All Pakistan Textiles Mills Association has released a comprehensive report on the entire value chain. The association comprises spinning and weaving mills. Some of its members have also ventured into the apparel sector.
The problems faced by Pakistan’s textile sector are well known. The entire industry wants zero rating on the purchase of input and energy at regionally competitive rates, both of which have been denied by the government. These measures have the approval of the IMF, and it is difficult for the present or the next government to accept these government demands. However, many measures are suggested in the report that the next government could accept. These measures would boost textile exports and help the sector enlarge its product range. The government may only be able to oblige APTMA on some of their demands. There are measures suggested by the trade body that the private sector should implement by itself.
The report also delves into agriculture and suggests ways to improve seed quality and crop yield. Agriculture is not in the domain of the Commerce Ministry, nor is the energy sector under the control of commerce and trade. All financial ministries would have to discuss a common strategy to boost textile exports.
The recent report by APTMA on boosting textile exports is a mixture of wish lists plus some genuine proposals that could lift the textile and clothing exports. Its proposal to rationalize import duties on purified terephthalic acid (PTA) and polyester staple fiber (PSF) is genuine, as duties increase the cost of manmade fiber. Globally, over 65 percent of textile products are produced with MMF, while its use in Pakistan is limited to 30 percent. The anti-dumping duties create opportunities for rent-seeking in the domestic market and an anti-export bias.
Its proposal to create incentive structures to incentivize investment in MMF manufacturing capacity ignores the fact that MMF’s current domestic manufacturers have higher production capacity than the demand of the local market.
The proposal to create Industrial and Export Processing Zones with plug-and-play facilities and ancillary infrastructure and services for 1000 Garment Plants makes sense, but it should have come from the garment sector association. APTMA has been putting this proposal for the last six years. Investment in garments is very low and should come from the private sector. If the spinners want to invest in apparel, they could do so in their mills where ample land is available. They do not need plug-and-play facilities. And it would be in line with their proposal to establish composite units.
Establishing Free Commercial Zones with import warehousing facilities, offices for international buying houses, testing centers, and other export-related services to facilitate textiles and apparel exports through reduced trade, logistics, and transaction costs are prudent demands. Development of composite units with full vertical integration is the need of the hour. As the composite units in Pakistan are operating more efficiently than single-purpose mills. The government could encourage vertical integration of the industry. However, expecting loan facilities for mills that already owe banks large amounts would be illogical.
The overhaul of customs is badly needed as current procedures could be more efficient and increase costs. It is essential to improve customs procedures and cargo clearance mechanisms and increase freight and logistics efficiency to reduce time on port and clearance and time-to-market. The freight efficiency can only be improved by shifting significant cargo loads to Railways that have the potential and capability to reduce cargo charges appreciably.
The report has also demanded that B2B power contracts be allowed with a wheeling charge of 1-1.5 cents/kWh by operationalizing the Competitive Trading Bilateral Contracts Market (CTBCM). This is easier said than done. The transmission lines belong to NEPRA and according to the Minister of Energy the wheeling cost of NEPRA is around 10 cents.
An increase in the cap on solar net metering for industrial consumers from 1MW up to 5MW will also be an uphill task. They would be getting grip power almost free of cost.
Establishing a separate power tariff category for export-oriented firms, excluding cross-subsidies and stranded costs, is also impossible. The new power tariff was announced after the insistence of the IMF and cannot be changed without its approval.
The state is trying its best to maintain RLNG/gas supply for captive power plants given the unreliability of the power sector, but ensuring medium-term visibility, pricing, and availability in the current global scenario is not possible.
Demand to fix the FASTER sales tax refund system to ensure all sales tax refunds are issued within 72 hours as per rule 39F of the Sales Tax Rules 2006 is genuine. But downward changes in tax rates, including sales, income, and corporate taxes. Unfortunately, it may not be possible and would require the IMF approval. Reduction in turnover tax on indirect exporters in upstream sectors from 1.5% to 0.75% will also not be possible.
There is a genuine demand to eliminate multiplicative taxation at each stage of value addition that disadvantages MSMEs and stand-alone units compared to firms with complete vertical integration.
Extending the Export Facilitation Scheme to the entire value chain of the textiles and apparel sector would only be possible if the whole value chain is fully documented.
The demand to bring inflation down to single digits is also the government’s wish as it will allow for a reduction in interest rates to revive investment in the private sector.
The plea to operationalize the EXIM Bank for export sector financing and increase financing limits to meet the industry’s demands must be heeded immediately.
The APTMA also wants the state to provide concessional financing to stimulate investment in manufacturing capacity expansion. It wants an extension of LTFF to the entire textiles and apparel value chain to allow for modernization and upgradation of machinery, especially in downstream sectors like ginning.
The government could use export development to conduct international roadshows with delegations, including the Minister for Commerce and industry leaders, to improve Pakistan’s international image and woo C-level executives of international brands to source from Pakistan.
The demand to provide an incentive package to increase the physical presence of international buying houses to increase their sourcing from Pakistan belies logic. The buying houses were in Pakistan before 9/11 and shifted out as Pakistan’s image deteriorated. Pakistan would have to improve its image to attract buying houses.
The Ministry of IT is already trying to provide an online platform to facilitate matching between buyers and suppliers, emphasizing promoting MSMEs.
The demand to relax regulations on the remittance of export proceeds may not be accepted, given the tendency of the textile exporters to delay export proceeds even otherwise. Our exports have not reached a stage where storing export products abroad and making investments in setting up retail stores abroad to support entry into non-traditional markets such as e-commerce and direct retailing.
Supply chain traceability is the private sector’s job, and most exporters fully comply with the buyer’s requirements. Develop a legal regulatory framework to enforce traceability through the National Compliance Centre (NCC) as the lead agency designing, regulating, and implementing comprehensive supply chain traceability requirements for export-oriented firms.
The APTMA’s demand to Implement ILO’s recommendations on labor rights is good. They have pleaded for increasing the number of labor unions, strengthening health and safety protocols and grievance mechanisms, eliminating child and forced labor, and promoting gender equality and equal wages for equal work. However, the association could implement all these measures as socially compliant apparel exporters do.
The APTMA also demanded the establishment of waste sorting hubs to divert used textiles for reuse and recycling, introduce Extended Producer Responsibility (EPR) protocols to hold manufacturers accountable, and recognize the difference between used textiles and textile waste in customs frameworks to manage post-consumer textile waste and reduce environmental impact.
The report by the trade body also wants the government to enforce environmental regulations to promote green manufacturing practices such as water recycling, wastewater treatment, transition to renewable energy, and no use of chemicals of concern. It is worth noting that the big composite units abide by all environmental laws, but the smaller enterprises lack the resources to establish a wastewater treatment plant. There is not a single common effluent treatment plant in the country. The state must build several such plants and take user charges from the mills.
It was prudent to demand a compliance and audit curriculum and landscape under the NationalCompliance Center acceptable to firms, global buyers, and certification bodies.
On cotton, the APTMA wants the state to implement rigorous quality control measures throughout the seed chain, from production to distribution, guaranteeing physical and genetic purity of seeds and creating a centralized platform for the authorized sale of certified seeds under the supervision of a dedicated cotton sector entity for transparent seed distribution.
Invest in a high-performance seed laboratory equipped with cutting-edge DNA testing
technology for verifying seed purity and traceability. Develop a comprehensive system encompassing seed production, processing, distribution, and testing, optimizing efficiency and quality. Construct a state-of-the-art seed processing plant and an internationally accredited seed testing laboratory adhering to ISTA standards.
Develop an Agriculture Crop Advisory and Extension Service to encourage and support cotton farming through easily accessible digital advisory services, capacity building and community engagement initiatives. The advisory councils and extension services already exist, and the demand should be to strengthen them.
The APTMA also desires the state to support regenerative cotton initiatives to reduce the environmental impact of industrial farming and facilitate the shift towards sustainability in the textiles and apparel sector.
Lastly, it wants the government to facilitate investment in upgrading and modernizing ginning machinery to reduce contamination during ginning and improve cotton quality.
