Pakistan’s Textile Industry Needs Resurrection

Pakistan’s Textile Industry Needs Resurrection

Majyd Aziz

March 28, 2008


PREAMBLE:

From a single textile unit at the time of Independence in 1947, Pakistan’s textile industry has come a long way. Even today, the textile sector is the backbone of the country’s economy being the largest provider of employment, foreign exchange, and revenue. Even today, the textile sector is employing over 40% of the working population, generating 65% of the foreign exchange earnings, and contributing 8.5% to the nation’s GDP. Even today, the textile sector can boast of a major investment of over US$ 5 billion in the last few years, creation of a Ministry of Textile Industry at the Federal level, and having the vision to boost textile exports to US$ 20 billion and provide new job opportunities to six million people within a few years while it’s share in GDP would escalate substantially by 2015.

In 2007-2008, the textile exports were just a shade above US$ 10 billion. In comparison, the Indian textile exports were US$ 17.50 billion, and Bangladesh also crossing US$ 10.00 billion. However, India is now projecting textile exports to rise to US$ 80-85 billion by 2010 while Bangladesh is poised to go over the US$ 15 figures before 2010.

However, the 2007-2008 figures have sounded alarm bells in the textile industry. The export of textiles has declined while retrenchments, closures, and bankruptcies are everyday events in the textile industry. One can rattle off lots of figures to portray the dire situation but suffice to state that Pakistan has the ignominy of being one of those relatively few countries that has experienced stagnation in exports. The prognosis is that the country would not attain its export targets when we close the books end of June 2008. The finance managers of the country were hell-bent on ensuring the demise of the textile industry and it seems that their machinations may come true.

ECONOMIC PICTURE:

The scenario at present is that the economic picture seems robust with a GDP growth in excess of 7% for the fourth year in a row and much improved macro-economic indicators. The per capita income surpassed US$ 900, foreign exchange reserves hover around the US$ 15 billion figure, there is a sharp increase in foreign direct investment, the country’s Eurobonds received a much favorable international response. These figures have been parroted by the finance managers at all platforms and brandishing the contention that there is significant socio-economic development of the nation’s infrastructure, there is a much better implementation of economic reforms, and inspite of hiccups, the privatization process is in motion.

Of course, it is imperative to note that the 9/11 syndrome also contributed significantly to the achievement of economic objectives. The re-profiling and write-off of the debt portfolio, the assistance of multilateral lending agencies, the upsurge in remittances by expatriate Pakistanis, the role of Pakistan as a frontline state in the war against terrorism, and the trade incentives some countries, may not be possible in the years ahead. Pakistan is facing a tough international environment and recent events have highlighted the domestic economic challenges too. The country is in the throes of an over-heated economy, negative fiscal developments, and a widening external account gap. In this scenario, the textile sector has become vulnerable again.

PROBLEMS AND ISSUES:

On December 31, 2004, the Agreement on Textiles and Clothing ended resulting in the abolishment of the quantitative restrictions on textiles and clothing in international trade. Pakistan was projected as being one of the major players in the global textile market taking advantage of its inherent plus points, such as the fourth largest cotton growing country, abundant textile workforce, intensive investment in capital equipment and capacity building, low interest rates, a vibrant stock market, and entrepreneurial expertise, etc. Pakistan was poised to make inroads into the global share of countries such as Bangladesh, Cambodia, and Nepal, etc who were perceived as vulnerable to liberalization of international trade. Pakistan was designated as the producer of excellent quality towels, bedwear, and cotton yarn.

Much to the chagrin of the policymakers as well as the stakeholders, the oft-repeated motivational mantra, that after the elimination of the quota regime Pakistani textile sector would have more opportunities than challenges just did not hold juice. The textile sector faced pressure from internal as well as external influences. These impacted heavily on the cost of doing business in Pakistan.

The reasons for the higher cost of doing business could be enumerated in six broad categories:

Utilities: The Achilles’ heel for the textile sector has been the unpredictable and frequent increases in the rates of power and gas, the low availability of water, and the disruptions, power outages, and breakdowns in the systems. Moreover, the discretionary authority given to utilities to sanction connections has further aggravated the concerns of the industrialists. Gas is an important natural resource yet its tariff is excessively high because of subsidies given to some sectors and because of the method of calculating the guaranteed return on average net fixed assets provided to the two gas companies, i.e. 17% for SSGC and 17.5% for SNGPL. However from October 2006, a new formula has been devised that links the guaranteed return to gas companies to the KIBOR rate plus 8%. This, in effect, would increase the guaranteed return for the gas companies.

KESC, WAPDA, and PEPCO are unable to ensure uninterrupted power, and because of other crucial reasons like rates, attitude, and regulations, many industries have opted for the own captive power generation. These are based on furnace oil, diesel, or gas. Textile industries consume 8.7% and 10.96% of total sales of SSGC and SNGPL respectively while captive power plants consume 10.16% and 4.68% of their total sales. The gas rates in Pakistan are US$ 4.02/MMBTU for general industries as well as captive power plants, while in Bangladesh the rates are US$ 1.90 and US$ 2.65 respectively.

The power rates are substantially excessive and if the invisible losses due to load-shedding and power outrages are taken into consideration, then the impact on the total cost of the product is formidable. Water for Karachi-based textile processing industries is expensive too. Due to non-availability of the required water supply, the industries have no option but to depend on the water tanker mafia to supply water, and that too at a steep cost. The water supply situation is pathetic as well as inequitable since SITE Karachi, the largest and oldest industrial estate of the country having 3002 industries including 40% of the total textile processing mills of the country, has a meager laid down water quota. The estimated cost to Karachi units is about Rs 0.50 per square meter.

The solution lies in rationalizing the utilities rate and putting on hold the frequent increases. Gas prices must be reduced by atleast 45% on an immediate basis. Gas prices have gone up substantially in the last few years. Instead of coming up with a consumer-friendly formula for the gas companies, the new formula devised by the Petroleum Ministry will critically affect the viability of the manufactured textile products. The foreign-owned management at KESC has still not found its bearings and their methods of operation have made lives miserable for the business and industrial establishments as well as for the denizens of Karachi. The city is facing loadshedding from 8 to 12 hours daily. The non-chalant pronouncements of the concerned Ministry further adds fuel to the fire. The general impression is that the KESC hierarchy is not presenting the pragmatic and correct picture to the decision makers. The water problem in Karachi can be addressed to some extent by the installation of effluent treatment plants in all five industrial estates of the city so that environmental standards are complied with and also treated water is available for industrial utilization. The government must take the initiative and set up water desalination plants on a priority basis as the future supply of water to Karachi would continue to have negative ramifications.

Finance: As stated above, the textile sector made heavy investments in capital equipment and in infrastructure. The low interest rates enabled them to undertake these investments. However, the situation changed for the worst when interest rates were allowed to escalate thus putting massive pressure on the borrowers and making their feasibilities go haywire. Today, over Rupees 150 billion is the total principal and interest that is due on the investments made since January 2003. The interest rates are nearly 14% now and have a detrimental effect on the balance sheets of the textile sector. The spinning sector has been weighed down by the increased interest rate circumstances. The State Bank of Pakistan, in order to facilitate the export-oriented industries to overcome their prevailing financial crisis and to remain competitive in the international market, decided to allow a one-time opportunity to the textile industry to refinance their outstanding fixed term loans availed from banks or DFIs for import of plant and machinery with loans under its Long-Term Financing for Export Oriented Projects (LTF-EOP) Scheme resulting in reduction of about 5-6% in the interest rates.

Another demand that was accepted by the ECC of the Cabinet was to reduce the export refinancing rate from 9% to 7.5%. This has provided some relief to the exporters. Overall, the textile industry is still not satisfied by these steps and is adamant in their demand that the interest rates must be further lowered so that enterprises maintain their survivability and do not become the sick industries as in the olden days.

Taxation and Duties: The non-positive impact of high cost of utilities and prohibitive finance charges have rendered profits to a bare minimum or else have resulted in huge losses for many industries. At the same time, the outcome of various measures such as taxation, duties, and levies have been negative cash-flows as well as affecting the cost of production. These are custom duties, sales tax, withholding tax, Export Development Fund surcharge, labor welfare levies, local and provincial levies and taxes, and other miscellaneous such impositions.

The textile industry has recommended that custom duty on import of textile-related machinery and spare parts, generators for captive power plants and their spare parts, and other such equipment for textile industry should be zero-rated. Furthermore, sales tax, if any, on any of these items should also be zero-rated. Withholding tax on exports of textiles should be levied at a flat rate of 0.25% rather than the current multiple rates of 0.75-1.25%. Collection of Export Development Fund surcharge at the rate of 0.25% on textile exports should be held in abeyance for a period of three years. All contributions to EOBI, Social Security, Education Cess Fund, Worker’s Welfare Fund, etc must be frozen for all components of the textile sector for a period of five years.

The negative and biased travel advisories issued by various governments for their citizens who intend to visit cities such as Karachi have severely affected the inflow of foreign buyers into the country. Thus the local textile producers and exporters have to make frequent foreign trips to visit their customers and also to attend international fairs and exhibitions. These also influence a lot on their cost of production. It has been recommended that a 5% Travel Relief Support be introduced for exporters of processed fabrics, apparel, knitwear, home textiles, and made-ups.

Competition: Pakistani textile exporters are facing severe competition from the regional producers because of a non-level playing field. Their governments, being more pro-active, have been providing manifold incentives and benefits to them. The competition has an edge in the form of hidden subsidies, duty free import facilities, duty drawback schemes, lower wages and lower worker benefits, cheaper utilities, subsidized interest rates, and more importantly zero-rated market access for their exports to Canada and EU countries. The United States has Free Trade Agreements with many countries and regions such as Sub-Saharan countries (AGOA), Jordan, Mexico and Canada (NAFTA), Vietnam, and Sri Lanka, etc.

Pakistan’s bedwear industry also has been very much affected by the imposition of anti-dumping duty on exports to EU countries. Even though the anti-dumping duty has now been reduced from 13.5% to 5.6%, yet the ramifications are still problematic since there is also the import duty of 12.5% as Pakistan has not been granted GSP Plus status by EU. Thus countries such as Bangladesh have a 15-23% advantage over Pakistan in exports to EU.

The government had taken cognizance of this predicament and had provided Research & Development support of 6% on readymade garments and knitwear exports. Lately, after much lobbying, the government agreed to grant 3% R&D support to the dyed/printed fabrics and white-Home Textiles and 5% to dyed/printed Home Textiles. Nevertheless, these measures have not been effective in getting the industry out of the woods. This subsidy is still much less than demanded.

The government keeps on maintaining that subsidies are not on the economic agenda. However, the regional competitors and their governments are on the same wavelength when there is a need to subsidize the textile industry. What after all is ‘subsidy’? At a very general level, it is simply support which is meant to help the beneficiary deal with existing market conditions better than the other producers in the sector. In the interest of fair play, such assistance will always have to be for a specific period, preferably with a stipulation that the support will be discontinued on the achievement of the objectives. Moreover, the disadvantage which existing producers would have to face on account of this subsidy to a competitor can be justified only if the target is national economic development. In other words, every economic subsidy to be fair and equitable will have to be totally focused to the larger goal of enhancing national economic development. The Pakistani decision makers must take this into account very seriously.

Non-Official Channels: The domestic textile sector is subject to intensive smuggling of consumer, contraband, and capital goods for decades. The issue is compounded further by the encouragement given to those who mis-declare the consignments, and for turning a blind eye to under-invoicing of the imports. This phenomenon is very prevalent in the inflow of foreign-produced fabrics and apparel. There is an imperative need to control this threat since the domestic industry has been ruthlessly affected due to this multi-headed monster. The following are the reasons and effects of this menace:

· Porous and unmanageable international borders have made the job easier for the law-breakers. The matter has further aggravated ever since the control of the borders was handed over to a designated law-enforcing agency whose personnel have routinely displayed a lax and careless attitude and whose ranks have been allegedly corrupted by the smugglers.

· The corrupt and dishonest environment in the customs department, whether at various border check posts, whether at the seaports or airports, or whether at the ten Dry Ports. Dishonest officers, in blatant connivance with those who under-invoice or mis-declare, especially certain well-identified clearing agents, have wreaked havoc on the economy.

· The Dry Ports scheme was originally intended to serve as a facilitation point for exporters based in the northern parts of the country. However, fraudulent persons and insincere bureaucrats conspired to turn this scheme into a haven for imported goods so that all of them could mutually benefit from the unplanned utilization of the Dry Ports facility.

· The infamous Afghan Transit Trade Agreement has enabled the corrupt elements to misuse this facility and channelize the goods back into the country thru “legalized” and allowable procedures and thus goods much more in excess of the requirements of Afghanistan are imported under this scheme and brought back into Pakistan.

· Goods coming from China have been fundamentally responsible for the proliferation of smuggled, under-invoiced, and mis-declared items into this country. Due to the close and meaningful friendship between the two countries, the government policymakers ignored the devastation caused by the Chinese goods over the past many years. It has now assumed a significantly threatening scenario and has also contributed to the increase in the ranks of the unemployed, the poor, and the bankrupt. How will the FTA with China have an impact on textiles is worth considering.

It is proposed that to counter the menace of these non-official channels of trade and to maintain the sustainability of domestic textile industry, the following measured should be adopted:

* Computation of duties should be made strictly in accordance with the scientific mode prescribed by FBR.
* Strict control in ascertaining the quality, quantity, weight, and origin of imported fabrics at clearing stage.
*Accurate monitoring of wholesale and retail markets and establishments to determine price of the imported
fabrics.
*In case of mis-declaration in terms of weight of 20% or above, the entire consignment should be confiscated
and destroyed. In case the excess weight is less than 20% of the declared weight, than the percentage of
weight under-declared should be carried over for consideration in the clearance of the next consignment of
the same importer for the purpose of enforcement of the penalty.
*Suspending the clearance of fabrics at the various Dry Ports.
*Periodic consultative meetings with stakeholders to evaluate the performance of the customs department
and establishing the international rates of raw materials to decide on the assessment value for the purpose
of determining import duty.
*Introduction of Technical Non-Tariff Barriers to maintain transparency, to ensure compliance with quality
standards, and to protect the domestic manufacturers.
*Placement of the following testing equipment at the seaports, airports, and check posts: Yarn twist tester,
Denier tester, Fabric GSM cutter, Digital weighing scale, and any other equipment required for testing fabric.

General Factors: Apart from the above categories, there are other relevant issues that require concentration and resolution. These include:

Toning up the technical and vocational education and training (TVET) system. A skilled and professionally qualified workforce is now imperative. The present TVET scenario needs large-scale efforts in overhauling and expanding the infrastructure. There is a need to have industry-demand training and thus the syllabi needs to be updated and the system upgraded. There is a need to have a much comprehensive and focused approach towards this objective. There is a need to have a pragmatic public-private partnership in TVET so that the ensuing results are as per the requirements.

Knowledge-based export strategy is another key necessity. WTO Reference Centers have been established at the Trade Development Authority of Pakistan in Karachi, in Islamabad, and at the Lahore Chamber of Commerce & Industry. The WTO Reference Center is a program to disseminate information on international trade, provide a deeper understanding into the working of the Multilateral Trading System and to take advantage of the provisions of international trade rules and market access conditions. The object of the Center is to build national capacity for understanding the multilateral trading system and its implications for Pakistan. The use of the WTO Reference Center would be open to the business community, government organizations, academia, policy institutions, researchers, media, students and all who wish to derive a deeper understanding of international trade. Among the various on-line and off-line trade development tools on offer include Integrated Data Base (IDB) Countries Trade and Tariff Information, Consolidated Tariff Schedule Data Base (CTS) Information on Countries Tariff Bindings Statistical Data Base - Countries' Trade Data, Information on Trade in Services etc. At the same time, consultants, both domestic and foreign, should be engaged to keep the exporters in touch with the trends of the global marketplace. There is a need to create more awareness regarding WTO Reference Centers.

Focus on employment generation is imperative. The textile sector is the largest employer of the active workforce in the country. Any negative impact on this sector results in more pressure on the employment scenario. It should be noted that full employment opportunities manifest positively on the economy and the benefits are multiple. Jobs provide poverty alleviation, reduction in street and major crimes, curbing of extremist and uncivil sentiments, and general well-being and prosperity. The textile value-added industry can provide huge employment if most of its myriad problems and issues are handled in a benevolent manner by the government.

Protection of the textile industry from FTAs is essential. The government must ensure that unbridled inflow of textile goods from FTA or SAFTA partners do not sound the death knell for the domestic textile industry. It is imperative that the Pakistani policy makers do consider the fact that the Indian government has provided tremendous incentives, including duty drawbacks, under varied headings and schemes to the textile industry. It is still adhering to the imposition of non-tariff trade barriers making it tough for imported textile goods to enter the Indian domestic markets.

It is to be noted that the finished textile goods are subject to 14% import duties and zero sales tax. The reduction or zero rating of duty on Indian textile goods under SAFTA would prove to be a boon for the Indian exporters. It is a well-established fact that the Indian textile exporters routinely resort to over-invoicing and mis-declaring their products in order to obtain maximum advantages from the incentives provided to them by their government. Hence, they are able to provide their products at a comparably cheaper rate. This would be replicated in toto in their exports to Pakistan. It is strongly advised that formidable efforts should be undertaken by the Pakistani negotiators to impress upon the Indian officials that Pakistan is not in a position to accede to their demands until and unless there is transparency in their export regime, unless there is elimination of non-tariff trade barriers, and unless there is no official patronage of over invoicing of exportable goods.

Export Facilitation Inter-Ministerial Committee. The Commerce Minister had announced in the Trade Policy 2003-2004 that this Committee would be set up to oversee the progress and implementation of the Trade Policy, would be responsible to resolve all irritants faced by the business and export community, and would meet atleast once every quarter. The Committee would consist of the Ministers of Commerce (as Chairman), Finance, Industries and Production, Investment and Privatization, Governor of State Bank of Pakistan, Chairman of Export Promotion Bureau, and Secretary Commerce. The Committee was notified on September 11, 2003. Unfortunately, till today this Committee has not had a single session at all. It is imperative that this Committee should be revived. In Sri Lanka there is such a Committee that has nine Ministers as members and it meets regularly once every month.

Image building and branding of Made in Pakistan logo. The negative perceptions of extremism, terrorism, and the nuclear syndrome have had a detrimental effect on the nation’s products. It is incumbent upon the business community to play its role in combating these negative perceptions and the biased mindset. The government can assist in this respect by earmarking resources to project the country at all important international forums and on the world media. The Made in Pakistan logo must be developed and placed on all products manufactured in Pakistan. The logo must also be conspicuously placed on all official correspondence, at all Embassies and High Commissions, and on all national media. Postage stamps of the logo be introduced and used. All public transport must display the logo prominently. All Chambers and trade Associations must do likewise on their websites, correspondence, and within their establishments. The government must adopt the Indian experience of utilizing the services of Bollywood and emulate this with the support of the Lollywood film industry.

CONCLUSION:

The new government must now become very pro-active in the promotion of textiles, both in the domestic market as well as in the global marketplace. When a couple of years ago, the textile industry faced immense pressure from all fronts that added up into a precarious position resulting in demands for a level-playing field vis-à-vis regional competitors and when these demands reached a crescendo, the government set up a committee of stakeholders for finding a plausible and workable package to get the textile industry out of the quagmire. The Zubair Motiwala Commission developed and presented a broad-based package for the Prime Minister’s decision. Resultantly, on July 15, 2006 the ECC of the Cabinet announced the Rs 25 billion textile package. Further progress was made by the SBP decision and by the efforts of the Textile Ministry to broad-base the R&D subsidy regime.

The textile sector of Pakistan appreciated and acknowledged the sagacious and far-reaching decisions by the government to boost the textile sector and assist in its rehabilitation and its capability to sustain itself in the global market. Inspite of these incentives and measures, the textile sector continued to face difficulties since the regional competitors went a step ahead to maintain their position and their status. It is crucial that all the components of the textile sector be encouraged and should be appropriately satisfied that they have been adequately backed by the government. It is therefore imperative that the government must resolve on a priority basis the residual issues that still impact negatively on these components of the textile sector. This would definitely ensue into more employment, more exports, and more industrialization. The vision that Pakistan would be a major player in the global textile market would then surely be a reality. The recently elected government is at a vantage position to ensure that Pakistan’s textile industry continues to be the economic engine and propel the nation into a prosperous country.

Jo is sahat mein pinah hai ujala hum bhi dekhayn gay
Jo farq-e-subah per chamkay ga tara, hum bhi dekhayn gay

Trade with India: Is Pakistan missing the boat?

Trade with India: Is Pakistan missing the boat?

Majyd Aziz

October 22, 2008

Pakistan is gradually inching towards a respectable scenario where the exports truly become the prime channel of foreign exchange as well as being the focused source of stable employment, targeted poverty alleviation, and sustained industrialization. However, the export regime has never been an attentive matter of policy for successive governments. There is the usual rhetoric emanating from the corridors of power that Pakistan will be a major player in the global village but the results demonstrated by the implementers of policies have not done pure justice to the development of a critical mass in exports.

Pakistan has seen imports sky-rocket in the past couple of years, more so because of this impression that that a liberalized trade regime would be beneficial for its progress and economic development. However, this thinking has been patently misused and infected by that cadre of businessmen who, whether taking advantage of the inadequacies in the laws and regulations or even resorting to a well-oiled corruption syndrome or even enjoying a carefree and easy availability of banking finance for imports, have facilitated unbridled inflow of crucial as well as ostentatious and luxurious goods and commodities from foreign countries.

The irony in all this is that while a liberal trade regime is imperative in many a case, such as sensitive items as oil, foodstuffs, and machinery, there is a well-entrenched government policy to hold the reins tight when it comes to trading with the neighbor on the eastern border. Pakistan has signed Free Trade Agreements with SAARC-colleague Sri Lanka as well as with all-weather friend China. Negotiations with Bangladesh for FTA are in its matured stage. Pakistan is a signatory to SAFTA and has announced to all that it intends to adopt a prominent role in intra-SAARC trade. Unfortunately, when policymakers go into a huddle to decide on bilateral trade with India, there is more head banging than serious reasoning.

The ground realities are very apparent. India is becoming an economic power house. All eyes are directed towards this nation that has the largest middle-class buying strength. Already, India has put its John Hancock on FTAs with countries on all points on the map. Indian conglomerates have gone global, buying large companies or even becoming strategic partners. So much so, India has staked its claim for a permanent seat on the United Nation’s Security Council. Observe its successes on the international front. The nuclear deal with USA, its omnipresence in world bodies, its gigantic bilateral trade with China, its powerful and potent media and entertainment industry, its information technology stronghold, and its lion’s share in the SAARC trade regime. What one has to accept is that India is on the verge of becoming a super power.

This is where trade with India assumes a critical analysis. Pakistan has to pay millions in foreign exchange to transport its imports from all over the world. Pakistan is susceptible to the undocumented trade with India, either across the border or thru third countries. Pakistan is unable to penetrate the Indian market due to inertia on the part of the Pakistani exporters or due to what has become a one-way highway coming into Pakistan. India did not waste a moment in giving the Most Favored Nation status while Pakistan declared that adopting such a position, albeit also due to non-tariff trade barriers put up by India, may be construed as sleeping with the enemy.

The Trade Policy of 2008-09 did venture to take cautious steps to further open up more imported items from India, the fact of the matter is that a lot of high-profile items were due to the influence of well-placed Pakistani importers rather than an universal tactic. This would, of course, make the one-way highway into an Autobahn but the direct benefits would accrue more to these specific importers or groups. A ray of hope is the resumption of the trade across the Line of Control. The opening event manifested a lot of euphoria and the traders displayed sincere emotions. Of course, trade would be more Indian-tilted but the reality is that after six decades of denial, the genuine trade would counter the undocumented trade regime that was detrimental to the economy, especially on this side of the border.

The Indo-China trade scenario has a much more pragmatic and visionary strategy. It can rightly be stated that a pro-business and long-term thinking on the part of the erstwhile Vajpayee government, further solidified by Prime Minister Manmohan Singh, has seen Indo-China bilateral trade crossing the US$ 50 billion mark and the next target is to touch three figures in less than five years. This is all due to understanding and accepting the contention of the business community of India who very correctly emphasized that the best way to counter smuggling, the best way to ease friction and tension at the border, and the best way to generate employment as well as expanding India’s global trade base, is to go all out with each and every country and have agreements on a fast track basis. It is true that India has the critical mass that it needs to sustain and maintain an upward drive. Yet, talking about relations with China, both the governments accepted the fact that bilateral trade and development should not be hostage to contentious issues that could be solved on the negotiating table. Both nations have adopted a positive stance regarding Sikkim, Tibet, and NEFA. The astounding upsurge in bilateral trade figures demonstrates this pro-active approach.

This is a lesson for Pakistan. The snail-speed decision making attitude of the government has in actuality been detrimental to Pakistan’s market share in India as well as in other SAARC countries. While Kashmir is the core issue and needs to be resolved after sixty years of indecisiveness and many wars and deaths, the policy makers cannot be ostriches anymore. Trade with India, though lopsided in India’s favor is still a better option for Pakistan. A solid example is that in the current Trade Policy, diesel and fuel products can now be imported from India. This translates into over US$ three billion worth of products. One should take this as affordable supplier substitution rather than filling the coffers of avowed enemy Number One.

Another very pertinent issue is movement of Indian goods to Afghanistan and Iran thru Pakistani land routes. This is still anathema to many in Pakistan who suspect that weapons and dangerous stuff would cross over to Afghanistan. This is another fallacious argument. Today, under the Afghan Transit Trade Agreement, hundreds of containers arrive at Pakistan’s ports for transportation by land to Afghanistan. Under a policy announced a few years ago by Federal Bureau of Revenue, these containers are not opened or checked at time of unloading. No one can be sure what is inside these containers. Moreover, ATTA is blatantly misused by unscrupulous importers as the goods destined for Afghanistan are either diverted to Pakistani markets or are re-routed back to Pakistan after formal custom entries across the Durand Line.

The Pakistani government has also paid lip service to the idea of attracting Indian investment in Pakistan. This myopic approach has deprived the nation of millions in foreign investment that could have come from across the eastern border. The sensible step would have been to focus on investment from regional investors, especially from India, since language, culture, and affiliations are understood and accepted. Take Thar Coal. The two ideal countries to seek investment for its development are China and India. Both have expertise and both can provide the money and the technical know-how. Pakistan will import nearly five million tonnes of coal in 2009 costing about a billion dollars. Reliance Group of India has recently invested millions for a strategic share in an Indonesian coal mine so that it gets an assured line of supply for its mega power project being set up in India. Indians could become partners in engineering sector, in gems and jewelry, in minerals, in chemicals, in information technology, and of course even in textiles, for after all, textile is an over half a trillion dollar global industry.

President Asif Ali Zardari has been talking about opening up the trade regime. The LoC trade smells of honey and cinnamon. What is needed now is to do away with the positive list of items allowed from India and to replace it with a practical negative list. This will discourage smuggling, under-invoicing, and mis-declaration. This would bring the business communities on both sides closer. This will facilitate investment and open up new vistas of cooperation. This would enable Pakistani industries to enter the largest middle class in the world. This would also enable the software engineers, the call center operators, and the computer sector to take full advantage of the experience and expertise available in India. It is a win-win situation if one ponders deep, if one sheds old suspicions and mindset, and if one overcomes the erroneous notion that even in isolation this country is going to be a progressive nation.

One talks about democracy, peace, and economic development. Pakistan is a victim of global terrorism, of misguided extremism, of shattered economy, of negative image, of burgeoning population, of meager social infrastructure, and of unstable political governments. Most of the nation’s energies are expended in intrigue and conspiracies, in mundane non-developmental activities, and in becoming torch-bearers for the solution of the problems of other countries and citizens. It is time to look within the country and truly make sure that it is always Pakistan First. Thus the ideal target would be to get on the express train and enhance trade and investment with SAARC, and more so with India. Yes, Pakistan should not miss the boat again as was done previously with South Africa, with the Central Asian Republics, and with many countries. In the words of American President Thomas Jefferson, “Peace and friendship with all mankind is our wisest policy.”

SAARC Regional Cumulation: Impact on Pakistan

SAARC Regional Cumulation: Impact on Pakistan

Majyd Aziz

July 14, 2006

The EU is the largest trading partner of all the SAARC countries except one, Nepal, in which it is the second largest. It is also a huge and vital export market for SAARC member states. On average in the last few years, the EU has accounted for 20-25% of SAARC exports and imports.

The EU has been one of the chief proponents to giving greater market access to the developing world through a number of instruments to promote trade between EU and the developing countries. All the South Asian countries have been beneficiaries of this policy. One of the most important trade policy instruments has been the EU’s Generalized System of Preferences (GSP), which has helped the SAARC countries to export their products to EU.

The EU has also tried to play its role in fostering regional integration within SAARC countries. This has been attempted by its policy of regional cumulation under the EU’s GSP scheme. This implies that where a product has been manufactured in or with inputs from two or more countries belonging to a group enjoying regional cumulation, inputs from other countries of the same group are treated as if they originate in the exporting beneficiary country. SAARC countries have benefited considerably from this cumulation policy especially in competitive sectors like textiles and clothing.

The issue of Regional Cumulation for SAARC countries was first mooted in the early 1990s when a Memorandum of Understanding was signed between EU and SAARC calling for more close cooperation between the two regional groups.

Cumulation is an important concept in Rules of Origin and can determine the level at which countries are able to use the trade preferences available to them within a free trade agreement or a unilateral preference program. Cumulation refers to the extent to which production may be aggregated with other countries without losing originating status for the purposes of the applicable Rules of Origin. In effect, cumulation is derived from one of the core concepts of origin, that is, that the product is totally imported from one country. The availability of cumulation, by extension, can lead to trade enhancement while non-availability may lead to diversion or suppression. Different forms of cumulation are provided under the EU's preference programs:

• Bilateral Cumulation with the EU is the simplest form of cumulation, and merely provides for the use of EU-made inputs in the production of EU-destined goods made in the beneficiary country. Such cumulation therefore deems EU-inputs to originate in the exporting country for the purpose of qualifying under a trade preference program.
• Diagonal Cumulation is also provided for in the EU's trade preference programs, and allows a limited use of intermediary inputs from third countries who are not party to a particular FTA to be counted as being of domestic origin. However, such diagonal cumulation is usually only possible following the conclusion of FTAs or cooperation agreements between the cumulating countries. Diagonal cumulation certainly has the potential to significantly widen free trade areas by incorporating countries with established trade links.
• Full Cumulation refers to provisions that allow the unlimited use by the home country of inputs originating in certain other countries.
• Regional Cumulation refers to the provision in EU's GSP that is in effect diagonal cumulation with regions. This allows production to be cumulated among three predefined groups of developing countries (i.e. the SAARC, ASEAN and Andean Community countries).

The EU is putting the final touches to the SAARC Regional Cumulation (SRC). How will this impact on Pakistan? Considering the fact that the intra-SAARC trade is less than 5% of global trade, considering the fact that Pakistan has a FTA with only Sri Lanka, considering the fact that SAFTA has only recently been ratified by all members and it still has a long way to go, and considering the fact that even today a lot of non-tariff barriers are impeding the inter-SAARC trade regime, Pakistani industrialists have to institute a pro-active and pre-emptive strategy to take maximum advantage of SRC.

Pakistani industrialists and businessmen should get their act together and prepare for the opportunities and even the threats that SRC would provide. It should be noted that textiles is the primary sector where linkages, joint ventures, and casual partnerships could be developed. Some areas where Pakistani industries could immediately set in motion these steps are as follows:

Denim is one of the fastest growing industries, especially after the expiry of the Agreement on Textiles and Clothing. Major woven garment producers have embarked upon the process of vertical integration. The heavy and tough competition has necessitated the need for maximum cost-control and full utilization of the resources. A vertically integrated denim unit consists of spinning, dyeing, weaving, finishing, and apparel. Some Pakistani manufacturers have taken it a step further and have set up functional warehouses in Europe and USA to reduce the timeframe that is so crucial in today’s global marketplace.

SAARC countries could be targeted in this same manner. A concerted effort has to be initiated to set up warehouses in, say Colombo or Chittagong, to cater to the needs of the manufacturers in these countries. At the same time, one link in the supply chain could be transferred to other SAARC countries. The finishing of denim could be done by a processing plant set up in other SAARC countries. This would supply buyer-specified denim at a comparable cost to the manufacturers in Bangladesh or Sri Lanka and also be able to meet requirements in India (unlikely in this scenario) and also Nepal to some extent.

Cotton yarn and cotton grey cloth are two other areas where the Pakistani manufacturers can export within SAARC and create a market for their goods there. Again, a two-pronged approach could be visualized. Either yarn is exported to be woven or knitted in the importing country and made into the required fabric and in this manner utilizing the weaving or knitting capacity installed in those countries or fabrics in unprocessed form is sent for the same purpose, or by taking a process further, is dyed or printed and then exported as a finished fabric.

Home Textile sector is another such area of cooperation. Pakistan is at present at a vantage position in the home textile sector. Pakistani bedwear, towels, and other auxiliary products have earned a niche position in the global textile market. The inherent edge that Pakistani manufacturers have in this sector is evident from the increased exports inspite of anti-dumping duties levied by EU on Pakistani bedwear. There can be a very profitable arrangement with counterparts in other SAARC countries to further broaden the home textile market. It would be a practical and cost-effective deal for the Sri Lankan and Bangladeshi exporters and in some cases, even for the Indians too.

Synthetic value-added fabrics can also acquire a presence in other SAARC countries. Right now, Pakistani manufacturers have a very minuscule presence of this sector in the regional countries but the scope is there, and aggressive marketing, quality-conscious products, and favorable prices could ensure entry into these markets.

However, there are pitfalls and roadblocks that may affect the positive scenario for textiles. It has to be understood that Pakistan faces formidable competition from India because the latter has an edge due to a larger internal market, more economies of scale, proximity to other SAARC countries, already established partnerships thru linkages, joint ventures, or licenses, and functional FTAs, etc.

Indian government is providing exceptional incentives to manufacturers to establish state-of-the-art mega projects in the home textile field. Pakistani home textile would face strong competition in this sector after 2010 not only in SAARC countries but also in Europe and USA. Therefore, it is imperative that measures be initiated from now to withstand the onslaught. Indo-Chinese cooperation in textiles could create a monumental dam in the progress of other SAARC countries.

Pakistani cotton sector must ensure that contamination-free cotton becomes the norm because in the future, the discerning customer would not appreciate apparel or textile made-ups made of cotton that has plenty of impurities. Pakistan has a world class spinning sector while the weaving sector is being upgraded to international standards too. This transformation could be jeopardized if the cotton used in yarn and fabrics is not contamination-free.

Non-adherence to social compliance conditionalities, especially in matters of environment, freedom of association, child labor, etc could also impact negatively on the exports under SRC. The same pressure would be on other SAARC nations but if manufacturers in these countries become social compliant, then the onus would lie on Pakistani exporters and may affect their presence in these SAARC markets.

There is a need to standardize and streamline the various factors involved in trade and industry. SAARC countries must adopt common labor legislation, packaging grades, environmental standards, non-tariff trade barriers, free movement of men and material, fast-track judicial processes, strict implementation of intellectual proprietary rights, protection of investment, settlement of debts, and other conditions. All these are essential ingredients if the SAARC countries desire mutually beneficial advantage of the EU SAARC Regional Cumulation.
A study could also be done to ascertain what would be the impact on sports goods, surgical instruments, information technology, plastic products, and engineering goods, etc. This paper is basically confined to textiles only. However, most of the factors are equally important and must be pragmatically addressed for non-textile fields too. One significant factor that must be underlined is the volatility of the non-peaceful issues that have cast dark shadows over this region. The non-resolution of contentious issues, the mistrust syndrome, and the diverse mindset, are some other factors that would affect the taking of substantial advantages from SRC. SAARC Regional Cumulation, if successfully implemented and utilized could be the harbinger for the Super Regional Cumulation linking SAARC with the ASEAN bloc.

Is National Interest really in the nation’s interest?

Is National Interest really in the nation’s interest?
Majyd Aziz

Sep 16-2007


"Most of the greatest evils that man has inflicted upon man have come through people feeling quite certain about something which, in fact, was false." : Bertrand Russell

National interest (or as referred to in Pakistan: Mulk ke azeem tar mufaad mein) are probably the most callously over-worked words in Pakistan’s vocabulary these days. Over the years, these words have been over-used by everybody and anybody who wanted to justify their actions. As the years go by, the proponents of the words increase and their commitment to these words become so paramount that they actually and religiously deem every word and deed of theirs as in the national interest. This is more rife and relevant in political circles than in other spheres of activity. Political leaders and those in the corridors of power, imbued with self-established concepts that are very remote from ground realities, talk of national interest enveloped in integrity and righteousness and then indulge in activities that include rigged elections, blatant corruption, horse-trading, and spin doctoring.

Politicos and government Ministers talk about a social revolution for the welfare of the poor while living in a state of opulence themselves. They talk about development of the country but when their policies get implemented, the end result is that more people dive under the poverty line. They talk about the national interest but one senses that what they really refer to is their own personal interest or the interest of their kith and kin. The sad fact of life here is that the citizens know and understand that they are being taken on a ride to Fantasyland and that there would be no manna falling down from the Heaven, yet they seem to not only believe the rhetoric but continue to maintain their faith in these political parties and their leaders. The latter of course know it is nothing but an amusing game for them, yet they carry on with this façade ad nauseum.

Some of these pretenses are worth enumerating and talking about. The prime deception that is always developed and highlighted is that the government in power is truly the most patriotic and that the opposition parties are infested with traitors, vagabonds, and the scum of the earth. Every opposition leader is a personification of Judas. The comical spectacle is when the government Minister or senior parliamentarian comes on private electronic media and vilifies the opposition leader, giving two hoots to the real truth, that only a few moons ago he or she had sworn lifelong allegiance to that leader and party policies. The coldhearted switch was done in the national interest.

Our valiant armed forces are engaged in high intensity warfare with terrorists and extremists who have vowed to take their revenge on Pakistan because the President is, according to them, doing the bidding of the super power across the seven seas. A brigade of suicide bombers has been placed in strategic locations and has wreaked havoc in places where no one dared to tread before. Sporadic news does come out thru the ever-present “reliable sources”, but the mindset of the government publicity department is still in days of yore, trying to muzzle every authentic report, and coming out with a sanitized ho-hum version that either nothing happened or if it did occur, then there was no cause to worry and things were under effective control. Moreover, further information cannot be disclosed since it falls under the domain of national interest.

The recent events have drastically upset the citizens, the silent majority, and these have impacted dangerously on the thinking process. An open season has been declared by inimical elements against the much-revered armed forces and this could have serious repercussions on the working of the armed forces in the future. One hopes that that if the need arises then there would be an enthusiastic positive response from the denizens of this motherland for the armed forces. Pakistanis are a peace loving nation and they hold the armed forces in high esteem. The recent events have created a chasm that must not be allowed to become dark and deep. The abyss must be filled up for the sake of the country. Right now the chasm is supposedly created in the national interest too. At present, the allegations of possible corruption, political interference, mismanagement, and weak leadership have eroded the image of the armed forces. This must be addressed on an imperative basis by all concerned as this is actually in the national interest too.

The government propaganda machinery is still battling to ensure that, notwithstanding the resolve of the present government to have a free media, the newspapers and electronic media are kept under immense pressure if possible. Government advertisements are a lethal tool that can be utilized ruthlessly on the print media. Private TV channels are hostage to the cable companies or the dictates of PEMRA. All these in the grand national interest.

There is always talk about sacrifices. People are routinely exhorted to sacrifice while those who pontificate do so without any qualms about their own initiatives to sacrifice. Leaders who are most enthusiastic proponents of national interests appear to be the most reluctant in this respect. Three score years down the line after Independence, the nation is still being asked to sacrifice so that those who wheel and deal their way to power continue to maintain their stranglehold on the country’s destiny. These leaders and even their minions are so conscious of their own safety that the country’s law and order enforcing agencies have now made it their full-time job to be on VVIP duty. What difference does it make to the people in power if during their visits, the traffic is in disarray, crime shoots up, and people curse every second they have to wait for the cavalcade of high and mighty to pass unobstructed and in neo-royal style? Of course, this security, and even the discomfort for the citizens, is in the national interest too. Why talk about Ministers and political leaders in United Kingdom or Austria or even in Sweden who often take the train to work? It will be enlightening if the public is told how much it costs the taxpayer every time the Prime Minister travels from Islamabad to Karachi for instance. That too in the national interest.

The Constitution of a country is the most sacrosanct document and its sanctity and worth is held supreme by all pillars of the government. Amendments are made after lots of discussions, after lots of brainstorming, and after developing a consensus. Amendments are not made to suit someone’s personal agenda. Alas, the Pakistani Constitution has become a concubine for people in power. It is routinely made to dance to the tune played from the echelons of the powerful. Of course, all this is in the largest national interest. The politicians, once having tasted the fruits of power, forget the right path and develop their own private roadway to achieve their own ambitions. When in opposition, the politicians are the most idealistic and profess themselves as self-sacrificing human beings. Their every word and intonation ooze with the magic phrase ‘national interest’ but when they get the chance to reign, there is little they relinquish for the sake of the nation.

The politicians speak a lot about the economy and never miss a moment to yodel from the top of the mountains that the country’s economic fundamentals are in top gear, the State Bank coffers are brimming with dollars and euros, foreign investors are making a beeline with satchels full of money to invest all over the country, and the movers and shakers of the stock exchanges and the financial sector are laughing all the way to the bank. While much of this is true, any criticism of the government’s economic policies is against the national interest. It is common knowledge that most of the politicians, as well as some advisors, are incompetent misfits in the world of economics and that the country ends up paying the price for their mismanagement. It has happened during all the past regimes. Ministers and advisors take it as a personal affront if trade and industry leadership disapproves or shows a negative disposition to the government’s economic policies. It is not in the national interest to complain and condemn.

The successive governments have been, for various reasons, accused of selling the family silver in the name of privatization. Each transaction is alleged to be non-transparent, sold at lower than market rates, given to favorites or unknown off-shore companies, and done in haste. The government spin doctors cry themselves hoarse trying to convince all and sundry that the deal was truly kosher. And, naturally in the larger national interest. Even white elephant projects are touted as in the national interest inspite of billions of rupees going down the drain or into secret bank accounts.

Then comes the time when the political landscape is about to change. The loyalties and allegiances take on different hues. Yesterday’s opposition leaders, reviled and despised, suddenly become saviors and messiahs, all in the national interest. Deals are consummated behind closed doors in alien lands, foreign interference becomes common knowledge though never admitted, constituencies parameters are amended, massive shifting of bureaucracy becomes an everyday affair, and rules and regulations are re-written, all in the name of national interest. The oft-repeated mantra of provincial autonomy again becomes the rallying point but just for the parochial-minded small minority. Everyone wants to see a united, democratic, and prosperous country in this land called Pakistan. Any idea or action, which moves the land in this direction, is in the national interest. Till, undoubtedly, the elections are over. Then it is back to the old chessboard.

It is apparent that the President is determined to keep the Presidential mantle safe within his reach. Nevertheless, in the Pakistani politics culture and attitude, he has to indulge in co-habitation between him and a legislature possibly dominated by another political party or a coalition. Normally this would be unworkable and ill-considered, but in Pakistan the impossible is easily transformed into the possible. All for the sake of national interest. Wearing or doffing the uniform depends on what is in the best interest of the nation especially with regard to the war on terrorism and extremism. It is an accepted fact that the President has done a superb job safeguarding the integrity of the nation while at the same time reviving the economy. The people of this country are mature and understand the situation Pakistan is faced with. The President can now do one thing, which no one can deny is in the national interest. He can give the green signal for the General Elections so that the people may speak, because ultimately it should always be that what the people say and believe is really in the national interest.
"Our lives begin to end the day we become silent about things that matter." Martin Luther King, Jr.

THE DAY QUAID LED A PROCESSION TO OUR HOUSE

THE DAY QUAID LED A PROCESSION TO OUR HOUSE

MAJYD AZIZ

February 22, 2002

Bantva is a small town in Kathiawar, India, the birthplace of many a prominent Memon personality. This town has produced the largest number of millionaires and eminent persons. Sattar Edhi, the social worker par excellence, Abdul Razzak Dawood, the present Federal Commerce & Industries Minister, Kassim Parekh, past Governor of State Bank of Pakistan, Haji Hanif Tayyab, a former Federal Labor Minister, Ahmed Dawood, the epitome of Pakistany entrepreneurs, Ilyas Shakir, a noted journalist and Editor of Quomi Akhbar, Kassam Dada, the most well-known Pakistany Rotarian, Arif Habib, alongwith five other ex-Chairmen of Karachi Stock Exchange, and so many others were all born in Bantva.

January 24, 1940 was a red-letter day in the history of this town. It was on that day, that Bantva's Muslim denizens festooned the place with buntings and flags to welcome Quaid-e-Azam Muhammad Ali Jinnah who was making his first ever trip to this village. 25 gateways were set up all over the place, and on his arrival, he was greeted with a 21-gun salute. The grand old man of Bantva and the paterfamilias of the Dada family, Seth Hussein Kassam Dada, very graciously offered his bungalow at his farm for the comfort and convenience of the undisputed leader of the Indian Muslims.

The Memon community organized a sumptuous lunch where the high and mighty of the Bantva Memons plus representatives of various princely states were invited. A public meeting was arranged in the evening at the Madrasa-e-Islamia where the Quaid addressed the gathering in Urdu. He made a clarion call for donations to the "Press Fund" so that an independent newspaper for the Muslims could be published. The next day witnessed an interesting situation that was very much appreciated by the Quaid. The Memon community was in full swing with each person coming up on the dais and announcing his own contribution to the fund. Jinnah was overwhelmed at this show of altruism and frequently commended the Bantva Memons for their generosity.

After sometime, the Quaid inquired in somewhat a lighter mood whether all the Memons had made their pledges. He was informed that one stalwart of the community had not attended any of the programs and the reason being that he not feeling well and seldom left his house. Inspite of being a blind person, he did business worth millions. In fact, he managed more than forty branches all over India and regularly communicated with the resident managers by telegram and mail from his house-cum-office and ruled over his business empire from that place. His name was Muhammad Haji Gani, and he was my paternal great-grand father.

Seth Haji Adam Haji Peermuhammad, the business tycoon and father-in-law of Mr. Abdul Razzak Dawood, suggested to Mr. Jinnah that he should visit Muhammad Seth at his abode. The Quaid remained quiet for a few moments and then in a serious tone remarked that "In my life, I have never gone to anyone uninvited, not even the Viceroy." He then stood up, walked over to his car, and announced that he would like to visit the Balagamwala (our family name) residence. There was a big roar of approval from the crowd present there. Lo and behold, a procession commenced. The Quaid was in the lead car and one by one people followed in their cars, in their horse-drawn buggies, or by racing alongside. After arriving at the house, the Quaid and others waited in the verandah while Haji Adam went inside. Muhammad Seth was soundly sleeping and no one had given him advance information that the Quaid was on his way to the house.

The Quaid witnessed a scene that could only happen in a Memon house. He saw Adam waking his friend by shouting, "Look Muhammad, a great man like Jinnah is waiting for you in your verandah." The other friend woke up in a startled manner and tried to sit on his bed. Adam sat on the floor holding Muhammad's feet and said, "Muhammad, announce your donation for the Press Fund." Muhammad replied, "Adam, don’t sit on the floor holding my legs. Get up on the bed." Adam remarked, "Muhammad, you are a noble man and this is my privilege to sit on the floor." The Quaid watched with amusement the animated conversation and the simple style of two of India's business tycoons and started laughing in a loud voice. He was soon joined by a rapturous laughter from all those present there.

Muhammad invited the Quaid to his office and while announcing his generous donation stated that one of his dreams that of meeting the Great Leader has been fulfilled. The Quaid talked in English while Muhammad replied in Memoni. The interpretation was done by Seth Suleman Diwan, a Memon businessman. The Quaid also stated that the contribution of the Memon community for the cause of the Mussalmans of India would be enshrined for generations to come. Muhammad could not see the Quaid thru his eyes, but his heart proclaimed vociferously that with Jinnah as the leader, a separate land for the Muslims would soon be a reality. After Independence, like millions of Indian Muslims, Muhammad Haji Gani, and alongwith his extended family, left everything in India and migrated to Karachi to live and to establish business as patriotic and proud citizens of Pakistan.

Juvenile Paranoid Security

Juvenile Paranoid Security

Majyd Aziz

February 11, 2005

“Uneasy lies the head that wears the crown” is a quaint saying that has assumed a profound significance in Pakistan, more so since the advent of the guided democratic process. Direct intensive suicidal attacks on the President and the Prime Minister have set in motion a three-pronged strategy to strengthen the security apparatus in the country. A concentrated display of personnel is visible, especially in Karachi, and beefed up whenever the high and mighty honor Karachiites with their presence. Then there are personnel from the law enforcing agencies who monitor the security procedures in their own defined way. Additionally, a well-entrenched system of information collection and target observation attempts to counter any fanatical adventure.

This strategy has been put to test both in mock exercises and in actuality to measure the objectives of maintaining area security and protecting VVIPs. There have obviously been efforts to upgrade the different approaches envisaged in the security strategy and must have been accepted and approved by the authorities involved in overseeing the security structure.

However, what the citizens actually see and how this strategy is affecting their daily lives has created the impression that there is something fundamentally wrong in it. A VVIP movement triggers a host of letters to editors from irate citizens carping about the difficulties they faced due to this security scenario. Newspapers highlight the issue and prominently publish poignant remarks of randomly selected citizens. Children miss schools, businessmen their appointments, and the sick cannot reach the hospitals. The long waits on the roads is due to the “ever-efficient” traffic controllers who stop traffic long before the leaders pass thru at high speed.

The main ingredient that is distinctly evident in citizens’ complaints is the loutish and distasteful behavior of a majority of the lower cadre involved in security activities. Their demeaning attitude of generally using brawn rather than brain has aggravated the situation and the citizens get peeved because they exhibit a mentality that was the hallmark of native soldiers during the British Raj. It is surely to the credit of Karachi’s denizens who have borne this ignominy patiently since General Zia’s regime. He had FBI Director J. Edgar Hoover’s type of paranoia of seeing a Red under every bed. Zia and his minions probably had this wild notion that everyone in Karachi and his uncle were out to chuck him off the hemisphere. He was fighting a desperate battle of evading the ordained final hour. Today’s underlings still subscribe to this obsessed mindset.

The formidable improvement in the national economy, the fabulous image building of Pakistan undertaken by President Pervez Musharraf, and lately by Premier Shaukat Aziz, in international arenas, and the obvious improvement in law and order, have all been instrumental in attracting global investors and buyers to make a dedicated stopover here. Expo 2005, a mega event conjured up by the Export Promotion Bureau, was the piéce de résistance. The foreigners did come in droves, something unimaginable in the past. They enjoyed the show, they expressed interest in the products, but they went back with negative perceptions about the security infrastructure. The ordeal of the security rigmarole was as if each was here just to obey orders of Al-Qaeda to wreak havoc in the metropolis.

The foreign delegates who attend the various exhibitions are invited to gala dinners hosted at the Sindh Governor’s House. Every invitee goes thru a rigorous checking, counter-checking, and re-checking process before entering its hallowed portals. The invitation card is scrutinized and correspondingly matched with the NIC/Passport. Cell phones are barred, but if one brings it then it is taken away and exchanged for a PIA tag asking the owner to collect it later. The guests expect to meet and shake the hands of the Chief Guest. Alas, after an endless wait, they see a ring of security and the big boys around him. The message is loud and clear to the foreign invitees that something is definitely wrong and the bravado that is spurted by those who motivate foreigners to do business here is but a facade.

Oh yes, the high and mighty aren’t the only ones enjoying the status of high visibility security. The plethora of Ministers and Advisors, the Police hierarchy, many elected public representatives, and whosoever can garner influence, all are darting from here to there followed by security personnel, hangers-on, and sycophants. Of course, all of them embedded with security paranoia.

Security is imperative. The country must protect the decision makers, the ruling clique, and the esteemed leadership. There is no denying of this fact. However, security is a science that requires experts in psychology, in counter-terrorism, and in motivation. Strategies are conceptualized and initiated. Unfortunately, the personnel implementing these on the streets, those who have to interact with the citizens are brazenly insensitive, unintelligent, and have nothing but contempt for their fellow human beings. The outcome is juvenile paranoid security. And, it sure ain’t getting matured or pragmatic.

DELOCALIZATION: A Pragmatic Approach to Pak-Italy Bilateral Trade

JUNE 17-2005

DELOCALIZATION: A Pragmatic Approach to Pak-Italy Bilateral Trade

Majyd Aziz

Delocalization refers to a geographical movement or transfer of productive activities essentially to obtain a more favorable cost price. This global shift in production undertakings is either a result of a strategic program to integrate expertise available in different areas, the cluster scenario for example, or it is the result of market-oriented competitiveness. Delocalization is also the outcome of the policy to broad base the investment portfolio and to obtain advantageous returns on investment. Delocalization also brings into focus the hard-core decision of aggravating the unemployment situation in the area of origin since there is a break-off of business relationship with the domestic entities due to the decline in economic activities.

The escalating rise in costs has necessitated a dependence on highly sophisticated machinery and equipment. This has ensued into a situation where there is an adjustment within the labor market with employers looking for workers who are adaptable and have relational competencies. Semi-skilled and unskilled workers have a lower demand profile in many European countries. In Italy, the various employers’ associations have welcomed the introduction of extensive and more efficient training schemes for workers. The employers, as well as the trade unions, agree that to remain competitive in the international market, labor costs must be rationalized and quality further upgraded.

Pakistan’s textile and clothing industry has been catering primarily to the low price market in Europe and America. Sheltered by the quota regime, the manufacturers were able to develop substantial textile exports and thus able to survive in the global scenario. The elimination of quantitative restrictions from the first day of 2005 has put pressure on the Pakistany textile producers as recent events have substantiated this new development. The European and American markets have been inundated with textile products from China with some categories increasing by 1500%, 1300%, and 1100%, etc over last year. The outcome: re-imposition of quotas on China. Pakistany textile exports to EU have to face 12% import duty with bedwear still subject to an anti-dumping duty of 13.1%. GSP Plus facility to Pakistan is still just a dream.

In this scenario, it is imperative that Pakistany textile manufacturers embark upon the strategy to develop linkages and joint ventures with the Italian textile industry. The advent of a free economy has made it imperative for Pakistany companies to contemplate this approach. The prime objectives are to increase production and employment levels, to improve productivity and international competitiveness, to encourage import substitution and promote the exportation of products, and to upgrade manufacturing processes and products. Companies based in developed countries could assist and contribute thru international redeployment of manufacturing facilities and the transfer of industrial technology and know-how to SMEs in developing countries and economies in transition.

One of the most prestigious labels in the textile and clothing industry is the Made in Italy label. It is the leading sector in the Italian economy and primarily consists of small and medium sized companies. In fact, 95% of the companies have an annual turnover of less than EUR two million. The Italian fashion scenario employs nearly a million persons, including about 200,000 self-employed workers. However, this industry is in the throes of crisis. More than 250,000 workers have been laid idle due to international competition, rising costs, counterfeit products, and unfair competition due to illegal importations.

The share of textiles in Pakistan’s exports is 68%. There is a need to introduce processes and expertise to aim for value-addition of products and for establishing a reliable image for the quality of textile products. The time is opportune for Pakistany textile companies to interact with Italian companies desiring to relocate in Asia. The Italians are famous for their men suits, for example. Pakistany men suits manufacturers have not been very active in the global market. An Italian company, having a brand name, having market access to the North American and European markets, and having linkages with the Italian fabric manufacturers, can delocalize its operations at home base by shifting manufacturing facilities to Pakistan. This would be mutually beneficial to the Italian company as well as its partner in, say, Karachi. The Italian company would be able to rationalize costs while at the same time maintain technical, quality, and marketing controls. The domestic company receives cutting edge technology, enhances value of its exports, and is able to obtain market access.

It is in the interest of Pakistany manufacturers to take maximum advantage of the delocalization syndrome now actively being contemplated in most of the developed countries. Italian textile companies must be contacted and convinced that Pakistan is the right place to locate and that this arrangement would be beneficial, would be progressive, and would bond the textile community of Italy and Pakistan.

Flexible Labor Laws in Textile Industry

FEBRUARY 24-2006

Flexible Labor Laws in Textile Industry

Majyd Aziz

(Ex-Chairman SITE Association of Industry)

The garment and knitting units in Pakistan are abundant in the small and medium sector, primarily labor-intensive, with workers generally under the labor contract system. A designated contractor is the primary employer and these units are secondary employers. The system works well for the employers since they have more productive workers without having them on company rolls. In most of the cases, the workers have assumed the position of migrant workers with frequent mobility from one unit or one contractor to another. They normally get better paychecks since their remuneration is production-based but they are deprived of statutory bonus, gratuity, social security, EOBI, and job security.

The garment and knitting industries, especially export-based, are dependent on job orders and are susceptible to external factors, such as anti-dumping, tough competition, political instability, etc. Since there could be gaps in receiving orders, the employers have no alternative but to rely on contract workers. The exporters usually demand that the contractor must have trained and skilled workers on rolls so that there are assurances of on-time production, acceptable quality, and better productivity. The worker is easily replaced if unable to produce the desired quality and quantity.

The female contract workers are also not eligible for maternity leave benefits, child care, customized working schedules, and gender equality. A large female workforce is actively employed in apparel and knitting units. The high poverty rate, the need to supplement family income, the shortage of skilled male workers, and job opportunities has ensued into a growing demand for them.

The exporting units in Pakistan are now in a different ball game. The elimination of the quota regime, the buyer’s demand for excellent quality at world prices with emphasis on delivery, means that the present reliance on status quo could spell disaster. Social compliance would take predominance in the working environment. The major apparel buyers have already instituted Codes of Conduct with company-certified inspections before orders are placed. The introduction of modern production techniques and equipment has now assumed greater importance. Improving job quality, especially in the small and medium organizations, has become a paramount exercise. Pakistany garment and knitting manufacturers are still exposed to the prevalent socio-economic and religious-cultural norms. Delays in decision making, taking short cuts when it comes to improving the working conditions, or even the tendency to continue reliance on ad-hoc measures, would no more cut ice and could be the causes for the closure of units.

Another serious issue is that the labor laws are not in conformity with the present global economic scenario. Successive governments did set up Committees, Task Forces, and presented Labor Policies but all these efforts made no impact on the antiquated labor laws. Pakistany industries are at a formidable disadvantage if they adhere to the provisions of these laws. The Workers Employers Bilateral Council of Pakistan (WEBCOP), a visionary venture of moderate employers and workers, has often proposed fundamental and pragmatic amendments. Yet, the old labor laws are still on the statute books.

The situation in most of the industries is that inspite of the dependence on contract workers, the staff members, lower cadre managers, and senior executives, tend to have stable employment security. The reliance on contract workers is mostly for production departments that do have longer tenure workers. While the contract worker may list job insecurity as a major concern, the tenured employee is more comfortable in that position. Although comparable data is not available in Pakistan on employee tenure in same organization, data can be given for other countries. In 2002, the average German worker had tenure of 10.7 years with the same employer; the average French worker had 11.3 years, the average British for 8.1, and the average American for 6.6 years. However, the Greeks had the longest tenure with the average worker staying 13.2 years with the same employer, while the Japanese had 12.2 years and the Italians 12.1 years.

Another point to mention is that nowadays industries in Pakistan have developed practical Human Resource policies where employing permanent workers is tacitly discouraged. The managers are advised to appoint workers on “non-permanent” basis and avail the loopholes in labor laws to circumvent the statutory requirements. Many company executives base this strategy on the fact that a longer tenure means a more cumulative salary package, an increase in allocation for future statutory payments to employees, and a general impression that a longer tenure plus job security is, in effect, detrimental to productivity of the worker.

All the above factors tend to diminish the competitive position of the Pakistany apparel and knitting units whose survival depends on being able to meet buyer’s criteria, requirements, and policies. However, providing full employment with all statutory and negotiated benefits and facilities would render many companies uncompetitive. The labor wage bill, under the present draconian and out-dated labor laws, coupled with the social compliance regulations, would sound the death-knell for these units. The industrial base would again become vulnerable to radical elements that could misguide the workforce to undertake actions that could spark massive industrial unrest in the country.

Fortunately, an idea is gaining acceptance in India to counter such apprehensions. A bill is being introduced in the Indian Parliament that would allow industrial units in the textile sector to employ “non-permanent” workers if they could furnish bank guarantees against the names of these workers, earmarking their wages against a specified minimum employment period during a year. The proposal envisions keeping these “non-permanent” workers outside the ambit of the existing labor laws. However, the workers would have to be guaranteed a minimum employment period of about 150 days. More importantly, the bank guarantee clause is intended towards eliminating the middle-man and instead having a direct linkage between the primary employer and the temporary worker. At the same time, though the “non-permanent” worker would not be on the rolls of the company, yet would be eligible for an identity card from it. The above proposal is doable and would be appreciated by many industries in Pakistan.

WEBCOP, employer’s organizations, labor federations, and government officers, must join together to tackle the labor issues on a fast-track basis. Procrastination and political weaknesses have retarded export potential. A holistic strategy be developed and promoted to achieve the export objectives since the country’s priorities, such as poverty alleviation, industrial development, foreign exchange reserves enhancement, and general prosperity, all depend on a satisfied worker producing an excellent quality thru better productivity and by earning substantial emoluments.

My Karachi – 2009 Exhibition

Ref: LETTER TO EDITOR Date: April 27, 2009


My Karachi – 2009 Exhibition

My Karachi – An Oasis of Harmony Exhibition is a very prestigious annual event organized by Karachi Chamber of Commerce and Industry every summer. This year it would be on June 5-7 at the Karachi Expo Center. The Fourth MKC was held during my tenure, two weeks after the May 12, 2007 mayhem in Karachi. Inspite of this trauma, over 400,000 Karachi citizens flocked to the Expo and made it a super success. Foreign participation was also very encouraging, especially from Sri Lanka. This year too, the KCCI is all thumbs up in making this event a resounding success.

Pakistan is going thru tough economic difficulties. This is the time to project and promote Pakistani business and services excellence. Moreover, foreign exhibitors are also encouraged to come and present their wares. The government is also keen to ensure that Pakistani entrepreneurs get all facilities and incentives to market their products. It is also imperative that with the shrinking wallet, the discerning consumer is provided quality goods at affordable prices.

In order to facilitate manufacturers and service providers, in order to encourage export based entrepreneurs, and in order to project the soft side of Pakistani trade and industry, it is very sincerely proposed to Syed Mohibullah Shah, Chief Executive of Trade Development Authority of Pakistan, to provide the total infrastructure at Karachi Expo Center on a complimentary basis to KCCI so that the Chamber can draw more SMEs, especially women entrepreneurs, to promote their products at an attractive rate. TDAP is spending millions on foreign exhibition participation and the benefits go to a limited number of participants. This is an important tool that TDAP utilizes and is very essential.

TDAP must forego its rentals and enable KCCI to organize the event without this added cost. As it is, whatever surplus KCCI manages to save is not used for Chamber purposes but it is entirely donated to a worthwhile cause, such as the Police Hospital.

I would also request OICCI, American Business Council, various bilateral Forums, and trade associations to participate in this remarkable venture. It is very important that My Karachi Exhibition be considered as a MUST event and thus formidable government support is also required. During the MKC in my tenure, KESC had honored its pledge not to do loadshedding at the Expo Center. I do hope this would be repeated this year too. Moreover, inspite of the May 12 tragedy, we at KCCI maintained just a modicum of security and we ensured that exhibitors and visitors were neither harassed nor inconvenienced. This was all possible because the citizens of Karachi take their city and events very seriously. They own Karachi.

I am also sanguine that President KCCI, Anjum Nisar, would steer his team with all gusto and make MKC 2009 an event to remember during his tenure.

Sincerely:

Majyd Aziz
Ex President KCCI