS2011-12 started to pull down prices fromApril 2011. Since then, cotton prices have come down by about 40 percent, and the prices of other fibres have also followed the trend.

In 2011-12, both global and domestic cotton production was expected to be at an all time high, while demand is expected to remain sluggish due to the uncertain market conditions in the US and EU. These two factors were expected to bring a further correction in cotton and other fibre prices in the last quarter of FY2011-12 and in FY2012-13. The repot expected that lower raw material prices would help to revive local demand.

It further indicated that domestic apparel market to grow at a healthy pace over the next 5 years. In the last one year, garments prices rose 5 to 10 percent, due to unprecedented increase in raw material costs and the imposition of excise duty of 10 percent on 45 percent of the maximum retail price of branded garments levied in the Budget 2011-12.

The increase in apparel prices adversely impacted sales volumes. As a result, it was estimated that growth in RMG demand to have been led by increase in prices.

The domestic apparel market can be divided into the rural and urban sectors. The market can further be divided into the men's wear, women's wear and kids' wear. The exports to the US and EU were estimated to decline by about 3.5 and 5 percent, respectively in 2011. However, domestic volumes rose by 1 percent.

Despite being India's population of around 70 percent, the rural segment, contributed only 54 percent to the total domestic RMG industry in 2011. The urban population, made up for the balance 46 percent of the value. The domestic market size of RMG has grown at a CAGR of 6.4 percent over the past 5 years, 2006-11. By 2016, it was expect that the domestic apparel market size to reach Rs1,855 billion, a 7.0 percent CAGR.

The CRISIL Research expected the share of rural markets in RMG sales to increase marginally over the next 5 years, 2011-16. In 5 years all the three sectors are expected to grow at a marginal pace as compared to the previous 5 years. This growth would be primarily driven by volumes, as realizations are expected to increase only marginally.

Rural areas dominate volumes but realizations higher in urban areas. Shirts, trousers, sarees, salwar kameez, jeans and t-shirts account for more than 60 percent of the domestic RMG market. Volumes of shirts, trousers, jeans and T-shirts in the rural areas are higher compared to the urban areas. However, as per unit realizations of these categories are higher in the urban areas than in the rural areas, their market size is higher in the urban areas. For sarees and salwar kameez, the gap in realizations in rural and urban areas is the least among the above mentioned six major categories.

Moreover, owing to higher sales volumes, the market size for sarees and salwar kameez in rural areas is higher than in urban areas. It was advised that Indian garments exporter should explore new markets so that concentration on two markets, the EU and the US, could be reduced, which are presently in crisis. Some of the other markets, outside Europe and the US, Latin America, the Middle East countries, Japan, South Korea, Australia and South Africa.

Table-1

Quota Countries shares in Pakistan's textile exports

USA 44.5%

EU 50%

Canada 1.7%

Turkey 3.6%

The EU textile and clothing sector accounted for 4 percent of EU manufacturing and 7 percent of manufacturing employment in mainly 177,000 SMEs. With the enlargement, the EU's employment in this sector was to touch 2.5 million people.

In the US about one million people were employed in 5117 textile companies and 6134 textile plants. The Southern States, particularly North and South Carolina, Georgia, Virginia and Alabama are strongly lobbying for protection of textile sector in USA. Since the Asian crisis and WTO's ATC, over 250 textile plants have been shut down and the USA lost around 200,000 jobs with 30,000 jobs lost since January 2002, mainly in the 5 states mentioned above.

Net yarn exports and imports may be approximately $1.3 and $1.7 billion respectively; in fabric imports may be $8 billion with exports less than $6 billion; in made-up articles, $9.5 billion may be imported, with less than $2 billion exports and in apparel, $7 billion of exports against more than $63 billion of imports.

Like the EU, the USA aimed to concentrate on high tech textile products like non woven, particularly hygiene products like diapers, wipes, feminine hygiene and adult incontinence and high end fashion, particularly for women's wear.

It was likely that quotas on safeguard categories will be enforced beyond 2005 for China and Vietnam. This has provided a breathing space to exporters in other developing countries as well. For Pakistan, the competitor was not only China and Vietnam but also countries whom USA has given preferential treatment like NAFTA, CBI, AGOA, etc. The USA has signed TIFA with Pakistan but it was not translate into preferential duties for Pakistani textiles.

The USA and the EU demanded better market access for their textiles and also the implementation of WTO bindings, particularly in tariffs and intellectual property rights and enforce strict rules of origin, while on the other hand, the buyers made more demands for compliances. In case of USA, the security compliance was also put Pakistani exporters at a disadvantage. The opportunities for Pakistan after quota on China and Vietnam beyond 2005, resulted in closure of some EU and US companies dealing in basic textile, disadvantage to countries like Bangladesh and Sri Lanka who thrived due to quota regime and finally, the biggest advantage to Pakistan was expected to verticallly integrated cotton textile industry.

USA EU Canada Turkey Total

Fabric 6.9% 12.4% Quota Free 2.2% 21.5%

Garments 30% 18.4% 1.1% 0 49.5%

Madeups 7.6% 17.2% 0.6% 0 25.4%

Yarn Quota Free 2.2% Quota Free 1.4% 3.6%

Total 44.5% 50.2% 1.7% 3.6% 100%

Supply of yarn and fabric to exporters, both within and outside the purview of DTRE was to be treated as deemed exports for all purposes, product ion of MMF/S ynthetic wer e to be encouraged, private sector to stock pile and have buffer stock of cotton. The government, on the other hand, agreed in the WTO to lowering duties as it is difficult for Pakistan to have FTAs/RTAs with any relevant countries and blocs.

Pakistan has also concentrated on lowering of its cost of doing business for which the Ministry of Commerce and the State Bank has undertaken studies. Finally, the three weakest sectors in Pakistan's textile chain are ginning, dyeing and marketing for which immediate measures were recommended to be improved to take maximum advantage of its potentials.

Bottlenecks in investment

The main problems include poor infrastructure, over governed and over monitored regime of different Government agencies, harassing the industry every day. Delay in sales tax refund causing serious cash flow / liquidity problem to the industry.

The other problem is Pakistan's bad image portrayed by the international media. Adverse travelling advices by the foreign countries to their citizens discouraging travel to Pakistan. Pakistan has signed international agreements, providing protection to intellectual property rights and international arbitration agreements. Lack of infrastructure required to meet challenges of the requirement of social compliances after 2004.

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.

The non availability of good quality soft water for the textile industry is hampering the growth. SRO culture has negative impact, not providing industrialists and exporters level playing field to procure raw material at the international rates. Utilities rates are the highest in the region and arrangements to provide Insurance guarantees to the investors on their investment in Pakistan are some of the problems being faced by the textile industry.

Pakistan is a leading exporter of raw yarn, cotton and fabrics, if it emphase on the value added products like garments, hosiery, knitwear and other textile made-ups, the export volume of textiles as well as foreign exchange earnings can be increased many folds. In this respect top priority should be given to stitching industry that leads to highest value addition and employment generation.

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 Upgradation Fund'. (TUF). It was 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.

The Government 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 vocational institutions where modern technical education is provided.

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 main competitors of Pakistan. It is feared if cost of doing business in Pakistan is not brought at par with other Asian countries, the products would find no place in the 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.

Need for Improving Textile Production

There is an urgent need to bring improvement in textile production, especially in blended sector. Blended products made from a combination of natural and man made fabrics, are preferred in clothing the world over. In Pakistan 20 percent protective duty on the import of Polyester Fibre is levied on account of which 25 percent polyester fabrics is blended with man made fabrics, while a country like Bangladesh blend 35 percent Polyester.

Garments Sector

Textile and garments sector occupies significant position in total volume of merchandise trade across countries. World trade in textiles and clothing amounts to US $ 400 billion and is growing constantly. Developing countries are the major exporters and they account for little over two-third of world exports in textiles and clothing.

The global textile and clothing industry is one of those sectors that were integrated to the multilateral trading system in 2005. The integration has been possible with the removal of the Multi-Fibre Agreement (MFA) through the Agreement on Textile and Clothing (ATC).

The Multi-Fibre Agreement (MFA), that governed the extent of textile trade between nations since 1974, expired on 1 January 2005. The MFA enabled developed nations, mainly USA, European Union and Canada to restrict imports from developing countries through a system of quotas.

The ATC mandated progressive phase out of import quotas established under MFA, and the integration of textiles and clothing into the multilateral trading system before January 2005. ATC was a transitory regime between the MFA and the integration of trading in textiles and clothing in the multilateral trading system. The ATC provided for a stage-wise integration process to be completed within a period of ten years (1995-2004).

A study by McKinsey suggests that by the year 2010 the volume of global textile trade will grow to US $ 650 billion (www.euitymaster.com). India is now a fast emerging market with more than 250 million middle income population with good purchasing power.

All these factors are good for the Indian textile industry in the long run. Even though the global economic crisis has already affected the export oriented sector such as textiles & clothing, as long as Indian economy is growing, textile industry would grow provided it takes competition and innovation seriously.

Recent trends in competing countries, particularly China, in the area of mass and labour intensive areas such as Textiles and Garments, Leather etc., show that due to the wage increases as well as other policy changes in those countries the investors are looking for alternate locations (NMCC 2008). This development provides an excellent opportunity for India to attract companies which are looking for alternate source. Coordinated efforts to attract these investments need to be put in place for attracting the importing countries.

Structure of Global Textile & Clothing Market

In the global textile market the major importers are USA, European Union and Canada. Asia has been the principal sourcing region for imports of textiles and clothing by both USA and European Union. The next important sourcing region for imports of textile and clothing by USA has been Latin American region while the same for European Union have been Central and East European countries. Interestingly for Canada the principal Productivity & Competitiveness of Indian Manufacturing - Textile & Garments Sector National Productivity Council The sourcing region for import has been USA while Asia occupies the second largest position. This certainly indicates that there has been a great deal of re-exports from USA.

As far as the position of individual countries in all these markets are concerned, the countries like China, Mexico, Turkey and India occupy the dominant positions. India is one of the leading suppliers of readymade garments in USA. In the EU market also, India is a leading supplier for many of the textile products. It is estimated that Turkey would emerge as a biggest competitor for both India and China.

Countries like Mexico, Caribbean Basin Initiative (CBI) countries, many of the African countries and Bangladesh emerged as exporters of readymade garments without having much of textile base, utilizing the preferential tariff arrangement under the quota regime. But in the post quota regime they may loose their market share. As maintained earlier, the structure of the world trade in the post integration period will solely be dictated by the comparative cost advantages.

It may be said that countries like China, USA, India, Pakistan, Uzbekistan and Turkey have resource based advantages in cotton; China, India, Vietnam and Brazil have resource based advantages in silk; Australia, China, New Zealand and India have resource based advantages in wool; China, India, Indonesia, Taiwan, Turkey, USA, Korea and few CIS countries have resource based advantages in manmade fibers. In addition, China, India, Pakistan, USA and Indonesia have capacity based advantages in the textile spinning and weaving. However, india hasn't been able to make Optimal capacity utilization due to lack of Knowledge, training, TPM & TQM, Disguised Unemployment and Lack of professional management.

China is cost competitive with regard to manufacture of textured yarn, knitted yarn fabric and woven textured fabric. Brazil is cost competitive with regard to manufacture of woven ring yarn. India is cost competitive with regard to manufacture of ring- yarn, O-E yarn and woven O-E yarn fabric, knitted ring yarn fabric and knitted O-E yarn fabric. According to Werner Management Consultants, USA, the hourly wage costs in textile industry is very high for many of the developed countries. Even in developing economies likeArgentina, Brazil, Mexico, Turkey and Mauritius, the hourly wage is higher as compared to India, China, Pakistan, Bangladesh and Indonesia.

From the above analysis, it may be concluded that China, India, Pakistan, Taiwan, Hong Kong, Brazil, Indonesia, Turkey and Egypt would emerge as winners in the post quota regime. The market losers in the short term (1-2 years) would include Caribbean Basin Initiative (CBI) countries, many of the sub-Saharan African countries, Asian countries like Bangladesh and Sri Lanka. The market losers in the long term (by 2014) would include high cost producers, like EU, USA, Canada, Mexico, Japan and many east Asian countries. In the long run, there are possibilities of contraction in intra-EU trade in textile and garments, reduction of market share of Turkey in EU and market share of Mexico and Canada in USA, and thus provide more opportunities for developing countries like India.

It is estimated that India would have a market share of 13.5 percent in textiles and 8 percent in garments in the USA market. With regard to EU, it is estimated that the benefits are mainly in the garments sector, with China taking a major share of 30 percent and India Productivity & Competitiveness of Indian Manufacturing - Textile & Garments Sector The gaining a market share of 8 percent. The potential gain in the textile sector is limited in the EU market considering the proposed further enlargement of EU. It is estimated that India would have a market share of 8 percent in EU textiles market as against the Chinas market share of 12 percent.

The study by Nordas (2005) suggests that the distance from the major markets is going to act as a major constraint in the form of transaction cost. The study also suggests that countries close to the major markets are likely to be less affected by competition from India and China than has been anticipated in previous studies. Mexico, the Caribbean, Eastern Europe and North Africa are therefore likely to remain important exporters to the US and the EU respectively and possibly maintain their market shares. The countries that are most likely to lose market shares are those located far from the major markets and which have had either tariff or quota- free access to the United States and EU markets, or which have had non-binding quotas. These countries will undoubtedly face adjustment challenges. Also local producers in EU, the United States and Canada are likely to loose market shares.

Impact of Global Meltdown on Indian Economy

The global financial crisis has significantlyslowed down the growth of the world economy in the interim period, with the global GDP growth falling to 3.7 per cent and 2.2 per cent in 2008 and 2009, respectively, from 5 per cent in 2007. The downward GDP growth eased the demand side pressures on inflation due to a fall in commodity prices, a trend that is already visible.

Due to greater integration with world economy, India though having a robust domestic demand is also affected by the recent global financial crisis. However, strong domestic demand, which has been a key growth driver for the Indian economy, has provided a buffer against global turbulence. However, it should be noted that even before the onset of the global crisis, the Indian economy had started slowing down on account of proactive monetary tightening policy adopted by RBI during the first half of 2008, aimed at controlling domestic price inflation. As a result of the combined effect of global and domestic slowdown, GDP growth declined to moderate to 6.5-7.0 per cent in 2008-09 (CRISIL-NMCC, (March 2009).

To reinforce the monetary measures announced on December 6, 2008, the Government of India unveiled a multi-dimensional fiscal stimulus package on December 7, 2008 that is expected to stimulate growth across sectors and fuel consumption. The Government of India affected an across-the-board cut of 4 percentage points in the ad-valorem CENVAT for the remainder of the current fiscal (2008-09) on all products other than petroleum and those where the existing rate was below 4 per cent. The across the board reduction of 4 per cent in excise duty will apply to machinery, man-made fibres, dyes and chemicals and other products where excise duty is currently being paid in the textiles and garments industry. The measures announced include:

Additional funds of Rs. 14 billion have been all Financing to textiles: Dr Baig hails President's proposal to South Korea Federal Advisor on Textiles Dr Mirza Ikhtiar Baig hailed President Zardari's proposal to Chairman Korea Eximbank Dong Soo Park to extend financing to Pakistan's textile sector to enhance their economies of scale.

He said our textile sector is competing in the region and getting maximum share of the Chinese textile market in the future. He informed the President that China is no more competing with Pakistan in cotton yarn and denim fabric; instead China had emerged as one of the biggest buyers of these items from Pakistan. With increasing wages and labour costs by 20 percent per annum China would also phase out of the garment business providing opportunity to Pakistan and other countries in the region to get their market share. China would be focusing on hi-tech sectors like Japan and Korea. The Federal Advisor was optimistic for the enhancement of textile exports due to EU allowing Pakistan duty free market access to our textile products bringing Pakistan at par with Bangladesh.

Textile sector to benefit from increased Chinese demand

On the other hand, Chinese demand for Pakistani cotton has increased which will benefit the Pakistani textile sector in near future. The local cotton production arrival target for the year 2012-13 was 14.5 million bales.

Cotton crop dynamics, both local and global, appear relatively robust for FY13. As a result, world cotton prices would remain on the downside, averaging $0.83 per pound in FY13 as against $1.11 per pound in the same period last year, aa research report indicated.

World cotton supply, as per USDA, is likely to grow by 2.4 percent on yearly basis to 233.1 million bales in FY13 leading to cotton prices remaining low. Domestic cotton price has also averaged at Rs5,734 per maund in FY13, so far down 7.2 percent where year-to-date arrivals of 9.6 million bales are down marginally by 0.7 percent.

The growth is likely to come from higher productions in USA, up 14 percent, Bangladesh up 13 percent), Pakistan (up 8.0 percent) and China (up 7.0 percent) despite decline in total supply from Brazil (down 13 percent) and India (down 10 percent). Pakistan's total cotton supply in the world in FY13 is anticipated at 15.5 million bales, which is a bit over ambitious, analyst believed.

Pakistan Cotton Ginners Association (PCGA) said cotton arrivals were recorded at 9.6 million bales till December 1, 2012, down a marginal 0.7 percent. It was projected that total cotton arrivals at 14.5 million bales in FY13, would be down 2.0 percent. These numbers are likely to keep cotton prices stable at current levels. Punjab contributed 69 percent, 6.61 million bales to the total arrivals, while Sindh's contribution came in at 31 percent, 2.98 million bales.

Potential anti-dumping duty to benefit local PSF players Loc al P olye ster S ta ple Fibr e (P S F) manufacturers have reportedly increased their product prices in anticipation of imposition of 10.5% anti dumping on imported PSF from China. Local PSF manufacturers have filed a petition with the National Tariff Commission (NTC) against Chinese producers for dumping their products in Pakistan. The decision on the imposition of duty is expected within the next few days. If the duty is imposed, it will benefit the local players, namely ICI Pakistan (ICI) and Ibrahim Fibres (IBFL). This exert was taken from the report prepared by the Research Department of JS Global Capital Ltd.

China Textile Industry 2010-11 The year 2010 was a crucial year for achieving all the targets of the 11th Five-Year Plan, 2006-2010, and laying a solid development foundation for the 12th Five-Year Plan, 2011-15. The following is a review of some major targets in Chinese textile industry during the year 2010 and the period 2006-2010 as well as the outlook for 2011. Major targets OutputThe output of China textile industry increased steadily in 2010. According to the market reflection, the volume of manufactured fiber reached 41.30 million tons in 2010, up 60.70% from 2005. Total industrial production value of statistics-worthy China textile enterprises increased by 1.31 times from 2005 to CNY4765.0 billion in 2010. Of which, the output of chemical fiber, yarn, cloth and garment reached 31 million tons, 27.3 million tons, 79 billion metres and 28.5 billion pieces respectively, up 86.21%, 88.21%, 63.09% and 92.59% respectively.

Investment and a relocation of industrial basesThe accumulated investment for statistics-worthy textile projects (whose investment beyond five million RMB) during 2010 reached CNY400.6 billion, 1.51 times more than 2005. During the 11th Five-Year Plan period, textile investment growth in midwestern and northeastern regions of China has surpassed that of the eastern region, which means the widening of the gap between the regions has been halted, and the self-development capacity of central and western regions has increased greatly. In 2010, the share of the textile investment in the central and western regions was 38.55 percent and 9.27 percent respectively, which was 19.13 and 2.66 percentage points more than 2005. Domestic demandDomestic demand serves as the major factor to stimulate the growth of production, sales and exports of the China textile industry during the 11th Five-Year Plan period.

The domestic sales production value of statistics-worthy Chinese textile enterprises accounted for 81.14% of the total production value, increasing 10.38 percentage points from 2005. Export returning to its pre-crisis export levelIn 2010, China textile and apparel export were on their way to recovery, as they were rapidly returning to its pre-crisis export level. According to China Customs, the exports value of China's textile and garment amounted to $206.5 billion in 2010, in crea sing 75. 72 p erc enta ge p oint s from 2005. ProfitMost industrial index have sent clear signals that the profit growth of the industry is accelerating in 2010.

By looking further at the market, textile enterprises in China saw their main business income edged up by 1.33 times from 2005 to CNY4690.0 billion in 2010; profit ratio edged up by 1.91 times from 2005 to 44% in 2010. Factors that shape the development of the industry 1. Competitive advantage of China textileA research report recently released by the China Customs Magazine under the General Customs Administration shows that although China ex peri ence d ad vers e ef fect s fr om t he international financial crisis, the competitive advantages of China's textile industry exports have been further enhanced.

Statistics from the General Customs Administration show that China's textile export amounts decreased 9 percent in 2009 compared with that of 2008. This figure is 7 percentage points less than the overall average decline rate of China's total exports. Therefore, the textile industry has become one of the China's industries which are able to operate well at risks. In the first 10 months of 2010, China exported a total of more than 62.6 billion U.S. dollars worth of textile yarns, fabrics and textile products, an increase of more than 29 percent compared with the same period of 2009, and exported a total of 105 billion U.S. dollars' worth of clothes, an increase of nearly 20 percent.

2.Dome stic demand returned to the spotlightStimulating the growth of production, sales and exports of the China textile industry , Domestic demand serves the major factor here in the market . We are glad to see that with a long-term countinuty in domestic demand for China Textile,the substantial progress has been achieved by China textile industry in all areas of statistics during the 11th Five-Year Plan periods.

3.Industrial upgrading and innovationDuring the 11th Five-Year Plan period, the industry has increased opportunities for independent innovation as an important step in restructuring the industry in China and transforming the model of development, which greatly contributed to companies across the country to invest more in technological innovation and adding more value to their products. During the 11th Five-Year Plan period, the industry has gradually adjusted the structure of export markets, while maintaining the United States, the European Union and other traditional market share based on the positive steps to develop non-traditional export markets, promote market diversity.

The export structure needs further optimization and, while use of foreign investment goals have been achieved in terms of quantity; further improvements are needed in order to achieve quality-related goals.

4. Favorable policies.''Revitalization Plans for the Textile Industry'' was passed in early 2009. One year after China launched the stimulus package and regained economic growth momentum, the textile industry has overcome serious difficulties and has made new developments. Moreover, the global financial crisis has prompted Beijing to hedge the weakening U.S. dollar by encouraging the regionalization of the RMB as a settlement currency for trade and other current account transactions in Asia, and bypassing the use of the U.S. dollar.

OutlookIn 2011, domestic demand will continue to serve the major factor stimulating the growth of production, sales and exports of the China textile industry. China's economy is gearing up to change its growth model from an export driven economy to the one driven by domestic demand by boosting consumption at home. The U.S. and EU economy was supposed to be what kept global GDP growth modest this year and next. It turns out that may not be the case overseas demand for goods and services should help the Chinese textile industry. However, China textile industry is still exposed to various problems: the rising inflation in emerging markets, great difficulty in recruitment and increasingly high labor cost; growth of environmental protection cost caused by low-carbon economy as well as unemployment in developing countries.An unrelenting rise in the cost of raw materials is cutting textile corporate profits, in some cases, pushing up consumer prices.

The appreciating yuan in China will further slash the marginal profitability of China's textile makers. Given the perfect industry chain and huge market, it is forecast that China textile industry will continue to possess advantages in the global market in the coming years. For the growth rate of China textile output and exports in 2010, it is forecast below the level of the previous year, Gracie Guo(CTEI)Govt urged to impose ban on import of raw cottonPakistan Cotton Ginners Association (PCGA) Chairman Mahesh Kumar has strongly opposed the import of cotton and urged upon the government to impose ban on the import of raw-cotton from different countries by spending precious foreign exchange because local produce was sufficient to meet the requirement of textile industry. Talking to newsmen here on Friday he said that Pakistan can't afford to rely on imported raw material. He said that at least 1,772,447 bales are lying unsold in the cotton ginning factories of the country.

Textile millers have developed a cartel to keep the cotton prices at the lowest ebb. Chairman of ginners group Haji Muhammad Akram, Ex Chairman Pakistan Cotton Ginners Association (PCGA) Amanullah Qureshi and Vice-Chairman Chaudhry Waheed Arshad endorsed his demand and said that textile millers should give priority to local cotton and they should desist from importing raw- cotton from other countries. They should save the precious foreign exchange besides safeguarding the interest of local growers. The PCGA fortnightly report shows that around 9.58 million cotton bales were sourced to the country's ginners by December 1, 2012 which shows a decrease of 0.70 percent than last year.

District wise cotton arrival in Sindh, Hyderabad 2,32,237 bales showing an increase of 32.84 percent, Mirpur Khas 3,79,237, showing bumper crop with 184.21 percent increase, Sangarh 12,28,846, Nawabshah 2,06,825, Naushero Feroze 1,69,654, Khairpur 1,62,173, Ghotki 1,30,243, Sukkur 2,20,012,Dadu 22,909, Jamshoro 1,36,982, Badin 40,800 and Baluchistan 46,087 bales.

S. # Name & Status of Project Cost (Mln.Rs.)

a. Pakistan Textile City Karachi 1,000 Million

(Share of Federal Government)

b. Lahore Garment City 497.440

c. Karachi Garment City 1291.000

d. Faisalabad Garment City 498.82

New Projects in the Pipeline

Implementation of Export Development Plan 22000.000 b Providing & Laying Dedicated 48 inch 636.585 Diameter mild Steel Water main for Textile Concessions for textile proposedMinistry of Textile Industry has proposed that concessions be given to the textile industry in import duties on energy related equipment, official sources told Business Recorder. The sources said that ECC of the Cabinet on October 23, 2012 had directed the Ministry of Petroleum and Natural Resources to resubmit revised policy guidelines for energy efficiency of Captive Power Plants (CPPs) and natural gas boilers. In pursuance of the direction of the ECC of the Cabinet, Petroleum Ministry sought the comments of Ministry of Industries, Ministry of Water and Power and Ministry of Textile Industry. Comments of Ministry of Textile Industry have been received so far who, while agreeing with the proposed guidelines for energy efficiency audit for the CPPs and boilers, has made following suggestions:

(i) The textile industry requires a long term energy plan and it should be informed in future which technology needs to be installed, importantly, such information may be shared with Ministry of Textile Industry on urgent basis;

(ii) spinning industry should be encouraged for investment in downstream industry so that they can also utilise heat recovery. Alternatively, options may be explored for spinning industry to install low pressure plants to utilise dissipated heat from the main plant;

(iii) relaxation may be given in import duties to attract further investment in energy related equipment; and

(iv) current standards may be revised after two years to further improve efficiency of these plants. Policy guidelines for energy efficiency audit for natural gas boilers are as follows:

(i) natural gas consumption/bills will be analysed against list of energy equipment and energy output;

(ii) energy equipment would also be analyzed for their aging, energy efficiency and their improvement as well as deterioration etc;

(iii) boiler size and power would be determined by the flow rate, pressure and temperature of the output steam; and

(iii) in short following are the key factors to understanding efficiency calculations- flue gas temperature (stack temperature)- fuel specification- ex cess air- ambient air temperature and radiation and convection losses.

The procedure for conducting energy efficiency audit is as follows:

(i) the respective gas company would inform the auditee minimum seven days in advance in writing about the energy efficiency audit;

(ii) the auditee would nominate responsible, senior and competent staff to accompany the gas company energy efficiency auditor to conduct the audit. The auditor will consult the auditee before initiating the audit for audit planning;

(iii) the auditee would provide unrestricted access to the facilities and provide relevant information as requested by the auditor;

(iv) the auditee would facilitate measurement and collection of data on as and when required basis; and

(v) generally energy efficiency audit of every unit shall be audited annually for determination of energy efficiency and accordingly revision in tariff shall be applicable as per audit report of the respective unit.

However, if considered necessary the gas company may also arrange energy efficiency audit other than scheduled or outsource to third party under their supervision. Minimum efficiency requirement and some important technical spaces-A benchmark of combustion efficiency of Natural Gas boiler = 70 - 75 percent. The auditee may attain this benchmark by using/doing one or all of the following: (i) feed water economisers- air pre-heating- 3 percent O2 in flue gas; (ii) actual efficiency of gas boiler at full load = 75 percent;(iii) actual efficiency of boiler at low load = 70 percent;(iv) technical lifetime of boiler = 25-40 years;(v) typical (capacity) size- small 10.4249 MMBTU- large = 10.4249 - 250.223 MMBTU and (iii) very large 250.223 MMBTU. Based on the facts, the energyefficiency benchmarks would be as follows:

(i) Gas engine generator set/gas turbine based Captive Power Plants (500 KW and above) with cogeneration system with jacket water or exhaust flue gases heat recovery utilisation in their process should have efficiency of around 50 percent;

(ii) gas engine generator set/gas turbine based Captive Power Plants (500KW and above) with cogeneration system with jacket water and exhaust flue gases heat recovery utilisation in their process should have efficiency of around 60 percent;

(iii) only spinning units of the textile industry would be exempted from waste heat recovery (cogeneration system) but their gas engine generator sets should have an efficiency of around 34 percent however all other units, except spinning industries, should have am efficiency of around 38 percent; and

(iv) combined cycle power plant with a capacity of 50 MW and above should have efficiency of around 42 percent. Sale of surplus power by CPPs and the associated NOC- Sale of surplus power by CPPs applicants to Distribution Companies (Discos) should be discouraged in all cases with a curtailment in allocated gas load.

In case a CPP applicant applies for an NOC to the respective gas company for sale of surplus power, the same would be issued after reassessment/ review of the case. CPP applicants would be allowed to sell not more than 25 percent of the surplus electrical power to distribution companies (for new customers). Penalties for not meeting energy efficiency criteria - CPPs not meeting the efficiency requirement criteria would be given three months to improve and achieve the desired benchmark.

In case, they are not able to achieve the desired benchmark after lapse of three months CPPs / companies will he given option to pay a penalty (equivalent to tariff notified by Ogra) for next three months with a final notice of disconnection. In case of failure in achieving the desired benchmark in six months, effective from the initial notice date, natural gas supply would be disconnected. In case of failure to achieve the required benchmark, the fine received shall go to Government Exchequer. Moreover, all captive power units are liable to pay Rs 25000 to the gas companies for covering expenses of energy efficiency audit.

Duty-free polyester yarn import

Due to the government's policies, polyester yarns units are not able to perform well in the international markets due to flow of 'duty free' polyester yarn in the market. Pakistan the domestic value added sector has failed to realise this and continues to advocate for dumping of Polyester Staple Fiber (PSF) into Pakistan putting the domestic PSF industry in grave danger of total collapse.However, the custom duty and freight is 6.5 percent, the local industry enjoys a

protection of 17 percent. Customs duty on PSF is 6 percent, not 6.5 percent as quoted, and the 17 percent claim is rather baseless.

The domestic PSF industry has a Net Effective Protection of only 4.4 percent, since there is a 3 percent customs duty on its key raw material PTA. PSF manufacturers also alleged by artificially increasing PSF prices in anticipation of anti dumping duties.

Presently price changes are a reflection of increasing global feedstock costs as well as local PTA supply issues, for example, since July this year raw material cost increased amount to Rs29 per kg, while price adjustment have been to the tune of Rs24 per kg. Polyester is used in the manufacturing of all kinds of clothes and home furnishings like bedspreads, sheets, pillows, furniture, carpets and even curtains. For the past 30 years domestic PSF producers have provided the downstream textile sector and in particular the spinning industry, quality product at regionally competitive prices to become over time reliable suppliers of their key raw material requirement.

This domestic arrangement, in turn has helped the domestic spinning industry to flourish, and today Pakistan has the third highest spinning capacity in the region. For the last few years the domestic producers of PSF have been subjected to unfair trade practices as PSF continues to be dumped into Pakistan.

Globally, dumping is considered as 'unfair trade' and the World Trade Organisation rules mandate countries to protect their domestic industry through imposition of anti-dumping duties after due process of law. Imposition of anti dumping duties only occurs in case import prices of a product fall below the exporting country's domestic prices or per unit costs. It is not a mechanism to provide undue protection to the local industry. Firstly it is important to remember PSF imported into Pakistan does not incur any anti dumping duty and thus linking textile export performance on anti dumping duties is an unsound argument.

HIGHLIGHTS

Power based Textile mills are paying Rs12 per unit while the cost of each unit is Rs6 per unit.

About 20 percent of the total industry is financially weak they are not able to lobby for their rights.

Due to the gas load shedding for industries in Faisalabad resulted closure of about 575 in du strial un its, most of them export oriented.

The demand for textile items in the world is about $18 trillion, growing 6.5 percent per annum.

Pakistan has emerged as one of the major cotton textile suppliers in the world market, sharing in yarn 30 percent and in cotton fabric about 8 percent.
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