Saturday, May 7, 2011

Smuggling and Under-invoicing of Textile Products affecting Pakistani Industries

Pakistan is a country that is subject to intensive smuggling of consumer, contraband, and capital goods for decades. The porous and unmanageable international borders, the lax and careless attitude of law enforcers, the corrupt and dishonest environment in the customs, the infamous Afghan Transit Trade Agreement, and the sinister activities of under-invoicers, khepias, and notorious smugglers, have all been fundamentally responsible for the proliferation of smuggled items in this country.

Pakistan produces some of the finest fabrics, whether it is man-made suitings, or high quality shirtings, or even woolen cloth. At the same time, apparel and sweaters manufactured in Pakistan are appreciated for their quality, workmanship, and comfort. Pakistany exports of fabrics and apparel have enhanced the export figures and have been instrumental in the inflow of precious foreign exchange.

Pakistan has recently seen a deluge of imported fabrics and apparel that is unprecedented in the country's history. Previously the inflow of these items was usually restricted to few suitcases carried by professional khepias or to a meager amount of bolts of cloth brought in with other items. The menace commenced with the ill-advised signing of the WTO protocols by a former Commerce Minister under which Pakistan immediately agreed to lower import duty on cloth and apparel to 35%. This resulted in the open door policy and soon Pakistan was flooded with imported items. The loopholes in the trade regime were exploited vigorously and under-invoicing became the norm. At the same time, the ATTA facility continued to be misused. After the 9-11 scenario when Afghanistan became a taboo land and ATTA was on hold, there was some relief in the inflow of smuggled items. However, after the change in the Afghan government, smuggling, as well as re-entry under ATTA intensified. The result has been devastating.

Pakistan has also been subject to extensive smuggling of Indian goods and it is conservatively estimated that about US$ two billion worth of Indian goods cross over to Pakistan. This figure now includes fabrics and apparel. Moreover, it is thru Pak-China border that a huge quantity of fabrics, apparel, and sweaters are entering the country. So much so, that the landed costs are about half or less than half of the production cost of comparable products manufactured in Pakistan. The domestic manufacturers have to pay for exorbitant infrastructure, have to pay about 39 different taxes, have to pay for the worker's welfare expenses, have to pay heavily for the inputs, and then suffer the ignominy of losing the market to cheap smuggled imports.

Pakistan has well-invested and well-managed fabric and apparel industries providing job opportunities to thousands. Indonesian suiting is imported at less than US$ 0.45 per meter. Quality suiting from China is available in the market at around Rs. 55 per meter when it costs around Rs 95 to100 to produce one comparable meter in Karachi. Ladies cloth is declared at Customs stage at pennies per meter. Dyed shirting from Thailand is available at such ridiculous prices that today all known apparel brands are using this smuggled/under-invoiced fabric. Every garment store worth its name is stocked with apparel made of imported and cheap fabrics.

Pakistan has a lot of mini-Baras now. Go to Allahwala Market, Lucknow Market, Mateen Center, Rabi Center, Anarkali Center, Dubai Mall, and so many other shopping places in Karachi and one would only find imported stuff. Go to The Point, Dolmen Mall, The Forum, and check out the display. Same is the case in Lahore, Rawalpindi, Islamabad, Peshawar, and other cities and towns.

Pakistan must not take all this lying down. How long would the country continue to be the recipient of this trade? How long would smugglers reign and allowed to carry on? What will become of the thousands of families when the breadwinner is retrenched because the fabric and apparel manufacturing companies closed down due to unfair and unjust competition from smugglers and under-invoicers?

Pakistan needs to overcome this menace. The SITE Association of Industry in its Welcome Address to former Commerce Minister, Abdul Razak Dawood, stated: "the smuggling regime has become a multi-headed hydra-monster and is beginning to eat away the local industries. The unresponsive attitude of the government in controlling the menace of smuggling has ensued into a scenario where factories are closing down because it is impossible to compete with those that are too powerful for even the government to control and in some cases have their tentacles in the highest tiers of the government that makes them invincible and immune from all scrutiny. The domestic industry has to be saved from the smugglers because these smugglers have made the Pakistani marketplace a harlot's boudoir for their sleazy activities. We again would like to reiterate that the National Tariff Commission has to be more practical and should respond to the demands of industry with a zealous dispensation. The Anti-Dumping Ordinance must be enforced with a determined vengeance. We propose that SITE Association should be given permanent representation in NTC to protect the interests of the industrial community."

There is also the imperative need to set up industrial cost commissions to determine the basic cost structure of each product so that the comparative studies and analyses could help decide how Pakistani products stand in the global market. It is important to know the true cost of inputs so that the industries as well as the government can be sure whether the country is doing the right thing, and then only can the policymakers channelize the policies and strategies to compete in the tough world market. Only then, would the right infrastructure rates, the right labor rates, and the right tax rates would be ascertained. This would also give the authorities the realistic prices of the imported goods and it would be fairly simple to calculate whether the imported goods are hurting the country's products or not. Especially those goods that are smuggled in or under-invoiced.

Pakistan industrialists call upon the government to accord top priority to the elimination of the smuggling regime and an end to the culture of under-invoicing. It is high time that a high-powered team consisting of representatives of Supreme Court, CBR, NAB, President's Secretariat, FPCCI, Ministries of Finance, Commerce, and Interior, ISI, MI, IB, and from the four respective Provincial Governments, be formed to take an extensive survey tour of the country and ascertain the true facts. The terms of reference must include a time bound limit and must take into account all modes of smuggling/under-invoicing/trade facility, etc so that a comprehensive and pragmatic report is prepared that must be presented to the President who must then take the essential actions to eliminate this menace from this nation. The time is short as smuggling is killing the industrial base of Pakistan. If there is any one that can do it, it is the present government.

Jin Darakhto Per Parindo Kay Ghar Nahin Hotai
Daraz Kad Jitnai Bhi Hon Mautabar Nahin Hotai

July 04-2002 modified on January 24, 2003

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