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News Clips 11 July, 2013


[ Five export sectors: WHT to be reduced on supplies, services ]
[ GSP-Plus status: stakeholders to hold talks ]
[ Upswing in textile exports ]
[ Sears, U.S. retailers set Bangladesh factory safety plan ]
[ USA: Vietnam trade deal called threat to textiles ]

Five export sectors: WHT to be reduced on supplies, services   [ top ]

BUSINESS RECORDER, Sohail Sarfaraz, July 11, 2013
The Federal Board of Revenue has assured business community to restore concessional rate of withholding tax on supplies and services provided to the taxpayers dealing in five exports oriented sectors. Sources told Business Recorder here on Wednesday that the FBR has conveyed to the representatives of chambers and federations about proposed amendment in the existing clause of the Second Schedule to the Income Tax Ordinance, 2001 for restoration of the said concession to the business and trade.

The representatives of the business community agitated against the increase in rate of withholding tax on sales and services provided to the taxpayers in five exports oriented sectors. The FBR informed that the increased rate of withholding tax in the aforesaid sectors was an unintended consequence of the change in sales tax zero-rating regime. Clause (45A) of Part IV of the Second Schedule to Income Tax Ordinance, 2001, provided the facility of deduction of tax payments for sales of goods and services rendered or provided to the taxpayers in the five exports oriented sectors at reduced rate of 1 percent. With the abolition of zero-rating on domestic supply of the above sectors, the concessional rate of deduction also became unavailable.

Tax authorities assured the meeting that FBR shall propose restoration of the above concession through amendment of the existing clause in the Second Schedule to the Income Tax Ordinance, 2001. Business community expressed their grievances against imposition of withholding tax @ 0.1 percent to be collected by manufacturers and commercial importers from distributors, dealers & wholesalers and @ 0.5 percent to be collected by commercial imports, distributors, dealers and 'wholesalers from retailers.

Tax authorities informed that the traders are not contributing to the state exchequer according to their share in the GDP thus putting the manufacturing sector under pressure. The new withholding measures were aimed at documenting the transactions in the trading sector thereby ensuring equitable distribution of the tax burden, tax authorities requested the business community to cooperate with the FBR in this endeavour. However, authorities assured the participants that FBR shall devise a strategy to facilitate the distributors and dealers who have to make sales to thousands of small retailers, the FBR added.

GSP-Plus status: stakeholders to hold talks   [ top ]

BUSINESS RECORDER, Mushtaq Ghumman, July 11, 2013
The Ministry of Foreign Affairs is likely to convene a meeting of public sector stakeholders in a couple of months. The meeting is aimed at complying with all 27 International Conventions of United Nations, a prerequisite for duty-free access to the European market through Generalised System of Preferences (GSP).

Well-informed sources told Business Recorder that the implementation status on five conventions including International Convention on Civil and Political Rights (ICCPR) and Convention Against Torture (CAT) is almost complete. Commerce Secretary Qasim Niaz, who was Trade Minister in Brussels (Belgium) till last month, has already done a lot of ground work for the grant of GSP plus status to Pakistan.

The newly-elected government has not yet made known its stance on the death penalty however in the event that it supports the death penalty it may send a negative message to Europe as EU and international human rights bodies are pressing for a moratorium on capital punishment with thousands waiting execution for the last many years in Pakistan. Analysts however maintain that capital punishment will not have any negative impact on proposed GSP programme as death penalty is an additional protocol which is not mandatory for GSP Plus.

"There is no clause of death penalty in regulations of the European Union (EU)," the analysts added. The remaining conventions that are required to be met by Pakistan before the grant of GSP Plus status are around 25 per cent. Sources in Human Rights Division told this scribe that the government is preparing reports with full concentration, adding one report has already been sent to the Ministry of Foreign Affairs, two are almost ready and consultants are being hired for two reports.

GoP has already submitted a compliance report to ILO, an organisation of United Nations and EU and ILO has indicated that Pakistan qualifies for GSP Plus status as it is working to implement all eight ILO related conventions. Pakistan had officially welcomed the new GSP plus scheme in which the import vulnerability threshold for GSP-plus has been raised from 1 per cent to 2 per cent. Pakistan's total GSP covered exports to EU are 1.20 per cent of its total GSP covered imports.

GSP regulations require a beneficiary country to avail GSP+ dispensation, by making the following commitments: (i) 27 conventions are to be ratified without reservations of a nature which are prohibited by any of the conventions or which are construed to be incompatible with the objective and purpose of that convention; (ii) the country is required to be seen as implementing the provisions of all the conventions, co-operating with the monitoring mechanism provided in each Convention; (iii) a binding undertaking is provided to the Commission to maintain ratification of the relevant conventions and to ensure the effective implementation thereafter; and (iv) the country accepts without reservations the reporting requirement imposed by each convention and gives a binding undertaking to accept regular monitoring and review of its implementation record in accordance with the provisions of the relevant conventions.

There are other provisions in various other Articles of the legislation. Such provisions include the possibility of temporary withdrawal of the GSP plus dispensation in case the Commission concludes in its review that the country is lagging behind in effective implementation of the relevant conventions. In that review, the conclusions and recommendations of the relevant monitoring bodies and other sources including information submitted by third parties, civil society, social partners, European Parliament or the Council will be taken into account. All the required Conventions have been ratified by Pakistan with reservations except Convention on the Prevention and Punishment of the Crime of Genocide (1948), with no reservations.

Upswing in textile exports   [ top ]

DAWN, July 8, 2013
INCREASED investment in textile machinery, cheap labour and improved manufacturing processes have increased earnings from foreign sales of cotton yarn, fabrics and value-added products.

In the last three fiscal years, about $1.3 billion worth of textile machinery was imported, mainly for high-speed and qualitative yarn spinning, fabric-making and textiles made-ups manufacturing, according to the Pakistan Bureau of Statistics (PBS).

This huge investment started paying off in FY13, when exports of value-added textile products picked up.

One key factor behind the recent rise in textiles export earnings is that Pakistan has almost doubled its exports of cotton yarn and fabrics to China. In seven months of FY13, our textiles exports to China crossed the $1 billion-mark, against half a billion dollars or so in the same period of FY12, according to data compiled by PBS. Cotton yarn constituted the bulk of shipments to China, as growing global demand for cheap Chinese textile made-ups created room for buying of cotton yarn from Pakistan.

People associated with the textile industry say that whereas the energy crisis had hit all textile mills alike, particularly those in Punjab, some units had mitigated the impact by energy conservation and efficiency.

Under a project of the National Productivity Organisation, a number of textile mills learnt how to become energy efficient. The first phase of the project, which was completed in 2012, helped some 60 mills cut energy consumption by 10 per cent, without sustaining any loss of productivity. The second phase aims at extending this programme to 150 mills.

Besides this, a productivity benchmarking project of the NPO, which aims to ascertain quality norms for various sub-sectors of the textile industry, is also in progress.

These are in addition to textile mills’ own initiatives for productivity enhancement, which include obtaining ISO certifications of varying degrees in different fields of information management systems, human resource management, production and workplace safety. Compared to FY12, when overall textile sector export earnings were down 10 per cent to $12.357 billion, in 11 months of FY13, textile exports grew six per cent to $11.931 billion. And unlike in FY12, export earnings of value-added products also recorded an increase, ranging from a little more than two per cent (in bed wear) to 15.5 per cent (in towels). Export earnings of knitwear and readymade garments posted 2.4 per cent and 12.6 per cent growth respectively. Bedwear exports grew 6.6 per cent in volume, which suggests that a lower increase in its export bill was rooted in exporters’ strategy to remain competitive.

“What is important is that the declining trend (in exports of value-added products) seems to be over,” says a local textile exporter. “A combination of factors has pushed up exports. We’ve invested in textile machinery, streamlined our manufacturing processes and focused more on designing. Interest rates have become a bit lower and joblessness in the country has kept our labour costs low,” he adds.

Textile millers say that between 2006 and 2012, hundreds of thousands of spindles and a few thousand shuttle-less looms had been added to textiles’ manufacturing base. But acute energy shortages keep the utilised capacity of medium and small factories below or around 50 per cent. Only large companies, that run captive power plants, are utilising higher capacity.

Cotton cloth exports, however, have remained below two million square metres in the last two fiscal years, down about 10 per cent each year compared to FY11. “But this is more due to higher domestic demand than exporters’ inability to sell abroad,” says a leading yarn exporter.

Most textile mills in the country, big or small, continue to remain competitive in yarn and fabrics manufacturing, which drives up exports. In FY12, exports of cotton yarn totaled 572,000 tonnes, up 6.7 per cent from FY11. And in 11 months of FY13, export volumes rose 29 per cent to 673,000 tonnes, fetching $2 billion against $1.6 billion in the year-ago period.

The recent upswing in textile export performance appears to be sustainable in the near future because unlike in the past, the gains on the exports front is also reflecting in the stock market performance of major listed textile units this time around. And this also shows that despite all the problems facing the industry, individual textile units are keeping their house in order.

According to an AKD research report, prices of 11 major listed textile mills recorded 216 per cent increase in the first half of FY13, and their price to earnings multiple rose to 4.3 against a three-year average of 2.2.

Officials of big brand textiles say they are keenly watching the momentum of non-traditional foreign sales of textiles, particularly to Pakistanis living in the US, UK, UAE, Canada, Australia and Saudi Arabia. If brought into mainstream marketing, this would help further boost export earnings.

Thousands of men and women are now sending abroad high-quality, big-brand cotton lawns and cotton suits, often after enriching them with embroidery or specific fashion works. Sometimes such dispatches are in the form of gifts, but in many cases these are plain commercial selling to people they know. If the services of such sellers are pooled and put to use under more scientific ways, it would supplement textile mills’ own efforts to market their products abroad.

Sears, U.S. retailers set Bangladesh factory safety plan   [ top ]

CHICAGO BUSINESS, July 10, 2013
(Reuters) — North American retailers unveiled a five-year safety plan for Bangladesh garment factories on Wednesday that would include inspecting within a year every factory they use, following tragedies such as April's deadly garment building collapse. The North American plan was immediately criticized by groups that think a European-led plan is stronger.

The plan announced in Washington, D.C. by the Alliance for Bangladesh Worker Safety, which includes 17 retailers and apparel companies, comes after 1,129 workers were killed in the collapse of a Bangladesh garment plant in April, and another 112 people perished in a fire at a Bangladesh factory in November.

A larger number of mainly European retailers that have signed what is known as the Accord on Fire and Building Safety in Bangladesh announced a similar plan on Monday. Both plans include factory inspections, worker training and ways for workers to report safety concerns. The two groups also agreed not to use factories considered to be unsafe.

Members of the Interfaith Center on Corporate Responsibility and long-term shareholders in apparel brands and retailers said the Alliance's plan lacks sufficient worker protections and accountability mechanisms and called it a weaker alternative to the European-led accord.

European unions involved in the other accord, industriALL and UNI Global Union, called the North American alliance "another toothless" auditing program.

"This initiative is not serious," said Tom Grinter, a spokesman for industriALL.

MORE THAN 500 FACTORIES TO BE INSPECTED

More than four million people, mostly women, work in Bangladesh's clothing sector, making it the second-largest global apparel exporter behind China.

The North American alliance plans to inspect the more than 500 factories its members get garments from within a year, while the European-led accord plans to have initial inspections at the factories its 70 members use within the next nine months.

"I think both plans are very strong and that we should work together going forward," said Jay Jorgensen, Wal-Mart Stores Inc's global chief compliance officer. "Theirs doesn't recognize the way the U.S. legal system works, which is why the vast majority here in the U.S. didn't join."

One of the main concerns North American parties had with the European-led accord was the use of a binding arbitration process that would be enforceable in the courts of the country where a company is domiciled. Binding arbitration typically restricts the ability of the parties involved to appeal any decision in court.

North American alliance members will be held legally accountable to the group. If they do not do the work they agreed to do, the board can kick members out, their funds will be kept by the alliance and companies can arbitrate to get back in, said Jorgensen, a member of the alliance's nine-member board of directors.

Daniel Duty, Target Corp's vice president of global affairs who is also on the alliance's board, said that between the efforts of the alliance and the accord, the groups should be able to cover the majority of the factories in Bangladesh, more than the 500 the North American alliance plans to inspect.

Bangladesh's Ambassador to the United States Akramul Qader welcomed the North American plan and said he was "glad that alliance members have expressed (their) intention to collaborate with the EU-based accord on fire and building safety."

He also expressed hope the United States would quickly restore trade benefits that were suspended in late June because of the poor safety conditions in Bangladesh.

The U.S. decision set duties on about $35 million worth of ceramics, golf equipment, tobacco products and other goods from Bangladesh that previously entered the United States duty free.

The U.S. move does not directly affect Bangladesh's multi-billion-dollar clothing exports, since garments are not eligible for U.S. duty-free treatment.

1O PERCENT EARMARKED TO ASSIST WORKERS

So far, $42 million has been raised for the North American project. Companies will contribute up to $1 million a year for five years based on how much they produce in Bangladesh.

Ten percent of the funds will be set aside to assist workers temporarily displaced by factory improvements or if a factory closes for safety reasons. The money will also support a non-governmental organization to be chosen within 30 days that will implement parts of the program.

The North American alliance's plan, called the Bangladesh Worker Safety Initiative, was developed with assistance from former U.S. Senators George Mitchell and Olympia Snowe, who acted as independent facilitators at the Bipartisan Policy Center, a Washington-based think thank. The alliance has asked Mitchell and Snowe to verify the effectiveness of the program over at least the first two years.

The 17 current members of the alliance include: Canadian Tire Corp Ltd ; Carter's Inc ; The Children's Place Retail Stores Inc; Gap Inc; Hudson's Bay Co; IFG Corp; J.C. Penney Co Inc; Jones Group Inc; Kohl's Corp; L. L. Bean Inc; Macy's Inc; Nordstrom Inc; Public Clothing Co; Sears Holdings Corp; Target; VF Corp; and Wal-Mart.

Hong Kong sourcing company Li & Fung Ltd, which does business with many of the companies involved, is serving as an adviser. Additional members are expected to join.

The North American alliance's plan is also being backed by the American Apparel & Footwear Association, Canadian Apparel Federation, National Retail Federation, Retail Council of Canada, Retail Industry Leaders Association, and the United States Association of Importers of Textiles & Apparel.

USA: Vietnam trade deal called threat to textiles   [ top ]

THE STATE, Mary Orndorff Troyan, July 9, 2013
WASHINGTON — A new trade deal with Vietnam could threaten what’s left of the U.S. textile industry, Easley businessman Smyth McKissick told congressional lawmakers Tuesday. President Barack Obama’s administration is negotiating the Trans-Pacific Partnership agreement, or TPP, with several other countries as a way to expand U.S. economic interests in the Asia-Pacific region. McKissick, chief executive officer of Alice Manufacturing, said details of how the deal will treat textiles and apparel made in Vietnam will have a major impact on the American industry that employs 500,000 people nationwide.“U.S. manufacturing jobs are at stake and it’s critical our negotiators get this trade agreement right,” McKissick told the House Small Business Subcommittee on Economic Growth, Tax and Capital Access. “A poorly negotiated TPP will cause widespread job losses in the U.S. and the Western Hemisphere.” McKissick testified on behalf of the National Council of Textile Organizations. A key issue is the “yarn-forward” rule, which means yarn and fabric must be manufactured and assembled in the free-trade partner country in order to enter U.S. markets tariff-free. The American industry is worried that without the rule, China would route its textile products through Vietnam’s government-subsidized textile industry for final cutting and sewing, and use Vietnam’s favored-trade status to cheaply export the products to the U.S.“If this occurs, Vietnam and China stand to gain billions of dollars in textile trade at our industry’s expense,” McKissick said. McKissick, who lives in Greenville, also encouraged members of Congress to sign a letter to the U.S. trade representative, asking him to maintain the yarn-forward rule, which has been included in every major U.S. free trade deal for the last 25 years. So far, more than 160 Democrats and Republicans have signed the letter, including six of the seven members of the S.C. delegation. The only South Carolina member not to sign the letter this year is Rep. Mark Sanford, R-Charleston. Sanford “has always believed in allowing the U.S. trade representative to negotiate the best deal possible for the U.S., and then Congress voting up or down at that time. When this trade pact comes to the Congress, he will make a determination as to whether or not that agreement is in the best interest of South Carolina and the United States,” said his spokeswoman, Jennifer Drogus.