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News Clips 29 May, 2013


[ FBR orders recovery of Rs20 billion from export sector ]
[ EU's GSP-plus regime: 'grey areas lie in implementation, monitoring mechanisms' ]
[ U.S. urges garment buyers to stay engaged with Bangladesh ]
[ FTA opens doors for garment industry in Vietnam ]

FBR orders recovery of Rs20 billion from export sector   [ top ]

THE NEWS, Shahnawaz Akhter, May 29, 2013
KARACHI: The Federal Board of Revenue (FBR) has given order for the recovery of Rs20 billion in unpaid taxes from export businesses, official documents obtained by the News on Tuesday showed.

The task has been assigned to the Directorate General of Intelligence and Investigation (DG I&I), according to the documents. The DG I&I - in a letter sent to all inland revenue offices - wrote that a few months back the FBR had detected the massive evasion of Rs27.6 billion in which 600 taxpayers were identified.

The directorate informed that the evasion was detected by homegrown software CREST (computerised risk-based evaluation of sales tax) under the supervision of the I&I Wing.

“This resulted in the recovery of Rs3.45 billion in one month time,” the letter said.

The FBR chairman, on impressive recovery by the directorate, ordered further recovery of the remaining outstanding amount. “Chairman FBR has decided to launch a similar exercise aiming at the recovery of over Rs20 billion, and once again this office [DG I&I] has been given the lead role,” the directorate said.

To recover the amount, the DG I&I has sent a list of cases to the Large Taxpayers Units (LTUs) and Regional Taxpayers Offices (RTO), where evasions were detected and asked them to ensure that the exercise would not just remain a paper venture. The DG I&I issued guidelines for the tax offices for treatment of selected cases regarding their default and refund processes.

“No refund claim in income tax and sales tax shall be processed in the selected cases unless their default is cleared or recovered,” the directorate asked the tax offices.

The tax offices have been further directed that their proposals to FBR for lodging first information reports (FIRs) in such cases would be forwarded through the directorate.

The DG I&I planned to initiate criminal investigation in tax evasion cases by the export sector but the investigation would be launched with the consultation of concerned chief commissioners of LTU/RTO.

The tax offices have been directed to submit their daily report on the action. The directorate said that the efficiency of each office would be judged in the light of timely action, efforts made, results produced and enforcement action.

“Mere reporting without tangible results shall be construed as inefficiency,” the directorate said.

The FBR last year launched the CREST software to verify the details contained in monthly returns, customs import and export data and cross match each other for every registered person. Former Member Inland Revenue had claimed that evasion worth Rs63 billion was detected through the system. However, taxpayers had been given opportunity to clear the discrepancies.

FBR sources said that this recovery would play an instrumental role in final figures of revenue collection since presently the revenue body is facing huge shortfall to achieve the fiscal year’s target.

EU's GSP-plus regime: 'grey areas lie in implementation, monitoring mechanisms'   [ top ]

BUSINESS RECORDER, Iqbal Mirza, May 27, 2013
Changes enacted to the quantitative requirements of GSP+ enabled Pakistan to apply for qualification under the GSP+ arrangement that will become effective in January next year. The requirements were: seven or less products should make up minimum 75 percent of exports to EU and total exports to EU should be under two percent of EU's GSP imports.

According to the brief summary prepared by Geneva-based International Trade Centre titled 'benefiting from EU GSP-plus scheme 2014 through enhancing competitiveness in the qualified sectors', and sent to the Ministry of Commerce, the new GSP+ comprises of two separate but interlinked areas, involving both private and public sectors - it provides duty-free access (subject to quantity restraint) for all listed items, including textiles and clothing, covering about 90 percent of the EU's tariff lines. The concession was subject to ratification and implementation of 27 international conventions on human rights, labour rights, environment and co-operation on controls in the areas of combating terrorism, money laundering and narcotics trafficking.

Like most other countries of the world, Pakistan has already ratified the 27 conventions. The grey areas lie in implementation and the revised monitoring mechanisms stipulated in the new GSP+ regime.

Threshold: under the new GSP+, products having a market share of more than 6 percent of total EU imports of that item will not qualify for duty-free access. This provision affects the major portion of current textiles exports (Ch 52 - cotton fabric and yarn, Ch 55 - man-made fibers, Ch 57 - carpets, Ch 61 - knitted apparel, Ch - 63, textiles made-ups, including bed wear and towels) and leather articles Ch 42), which already have a strong market share and, therefore, will continue to enter the EU under normal GSP duties.

Annual Cap: The new EU's GSP+ also places a ceiling, 17.5 percent, for all goods other than textiles and ethanol (14.5 percent), on the value by which a product's import increases over the previous year, at which point duty-free preferences will be withdrawn and that product will enter at normal duties.

Safeguards: The GSP scheme also includes safeguard provisions for agriculture, textile and fisheries products whereby tariffs can be suspended when imports of products enter at such volumes or prices as to threaten domestic industry.

Opportunities:

Textiles: Except for Ch 55 (manmade fibers), where practically all the currently exported products have more than 6 percent market share, duty-free market access remains available on all other lines, including in Ch 52 (cotton yarn and fabrics), Oh 63 (textile made-ups), Ch 62 (clothing, woven) and Ch 61 (clothing, knitted), which by themselves constitute 67 percent of all exports to EU.

The brief summary also highlighted the size of the EU market in products where Pakistan's exports are under the 6 percent threshold and the size of the available EU market in those products:

To place these market openings in perspective, Bangladesh's exports to the EU of Ch 61 were $8545.01 millions and of Ch 62 were $4462.36 millions in 2011, so there is great room for expansion.

Recommendations for the private sector:

Textiles:

-- Increase in production of products using man-made fibers

-- Use "regional cumulation" to import man-made fibers from India

-- Identify reasons for the big gap between Pakistan and Bangladesh in production of knitwear

-- Diversify the product lines to utilise available tariff headings in Ch 61 and 62

-- Investment in modern dyeing and printing facilities to upgrade quality of knitted fabrics

-- Invite MNC/overseas investors in apparel production

-- Develop closer co-ordination at association level with overseas counterparts

-- Sector associations to ensure basic compliance of EU's GSP+ requirement by their members

-- Capacity-building for smaller exporting units in social compliance areas

-- Increase women workers in the shop floor - exports are seen to be negligible in many items of women's wear that are best made/assembled by women workers

-- Training of women workers in the infant wear category, which has a large market in the EU.

Chambers of Commerce, FPCCI:

-- Coordination with provincial governments and the federal government for uniformity in provinces of regulations relating to work conditions and environment standards

-- Develop credible domestic independent monitoring bodies that can advise/report on compliance

-- Capacity building of exporters regarding the EU market

-- Disaggregated market studies of the EU's 27 member states, each having its own special requirements

-- FPCCI to develop mechanism with counterparts in Sri Lanka, Bangladesh, Nepal, India, the Maldives for optimum benefits from regional cumulation allowed in rules of origin.

U.S. urges garment buyers to stay engaged with Bangladesh   [ top ]

REUTERS, Ruma Paul and Serajul Quadir, May 27, 2013
(Reuters) - International garment buyers, particularly those in the United States, have a crucial role to play in ensuring the safety of Bangladesh's garment workers, a senior government official said on Monday.

A series of deadly incidents at factories in Bangladesh, including the collapse of a building housing garment factories last month that killed 1,130 people, has focused global attention on safety in the industry.

"On the labor issue, absolutely, buyers have a critical role and they must be engaged," U.S. Under Secretary of State for Political Affairs Wendy R. Sherman told a news conference in the Bangladeshi capital.

Western retailers and brands are struggling to assess safety risks at thousands of Bangladesh garment factories after the April 24 collapse of the Rana Plaza building in a Dhaka suburb.

Their task is made tougher by a lack of robust safety rules, a severe shortage of trained building inspectors and equipment needed to make proper safety assessments, and widespread concern about corruption.

Sherman said foreign companies should not give up on Bangladesh.

"We are encouraging international investors not to turn their back on Bangladesh, because the solution is reform, not withdrawal," she said.

"Ultimately, success will depend on the will and commitment of industry, government, civil society, and every day Bangladeshis to come together to change the culture of workplace safety and worker rights in Bangladesh," she added.

She said the United States was working with U.S. companies that source garments from factories in Bangladesh to secure their support for better safety inspections.

The United States was also funding labor and civil society organizations to promote respect for rights at work, including freedom to join a trade union, she said.

The collapse of the Rana Plaza was the world's deadliest industrial disaster since the Bhopal gas leak accident in India in 1984. In November last year, 112 workers, most of them women, were killed in a fire at a garment factory on the outskirts of Dhaka.

FTA opens doors for garment industry in Vietnam   [ top ]

TALK VIETNAM, May 28, 2013
EU market was the second largest consumer of garments and textiles from Vietnam, after the US market, but the ongoing debt crisis in Europe has caused a slump in this industry, with Japan now replacing it as the second largest importer.

The US, EU, and Japan markets have been key markets of Vietnam’s garment and textile industry for several years with the US as the largest importer, EU market following next and Japan at third place. In 2011, Vietnam’s garment and textile industry saw growth in South Korean market with garment and textile exports to this country exceeding $1 billion, making it the fourth largest importer. By the end of last year, garment and textile exports to the US nearly touched $7.6 billion, accounting for 44.7 percent of the industry’s total exports. To EU markets they were nearly $2.5 billion, accounting for 14.6 percent; to Japan exceeding $2 billion, accounting for 12 percent; and to South Korea at $1.3 billion, accounting for nearly 8 percent.

When the global financial crisis broke, the EU market got the strongest hit. In 2011, garment and textile imports of EU were about $260 billion, but dropped to $240 billion in 2012. Forecasts said that the figure would fall to $234 billion this year. Garment and textile exporters to EU market, such as China, India, and Turkey suffered a sharp slump while the impact on Vietnam was insignificant.

Vietnam exported $2.8 billion worth of garment and textile to EU market in 2011, and $2.5 billion in 2012, down 14 percent. The figure is expected to continue to decline this year, to around $2.4 billion. Meanwhile, garment and textile exports to Japan are expected to exceed $2.4 billion. Apparently, this is a noticeable matter for companies who mainly produce for the EU market. Export data in April this year showed that Japan has surpassed EU market to become the second largest importer of Vietnam, thanks to the Free Trade Agreement (FTA) between Vietnam and Japan which took effect in late 2009. Besides benefiting from low import tariffs, the policy to reduce imports from China or Japan also helped Vietnamese garment and textile companies to enter and expand business in Japan.

Currently, total garment and textile imports of Japan are at $40 billion annually, of which, the country imported more than $31 billion from China, $2.1 billion from EU market, and more than $2 billion from Vietnam.

Experts said that a slump in consumption in EU market was affected by economic difficulties. However, EU remained a lucrative market due to its appeal of the world’s largest market where people are willing to pay big money for clothes.

In the past five years, with an export growth rate of 32 percent, Vietnam was considered as one of the exporters with highest export growth rate. However, export growth of Vietnam’s textile and garment industry to EU market was not as high as that of the US, Japan, and South Korea.

Vietnamese companies and EU importers are expecting an increase in garment and textile exports to EU market when the Free Trade Agreement between Vietnam and the EU becomes effective in 2015.

According to Vietnam Textile and Apparel Association, current average import tariff of EU on Vietnam’s garment and textile products is 11.7 percent. A reduction in import tariffs from 11.7 percent to zero percent will definitely boost morale of Vietnamese producers.

Garment and textile companies said that despite a slump in exports to EU market, they still prefer to make products for this market as among export markets, Japan is the strictest in requirement for quality, forcing producers to invest more in technology which not any firm can afford. However, Japanese importers are very generous in negotiations.

Although Vietnam was one of the fifth largest garment and textile suppliers in the world, total export turnover of the country merely accounted for 4-5 percent of global import market share. The country’s garment and textile products only accounted for 8 percent in the US market, and 1 percent in EU market.

Among current four key export markets, Vietnam had Free Trade Agreement with Japan, and was in negotiations for Free Trade Agreement with South Korea, and EU, and for Trans-Pacific Partnership with the US. Vietnam’s garment and textile industry now has many opportunities to expand its export market share.