Let Pakistan compete in synthetic textiles

Polyester is now the most dominant man-made fabric across the globe. Its demand surpassed the demand of cotton in 2002, and it continued to grow ever since at a significantly faster rate than all other types of fabric. The recent unsustainable hike in prices of Polyester Staple Fibre (PSF) in Pakistan will only lead to further closing of the capacities of yarn manufacturers and adversely affect the entire textile export value chain.

Pakistan has lagged far behind the global market players in the area of man-made textile products and failed to make inroads into synthetic market globally. This is because Pakistan has imposed heavy import duties on raw materials required for the production of synthetic fibres. The import duty on Polyester Staple Fibre (PSF) which is spun to make Man-made Fibre (MMF) yarns reaches up to 20 percent - 7 percent import duty and 2.9 to 11.5 percent anti-dumping duty.

Resultantly, imported PSF (input to our spinning mills) becomes more expensive than international prices. The aforementioned anomaly in regulatory duties is making domestic MMF yarn production uncompetitive, even in their own domestic market. The irony is that when MMF yarn is imported directly it faces a lower import duty of five percent (under the South Asian Free Trade Agreement) to 10 percent, under chapter 55 for MMF yarns import, resulting in unsustainability in the synthetic yarn industry. This led to a reduction of 36 percent of domestic MMF yarn production capacity in the last one year alone.

Pakistan has imposed these duties in a hope to protect obsolete PTA and PSF plants in the country working on inefficient technology. If the government wants to provide protection to these plants, this should not be done at the cost of whole textile value chain, but policies like in 2003, of deemed duty drawback, can be reintroduced. The whole textile sector should not be forced to cross subsidize PTA and PSF plants in Pakistan.

In contrast, today, world is transforming at a faster pace than ever, consumer preferences are changing across a wide range, from food consumption to the standard of living, to travelling and then to clothing. Simple textiles and clothing have evolved into fashion brands. Textile consumer preferences are shifting from cotton-based apparel to synthetic man-made apparel. In the world market, consumption of man-made or synthetic fibres against natural fibres has shifted to a ratio of 70:30, with synthetic fibres having the lions share - a decade ago it was 30:70.

On the domestic front, our policies are distorting both cotton and synthetic fibre market. Pakistan's share in US's total textile and apparel imports in 2016 was 3 percent, as per the Office of Textile and Apparel, USA, and for cotton-based products, it was 5 percent. US's total man-made fibre imports in 2016 were $52 billion of which Pakistan's share was $200 million. This means that if we do not keep up with the new world preferences, our international market share will continue to shrink.

Our policies have become so regressive in last years that even "cotton" which is considered the backbone of our textile industry is burdened with an import duty of 11 percent regardless of consistent fall in cotton output in the last 3 years. This year cotton production is estimated to fall 25 percent short of its target of 14.37 million bales in the current season as water shortage and pest attacks have squeezed the crop yields signaling hard time ahead for the already struggling economy that is heavily reliant on fibre.

One reason for reliance on cotton based products in Pakistan is that, apart from polyester, nothing is made in Pakistan. We virtually import all synthetic fibres including nylon, viscose etc.

Amidst the ongoing crisis, foreign exchange spent on the import of MMF yarns from Indonesia, China, Thailand and India is around Rs 12 to 16 billion. In Pakistan, the domestic production of polyester viscose blended yarns is approximately 165,000 tons per annum. More than 50,000 tons of PSF yarns are imported per annum. This is equivalent to the production of almost 15-20 domestic mills in the business of 100 percent polyester, polyester viscose blended, viscose or polyester yarns and other synthetic fibre-blended yarns spun out of a total of 45-50 mills. These mills provide employment to more than 100,000 people.

Importers of synthetic blended yarn not only put local industries out of competition but also fully exploit them to sell the product at a cheap rate equivalent to India. What is hurting the local synthetic fibre manufacturing industry most is the lack of a level playing field, with higher tariff barriers being imposed on the import of raw materials and a minimal duty on import of MMF yarns, leading to the widespread dumping of MMF yarn and fabrics in the country.

By imposing an appropriate level of regulatory duty on $100 million imports of MMF yarn, jobs of more than a 100,000 people employed in our spinning industry can be saved; however, this is not the ideal solution as the best solution would be to zero rate the duties on polyester and pay any subsidies to the PTA industry through other means. This would ensure that Pakistan can internationally compete in the MMF sector. It is high time that the new government shows its commitment to enhancing exports by rationalizing irrational duties imposed on raw materials which are already short in the country.

Complete link: https://fp.brecorder.com/2018/09/20180915407891/