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News Clips 21 May, 2013


[ Five sectors enjoy ‘discriminatory’ advantage ]
[ Textile mill blaze destroys goods worth millions ]
[ India under pressure at WTO to phase out textile export sops ]
[ Bangladesh Barred from Textile Safety Group ]
[ China: Q1 textile exports beat expectations with 19.4% rise ]

Five sectors enjoy ‘discriminatory’ advantage   [ top ]

THE NEWS, Shahnawaz Akhter, May 21, 2013
KARACHI: Five sectors of the economy presently enjoy over 81 percent of duty and tax exemptions at the import stage, sources in Pakistan Customs said on Monday.

They said this regime - sanctioned by the Federal Board of Revenue (FBR) - demonstrated inequality in the system and had hampered the growth of other sectors.

A study conducted by Pakistan Customs revealed that 81.4 percent of allowed exemptions during FY12 through Statutory Regulatory Orders (SROs) are concentrated on only five sectors, with vehicles at 28.72 percent; machinery at 22.66 percent; chemicals at 11.59 percent; minerals at 10.53 percent; and metals at 7.9 percent.

“The concessionary regime is governed by multiple notifications [SROs] with complex conditions and regulatory mechanisms which hamper trade, increase the cost of doing business and breed malpractices,” the study said.

“It is complex and discriminatory,” it added.

The latest economic survey showed that tax expenditures or tax exemptions stood at Rs185.5 billion for 10 months of FY12 against Rs175 billion for all of FY11.

Customs officials said that presently the exemptions regime at the import stage is governed through 36 SROs.

The major chunk of tax exemptions has been availed through SRO 567/2006.

This allowed exemption from customs duty on import of specified goods during FY12, costing Rs18.41 billion or 23.24 percent share of total exemption allowed for the year, according to the study.

With regard to other SROs, including 656/2006, 575/2006, 655/2006 and 659/2007, cost of exemption was Rs14.15 billion, Rs12.28 billion, Rs10.13 billion, and Rs7.6 billion, respectively.

Sources further said that the customs authorities had proposed eliminating the SRO culture for the rationalisation of duty structure.

Customs officials said that actual tariff had been hidden behind the complex regime of exemptions and concessions.

They said that the concessionary regime had evolved over a period of time, without any policy direction, which made for a complex and convoluted picture.

Moreover, sources said that political influence and vested interests within the customs and business community had prevented any bid to streamline the duty structure by withdrawing the SROs.

They said that in 2000, the CBR (now FBR) had made serious efforts to reduce the number of notifications to only three SROs.

“The task of reforming the exemption regime could not be carried out,” said a senior customs official, who requested anonymity.

“There are various overlapping provisions, distortions and discriminations which need to be addressed through rationalisation and simplification,” he added.

Recently, Pakistan Customs informed the FBR that the present SRO regime hurts commercial activity and Small and Medium Enterprises (SMEs). It reportedly suits vested interests within protected industries, public sector managers and political decision makers.

“Discrimination across sectors is glaring,” said Pakistan Customs. “There is a need to provide a level playing field to all sectors,” it added.

Customs officials said that the immediate action of the FBR for duty rationalisation and withdrawal of various SROs would result in significant revenue realisation.

Officials at FBR headquarters, Islamabad, said that the government had already taken up the matter and in the upcoming budget for FY14, the government is likely to propose reforms in this regard.

Textile mill blaze destroys goods worth millions   [ top ]

THE NEWS, Correspondent Report, May 20, 2013
Karachi: A major fire broke out at a textile mill located along Super Highway in Nooriabad on Sunday, reducing goods worth millions to ashes.

The Central Fire Station said at 5pm, a short circuit triggered a fire at the Dr Ikhtiar Baig Textile Mills and within minutes, the factory was engulfed in flames.

Sixteen fire engines of the Karachi Metropolitan Corporation reached the scene to douse the blaze. Firefighter also used a snorkel and rescued many factory workers.

The fire sent smoke billowing into the sky that could be seen from other areas of the city. Police cordoned off the area and the Edhi ambulances also rushed to the scene. The fire also caused a massive traffic jam on the Super Highway.

India under pressure at WTO to phase out textile export sops   [ top ]

BUSINESS LINE, Amiti Sen, May 17, 2013
New Delhi, May 16: Pressure is mounting on India at the World Trade Organisation (WTO) to pare subsidies and incentives given to its textiles sector.

The European Union and Japan have joined hands with the US and Turkey to demand that India stop giving fresh subsidies and gradually phase out the existing ones as the textiles sector had already achieved export competitiveness.

India, however, maintains that many of the subsidies identified by the US and others are not subsidies and merely a reimbursement of input duties. It said before the phasing out happens, there has to be a common understanding on what the subsidies are.

The issue came up for discussion at a recent meeting of the WTO Committee on Subsidies and Countervailing Measures.

“We agree that the textiles sector in India has achieved export competitiveness, as defined by the WTO. But, we have some time to phase out subsidies and many of the incentives given to the sector cannot be classified as subsidies at all,” a Commerce Department official told Business Line.

In an indirect reference to the new package of incentives announced for exporters in the Foreign Trade Policy last month, the US said it was concerned about press reports on India providing new subsidies to its textile industry.

Textile export is important for India’s economy as the sector is the largest job provider in the country. With the downturn in global trade reducing demand for exports, the Government has been providing several incentives to exporters.

Turkey said export subsidies by India had created unfair competition for Turkish textile industry. It urged India not to implement new programmes, and said it was ready to discuss this issue with the country.

Japan and the EU also expressed concern and said that the matter had to be sorted out soon so that there was a check on subsidised exports.

The WTO allows countries with per capita income below $1,000 to give export subsidies till exports are lower than 3.25 per cent of world trade in that particular commodity. India’s share in the global market for textiles crossed the limit in 2007, according to WTO records, and is almost four per cent at the moment.

Since countries are given eight years to remove the subsidies, India has time till 2015 to do so.

“There is also no clarity over whether India actually crossed the threshold in 2007. We have to reach an agreement even on this,” the official said.

India’s garments exports in 2012-13 declined 12.23 per cent to $8.4 billion while exports of cotton yarn, fabrics and made-ups increased 10 per cent to $7.5 billion.

Bangladesh Barred from Textile Safety Group   [ top ]

WASHINGTON POST, Howard Schneider, May 17, 2013
WASHINGTON — The International Labor Organization and World Bank have refused to let Bangladesh join a textile industry monitoring program until the country overhauls its labor laws and conditions for unions improve, according to a top ILO official.

The strict stance by the ILO and World Bank, which jointly run the global Better Work program, is part of an international drive that is gaining pace following a series of deadly industrial accidents in Bangladesh, the world's second-largest garment exporter and home to an estimated 5,000 textile plants.

A group of visiting Bangladesh officials continued meetings in Washington on Friday with Secretary of State John Kerry and others, hoping to convince the United States that they are serious about improving industrial conditions in the country.

Referring to the collapse of the Rana Plaza textile center last month, Kerry said that the United States "shared the agony" of the tragedy and that the incident "will be able to help all of us cooperate on the issue of labor and labor standards."

The Obama administration is working with Bangladesh to improve its safety inspection systems, while also pressuring the country with a threatened cutoff of trade tax breaks granted for some of the country's exports.

Separately, lawmakers on Capitol Hill and religious and investment groups have been pressing U.S. retailers to join an alliance of mostly European companies that have agreed to outside inspections of the factories they use to supply garments. The rise of manufacturing centers such as Bangladesh has kept the retail prices of clothes in check for 20 years, and advocacy groups argue that the vigilance of major Western chains and brands is one of the surest ways to guarantee factory safety in the absence of an effective local government.

Fires and a recent building collapse have killed more than 1,500 workers since November and are "an illustration of the failure of the global companies that manufacture and source their products [in Bangladesh] to ensure humane working conditions," the Interfaith Center on Corporate Responsibility said in a Thursday letter signed by 120 companies and clerical groups. "We are convinced that systemic change will only occur when companies take action together. They must use the full force of their commercial power to press for reforms."

Bangladesh asked last year to join the Better Work program, which involves unannounced, independent inspections of participating textile plants by outside experts and technical help from the World Bank for managers and plant owners. But officials said the country's labor laws are so weak, and the conditions for unions and workers so treacherous, that they have demanded major changes in advance of approving its participation.

"There were unacceptable risks of failure to starting a program before these conditions are realized," said Dan Rees, director of the Better Work program, which currently monitors some textile factories in Cambodia, Indonesia, Vietnam and elsewhere. "There is a lack of clarity in the law, and we cannot as a program get involved in monitoring factories and being seen as resolving conflicts when in fact we are not empowered to do that."

An overhaul of the country's labor laws , also being pushed by the United States and others, is slated to go before Bangladesh's Parliament in June — evidence, advocates say, that outside pressure on the country is starting to have an effect. The negotiations between Bangladesh and the ILO demonstrate some of the difficulties outside groups face in trying to deal with textile industry conditions in Bangladesh.

On one hand, there is hesitancy to push too hard for fear of disrupting an industry that employs millions of workers, mostly women, in a secular Muslim democracy. On the other is the recognition that the industry is not closely regulated and often unsafe. The weakness of building-inspection systems has been, advocates say, generally overlooked in the world's discussion of Bangladesh and its rise as a textile center. World Bank programs in the country, for example, have included efforts to train village women for garment industry jobs. But, Rees said, the country has only a few dozen fire inspectors. It recently agreed to hire 1,000 more after talks with the ILO and promises of help from the U.S. Labor Department.

The dilemma that development agencies now face in the country, Rees and others said, is how to make sure that any immediate help coming from the outside — whether in the form of money or expertise — doesn't take the place of building the local systems needed to make the industry safer for workers in the long run.

The recent safety inspection accord signed by more than 30 major retailers will cover only a fraction of the industry. Likewise, Rees said that the Better Work program, if it does come to terms with Bangladesh in the near future, would likely be able to monitor only a couple of hundred factories in its early years.

While that could grow over time, he said, "it is a mistake to see these initiatives as an alternative to good governance. There is not an alternative to goods laws, well enforced."

China: Q1 textile exports beat expectations with 19.4% rise   [ top ]

CHINA ECONOMIC NET, Bao Yuanyuan , May 20, 2013
In the first quarter, China exported an aggregate of US$ 35.3148 billion of clothes and accessories, up 19.4 percent compared with the same period of last year; in March, international cotton price skyrocketed, with the difference between international price and domestic price once narrowing down to RMB 2,305 Yuan/ton. Even with weak foreign demands, growth of export has exceeded market expectation. Recently, the difference between international cotton price and domestic cotton price has shrunk, and the pressure of raw material cost can be expected to reduce. But at the end of the day can the good news really substantiate the recovery of the textile industry?

For the textile industry that has dragged languidly for more than one year, the beginning of the 2013 can be described as "steady on the whole with various highlights". In the first two months of this year, the 38,000 textile enterprises of above designated scale nationwide witnessed 14.3 percent of operation revenue growth, 2.8 percentage points higher than the growth of the same period of last year; total profit increased by 14.3 percent, 16.5 percentage points higher than the same period of last year. From January to March, growth of export of China's textile and clothes industry was 12.2 percentage points higher than that in the same period of last year; the volume of fixed asset investment projects of more than RMB 5 million Yuan cross the industry increased by 16.4 percent, 0.6 percentage points lower than that in the same period of last year. The growths of main economic index of the textile industry have been steady, a strong indication of mild recovery.

The shrinking of the difference between domestic cotton price and international price also brings hope to textile companies. In March, international cotton price climbed, the difference between international price and domestic price was as low as RMB 2,305 Yuan/ton. According to industrial insiders, the acreage of cotton plantation in 2013/2014 worldwide is undoubtedly reduced, and the difference between international cotton price and domestic cotton price is strongly expected to narrow further. With multiple contributory factors, the cotton production chain in China is expected to be extensively boosted. If some cotton textile companies would be able to obtain a larger import quota, their comprehensive raw material cost will not be greatly different from that of international competitors. In light of the high possibility of further shrinking of the price difference domestically and internationally, it is estimated that negative elements that affect the global competitiveness of China's cotton textile industry will be weakened.

Even with the contributory factors mentioned above, the recovery of the textile industry is still not highly optimistic. After the drastic growth of textile export in February, March saw an 11 percent decrease of export value of textile and apparel. The fluctuation caused concerns in the industry, and close attention should be paid to issues and risks currently existing in the operation of the textile industry. First, export pressure has not yet been substantially mitigated. China National Textile and Apparel Council points out that in the first quarter of this year, particularly in the first two months, the markedly rebound of export has been primarily attributed to such non-demand factors as low base number and collective delivery before the Chinese Spring Festival. Recent consumption statistics about the international macro economy and foreign markets indicate that foreign demands have not been significantly improved, and China's textile industry doesn't possess the external conditions needed for sustained rapid growth. Second, although the price difference between international cotton and domestic cotton has shrunk somewhat recently, the impact of cotton problem is still prominent. Moreover, taking into consideration such factors as comparatively high price of stock cotton, long delivery cycle, and instable quality, the cotton textile industry is still facing great pressure. Third, the majority of small and micro businesses are still having difficulty surviving and developing. According to CNTAC's survey recently, small and micro businesses in the textile industry are currently going through apparent difficulty, their operation rate and workers return rate being significantly lower than that of large and medium-sized enterprises.

It is noteworthy that although the era of two-digit growth of the textile industry, which had lasted for years, is now gone and the industry will go on to face low-pace growth for a long time to come, there are still some enterprises, facing all the same numerous difficulties, that have achieved outstanding operation results. The fundamental factors that have sustained their growth against the odds are their timely adjustment of product structure and innovations of brands and technology.

Information from CNTAC indicates that the market environment facing the textile industry in 2013 is generally better than that of last year. Foreign demands are relatively stable, and the fundamentals of the domestic market remain favorable. In addition, with the implementation of macro control measures and restoration of market confidence, there is still room for growth in the domestic market; the further advance of structural adjustment and transform and upgrading of the textile industry will increase momentum for the development of the industry and help the industry to overcome all kinds of pressure elements. The textile industry has the internal and external conditions for maintaining steady growth with accelerated growth month on month and quarter on quarter. It is estimated that production, sales, and benefit will all grow steadily in the first half of the year and the growth will be higher than that in the same period of last year.