US FTAs could hit Pak gains in exports: ADB

Daily Times, Pakistan

US FTAs could hit Pak gains in exports: ADB

By Sajid Chaudhry

15 April 2006

ISLAMABAD: The Asian Development Bank (ADB) has cautioned that free trade agreements between the US and many of Pakistan’s competitors in clothing exports as well as the trade diversion effect of the May 2005 inclusion of 10 East European countries in the EU (itself one of the top three T&C exporters), could affect the country’s potential gains in exports.

The imposition of antidumping duty on imports of bedlinen, as well as the loss of preferential access to the European Union (EU) market under the Generalized System of Preferences (GSP) may have disadvantaged Pakistan’s T&C (textile and clothing) exports to the EU. High business costs, coupled with low labour productivity, also seem to have undermined the country’s competitiveness in the international T&C export market. While the action by the EU to reduce antidumping duty is expected to boost bedlinen exports, the ineligibility of the country’s T&C exports to the EU’s “GSP+,” together with the fact that Bangladesh, Sri Lanka, and Vietnam have been given this concession, will continue to hurt Pakistan’s exports.

The ADB in its Asian Development Outlook 2006 has held that the elimination of quantitative restrictions (Phasing out of Textile Quotas) on textile and clothing (T&C) exports under World Trade Organization agreements on December 31, 2004 has significant implications for the economy. With T&C accounting for more than two-thirds of total exports, approximately 10% of value added in gross domestic product, and almost 40% of industrial employment, the opening of the global T&C market will have substantial repercussions on Pakistan’s exports and the economy.

Pakistan’s policy of free trade in cotton, the liberal import policy for textile machinery and other inputs and the gradual deregulation of investment-approval procedures all resulted in substantial investment in modernization of the country’s T&C sector over the past few years. It was generally thought that the T&C sector was well positioned to benefit when developed countries opened their markets for these exports, and in fact export data for 11 months from January 2005 bear this out: T&C exports rose by slightly over 20% year on year. Bedlinen emerged as the leading contributor to the increase, with receipts surging by 45% to $1.7 billion year on year. Volume growth was even more impressive, at 48%.

This was achieved despite the 13.1% antidumping duty imposed by the EU. The second largest contributor was cotton cloth, with exports climbing by 30% to $2.1 billion. Exports of readymade garments, the third-largest contributor to higher T&C exports, jumped by 54% to $1.3 billion. Exports of knitwear and synthetic textiles, however, fell.

Notwithstanding the increase in the country’s T&C exports, Pakistan’s share in the EU, the largest market for the country’s T&C exports, declined by 0.6 percentage points to 3 % in 2005. Its share in the United States market, which is the second largest market for the country’s T&C exports, increased only marginally by 0.2 percentage points. Among competitor exporters of T&C, the Peoples Republic of China’s share rose by 7.6 percentage points in the EU and by 6.7 percentage points in the US. India gained 0.7 percentage points and 0.8 percentage points, respectively.

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