It has a one-fifth weight age in the quantum index of large-scale manufacturing and a 46% 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% and 8% in cotton cloth. The share of textiles in export earnings is 68% with a value of around US $7 billion.
The value addition in the sector accounts for 9% of GDP and its share in overall employment is 38%. During the last four years, government in collaboration with the private sector has embarked upon a plan to combat the challenges of opening up to foreign competition in the year 2005.
The question is, are government efforts sufficient to combat future challenges under WTO setup? In order to see the challenges faced by the country's exports in the WTO regime, it is essential to investigate the expected impact of the rules and regulations of WTO on the economy of Pakistan.
With the implementation of WTO, we were expecting that world markets will be open for free trade and all quota restrictions will be abolished. But in a recent report of the State Bank of Pakistan it is mentioned that EU is going to impose 12.5% import duty on Pakistani textile products and further there is a high threat of anti-dumping duty on our exports to EU.
With the implementation of these two duties it will not be possible for us to compete with countries such as India, China, Thailand and Bangladesh. As we know in open economy only those products will get their market share which can compete in terms of quality and prices.
The WTO is the only international organisation dealing with global rules of trade between nations. Pakistan joined the WTO in 1994 and one of the major benefits of joining was the integration of the textile sector in the General Agreement on Tariff and Trade (GATT).
The basic aim of the Agreement on Textiles and Clothing (ATC) was to secure the removal of restrictions applied by some developed countries to import textile products and it was only possible if we could have produced all textile products according to WTO compliance.
Unluckily we are not successful to do so, implying that the Government's efforts and contributions to make the textile sector competitive are not sufficient. Our textile industry is in a position to compete internationally provided some additional physical infrastructure and implementation of existing rules by the government are done.
Let us review the impact of WTO on exports of Pakistani textile products. After implementation of WTO rules, developing countries are in a position to export their products to developed countries without duties. Likewise, the developed countries will also have ready and easy access to market in underdeveloped countries as well.
Our economy is not in a position to compete in all industrial sectors with other countries, except textiles. In other industrial sectors we have a direct threat from competing countries.
Only future will tell how many millions of workers will lose their jobs and how many millions will find new work as different sectors of the economy will shrink and expand because of extremely high competition in international market in terms of quality and prices.
The ATC replaces Multi-Fibre Agreement (MFA) and stipulated the removal of restrictions on textile over a period of 10 years. This phasing out programme ended in January 1, 2005. Time has reached to open up the markets but we are not ready for the consequences yet.
Although, the government is claiming very strongly that it is ready for the open trade with other parts of the world but the reality on the ground is entirely different.
Our cost of production is still significantly higher than our competitors because of lack of modern technology, trained human resources and institutional ineffectiveness. One of the indications of high cost of production is the threat from EU of anti-dumping duty on our textile products. We must have to attack these three sectors effectively in order to push our textile industry in the line of competitors.
If exporters maintain their standards and quality with full compliance of WTO requirement, there are chances of rise in exports and hence the economy of the country is expected to improve but the present situation is not conducive to achieve this, implying that we need to introduce innovations to update our technology and restructure our institutes.
It is clear to every one that quantity restrictions are now banned as long as it is fulfilling the requirements of the WTO.
This can provide an opportunity for Pakistani exporters to open and explore new markets for textile products. This will result in increased competition among supplying countries, especially those which, under bilateral quota arrangements with certain markets (particularly the EU, The US and Canada) will fairly secure access of their products.
Exporters, who wish to maintain (or increase) their market access under future conditions of free competition, should reduce their cost of production or increase their efforts to explore new markets.
Pakistan will have to face challenges as well as threats of phasing out of MFA. Now there is more competition than before. The cost of production will play a key role in this situation. Unfortunately, we are far behind. Locally manufactured fabrics and garments may not compete with the foreign products on the basis of quality and price.
How can we survive and maintain our level of export in coming competitive era? What should be the role of our institutes to tackle this challenging situation?
We can survive if we will adopt modern technology in production. The amount of existing trained human resource and their quality is not sufficient to run the modern technology with full potential. Hence, we cannot compete in the international market until we increase our technical efficiency and achieve economies of scale.
The improvement in technical efficiency and expansion of economies of scale is the only source of reducing cost of production. The fundamental role of the institution is to break the back lock of supplying the trained labour which is key input to decrease the cost of production. The second important point for the reduction of cost is the provision of better physical infrastructure which is currently not available.
In the WTO regime, quality is the focal point. ISO has developed management standards like ISO 9000, social compliance and standard regarding environmental issues. Our environment is rapidly deteriorating by the use of health hazards chemicals in different sub-sectors of the textile industry.
The dreadful use of these chemicals in different textile units and leftover pollutants in wastage water has not properly managed and it is seriously affecting ground water quality and this infects, reducing the water efficiency in agriculture and industrial sector.
Thousands of hectares are getting barren every year and million of Pakistanis are being caught by different kinds of diseases just because of poor land water quality. This is adding to the cost of production. Therefore, existing laws should be invoked and be implemented more effectively through institutional reorganisations.
On the other side, our exporters should strictly follow the recommended standards in international markets under the WTO regime. They should be very careful not only in the use of chemicals, dyes and pigments but also in managing chemical waste together with polluted waters. Safety of working labourers is another important issue which is not being taking care of under the existing setup.
The strict safety precaution in the use of these deadly chemicals needs to be adopted in order to fulfil one of the necessary conditions under WTO regime. The labourer should use masks in order to avoid any unexpected event. In order to gain access to the markets of the developed countries, these products should be ecologically safe.
Importing countries can check our exports if our products don't match the required standards. Therefore, all industrial units operating in textile sectors should achieve ISO certificate.
WTO places emphasis on social aspects. It is necessary that the element of social compliance should be followed strictly in the factories. What is social compliance? And why is it necessary to be followed?
Social compliance is summarised as follows, "Daily work should not exceed 11 hours, including one hour lunch-break and over time; wages should not be less than the prescribed level as mentioned in the Worker Compensation Act 1923; over-time be paid with double rates; freedom of association be given to workers; substitute leave be given due to Sunday working; health/hygiene care; social security; education; group insurance; profit bonus/gratuity; human safety; provision of sufficient and separate wash rooms for either sex with one washroom for 20 persons; child labour should be strictly prohibited; no company should engage in or support the use of corporal punishment, mental or physical pressure, and verbal abuse, discrimination not allowed on the basis of race, caste national origin, religion, disability and gender."
Each industrial unit should ensure that the requirements of social compliance are being fulfilled in National Environment Quality Standards (NEQS). If they don't fulfill, there is a possibility that our exports can be checked.
Therefore, for survival in this competitive world, we should adopt those rules and regulations which are stated in WTO Agreements. In order to implement these rules our human resource management ministry and department have to play their role. The ministry should work intensively to develop and get approval of laws required to make the things along the lines.
The implementation of existing and new laws is more crucial because the main issue in this country is not lack of laws rather their implementation. The ministry should work to implement the existing laws more effectively. It required group of new expert staff in different areas of textile (spinning, weaving and dyeing etc) who are well aware about technological problems at each stage in their field.
This will help to provide an ideal working environment to our labourers and to maintain a pollution-free atmosphere. The Ministry of Finance should provide necessary assistance to develop the required physical infrastructure to develop human resources.
Is it not shocking that presently there is only one textile university (recently established) in Pakistan working on textile-related issues but our expectations are too high from this sector, implying that it is just a dream.
If we are interested to convert our dreams into reality then we need not only to increase the number of textile universities but also the number of specialisation in each university because universities are the only source and hope of new technology generation.
Just by constructing a building of a university and appointing a few teachers is not sufficient. It is now proved that the investment on R&D generates higher return compared to any other investment.
The government should provide more favourable environment for imported and locally produced latest technology that will further help expand the textile sector.
Unfortunately, presently Pakistan has no capacity to produce modern technology at home and we are completely depending on imports. This heavy dependence on import will increase the cost of production and in the long run this could make our textile sector uncompetitive.
In the long-run we should completely depend on our own resources and manufacture all kinds of modern machinery. After the elimination of quota from January 1, 2005, we are facing a lot of competition in the international markets. Among the glut of products, only those will be accepted by the consumers, which are good in quality and are available at reasonable prices.
China and India are our main competitors in textile products. Both have bigger economies of scale than us and it is further putting pressure on our textile sector to improve it further.
They can make the modern textile machinery and spares in their own countries but we are far away from this. Our government should take immediate steps to conduct different studies from different perspectives in this prime sector of Pakistan's economy.
The Ministry of Textiles can float research projects in the universities by identifying specific objectives in each project. This will help formulate a very concrete policy on textiles that has the capacity to accept any future challenge.
Without having such research and policy formulation, we will never be in a position to compete in the long run. Majority of them is illiterate and cannot produce according to the WTO requirement. Hence, the government may take immediate steps along the lines to save this sector of the economy.
It is a very good sign that the Government of Pakistan opened a separate ministry for the textiles which will help improve the situation. Besides, directly concentrating on the textile sector the government should also focus on those sectors of the economy that are providing inputs to the textile sector.
For example, if the prices of energy remain high, which is one of the prime inputs for the textile industry, then it will again make us uncompetitive in the international market.
Therefore the government also needs to work for the improvement of supporting sectors in order to keep the textile industry most competitive.
(The author is working as a research officer at WTO Cell University of Agriculture, Faisalabad.)