INTERNATIONAL TRADE CHALLENGES AND OPPORTUNITIES FOR PAKISTAN COTTON-TEXTILE AND APPAREL SECTOR

By

Raana Ahsan
PhD. Thesis

NATIONAL UNIVERSITY OF MODERN LANGUAGES ISLAMABAD

June 2008

International Trade: Challenges and Opportunities for Pakistan Cotton - Textile and Apparel Sector
By

Raana Ahsan
Msc Quaid-e-Azam University A THESIS SUBMITTED TO THE NATIONAL UNIVERSITY OF MODERN LANGUAGES ISLAMABAD

DOCTOR OF PHILOSOPHY
In Management Sciences To FACULTY OF ADVANCED INTEGRATED STUDIES AND RESEARCH (MS/HRD)

NATIONAL UNIVERSITY OF MODERN LANGUAGES ISLAMABAD JUNE 2008 Raana Ahsan, 2008

ii
NATIONAL UNIVERSITY OF MODERN LANGUAGES FACULTY OF ADVANCED INTEGRATED STUDIES & RESEARCH

DISSERTATION AND DEFENSE APPROVAL FORM

The undersigned certify that they have read the following dissertation, examined the defense, are satisfied with the overall exam performance, and recommend the thesis to the Faculty of Advanced Integrated Studies & Research for acceptance:

Dissertation Title: International Trade: Challenges and Opportunities for Pakistan Cotton Textile and Apparel Sector ___

Submitted By: Raana Ahsan Doctor of Philosophy

Registration #:130-PhD/HRD/2003

Management Sciences

Dr. Zafar Altaf

Name of Research Supervisor

Signature of Research Supervisor

Prof. Dr. Shazra Munnawar

Name of Dean (FAIS&R)

Signature of Dean (FAIS&R)

Prof. Dr. Aziz Ahmad Khan

Name of Rector

Signature of Rector

____June 2008 Date

___

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CANDIDATE DECLARATION FORM

I RAANA AHSAN D/o: MR. ZIA MALIK Registration No: 130-PhD/HRD/2003 Discipline: Management Sciences Candidate of Doctor of Philosophy at the National University of

Modern Languages do hereby declare that the dissertation: International Trade: Challenges and Opportunities for Pakistan Cotton -Textile and Apparel Sector

submitted by me in partial fulfillment of PhD degree in discipline/department Faculty of Advanced Integrated Studies & Research is my original work, and has not been submitted or published earlier. I also solemnly declare that it shall not, in future, be submitted by me for obtaining any other degree from this or any other university or institution.

I also understand that if evidence of plagiarism is found in my dissertation at any stage, even after the award of a degree, the work may be cancelled and the degree revoked.

June 2008 Date

Signature

Raana Ahsan Name

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ABSTRACT
The purpose of this research was to provide a comprehensive analysis of international trade in order to evaluate and determine the challenges it poses, and opportunities, it offers to Pakistans Cotton, Textile and Apparel Sector. The research is based on secondary data sources. World Bank, WTO, UNCTAD, and a lot of other valuable and authentic reports from the authors of repute have been consulted to understand the increasingly complex international trade relations in a globalizing world. Volumes of government reports, position papers, handouts and books have been searched to appreciate the dynamics of Pakistan Cotton, Textile and Apparel Sector. The research thesis endeavors to capture where the challenge is. What is at stake? Who are the players? What are the opportunities in the international market place? How these challenges can be translated in to opportunities? Brief account of recent trade development and the relationship between global and domestic trading arrangements have been discussed. Role of politics in shaping decisions and managing power both at domestic and global level, significance of international commitments, and influence of historical, cultural back grounds, shared ideas and beliefs, and individual mind set in competing interests in the domestic economy have also been dilated upon. Analytical findings reveal that Pakistan has comparative edge on the basis of comparative advantage, reveal comparative advantage, relative trade advantage, and trade complementarities. The estimated value of revealed comparative advantage of cotton in Pakistan is 18 which is very high than unity which implies that Pakistan has great opportunities in the export of cotton and cotton manufacturing. Moreover, the estimated values of balasa and Lafay index for all cotton and cotton products are very high which reveal that Pakistan has trade competitiveness in the cotton and cotton manufacturing. The estimated value of relative trade index for primary products, cotton seed, cake of cotton seed and cotton linter, are positive which imply that these products are highly competitive, while oil of cotton seed and cake of cotton seed are uncompetitive. Furthermore, the value of trade complementarities variable for USA, EU, Japan and Canada (trading countries) are greater than unity except SAARC countries. This means that trading with SAARC countries in cotton and cotton products is less profitable as compared to other countries where cotton trading is highly profitable. Still domestic resource cost analysis (DRC) proves that Pakistan has greater opportunities in cotton production. The values of reveal comparative advantage and relative trade advantage further suggest that Pakistan has greater opportunities and prospects for exporting cotton and cotton manufacturing. Similarly trade complementarities show and suggest that Pakistan should focus on Middle East market with highest trade complementarities, followed by Canada, USA, EU, SAARC countries and then Japan. Bt transgenic cotton is widely grown in the cotton growing areas of Sindh and Punjab. Bt cotton can play a significant role to enhance agricultural productivity as the productivity of cotton in Pakistan is 0.5 ton/ha as compared productivity of Bt cotton in China is 9 ton/ha which implies a huge cotton productivity gap. This gap can be narrowed down by the adoption of Bt cotton in Pakistan which will have major impact on food security efforts in the country. Urgent efforts are required to focus on cost efficiency, higher productivity with quality of cotton, export diversification of cotton products, export oriented policy and market perspective to become more competitive in the global cotton market. There is also a need to strengthen the cotton - textile value chain with back ward and forward linkages. Unique products have to be developed, and a shift from comparative advantage to competitive advantage is the way forward.

TABLE OF CONTENTS
Chapter DISSERTATION AND DEFENSE APPROVAL FORM CANDIDATE DECLARATION FORM ABSTRACT .. TABLE OF CONTENTS .. LIST OF TABLES . LIST OF FIGURES LIST OF CHARTS . LIST OF APPENDICES LIST OF ABBREVIATIONS DEDECATION ACKNOWLEDGEMENT ... POLITICAL ECONOMY ... RESEARCH HYPOTHESIS ... 1. INTRODUCTION 1.1. Background of Study 1.2. Economy of Pakistan 1.2.1. Historical Perspective .. 1.2.2. Recent Economic History . 1.2.3. The Economy Today . 1.3. International Trade . 1.4. Aid, Debt, Trade . 1.4.1. Aid . 1 2 2 3 4 20 22 22 Page ii iii iv v-ix x xi xii xiii xiv-xvii xviii xix xx xxi

1.4.2. Debit . 23 1.5 Trade Not Aid .................... 24

1.6 Rationale of the Study .... 1.7. Limitations ..........

26 26

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2. LITERATURE REVIEW
2.1 Origin of Trade 2.2 Evolution of Trade and Trade Theories .. 2.3 Trade and Development .. 2.3.1 Why Trade .. 30 30 37 37

2.3.2. The Benefits of Trade . 38 2.4 Globalization: A World without Borders. 2.4.1 WTO and the Agreement on Textiles and Clothing ... 2.5 Regional Trading Arrangement ... 2.6 The Trade Policy Instruments .. 2.7 Some other Important Concepts. 3. RESEARCH METHODOLOGY 3.1 Introduction 3.2 Methodology and Research Design 3.2.1 Revealed Comparative Advantage 3.2.2 Relative Comparative Advantage 3.2.3 Opportunities for Supply Chain Integration 3.2.4 Trade Complementarities .. 3.3 Research Objectives 3.4 Statement of Hypothesis 60 61 61 62 63 63 64 64 41 43 44 46 47

4. INTERNATIONAL POLITICAL ECONOMY 4.1 International Political Economy ... 67

4.2 Role of National Governments in International Political Economy. 68 4.3 Political Economy of International Trade . 4.3.1 Trade Policy before World War I, 1860-1914 . 4.3.2 International Trade from 1918 to 1939 4.4 International Financial System .. 4.4.1 International Monetary Fund (IMF) 4.4.2 Pakistan and IMF. 68 68 71 76 77 80

vii 4.4.3 The World Bank (WB) 4.5 World Trade Organization (WTO). 4.5.1 Principles of Trading System 4.5.2 WTO Agreements 4.5.3 Chronology of Key Events ... 4.5.4 Institutional Structure ... 4.6 New Economic World Order . 4.6.1. Foreign Direct Investment (FDI) 4.6.2 Multinational Corporations (MNCs) 4.7 Globalization .. 4.8 Politics of Trade, Power and Money .. 4.8.1. Richest People in World 4.9 Political Economy of information 5. PAKISTAN COTTON-TEXTILE AND APPAREL SECTOR 5.1. International Trade of Cotton-Textile and Apparels . 5.1.1. Trends in Clothing and Textile International Trade . 5.2. Pakistan Trade of Textile and Clothing . 5.3. Global Cotton Market 5.4. Analyzing Opportunities for Pakistan Cotton-Textile and Apparel Sector .. 5.4.1 Revealed Comparative Advantage.. 5.4.2 Itemized Trade Performance of Cotton and Cotton Manufacturing .. 5.4.3 Relative Comparative Advantage... 5.4.4 Trade Complementarities.. 5.5 Pakistan Cotton-Textile and Apparel Sector- The Value Chain. 5.5.1 Pakistan Cotton Situation .. 5.5.2 Ginning Sector .. 5.5.3 Spinning Sector . 5.5.4 The Textile Sector . 114 114 115 116 116 119 120 122 113 113 107 108 110 111 80 82 82 84 85 89 91 92 94 96 99 101 101

viii 5.5.5 Issues in Yarn Production . 5.5.6 Production of Cloth and Fabric . 5.5.7 Textile Made-ups .. 5.5.8 Towels and Cleaning Cloths . 5.5.9 Bed Wear and Linen . 5.5.10 Apparels .. 5.6 Cotton Vision 2015 5.6.1 Textile Vision 2005 5.7 Significance of Agriculture Sector for Pakistan . 5.8 Opinion around the World . 123 123 125 126 127 129 131 131 133 134

5.9 Challenges in the Pakistan Cotton Yarn, Textile & Apparel Sectors 137 5.10 Concessions . 5.11 Politics of Concessions and Rebates . 5.12 Opportunities and Future .. 6. TRADE AND INDUSTRIAL REGIME OF PAKISTAN 6.1. Institutional Framework for Trade .. 6.1.2. Trade Regime . 6.1.3 Trade Policy of Pakistan 6.1.4 Trade Policy Reforms 6.1.5 Trade Policy 2006-07 6.1.6 Trade Policy 2007-08: Speech by the Commerce Minister ... 6.2 International Trading System and Pakistan 6.3 WTO and Pakistan .. 6.3.1 Trade Policy Review .. 6.3.2 WTO Notifications . 6.4 Industrial Sector of Pakistan 6.4.1 Ancillary Textile Industry . 6.5 Small and Medium Enterprises .... 6.6 Investment Policy 6.7 Industrial Policy .. 146 148 150 150 152 153 156 158 158 162 162 163 165 166 166 139 140 141

ix 6.8 Textile Policy .. 6.9 Private Sector Stake holders ... 6.10 International Trade and Developing Countries 6.11 Economic Structure and Economy of Income .. 6.12 Aim of Trade 6.13 Trade has worked for Pakistan . 7. DEVELOPMENT OF BT COTTON IN PAKISTAN 7.1 Introduction .. 7.2 Background of Bt Cotton in the World.. 7.3 Is there a Need to Grow Bt Cotton in Pakistan?.. 174 175 176 168 168 169 170 171 171

7.4 Development of Bt Cotton in Pakistan.. 177 7.5 Global Adoption of Bt Cotton ... 7.6 Adoption of Bt Cotton in Pakistan. 7.7 Impact of Bt Cotton in the World .. 7.8 Performance of Bt Cotton in Pakistan 7.9 Conclusions and Suggestions . 178 180 180 184 187

8. CONCLUSIONS AND RECOMMENDATIONS... 192 8.1. Recommendations .. 194 8.1. Future Research .. 196

BIBLIOGRAPHY 198

LIST OF TABLES
Table 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. Page Sectoral Share in Gross Domestic Product (GDP)---------------------------------- 5 Sectoral Contribution to the GDG growth (% Points)------------------------------ 6 Composition of GDP growth (Point Contribution) --------------------------------- 6 Structure of Exports 2007-08 --------------------------------------------------------- 8 Export of Textile Manufactures ------------------------------------------------------ 9 Major Export Markets ------------------------------------------------------------------ 10 Structure of Imports -------------------------------------------------------------------- 11 Pakistans Major Imports -------------------------------------------------------------- 12 Unit Value Indices and Term of Trade (Base year 1990-91=100)---------------- 13 External Debt and Foreign Exchange Liabilities ($ Billion) ---------------------- 15 Applied tariff rates of major traders in 1925 ---------------------------------------- 73 GATT and WTO Trade Rounds------------------------------------------------------- 87 Distribution of World GDP, 1989 ---------------------------------------------------- 99 Top Companies sorted by Market Value--------------------------------------------- 100 Imports of Textile and Clothing in to Major Markets by Origin (2006) --------- 109 Pakistan Export of Textile Products -------------------------------------------------- 111 Itemized Trade Performance of Cotton & Cotton Manufacturing (2006)-------- 114 Competitive advantage of Cotton Products Based on the RTA Index-------------115 Trade Complementarities -------------------------------------------------------------- 115 Number of Ginning Factories and Machines ---------------------------------------- 119 Industry Losses due to Cotton Contamination, 2004-05 --------------------------- 120 Installed and Working capacity in the Spinning Sector , All Pakistan Installed Capacity (000) Working Capacity (000) Capacity Utilization (%) ---- 121 Quality of Cloth Production, Mill Sector (% distribution)------------------------- 124 Exports of Textile Made-ups ---------------------------------------------------------- 126 Major Exports of Towels and Cleaning Cloth--------------------------------------- 127 Composition of Pakistans Exports of Bed Wear ----------------------------------- 128 Major Country Destination of Exports of Bed Wear from Pakistan-------------- 128 Export of Clothing ---------------------------------------------------------------------- 130 Loans to Textile Sector----------------------------------------------------------------- 141 Main Ministries and Agencies Responsible for Trade-Related Issues ----------- 147 Pakistans Tariff Structure: 2001-02 and 2004-08---------------------------------- 160 Preferential Rules of Origin and Tariffs in Trade Agreements, 2007 ------------ 161 WTO Notifications, 2001 to end-September 2007---------------------------------- 162 Profile of Textile Industry ------------------------------------------------------------- 164 Investment Policy Matrix -------------------------------------------------------------- 167 The Economic structures of Low-Middle-and High-Income Countries --------- 170

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LIST OF FIGURES
Figure Page

1. Contribution to GDP growth --------------------------------------------------------- 7 2. Major contributors to additional export economy -------------------------------- 8 3. Sources of Imports-------------------------------------------------------------------- 12 4. Current Account deficit (Month Wise)--------------------------------------------- 14 5. External Debt and Liabilities -------------------------------------------------------- 15 6. Inflation Rate by Group -------------------------------------------------------------- 17 7 & 8. Revenue and Expenditure: budget estimate 2006-07----------------------------- 18 9. Foreign Direct Investment Inflows ($ billion) ------------------------------------ 19 10. Top Investing countries -------------------------------------------------------------- 19 11. Investment Inflows by Sector ------------------------------------------------------- 20 12. Real Merchandise Trade Growth by Region 2006 ------------------------------- 21 13. Growth in the Volume of World Merchandise Trade and GDP 1996- 2006 -- 21 14. Export of Textile Manufactures 2005-06 ----------------------------------------- 110 15. Share of Cotton Production---------------------------------------------------------- 112 16. Nominal Cotton Price: Cotlook A and B Indices and U.S Price---------------- 113 17. Capacity Utilization in spinning Sector -------------------------------------------- 121 18. Pakistan Major Exports 2005-06---------------------------------------------------- 149 19. Trade as Percentage of GDP -------------------------------------------------------- 149 20. Tariff Averages ----------------------------------------------------------------------- 161

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LIST OF CHARTS
Chart Page

1. 2. 3.

World Merchandise Export, 1900-1950 ------------------------------------------- 74 World Merchandise Export Prices, 1900-1950 ----------------------------------- 75 Volume Growth of World Merchandise Export, 1900-1950 ------------------- 75

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LIST OF APPENDICES
Appendices Page

A. Installed Capacity in the Textile Sector (For month of Dec 2007) ----------- xxii B. Dewan Salman Fiber Ltd----------------------------------------------------------- xxxv C. Nishat (Chunian) Limited ---------------------------------------------------------- xxxvi D. Ibrahim Fibers (IBFL) -------------------------------------------------------------- xxxvii E. The Crescent Textile Mills Limited ---------------------------------------------- xxxviii

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ABBREVIATIONS
ADB AMIC AOA APEC APTMA ASEAN : : : : : : Asian Development Bank Agri - Marketing Integrated Centers Agreement on Agriculture Asia Pacific Economic Cooperation Group All Pakistan Textile Mills Associations Association of South East Asian Nations Association ATC BMR CAFTA CARs CEC CETP CIF CKD CPI CPI DDA DSU DTTs ECC ECO EDL EOU ESCAP : : : : : : : : : : : : : : : : : : Agreement on Textiles and Clothing Balancing Modernization Replacement Program Central American Free Trade Area Central Asian Republics Cotton Export Corporation, Government of Pakistan Combined Efferent Treatment Plants Cost Insurance and Freight Complete Knock Down Consumer Price Index Consumer Price Index Doha Development Agenda Dispute Settlement Double Taxations Treaties Economic Coordination Committee Economic Co-operation Organization External Debt Liabilities Export Oriented Units Economic and Social Commission for Asia and Pacific Region EU FBR FDI : : : European Union Federal Board of Revenue Foreign Direct Investment

xv FI FPCCI FTA GATS GATT GCC GDP GNP GOP GSP GWP IDA IDBR IIAs ILO IMF ITA ITO LCV LDCs LTF-EOP M&As MFA MFN MMF MNC MOU MTN NAFTA NTC NTTFC : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : : Foreign Investment Federation of Pakistan Chamber of Commerce and Industry Free Trade Area/Free Trade Agreement General Agreement on/Trade in Services General Agreement on Tariffs and Trade Gulf Cooperation Council Gross Domestic Product Gross National Product Government of Pakistan Generalized System of Preference Gross World Product International Development Association International Bank for Reconstruction and Development International Investment Agreements International Labor Organization International Monetary Fund Information Technology Agreement International Trade Organization Light Carrier Vehicle Least Developed Countries Long Term Financing of Expert Oriented Projects Mergers and Acquisitions Multi-Fiber Arrangement Most Favored Nation Man-made Fiber Multinational Corporation Memorandum of Understanding Multilateral Trade Negotiations North America Free Trade Agreement National Tariff Commission National Trade & Transport Facilitation Committee

xvi NWFP OIC PCFAMEA : : : North West Frontier Province Organization of Islamic Countries Pakistan Cotton Fashion Apparel Manufactures and Exporters PHDEB PTA QIZs R&D ROZs RTA SAARC SAPTA SME SMEDA SPI SPS SRO TBT TDAA TDPA TMB TNC TNCs TPRB TPRM TQMD TRB TRIPs : : : : : : : : : : : : : : : : : : : : : : : : Pakistan Horticulture Development & Expert Board Preferential Trade Agreement Qualified Industrial Zone Research and Development Reconstruction Opportunity Zones Registered Trade Agreements South Asia Association of Regional Co-operation South Asian Preferential Tariff Arrangement Small & Medium Enterprise Small & Medium Enterprise Development Authority Sensitive Price Index Sanitary and Phyto-sanity Measures Statutory Regulatory Order Agreement on Technical Barriers to Trade Trade Development Authority Pakistan Trade Development Pakistan Authority Textile Monitoring Body Trade Negotiating Committee Transnational Corporations Trade Policy Review Body Trade Policy Review Mechanism Textile Quota Management Directorate Trade Review Body (WTO) Agreements on Trade Related Aspects of Intellectual Property Rights TSB TTFP : : Textile Surveillance Body Trade & Transparent Facilitation Project

xvii UK UN UNCTAD UNICEF USA USDA WEF WPI WTO : : : : : : : : : United Kingdom United Nations United National Conference on Trade and Development United National Childrens Fund United States of America United States Agricultural Department World Economic Forum Whole Sale Price Index World Trade Organization

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DEDICATION

To

DR. ZAFAR ALTAF

My Research Supervisor

His one sentence, Raania, prove it to yourself changed my mindset.

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ACKNOWLEDGEMENT
All glory goes to Allah
Thank you Ammi Jan, what ever I am today, I owe it to you. You taught me how to face the challenges with smile and keep on struggling. Years ago you left us but your love and care still warm my heart. I love you Ma! Thank you Daddy for making me a better human being with faith, values and principles! I deeply appreciate my siblings for their affection, encouragement and practical help in my efforts to produce something worth while. My friends . Every time when I was down, they always come around and put my feet back on the ground. Thank you friends! I am indebted to my colleagues and co workers for their cooperation and support. They made things easier for me. Very humbly, I present tributes to all those economists and scholars whose vision and knowledge; I deeply benefited from in my research endeavors. Writing this thesis was a test of my commitment, patience and professionalism, and I am extremely obliged to all those who directly and indirectly helped me in achieving the target.

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POLITICAL ECONOMY
Of course, as in the instances of alchemy, astrology, witch- craft, and other such popular creeds, political economy has a plausible idea at the root of it. The social affection, says the economist, are accidental and disturbing elements in human nature; but avarice and the desire of progress are constant elements. Let us eliminate the constants, and, considering the human being merely as a covetous machine, examine by what laws of labor, purchase, and sale, the greatest accumulative result in wealth is obtainable. Those laws once determined, it will be for each individual afterwards to introduce as much of the disturbing affectionate element as he chooses, and to determine for himself the result on the new conditions supposed.

JOHN RUSKIN The Genius of John Ruskin Editor: J. D. Reseuberg Houston, Mifflin Company Boston, 1963

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RESEARCH HYPOTHESIS

Pakistan is facing a new structure in international trade and the country should be; Able to work its strengths Develop itself from a low income country to a middle level country through its trade in Textiles

CHAPTER 1 INTRODUCTION
1.1 Background of the Study The Indus Valley civilization, one of the oldest in the world and dating back at least 5,000 years, spread over much of what is presently called Pakistan (The World Fact Book, 2007). In the 21st century, Pakistan is a rapidly developing nation, strategically located, has plenty of natural resources, and with a growing market of 160 million people. Pakistan has a very narrow export base. The Cotton-Textile and Apparel Sector accounts for more than 60 percent of Pakistans export earnings. According to Altaf (2007), what happens to the economy of Pakistan is very much dependent on the cotton- yarntextile-apparel complex. After the elimination of MFA and related quota regime, the international market place has become aggressively competitive with challenges at one hand and on the other lots of opportunities for smart players. The international trade of cotton-textile and apparel poses huge challenges to this important sector of Pakistans economy. This thesis aspires to establish that a vibrant and profound trade regime can give a boast to the economy of Pakistan. The cotton-textile apparel sector as the central pillar of the trade regime can contribute significantly towards welfare and prosperity of the country. It argues that macroeconomic (over all policy) and microeconomic (firm level) frameworks have complementarities that reinforce each other for desired economic outcomes. It further suggests that business friendly not businessmen friendly domestic trade policies can create a business and entrepreneurs culture that can address the supply side constrain, and can act as a trouble shooter. It also deliberates the role of state and institutions in the international and domestic economies, and how international political dynamics and commitments affect this role and policies. It has also been argued that economic activities are determined by historical norms, culture, and the political systems. Advancement of technology,

2 information, knowledge and other dimensions of globalization have deeply affected the way of doing business. This thesis, while giving the recount of the challenges for cotton-textile and apparel sector of Pakistan in international trade arena, dilates upon the silver lining therein, and suggests the way forward for positioning itself with in the global markets. The canvass is big and the brush should be big enough to match the canvass. 1.2 1.2.1 Economy of Pakistan Historical Perspective Pakistan was a poor, resource less and predominantly agricultural economy at its creation in 1947 (Wikipedia, 2007), after division of the sub-continent. The creation of Pakistan, in economic terms was the break up of a customs union that had lasted for nearly three hundreds years, (Altaf 1983). Agriculturally, the area was the granary for the undivided India and provided cotton and jute for the industrialized part of the sub-continent, (Altaf, 1983). While calling Pakistan an economic monstrosity, he further mentions that Pakistan inherited industrial assets worth only Rs. 580 million. During 1950-60, this policy paid dividends but at the cost of the agriculture sector and growth was sluggish. Attempts were made to correct the situation by an increased inflow of aid. Further, the support price for agricultural products was increased, though still below market prices.

The decade of 1970s witnessed the withdrawal of these economic incentives either partially or completely. The private sector started taking capital out of the country to invest in other third world countries, and the foreign loan commitments in the public sector swelled up. The small entrepreneurs were burdened with the liability of repayments of these extra loans, Altaf maintains. However, growth rates indicate, Development was emphasized during this period. Nationalization of private enterprises during late 1970s was a blow to private sector participation in economic activities. However, in early 1980s, government began a policy of

3 greater reliance on private enterprise to achieve economic goals. This policy continued throughout the late 1980s and early 1990s. The GDP growth rate was 6.5 percent in the1980s, and the trade gap was $ 2.5 billion. The government of Nawaz Sharif (1990-93) introduced a program of economic reforms aimed at privatization, deregulation, and liberalization. Priority was given to denationalizing. Abolishing governments monopoly in the financial sector, and selling utilities to private interests were the hall mark of this period. Though government made progress in liberalizing the economy, however, it failed to control a growing budget deficit. The government of Benazir Bhutto (1994) continued the policies of both deregulation and liberalization, and the tighter fiscal policies. The government devoted significant resources to health, education, and especially for women.

1.2.2

Recent Economic History

In 90s, Pakistan experienced severe fiscal imbalances, and its debt grew rapidly. The nuclear tests of May 1998 and imposition of economic sanctions by the G-7 triggered the situation. In early 1999 Pakistan narrowly escaped defaulting on its debt. Although the country had been receiving IMF assistance, the government faced difficulty in meeting the conditionalities. The IMF program was suspended in July 1999, and resumed later during Musharrafs government. In 2004, government announced that IMF assistance was no longer required. Thus program ended in that year, (Daily Times, 2004). Musharraf's economic revival agenda continued to include measures to widen the tax net, formation of private sector assets, governance reforms, privatization, and deregulation.

Pakistan's nominal gross domestic product (GDP) in 1997 was US$ 75.3 billion. However, in 2002, it came down to US$ 71.5 billion. During this period, the real GDP grew by 3.0 per cent on an average. Government debt was 82 per cent of its GDP in 2002. Over one-third of the government's revenue was being used up in servicing of the debt and liabilities.

4 The stagnant economy showed miraculous growth in 2002 after economic sanctions that were imposed in aftermath of the 1998 nuclear tests lifted. The economy grew at 5.1 percent in 2003, 6.4 percent in 2004 and 7.0 per cent in 2005. The US$ 72 billion economy of 2002 turned into a US$ 108 billion economy in 2005. During 1997-2002, average export growth was 1.2 percent per year and it went up to 13 percent per year during 2003-05. In 2005, debt as a percentage of the GDP came down to 59 percent from 82 percent in 2002. Government's interest payment as a percentage of revenue collection came down to 23 per cent in 2005, which was 35 per cent in 2002. According to many sources, the government made substantial economic reforms since 2000; therefore prospects for job creation and poverty reduction were the best in a decade. Despite all this, inflation increased in 2005 because of higher food prices, rising property prices and rentals. Inflation (consumer priced index) went up to 9.3 percent, and transport costs also jumped due to high oil prices. 1.2.3 The Economy Today Pakistan is one of the fastest growing economies in the region along with China, India and Vietnam, (Economic Survey of Pakistan 2006-07). The good performance was a combination of sound economic polices, on going structural reforms, and a benign international economic environment. According to the Economic Survey, (2006-07) average real GDP growth during 2003-07 was the best performance since many decades. With economic growth at 7.0 % in 2006-07, Pakistans real GDP has grown at an average rate of 7.0 % per annum during the last five years and over 7.5% in the last four years (2004-07). The size of economy has reached $145 billion with per capita income at $ 1000. All the three major sectors; agriculture, industry and services have provided support to strong economic growth. The commodity-producing sectors (agriculture and industry) contributed 2/5th and services sectors contributed remaining 3/5th to GDP growth. Within the commodity-producing sectors, the contribution of agriculture alone has been 15 percent (or 1.1 percentage point)

5 while 25 percent (or 1.8 percentage point) contribution came from industry. Services sectors contributed almost 60 percent (or 4.2 percentage points).

Table 1: Sectoral Share in Gross Domestic Product (GDP)

Structure of Economy The Economic Survey (2006-07) further maintains that all three sectors; agriculture, services and industrial/ manufacture contributed to GDP. Agriculture remains the single largest sector of the national economy, and main source of foreign exchange earnings. It accounts for 20.9 percent of GDP, employs major share of the total work force, and supplies raw materials to industry as well as a market for industrial products. However, the internal composition of the agriculture sector has changed gradually. The share of crops sub-sector in agriculture has gradually declined from 65.1% in 1990-91 to 47.9% in 2006-07, and the share of livestock in agriculture has increased from 29.8% to 49.6% in the same period. The contributions of fishing and forestry have been insignificant with only 0.3% and 0.2% respectively. Share of manufacturing in the GDP has increased from 14.7 percent in 1999-2000 to 19.1% in 2006-07. Large-scale manufacturing accounting for 69.9% of overall

6 manufacturing, registered a growth of 8.8% in 2006-07. The services sector accounts for 53.3 percent in the GDP, and consists of wholesale and retail trade; transport, storage and communications, financial and insurance services. The services sector grew by 8.5% in 2004-05, by 9.6% in 2005-06 and by 8.0% in 2006-07. Finance and insurance sectors have been the major drivers of the growth, and showed growth of 30.8%, 33.0% and 18.2%, respectively in these three years. The following Table will further illustrate the sectoral contribution of these sectors to GPD.
Table 2: Sectoral Contribution to the GDP Growth (% Points)

SECTOR Agriculture Industry Manufacturing Services Real GDP (Fc)

2002-03 1.0 1.0 1.1 2.7 4.7

2003-04 0.6 3.8 2.3 3.1 7.5

2004-05 1.5 3.1 2.7 4.4 9.0

2005-06 0.4 1.3 1.8 4.9 6.6

2006-07 1.1 1.8 1.6 4.2 7.0

Source: Economic Survey 2006-07

Consumption, investment and exports contributed to economic growth. Following illustrates composition and contribution to GDP growth.
Table 3: Composition of GDP Growth (Point Contribution)

Avg 2000 2001 2004 2005 2006 FLOWS 20022003 20032004 2003 2001 2002 2005 2006 2007 2007 5.3 Private Consumption 0.4 1.0 0.3 7.1 8.7 2.4 3.0 1.1 Public Consumption -0.5 1.2 0.6 0.1 0.1 3.9 0.2 6.4 Total Consumption [C] -0.1 2.2 0.39 7.2 8.8 6.4 3.2 1.7 Gross Fixed Investment 0.7 -0.1 0.6 -1.0 1.8 2.5 3.3 0.1 Change in Stocks 0.0 0.0 0.4 0.1 0.7 -0.5 0.1 1.8 Total Investment [I] 0.7 0.0 1.1 -0.9 2.5 2.0 3.4 0.8 Exports 1.6 1.5 4.5 -0.3 1.7 1.8 0.1 1.9 (Goods & Serve.) [X] 3.2 0.2 Imports 0.3 0.4 1.6 -1.3 5.4 -1.5 -0.2 -1.1 (Goods & Serve.)[M] 9.0 Net Exports [X-M] 1.3 1.0 2.8 1.0 -3.7 10.2 6.6 6.5 8.1 Aggregate Demand 2.3 3.7 6.5 6.0 13.0 8.4 (C+I+X) Domestic Demand 0.7 2.2 2.0 6.3 11.3 (C+I) GDP MP 2.0 3.2 4.8 7.4 7.7 6.9 6.4 7.1
Source: Economic Survey 2006-07

7
Figure 1: Contribution to GDP growth

Exports Pakistan is dependent on agriculturebased exports. Pakistans export is based on commodities and not on products. Commodities tend to be more volatile in price while products have to compete with other countries, the only exception being a unique product, (Salicornia, Seabuckthorn). In 2005-06 exports were $ 13.46 billion, whereas in 2006-07, export target was $ 18.6 billion, (12.9 percent higher than last year). During the first ten months (July-April), export went up by 3.4 percent: a modest rise from $ 13.46 billion to $ 13.9 billion in the same period last year. Export of textile manufacture grew by 6.2 percent: Knitwear (13.9%) ready made garments (6.8 %) made up articles (8.9%), cotton yarn (4.6 %), towels (2.6%) and other textile material (17.2 %). However, export of raw cotton, cotton cloth and bed wear declined. Export of food group also declined by 3.5 percent due to decline in export of rice and fruits. Like wise, exports of petroleum products declined by 2.7 %. Engineering goods showed a growth of 6.7 % and over all exports went up by $ 452.1 in the first ten months of 2006-07 and the textile sector contributed $ 516.1 in this increase.

8
Figure 2: Major contributors to additional export earnings (Jul-Apr 06-07)

Food Group, 13.1 Others, 64.8 Textile M anuf acturer, 114.1 Textile M anuf acturer Other M anuf acturer Others Food Group

Other M anuf acturer, 65.6

Source: Economic Survey (2006-07

Table 4: Structure of Exports 2007-08

9 Pakistan has a very narrow export base and exports are highly concentrated in a few items cotton, textile manufactures, leather, rice, synthetic textiles and sports goods are the main export commodities, and accounted for 77.2 percent of total exports during the first nine months of 2006-07. Cotton manufacturers contributed 61.5 percent, followed by leather (4.5%), rice (6.6%), synthetic textiles (3.0%) and sports goods (1.6%).

Table 5: Export of Textile Manufactures

ITEM Cotton Yarn Cotton Cloth Knitwear Bed war Towels Tents, Canvas & Tarpaulin Readymade Garments Synthetic Textiles Total Made up Articles Others
*July-March (Provisional)

99-00 19.2 19.6 15.9 12.7 3.5 0.9 13.8 8.2 5.5 0.7 100.0

00-01 18.7 17.9 15.8 12.9 4.2 0.9 14.4 9.5 5.7 100.0

01-02 16.1 19.6 14.6 15.9 4.6 0.9 15.1 7.1 6.1 100.0

02-03 12.9 18.6 15.9 18.4 5.2 1.0 15.1 7.9 5.0 100.0

03-045 14.0 21.3 18.1 17.2 5.0 0.9 12.4 5.9 5.2 100.0

04-05 12.7 23.3 18.9 16.4 5.9 0.8 12.9 3.5 5.5 0.1 100.0

05-06 13.7 21.6 17.6 20.8 5.8 0.3 13.9 2.0 4.3 0.1 100.0

06-07* 13.3 18.5 18.3 18.1 5.5 0.7 13.1 4.7 4.1 2.9 100.0

Source: FBS & Finance Division

The structure/ composition of export have gone through changes with time. The share of exports of primary good has declined and exports of semi- manufactured and manufactured goods have gone up gradually.

Pakistans exports directions are highly concentrated in few countries. The US, UK, Germany, Japan, Hong Kong, Dubai and Saudi Arabia are the traditional export destinations. These countries account for one-half of Pakistans exports. The US alone accounts for 28 percent of Pakistan exports.

10
Table 6: Major Export Markets

Imports Since 2003 imports were on the rise, but in 2006-07 the import growth declined. In 2005-06 imports were $28.6 billion. In 2006-07, imports were targeted to decline by 2.1 percent. Growth in import decelerated to 8.9 percent during the first ten months (July-April) of 2006-07 as against the increase of 40.4 percent in the same period last year. The decline was due to pursuance of tight monetary policy, softening of international oil prices, decline in the imports of fertilizer, and iron & steel products. Pakistan's imports are highly

concentrated in few items: machinery, petroleum & petroleum products, chemicals, transport equipments, edible oil, iron & steel, fertilizer and tea. The eight categories accounted for 75.5 percent of total imports during 2006-07. Among these, machinery, petroleum & petroleum products and chemicals accounted for 57.7 percent of total imports. Pakistans imports sources limited, and over 40 percent of the imports come from the USA, Japan, Kuwait, Saudi Arabia, Germany, the UK and Malaysia.

11
Table 7: Structure of Imports

12
Figure 3: Sources of import

USA, 8.1 Japan, 5.7 Kuw ait, 5.4 Saudi Arabia, 11.5 Others, 59.9 Germany, 4.1 U.K, 2.3 Malaysia, 3

USA Japan Kuw ait Saudi Arabia Germany U.K Malaysia Others

Source: Economic Survey 2006-07

Table 8: Pakistans Major Imports

Trade Balance Despite decline trend in imports, the merchandise trade deficit widen due to fall in exports. The merchandise trade deficit widen to $11.1 billion in the first ten months (July-

13 April) of 2006-07 as against $9.5 billion in the same period last year. However, trade deficit, as percentage of GDP is likely to be narrow down to 9.0 percent in 2006-07 as against 9.5 percent last year.

Term of Trade With base year 1990-91 (equal to 100) the term of trade aggregated to 64.4 during 2006-07. It was 66.4 in 2005-06, thus registered a decrease of 3.4 %. The increase in unit prices of petroleum and machinery caused this decline.
Table 9: Unit Value Indices and Term of Trade (Base Year 1990-91=100)

Current Account Balance The current account deficit widened to $ 6.2 billion (4.3% of GDP) in the first nine months (July-March) of the 2006-07 from $ 4.6 billion (3.6% of GDP) in the same period last year. Despite the decline in the import growth (10.2 percent), the current account deficit has widened due to not satisfactory performance of exports, and deficit in services sector.

14
Figure 4: Current account deficit (month wise)

Source: Pakistan Economic Survey 2006-07

Workers Remittances

Workers remittances are the third largest source of foreign exchange inflows after exports and foreign investment. The inflows maintained the rising trend. Workers remittances totaled $ 4.45 billion in the first ten months (July-April) of the fiscal year as against $ 3.6 billion in the same period last year, depicting an increase of 22.6 percent.

Debt and Liabilities This includes all Government debt and liabilities denominated in foreign currency. Pakistans total stock of external debt grew at an average rate of 7.4 percent per annum during 1990-99, rising from $ 20.5 billion to $ 38.9 billion in 1999. However, there was a slight decline in 1999-2000 ($37.9 billion.) It grew again by 1 percent in 2005, 2.9 percent in 2006 and 4.4 percent in 2007, making the total external debt liabilities (EDLs) $ 38.86 billion at the end of March 2007.

15
Figure 5: External debt and liabilities

Source: Pakistan Economic Survey 2006-07

However, EDLs as a percentage of GDP have declined from 51 percent in 2002 to 29.4 percent in 2006 and 27.1 percent in 2007. EDLs are medium and long term borrowing from multilateral and bilateral lenders. Table 10: External Debt and Foreign Exchange Liabilities ($ Billion)

16 Debt Servicing The averaged debt servicing during 1999- 2000 to 2003-04 was above $ 5 billion per annum. This came down to $ 3 billion in 2005 - 06. Whereas an amount of 2.2 billion were paid in 2006-07 (July- March) and the rolled over amount declined from $ 4.1 billion in 1999- 2000 to $ 1.1 billion in 2006-07. Pakistan and International Capital Markets Pakistan participates in the global capital markets by issuance of bonds both conventional and Islamic. In 2006 Euro bond of $ 500 million (10 year) and $ 30 million (30 year) were issued. In 2005 Islamic Bond (Sukuk) worth $ 600 million was issued, and was successful in the Middle East markets. Euro bonds worth $ 750 million at a fixed rate of 6.875 percent were issued in 2007; the issue was oversubscribed by 7 times. The international magazine Business Week has declared Pakistans KSE 100 Index the bestperforming stock market index in the world in the past few years. In 2005, the stock market capitalization of listed companies was valued at $45,937 million by the World Bank.

Inflation The Consumer Price Index (CPI) based inflation was 7.9%, and Sensitive Price Index (SPI) inflation was 11.1% in 2006-07 (JulyApril). The food group was largest component of the CPI and it showed an increase of 10%. The non-food prices grew at a slower rate and showed average inflation of 6.2 %. The increase in Wholesale Price Index (WPI) in 2006-07 was lower than of the last year.

17
Figure 6: Inflation rate by group

Foreign Exchange Reserves

At the end of April 2007, the total liquid foreign exchange reserves were $ 13.3738 billion. They were sufficient to meet over 6 months of imports. Last years reserves were $ 13.137 billion. Exchange Rate

Exchange rate remained quite stable during 2007. Though, rupee depreciated slightly (0.7%) from Rs.60.2138 per dollars as at end June 2006 to Rs.60.6684 as of end April 2007.

Fiscal Budget Fiscal year starts from 1 July and ends at 30 June.

18
Figure 7 & 8: Revenue and expenditure: budget estimate 2006-07

Total Revenues, 1163 Total Expenditure, 1536.6

Total Revenues Total Expenditure

Development Expenditure ^Net Lending, 312.3 FBR Revenue, 835

FBR Revenue Provincial Tax Revenues Others Non Tax Revenues

Current Expenditure (Federal & Provincial), 1106.5

Provincial Tax Revenues, 44.8 Others, 5.9 Non Tax Revenues, 277.3

Current Expenditure (Federal & Provincial) Development Expenditure ^Net Lending

Source: Ministry of Finance (Budget Wing)

Foreign Direct Investment (FDI) According to different reports, Pakistan is now the most investment-friendly nation in South Asia. The World Bank (2006) has ranked Pakistan at 74th position in the world on ease of doing business that is much ahead of China and India, which are at 93rd and 134th respectively. The Foreign Investment (FI) flows were US $ 8.4 billion in 2006-07. Foreign Direct Investment (FDI) was $5.125 billion in 2006-07, with an increase of 46%. Privatization proceeds in 2006-07 were $266.4 million. Private portfolio investment was

19 $1,820 billion in 2006-07. The USA was the largest investor in 2006-07 followed by the UK. Figure 9: Foreign direct investment inflows ($ billion)
6,000

5,125
5,000 4,000 3,000 2,000

3,521

1,524 1,102 442 237 335 306 354 682 601 472 470 322 485

1,000 0

Source: Board of Investment

Figure 10: Top investing countries

1600 1400 1200 1000 800 600 400 200 0

U K N et he rla nd s S w itz er la nd S au di A ra bi a C hi na U S A U A E

Source: Board of Investment

90 /9 1 91 /9 2 92 /9 3 93 /9 4 94 /9 5 95 /9 6 96 /9 7 97 /9 8 98 /9 9 99 /0 0 00 /0 1 01 /0 2 02 /0 3 03 /0 4 04 /0 5 05 /0 6 06 /0 7
2004-05 2005-06 2006-07

20 The sectors that contributed to this record level of investment flows were telecom, financial services, oil & gas, power and manufacturing.
Figure 11: Investment inflows by sector

2,500 2,000 1,500 1,000 500

M an u fa ct ur F in in g an ci al B u O si il ne & ss G as a nd M in ni ng T el ec om m un ic at io n

2004-05 2005-06 2006-07

S er vi ce s

Source: Board of Investment

1.3

International Trade According to World Trade Report 2007, the strong global macroeconomic scenario

created favorable situation for growth of international trade. The world merchandise exports grew by 8 percent (real terms) as compare to the last year of 6.5 percent. The EU market showed a come back both in exports and imports. The US merchandise export rose by 10.5 percent, the highest growth rate since 1997 and two times faster than its import growth. Chinas merchandise trade expansion was outstanding in 2006. Beside office and telecom equipment China benefited from the traditional export of clothing. Asias real merchandize exports grew by 13.5 percent, the most out standing amongst all the regions. China and Japan were the major traders of the region. India and Viet Nam recorded a strong expansion in trade, in the range of 20 percent to 35 percent in 2006. The imports and exports of these two countries are showing remarkable growth since 1995, and have expanded faster than Asias total trade. Europe recorded a growth of 7 percent in merchandise exports. Commonwealth of Independent States (CIS) showed impressive import and export growth due to strong fuel

P ow e r

21 and metal prices in the world markets. Africas merchandise exports increased by 21 percent; faster than its imports. Middle East trade was affected by oil market development and grew only by 19 percent. Over all exchange rate development had a moderate affect on the dollar price level of trade goods. However, a weaker yen contributed to a weaker dollar export prices of Japan, where as Euro and Pound balanced each other during 2005-06. World merchandise exports in dollar terms were $11.76 trillion, and inflation factored in about 40 percent of this value change. Commercial services exports rose by 11 percent ($ 2.71trillion) in 2006.
Figure 12: Real merchandise trade growth by region 2006 (Annual Percentage Change)

Figure 13: Growth in the volume of world merchandise trade and GDP 1996-2006 (annual percentage change)

22 Pakistan ranked 65 in global merchandize exports and 50 in imports during 2006. Its share in global exports and imports is 0.14 and 0.24 percent in 2006, (UNCTAD, Trade Profile 2007). 1.4 Aid, Debt, Trade Equitable economic growth means employment and opportunity for all. It holds the key to long-term development. However, in the prosperous world with an up beat growth, poor countries face tremendous barriers to unleashing their economic potential for development. Burdensome debt payments, trade barriers, lack of money and balance of payments problems are among the key obstacles to achieving sustainable development. Global poverty will always be unresolved agenda without addressing the issues of aid, debt, and trade according to NetAid, an initiative of Mercy Corps.

1.4.1

Aid Bilateral aid is given by a single country and multilateral aid is funded jointly by the

developed nations and is co-coordinated by many different agencies. The UN co-operates with the independent charities in relief operations and fieldwork. Charities vary considerably in their approaches, some concentrate in providing money to relieve suffering during emergencies; others prefer to invest in long- term projects. Aid can be distributed either by government bodies, or by businesses and voluntary agencies. Mostly aid is given on certain conditions. A common condition is that the money must be spent on products or services from the donor country. Aid or Overseas Development Assistance (ODA) is a controversial area because aid/ grants are largely considered politically motivated. In the article Trade not Aid, Anthea Spitaliotis, mentions the Brandt Report (1980) by the former German Chancellor, Willy Brandt, which argues for an increase in aid to the third world, it is a moral responsibility to solve the problems of the poor countries and remove the injustices that have prevented their development in the past. Secondly, since the two are dependent on each other economically, the future prosperity of the developed

23 countries relies on development in the third world It could be made to work from a practical point of view, the crucial question though is whether the political willingness exists to achieve these goals, the writer argues. Bilateral donors, in particular, provide aid for many reasons that includes political, strategic, commercial and humanitarian. In 1988, 41 percent of external assistance went to middle and high income countries, largely for political reasons. (World Development Report, 1990). Similar apprehensions have been expressed by James Shikwati, Director of the InterRegion Economic Network, Nairobi Handouts from the rich nations too often fill the pockets of dictators rather than the bellies of the starving. He further says thataid gives untrustworthy leaders the resources with which to engage in violent and repressive acts. Mengistu (Ethiopia), Pol Pot (Cambodia) and Idi Amin (Uganda) are among the more infamous recipients of foreign aid. By 1982 Zaire (now Democratic Republic of Congo) had accumulated a foreign debt of $5 billion. Its president, Mobutu Sese Seko, had accumulated a personal fortune of $4 billion. Mr. Shikwati maintains thataid also undermines the democratic accountability of government. By offering governments a non-tax source of revenue, it enables them to ignore the wishes of citizens and reduces their incentive to deliver public services efficiently and effectively. It also exacerbates cronyism. Why not award valuable contracts to your brotherin laws more expensive (and less efficient) building company if you know the people can't complain? 1.4.2 Debt Debt retards the economic development. Poor countries with enormous amounts of debt are deprived economically, therefore, can not meet even the basic needs of their people. The money flows out of the country for debt servicing instead of invested within. One international aid group remarked that global poverty "of which debt repayments are a major cause" kills as many people as the tsunami every week, NetAid quotes.

24 Jones, (1989) observes that it is not just that development has been stopped or retarded in the third world; the hope of development of a better future has been lost. In psychological terms, it is a greater loss than some of the human tragedies. The debt problem which was thought to be temporary has persisted with increasing force and perversity. It has gone deeper into the social fabric of third world countries and has become malignant, (Schatan, 1987). Richard Jolly of UNICEF at the Conference Growing out of Debt 1988 quoted former President of Tanzania Julius Nyrere, must we starve our children to pay our debts. Jolly observed: that question has been answered in practice and the answer has been YesHundreds of thousands of children in the developing world have given their lives to pay their countries debts, and many millions more are still paying the interest with their malnourished minds and bodies. According to Harry L, Freeman of American Express, Developing countries debt has become an economic millstone around the necks of both the debtor countries and the creditor countries to trade with them. In Pakistan, the component of consultants in the World Bank funded projects is between 80 to 90 percent of the total project funding, (Economic Affairs Division).

1.5

Trade Not Aid The current argument and debate is whether donor loans do lead to development, or

do they shift focus. But "aid" can not stimulate development. Only trade can do that. Since the 1960s, over $500 billion has been given to the governments of African countries in the form of grants and soft loans. Yet the results have been less than spectacular, Mr. Shikwati declares. He further maintains that, the rich world can help - by opening its markets to textiles, agricultural goods, and other products from the poor world. Trade will lead to production that will lift the standards of living in poor countries. It could also remove its agricultural subsidies, which reduce world market prices of these goods, reducing the amount poor-world producers can obtain for their goods.

25 The case for trade as the engine for economic development is indisputable. The need for trade has caused wars, driven colonial domination and helped to create the current international trade system. The economic expansion of India, Japan, Thailand, Singapore and China testifies that trade stimulates growth. These countries have developed an industrial capacity to export that has been instrumental in producing the accelerated growth of their economies, (Goodafrican). Reason Magazine in the article Trade, not Aid (Marian Tupy and Christopher Preble) quotes Uganda's President, Yoweri Museveni stating during his meeting in 2003 with President Bush, "I don't want aid; I want trade. Aid cannot transform society." The message has been stressed by the development economists for years!

The subsidies plus aid forces taxpayers to pay twice - once to sustain the inefficient subsidies, and then again to pay for aid programs. William R. Cline, senior fellow at the Institute for International Economics and the Center for Global Development, estimated that global trade liberalization would save the developed nations $141 billion a year and deliver economic benefits worth $87 billion a year to developing countries. (Reason Magazine) While lamenting the damage aid has done to Africans: the poison was aid and its consequential economic distortion and dependency, Simon Jenkins of The Times, London, states that the one help Africa most needs is trade. It needs Western markets open to its primary produce. Mary Robinson, former President of Ireland and former United Nations High Commissioner for Human Rights emphasises the importance of trade for development and economic growth and says that if poor countries could increase their share of world exports by just one percent, they could lift 128 million people out of poverty. She observes that, We need to bring home the fact that trade is not only a key engine of development; it is also a crucial factor in economic justice. Trade policies can directly affect people's access to fundamental rights to an adequate standard of living, health, food, and education.

26 In the Doha Round, known as Doha Development Agenda, (DDA) developed countries were urged to lower agricultural and textile subsidies. But it was politically difficult, since many domestic farmers and workers depend on these subsidies to make a living. To sum up, developing countries do not need aid. They need fair access to global markets where their products are competitive, and sustain economically. 1.6 Rationale of the Study

Previous researches on the challenges and opportunities generally highlight the role of the government in enhancing the performance of the sector, thus suggest the policy tools and incentives for making the sector competitive. Many reports have suggested economic parameters to up lift the sector to face the challenges of the international trade at the cost of the other sectors. Hardly any report has touched the dynamics working with in the sector for the last 60 years retarding the growth and expansion of the sector. There was enough room for a research that narrates this untold story, with objective analysis and deep examination keeping in view the domestic and global dimensions of the issue. Moreover, also suggests cost effective and practical measures to over come the road blocks for competitive positioning of the sector in international markets. 1.7 Limitations

Finding relevant and reliable material and data was very difficult. The official data on the same subject from different sources hardly coincide. Very few reports and books are available on cotton-textile and apparel sectors performance after post quota. Available material mostly is focused on the policy side of the subject, and limited information is available on the actual performance and behavior of the sector and the players that dominate the sector. More over, material on international trade mostly gives the theories and models thus limiting the scope of its use in a research thesis for a variety of audience. Lastly, the researchers always run against the wind in terms of time and research facilities available.

27 References

A. Gledhill, Pakistan (Stevens, London, 1957), Altaf Zafar, Dr, (1983): Pakistani Entrepreneurs; Their Development, Characteristics and Attitudes, Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT, Australia

Altaf

Zafar,

Dr,

(1983)

Pakistani

Entrepreneurs;

Their

Development,

Characteristics and Attitudes, Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT, Australia

Board of Investment, Ministry of Investment (BOI), Government of Pakistan: http://www.pakboi.gov.pk

CIA: The World Fact Book - Pakistan: https://www.cia.gov/library/ publications/theworld-factbook/rankorder/2003rank.html

Concluding remarks at the Pakistan Development Forum, 2006 by John Wall, World Bank Country Director for Pakistan: http://www.worldbank.org/html

Daily Dawn Annual Budget, 2007; June 9, 2007: http://www.dawn.com

Doing Business in 2006: South Asian Countries Pick up Reform Pace says World Bank Group; Pakistan Among Top 10 Reformers (September12, 2005), http://worldbank.org Economy of Pakistan: Wikipedia:http://.enwikipedia.org/wiki/ economy_of_pakistan

Good Africa: http://www.goodafrica.net/index.asp. Retrieved on 2007-03-23

Government of Pakistan, Islamabad: http://www.pakistan.gov.pk

Government of Pakistan: Ministry of Commerce: http://www.commerce.gov.pk

28 Hertz, Noreena, (2004): The Debt Threat. Harper Collins Publishers, 2004 NY.

Ishrat Husnain - Economy of Pakistan. Article by the Governor of State Bank of Pakistan; http://www.bis.org/review/r050217g.pdf

James Shikwati, (2002): http://www.smh.com.au

Jones, S. Griffith, (1988): Debt Crisis Management in the Early 1980s: Can Lesson be Learnt? Development Policy review, Vol.6. 1988

Jones, S. Griffith, (1989): Growing out of Debt: A Conference organized by the British All parliamentary Group on Overseas Development

Mary Robinson, former President of Ireland: Africa needs friar Trade, not Charity: Yale Global Online: http://yaleglobal.yale.edu

Net Aid: http://www.mercycorps.org: retrieved on 22- 02-2007

Nicholas Louise, (2007): Comparative Prospects for Growth of Real GDP:20002015:

World Economic Prospects 2007 http://www.euromonitor.com/: Retrieved in 2007

Pakistan The Economy; Retrieved on 2008-04-12. http://www.mongabay. com/reference/country_studies/pakistan/ECONOMY.html

Pakistan Economic Survey, (2006-07), Finance Division, Government of Pakistan, Islamabad

Pakistan Economy Profile 2007: Retrieved on: 2007-12-20: http://www. indexmundi.com/pakistan/economy_profile.html

29

Pakistan ends 15-year ties with IMF; Daily Times, 7 September 2004, Pakistani Newspaper Article, 2004. http://www.daliytimes.com.pk

Reason Magazine: Trade, not Aid; http://www.reason.com Retrieved on 2008- 02-25

Richard Jolly, (1988); UNICEF: Growing out of Debt: A Conference organized by the British All parliamentary Group on Overseas Development.

Schatan, J (1987), World Debt- Who is to pay? English edition, Zed books, London Simon Jenkins: Do not patronize Africa: give Trade, not Aid:

http://www.thirdworldtraveler.com: Retrieved on 2007-01-28

Telegraph Daily; (newspaper): http://www.telegraph.co.uk: Retrieved on 2007-04-23

Trade not Aid: Time Magazine: http://www.time.com

Trade, not aid, is what Africa needs: the Financial Express; (newspaper): Retrieved on 2007-12-28: http://www.financialexpress.com

USA History; Trade not aid, (Anthea Spitaliotis): http://www.usahistory.com

World Economy: Wikipedia, the free encyclopedia; http://wikipedia.org: Retrieved on 2008-03-22 World Development Report, (1990): World Trade Organization, Switzerland, United Nations Conference on Trade and Development, Publication. New York and Geneva, World Trade Report, (2007): World Trade Organization, Switzerland, United Nations Conference on Trade and Development, Publication. New York and Geneva, WTO 2007: Trade Profiles, (2007): World Trade Organization, Switzerland

30

CHAPTER 2 LITERATURE REVIEW

2.1 Origin of Trade The study of international trade and finance is the oldest among the specialties of economics, conceived in the sixteenth century, a child of Europes passion for Spanish gold, and grew to maturity in the turbulent years that witnessed the emergence of modern nation states, (Kenen, 1994).

2.2

Evolution of Trade and Trade Theories

Trade started with the beginning of communication in prehistoric times. Trading was common between prehistoric people, who bartered goods and services before the innovation of the modern day currency. Watson, (2005) argues that the history of long-distance trade and commerce started from circa 150,000 years ago.

It is believed that trade has taken place throughout the human history, and the exchange of obsidian and flint during the Stone Age was common. Since 3000 BC materials used for making jewelry were traded with Egypt. There are evidence of long-distance trade routes in the 3rd millennium BC, which supports that Sumerians in Mesopotamia traded with the Harappan of the Indus Valley. The Phoenicians were sea traders, and traveled across the Mediterranean Sea, and as far north as Britain, and established trade colonies the Greeks called emporia. In the 5th century, trade brought spice to Europe from the Far East, including China. Trade strengthened the Roman Empire, and Romans established a stable and secure transportation system that enabled the shipment of trade goods without fear of piracy.

31 The fall of the Roman Empire brought instability to Western Europe and the trade network almost collapsed. Some trade did occur. Radhanites and Jewish merchants traded with the Christians in Europe and the Muslims of the Near East.

The caravan merchants of Central Asia dominated the East-West trade route known as the Silk Road from the 4th century AD up to the 8th century AD. From the 8th to the 11th century, the trade was dominated by Vikings and Varangians as they sailed from and to Scandinavia and Russia. Between the 13th and 17th centuries, the Hanseatic League an alliance of trading cities maintained a trade monopoly over most of Northern Europe and the Baltic.

In 1498, Vasco da Gama restarted the European spice trade. The spice trade with Europe was controlled by Islamic powers especially Egypt, prior to his sailing around Africa. Holland was the centre of free trade and free movement of goods in the 16th century. Trade in the East Indies was dominated by Portugal in the 16th century. The 17th and 18th centurys trade was dominated by the Netherlands and the British respectively. The Spanish Empire established regular and organized trade links across the Atlantic and the Pacific Oceans.

Around the 16th century trade became part of national policy. During this period, European countries gained wealth and precious metals from their colonies and trading partners. This system of international trade, called mercantilism, remained active from the 16th to the 18th centuries. Mercantilism was a sixteenth-century economic philosophy that upheld that a country's wealth was measured by its assets of gold and silver, (Mahoney, Trigg, Griffin, & Pustay, 1998).

The philosophy of mercantilist was that one country's gain through international trade was another country's loss. Hence, mercantilists belief was that international commerce and trade always had a loser. During this period the European empires tried to increase and maintain the power by gathering gold and silver and simultaneously imposed a number of trade restrictions and introduced protectionist policies to ensure that they export

32 more than they import to maintain a positive and favorable balance of trade. Mercantilism was popular with manufactures and their workers. Export-oriented manufacturers favored mercantilist trade policies, and grant of subsidies and tax rebates, because it stimulated their sales to foreigners. In the same vein the domestic manufacturers threatened by imports support mercantilist trade policies, such as imposing tariffs or quotas, because it protected them from foreign competition, (Mahoney, Trigg, Griffin, & Pustay, 1998).

In the 17th and 18th centuries, the development of nation-states facilitated international trade to evolve towards its present state. It was realized by the leaders that by promoting and facilitating trade, they could not only increase their wealth and power, but also strengthen the power and stability of their respective nations. During this period, economists began formulating theories of international trade and conceiving of liberalized trade policies.

Adam Smith (1723-1790) is considered as the founder of theoretical study of international trade. Smith developed the theory of "absolute advantage based on doctrines of the French economist Franois Quesnay (1694-1774). He argued that with in their limited natural resources, countries should produce only those products which can be manufactured more cheaply and efficiently than their trading partners. In other words, the theory of absolute advantage, suggests that a country should export only those goods and services for which it is more productive and efficient than other countries, and import those goods and services for which other countries are better than it is, (Mahoney, Trigg, Griffin, & Pustay, 1998).

Smith attacked the philosophy of mercantilism, and expressed that mercantilism actually weakens a country. In An Inquiry into the Nature and Causes of the Wealth of Nations, (1776), Smith argued that a countrys true wealth is measured by the wealth of its citizens, not just that of its monarch, (Mahoney, Trigg, Griffin, & Pustay, 1998). Smith was of the view point that a greater division of labor could bring more productivity to international trade, and therefore, the workers should be allowed to specialize in production of specific goods.

33

According to Gans, King, & Mankiw (1999), the term absolute advantage is used by the economists to compare the productivity of one person, firm or nation with that of another. It means that a producer who requires a smaller quantity of inputs to produce a good has an absolute advantage in producing that good.

In 1815 English economists Robert Torrens (1780-1864) and David Ricardo (17721823) suggested that countries import and export goods according to the principle of "comparative advantage." According to this theory no trade would take place if one country has an absolute advantage over both products. The difference between absolute and comparative advantage theories is delicate. It suggests that absolute advantage looks at absolute productivity differences, comparative advantage looks at relative productivity differences, (Mahoney, Trigg, Griffin, & Pustay, 1998). In 1817, David Ricardo, James Mill and Robert Torrens in the theroy of comparative advantage demonstrated that free trade would benefit both weak as well as the strong countries industrially. In Principles of Political Economy and Taxation, Ricardo pointed outWhen an inefficient producer sends the merchandise it produces best to a country able to produce it more efficiently, both countries benefit. In other words, a country can still produce and export a product even though it cannot produce the product as cheaply as some other country, on the premise that this more expensively produced product can fetch more revenues in a foreign market than in the domestic market.

In the mid 19th century the rise of free trade was essentially based on national advantage. The rise of national economist was a key step in the development of contemporary international trade. These economists proposed theories aimed at the interests and benefits of their respective nations. These theories received further acceptance on the ideas of American politician Alexander Hamilton (1755-1804) and others in the late 18th and early 19th centuries. Hamilton in a way facilitated the concept of political economy to develop, which implies active government involvement in economics including international trade. Hamilton argued that to avoid reliance on importing essential goods, resources and

34 equipments, Congress should enact such policies that would make the United States selfsufficient.

John Stuart Mill (1806-1873) suggested that in international market a country with monopoly pricing power could influence the terms of trade through maintaining tariffs, and getting reciprocity in trade policy. This theory was given by David Ricardo and others earlier. It was believed that trade surplus would grow following reciprocal, rather than free trade policies. This was against the philosophy of free trade. Within a few years the infant industry scenario was presented by Mill. The theory promoted that government had the "duty" to protect young industry, and to facilitate it to develop to full capacity. The policy was attractive to many countries on the way to industrialization. Milton Freidman also supported this thought, and demonstrated that under certain circumstances tariffs might be beneficial to the host country but not for the world at large.

Keynesianism and Keynesian theory is based on the ideas of 20th century British economist, John Maynard Keynes. According to this theory actions of individuals and firms at micro level can affect aggregate macroeconomic out comes, and the economy operates below its potential in output and growth. Many classical economists had supported Says Law, that supply creates its own demand; however, Keynes maintained that aggregate demand for goods might not be sufficient in recession, thus could lead to high unemployment and loss of out put. He argued that government policies should aim at increasing aggregate demand to enhance economic activity and reduce inflation and unemployment. The neoclassical macroeconomists of 1960s-1970s had criticized Keynesian theories. In the 20th century, the Heckscher-Ohlin theory (H-O model) of international trade was the most influential version of the comparative advantage theory. Heckscher and Bertil Ohlin proposed that countries would export goods that they could produce efficiently given their land, labor, natural resources, and production technology, and import goods they could not produce efficiently had the same factors. Heckscher and Ohlin believed that countries could achieve comparative advantage through a combination of factors such as financial

35 resources, natural resources, and production technology. This was in contrast to Ricardo's version of comparative advantage based on labor productivity. Factor Endowment theory analyzed the effects that international trade has on the earnings of factors of production in the two trading nations (Salvatore, 1999). According to Ball McCulloch (1999), the Heckscher-Ohlin theory suggested that international and interregional differences in production costs could occur because of the differences in the supply of production factors. Country similarity theory was formulated by a Swedish economist named Steffan Linder, (Mahoney, Trig, Griffin, Pustay, 1998). The concept of intra industry trade is important in country similarity theory. Intra industry trade refers to trade between two countries of goods produced by the same industry, and it accounts for around 40 per cent of world trade, (Mahoney, Trig, Griffin, Pustay, 1998). Linder argued that international trade of manufactured goods between countries having the same stage of economic development and sharing the similar consumer preferences and choices. The country similarity theory

presents that most trade in manufactured goods should take place between nations with similar per capita incomes, and that intra industry trade in manufactured goods should be common, (Mahoney, Trig, Griffin, Pustay, 1998). Staffan Linder's theory holds that if a company launches a product in response to domestic market demands; it will seek out bound markets with similar consumer demands and similar per capita income to trade. In other words, countries import goods from other countries with similar consumer tastes and levels of income. The international product life cycle theory provides an instrument for analysis the effects of product evolution on the global scale. The theory generally applies to established companies in industrialized countries expanding their product range. Some economists believe that the principle of comparative advantage has failed to appreciate a variety of economic and trade phenomena, and also encourages lack of competitiveness. Contemporary explanations of why countries engage in export and import is based on concepts of competitive advantage, overlapping demand, economies of scale, and economies of scope. According to the competitive advantage theory of Michael E. Porter, a country can marvel in trading provided it has the right demand conditions, competitive environment, production factors, supporting industries, adequate structures, and

36 strategies. In the absence of these conditions for a particular industry or a product, import of these goods becomes inevitable. The "new trade theory" assumes that the global economy can support only a limited number of companies producing similar goods. Hence, the companies to produce certain goods first will capture a significant share of the market, hold patent rights, lead in development, therefore, certainly achieve economies of scale and scope. Economies of scale give countries trade advantages, because companies can charge less for products after increasing the size of their production facilities, because this increase will enable them to produce more goods. Economies of scope apply to integration of supplier, manufacture, and retail activities into a single company. This integration will allow the company to produce and sell goods at a less cost than individual manufacturers and retailers. Once a company achieves these advantages, other companies will find it hard to compete against it. However, Porter argues that companies should be participating in national markets with the strongest rivals and most demanding customers, in order to build international competitiveness, (Yip, 1995). In the words of Porter (1980) the pattern of rivalry at home also has a profound role to play in the process of innovation and the ultimate prospects for international success. Finally, the growth of multinational corporations, especially in the 1980s and 1990s, contributed to the importance and necessity of international trade. With production and marketing operations in many countries, these corporations account for a significant amount of the world's sales, assets, and human resources in both home and in host countries. Many contemporary economists view multinational corporations as the facilitators of efficient international trade. Multinational corporations also have access to the raw materials and natural resources of a number of countries, and traditional comparative advantage theories do not hold ground here. According to Mahoney, the Global Strategic Rivalry theory was developed in the 1980s as a means to examine the impact on trade flows arising from global strategic rivalry between Multinational Corporations. (Mahoney, et al 1998)

37 2.3 Trade and Development There is no major disagreement on the role of trade in development. Rather the fundamental proposition is always supported that international trade and investment are engines of growth for developing countries through many mechanisms: foreign exchange earnings, learning, technology transfer, innovation, and productivity improvement. International trade rules could have a positive effect for market development, for transparency and for good governance. The perspective on the role of trade in development reinforced after the Asian crisis of 1999, when the commitment of countries throughout the world to open trade and investment policies did not reverse. However, there is also a widespread consensus that an outwardly-oriented trade policy regime is not sufficient, nor could it be a substitute for sound development policy which entails a stable macro-economy; investment in education, infrastructure, and institutions; social policies and environmental protection, with a sufficiently strong national political consensus on these strategic orientations. This consensus on trade and development rests on thorough recognizing the positive relationship between openness in trade, finance and development, yet does not recognize it automatic or exclusive because the development policy is something much more complex and varied. Indeed, development is a multifaceted transformation of societies. It would be wrong to blame trade liberalization or "globalization" for the failure to achieve development goals (living standards, equity, education, nutrition, and housing) that could not reasonably be expected from trade alone in the first place, or only with an excessive optimism about its power for development. There is a need for more access to the developed countries markets, and for more flexibility and for more technical assistance for the developing countries, (Jos Manuel Salazar-Xirinachs, 1999). 2.3.1 Why Trade In order to overcome local scarcity of goods people have traded with each other for centuries. However, scarcity is not the only reason to engage in international trade. Trade is also seen as a route through which ideology can be disseminated, for example the USA has

38 used trade as a foreign policy tool and encouraged trade to foster economic links, encourage international security and promote their way of life. Trade is also used to generate economic and political leverage. There are psychological, cultural and social reasons for trade. For example, in some societies, trade may be a way of maintaining or reinforcing social bonds. Many economists, businesses, and politicians continue to rely on the principle of comparative advantage and it still influences import theories and policies. Consequently, countries continue to import products because they can obtain them less expensively abroad. Moreover, while trade policies, regulations, and theories have undergone numerous changes over the centuries, a basic motivation for countries to import goods from other countries remains the same. When certain countries lack goods and resources, they either must import them or make do without them. In addition, given the technology, labor costs, government incentives, and subsidies of different countries, one country may be able to produce goods more efficiently than other countries. Hence, other countries will seek to import these goods because of price and perhaps quality advantages. For example, other countries import aircraft from the United States, while the United States imports clothing from other countries such as India and the Philippines. Recently trade is viewed as a route to development. Many economists and politicians have promoted trade as a mean to increase economic growth and wealth. 2.3.2 The Benefits of Trade More over, there are a number of other benefits the citizens and firms of a country may enjoy as a result of being able to trade freely with the citizens and firms of another country such as:

The benefits of specialization The benefits of competition The benefit of choice

These tangible benefits are economics of diminishing returns, (Altaf, 2007)

39 Financial benefits aside, there are important spin off in other aspects of the personal and social life. These intangible benefits are:

Quality of living Fair and just trade Equity and trust

There are increasing returns based on these intangibles, (Altaf, 2007) Exporting It is the act of producing goods or services in one country and then selling or trading them abroad. Exporting is usually conducted by the company that manufactures the product or provides the service, through either direct or indirect channels. Exporting is just one of several methods that companies use to participate in economies outside of their home country. Exporting has played an important role in global trade throughout history. For example, the United States has always been heavily dependent upon exports. Even before its Declaration of Independence, the United States relied on exports of cotton, tobacco, and other agricultural products. The U.S. merchants were penalized by duties and restrictions in Europe. However, those impediments prompted new trade ties with overseas buyers in Africa, India, and East Asia, laying the groundwork for a legacy of U.S. trading overseas. The major goal of any export venture is usually to maximize profits by exploiting opportunities in foreign markets that usually don't exist in the domestic market. Products that become obsolete in the local markets can be marketed very successfully abroad. Like wise, many producers are able to continue to achieve steady sales and profit gains through cross-border sales though the domestic markets are saturated and mature. By increasing a product's life span, a manufacturer is able to reduce new product development costs and capitalize on learned efficiencies related to production, distribution, and marketing. More over, as manufacturing volume grows, benefits related to economies of scale may improve the exporter's competitiveness in both foreign and domestic markets. In

40 addition to the profit opportunities available in untapped markets, another major benefit of exporting is market risk diversification. Through exports, a company can generally lessen its vulnerability to cyclical economic downswings or regional disturbances by extending its geographic reach. Geographic diversification also lessens risks affiliated with the seasonality inherent in some products and increased competition in individual regions.

Importing Importing is the purchasing side of trade and takes place when one region acquires goods or services from another region. Seller of the goods or services is the exporter, whereas the buyer of the goods or services is the importer. Importing is linked with international trade and generally is distinguished from trade within a specific nation because importing involves government regulation, whereas interstate importing does not. Countries lacking in certain resources, or capacity to produce and manufacture, import them from other sources. In addition, various economic factors facilitate producing goods or offering services in one region or country, but not in another. Raw materials such as aluminum, steel, glass and wood, as well as finished products such as automobiles, appliances, furniture, and clothing are generally on the import lists of many countries. Countries also import partially finished products, which they in turn finish and sell domestically or export to other countries. Country's imports in relation to its gross national product indicate the significance of imported goods to its economy. Imports generally increase in tandem with exports as countries become accustomed to international trade and trading with specific partners. Importing allows countries to achieve higher standards of living by obtaining products and resources that cannot be obtained domestically.

41 2.4 Globalization: A World Without Borders

Globalization has been defined as the process by which markets and production in different countries are becoming increasingly interdependent due to dynamics of trade of goods and services and the flows of capital and technology, (OECD,1993). Globalization is often referred to as a major challenge of worldwide economic integration based on:

The international trade liberalization along with capital mobility Faster technological process and initiation of the information society Deregulation and withdrawal of the state interventions in certain areas of economic activity From business perspective, it is a process of worldwide economic integration,

however, from a broader perspective; it portrays the process of cultural diffusion throughout the world. Where as a result of intermingling of people and various forces like trade, commerce, travel, customs, spread of language; communication levels have increased velocity (speed & direction). In some cases, the term is often used without clear definition. For example, Ramesh Diwan, Professor of economics at Renssalaer Polytechnic Institute, says, "Globalization has become a buzz word." He continues, "Like other similar buzz words, such as sustainable development, it is rarely defined but used to promote arguments favoring business interests." The globalization factor involves government and international organizations such as World Trade Organization (WTO) having world wide membership. At one hand, national governments are changing their outlooks, and on the other hand, the supranational organizations are coming up with new rules and law, and international bodies for enforcement of these laws. These agreements and organizations are facilitating economic integration on a regional and worldwide basis. There are competing definitions of globalization, some favorable and others not so approving. Somesh (2004), calls the rising ratio of world trade output as an indicator of

42 globalization. However, along with the rising ratio of trade output, increased foreign investment, international joint ventures and mergers, inter firm agreements, diminishing trade barriers, emergence of open international trading system, unilateral and regional trade liberalization efforts, liberal trade policy instruments, information and communication technology revolution are major contributors towards globalization. Globalization has various effects; both positive and negative. It promotes cultural homogeneity. Common demands, common consumer preferences, and large pools of common information can blend the cultures and remove differences. It has also changed the role of government and enhanced competition. The assumption is that increased competition will lift the poor nations to a higher level of performance. The assumptions occasionally do not hold. According to Claude Smadja, Managing Director of the World Economic Forum (WEF), it is forcing governments to redefine their role at the national level. Governments should formulate and implement policies that facilitate economic activity, prevent social and political instability, and provide citizens with education and skills crucial to function in a global economy. Smadja further asserts that governments must try to provide a counterbalance to the negative forces of globalization like insecurity created by speed, flexibility, and permanent change. Increased industrialization resulting from economic globalization could lead to environmental pollution. As world is getting more connected economic problems in one region can be felt throughout the world, (such as Asian Financial Crisis of 1999). The most alarming effect is that globalization increases the gap between the rich and the poor. Globalization has imposed many opportunities and constraints. The challenge of globalization is not to stop the expansion of global markets but to find prudent and judicious rules and institutions for stronger and reasoned governance; local, national, regional and global to preserve the advantages of global markets and competitions. The need is to provide enough space for human, community and environment resources to ensure that globalization works for people, (UNDP, 1999).

43 Business firms want to globalize in order to expand their markets, increase sales, and profits. There is unlimited ability to expand especially if the firms are operating at high technological and productivity levels. Free trade agreements facilitate these activities and promote economic globalization. Such agreements vary in scope. Some are bilateral such as the U.S. - Canada Free Trade Agreement, and others are multilateral and regional such as North American Free Trade Agreement (NAFTA), the 18-member Asia Pacific Economic Cooperation Group (APEC), and the European Union (EU).

2.4.1

WTO and the Agreement on Textiles and Clothing Since 1 January 1995, international textiles and clothing trade has gone through a

fundamental change under the 10-year transitional program called Agreement on Textiles and Clothing (ATC). WTO Members have committed themselves for the ultimate removal of quotas to integrate the sector fully into GATT rules. Before this agreement a major

portion of textiles and clothing exports from the developing countries to the industrial countries was through quotas under a special regime outside GATT rules. Multi Fiber Arrangement (MFA) 1974 -1994 Up to the end of the Uruguay Round, textile and clothing quotas were negotiated bilaterally and governed by the rules of the Multi Fiber Arrangement (MFA). Under the MFA, selective quantitative restrictions were applicable. The Multi Fiber Arrangement was a major departure from the basic GATT rules and the principle of non-discrimination.

WTO Agreements on Textiles and Clothing (ATC) 1995-2004 The ATC was a transitional instrument, and was built on the following key principles:

product coverage: yarns, fabrics, made-up textile products and clothing progressive integration of textile and clothing products into GATT 1994 rules a liberalization process to progressively enhance existing quotas till their removal by increasing annual growth rates at each stage

44

a special safeguard mechanism to deal with new cases of serious damage or threat to domestic producers during the transition period

establishment of a Textiles Monitoring Body (TMB) to supervise the implementation of the agreement

some other provisions including rules on circumvention of the quotas, their administration, treatment of non-MFA restrictions, and commitments undertaken under the WTO's agreements and procedures

2.5

Regional Trading Arrangement (RTAs) The rapid growth in the number of regional trade arrangements (RTAs) has led to

concern about the weakening of the multilateral trading system. Modern RTAs have a much wider network of participants and involve a number of countries at different levels of economic development. 0ver 190 RTAs are in force and another 60 are operational though not notified. The total number of RTAs in force might approach 300 by 2005, (Understanding the WTO, 2003).

Though seems contradictory and violating the WTO principle of equal treatment for all trading partners (MFN), the RTAs can support the WTOs multilateral trading system while allowing the groups of countries to negotiate those rules and commitments which were not possible multilaterally. Services, intellectual property, environment standards, investment and competition policies are such issues, which were raised in regional negotiations and eventually developed into agreements/ topic in the mainstream discussions of WTO. GATTs article 24 allows setting up of the RTAs and says if a free trade area or customs union is created, duties and other trade barrier should be reduced or removed on all sectors of trade in the group. Non members should not find trade with the group any more restrictive then before the group was set. Article 5 of general agreement on trade in services encourages the economic integration agreements in services in 1996, the WTO General Council made a regional Trade Agreement Committee to examine and assess regional groups and their conformity with WTO rules, (WTO website).

45 The Free Trade Area of the Americas and the European Union's agreements with Central and Eastern Europe and the Mediterranean each have involvement of more than 500 million people. In mid-1998, 76 per cent of all WTO members were participating in one or more notified regional trade agreements, (Jo-Ann Crawford and Sam Laird, 2000). Jo-Ann Crawford and Sam Laird (2000) further states that the 1990s were also a period of rapid growth of accessions to the GATT and the WTO. There was some 80 GATT contracting parties in 1990, and there are 130 WTO members today. In the accession process, new GATT/WTO members committed themselves to reduce protection and to implementation of WTO rules and at the same they notify this to the RTAs, which they are a party. Thus a considerable decline in the use of non-tariff measures as well as considerable rationalization of tariff structures, tariff reductions to moderate average levels and a major expansion in binding coverage has emerged. This trend can reduce the scope for trade diversion, and as Baldwin (1997) points out "almost all empirical studies of European and North American arrangements find positive impacts on member's living standards". Baldwin (1997), Ethier (1998) and Lawrence, (1999) consider regionalism as a complement to multilateralism (building blocks rather than stumbling blocks). Baldwin argues that NAFTA triggered off pressures for such agreements as a kind of domino effect. Baldwin and Lawrence both are of the opinion that such liberalization strengthens the exporters and pro-trade forces. Ethier (1998) emphasizes that "the new regionalism is in good part a direct result of the success of multilateral liberalization, as well as being the means by which new countries trying to enter the multilateral system (and small countries already in it) competing among themselves for direct investment". However, Bhagwati (1992) and Krueger (1995) express strong concerns about the negative effects of growing regionalism and they show concern that RTAs divert attention from the multilateral trading system. Bhagwati stresses the benefits of free trade and dose not agree with the arguments that regionalism is a supplement to GATT, and accelerate the GATT processes.

46 The economic advantages to participant in regional trade agreements could be even more if the liberalization were carried out on a multilateral scale. Kemp and Wan (1976) note ...there is a big incentive to form and enlarge a customs union until the world is one big customs union, that is, until free trade prevails. 2.6 The Trade Policy Instruments Governments use many trade policy instruments to raise revenue or influence the terms of trade, and to limit imports or encourage exports, (Kenen, 1994) Tariffs affect quantities by affecting prices. When tariffs are imposed on imported goods, they are aimed at raising revenue rather than protecting a domestic industry. A number of countries use export tariffs for this same revenue-raising purpose, and this is a common practice in developing countries. Tariffs on exports are relatively easy to collect. Subsidies are sometimes used to stimulate exports. The General Agreement on Tariffs and Trade discourages export subsidies. Countries, sometimes, subsidize exports indirectly byoffering export credits at low interest rates, treat export earnings preferentially when taxing business profits, and subsidize production in their export industries instead of directly subsidizing the exports. A quota is an absolute limitation on the volume of an imported good. Imports quotas affect quantities directly rather than affecting them indirectly through prices. Quotas interfere with economic efficiency, and sometimes are hard to administer fairly. Though quotas are also discouraged by the GATT, but there are important exceptions to the prohibition. Countries can have regulation for products and processes on the bases of health, safety, and environmental quality. Another form of barrier to trade is when governments grant advantages to domestic firms when buying goods and services for themselves, and these may be the most important barriers to trade. Tariffs, subsidies, and quotas are fairly transparent. Other forms of intervention are less transparent.

47 2.7 Some other Important Concepts

Free Trade The history of international free trade is a history of international trade focusing on the development of open markets and dismantling of barriers to movement of goods, services and capital flows. Advocate of free trade believed that trade was the reason of economic prosperity of certain civilizations. Adam Smith attributed the boom of Mediterranean cultures (Egypt, Greece, and Rome), and flourishing of Bengal, East India and China to increased trade. Proponents of Free trade policies have clashed with mercantilist, protectionist, isolationist, communist, and other policies over the centuries. All developed countries have used protectionism at some time prior to the 19th century, and pursued mercantilism, but usually reduced it as they gained more wealth. Free trade is often opposed by domestic industries because it could reduce their profits and market share by lower prices for imported goods. Free trade is opposed by many anti-globalization groups on the argument that so-called Free trade agreements generally do not increase the economic freedom of the poor, rather make them poorer.

Protectionism Protectionism is the economic and political policy of a country to protect its economy through the imposition of tariffs, quotas, restrictions, border security, and other measures. Supporters of protectionism believe that it prevents domestic market distortions such as wages, and price structure, foreign dumping, unfair trade, illegal immigration, and other foreign interference. Alexander Hamilton's economic program advocates protectionism to protect domestic economic system from foreign competition. Principles of Trading System

To ensure fair and free trade the WTO works on the following principles: (WTO website).

48

Trade without discrimination is based on Most Favored Nations (MFN), which means; countries can not discriminate between their trading partners.

Free trade through negotiations gradual lowering down the trade barriers to encourage trade. However, opening up markets needs adjustments to introduce changes, and under the WTO it is done through negotiations to give all member countries a fair chance to trade.

Predictability through binding and transparency implies that governments should make their business environment stable, predictable and transparent. For any sudden change in policies that causes loss to trading partners needs to be compensated.

Promoting fair competition, the WTO encourages open, fair and undistorted competition.

Monopolies The term Monopoly is used by economists to describe a market situation where there is a single seller of a product (good or service). In other words there are no close substitutes, (Blinder, Alan S; William J Baumol and Colton L Gale, 2001). The word has its roots in the Greek words monos (meaning one) and polein (meaning to sell). According to Friedman (2002) a monopoly exists when a specific individual or enterprise has sufficient control over a particular product or service to determine the terms on which other individuals shall have access to it. Government polices towards monopolies either permitting, prohibiting or regulating them can have major effects on specific businesses and industries but also on the economy and society as a whole. Milton Friedman said that in the case of natural monopolythere is only a choice among three evils: private unregulated monopoly, private monopoly regulated by the state, and government operation. According to him the least of these evils is private unregulated monopoly where this is tolerable. The term is generally used in a relative sense rather than an absolute one, because degrees of monopoly vary; and hardly a pure monopoly situation exists. Theoretically, there

49 can be two extreme situations: in a pure monopoly situation one company has complete control over the supply or sales of a product with no substitutes, whereas in pure competition or perfect competition, there can be many sellers of identical or virtually identical products. Monopolies are classified in various ways according to the degree of monopoly power, the cause of the monopoly, the structure of the monopoly and whether it is for selling or buying. A monopoly frequently consists of a group of companies that control prices and quantities. An oligopoly is a situation in which sales of a product are dominated by a small number of relatively large sellers who collectively hold control over the supply and prices. A cartel is a type of oligopoly in which a centralized institution coordinates the actions of several independent suppliers of a product. Monopolies have existed throughout the human history. The natural human desire for wealth and power could be one reason. However, monopolies can be immensely profitable and gives the owners with tremendous financial, political and social power. In political discourse, the term monopoly is often used in criticism of firms with large market shares or lack of what is seen as "fair" competition. Competition

The word has Latin roots: "to compete" is "competere", which means "to seek together" or "to strive together", (Dictionary website). However, Kohn (1986) and cooperatives argue that the traditional definition of competition is too broad and vague. In business competition is defined as "the effort of two or more parties acting independently to secure the business of a third party by offering better and favorable terms." Competition is motivating, and stimulates innovation, encourages efficiency, and brings prices down. According to microeconomic theory, no system of resource allocation is more efficient than pure competition. However, sometimes competition may lead to waste and duplication of efforts. In other words, competition can compel firms and businesses to develop new products, better service deliveries, and technologies. This gives consumers

50 better selection and better products. Thus consumer pays lower prices for the products as compare to the prices if there was no competition (monopoly) or little competition (oligopoly). Competition does not necessarily have to be between companies. Internal competition refers to competition within companies. In the 1920s, Alfred Sloan at General Motors introduced this idea. Sloan created areas of overlap amongst divisions of the company so that each division would be competing with the other divisions. Procter & Gamble initiated a deliberate system of internal brand-versus-brand rivalry, (wikipedia).

Productivity of Bt Cotton Huang et al. (2001) measured the effect of the impact that genetically modified cotton varieties have had on the production efficiency of smallholders in farming communities in China. They observed that the adoption of Bt cotton varieties leads to a significant decrease in the use of pesticides. Hence, Bt cotton appears to be an agricultural technology that improves both production efficiency and the environment. In terms of policies, the findings suggest that the government should investigate whether or not they should make additional investments to spread Bt to other cotton regions and to other crops.

Pemsl et al. (2003) analyzed Bt cotton productivity considerations from India and China. The approval of commercial planting of Bt cotton in China and India was implemented in 1997 and 2002 respectively. Upto 2003 Bt varieties have reached over 50 percent of the total cotton area in China. The study results revealed that the benefits derived from Bt cotton significantly higher than non Bt cotton which are based on higher productivity of Bt cotton in China.

Thirtle et al. (2003) assessed the impact of Bt cotton in Makhathini Flats, KwaZuluNatal, South Africa. Study result revealed that Bt cotton adopters in 19992000 benefited according to all the measures used. Higher yields and lower chemical costs outweighed higher seed costs, giving higher gross margins. These measures showed negative benefits in 199899, which conflicts with continued adoption, but stochastic efficiency frontier estimation, which takes account of the labor saved, showed that adopters averaged 88

51 percent efficiency, as compared with 66 percent for the non-adopters. In 19992000, when late rains lowered yields, the gap widened to 74 percent for adopters and 48 percent for nonadopters.

Barwale (2004) studied the prospects for Bt cotton technology in India. The findings of the study revealed that process of introduction of Bt cotton took six years of experimentation, during which time agronomic, environmental, and biosafety data was generated and reported. The trials conducted prior to commercialization clearly established the superior performance of Bt cotton, as demonstrated by increased yields and reduction in application of pesticides. Transgenic technology is suitable for the Indian farmer despite small farm holdings. The area under Bt cotton is projected to increase rapidly in the coming years.

Bt cotton can play a significant role to enhance agricultural productivity in Pakistan as the current productivity of cotton in Pakistan is 0.71 ton/ha (Government of Pakistan, 2009) as compared productivity of Bt cotton in China is 9 ton/ha (Altaf, 2009) which implies a huge cotton productivity gap. This gap can be narrowed down by the rapid adoption of Bt cotton in Pakistan which will have major impact on food security efforts in the country.

Entrepreneurship for Cotton Sector

Gilani (2008) during his address to launching ceremony of The Indus Entrepreneurs (TiE) Islamabad Chapter emphasized on promotion of entrepreneurship in Pakistan. According to him, the TiE needs to give equal attention to traditional sector such as textiles, and the emerging ones, such as Information Technology (IT), Bio-Informatics or Organic Farming. Pakistan have young people with exceptional talent, who are creating softwares that are being used by the World's IT giants. These young people are fully capable of creating marvels in other fields as well. He was glad that the TiE is endeavoring to develop an Entrepreneurial Echo System in the countrya system that put all ingredients of entrepreneurship in place. This system has been paying the nations across the world.

52 Although the country is late starter, but still it can catch up which requires implementation of all these ingredients with sincerity of purpose. While giving due importance to mentoring and networking on a sustainable basis, Pakistan needs to focus on education, training and exposure of existing entrepreneurs.

In this connection, Gilani suggested that teams of qualified academicians from Internationally reputed institutions like MIT, Harvard and others, should be engaged to impart market based skills, especially to start ups. It is satisfying that the TiE intends to involve universities and colleges in its programs; these institutions are, indeed, a proper ground to hunt talent for entrepreneurship. However, involving the people already in business would result in building up the relevant industry, as these enterprises are in a position to accept and deliver business orders.

Gilani further stated that Angel Investment and Venture Capital are the most important part of the Echo System; angel investment is not a new experience for us; this is deeply rooted in Islamic polity; and is still in vogue among various Muslim communities. This mode of investment provides an additional funding opportunity to new entrepreneurs. Pakistan, therefore, must endeavor to harness this source of funding; focused efforts need to be made on creating a pool of Angel Investors and establish Venture Capitalists within and outside the country. He believes that TiE will accord special attention to this aspect of the Entrepreneurial Echo System in Pakistan. Finally he proposed that mentoring, networking and business plan competitions, if organized at the International level, will harness foreign investment in the country.

Altaf (2008) presents an overview of the economics and political economy of the entire cotton value chain, including growing raw cotton, ginning into lint, spinning into yarn, weaving into fabric, producing cotton made-ups, such as towels and other nonapparel goods, producing apparel, and marketing. These combined sectors contributed 11 percent to Pakistans gross national product in 20042005, nearly 50 percent of manufacturing output, and more than 60 percent of the countrys foreign exchange earnings. His analysis has an optimistic theme. He addresses the successes of Pakistans industries in terms of its rapid

53 growth of yarn and textile production levels and highlights cases of highly competitive and successful entrepreneurs. But, he is also critical of the industry overall for failing to have sufficient entrepreneurial spirit, which he argues is necessary in the globalized fibers-toapparel economy that has emerged. He lays the roots of weakness in the protected market environment in which Pakistans industry developednot just the multilateral quotas of the MFA but also its own protected market, including its historically captive market in Bangladesh when that country was East Pakistan. His assessment recounts incidents of the distortions this protected market created. He raises many challenges to the industry; chief among these are the upgrade of the work force, the development of modern entrepreneurs, and greater attention to product differentiation and value, which requires marketing expertise and initiatives.

54 References Zafar, A. (1983). Pakistani Entrepreneurs; Their Development, Characteristics and Attitudes, Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT, Australia Alexander Hamilton: http://en.wikipedia.org/wiki/Alexander_Hamilton

Zafar, A. (2008). Challenges in the Pakistan Cotton, Yarn, Textile, and Apparel Sectors, Chapter-3 Discussion Paper entitled Cotton-Textile-Apparel Sectors of Pakistan: Situations and Challenges Faced edited by Cororaton, C.B. et al. 2008, Markets, Trade and Institutions Division, IFPRI Discussion Paper 00800.

Zafar, A. (2009).

Chairman, Pakistan Agricultural Research Council (PARC)

informed during one of his meeting with the scientists of PARC, Islamabad, Pakistan, June, 2009.

Baldwin, R.E. (1997), "The Causes of Regionalism: The World Economy, 20, 7, 865888.

Barwale, R.B., Gadwal, V.R., Zehr, U and Zehr B. 2004. Prospect of Bt cotton technology in India. AgBioForum, The Journal of Agrobiotechnology Management and Economics 7(1&2).

Bhagwati, J. (1992), "Regionalism versus Multilateralism": The World Economy, Retrieved on 2007-05-27
Blinder, Alan S; William J Baumol and Colton L Gale (2001). Monopoly: Microeconomics: Principles and Policy. Thomson South-Western. pp. 212. ISBN 0-324-22115-0

Claude Smadja: WEF; http://www.abc.net.au/rn/talks/lm/stories/s146446.htm: and http://www.weforum.org: Retrieved on 2008-05-27

Dominick Salvatore, Fordham University, New York: http://www.bepress.com

55 Dunn, John quoted in Vincent Cable, The Diminished Nation State: A study in the loss of economic power, 1995

Ethier, W. (1998), "The New Regionalism", the Economic Journal, 108, 1149-1161

Evolution of Trade Theories: http://referenceforbusiness.com/encyclopedia/govinc/impoting.html

Francois Quesney (1694-1774) http://en.wikipedia.org/wiki/ Fran%C3% A7ois_ Quesnay

Free Trade Agreement: http://en.wikipedia.org/wiki/List of_free_trade_ agreements

Free Trade Arrangements: http://www.export.gov/fta

Free Trade: http://en.wikipedia.org/wiki/Free_trade Retrieved on 2008-04-23

Government of Pakistan (2009). Economic Survey of Pakistan, Economic Advisors Wing, Finance Division, Government of Pakistan, Islamabad.

Gilani, S.Y.R., (2008). Address by the Prime Minister of Pakistan Syed Yousuf Raza Gilani at The Launch of The Indus Entrepreneurs (TiE) Islamabad Chapter Rawalpindi June, 2008.

Gilpin Robert, (2001): Global Political Economy: Understanding the International Economic Order, Princeton University Press, Princeton, New Jersey (USA)

Huang , J., Hu Ruifa, Rozelle, S. Qiao, F. and Pray C.E. 2001. Small holders, transgenic varieties, and production efficiency: The case of cotton farmers in China. California Agricultural Experiment Station, Giannini Foundation for Agricultural

56 Economics, Department of Agricultural and Resource Economics, University of California Davis, USA.

Hettne, B (1995): Development Theory and the Third World: Towards an International Political Economy of Development: Longman Development Studies, 2nd edition

Innovation: http://www.hillaryclinton.com and http://en.wikipedia.org: Retrieved: 2008-03-27

International Trade Theories: free Essays, Cliff Notes and Term Paper Database: http://www.essays.cc/free_essays/b5/1vt197.shtml: Mahoney, M Trigg, R Griffin, M Pustay, (1998): Techniques for Analyzing Industries and Competitors: New York: Free Press. George S. Yip, (1995), Total Global Strategy. Salvatore Dominic, (1999), International Economics, McGraw-Hill. Ball, Mcculloch, (1999) International Strategic

Partnering Handbook: McGraw-Hill.

Salvatore Dominic, (1995): Theory and

Problems of International Economics: McGraw-Hill. Mahoney, et al (1998)

Jo-Ann Crawford and Sam Laird: Regional Trade Agreements and the WTO Centre for Research in Economic Development and International Trade, University of Nottingham

Jos Manuel Salazar-Xirinachs, Chief Trade Advisor of the Organization of American States, March 1999, Trade and Development: Towards a New Consensus at the ICTSD International Centre for Trade and Sustainable Development , Geneva

Kemp, M. C. and H. Wan, (1976), "An Elementary Proposition Concerning the Formation of Customs Unions", Journal of International Economics, 6, 95-98

Kenen B. Peter, (1994): The International Economy, (3rd Edition), Press Syndicate of the Cambridge University Press, USA

57 Kohn, Alfie (1986). No Contest The Case Against Competition. Boston New York London: Houghton Mifflin Co. ISBN 0-395-63125-4.

Knowledge Based Economy.www.oecd.org/document/14/0,3343.html: Retrieved on 2008-03-23

Milton Friedman (2002). Monopoly and the Social Responsibility of Business and Labor. The University of Chicago Press. pp. 208. ISBN 0-226-26421-1

Monopolies: http://en.wikipedia.org/wiki/Monopoly. Retrieved on 2008-03-23

Monopolies: The Linux Information Project: (2005 2006). http://www.linfo.org Retrieved on 2008-03-23

OECD Report, (1993): http://www.oecd.org: Retrieved on 2007-06024

Pemsl, D.E., Orphal, J. and Waibel, H. 2003. Bt-cotton productivity considerations from India and China. A paper presented in a conference on International Agricultural Research for Development, Gotingen, October 8-10, 2003.

Porter E. Michael, (1985). Competitive Advantage: Creating and Sustaining Superior Performance, the Free Press, New York NY 10020

Robert Richard Torrens (1780-1864): http://en.wikipedia.org/wiki/ Robert_Torrens

Smith, Adam, 1937, The Wealth of Nations, N. Y. Random House, p. 643; first published in 1776

Somesh K. Matura, (2004): Globalization and Development: Some Issues and Empirical Facts; Lecture at the department of Economics, Jamia Millia Islamia, New Delhi

58 Suranovic M. Steven, (2004): The International Economy; International Trade Theory and Policy, (Trade: Chapter 5): http://stevesuranovic.blogspot.com;

Thirtle, C., Beyers, L., Ismael, Y. and Piese, J. 2003. Can GM-technologies help the poor? The impact of Bt cotton in Makhathini Flats, KwaZulu-Natal, South Africa. World Development. Vol. 31, No.4, pp 717-731, 2003.

Trade: http://en.wikipedia.org/wiki/Trade

Trade Theories: http://www.referenceforbusiness.com/encylopedia: http://en.wikipedia.org/wiki/Kenynesian_economics http://en.wikipedia.org/wiki/Classical_economics: http://en.wikipedia.org/wiki/Trade http://en.wikipedia.org/wiki/Adam_Smith http://en.wikipedia.org/wiki/History_of_economic_thought

http://www.nytimes.com/2008/02/13/opinion/lweb13krugman.html

UNDP, (1999), Human Development Report, New York: Oxford University Press

Watson, Peter (2005). Ideas: A History of Thought and Invention from Fire to Freud. Harper Collins; ISBN 0-06-621064-X

What is Development: Adam Szirmai: The Dynamics of Socio- Economic Development: An Introduction. Cambridge University Press 0521817633

What is Productivity? Diane Galarneau and Ccile Dumas, (1993): About Productivity Spring 1993 (Vol. 5, No. 1) Article No. 5. (IS 931 A5)

World Bank Report, (2000): The Quality of Growth: (2000): (V. Thomas, M. Dailami): http://www.worldbank.org: Retrieved on 2006-12-23

59

What is the WTO?: World Trade Organization: http://www.wto.org

Yamada, Miwa (2008): Evolution in the Concept of Development: How Has The World banks Legal Assistance Extended its Reach? Institute of Development Economics: http://www.ide.go.jp

Yip, George (1999): (Dean, Rotterdam School of Management, Erasmus University) http://en.wikipedia.org/wiki/George_Yip

60

CHAPTER 3 RESEARCH METHODOLOGY

3.1 Introduction The theoretical framework is very important in a research work in two ways; firstly it helps the researcher to put his data in one place to save it from being lost in the vast realm of knowledge and secondly, the work may provide a better understanding to the unknown audience who would probably like to use it as a reference for their academic studies (Sultana, 2007). This study mainly depends upon secondary information and data; however subject specialists and experts have also been consulted as trade analysis is a complex terminology relatively. Different experts analyze it differently and according to need and objectives. The reason to work on secondary information and data were:

Cost and time saving in collection of data Specific needs of the research objectives were not in tandem with primary data sources

Some of the critical variables can not brought out in interviews and questionnaires

Primary data sources tend to be subjective

Publications and websites of the UNDP, UNCTAD, World Bank, WTO and other international agencies on international trade, policies & procedures, rules & regulations, and on textile and merchandize trade were consulted. Official hand outs, publications and websites of the government ministries, especially the line ministries responsible for trade, industry, agriculture, investment and textile were used to have reliable and credible data. Website and publications of the State Bank of Pakistan, Federal Bureau of Statistics, and Ministry of Finance were utilized.

61 3.2 Methodology and Research Design

In this study maximum dimensions have been covered using revealed comparative advantage, relative comparative advantage, opportunities for supply chain integration and trade complementarities techniques. Brief description of these techniques is discussed in the following sub-section:

3.2.1 Revealed Comparative Advantage

The concepts of comparative advantage and competitiveness are two important foundations for understanding the importance of international trade in agriculture and to illuminate the underlying factors responsible for current trade patterns. Comparative advantage refers to the ability of one nation to produce a commodity at a lower opportunity cost of other products forgone than another nation, while competitive advantage indicates whether a firm could successfully compete in the trade of the commodity in the international market given existing policies and economic structure (Warr, 1994).

Revealed comparative advantage ratios, developed by Balassa (1965), have been widely used to study profiles of revealed comparative advantage in various export products.

The ratio is defined as:

Where R ih = Revealed comparative advantage ratio for country i in product h X ih = Country i' s exports of product h X it = Total exports of country i Xwh = World exports of product h X wt =Total World exports

62 It is evident from the above equation that revealed comparative advantage is simply a ratio of the share of a given product in a country's exports to its share in world exports, and a country is said to have a revealed comparative advantage (disadvantage) in product h if R ih > (<) 1. It must, however, be cautioned here that the export shares that underlie the revealed comparative advantage ratios are influenced by external and internal trade policy distortions such as protectionist barriers in export markets and anti-export bias in domestic trade policy. Therefore, to the extent that these distortions may be present, the pattern of "true" comparative advantage may differ from the one suggested by the revealed comparative advantage ratios. The revealed comparative advantage ratios can be computed at various levels of commodity aggregation according to the Standard International Trade Classification (SITC). The finer the disaggregation, the better the identification of the products is, in which potential for exports exists. Accordingly, the three digit SITC commodity classification on which we had the data is used for identification of products of export interest to each country. Nevertheless, 1 and 2-digit SITC classifications may provide a broad picture of the pattern of comparative advantage and have been used by researchers as well.

3.2.2

Relative Comparative Advantage

An improved version of Balassas original version, namely the Relative Revealed Comparative Trade Advantage (RTA) index, offered by Vollrath (1991) reflects both imports and exports, and is formulated as:

63 The RTA considers both export and import activities and this seems to be an advantage from the viewpoint of trade theory. Due to the increase in intra-industry trade, this aspect, according to Frohberg & Hartmann (1997) is also becoming increasingly important.

A problem with these types of indices is that observed trade patterns are likely to be distorted by government policies and interventions, and may therefore misrepresent underlying comparative advantages (Ferto & Hubbard, 2001). Furthermore it says nothing about how a country acquires its market share. Market share may well be maintained by costly government incentives.

3.2.3

Opportunities for Supply Chain Integration

The RTA method can also be used to determine the opportunities for supply chain integration between countries and regions (Van Rooyen & Esterhuizen, 2001; ISMEA, 1999). A comparative analysis of supply chains in South Africa, Argentina and Australia is used to assess whether the current competitiveness status within chains provides a basis for increased trade between the countries. The analysis implies incomplete specialization in any country, and international tradability. The analysis only considers industries that can be regarded as competitive. RTA values form the basis for analysis.

Depending on the existence of trade barriers or free trade and the level of transaction costs involved, added value can be created by exploiting competitive positions.

3.2.4

Trade Complementarities

The success of regional integration schemes depends largely on the extent of trade complementarities in a regional trading bloc. For example, regional trading arrangements are likely to succeed in strengthening intra-regional trade if the trade structures of member countries exhibit strong complementarities. Trade complementarities, which measures the compatibility of imports of country i with exports of country j, as defined below.

64

Where C ij =Trade Complementarities index for trade between countries i and j m hi =Share of good h in total imports of country i x hj =Share of good h in total exports of country j

The trade complementarities index is zero when no good exported by one country is imported by the other, and equals one when the shares of one country's imports correspond exactly to those of the other's exports.

3.3

Research Objectives The main objectives of this research study are:

To overview Pakistans trade in all its aspects over time; To analyze the performance of Pakistans textile and apparel sector trade over time; and To work out Pakistans trade potential in textile and apparel sector and explore opportunities

3.4

Statement of Hypothesis Keeping in view the theoretical frame work, the researcher developed the following

hypothesis statement; Pakistan is facing a new structure in international trade and the country should be; Able to work its strengths Develop itself from a low income country to a middle level country through its trade in Textiles

65 References Altaf Zafar, Dr, (2007): Challenges in the Pakistan Cotton, Yarn, Textile and Apparel Sectors, Chapter Five: Studies of the Cotton-Textile Apparel Industries in Pakistan and India: Cotton Trade Policy and Poverty Study

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Kala Krishna and Cemile Yavas, (2002), When Does trade hurt? Market, Transition and Development Economics, NBER Working Paper series; working paper 8995: National Bureau of economic Research, Cambridge, MA 02138: http://www.nber.org: Retrieved on 2008-01-23 Lather, P. (1992): Critical Frames in Educational Research: Feminist and Post Structural Perspectives, Theory into Practice, xxxi, 2, 87-99 Motta, M, J-F Thisse and A. Cabrales, (1997): On the Persistence of Leadership or Leapfrogging in International Trade, International Economic Review, 38 (4), 809-824

66 Petrakis, E and S. Roy, (1999): Cost Reducing Investment, Competition and Industry Dynamics, International Economic Review, 40 (2), 381-401

Porter E. Michael, (1985). Competitive Advantage: Creating and Sustaining Superior Performance, the Free Press, New York NY 10020

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Warr PG (1994). Comparative and competitive advantage. Asia-Pacific Economic Literature 8(2):1-14.

Esterhuizen D & Van Rooyen CJ (1999). How competitive is agribusiness in the South African agro-food commodity chain. Agrekon 38(4):744-752.

Ferto, I. & L. J. Hubbard (2001). Regional comparative advantage and competitiveness in Hungarian agri-food sectors. 77th EAAE Seminar/NJF, Seminar No 325.

Frohberg K & Hartmann M (1997). Comparing measures of competitiveness. Institute of Agricultural Development in Central and Eastern Europe, Discussion Paper, No 2, Web page: http://www.landw.uni-halle.de/iamo/iamo.htm. Accessed on 03/04/03.

Sultana, N. 2007. The Role of Media in the Development and Promotion of English in Pakistan. Unpublished Ph.D. thesis, National University of Modern language, Islamabad.

67

CHAPTER 4 INTERNATIONAL POLITICAL ECONOMY

Moral philosophy of Adam Smith who is widely acknowledged as the father of economics is the source of political economy when he was Professor of Moral Philosophy at the University of Glasgow, (Bucholz, 1989). The term Political economy originally was for studying production, buying and selling, and their relations with law, custom, and government. In the eighteenth century, it replaced the earlier approach of the Physiocrats. Adam Smith, David Ricardo and Karl Marx were the principal exponents of political economy.

4.1

International Political Economy The theme of international political economy based on the concept that markets are

deeply entrenched in the larger sociopolitical set up. Therefore, it requires the integration of the views of neoclassical economists and political economists to understand how markets and market forces function to bring out economic activity and consequences. This also coincides with the understanding of the functions of powerful actors, who attempt to manipulate and control market forces to promote their private and vested interests. One has to look deep in to the realities of life where there is a constant struggle and unending war amongst human beings, groups, states, governments to grab position and power. The purpose of the economic activity in a sociopolitical structure largely depends on the value and belief system, historical perspective, and socially approved ways. All these factors in fact determine and circumscribe the ways in which the markets mechanism is permitted to function. An established fair and legal economic behavior in one society may not be acceptable in another society: bribery is an offence in some countries whereas; it can be an accepted business practice in other countries. In any case the dilution of rules and procedures for the powerful is always on practice that is formed irrespective of the status of a country.

68

4.2

Role of National Governments in International Political Economy The National Government or State is an important player in the political economy.

To fulfill security, social justice, political and economic functions and welfare for its citizens is its primary responsibility. Moreover, it gives identity to its citizens. With in national political economy and at the larger canvass of international political economy when the powerful actors advance their interest at the cost of others, the role of state becomes more crucial. The commitments to free trade, foreign policy, and other economic activities it could be argued should base on the national interest and not at the behest of those in power. Drazen (2000) explains that the Government polices like tax, expenditure, concessions and exemption to promote and protect certain firms or individuals are the political side of the state. The economic policies may have welfare effects but how the objectives are chosen and collective choices are made, the process of deciding what policy to adopt is different from the process of deciding on policy. In a political economy model for example determination of tax rates or current consumption over future consumption will reflect conflict over preferences in the economic system. 4.3 Political Economy of International Trade The economic and political events played a very significant roll in the rise and fall of international trade cooperation through the 19th century. Following two waves are the hall mark of this period;

The emergence of a Multilateral Trading System with low tariffs in Europe Decline of European Free Trade (1879-1914)

4.3.1

Trade Policy before World War I, (1860-1914) The period after World War I was difficult for international trade relations. However,

in the second half of the 19th century widespread economic development took place.

69 Industrialization along with technological change facilitated trade expansion supported by a network of bilateral trade treaties. Interestingly, this trend started with the Anglo-French (Cobden-Chevalier) treaty of 1860. A series of other treaties among European countries was trigged by this trend. Bilaterally agreed reciprocal tariff reductions, together with the application of the unconditional most favored- nation (MFN) clause contained in the treaties, led to historically low tariff levels, in particular for agricultural products. This period of largely unfettered trade across Europe lasted for nearly two decades up to 1879, faltering gradually thereafter and collapsing with World War I, (World Trade Report, 2007). In light of subsequent developments in international trade relations, it is most interesting to note that the bilateral treaties among the leading trading nations in the late nineteenth century gave birth to a net work of multilateral and nondiscriminatory arrangements. However, these arrangements could not create a global trading system with low protection levels. The United States and Latin American countries followed a high tariff regime. Trade between the colonial powers and the territories was not only bilateral but largely driven by political factors. Discrimination in trade and navigation policies was common. China and Japan, which had been closed economies in the first half of the 19th century, were pressured into opening their markets to international trade between 1840 and 1860, (World Trade Report, 2007). Cheap industrial goods, reduced communication and transport costs along with telegraph and railways network made Europe the hub of industrialization. The US and Japan also joined the industrialization process. These new opportunities accelerated the integration of markets on a global scale. However, the agricultural sector in the European continent was kept at the back burner. Throughout the 19th century, debates on the benefits of free trade took the center stage. At one hand, the mercantilists trade policies started fading away, and on the other hand he unrestricted trade principles of the classical economists such as Adam Smith and David Ricardo were opposed by Alexander Hamilton and Friedrich List, who recommended intervention of government to protect emerging domestic industry. The John Stuart Mill in The Principles of Political Economy also favored protection of infant industry. Robert Torrens with optimal tariff argument suggested that under certain

70 conditions protection could improve national welfare, and the counter argument was government failure. However, neither came up for the agricultural sector. In the mid nineteen century, the United Kingdom played a leadership role in the European experience. It was ahead in industrialization, export and import, technology and textiles industry, and its currency was widely accepted in the worldLondons financial markets were the lynchpin of the gold standard to which adherence had been growing rapidly since 1872. Bairoch (1976) states that the trade policy in Europe was a feature of more liberal, and market-oriented domestic economic policy regime.

Under the Cobden-Chevalier treaty, France also benefited, and after France and the United Kingdom agreed on elimination of prohibitions, an outbreak of agreements followed across Europe and many other countries joined contributing to the creation of a low tariff area in Europe. During the Great Depression (1873-1896), prices of internationally traded goods decreased steadily, and European trade treaty network started crumbling down in a changed political and economic environment. However, up to World War I, the United Kingdom remained firm in its free trade and low tariff policy but other European countries with large agricultural sectors and less developed industrial sectors started to increase tariffs. The major cause for protectionism was the agriculture crisis in the continental Europe. With end of the US civil war (1861-65), grain production and exports recovered in the United States, causing price decline of grain in Europe. Continental wheat farmers immediately lost this market to United States suppliers. In the words of Woodruff (1971) with the great increase in the world production of grain from the 1870s until the end of the century, the price of wheat dropped from about $1.50 a bushel in 1871 to 86 cents in 1885; a decade later in 1894 the figure was about 70 cents. Bairoch (1989) states that this inflow caused a slowdown in the growth of agricultural production in continental Europe and a fall in farmers income. All this led to decline in consumer and investment goods, casting shadows on other industrial sectors. Demands by agricultural sector for protection also encouraged others sectors like iron, steel and textile industries to seek higher protection. Bairoch, (1989)

71 mentions that the rise of German tariffs in a customs law, introduced in 1879 was the major shift to a more protectionist trade policy in Europe. Continental European trade policy turned even more protectionist during the 1890 to 1913 period. and more than half of the 53 trade treaties of European countries expired. It gave rise to national sentiments. Nolde (1932) mentions that the introduction of the Mline tariff in France supported additional protection to agricultural sector, and strengthened protectionist policies all over the continent. With the rise of tariff rates, more detailed and complex tariff schedules came into being with maximum and minimum rates. It enhanced the uncertainty amongst traders. The increased tariff rates and trade barriers changed the direction of trade flows. The European powers strengthened their trade ties with their colonies, considering them valuable markets and sources of supply. During this period the rise of the United States was increasingly felt in international trade relations, and leading position of the United Kingdom was eroded. The rivalry among the major trading nations was suddenly on the anvil. In the two decades prior to World War I, a number of tariff wars broke out, usually provoked by the establishment of a new, more protectionist tariff, or in the course of renegotiation of bilateral treaties. After the expiry of a treaty, tariffs were often raised temporarily as a means of improving negotiating leverage. 4.3.2 International Trade from 1918 to 1939 During this period, government controls took over the private transactions in international trade relations. The policies were dictated by high tariffs, quantitative restrictions and prohibitions on both exports and imports along with foreign exchange controls. Britain, France and Italy in 1916 were prepared to give trade preferences to each other and no MFN status to Germany. Meanwhile, President Wilson of the United States in his Fourteen Points for the post-war period announced a barriers free and fair trade regime among all nations. In continental Europe territorial changes took place with large

displacements of people across Europe and emergence of new states, determined to use tariff policy to protect their infant industry. Pre-war production pattern suddenly changed with the

72 division of Habsburg Austria into six independent states, causing disintegration of one single market into six separate customs entities. Further significant events included lost of German grain and industrial product producing province. Two important coal and steel producing regions namely, Alsace and Lorraine went back to France. Russia lost territory in the West and its role in external trade reduced as it became a centrally-planned economy. The changed production, reduced exports and trade pattern posed a great challenged but there was limited political willingness to cooperate internationally despite many efforts. The United States emerged as the largest creditor and the strongest economy after the war. Though the United States initiated the creation of League of Nations but was reluctant to play an international role with all it resources. At the domestic level, role of governments in economic affairs with more representative parliaments increased. Gradually, autarchy prevailed in agriculture and raw material sectors. Due to more demand for raw material and agriculture products and less imports of manufactured goods the economies out side Europe boomed. Accepting the loss of wealth, repayment of war debts, realistic exchange rates and lost opportunities were difficult for Europe. Williams (1947) and Horowitz (2004) point out that hyperinflation and massive exchange rate adjustments happened frequently in the two decades after the World War 1. Tariff Policies World economy in the post-war period is marked with uncertainty, political instability, and mistrust among nations. In 1925, tariffs on manufactured good were higher than before World War I in a majority of countries. The United States, Argentina, Australia, Canada and India increased or kept tariffs very high by international standards.

By 1925-27, world trade started to exceed the pre-war level of 1913, and to upward and instable tariffs revision stopped. Returning to the MFN principle was important to create a stable trading system. MFN clause did not, however, extend to national treatment of foreign traders or firms, implying tariff commitment in a discriminatory manner, and restricting the applicability of bilaterally-agreed tariff reductions for third parties. The Tariff reform in the United States Congress in 1929 focused on higher agricultural protection and

73 then to industrial products. The Congress passed the Smoot Hawley Tariff Act, and it is said that it shattered the limited trust remaining in the trading system and created havoc in global trade flows.

Table 11: Applied Tariff Rates of Major Traders In 1925

(Percentage)

Manufactured goods 1913 1925 Argentina Australia Austria-Hungary Austria Czechoslovakia Hungary Poland Belgium Canada Denmark France Germany India Italy Netherlands Spain Sweden Switzerland United Kingdom United States 28 16 18 (18) (18) (18) (13-18) 9 26 14 20 13 4 18 4 41 20 9 44 250 29 27 16 27 27 32 15 23 10 21 20 16 22 6 41 16 14 5 37

All products 1913 1925 26 17 18 (18) (18) (18) (12-18 6 18 9 18 12 4 17 3 33 16 7 33 16 26 25 12 19 23 23 8 16 6 12 12 14 17 4 44 13 11 4 29

A: Germany and Austria for 1913 B: Average of old and new tariff (from October 1925) for 1925. C: Referring to Underwood Tariff applied in 1914. Note: Unweighted Arithmetic Average. Source: League of Nations (1927)

The monetary policies caused flee of capital flows from Europe to the United States. Trade restrictions introduced in Europe in 1930 contributed to the financial panic and bank failures in 1931. The United Kingdom (on 21 September, 1931) and the United States (on 20 April, 1933) discarded the gold standard. Japan also left the gold standard in September 1931, and strongly devalued the yen. Germany developed a multiple exchange-rate system in July 1931.

74 In international trade relations discriminatory trade evolved, which introduced blunt trade measures, prohibitions, quantitative restrictions, exchange controls and clearing systems. Almost a century-old tradition of free, MFN-based trade policy ended when the United Kingdom surrendered its role as a stalwart of multilateral trade and the gold standard. Under their political influence, other leading nations also favored discriminatory policies. According to World Trade Report (2007), 1932-33 was perhaps the darkest period for trade policy in the twentieth century as trade was at its lowest level in dollar terms since 1921. Chart 1: World Merchandise Export, 1900-1950
(Indices, 1953=100)

75 Chart 2: World Merchandise Export Prices, 1900-1950

(Indices, 1953=100)

Chart 3: Volume Growth of World Merchandise Export, 1900-1950

(Indices, 1953=100)

76 In the United States, the failure of the Smoot-Hawley Act led to the Reciprocal Trade Agreements Act of 1934. The important features of the act were the MFN principle, which implies that all traders signing a treaty with the United States benefited from the tariff reductions agreed in all other agreements, and detailed tariff setting was moved to executive branch from Congress limiting the role of the interest groups. In that period 21 agreements with 19 countries were concluded from 1934 to 1939, including agreements with Canada (1936 and 1938) and the United Kingdom (1938). Contribution of the bilateral agreements in reduction of high protection levels was quite significant. In other countries, tendencies towards regional bloc-building were geared up due to national security concerns and to have secure supply of raw material. However, the trend diminished due to military interventions. World-wide economic integration before World War I might have been sustained through better institutional arrangements. To fill the gap of such an institutional arrangements, the establishment of the Bretton Woods institutions (IMF and World Bank), and eventually, the multilateral trading system through GATT and WTO became inevitable. 4.4 International Financial System International financial system consists of institutions and regulations that act on the international level. The International Monetary Fund (IMF), World Bank ( WB), and national agencies, government departments such as central banks, finance ministries, and private institutions acting on the global scale, e.g., banks and hedge funds are parts of the International Financial System. The history of financial institutions is different from economic history and history of money. In Europe, it started with the first commodity exchange, the Bruges Bourse in 1309. The first global financiers the Fuggers started in 1487 in Germany. The first stock company, Russia Company established in England 1553. The first foreign exchange market; The Royal Exchange was set up in 1566 in England, the first stock exchange; The Amsterdam Stock Exchange came in to being in 1602.

77 Milestones in the history of financial institutions are the Gold Standard of 1871 1932, the founding of IMF, World Bank at Bretton Woods, and the abolishment of fixed exchange rates in 1973. 4.4.1 International Monetary Fund (IMF) The International Monetary Fund (IMF) oversees the global financial system. Having its headquarters located in Washington, D.C. (USA), it follows the macroeconomic policies of the member countries, in particular those with an impact on exchange rates and the balance of payments. It offers financial and technical assistance to its members as well, thus making it an international lender of last resort. The IMF provides financial assistance to countries that experience serious financial and economic difficulties from the funds deposited with the IMF from the institutions of the member countries. Member states with balance of payments problems may request loans to fill the gaps. In return, countries are usually required to launch certain reforms and structural adjustment programs under "Washington Consensus". The Fund offers different loan instruments;

Concessional rates for low income countries Poverty Reduction & Growth Facility (PRGF) Exogenous Shocks Facility (ESF)

Non concessional Stand-By- Arrangements (SBA)

For natural disaster and conflicts Emergency Assistance (EA)

In the last two decades many countries in Africa, Latin America and Asia experienced serious macroeconomic instability and approached IMF for funds. IMF regards BOP deficit as domestic policy mistake. The growth and development require the creation of productive

78 capacity and prudent utilization thereby put certain conditionalities before contracting the loan. The conditionality clause includes; Stabilization: the management of aggregate demand to reduce domestic absorption Structural adjustment: reforms to change the structure of production Liberalization and deregulation: removal of government intervention of all kind (price control, quantity restriction, licensing and other barriers to trade Privatization: contracting out government functions to private agents Budget rationalization: bringing government expenditures and revenues into balance Institutional reform process: changes in government institutions to enhance the economic reform process

The IMF describes itself as "an organization of 185 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". All UN member states participate directly in the IMF with the exception of North Korea, Cuba, Andorra, Monaco, Liechtenstein, Tuvalu, and Nauru. The IMF was created in July 1944, during the United Nations Monetary and Financial Conference when the representatives of 45 governments met in the area of Bretton Woods, (New Hampshire, United States of America) and agreed on a framework for international economic cooperation. Countries contributed to a pool so the countries with payment imbalances could borrow on a temporary basis, (Condon, 2007). The goal was to stabilize exchange rates and supervise the reconstruction of the world's international payment system. The IMF was formally organized in 1945, and 29 countries signed its Articles of Agreement. The IMF has the same mandate today as it was in 1944.

Recent Reforms

Since World War II, the world economy and monetary system have undergone major changes. Rapid advances in technology and communications have contributed to the increasing international integration of markets and to closer linkages among national

79 economies, as a result, when financial crises erupt (like financial crisis of East Asia of 1999), the shock waves were felt through out the world. The closely integrated world and more membership have enhanced the influence, importance and relevance of IMF. This has required the IMF to adapt to new challenges and reforms in a variety of ways to continue serving its purposes effectively. Contrary to thinking of the times, in the world of growing trade, uncertainty has also increased. In 1995, the International Monetary Fund began work on data dissemination standards to guide member countries to disseminate the economic and financial data to general public. Guide to the General Data Dissemination System is aimed at to improve different aspects of statistical systems in a country, and is also part of the World Bank Millennium Development Goals (MDGs), and Poverty Reduction Strategic Papers, (PRSP). The reform agenda (2006) called the Medium Term Strategy, includes changes in IMF governance to enhance the role of developing countries in the institution's decisionmaking process, thus to help member countries adopt macroeconomic policies for sustained growth and reduce poverty. The Executive Board of the IMF adopted the 2007 Decision on Bilateral Surveillance, on how the IMF should analyze economic outcomes at the country level replacing a 30-year-old decision of the Fund's member countries.

Controversial Role of the IMF The conditionality clause has made the role of the IMF quite controversial. Critics claim that IMF policy makers deliberately support military dictatorships friendly to American and European corporations and blame IMF for having views generally apathetic to democracy, human rights, and labor rights. Various examples are highlighted where democratized govenments fell after receiving IMF loans. Favorable arguments say that economic stability is a precursor to democracy. The financial aid bound to so-called "Conditionalities" and Structural Adjustment Programs are widely criticized. The economic performance targets, the conditionalities a precondition for IMF loans, are claimed to retard social stability and inhibit the stated goals

80 of the IMF. Similarly, Structural Adjustment Programs lead to an increase in poverty in recipient countries. Currency devaluation advocacies, "austerity programmes" and increasing tax policies by the IMF are largely criticized as inflationary with economic contraction as the ultimate outcome. However, a research by the Pew Research Center shows that more than 60 percent of Asians and 70 percent of Africans feel that the IMF and the World Bank have a positive effect on their country. In 2005, the IMF implemented a sweeping debt-relief program known as the Multilateral Debt Relief Initiative for the world's poorest countries. Accordingly, 23 countries mostly in sub-Saharan Africa and Central America received total relief of debts owed to the IMF. 4.4.2 Pakistan and IMF

The love-hate relationship of Pakistan and IMF is 40-year old. Political activists and civil society have always been highly critical to IMF loans. In 1960s for the first time, IMF extended a credit facility of $ 1.73 billion for 3 years. The focus was industrial sector development and liberalization of import regime. In 1988 another fund injection of $ 497 million came in for social sector development and trade liberalization. In 2000 over $ 1 billion loan for Economic Reform Strategy under Poverty Reduction and Growth Facility (PRGF) was extended. However, in 2004, in mid of economic boom, the Government decided not to seek financing from the IMF, and Pakistan joined 70% of the member countries with whom IMF has no lending relationships. 4.4.3 The World Bank (WB) World Bank provides loans to developing countries for poverty reduction and development, and offers advisory support. The Bank offers two types of loans;

Investment loans for support of economic and social development Development policy loans to support policy and institutional reforms

Bank comprises of International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA):

81

IBRD lends to middle income countries at a modest mark up over its own borrowing from the capital markets

IDA gives grants or loans on nominal interest rates to low income countries with little exposure to international credit markets

The World Bank is one of the two (the other is IMF) Bretton Woods institutions which were established in 1944 essentially to rebuild a war torn Europe after the World War II. However, after the Marshall Plan, its focus shifted to building of infrastructure of former European colonies. The Bank gave its first post war reconstruction loan of $ 250 million to France in 1946. Over a period of time many changes took place in its goals and targets;

1968 to 1981, poverty alleviation 1980 to 1990, debt management and structural adjustments Presently, achievement of MDGs, poverty reduction and sustainable

development

The Bank gets fund from the sale of IBRDs AAA-rated bonds in the international financial markets. The IDA is sponsored by forty donor countries every three year, and also from repayments of loans. Criticism It has been argued by many that Bank was created to promote business interest of the United States and not to reduce poverty and it has actually increased poverty. Structure of the Bank also comes under criticism as being undemocratic and the US has a veto on certain constitutional decisions with over 16 percent shares in the Bank. The president of the Bank is always an American nominated by the US president. Some believe that Bank imposed damaging, destructive and anti- development policies on the developing countries. Its NGO driven imperialism and blaming the poor for their conditions is strongly criticized. It has also been suggested that Bank itself lacks transparency in its policies.

82 4.5 World Trade Organization (WTO) The World Trade Organization (WTO), the successor to the General Agreement on Tariffs and Trade (GATT), was set up on January 1, 1995. GATT which was created in 1948, as a de facto international organization, continued to operate for almost five decades. Mandate and Mission The WTO deals with the rules of trade between nations and is responsible for negotiating, and implementing new trade agreements signed by the member countries after ratified in their parliaments. Most of the WTO's current work comes from earlier negotiations under the GATT from 1986-94 and called the Uruguay Round. The Doha Development Agenda (DDA) was launched in 2001, and is the focus of new round of negotiations. The stated goal of WTO is to improve the welfare of the peoples of its member countries by lowering trade barriers and providing a platform for negotiation of trade. Its mission is "to ensure that trade flows as smoothly, predictably and freely as possible". It also has certain core functions based on five fundamental principles, which are the foundation of the multilateral trading system. 4.5.1 Principles of the Trading System The WTO sets the rules of the trade policy games, and establishes a framework for trade policies. Five principles are at the heart of both the pre-1994 GATT and the WTO:

Non-Discrimination has two major components:

The most favored nation (MFN) rule The national treatment policy

The MFN rule requires that a WTO member has to grant the most favorable conditions under which it allows trade in a certain product type to all other WTO members. "Grant someone a special favour and you have to do the same for all other WTO members." National treatment provides that imported and locally-produced goods should be treated

83 equally and was introduced to tackle non-tariff barriers to trade (e.g. technical standards, security standards et al. discriminating against imported goods). Both the principles apply on all WTO rules on goods, services, and intellectual property, but their precise scope and nature may differ across these areas. Reciprocity not only limits the scope of free-riding that may come up because of the MFN rule, but also provides a better access to foreign markets. It is necessary that the gain from negotiations be greater than the gain available from unilateral liberalization; reciprocal concessions intend to ensure that such gains will materialize.

Binding and enforceable commitments means that all tariff commitments made by WTO members in a multilateral trade negotiation and on accession are cataloged in schedules (list) of concessions. The schedules establish "ceiling bindings". A country can change its bindings, only after negotiating with its trading partners. It ensures compensating for loss of trade. If satisfaction is not obtained, the complaining country may invoke the WTO dispute settlement procedures. Transparency requires all WTO members to publish their trade regulations, to respond to requests for information by other members, and to notify regularly any changes in trade policies to the WTO. These internal transparency requirements are facilitated by WTO by periodic country-specific trade policy reviews through the Trade Policy Review Mechanism (TPRM). Further more it improves predictability and stability, discouraging the use of quotas and other measures to set limits on quantities of imports.

Safety valves mean that under specific circumstances, governments can restrict

trade. It involves three types of provisions/ articles use of trade measures to attain noneconomical objectives ensuring "fair competition" permitting intervention in trade for economic reasons

84 4.5.2 WTO Agreements The WTO oversees about 60 different agreements. Member countries must sign and ratify all WTO agreements on accession. Some of the important agreements are as under: Agreement on Agriculture (AoA) With the establishment of the WTO these agreements came into being, and have three pillars: Domestic Support/ Subsidies have three categories or "boxes": a Green Box, an Amber Box, and a Blue Box. The Green Box includes fixed payments to producers for environmental programmes, however, the payments should be decoupled from the current production levels. The Amber Box comprises domestic subsidies that a government has agreed to reduce but not eliminate. The Blue Box means that so long as the payments are linked to production-limiting program, subsidies can be increased without any limit. Europe and the USA are allowed to spend $380 billion annually on agricultural subsidies alone under the domestic support system. "It is often still argued that subsidies are needed to protect small farmers but, according to the World Bank, more than half of EU support goes to 1% of producers while in the US 70% of subsidies go to 10% of producers, mainly agri-businesses". These subsidies can over flow the international markets with dumping below-cost products, which can depress the prices and marginalize the producers in poor countries. Market Access signifies the reduction of tariff or non-tariff barriers to trade to give access to developing countries. Following was the reduction formula since 1995;

36% average reduction by developed countries, with a minimum per tariff line reduction of 15% over five years

24% average reduction by developing countries with a minimum per tariff line reduction of 10% over nine years

Least Developed Countries (LDCs) exempted from tariff reductions

85

However, either had to convert nontariff barriers to tariff tariffication or "bind" their tariffs with a "ceiling" that could not be increased in future

Export Subsidies call for reduction of export subsidies by the developed countries by at least 35 percent (by value) or by at least 21 percent (by volume) over the next five years (1995 to 2000). Agreement on Sanitary and Phyto-Sanitary (SPS) Measures The SPS Agreement was negotiated during the Uruguay Round of the GATT, but entered into force with the establishment of the WTO, it sets constraints on policies regarding food safety (bacterial contaminants, pesticides inspection and labeling), animal and plant health (imported pests and diseases) of the member countries. Under the SPS agreement, the WTO has the power to outweigh the use of the precautionary principle that allows a country to act on the side of caution if there is no scientific certainty about potential threats to human health and the environment. Agreement on Technical Barriers to Trade (TBT) The Agreement was negotiated during the Uruguay Round and came into effect with at the end of 1994. The objective of the TBT Agreement is to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade". 4.5.3 Chronology of Key Events

International Trade Organization And General Agreement On Tariffs And Trade GATT was, established like World Bank and International Monetary Fund for international economic cooperation after World War II. During the negotiations at Bretton Woods, the need for a comparable international institution for trade was realized. In 1945, on the initiative of the United States, its allies stared negotiations to have a multilateral agreement for the reciprocal reduction of tariffs on trade in goods. There after, in 1946, the United Nations Economic and Social Committee adopted a resolution, and called for a

86 conference to draft a charter for an International Trade Organization (ITO). In 1947 the agreement on the GATT was finalized in Geneva that paved way to sign the "Protocol of Provisional Application of the General Agreement on Tariffs and Trade by twenty three countries on October 30, 1947. In 1948, the negotiations on the ITO Charter (Havana Charter) failed. The ITO Charter was never approved despite submitted to the US Congress repeatedly. It would get involved in internal economic issues, was argument against the new organization. President Truman, in December 1950 announced his inability to seek Congressional approval of the ITO Charter. The GATT over the years "transformed itself" into a de facto international organization in the absence of an international organization for trade. GATT and WTO Rounds of Negotiations The GATT operated for almost half a century as a semi-institutionalized multilateral treaty regime on a provisional basis. Till the establishment of WTO in 1995 it remained the only multilateral instrument administering the international trade from 1948.

Geneva to Tokyo Rounds Under the GATT, seven rounds of negotiations took place; the first trade rounds concentrated on further reduction of tariffs. The Kennedy Round in the mid-sixties came up with anti-dumping agreement. The Tokyo Round during the seventies tried to improve the system and non-tariff trade barriers. The full GATT membership did not agree to these plurilateral agreements, therefore, often called codes". The Uruguay Round attempted to amend these codes, while turning them into multilateral commitments accepted by all WTO members. However, only four of them remained plurilateral (government procurement, bovine meat, civil aircraft and dairy products).

87 Table 12: GATT and WTO Trade Rounds

Name Start Duration Countries 23 13 Subjects covered Tariffs Tariffs

Achievements Signing of GATT, 45,000 tariff concessions affecting $10 billion of trade Countries exchanged some 5,000 tariff concessions Countries exchanged some 8,700 tariff concessions, cutting the 1948 tariff levels by 25% $2.5 billion in tariff reductions Tariff concessions worth $4.9 billion of world trade Tariff concessions worth $40 billion of world trade Tariff reductions worth more than $300 billion dollars achieved

Geneva April 1947 7 months Annecy April 1949 5 months September 8 months 1950 January 1956 September 1960 5 months 11 months 37 months 74 months

Torquay Geneva II Dillon

38

Tariffs Tariffs, admission of Japan Tariffs Tariffs, Anti-dumping Tariffs, non-tariff measures, "framework" agreements

26 26 62

Kennedy May 1964 September 1973

Tokyo

102

Uruguay

September 1986

87 months

123

The round led to the creation of WTO, and Tariffs, non-tariff extended the range of trade negotiations, measures, rules, leading to major reductions in tariffs (about services, intellectual property, dispute 40%) and agricultural subsidies, an settlement, textiles, agreement to allow full access for textiles agriculture, creation of and clothing from developing countries, and WTO, etc an extension of intellectual property rights.
Tariffs, non-tariff measures, agriculture, labor standards, environment, competition, investment, transparency, patents etc

Doha

November 2001

141

The round is not yet concluded.

Source: WTO

Uruguay Round The biggest negotiating mandate on trade ever agreed, the eighth round, known as the Uruguay Round was initiated in September 1986, in Punta del Este, Uruguay. Several new areas like trade in services, intellectual property, and trade reforms in the sensitive sectors of agriculture and textiles came under discussions for trading system, and all the original GATT articles were up for review. The US and EU disagreed on agricultural trade reforms and decided to extend the talks. However, "the Blair House accord" settled the differences, and in 1994, the deal was

88 signed at a meeting in Marrakesh, (Morocco) by ministers from most of the 123 participating governments. The Uruguay Round gave birth to WTO, which replaced GATT as an international organization. It is widely regarded as the most profound institutional reform of the world trading system since the GATT's establishment. The most important point is that the GATT still exists as the WTO's umbrella treaty for trade in goods. There is a distinction between GATT 1994; the updated parts of GATT and GATT 1947, the original agreement which is still the heart of GATT 1994. Besides legally binding agreement of the GATT 1994, the sixty agreements, annexes, decisions and understandings were adopted in the Final Act. The structure of agreements falls into six main components;

The Agreement Establishing the WTO Goods and investment; the Multilateral Agreements on Trade in Goods including the GATT 1994 and the Trade Related Investment Measures

Services; the General Agreement on Trade in Services Intellectual Property ; the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Dispute Settlement (DSU) Reviews of Governments' Trade Policies (TPRM)

Doha Round The Doha Round or the Doha Development Agenda (DDA) was launched by the WTO at the Fourth Ministerial Conference in Doha, Qatar in November 2001. The agenda was liberalizing trade further and new rule-making, underpinned by commitments to strengthen substantial assistance to developing countries. The Doha round was an ambitious effort to make globalization more inclusive and help the world's poor, particularly by slashing barriers and subsidies in farming. Due highly

89 contentious negotiations no agreement was concluded. Further intense negotiations at Fifth Ministerial Conference in Cancun in 2003 could not make any progress.

The Sixth Ministerial Conference in Hong Kong in 2005, adopted a Declaration, setting deadlines for the negotiations to be concluded, and some of them were adopted. They included elimination of all forms of export subsidies and disciplines on all export measures by 2013 and the deadline for establishment of modalities for further negotiations being set on 30 April 2006. However, these deadlines passed by without any conclusive agreements between the Members. In 2006, Pascal Lamy, the WTO's Director-General, formally suspended the negotiations at the end of a futile Ministerial meeting in Geneva. However, Lamy, in his report to the WTO General Council on February 7, 2007, stated that "political conditions are now more favorable for the conclusion of the Round than they have been for a long time..political leaders around the world clearly want us to get fully back to business, although we in turn need their continuing commitment. Ministerial Conferences So far there have been six ministerial conferences.

The inaugural ministerial conference in Singapore (1996) Second held in Geneva (Switzerland) Third in Seattle (Washington) Forth one held in Doha Fifth held in Cancun ( Mexico) Sixth took place in Hong Kong (2005)

4.5.4

Institutional Structure The topmost decision-making body of the WTO is the Ministerial Conference, which

meets twice a year. The Ministerial Conference can make decisions on all matters under any of the multilateral trade agreements.

90

The second tier consists of General Council, the Dispute Settlement Body, and the Trade Policy Review Body, which handle the work of the ministerial conference. These three consist of the same membership and representatives of all WTO members, and each meets under different rules. Then comes three Councils for Trade, which work under General Council;

Council for Trade in Goods Council for Trade-Related Aspects of Intellectual Property Rights Council for Trade in Services

At the fourth level comes the Subsidiary Bodies;

The Goods Council have the following committees; Information Technology Agreement (ITA) Committee State Trading Enterprises Textiles Monitoring Body: consists of a chairman and 10 members acting under it

Groups dealing with notifications process by which governments inform the WTO about new policies and measures in their countries

The Services Council deals with financial services, domestic regulations and other specific commitments

Dispute Settlement panels and Appellate Body Appellate Body to deal with appeals

to resolve disputes and the

Other Committees and Working Parties

Committees On

Trade and Environment Trade and Development (Subcommittee on Least-Developed Countries) Regional Trade Agreements Balance of Payments Restrictions

91

Budget, Finance and Administration

Working Parties On

Accession Trade, debt and finance Trade and technology transfer

Having its headquarters in Geneva, Switzerland , the WTO has a membership of 152 countries. Many non-member having observer status, are negotiating their membership. It has a budget of $ 141 million (USD) and around 625 people work in the WTO Secretariat. The WTO operates on a one country, one vote system, but actual votes have never been taken. Decision making is generally by consensus. The market size of the country determines the bargaining power. Though, through consensus decision-making acceptable decisions are encouraged but the process is time consuming, and it takes many rounds of negotiation to develop a consensus decision. Moreover, the tendency to use ambiguous/ vague language on contentious issues makes future interpretation difficult. The WTO negotiations in reality proceed not by consensus of all members, but by a process of informal negotiations between small groups of countries. Criticized by the developing countries, these negotiations are often called "Green Room" negotiations. It has been argued that although the WTO's consensus governance model provides law-based initial bargaining, trading rounds close through power-based bargaining favouring Europe and the United States, and may not lead to improvement. 4.6 New Economic World Order Since the end of the Cold War, globalization has been the most outstanding characteristic of international economic affairs and to a considerable extent, of political affairs as well (Gilpin, 2001). Vincent Cable of the Royal Institute of International Affairs has pointed out that the major economic achievement of the post World War II era has been to restore the level of international economic integration that existed prior to World War I.

92 Hanna (2004) writes that globalization along with regionalization is the overriding trend in international economic affairs, leading to increased linkages amongst countries, after the World War II. Financial developments since mid 1980s and regionalism have profound affect on international economy and its integration. However, the nation states, national political and economic policies and markets have a very dominant role in this development process both at domestic and international level. Economic globalization has brought key developments in international trade and finance. The rise of foreign direct investment (FDI) by multinational corporations (MNCs) and transnational corporations (TNCs) is also attributed to globalization. International trade has grown more rapidly than the global economic output. Volume of trade in goods and services has gone up due to decreased transportation costs and technology revolution. Every day, availability of more trade able goods has enhanced international competition. Wave of deregulation and privatization from the late 1970s onward has further opened national economies, and more and more businesses are participating in international markets. Financial deregulation and new financial instruments have contributed to more integrated international financial system. The volume of foreign exchange trading in the late 1990s reached approximately $1.5 trillion per day, an eightfold increase since 1986. The amount of investment capital seeking higher returns has grown, and by mid 1990s mutual funds, pension funds etc totaled $ 20 trillion are ten times more than the 1980 figure, (Gilpin, 2001). 4.6.1 Foreign Direct Investment (FDI) In the second half of the 1980s huge surge of foreign direct investment (FDI) took place by the multinational corporations (MNCs). FDI in fact, expanded more rapidly than world trade and global economic output. In the early postwar decades, Japan and West Europe became the major investors, and United States was both the worlds largest home and host economy. As a consequence of this development, FDI outflows from the major

93 industrialized countries to the industrializing countries rose to approximately 15 percent annually, and at the same time largest fraction of FDI, goes to the industrialized countries. The largest part of FDI has been in the services and high-tech industries such as automobile and information technology coupled with cross border trade and financial flows.

With an impressive growth of 38 percent, global FDI inflows went up to $1,306 billion in 2006. This was the third consecutive year of growth that approached the record level of $1,411 billion in 2000. Inflows increased in all three groups of economies:

developed countries, developing countries and the transition economies of South-East Europe and the Commonwealth of Independent States (CIS), (World Investment Report, 2007). The rise in global FDI flows was due to increase in green field investment and partly due to increased corporate profits worldwide resulting higher stock prices and raised value of cross-border mergers and acquisitions (M&As). A weaker dollar also contributed in rise of global FDI flows in 2006. In developed countries FDI inflows rose by 45 percent as compare to previous years and reached $857 billion, and showing an increase of 21 percent from 2005. Flows to developing countries and the transition economies attained the highest levels ever of $379 billion and $69 billion (68% increase) respectively. The United States was the leading host country, followed by the United Kingdom and France. The largest inflows among developing economies went to China, Hong Kong (China) and Singapore, and among the transition economies to the Russian Federation. Services accounted for the bulk of world inward FDI stock in 2005. Within services, the share of infrastructure-related industries went up. Manufacturing was the second largest sector, but its share declined from 41% in 1990 to 30% in 2005, and the share of the primary sector was less than 10% of world inward FDI stock. The share of extractive industries in total FDI increased somewhat between 2000 and 2005. Worldwide countries adopt measures to improve their investment climate. In 2006, according to UNCTADs annual survey on changes in national laws and regulations relevant to FDI, a total of 184 policy changes were identified, and 80% of which were in the

94 direction of making the host-country environment more favorable. Most of the changes were regarding introduction of new promotional efforts, including incentives aimed at increasing FDI in certain economic activities. FDI inflows have enhanced the role of developing countries in international investment rule-making. At the end of 2006, they were party to 76% of all Bilateral Investment Treaties (BITs) and, 61% of all Double Taxation Treaties (DTTs), and 81% of all other International Investment Agreements (IIAs). Most importantly, FDI has remarkably changed the international production and employment patterns. 4.6.2 Multinational Corporations (MNCs) Multinational corporations (MNCs) have existed since the beginning of overseas trade. In the 17th and 18th century large European firms like the Dutch East India Company, and the British East India Company of merchant adventurers were the predecessors of present day MNCs. In the age of colonization, though exploitative, MNCs were viewed as agents of civilization and commercial and industrial development. These earlier MNCs were more powerful than the todays transnational concerns. They have their armies, fleets, and even foreign policies. Moreover, they have control over vast territories, (Sub Continent, South America, Africa, and East Indies). Agriculture and extractive industries were their major interests, (Gilpin, 2001). Present day MNCs though large business concerns yet modest than their forerunners and mainly interested in manufacturing, retailing, services and follow a global corporate strategy. In the 19th century, advancements in communications and technology have linked the international markets more closely and MNCs became the instruments of better international relations through commercial linkages. In words of Ostry (1997), the MNCs are an important feature of globalization of world economy. Many believe that today the MNCs have become a powerful force in international political and economic affairs. A firm of a particular nationality having subsidiaries (partial or wholly owned) in more than one country is called Multinational Corporation. According to one estimate over 40,000 MNCs with their cross border subsidiaries are doing business in international

95 markets. MNCs start and expand business in another economy through foreign direct investment. The top MNCs have their headquarters in US, Japan, Western Europe. In 1996, out of 500 largest global companies, 162 were from US and 126 from Japan, and total revenues of these 500 companies were $11.4 trillion, total profits were $404 billion and total assets were $33.3 trillion, (ILO Report). Due to enormity of their resources, MNCs have the capacity to transform international trade and production patterns. A decision to export from the home market or to make investment overseas to service host market can have strong implications for international economy. MNCs have strategic behavior, and to have long term standing and profitability, they try to influence international rules and regimes of business and competition. According to Gilpin (2001), neoclassical economists have little to say about MNCs because of their belief that markets determine the firms behavior, thus nationality of the firm whether it operates domestically or internationally is of no importance. He further argues that economists believe that theories of location and comparative advantage determine the location of economic activities. Hence the business and production will go to the efficient location. MNCs enter a market through a variety of ways: by green field investment (building new facilities), mergers, takeovers, and joint ventures. National governments compete for investments from MNCs because they create jobs, revenues, and incomes and bring in technology and capital. MNCs have grown in power and visibility in recent times. But they are being criticized sometimes by both governments and consumers worldwide due to their monopolistic powers, size, resources and mobility. It is perceived that they lack concern not only for the economic well-being of the geographic regions they operate in, but also for their workers. There is a general impression that MNCs have more power than national governments and other international trade federations and organizations. Despite such apprehensions, MNCs are gaining power and influence as barriers to international trade are coming down, international business is getting more integrated, and

96 national governments are offering more incentives and facilities to attract FDI through MNCs. According to Bartlett et al, (2003), MNCs produce 40 % of global manufacturing out put, and quarter of the world trade. Around 85% of the worlds automobiles are made by them. They also produce and market 70 % of computers, 35 % of toothpastes, and 65 % of soft drinks.

4.7

Globalization
Globalization is often used to refer to economic globalization that is integration of

national economies into the international economy through trade, foreign direct investment, capital flows, migration, and the spread of technology. Bhagwati (2004) and Herman (1999) argue that sometimes the terms internationalization and globalization are used interchangeably. However, there is a slight difference. International means between or among nations. The term "internationalization" refers to international trade, relations, treaties etc. "Globalization" means going beyond national boundaries for economic purposes; international trade (comparative advantages) or for interregional trade (absolute advantages). Croucher (2004) describes it as a process by which the people of the world are unified into a single society and functions together. This process is a combination of economic, technological, sociocultural and political forces. Friedman (2008), "examines the impact of the 'flattening' of the globe", and argues that globalized trade, outsourcing, supply-chaining, and political forces have changed the world permanently, for both better and worse. He also argues that the pace of globalization is quickening and will continue to have a growing impact on business organization and practice. The economists since 1981 has used the word "Globalization" however, its concepts did become popular in the later half of the 1980s and 1990's. The earliest concepts of globalization were written by an American entrepreneur-turned-minister Charles Taze Russell, who coined the term 'corporate giants' in 1897. Globalization existed through out history, during the Roman, the Parthian , and the Han Dynasty. The Muslim traders established a global economy resulting in a globalization of crops, trade, knowledge and

97 technology. The Mongol Empire further integrated it along side Silk Road. Later on the global integration continued through the expansion of European trade in the 16th and 17th centuries. Globalization has had a tremendous impact on cultures around the world. However, the 19th century globalization is marked by rapid growth in international trade and investment between the European powers, their colonies, and, later on with the United States. During this period, sub-Saharan Africa and the Pacific Island were incorporated into the world system. However, the World War 1, and collapse of the gold standards (1920s1930s), broke it down. After the World War II, era of planned globalization and economic integration started with establishment of Bretton Woods Institutions, the GATT, and the WTO. Castells (1996) argues that global economy has the capacity to work as a unit, in real time, on a planetary scale. Macshane (1996), mentions four interrelated factors that have driven globalization: increased international trade; the growth of multinational corporations; the internationalization of finance; and the application of new technologies in all these operations, especially computer and other information. Recently the Swiss think tank KOF, has measured the globalization by economic, social, and political indices. However beside these, an overall index of globalization and sub-indices referring to actual economic flows, economic restrictions, data on personal contact, data on information flows, and data on cultural proximity, on a yearly basis for 122 countries has also been analyzed. According to the KOF index, the world's most globalized country is Belgium followed by Austria, Sweden, the United Kingdom and the Netherlands. The least globalized countries are Haiti, Myanmar, the Central African Republic and Burundi. Criticism Supporters of globalization like Jeffrey Sachs, (2005), attributes drop in poverty rates in countries like China to strong globalization as compared to Sub-Saharan Africa, where poverty rates have remained stagnant, and have less globalization affects.

98

It is generally believed that Free Trade, Capitalism, and Democracy have facilitated Globalization. Free trade supporters say it increases economic prosperity as well as opportunity, especially among developing nations. It also enhances civil liberties and leads to a more efficient allocation of resources. This leads to lower prices, more employment, higher output and a higher standard of living for those in developing countries, (World Bank).

The laissez-faire capitalism sees globalization as the beneficial spread of liberty and capitalism. Supporters of democratic globalization believe that the market-oriented globalization should be followed by a phase of building global political institutions representing the will of people. Generally the argument given in favor of the globalization is that from 1981 to 2001, the number of people living on $1 a day or less declined from 1.5 billion to 1.1 billion in absolute terms. It is also argued that the percentage of people living on less than $2 a day has declined in areas affected by globalization. In East-Asia, including China, the percentage has decreased by 50.1% compared to a 2.2% increase in Sub-Saharan Africa. Anti globalization critics say that poorer countries are sometimes at disadvantage, as the export of poorer countries is largely based on agricultural goods, therefore it is difficult for these countries to compete with subsidized farm products of the richer countries. Chossudovsky (2003) mentions exploitation of foreign impoverished workers in the name of globalization and cheap labor. Though the workers are free to leave their jobs, but in many poorer countries, this would mean starvation for the workers, and their families. Globalization has enhanced the economic gap between skilled and unskilled workers, causing decline of the middle class, and increased economic inequality in the United States. This also means that people in the lower class have a much harder time climbing out of poverty because of the absence of the middle class as a stepping stone. The so-called 'champagne glass' effect mentioned by Gorostiaga (1995), has been included in the 1992 United Nations Development Program Report, which illustrates the

99 distribution of global income in a very uneven wayonly 20 percent of the worlds richest people controls the 82.7% of the world's income. Table 13: Distribution of World GDP, (1989) Quintile of Population Richest 20% Second 20% Third 20% Fourth20% Poorest 20%
Source: UNDP, Human Development Report, (1992)

Income 82.7% 11.7% 2.3% 1.4% 1.2%

4.8

Politics of Trade, Power and Money Forbes has recently published a list of the top 2000 global companies in the world

having presence in 60 different countries. The Forbes Global 2000 are public companies, and their rankings is based on sales, profits, assets and market value. In total, the global 2000 companies now account for $30 trillion in revenues, $2.4 trillion in profits, $119 trillion in assets and $39 trillion in market value. These companies have 72 million people working for them around the world. In 2008, according to this list, 60 countries around the world have Global 2000 entries whereas only 51 companies were in list of 2004.

100 Table 14: The Top Companies Sorted by Market Value

Company Country Industry Sales ($bil) 88.24 358.60 172.74 37.06 81.76 37.48 57.90 87.52 355.78 118.25 118.93 281.03 79.74 378.80 39.50 94.76 133.79 199.74 146.50 203.97 119.19 Profits ($bil) 18.21 40.61 22.21 8.29 23.30 6.31 16.96 11.04 31.33 13.21 11.95 20.60 11.13 12.73 13.42 9.38 6.90 19.24 19.13 18.69 14.98 10.58 13.99 Assets ($bil) 111.70 242.08 795.34 62.44 201.72 961.65 67.34 129.98 266.22 273.16 275.64 236.08 144.40 163.38 53.36 99.06 77.44 165.75 2,348.98 148.79 1,715.75 80.95 276.38 Market Value ($bil) 546.14 465.51 330.93 308.59 306.79 289.57 253.15 236.67 221.09 216.65 210.22 204.94 203.67 198.60 190.62 188.11 186.38 181.80 180.81 179.97 176.53 175.51 175.08

PetroChina ExxonMobil

China United States

Oil & Gas Operations Oil & Gas Operations Conglomerates Telecommunications Services Oil & Gas Operations Banking Software & Services Oil & Gas Operations Oil & Gas Operations Diversified Financials Telecommunications Services Oil & Gas Operations Household & Personal Products Retailing Materials Food Drink & Tobacco Oil & Gas Operations Oil & Gas Operations Banking Oil & Gas Operations Banking

General Electric United States China Mobile Gazprom ICBC Microsoft PetrobrasPetrleo Brasil Royal Dutch Shell Berkshire Hathaway AT&T BP Procter & Gamble Hong Kong/China Russia China United States Brazil Netherlands United States United States United Kingdom United States

Wal-Mart Stores United States BHP Billiton Nestl Sinopec-China Petroleum Total Australia/United Kingdom Switzerland China France

HSBC Holdings United Kingdom Chevron Bank of America Johnson & Johnson Toyota Motor United States United States United States Japan

Drugs & Biotechnology 61.10 Consumer Durables 203.80

Source: Forbes: Global 2000 Companies www. forbes.com

101 4.8.1 Richest People in the World

Forbes has done a special report on the Worlds Billionaires in 2008, and recorded 946 billionaires whose fortune has gone up due to strong equity markets, booming real estate values and rising commodities prices. The combined net worth of these wealthiest people has gone up from $ 900 billion to $ 3.5 trillion in 2008. In this list, there are 178 new comers from Mumbai to Madrid. The new comer billionaire includes 19 from Russia, 14 from India, 13 from China, 10 from Spain, and few from Cyprus, Oman, Romania and Serbia. According to this report, Ingenuity not industry is the common characteristic among these wealthiest people, and 60 percent of these fortunes have been made from a scratch. These people have made money in every field from media and real estate to coffee, dumplings and ethanol. From the last years ranking, two-third get richer, however, 32 went down from the last years ranking. The ranking is;

Warren Buffett from the US is the richest person in the world with net worth of $ 62 billion

Carlos Slim Helu from Mexico is number two with net worth of $ 60 billion Bill Gates from the US is number three having net worth of $ 58 billion Lakshmi Mittal from India ranks fourth with net worth of $ 45 billion Two more Indian occupy fifth and sixth position with net worth of $ 43 and $ 42 billion

4.9

Political Economy of Information Traditional neoclassical economics literature assumes that markets are always

efficient except for some limited and specific markets. Stiglitz (2001) in recent studies has reversed these assumptions. According to Stiglitz and Greenwald (1986)whenever markets are incomplete and or information is imperfect, even competitive market allocation is not constrained Pareto efficient. Stiglitz does not believe in invisible hand. In an

102 interview, he says information economics represents a fundamental change in the prevailing paradigm within economics. Problems of information are central to understanding not only market economics but also political economy. Unfettered markets often not only do not lead to social justice, but do not even produce efficient outcomes. Individuals and firms, in the pursuit of their self interest are not necessarily or in general led as if by an invisible hand, to economic efficiency. As a result, Stiglitz continues, governments can improve the outcome by wellchosen interventions. The Sappington-Stiglitz theorem "establishes that an ideal

government could do better running an enterprise itself than it could through privatization. In Globalization and its Discontents (2002), Stiglitz argues that what are often called "developing economies" are, in fact, not developing at all. He complains that the IMF has done great damage through the economic policies it has prescribed for the countries in order to qualify for IMF loans or from other lenders. The organization and its officials ignore the implications of incomplete information, inadequate markets, and unworkable institutions-all of which are especially characteristic of newly developing countries, he argues. ShapiroStiglitz model (1984) explains why there is unemployment... Unemployment is driven by the information structure of employment. Information rules the game both for economic and political process. Though information imperfections and asymmetries of information are persistent in every aspect of life, information economics is gaining ground and likely to have even more influence in the future, (Stiglitz, 2001).

103

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107

CHAPTER 5 PAKISTAN COTTON-TEXTILE AND APPAREL SECTOR

The Cotton-Textile is a very complex industry. It begins with agriculture, fiber production of cotton and processed into yarn through different industrial stages and through different weaving and knitting processes; it is converted into the finished cloths. And every facet of the textile industry is a field itself, (Bernard, 1983). Textiles are very important in our every day live, and even from the ancient times, textiles have been used in a variety of ways. Industrial sector is also an important consumer of textiles. International trade in textiles and clothing has played a very important role in the development process of many countries. It has helped their integration into the world economy, (World Trade Report 2006). A major part of merchandise exports of low and middle income countries comprises of cotton- textile and clothing sector. 5.1 International Trade of Cotton-Textile and Apparels Developing countries in 2004 accounted for more than one-half of world exports of textiles and clothing. In no other category of manufactured goods developing countries have such a large net-exporting position. Thus liberalization of trade in textiles and clothing is of major significant for many developing countries for the simple reason; it improves market access for them in the area of their comparative advantage. However, increased competition from further liberalization is a matter of concern for developing countries. The quota restrictions of Agreement on Textiles and Clothing (ATC) were essentially for imports of Canada, the European Union and the Unites States. These three markets account for more than one-half of world textiles and clothing imports. The end of the ATC quota regime did eliminate the quota completely for protection in these markets. It is understandable that the removal of quotas have a significant impact on global trade flows. The end of a special trade regime that had existed for more than 40 years for textiles and clothing is a remarkable step both in terms of trade liberalization

108 and the elimination of negotiated trade arrangements in breach of WTO rules, (World Trade Report 2005). 5.1.1 Trends in Clothing and Textile International Trade For the Textile and Clothing trade, 2006 was a significant year as it was the second year after the phasing out of the Agreement on Textile and Clothing (ATC), which replaced the Multi-Fiber Arrangement (MFA) in 1995. This shift was to affect exports of many countries producing winners and losers from the additional liberalization, (World Trade Report 2006). The termination of the ATC affected the patterns and flows of trade in 2005, and even in 2006. The structural changes in world trade of textiles and clothing went on unabatedly, (World Trade Report 2007). Chinas exports continued to increase the market share in all major developed import markets. The combined textiles imports of the three economies: Canada, the United States and the EU from China rose by 41 per cent in 2005. There was an increase of 15 per cent in 2006. However, the market shares declined for major traditional suppliers like Turkey, Romania, Morocco and Tunisia. Advanced developing economies in East Asia also lost market shares. Interestingly, some smaller suppliers expanded their textiles and clothing exports even faster than China and the share of least developed countries in imports of the United States and the European Union went up in 2006. Imports of textiles and clothing have increased by 5.5 per cent, to about $350 billion in 2006 for the four major developed markets. The increase was slightly faster than the preceding year. However, intraNAFTA textiles and clothing trade declined, and intra-EU trade did not have any significant change in 2006, (World Trade Report, 2007). The US imports from CAFTA, the Dominican Republic, and Sub-Saharan Africa, went down by 7 to 10 per cent. The decrease in US imports from Asian economies such as Hong Kong, China; Chinese Taipei and the Republic of Korea was 14 percent. US imports from the EU declined by 2.5 per cent in 2006. Imports from China increased by 15 per cent and it were nearly 30 per cent of total US imports of textiles and clothing. There was a rise in imports from Indonesia, Viet Nam, Bangladesh and Cambodia. Imports from India, rose 12 per cent in 2006.

109 In the US market, China gained as a leading supplier, but at the same time imports from smaller Asian suppliers also rose rather faster than those from China. There was a sharp rise of EU clothing imports from Hong Kong and China in 2006. Among the developed markets Japans textiles and clothing imports are mainly concentrated on China because of geographic proximity and the absence of import quotas in the past. More than three-quarters of Japans textiles and clothing imports came from China in 2006. Most significantly, the share of imports of clothing was more than 80 per cent. Amongst the four major developed markets, Canada was on the top in textiles and clothing imports in 2006. Its imports from China went up by more than 20 per cent. As a whole 2006 was a very favorable one for the textile trade of the developing countries. Table 15: Imports of Textile and Clothing in to Major Markets by Origin (2006) (Billion dollars and percentage change)
United States EU (25) Japan Canada 106.4 197.5 30.0 11.2 Annual Growth World 4 6 6 9 China 15 13 8 22 India 8 13 12 6 Pakistan 12 12 -7 9 Bangladesh 22 31 4 19 Cambodia 25 17 21 Indonesia 25 17 4 18 Philippines 9 20 5 Viet Nam 18 48 6 33 Thailand 1 9 -2 0 Sri Lanka 2 21 12 East Asia (4) -14 22 -5 -12 Sub-Saharan Africa -10 9 Egypt 32 13 Morocco 69 4 Tunisia 1 29 CAFTA -7 64 Mexico -10 13 6 7 Canada -7 6 -7 United States 11 -3 -1 EU (25) -3 1 -2 2 Romania 15 1 Bulgaria -18 13 Turkey -17 4 20 Memorandum items: Least-developed countries 14 27 27 17 Hong Kong, China 44 Note: East Asia (4) Comprises Chinese Taipei; Macao, China and the Republic of Korea. EU (25) imports include intera-trade. Source: Global Trade Atlas and Euro stat, COMEXT World (Value)

110 5.2 Pakistan Trade of Textile and Clothing Textile trade that thrives on Cotton as basic raw material is the back bone of the Pakistans economy. Cotton manufactures contribute around 60 percent of total export earnings. Moreover, it accounts for 46 percent of the total manufacturing and gives employment to 38 percent of the manufacturing work force. Cotton production and quality plays the central role in the growth of the industry. Pakistan Cotton-Textile manufacture export consists of Cotton Yarn, Cotton Cloth, Knit wear, Bed wear, Towels, Tents, Canvas and Tarpaulin, Ready made Garments, Synthetic Textiles and Made up Articles. Cotton and cotton related products are the most significant industrial and agriculture products for Pakistan. Altaf (2007) believes, what happens to the economy in Pakistan is very much dependent on the cotton-yarn- textile- apparel complex. Figure 14: Export of Textile Manufactures (2005-06)

Cotton Yarn Made up Articles, 4.3 Syenthetic Textiles, 2 Readymade Garments, 13.9 Tents,Canvas and tarpaulin, 0.3 Tow els, 5.8 Cotton Cloth, 21.6 Other, 0.1 Bedw ear Cotton Yarn, 13.7 Tow els Tents,Canvas and tarpaulin Readymade Garments Syenthetic Textiles Bedw ear, 20.8 Knitw ear, 17.6 Other Made up Articles Cotton Cloth Knitw ear

111 Table 16: Pakistan Export of Textile Products

Million US $ 1990 1991 Cotton Manufacturers Cotton Yarn Cotton Cloth Tents & Canvas Cotton Bags Towels Bed Wear Other Madcup Garments Hosiery Cotton Raw Cotton Cotton Waste All Cotton Total Export(Pakistan) Ratios.% All Cotton Total Export Pakistan Cotton/All Cotton Cotton Manufacturers/All Cotton Cotton Yarn Cotton Cloth Tents & Canvas Cotton Bags Towels Bed Wear Other Madcup Garments Hosiery 61.0 12.5 87.5 61.2 13.7 86.3 59.7 7.9 92.1 57.8 3.6 96.4 58.6 2.6 97.4 64.0 10.1 89.9 61.2 1.4 98.6 58.6 3.3 96.7 59.0 0.7 99.3 60.9 2.1 97.9 58.6 3.3 96.7 60.0 1.2 98.8 60.6 1.4 98.6 63.4 3.0 97.0 58.4 3.6 96.4 3,274 1,183 676 80 21 129 246 109 497 334 467 412 56 3,741 6,133 1991 1992 3,648 1,173 819 51 32 137 284 114 614 425 578 518 60 4,246 6,904 1992 1993 3,746 1,122 863 40 24 139 352 126 618 464 320 271 49 4,066 6,814 1993 1994 3,792 1,259 821 29 17 129 286 129 612 509 142 80 62 3,933 6,803 1994 1995 4,646 1,528 1,081 38 19 145 340 164 642 689 125 62 63 4,771 8,137 1995 1996 5,008 1,540 1,267 40 25 174 422 179 649 703 564 507 57 5,572 8,770 1996 1997 5,022 1,412 1,262 36 28 194 456 209 736 689 73 31 42 5,095 8,320 1997 1998 4,889 1,160 1,250 58 23 200 59 246 747 697 168 126 42 5,057 8,628 1998 1999 4,559 945 1,115 41 21 178 611 255 651 742 30 2 28 4,590 7,779 1999 2000 5,111 1,072 1,096 53 19 196 710 308 772 887 109 73 36 5,220 8,569 2000 2001 5,225 1,077 1,035 50 19 243 735 328 828 910 177 138 39 5,402 9,225 2001 2002 5,404 942 1,133 47 18 270 919 351 882 842 66 25 42 5,470 9,124 2002 2003 6,668 928 1,346 73 18 375 1,329 360 1,093 1,147 94 49 45 6,761 11,16 0 2003 2004 7,572 1,127 1,711 75 0 404 1,383 420 993 1,459 234 48 187 7,806 12,31 3 2004 2005 8,099 1,057 1,863 67 0 520 1,420 420 1,088 1,635 302 111 193 8,402 14,39 1

31.6 18.1 2.1 0.1 3.5 6.6 2.9 13.3 8.9

27.7 19.4 1.2 0.8 3.2 6.7 2.7 14.5 10.1

27.6 21.2 1.0 0.6 3.4 8.6 3.1 15.2 11.4

32.0 20.9 0.7 0.4 3.3 7.3 3.3 15.6 12.9

32.0 22.7 0.8 0.4 3.0 7.1 3.4 13.5 14.4

27.6 22.9 0.7 0.4 3.1 7.6 3.2 11.6 12.6

27.7 24.8 0.7 0.5 3.8 9.0 4.1 14.5 13.5

22.9 24.7 1.1 0.5 4.0 10.1 4.9 14.8 13.8

20.6 24.3 0.9 0.5 3.9 13.3 5.6 14.2 16.2

20.5 21.0 1.0 0.4 3.7 13.6 5.9 14.8 17.0

19.9 19.2 0.9 0.4 4.5 13.6 6.1 15.3 16.9

17.2 20.7 0.9 0.3 4.9 16.8 6.4 16.1 15.4

13.7 19.9 1.1 0.3 5.5 19.7 5.3 16.2 17.0

14.4 21.9 1.0

12.6 22.2 0.8

5.2 17.7 5.4 12.7 18.7

6.2 17.3 5.0 12.9 19.5

Source: Textile Commissions Organization

5.3

Global Cotton Market

Trends in Production and Consumption Cotton is the most useful textile fiber in the world and its market share is 56 percent in all the fibers used for apparel both home and industrial furnishing (Textile Vision 2005). The global cotton production was 26 and 25 million metric tons in 200405 and 2005-06. (APTMA) or 116.3 million bales in 2006 and 113.31 million bales in 2005-06 (Pakistan Economic Survey, 2006)

112 Global cotton consumption was 23 and 24 million metric tons in 2004-05 and 2005-06 respectively (APTMA). The global production is in harmony with consumption. The export trend shows that the largest producers are also the largest consumer of cotton and also importer of cotton. Major Sources of Cotton Production There are 75 cotton producing countries in the world but the top five countries (China, 6324, 5770 MT, USA, 5062, 5201 MT, India, 4121, 4148 MT Pakistan 2482, 2089 in 2004-05 and 2005-06 respectively) produce more than 70 percent of the total cotton. Pakistan is the 4th largest producer with 12 percent share in the world (Vision 2005). Figure 15: Share of Cotton Production
Pakistan Uzbekistan 12% 8% India 20% Others 3%

USA 29%
Source: SMEDA

China 28%

Global Cotton Trade Cotton is a major component of international trade. Total exports in 2004-05 were 7738 million metric tons and in 2005-06 were 9609 million metric tons respectively. The global imports were 2754 and 4536 million metric tons in 2004-5 and 2005-06 respectively. International cotton price are highly inconsistent. COTLOOK A and B Indices and U.S. price all these indicators generally move in the same direction. These indices are shown in the following Figure to show the trends in international cotton prices, (Salam, 2007).

113 Figure 16: Nominal Cotton Price: Cotlook a and b Indices and U.S Price

Source: Cotton and Wool Situation and Outlook Yearbook, Economic Research Service, USDA number converted from 480-lb bale to metric tons

5.4

Analyzing Opportunities for Pakistan Cotton-Textile and Apparel Sector

5.4.1 Revealed Comparative Advantage

The concept of revealed comparative advantage has been explained in model-I (Chapter 3).

The ratio is defined as:

Here export of cotton and cotton manufacturing for Pakistan (Xih) is $13.46 billion and total export of Pakistan (Xit) during the same period was remained at $22.43 billions. Similarly total world export of cotton and cotton manufacturing (Xwh) was nearly $388 billion during 2005-06 and world totals export (Xwt) was remained at $ 11926 billions during the same period.

Putting values in the above model (Rih = (13.46/22.43)/ (388.3/11926) = 18 Rih = 18 which is very high than unity. This value reveals that Pakistan has great opportunities in the export of cotton and cotton manufacturing.

114 5.4.2 Itemized Trade Performance of Cotton and Cotton Manufacturing The itemized cotton trade performance was also calculated through Balasa or RCA index as given in table 17. Table 17: Itemized Trade Performance of Cotton and Cotton Manufacturing (2006)
Item Export (000 US$) Share (country total export) Share in world export Balasa/RCA Index Lafay Index

Cotton Textile articles, sets, worn clothing Articles of apparel, accessories, knit Articles of apparel, accessories, not knit

3,601,009 3,242,514 1,902,212 1,348,321

21.26 19.15 11.24 7.96

7.23 8.97 1.31 0.85

51.2 63.5 9.2 6.0

33.0 32.0 19.0 13.0

The balasa and Lafay index for all cotton and cotton products is very high which reveal that Pakistan has trade competitiveness in the cotton and cotton manufacturing. 5.4.3 Relative Comparative Advantage

An improved version of revealed comparative advantage is the Relative Revealed Comparative Trade Advantage (RTA) index, which reflects both imports and exports, as shown in Model II in Chapter 3 and is reproduced as:

X (M) refer to exports (imports), with the subscripts i and k denoting the product categories, while j and 1 denote the country categories. The numerator is equal to a countrys export (imports) of a specific product category relative to the export (import) of this product from all other countries. The denominator reveals the exports (imports) of all products but the considered commodity from the respective country as a percentage of all other countries exports (imports) of all other products. The level of these indicators shows the degree of revealed export competitiveness and import penetration. Values

115 below (above) zero point to a competitive trade disadvantage (advantage). The RTA considers both export and import activities and this seems to be an advantage from the viewpoint of trade theory. The ratio reflects the market share for specific product here cotton (Table 18). Table 18: Competitive advantage of Cotton Products based on the RTA Index Product RXA RMP RTA = (RXA-RMP) Cotton seed Oil of cotton seed Cake of cotton seed Cotton lint Cotton linter 0.552 4.277 0 0.0613 1.100 0.297 13.686 0.010 0.031429 0.00 0.255 -9.459 -0.010 0.030 1.100

Values below (above) zero point to a competitive trade disadvantage (advantage). Thus, the Pakistan cotton chain is internationally competitive. The primary products, cotton seed, cake of cotton seed and cotton linter, are highly competitive, while oil of cotton seed and cake of cotton seed are uncompetitive. 5.4.4 Trade Complementarities

Trade complementarities as given in Model-III of chapter 3 measures the compatibility of imports of country i with exports of country j , as defined below.

The value of Cij can easily be calculated for different countries/blocs. For example using this value can be calculated for USA, EU, Japan, Canada etc. as in table 19. Table 19: Trade complementarities Country/ Region USA EU25 Canada UAE SAARC Japan Share of import of cotton & cotton manufacturing 7 9 8 3 4 6 Share of export of cotton & cotton manufacturing 12 16 10 5 3 4 Cij = 1-( | Mhi Xhj |) 2 2.0 4.5 2.0 2.0 0.5 2.0

116 The above values for all trading countries are greater than unity except SAARC countries. This means that trading with SAARC countries in cotton and cotton products is less profitable as compared to other countries where cotton trading is highly profitable. 5.5 Pakistan Cotton-Textile and Apparel Sector- The Value Chain Cotton and cotton based products and textile is a very significant part of Pakistans agriculture and industrial sector. The industry faced the major competitive challenges after phasing out the MFA quota regime. To appreciate the challenges ahead, it is important to understand economics and political economy of the entire value chain, from growing raw cotton, ginning into lint, spinning into yarn, weaving into fabric, production of cotton made up, non- apparel, and apparel production and marketing, (Altaf, 2007) 5.5.1 Pakistan Cotton Situation Pakistan is one of the largest producer and consumer of cotton in the world. It contributes 8.6 percent of the value added in agriculture and around 1.8 percent to GDP. Cotton is the principal cash crop of Pakistan, second to wheat, the countrys staple food. According to Salam (2007) increased cotton production in the recent past has helped in curtailing imports of edible oils as cotton seed is a valuable source of vegetable oil for the domestic industry, and provides feed for livestock and dairy farming. He further highlights the significance of cotton by stating that cotton picking, a highly labor intensive activity is an important source of employment and income generation for rural women folk. Due to its forward and backward linkages, cotton crop not only holds a unique position in the rural economy of Pakistan but also its performance is crucial for the growth and development of agriculture sector and overall economy. A good cotton crop is imperative for the sustainable development of agriculture, food security and success of poverty alleviation efforts at the micro and macro levels, he further emphasized

117 Production The Cotton crop the source of silver fiber, was sown on the area of 3075 thousand hectares in 2006-07, 0.9 percent less than last year (3103 thousand hectares). The production of cotton is provisionally estimated at 13.0 million bales for 2006-07, lower by 0.1 percent over the last years production of 13.019 million bales. Lower production was primarily due to decline in area sown in Sindh due to excessive rains and floods. The crop yield in some areas was also affected by the cotton leaf curl virus and late wheat harvesting. There are two major cotton producing provinces in Pakistan, namely Sindh and the Punjab. The province of Punjab accounts for around 80 percent of total cotton producing area and production as well. The Sindh province produces only 20 percent. (Economic Survey, 2006-07). The challenges and opportunities for cottontextile value chain in the wake of increased international trade and globalization are immense. The capacity of the industry to face these challenges and get hold of the opportunities is largely depends on it competitiveness. How to develop that competitiveness largely depends on looking deep into the issues that have persistently retarded the growth of the sector. Issues in Cotton Cotton crop is highly vulnerable to pest and plant diseases during various growing stages of its life cycle. According to Salam, cotton production and farming in Pakistan is a high risk proposition as it involves huge expenditures on pest control and moreover substantial economic losses takes place due to pest. The cotton yield and production is marked by fluctuations due to many factors such as uncertain weather and climatic conditions, the hall mark of agriculture production activities. Moreover, the domestic prices also get affected by variations in the international market prices as happen in other commodity trading. Altaf (2007) gives some historical perspective on Raw Cotton Policy that helps in understanding the present issues and challenges faced by the industry. Cotton trade was in the private sector till 1974. After the nationalization of industry by the Government of Pakistan Peoples Party, Cotton Export Corporation (CEC) was established and the free market operations came to a halt. The function of CEC was at two levels; 1) purchase of

118 cotton from the farmers and 2) export to international markets at government regulated prices. In 1970s to provide low cost inputs to domestic spinning industry, an export tax of 30 to 35 percent was imposed. Resultantly, quality of ginned cotton suffered and farmers did not get the due prices. After denationalization, Minimum Export Price (MEP) was introduced on the exports to check the under invoicing. Meanwhile, Karachi Cotton Exchange (KCA) started buying directly from the ginners. The procedures became bureaucratic, and malpractices took its roots. In the end the farmer suffered and the local market went into isolation. The favorable policies made domestic industry inefficient and complacent. The imbalances in the supply and demand situation came up and forced the trader to carry over the stock. In 1993-94, the country imported cotton as production fell due to curl leaf cotton virus, (Salam, 2007). Historically yarn spinning industry has been the favored investment area. Yarn of low quality was exported. Spinning industry had no desire to improve as the selected private sector players were favored by the government policies tools. Though the domestic price policies were not very favorable for cotton, yet production went up. In 1994-97 the export duty on cotton was removed and there was a free flow of trade with international prices. Since 2000, efforts are under way to improve the quality of cotton. Pakistan Cotton Standards Institute (PCSI) was set up for standardization, however, the powerful lobby with self interest again played their tactics, and bidding for raw cotton through e-commerce was stopped. When PCSI tried to develop a training institute for cotton ginning sector, the powerful players jumped in. All this made the farmers suffer. A certain powerful lobby kept enjoying the gains at the cost of the farmer, and the sector at large.

The government became a buyer in cotton trade through Trading Corporation of Pakistan (TCP). The cotton support price was in operations with the make belief that it would enhance productivity, create exportable surplus and preserve the interest of the farmer, however, it did little for the farmers. The cotton market in Pakistan has experienced fluctuations due to political economy of the markets and the players both in public and private sector. All this was done at the expense of the sector and the farmer.

119 5.5.2 Ginning Sector Ginning industry was concentrated in a few hands in 1986-87, and was regulated by the cotton acts of Punjab and Sindh. Though some 800 units are actually working, the number of ginning units installed exceeds 1220. Ginning is a seasonal operation and a ginning factory that processes more than 10,000 bales is a large unit, while the average factory processes 5,000 bales in a season. However, the maximum bales produced in one season were 14 million bales in 2005, and capacity with full utilization of three shifts per day is over 36 million bales. Issues in Ginning The cottonseed transportation and storage is done at a minimal cost and there are no established procedures or standards for storage. The cottonseed is kept in the open where it gathers dust, dirt and trash while waiting to be processed. Weather also takes its toil. The cost to industry due to contaminated cotton is very high. Table 20: Number of Ginning Factories and Machines Location Punjab Sindh Total Machine Type 80 saws 90 saws 100 saws Total Number of factories 1,075 146 1,221 Number of Installed Machines 229 3,500 132 5,488

Capacity per Machine (bales per 8-hour shift) 12.5 18.5 31

Total capacity (bales per day per shift) 2,863 59,235 4,092

Source: Pakistan Cotton Ginners Association

120 Table 21: Industry Losses due to Cotton Contamination, 2004-05 Product/Category Cotton Yarn Cotton fabrics Ready made garments Knit wear Bed wear Towels Other textile products Total
Source: Textile Commissions Organization

Value ($) 55,370 104,604 61,425 99,786 321,185 586,999 1069,394 2,298,763

The sector is suffering from lack of technology. Generally the local craftsmen are running the factories. The technology in all the machines needs improvement as the old technology affects the quality of output. The sector also lacks overall standardization from cleaning process to storage facilities. Another basic issue for the ginning sector is shortage of working capital. 5.5.3 Spinning Sector Next step in the chain is spinning of yarn. Over the years the number of units increased from 70 in the late 1950s to 503 in 1995-96. The growth of the spinning industry has been steady. The number of spindles increased from 1.5 million in the 1950s to 10.5 million in 2004-05. The economies of scale that was 12,500 spindles per unit increased to 18,000 per unit by 1998. Similar trend followed in the rotor sector. From 16 thousand rotors in 1979-80, the number increased up to 155 thousand in 2004-05.

121 Table 22: Installed and Working Capacity in the Spinning Sector, all Pakistan Installed Capacity (000) Working Capacity (000) Year 1958-59 1979-80 1989-90 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Units 70 187 266 277 307 334 471 494 503 440 442 442 443 444 450 453 456 458 Spindles 1,581 3,781 5,271 5,568 6,216 6,860 8,419 8,610 8,717 8,230 8,368 8,392 8,477 8,601 9,060 9,260 9,592 10,485 Rotors 0 16 72 75 81 95 138 132 143 143 150 166 150 146 141 148 146 155 Spindles 1,488 2,701 4,489 4,827 5,333 5,520 6,205 6,262 6,548 6,538 6,631 6,671 6,825 6,913 7,740 7,676 8,009 8,492 Capacity Utilization (%) Rotors 0 14 64 67 67 79 84 74 80 87 80 66 66 70 66 70 66 79 Spindles 0.90 /a/ 0.74 /b/ 087 0.87 0.86 0.80 0.73 0.73 0.75 0.79 0.79 0.79 0.81 0.80 0.82 0.83 0.83 Rotors 0.59 0.83 0.89 0.89 0.83 0.83 0.61 0.56 0.56 0.61 0.53 0.40 0.44 0.48 0.47 0.47 0.45

Source: Textile Commissions Organization /a/ average capacity utilization for period 1958-79 (spindles and rotors) /b/ average capacity utilization for period 1980-90 (spindles and rotors)

Issues in Spinning There are gaps between installed and working capacity. The capacity utilization in 1990 in the spindle and rotor sectors was 80 percent. However, in1990s, the capacity utilization dropped, the reason was a steady increase in the number of spindles and rotors despite a bad cotton crop in 1993 and 1994. Though the installed capacity increased in 1997-99, the working capacity of the rotors declined. Figure 17: Capacity Utilization in Spinning Sector

Source: Cotton Report APTMA

122 5.5.4 The Textile Sector The textile industry in Pakistan is based on cotton fibers; however it started using man-made fibers in the 1980s. From an average share of 8.7 percent to total fiber consumption in the 1980s, it went up to 22 percent in 1998-99, and in 2004-05, it was 19 percent. The local production of man-made fibers has resulted in higher production of yarn blended with man-made fibers. The important categories of man-made fibers are Polyester/Cotton (PC) and Polyester/Viscose (PV). There are five domestic man-made fibers manufacturing units but they are relatively uncompetitive to world standards. The spinners are in difficulties with these manufacturers as the cost of local yarn for local mills is extremely high. The commercial banks also do not extend credit facilities. Weavers take advantage of the situation. Moreover, the blended yarn manufacturers pay a duty of 6.5 percent on import of raw material. Modernization of the textile industry requires increased use of man-made fibers in yarn production. In the 1970s, half of total yarn production came from the Punjab province. The trend still persists and now more than 70 percent of yarn production comes for the Punjab. The share of total yarn production from Sindh has declined from 43 percent in the 1970s to around 20 percent. This was the result of the relocation of installed capacity to the Punjab province. The other provinces produce less than 10 percent of yarn. The yarn industry in the Baluchistan province is closed since 1983. The production of yarn in Pakistan (cotton and man-made) has increased at an average annual rate of 4.7 percent since 1990-05. The share of exports of yarn increased from 29 percent in the 1970s to 47.5 percent in 1991-92. The share of exports of yarn declined to 26.5 percent in 2004-05. The major international markets for Pakistan cotton yarn include Hong Kong, China, United States, and South Korea. Pakistan is a major producer of cotton yarn and its share in the world production has increased from 7.2 percent in 1994 to 9.1 percent in 2004. This is lower than India (9.7 percent) and greater than US (5.8 percent). Mainland China has a share of 46.8 percent.

123 5.5.5 Issues in Yarn Production The spinning industry of Pakistan produces low counts yarn (22 counts), and low value yarn. There is higher profitability in production of higher counts, but the entrepreneurs are not willing to take any risk. There are a number of reasons for this behavior. According to Altaf (2007), the industry has been historically operating in a protected market. Pricing of raw cotton favored the domestic processing industries until the early 1990s. He mentionsthe most basic reason, seems to be the creation of entrepreneurs by government fiat and these were people who were not risk takers. Altaf (1983) provides ample evidence to that affect. He argues that for key industries like textile, cement, sugar, edible oil, and flour mills, granting permission to operate was the responsibility of the President/Prime Minister. According to him the issuance of textile permissions was used as political bribes. The spinning sector has always been receiving more support from the government than the weaving industry. A large number of non-performing spindles points towards the various soft packages given by government to the sector. The MFA quota regime also added to non-competitiveness of Pakistans spinning industry. Altaf (2007) puts forward an other reason for inefficacy of the sector; availability of a captive market in shape of former East Pakistan, now Bangladesh, where all kinds of poor quality yarn were exported by the West Pakistan exporter. 5.5.6 Production of Cloth and Fabric Pakistan faces sharp international competition in this segment of the value chain that processes yarn into value-added products of cloth/fabrics and textile made-ups such as towels, bed wear, and linen. The average annual growth in production of cloth in Pakistan from 1990 to 2005 is 5.6 percent. Only 10 percent of production comes from mills, and the rest 90 percent comes from non-mills. About two-thirds of output goes to the domestic market, and the rest goes to the world market.

124 There were 25 thousand looms available in 187 textile units in the country in 1979-81, which further declined to 15 thousand after ten years and further went down to 9 thousand in 2004-05. The reason of small production share coming from mills can be thus due to the declining number of looms in the integrated textile mills, more over, out of the installed capacity, only about 50 percent is operative. About 50 percent of capacity is in Punjab, and about 60 percent of cloth produced comes from Punjab. Out of the rest, 45 percent capacity is in Sindh and the rest in other provinces. Production of cloth type includes more than 50 percent grey cloth, and blended cloth accounts for more than 10 percent, whereas the share of dyed and printed cloth, in 2004-05 was 31.7 percent. Table 23: Quality of Cloth Production, Mill Sector (% distribution) Quality Fine Grey Bleached Dyed & Printed Medium Grey Bleached Dyed & Printed Coarse Grey Bleached Dyed & Printed Total
Source: Costistics

1997-98 42.3 36.5 1.8 4.0 26.0 10.8 2.1 13.1 31.7 27.3 0.6 3.8 100.0

1998-99 30.0 18.2 4.8 7.0 41.0 21.0 2.1 17.8 29.1 22.8 0.9 5.4 100.0

1999-00 19.9 17.4 0.6 2.0 56.4 33.1 2.5 20.8 23.7 18.3 0.3 5.0 100.0

2000-01 20.7 18.4 0.3 2.1 57.2 31.8 3.3 22.1 22.0 14.1 0.9 7.1 100.0

2001-02 24.6 22.5 0.2 1.9 54.4 27.1 3.0 24.3 21.0 14.6 0.7 5.7 100.0

The share of fine quality cloth has gradually declined from 42.3 percent in 1997-98 to 24.6 percent in 2001-02. The bulk of the cloth is in grey form. Altaf (2007) attributes the high share of fine cloth in 1997-98 to policy initiatives by the government and the elimination of export subsidies and the benchmark price system. In the form of grey, dyed and printed cloth, the share of medium quality increased from 26 percent to 54.4 percent over the same period. However, the share of coarse quality cloth decreased gradually from 31.7 to 21 percent. The weaving industry has concentrated on the unprocessed cloth. It also lacks marketing abilities to go for more specialized products. The weaving mills have very

125 basic marketing wings. Despite massive investment at subsidized rates, there is no quality improvement.

Pakistans exports of fabric reflect its production pattern also. One-fifth of fabric/cloth exports go to the U.S. market. Unbleached fabric accounts for about 40 percent of the exports which is of 22 percent of the world trade. Bleached fabric accounts for about 15 percent of Pakistans exports. Highly processed printed fabrics accounts for 29 percent of Pakistans exports, which is around 15 percent of the total global market. The printed fabric suffers from quality due to low-category technology, and many other defects. The dyed fabric accounts for 14 percent of Pakistans exports. Total exports are around $195 million out of total world market of $4.14 billion. Denim and calendared fabric as a quality driven area faces competition from the United States, Italy and Hong Kong. The fabric industry faces the challenge of producing a wider range of products and product mix as well. The Pakistan textile sector is heavily dependent on cotton fiber. The international cotton market has been volatile and has more demand for blended fiber. Pakistan produces fewer blends compared to its competitors. To tackle the challenges of international trade, Pakistan has to over come these deficiencies along with weaknesses in human resource. 5.5.7 Textile Made-Ups The international market for textile made-ups has expanded by 11.7 percent. The total world export of textile made-ups in 2005 was $30.2 billion. Major exporters are China, Pakistan, India, Turkey and Portugal. Textile made-ups have following major categories:

Towels and cleaning clothes Bed wear and linen; blankets Curtains and furnishings Canvas products and table linen.

126 China export earnings from textile made-ups registered an increase of 178 in 2005 and its share increased from 21.2 percent in 2001 to 33.9 percent in 2005. Pakistans exports of these items grew by 107 percent, and its share went up from 8.6 percent in 2001 to 10.1 percent in 2005. Table 24: Exports of Textile Made-Ups Billion dollar 2001 World China Pakistan India Turkey Portugal 17.4 3.7 1.5 1.1 1.0 0.8 2002 19.1 4.4 1.8 1.3 1.2 0.8 2003 23.5 6.1 2.3 1.6 1.6 0.8 2004 26.4 7.7 2.3 1.8 1.8 0.8 2005 30.2 10.3 3.1 2.4 2.0 0.8 21.2 8.6 6.3 6.0 4.5 22.9 9.2 6.6 6.5 4.1 26.2 10.0 6.8 6.9 3.5 29.3 8.9 6.8 7.0 3.2 33.9 10.1 7.9 6.5 2.5 2001 % of World 2002 2003 2004 2005

Source: International Trade Statistics (http://www.intracen.org/tradstat/site3-3d/indexpe.htm)

5.5.8

Towels and Cleaning Cloths Pakistan stands at number second among towel exporters, and its share in the

world market increased from 7.1 percent in 2001 to 9.8 percent in 2006. Unlike other textiles, the Pakistan towel industry is comprised of the organized sector. There are about 325 units, and out of which 250 units are in the organized sector. Local and imported technology is in use and there are around 9,000 locally manufactured looms, and 250 imported auto looms. About 90 percent of production comes from local looms and only 10 percent from the imported looms. Local looms produce 1000 kgs of towels per month, and the imported looms can produce 3500 kgs. This segment has been able to produce quantity along with quality. Cotton towels and wash clothes are the major export items and the United States is the major destination, accounting for almost 50 percent of Pakistans export receipts.

127 Table 25: Major Exports of Towels and Cleaning Cloth Billion dollar 2002 China Pakistan Portugal Turkey Belgium Germany Brazil Others Total 797 247 316 148 215 283 161 2003 2004 2005 989 346 284 271 271 273 156 2006 913 375 265 251 251 213 156 2002 23.2 7.1 9.31 4.3 6.2 8.2 4.6 37.5 % of distribution 2003 23.1 8.6 8.0 4.6 5.8 7.4 4.5 38.1 2004 37.8 6.1 5.7 5.0 4.7 5.2 3.6 32.0 2005 23.6 8.2 6.8 6.5 6.5 6.5 3.7 38.3 2006 23.8 9.8 6.9 6.5 6.5 5.5 4.1 36.8

865 1,900 321 302 172 217 278 168 305 284 251 238 260 181

1,302 1,429 1,606 1,606 1,414

3,469 3,752 5,025 4,196 3,838 100.0 100.0 100.0 100.0 100.0

Source: International Trade Statistics (http://www.intracen.org/tradstat/site3-3d/indexpe.htm)

5.5.9

Bed Wear and Linen The world export market for bed wear and linen has grown by 8.6 percent over

the last 11 years. Pakistan has done well in these items. In 1995, Pakistan was second to China. In 2005, Pakistan has a 28.2 percent share in the world market for bed wear and linen, while China has only 27.1 percent. In 2000, 69 percent of Pakistans exports earnings came from bed linen made of cotton. In the last five years this share has gone down but the share for knitted and crochet bed linen has improved. The United States is a major trading partner of Pakistan in this segment followed by the United Kingdom. The issue is that Pakistan is at the lower end of the market in unit prices. The highest average price in this segment was received by Mexico ($17.43 per kg) followed by Germany ($14.20 per kg). Mexico has a preferential trade arrangement with the U.S. (North American Free Trade Agreement), that certainly helps the unit prices, whereas from German products have advantage of quality. The problem lies with quality standards of Pakistani entrepreneurs. Better quality demands better marketing, but the segment also lacks marketing infrastructure. The major challenges in the sector are;

Need for improved technology Need for better human resources

128

Need to have improved design and development Better standards and quality Better reputation in the international market

Table 26: Composition of Pakistans Exports of Bed Wear Type Million dollar Bed Linen, Knit, crochet Bed linen, Cotton Bed linen, other Textiles Total % distribution Bed Linen, Knit, crochet Bed linen, Cotton Bed linen, other Textiles Total 2000 2001 2002 2003 2004 2005

4 515 225 745

7 581 243 831

28 808 208 1,044

109 1,044 226 1,380

179 874 235 1,288

203 1,116 607 1,926

0.6 69.1 30.3 100.0

0.8 69.9 29.3 100.0

2.7 77.4 19.9 100.0

7.9 75.7 16.4 100.0

13.9 67.9 18.2 100.0

10.5 58.0 31.5 100.0

Source: International Trade Statistics (http://www.intracen.org/tradstat/site3-3d/indexpe.htm)

Table 27: Major Country Destination of Exports of Bed Wear from Pakistan Countries 2003-04 2004-05 41.1 31.0 United States 10.6 15.3 United Kingdom 6.9 6.8 Germany 6.2 6.9 United Arab Emirates 5.6 6.3 France 4.8 5.1 Netherlands 3.4 2.7 Belgium 3.0 2.6 Spain 2.1 2.1 Italy 2.0 1.5 Canada 14.4 19.6 Others 100.0 100.0 Total
Source: Export Promotion Bureau

129 5.5.10 Apparels In the entire chain, the apparel/clothing segment is the highest in value. After the liberalization, reform and abolishing of quotas, the growth and demand has gone up. The world trading patterns are in favor of Asian countries. The rate of growth and quality in the developing countries is increasing faster than in the developed world. Intra-regional trade is also on the increasing side. The developed world has imposed non-tariff barriers such as child labor, the environmental and other social issues in order to restrict the developing countries. Success in this competitive market largely depends on the suppliers ability to meet the demand and to offer quality at a competitive price, and have a unique product to sell for premium price. The market increased at an annual growth rate of 4.1 percent in 1996-04. The world exports of clothing were $234 billion in 2004. China captured a huge share of 26.5 percent, and its share has grown significantly in the last one decade.

Pakistans share is slightly over 1 percent of the world market, and India has a share of about 3 percent. Classification of this segment is based on the structure of the fabric used, and purpose of the use like mens wear, womens wear, sportswear, hosiery etc. Pakistan has recently made a slight shift to clothing from textiles production. Global export trends are moving towards high street fashion market. Export products are now made of diverse and quality fabrics and materials. Pakistan is far behind because of its inability to convert yarns into fabrics and high value garments. The world clothing/apparel trade can be divided into three categories Woven garments Knit garments Articles of apparel / clothing accessories In 2001-04, the share of these categories was; woven garments 40 percent, knit garments 13.4 percent, and articles of apparel/clothing accessories 47.5 percent. About 40 percent of Pakistan export earning of clothing come from the articles of apparel, clothing and accessories. The U.S. is the major market for Pakistans exports.

130 Table 28: Exports of Clothing

World (Million dollars) Men/boys wear woven Women/girls clothing woven Men/boys wear knit/crochet Women/girls wear knit/crochet Articles of apparel, NES Clothing Accessories Articles of apparel and clothing accessories* Pakistan (million dollars) Men/boys wear woven Women/girls clothing woven Men/boys wear knit/crochet Women/girls wear knit/crochet Articles of apparel, NES Clothing Accessories Articles of apparel and clothing accessories* Pakistan as % of World Men/boys wear woven Women/girls clothing woven Men/boys wear knit/crochet Women/girls wear knit/crochet Articles of apparel, NES Clothing Accessories Articles of apparel and clothing accessories* Clothing Exports of Pakistan (% distribution) Men/boys wear woven Women/girls clothing woven Men/boys wear knit/crochet Women/girls wear knit/crochet Articles of apparel, NES Clothing Accessories Articles of apparel and clothing accessories* Total 2001 196.7 39.1 42.6 10.0 16.6 61.7 12.4 14..2 2.14 0.51 0.14 0.54 0.09 0.27 0.18 0.40 2002 190.8 35.4 49.5 9.5 15.4 63.9 12.7 14.4 2.23 0.52 0.17 0.51 0.14 0.30 0.27 0.31 2003 217.4 39.4 44.2 10.9 18.8 72.8 14.3 17.0 2.84 0.60 0.21 0.70 0.22 0.45 0.27 0.39 2004 233.8 39.8 47.1 11.6 19.7 80.8 16.1 18.7 3.03 0.52 0.19 0.75 0.17 0.69 0.28 0.43

1.32 0.33 5.43 0.54 0.44 1.48 2.79 24.1 6.6 25.3 4.2 12.6 8.6 18.6 100.0

1.48 0.44 5.36 0.93 0.47 2.12 2.14 23.5 7.8 22.9 6.4 13.6 12.1 13.8 100.0

1.52 0.47 6.43 1.14 0.61 1.91 2.33 21.1 7.3 24.7 7.6 15.7 9.6 13.9 100.0

1.30 0.41 6.45 0.86 0.85 1.75 2.28 17.1 6.4 24.7 5.6 22.7 9.3 14.1 100.0

Source: International Trade Statistics (http://www.intracen.org/tradstat/site3-3d/indexpe.htm) *other than textile fabrics; headgear of all materials

Production of apparel industry in 1972-73 was 9.5 million pieces, and it went up to 685 million pieces in 2000-01. In 2000-01, the total number of units in the sector was 4,500, and out of these 80 percent were cottage industries. Out of 650,000 total installed sewing machines only 200,000 are industrial, and the rest are domestic machines or cottage-based small units. The majority of the units are located in Karachi and Lahore. Other areas include Faisalabad, Gujranwala, Quetta, Sialkot and Rawalpindi.

131 To improve the production quality, the industry needs to be reorganized as a semi-formal sector, and the government should also facilitate quality improvements. The apparel industry comprises knitting, dyeing, printing, finishing, stitching, trims, accessories, and also packaging processes. The apparel industry is labor intensive and around 700,000 people works for the sector. 5.6 Cotton Vision 2015 The Ministry of Food, Agriculture & Livestock has prepared a long term Cotton Vision for sustained growth in cotton sector to meet the future needs of the domestic textile sector and the international market. For the quality cotton production to match the spinners requirements the Government is facilitating cotton research and development processes, and provides support to stakeholders, and the farmer community through a variety of fiscal, technological, administrative and legislative measures. To improve the quality and reputation of Pakistans cotton and its products in the world market ambitious targets have been set such as:

Cotton Production 20.7 Million Bales Cotton Yield/hectare 1,060 Kgs Mill Consumption of cotton 20.1 Million Bales Exportable Cotton Surplus 0.6 Mln Bales Improved Yarn Recovery 92% Clean/contamination free cotton production (84%), and supply of cleaner, uniform graded and contamination free cotton for the domestic industry

5.6.1 Textile Vision 2005 Textile Vision 2005 is a long term strategy to prepare a market driven, innovative, internationally integrated and competitive textile sector ready to take advantage of the opportunities after the MFA regime. The vision is to have the multi dimensional approach of sectoral analysis of the textile value chain and sub sectors, inputs, technology, research, human resource,

132 regulation, and institutional support requirements. It also emphasizes on implementation and monitoring arrangements.

The textile sector had shown impressive growth during the four decades after independence, though the share of value added products was modest. However, gradually stagnation and stalemate crept in due to certain changes in the global and domestic environments. According to Textile Vision 2005, during the 1990s a combination of different factors adversely affected the industry:

Removal of export duty on raw cotton leaf curl virus attack reducing the supply and hiking the price Frequent changes in the political governments, and inconsistency in the Policies of the Government and Financial Institutions

Rapid expansion of the installed industry without economies of scales Rapidly changing the global market trends and demands and shift towards man made fibers A number of textile units closed and defaulted on the bank loans. The State Bank

of Pakistan became strict with regulations and the banks with drew the funding facility for expansion or BMR. The industry already short of value added products started losing the competitive advantage mainly due to its inability to keep pace with the technological advancements and changes around the world. Textile Vision 2005 further states that the survival of the industry was dependent upon the quotas and regulatory protections given by the Government. Meanwhile, efforts were made to address the bottlenecks and problems of the industry with a view to formulate strategies for its revival. The following steps were taken;

JICA Study on Textile Sector of Pakistan (July 1992) Development of a Market Based Strategy for the Pakistan Textile and Clothing Industry. (Gherzi Textile Organization 1993)

Long Term Strategy for Restructuring of Textile Industry in Pakistan, (National Commission on Textile Industry, 1999)

The basic recommendations for the growth of textiles industry were; improvement in research and development, up gradation of technology, quality

133 standards, market expansion, human resource development, quality service delivery to buyers, funding for shuttle-less looms, product diversification, stronger apparel sector, rationally modified tariff structures, and consistent policies of the government. More over, the need to formulate a long term and dynamic textile policy was felt. 5.7 Significance of Agriculture Sector for Pakistan The importance of the agriculture sector can not be over emphasized as it provides the basic raw material for Cotton, Textile and clothing industry, which contributes around 70 percent to export earnings. Pakistan is essentially an agrarian and rural economy. Agriculture provides livelihood to 66 percent of its population that live in the rural areas, and employs 43.4 percent of the total work force. Its contribution to GDP is 20.9 percent, second to the services sector. Economic Survey 2006-07 has very rightly called it a dominant driving force for growth, poverty reduction and the center of the national economic policies. There have been mixed trends over the last six year in agriculture growth. Due to unprecedented drought during 2000-01 and 2001-02, agriculture registered negative growth. From 2002-03 to 2004-05, better availability of irrigation water had a positive affect on agricultural growth. The performance of agriculture remained weak during 2005-06 because the major crops did not perform well. In 2006-07, it grew by 5.0 percent. Forestry, live stock, poultry & fisheries and marine also contribute towards the over all agriculture economy. Crop Situation Pakistan has two crop seasons: Kharif and Rabi, and the agriculture outputs are closely linked to the supply of water. Kharif crops are rice, sugarcane and cotton whereas the major Rabi crop is wheat. Rice is a high value cash crop. It accounts for 5.7 percent of the total value added in agriculture and 1.2 percent to GDP. Provinces of the Punjab and Sindh are famous for production of rice. Pakistani rice is known for its quality and aroma in the world.

134 The sugar industry has a share in the value added of agriculture. Its contribution to GDP is 3.5 percent. Wheat is the largest grain crop and the main diet of the Pakistani people. It accounts for 14.4 percent to the value added in agriculture and 3.0 percent to GDP. Other major crops are gram, tobacoo, bajra and jawar. The Oilseed crops include cottonseed, mustard, sunflower and canola seed. Pakistan produces pulses as well. For food security and export surpluses at competitive prices, Pakistan requires development of agriculture sector and resources. Due to inefficient farming practices and low productivity, cost of production of various crops is high, and yield is limited. Innovation and technology is lacking, and use of out dated machinery and tools has made the sector inefficient. Government has taken a number of steps to make the agriculture sector competitive. It includes; plant protection facilities and schemes, better irrigation system, agriculture credits for farmers, production and development loans and initiation of research and development projects. 5.8 Opinion Around the World The comments of National Textile Association (NTA), America, on Pakistan Textile Sector in the light of the Trade Policy Review of Pakistan (2008) by the WTO are;

Generous SBP (State Bank of Pakistan) concessionary finance to exporters, especially of textiles and clothing has distorted industrial incentives

Pakistan has been unable to benefit from the quota abolition due to its high costs, low labor productivity, and inefficient production processes

Cotton- textile is Pakistans most important industry and it is based on locally grown and imported cotton, and is concentrated in preliminary processing stages production of cotton, textiles, clothing, synthetic & manmade fibers

The Ministry of Textile Industry formulated export goal of US$14.5 billion by 2009 which calls for raising the share of man-made fibers from 18% to 50%.

Tariffs up to 35% in 2007/08, are the main measures assisting the industry Several assistance packages and incentives, such as income tax concessions, gradual lowering of tariffs on imported textile machinery and parts to encourage

135 investment for balancing, modernization, and rehabilitation, and a number of various tariff and sales tax concessions and exceptions on raw materials, research and development fund have been introduced to help the industry

The Government is considering another major incentives package of over Rs. 29 billion on the recommendations of the National Textile Strategy Committee

Labor law amendments, 2006 have helped the industry especially fixing of minimum labor wages on an hourly basis

Establishment of textile and garment cities, and provision of modern infrastructure on private-public partnership basis, in Karachi, Lahore, and Faisalabad, to promote value-added production is a major incentive for the industry

Pakistan may gain from new quota-free regime, and textile production expands, however, the clothing segment may contract as it faces greater overseas competition

Unless productivity improves substantially to capture the potential benefits arising from abolishing quotas, the real income will go down

The WTO, TPR indicates that Pakistan has not been able to benefit from the quota abolition so far due to its high cost inputs, low labor productivity, and inefficient production processes. Productivity enhancement by 60% to match Chinese levels could result in annual turn over of US$1 billion

Textile Industry at Crossroads, (Dawn, January 01, 2007)

It has been pointed out that technological developments, changing protectionism policies in the industrialized markets as well as shifting market structure of the world textile industry are both, a source of opportunity and threat. However Pakistans response to these changes occurring worldwide seems to be constrained by its own structural weaknesses. The author suggests certain measures to enhance Pakistans competitive position in the international market, which seems to be caught in the state of arrested development,

136

Creation of level playing fields for all the sub-sectors to stimulate competition within the industry

Need to change the mind set of the local influential entrepreneurs who are used to incentives and has become sluggish and inefficient

Enhancement of productivity and efficiency of the labor force is needed which calls for technical and vocational training

Close linkages between industry and academia and public research institutes and industry are needed

Upgrading of the technological base especially in the garment manufacturing is badly needed

Development of specialized capital markets to accommodate the agriculture and textile related technology fund requirements

Establishment of the research & development institutes jointly funded by the industry and the government are important

Change in management style and separation of the ownership and management is very crucial for required outputs

Pakistan Textile Industry - Bright Prospects Ahead: Khaleej Times Special Report Khaleej Times in this special report on Pakistan foresees a bright future for the textile industry of Pakistan due to rising world demand (around 2.5 per cent) for textiles. Pakistan textile industry is currently facing several challenges especially the tough competition from the India, Bangladesh and China. To have bright prospects, it needs to improve the quality of its products through value addition. Obsolete technology used by the industry needs upgrading and modernization. There should be emphasis on research & development and skilled labor force for productivity.

Pakistan: Textile Sector Sets Productivity Targets Asian Textile Business, (2002) reports that the government has launched a benchmarking campaign for the textile sector to maximize its productivity, and has selected eleven spinning mills mostly located in Punjab Province as a first step. The National Productivity Organization (NPO), an expert agency under the Ministry of Industries and Production, has stared a benchmarking study of the spinning industry with

137 the help of the Asian Productivity Organization, because this sector has the maximum potential for output improvement. To enhance the productivity standards by 5 percent, a budget of Rs 47 million during 2002-03 has been allocated. The campaign would be extended to weaving and knitting sector later on. Promoting Better Environmental Practices in the Textile Processing Sector of Pakistan
World Wild Life (WWF) and EU- Small Project Facility has launched a few

projects to sensitize cotton-textile industry on Better Environmental Practices and Cleaner Production Processes (CPP) to equip the sector to meet the challenges of conforming to international quality standards and to put up with the legislations and obligations. Though the textile processing sector is one of the most important industrial sectors of Pakistan in terms of production, export and labor force employment yet the industry is not capable enough to meet the international environmental considerations. The report further mentions the inadequate capacity of the exporters to comply with certain legislations in the importing countries, therefore, have faced cancellation of their orders. Through out the world the consumers, businesses and respective governments have certain preferences for ecologically friendly production and consumption. Pakistan textile industry and exporter should try to meet these standards to be competitive internationally. 5.9 Challenges in the Pakistan Cotton, Yarn, Textile and Apparel Sectors Altaf (2007) articulates the importance of the whole value chain of cotton-yarntextile apparel sector for Pakistans economic growth and development. He points out that the emerging trends in international and domestic markets; rising production cost and ever increasing competition, pose serious threats to the performance and potential of the industry as a whole.

138 He stresses upon the need of an internationally linked and globally competitive strategy based upon the evaluation of the strengths and weaknesses, for the sector. Altaf is an agriculture economist and has close linkages with the agriculture sector and the farmers. He is a former Pakistan Federal Secretary of the Ministry of Food, Agriculture and Livestock, so that way he is an insider and knows the dynamics of the industry from field to firm level. His analysis of the economics and political economy of the entire value chain from raw cotton, ginning, spinning, weaving, and production and marketing of cotton made ups, and apparel is very convincing and thought provoking. He is of the view that a collective approach to the problem is a must as the entire value chain needs modifications. The intervention by the government should not only be for the self interest of the eminent industrialists rather it should be across the board. Moreover, the long term and consistent policies of the government are crucial for the sector. Though the major strength is availability of the raw material cotton, and it is the base of the entire industry. The price and marketing of cotton is dependent on character, staple and grade, therefore quality of cotton is crucial for the producers and processors. He is also skeptical about the role of powerful players in the price fluctuations of the raw cotton, which affects the incomes of all concerned, the entire chain is substantially affected by the powerful players in the marketing of this commodity leading to either worsening of poverty or its alleviation. The contaminated cotton is a major weakness. Only a limited quantity of contamination free cotton was available from 1980 to 2007. This situation may jeopardize the competitive supply and production of raw material if use of contaminated cotton is not stopped, and cultivation of other varieties of cotton likes GM cotton, is not encouraged. However, how can the producers have motivation to improve the quality if the industry is not ready to pay? The strength of cheap labor is also turning into weakness because of the myopic view of the entrepreneurs and lack of skilled manpower. The humble wages (Rs. 3000 to 4000 monthly) can only demoralize the worker. Well trained human resource through out the industry is lacking. There is a need for workforce development.

139 The use of obsolete second hand machinery by the yarn industry has compromised the quality of processing of textiles and apparel sector. The industry needs to use man-made fiber (mmf) as man-made staple and filament are in demand internationally. Up beat about the achievement of the industry in terms of its rapid growth of yarn and textile production, he is critical of the industry for not having sufficient entrepreneurial spirits, and always asking for bailouts from the government. He is of the view that industry has developed in the protected market environment that goes beyond not only the MFA quota regime. The policies of 1950s and early 1960s also made the textile industry filthy rich. He also criticizes the benefit seeking role of the All Pakistan Textiles Mills Association (APTMA) from the successive governments by blackmail, thus compromising the competitive ability of the industry. He analyzed the financial position of the textile units and lamented;

If one were to examine the par value of the shares at the moment, the majority of these shares are well below the par value. How they have been surviving and why these units have not been liquidated is something of a mystery. One view is that although these are public limited companies, they are all within the extended family and the units are not operating. There are no transactions of the shares and therefore these units will always have spindles and looms that are not operating. This is wasteful and the investment is not adding to the growth or industrial output of the country. A policy intervention would be needed to make these units productive. 5.10 Concessions

Concerns of the Industry are:

The cost of doing business has gone up due to increase in the minimum wages and the power tariff and energy costs. It has raised the cost in the spinning industry alone by Rs. 75 million per annum

Monopolized buying by selected international brands has margins

reduced the

Obsolete inventories, window dressing of balance sheets, and anti-dumping actions by the EU are major problems

140

Effective and informed industry-specific research to be done by the government and its various institutes

Removal of the import duty on textile machinery and spare parts Modification of eligibility criteria for SBPs long term financing and export Swapping of the loans from high cost of capital to a lower cost of capital and other forms of concessions

Availability of short term loans at reduced rates of interest effective from October 2006 so that the industry could compete in the international market

Importation of polyester staple fiber, a banned item under the temporary scheme

Eligibility for SBPs LTF-EOP schemes for the outstanding loans of the entire spinning and weaving industry irrespective of the period to make entire industry viable

A Technology Up-gradation Fund (TUF) like India where the industry is allowed a rebate of 5 percent on the interest rate to encourage capital formation.

5.11

Politics of Concessions and Rebates Historically the industry has received various forms of support and

concessions. Rs. 25 to Rs. 40 billion under 6 percent R&D rebates to garments and knitwear during the fiscal year 2006-07 have been paid. More over, fabrics and home textiles also get 3 percent and 5 percent rebates for R&D, respectively. A total of nearly Rs. 12 billion have been provided of which 34 percent went to the spinning industry. Bank loans are being swapped with long term finance facility for export-oriented industries and textile exporters enjoy financing at 7 percent. Refinance is also provided at 7 percent. A senior bank official shares the following information on loans disbursement and then written off.

141 Table 29: Loans to Textile Sector Textile Sector up to 2003 2004 133.77 95.36 2005 45.42 Rs. Billion 2006 19.84

Disbursement Disbursement Disbursement Disbursement Total

Textile (million rupees) Dec, 2007 All Banks & DFIs All Banks All Commercial Banks Loans 587,029 581,813 578,944 NPLs 63,078 62,501 59,748 % 10.75 10.74 10.32

Altaf (2007) arguesthe root cause of all this was the creating of robber barons in the 1960s. They have become a powerful mafia. 5.12 Opportunities and Future After elimination of trade restrictions in 2005, Pakistan has lost its preferential status with the E.U and exports are facing a price war in its established markets (U.S. and E.U). In the home market cheap Chinese and Thai products have gained ground. Industry has been exporting large quantities at a lower price which has reduced the profit margins. At the same time China has got 30 percent, India 5 percent and Pakistan 3 percent only in the U.S. market. In 2007, industry is seeking concessions package with the promise of exports worth $20 billion and creation of six million new jobs. Industry needs productivity enhancement to touch $ 20 billion exports. How that would be done, Altaf (2007) argues. There are over 500 textile units and only 20 percent of the total textile mills are ISO 9000/ 2000 certified. In such a situation where is the quail. The management style needs a big change. Family affair management should be replaced by managers hired from the market on the basis of required skills and competencies. Other wise unit value of the textile units keeps reflecting negativities.

142

Regional trade and preferential agreements also pose a big challenge as the least developed countries have preferential treatment. Pakistan has bilateral agreements and FTA with Sri Lanka and China. With China and India there are 48 complimentary products. All three countries could gain from expanded regional trade. A big challenge and opportunity! Government needs to devise competitive, uniform and consistent polices to remain competitive in the international markets. A big challenge for the state and the policy makers! Presently industry is managed by the industrialists who are not ready to take the challenges. The industry needs entrepreneurs who can take the risks and initiatives and cash the opportunities with ingenuity. Altaf, (2007) is of the view that the strategy for progress for the Pakistan Cotton-Textile and Apparel industrymust encompass both private and public dimensions. Private sector should think beyond the installation of latest machinery and work on production plan and proper marketing and management for productivity enhancement Public sector should provide road infrastructure, and storage facilities to reduce transitional cost. An integrated supply chain leads to value added in production.

143 References All Pakistan Textile Mills Association, (APTMA): http:// www.aptma.org.pk Altaf Zafar, Dr, (1983) : Pakistani Entrepreneurs; Their Development, Characteristics and Attitudes, Croom Helm Ltd, Provident House, Burrell Row, Beckenham, Kent BR3 1AT, Australia Altaf Zafar, Dr, (2007): Challenges in the Pakistan Cotton, Yarn, Textile and Apparel Sectors, Chapter Five: Studies of the Cotton-Textile Apparel Industries in Pakistan and India: Cotton Trade Policy and Poverty Study Asian Textile Business: http://www.allbusiness.com/asia/980338-1.html, Date: Tuesday, October 1 2002: Retrieved on 2008-04-23 Caesar Cororation and David Orden, (2007), Studies of the Cotton-Textile Apparel Industries in Pakistan and India: Cotton Trade Policy and Poverty Study. EWP091261-ESW-TF055329, Cambridge, MA 02138 Corbman P. Bernard, (1983): Textiles Fiber to Fabric: McGraw- Hill International Editions 1983, McGraw- Hill Book Co. Singapore International Trade Statistics (http://www.intracen.org/tradstat/site33d/indexpe.htm) National Textile Association (NTA), America, Free Daily Textile News Blog: http://www.nationaltextile.org Pakistan Economic Survey, (2006-07), Finance Division, Government of Pakistan, Islamabad

Pakistan News Service - PakTribune : http://www.paktribune.com; Retrieved on 2007-05-27 Pakistan; Khaleej Times Special Report: Textile Industry - Bright Prospects Ahead, (Aneela Batool): http://khaleejetimes.com; Retrieved on 2008-03-10

144 Salam Abdul, (2007), (Chapter Three), Studies of the Cotton-Textile Apparel Industries in Pakistan and India: Cotton Trade Policy and Poverty Study. EW-P091261ESW-TF055329 The Daily Dawn; Textile Industry at Crossroads, (Dr. Bari): Dawn, January, 01, 2007), http://www.dawn.com/2007/01/01: Retrieved on 2008-04-23 World Trade Report, (2006): exploring the links between Subsidies, Trade, and the WTO. World Trade Organization, Switzerland World Trade Report, (2007): World Trade Organization, Geneva, Switzerland WWF: Promoting Better Environmental Practices in the Textile Processing Sector of Pakistan: http://www.wwfpak.org/toxics_bettertextileprocessing.php: Retrieved on 2008-04-23

145

CHAPTER 6 TRADE AND INDUSTRIAL REGIME OF PAKISTAN

Robert (1997) classifies international political economy as the politics of trade, markets, international bargaining and the role of government and extra governmental actors in these processes. According to him each actor whether it is a country or corporation has its respective role and specific policies for interacting in the global marketplace. Therefore, to understand the interactions amongst parties it is important to understand each partys policies and the reasoning behind them. In terms of countries as global actors, these international policies are rooted in domestic policy. The implication of this idea is that policies are subjective and national goals, needs and internal institutions, which emerge as a result of culture, history, and national development agenda shape international actions. Adelman (1999) argues thatno area of economics has experienced as many abrupt changes in leading paradigm during the post World War II era as has economic development. These changes have had profound implications for the way the role of government has been viewed. Welch (1992) says that business and government are partners in creating a functional, prosperous society. While admiring Mahathir Mohammad, the Prime Minister of Malaysia for his clearest articulation of the role of government in business, he points out, When you look at the success of MalaysiaMalaysia is looking more like Singapore every day- fantastic growth in GDP, no inflation. So the model is working. Pakistan is the seventh most populous country in the world with 160 million inhabitants that is 2.3 percent of world population. It has national and international commitments and struggling hard to achieve its development goals. Government of Pakistan has created an elaborated institutional frame work for trade and its development.

146 6.1 Institutional Framework for Trade In Pakistan international and inter-provincial trade and taxation are

responsibilities of the federal government. The Constitution (Article 151 (3) provides for free trade and commerce nationally. It also prohibits provincial governments from levying discriminatory taxes or other restrictions on inter or intra-district trade. However, the Parliament may impose them in the larger "public" interest, as defined by the authorities to ensure availability of products at "reasonable" prices. Provincial governments may constitutionally ban or restrict inter-provincial trade with the consent of the President in the interests of public health, order or morality. Further more, to protect animals or plants from disease or to prevent or check serious" shortages of "essential" commodities, these restrictions can be imposed. Provincial governments have a role in trade-related functions. Though provincial trade taxes have never been imposed, inter-provincial movement of wheat and flour is some times periodically and temporarily restricted especially when there are harvest variations between provinces essentially to maintain and stabilize local producer prices. The Economic Coordination Committee of the Cabinet (ECC) is the main executive arm responsible to make economic policy decisions. It holds regular meetings to approve economic and trade policy recommendations. It also reviews and evaluates import / export policies. It also monitors and examines their impact on production and investment. Under the chairmanship of the Prime Minister, the Federal Cabinet annually approves general trade policies and initiatives. The Ministry of Commerce has the mandate to formulate trade policy. To discharge this responsibility, it looks after multilateral, bilateral, and regional trade arrangements and trade policy implementation. The Federal Board of Revenue (FBR) administers and collects customs and domestic federal taxes on imports. The Trade Development Authority of Pakistan (TDAP), former Export Promotion Bureau, (EPB) facilitates and assists traders and businessmen in marketing their products and gives them information on market-access and other WTO related obligations. The Foreign Trade Institute of Pakistan has been replaced by Trade Competitiveness Institute of Pakistan. It conducts policy research on trade competitiveness. It endeavours to build capacity and develop human resource in commerce and trade matters.

147

The Governments main advisory body on tariffs is the National Tariff Commission (NTC). It makes recommendations to the Ministry of Commerce, though otherwise operationally independent. Many other federal ministries and agencies also have key role and responsibility in trade-related policy formulation, and implementation. The following table gives a detailed picture. Table 30: Main Ministries and Agencies Responsible for Trade-Related Issues
Government ministry/agency Ministry of Food, Agriculture and Livestock Agricultural Prices Commission Trading Corporation of Pakistan PASSCO Ministry of Economic Affairs and Statistics Ministry of Finance and Revenue Central Board of Revenue Ministry of Information Technology Pakistan Telecommunication Authority Pakistan Electronic Media Regulatory Authority Ministry of Communications Ministry of Petroleum and Natural Resources Oil and Gas Regulatory Authority Ministry of Ports and Shipping Ministry of Privatization Privatization Commission Ministry of Railways Ministry of Textile Industry Ministry of Water and Power National Electric Power Regulatory Authority Ministry of Tourism Ministry of Commerce Key areas of responsibility Agricultural policy, fisheries, forestry, SPS, quarantine Support prices Support prices, buffer stocks, state trading Support prices, buffer stocks External economic assistance, statistics Finance, revenue (including tariffs and taxes), budgets Tariffs, taxes, investment incentives Telecommunications and information technology Telecommunications regulation Broadcasting, television regulation Road transport Petroleum and gas Oil and gas regulation Ports and shipping Privatization Privatization Rail transport Textile and jute Power and electricity Power regulation Tourism Import and export policies, WTO coordination, SAPTA and other regional agreements, investment incentives Export promotion Tariffs, contingency protection Industrial policy Productivity SPS, pharmaceuticals Planning and development Vision 2030, five-year and annual plans; Poverty Reduction Strategy Paper (PRSP) Air transport Anti-monopoly legislation and policies Government procurement Standards Intellectual property protection Investment, including foreign, promotion and facilitation Export processing zones

Export Promotion Bureau/Trade Development Authority National Tariff Commission Ministry of Industries, Production and Special Initiativesa National Productivity Organization Ministry of Health Ministry of Planning and Development Planning Commission Civil Aviation Authority Monopoly Control Authority Public Procurement Regulatory Authority Pakistan Standards and Quality Control Authority Pakistan Intellectual Property Organization Board of Investment/ Ministry of Investment Export Processing Zones Authority
a, The Ministry of Industries and Production until May 2005.

Source: WTO Secretariat, and Government of Pakistan

148

Main Trade Laws and Regulations The Ministry of Commerce issues its Trade Policy annually, after approval of the Federal Cabinet. The time coincides with the federal budget. (June). Laws, regulations, ordinances and most administrative guidelines and rules are published in the Government Gazette. Trade-related measures and procedures are contained in laws, ordinances, and regulations, including statutory regulatory orders (SROs). Pakistan has an automatic (electronic) and sufficiently advanced post-entry auditing Customs legislation to facilitate trade. All legislative changes that include customs and taxation provisions are incorporated at the time of federal budget in the annual Finance Act, and subsequently it is passed by Parliament. 6.1.2 Trade Regime In the initial years, the policy makers adopted an import substitution strategy to develop the industrial base of the country, and tariff and non tariff barriers against imports were very high. The overvalued rupee was due to policies of anti export bias. The tariff loaded policies kept exports meager, in other words, less than half the import bill in the early 1980s, (UNDP, 2006). In late 1980s, a shift took place when the import tariffs were rationalized and subsequently, policies of export-led growth took the front seat, and exports went up significantly. World trade has doubled from three trillion dollars to six trillion dollars in the last ten years of the 20th century. According to UNDP, Sectoral and Contextual Studies on Trade (2006) though generally, Pakistan did well but its participation has been not been very impressive rather its share of world export declined from 1990 to 2000. In 2004, it was only 0.15 %. Imports also showed a mixed trend. In early 1990s due to extraordinary import of machinery and wheat, imports went up. Imports fell in 1993-94 and in 1997-98. During these periods demand management policies were pursued to restore macro-economic stability. The decline in import bill during 1998-99 was, however, due to an import compression policy after the economic sanctions of 1998 to protect Pakistans foreign exchange.

149 Pakistans trade regime is very narrow. Both exports and imports are concentrated in a few commodities and even direction of imports and destination of exports are limited. Interestingly five markets (EU, USA, Canada, Japan and OPEC and few developing countries in Asia) are the export destinations and the same five regions accounts for the main source of imports. Figure 18: Pakistan Major Exports 2005-06
Cotton Manuf acturer

Others , 23.4

Leather

Rice

Sports Goods , 2.1 Syenthetic Textile, 1.2 Rice, 7 Leather , 6.9

Cotton Manufacturer, 59.4

Syenthetic Textile Sports Goods

Others

Figure 19: Trade as Percentage of GDP

Source: UNDP

According to a leading newspaper the trade deficit was $ 12 billion in 2005-06. The huge and growing trade deficit has posed serious concerns for economic managers of the country. It has also put extreme pressure on the current account deficit which was

150 financed by the sale of utility and industrial units through privatization, FDI and overseas remittances, (Dawn, 2006).

6.1.3 Trade Policy of Pakistan Trade Policy is a yearly road map of the vision and other initiatives of macroeconomic agenda of the Government. It is a reflection of governments commitment to enhance trade activities both in short term and long term. In its composition, the policy is a continuation of the past initiatives, along with future strategies and implementation frame work. Trade is an important part of Pakistan's development and poverty-reduction strategy. Vision 2030, adopted in May 2005, aims to turn Pakistan into a developed country by 2030 through rapid and sustainable development, and by giving freedom of enterprise and enlarged opportunities. It also acknowledges the forces of globalization and information technology and vows to manage these global forces of change. Overall focus of trade policy has been on reducing protection, and achieving a more outward looking trade regime. To contribute to policies of export- led growth, it attempts to obtain better market access, and promote greater integration into the global economy. Increased economic efficiency and thus international competitiveness are the center piece of the policy. The main objectives of the Trade Policy 2005-2006, according to the UNDP Study (2006) were:

Higher Employment Poverty Alleviation Sustained Economic Development Trade Policy Reforms

6.1.4

Import Strategy Import strategy is based on Facilitation, Rationalization, and Deregulation, and its salient features are:

151

Liberal policy for imports Reduced negative list (only 30 items and that too on the basis of security, health , moral and religious grounds)

Except brewery, import of all type of machinery including project relocation machinery

Enlarged temporary importable scheme For overseas Pakistanis relaxed car rules Import of raw material not locally available under temporary import Zero rated import of machinery for different sectors of economy such as mineral, gem and jewelry, horticulture, and pharmaceutical

Export Strategy Export strategy is pro active and aggressive and based on:

Export diversification Trade facilitation Export Competitiveness Capacity building of human capital on WTO rules and trade negotiations Compliance and Quality Infrastructure Export of Services Buyers driven FDI Identification of new markets

According to Economic Survey, (2006-07) the Ministry of Commerce to boost exports has initiated a five pillar Rapid Export Growth Strategy (REGS):

Improved market access through trade diplomacy and new FTAs and PTAs with priority countries

Trade promotion in neglected regions Strengthening of trade promotion infrastructure Skill development in export oriented industries Fast track development of infrastructure to encourage FDI

152 For better production capacity and to meet local and international demand following was emphasized:

Generate export surplus Encourage investment by facilitating import of capital goods and raw material Expose local industry to foreign competition Smooth supply of essential commodities to consumers

6.1.5 Trade Policy 2006-07 The policy has earmarked the following export development initiatives:

Research and development support for the textile & footwear sector Skill development in textile sector Cool chain and cold storage for horticulture products, Emphasis on agri-business export and strengthening of SME Freight Subsidy Scheme to encourage exports Re-Export of imported goods in original and un-process form Establishment of Expo Centers, Warehouses, Carpet Cities, cement and clinker Terminal in Karachi

Quality Standards Certification assistance Facilitation to exhibitors, business delegations, and temporary export permissions for participation in fairs/exhibitions

Financing for export oriented projects

The import initiatives include import of:

Used machinery for construction and petroleum companies Ground handling equipment & machinery by industrial users Used machinery / parts by industries, mobile clinics & medical equipments and medical equipment by returning doctors

Used refrigerated lorries, waste disposal trucks, fire engines, and security equipment, air guns, pistols, aircraft, chemicals, and CKD kits

Pharmaceutical raw material

153 6.1.6 Trade Policy 2007-08: Speech by the Commerce Minister The Trade Policy for 2007-08 sets a higher export growth rate with an export target of US $ 19.2. Mr. Humayun Akhtar Khan, Federal Minister for Commerce appreciated Ministry of Commerce for good performance of the assigned role of increasing the countrys exports. For the first time in the history of Pakistan the merchandise exports crossed the US $ 17 billion. The minister attributed this growth to the good performance of textiles group (6 % increase 2006-07) in the face of challenges. The hard work of businessmen and the business friendly policies of the government brought dividends. A major challenge for export growth momentum is the supply-side low competitiveness, he mentions. Competitiveness includes a productive workforce, improved quality, in time delivery of order, and better research and development. However, Pakistan presently ranks at 91 out of 125 countries, according to the global competitiveness index. Lack of productive capacity, low investment in new machinery and technology, higher costs of inputs, and investments in the non-industrial sectors such as speculative businesses, stocks and real estate is another challenge, he maintains. Pakistan produces low end and low quality products, and to increase exports both in value and volume, higher value added and sophisticated products for niche markets are needed. Energy shortages and fragmented industrial structure also pose threats for export growth. Challenges for market access are even bigger at international levelthe European Unions drug related GSP incentives to Pakistans textile products ended in 2005. In textiles many competitors have preferential /duty-free / market access being LDCs, particularly for the EU and US markets. Due to negative travel advisories on Pakistan large international importers and chains are reluctant to visit Pakistan has caused diversion of trade to Bangladesh, China and Vietnam from Pakistan to its competitors in textile. Pakistans international competition in Textile products has been affected by many factors to name a few; competition from China, India, Vietnam and Bangladesh in the major markets of the US and the EU; regional preferential arrangements North

154 American Free Trade Area, (NAFTA), Central American Free Trade Area (CAFTA), U.S. sponsored Qualified Industrial Zones (QIZs) in Jordan and Egypt allowing duty free access to their products, and also fall in unit prices in the textile sector, the 5.8% average antidumping duties in the European market on Pakistan bed-linen exports. The globalisation has set stringent international standards. Moreover, the consumers and the markets are conscious about international environment, labour, health and safety standards. Product diversification is important so that demand decline for one product should not affect the over all export growth. The WTO has transformed world into an integrated single market and elimination of tariff non-tariff measures has created lots of opportunities. Minister mentioned following trade policy initiatives taken in the last four years (2003-4 to 2006-07) to enhance export competitiveness: Reducing cost of doing business

Long Term Financing of Export Oriented Projects (LTF-EOP) and relocation of industries

Freight Subsidies including inland freight subsidy Sales Tax Facilitation and special incentives for Priority Export Sectors Research and Development Support for Textile Sector (R&D)

Marketing and business facilitation

Expo Pakistan and Retail Sale Outlets Encouraging Women Entrepreneurs

Sectoral development

Industrial Clusters Facilitating Export of Pharmaceutical Products

Infrastructure development Special Export Zones, Textile City and Garment Cities Creation of Pakistan Horticulture Development and Export Board

155 Productivity and quality enhancement

Garment Skill Development Board Contamination Free Cotton

Compliance facilitation

In-house Effluent Treatment Plants Establishment of Combined Effluent Treatment Plants (CETPs)

Trade diplomacy Regional Conferences of Envoys and Commercial Officers Regional Agreements Long term institutional and procedural reforms to boost exports

Creation of Trade Development Authority (TDAP) Revamping of the Trade Bodies Law and framing of Rules and Tariff Rationalization

Strengthening Domestic Commerce and Insurance Sector Setting up of Trade Competitiveness Institute of Pakistan Redefining the role of National Tariff Commission (NTC) Facilitating Transit Trade and Logistics Transport Logistic and Trade Facilitation Initiatives; National Trade Corridor Improvement Programme and Trade & Transport Facilitation Project Pakistan School of Fashion Design

Reconstruction Opportunity Zones (ROZs):

Export measures to enhance competitiveness, productivity & export capacity

Long Term Financing for Export Oriented Projects and Scheme of Export Oriented Units (EOUs)

Equity Fund for Brand Acquisition, and to Encourage SPS Compliance Export Credit Risk Management and Insurance Schemes Social, Environment & Security Compliance Agri-Marketing Integrated Centres (AMIC)

156 Export facilitation and marketing support

Assistance in Reaching International Standards and Support for Compliance Certifications

Assistance for opening exporters offices abroad, and Overseas Business Support Units

Support for Marketing of Branded Products E-Marketing SME Facilitation for export diversification

The Trade Policy speech also highlighted the import measures based on the pillars of liberalisation, deregulation, and facilitation. The import initiatives are proposed to encourage businessmen and entrepreneurs to have new machinery, add capacity, and thus improve the competitiveness. Though Minister appreciated the efforts of the government for improved business environment with sound trade and fiscal policies to put the economy on solid foundations, but he says, Challenges still remain. The trade deficit is the result of macro policy focus on growth, fiscal deficit and debt, which makes exports expensive and imports cheaper and, therefore, hurts industrial investment and trade

competitiveness. He further states it is important to have a balance in the macro policy so that exports could be encouraged and the current account deficit be reduced. High levels of GDP growth can only be sustained in the long run through high level of growth in exports. He is of the view that the issues of exports competitiveness need to be addressed to have export growth and economic development. Technology up gradation, skilled manpower, diplomatic efforts for more market access, better utilities and infrastructure and reduction the cost of doing business are important. He asks business community to take Pakistans exports to a greater altitude while taking advantage of the incentives and opportunities as this is the only way to come out of poverty and to create prosperity. 6.2 International Trading System and Pakistan In the International Trading System, Pakistan follows a two pronged trade strategy and have joined both multilateralism and regionalism clubs because:-

157

Regional Trade Agreements/ arrangements (RTAs) are exclusive and discriminatory. They offer deeper and comprehensive trade reforms with fewer like-minded committed countries with geographical proximity

Multilateral Trading Arrangements are beneficial as almost every country in the world gets engaged in a mutual process of trade initiatives

Bilateral and Regional Trade Agreements Pakistan has initiated market access negotiations with various trading partners through Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs), in a bid to:

Seek maximum market share for Pakistani exports Ensure level playing fields for Pakistani exporters

Following Free Trade Agreements (FTAs) or Preferential Trade Agreements (PTAs) have been concluded or in the pipeline:

Sri Lanka (June 2005) SAFTA Agreement (January 2006) Early Harvest Program (prelude to FTA) with Malaysia (January 2006) PTA with Iran (October 2006) China (July 2007) D-8 countries (July 2007)

RTAs, FTAs and PTAs negotiations are underway with USA, OIC, GCC, EU, ASEAN, Jordan, Yemen, Syria, Bahrain, Egypt, MERCOSUR, Mauritius, Thailand, Brunei, and Japan. Multilateral Trade Arrangements Pakistan is an original WTO Member since it came into being (1995). As an active member of the Organization, Pakistan has been participating in all the Ministerial Conferences, and other important events. Under the WTO rules, Pakistan grants MFN treatment to all trading partners. However, a number of import

158 items from India are prohibited / restricted. Recently there has been some progress to wards trade liberalization with India. Trade with Israel is completely banned. 6.3 WTO and Pakistan The Ministry of Commerce has a special WTO Wing to deal with WTO matters, multilateral issues, including agreements and negotiations. The Minister of Commerce chairs the WTO Council which has federal ministers, federal secretaries and the central bank governor as members. The Council examines matters relating to WTO Agreements. It formulates strategies for protecting Pakistans interests with in the parameters of its multilateral obligations. It also ensures inter-ministerial and inter-provincial coordination and harmony on these vital issues.

The Parliamentary Standing Committees in the Senate and the National Assembly supervise the Ministry of Commerce in formulating and implementing WTO related policies. 6.3.1 Trade Policy Review Trade Policy Review Body (TPRB) of WTO reviews the trade policies of its member countries. From 1995 onwards, three such reviews: 1995, 2001-02 and 2007-08 have taken place in case of Pakistan. Comments from the Trade Policy Review (TPR) of Pakistan are:

Pakistan's trade policies are based on the principles of multilateralism and nondiscrimination, and therefore, its involvement in preferential and regional trade arrangements is limited.

Pakistan has significantly improved the external transparency of its trade and investment regime. It has also met its regular GATT/WTO notification requirements.

The tariff is Pakistans main trade policy instrument and is a major source of tax revenue. The importance of the instrument has increased recently due to elimination of non-tariff barriers on a number of items, and also falling tax revenues.

Pakistan has restructured its custom tariff and rate of average applied tariff has fallen since 2001-02. The simple average MFN tariff rate in 2007-08 is 14.5%, which is

159 below the rate of 2001/02. Pakistan maintains import prohibitions and restrictions as well.

The number of tariff lines went up from 6,803 in 2006-07 to 6,909 in 2007-08. These were 5,477 in 2001-02. The split of existing tariff lines was to meet needs of various sectors of economy.

Under the Rules of Origin, Pakistan follows preferential rules of origin under bilateral, plurilateral trade agreements and unilateral schemes. Providing for productspecific rules, they incorporate various value addition and change in tariff classification criteria. Introduction of non-preferential rules of origin in the Import Policy Order is also on the cards.

Pakistan has no MFN tariff quotas. However, quotas on imports of certain goods eligible for tariff exemptions and concessions operate effectively as per tariff quotas.

Export subsidies are linked to export-performance requirements. They have been provided in different forms. It includes direct financial support, concessionary export finance, and tax holidays in export-processing zones.

Duty drawbacks are given on input-output coefficients. Drawbacks correspond to duties and other levies actually paid on imported raw materials being used for the manufacture of export products.

Several forms of support to production and a number of tax and non-tax incentives are prevalent. Priority in this regard has been given to science and technology, hitech industries, small and medium-sized enterprises.

Modest government support has been given to agriculture, livestock, fisheries, and forestry sector. Despite an agrarian economy, Pakistan is a net food importing country. Over all production had not been able to keep pace with the ever expanding food requirements.

Lastly, government procurement is largely used as a tool to support local industry.

160 Table 31: Pakistan's Tariff Structure: 2001- 02 and 2004 - 08

(Per cent) Final 2001/02 2004/05 2005/06 2006/07 2007/08 bound 98.0 61.3 95.1 56.6 96.1 56.7 24.1 0.0
a

Tariff structure
1. Bound tariff lines (% of all tariff lines) 2. Simple average applied rate Agricultural products (HS01-24) Industrial products (HS25-97) WTO agricultural products WTO non-agricultural products Textiles and clothing 3. Tariff quotas (% of all tariff lines)
c

36.6 20.4 21.8 20.2 22.1 20.1 26.4 0.0

.. 16.8 19.0 16.5 19.3 16.5 21.7 0.0

98.4

98.0 15.0 15.4 14.9 15.3 15.0 19.4 0.0

98.0 14.5 14.9 14.5 14.8 14.5 19.3 0.0

14.4 15.6 14.2 15.7 14.2 18.9 0.0

4. Domestic tariff "peaks" (% of all tariff lines)

0.9
d

1.2

1.1

1.0

1.1

0.0

5. International tariff "peaks" (% of all tariff lines)

57.1 16.0 0.8 0.0 0.9 0.9

52.0 11.9 0.7 0.0 0.6 0.6

40.1 11.0 0.8 0.0 0.7 0.7

41.5 11.3 0.8 0.0 0.7 0.7

40.0 11.7 0.8 5.8 0.6 0.6

95.1 22.3 0.4 0.0 0.0 0.0

6. Overall standard deviation of tariff rates 7. Coefficient of variation of tariff rates 8. Duty free tariff lines (% of all tariff lines) 9. Non-ad valorem tariffs (% of all tariff lines) 10. Non-ad valorem tariffs with no AVEs (% of all tariff lines)
e

11. Nuisance applied rates (% of all tariff lines) Not available. a

0.0

0.0

0.0

0.0

0.0

0.0

Based on 2006/07 tariff schedule. Implementation of the U.R. was reached in 2004. Calculations on bound averages are based on 6,670 bound tariff lines (representing 98% of total lines), out of which 6,618 (97.2%) are fully bound and 52 (0.8%) are partially bound.

b c d e Note:

As of 26 October 2005. Domestic tariff peaks are defined as those exceeding three times the overall simple average applied rate. International tariff peaks are defined as those exceeding 15%. Nuisance rates are those greater than zero, but less than or equal to 2%. Calculations exclude specific rates and include the ad valorem part of compound rates. The 2001/02 tariff schedule is based on eight-digit HS96 nomenclature consisting of 5,477 tariff lines; the 2004/05, 2005/06, and 2006/07 tariff schedules are based on HS02 nomenclature consisting, respectively of 6,231, 6,336, and 6,803 tariff lines; the 2007/08 tariff schedule is based on HS07 nomenclature consisting of 6,909 tariff lines.

Source: WTO calculations, based on data provided by the authorities of Pakistan.

161
Figure 20: Tariff Averages

Table 32: Preferential Rules of Origin and Tariffs in Trade Agreements, 2007
Trade agreement South Asian Association for Regional Cooperation Organization of Islamic Conference Wholly produced or obtained Yesa Minimum value addition 40% of f.o.b.; 30% for LDCs; 35% for Sri Lankab 40% of f.o.b.; 30% for LDCs Cumulation rules Minimum aggregate originating content of 50% f.o.b.c Minimum aggregate originating content of 60% of f.o.b.; 50% for LDCs Being drafted Minimum aggregate originating content of 60% of f.o.b. Product specific rules Yesd Maximum tariffs/tariff margins Maximum 20% by 2008 (5% by 2009 on LDC imports); maximum 5% by 2013 Maximum tariffs of 25%, 15% and 10% on certain items; fasttrack programme to raise margins of preference to 50% Maximum 10% on certain items Maximum 10% by 2009

Yesa

Group of Developing Eight Countries Economic Cooperation Organization

Being drafted Yes

a

Being drafted 40% of f.o.b.

Possible in accordance with negotiated sectoral agreements Being drafted Possible in accordance with negotiated sectoral agreements None

Pakistan-Sri Lanka FTA Pakistan-China FTA

Yesa Yesg

35% of f.o.b.e

40% of f.o.b.

Minimum value addition of 25% in exporting countryf Minimum value addition of 25% in exporting countryh Minimum value addition of 25% in exporting countryh .. ..

Tariffs phased out on most goods by June 2008 Tariffs phased out on many goods and maximum 50% margins of preference on others by 2012 Tariffs of 5% eliminated and 50% margin of preference on 10% duties for a few goods Margins of preference mainly of 10% and 30% Margins of preference of mainly 50% extended to 100% after one year on selected goods Margins of preference of from 40% to 65%

None

Pakistan-Malaysia PTA (Early Harvest programme)i Pakistan-Iran PTA Pakistan-Mauritius PTA Global System of Trade Preferences .. a b c d e f g h i j

Yesg

40% of f.o.b.

Certain textiles and jewelleryj .. ..

Yes Yes Yesa

.. ..

50% of f.o.b.; 40% for LDCse

Minimum total value addition of 60%; 50% for LDCs

Negotiable

Not available. Fish caught in high seas must be in vessel registered in member country and operated by its citizens or an entity with domestic equity (including state) of 65%, or 75% equity of all members. Final good must be classified to different tariff heading (4-digit HS) than all non-originating material inputs. Also, must be minimum domestic minimum domestic value content (value of inputs originating in the exporting member plus domestic value addition in the exporting member) of 20% of f.o.b. value, and meet change in tariff classification requirements. Generally require lower minimum value addition of mainly 30% or 40% and change in 6-digit HS classification. Final good must be in a different 6-digit tariff classification than all non-originating material inputs. Minimum total value addition in two countries of 35%. Fish caught in high seas must be in vessels registered in member or entitled to fly its flag. Minimum value addition in two countries of 40%. EHP rules to be replaced under FTA. Based on change in 4-digit tariff classification (spinning, weaving, bleaching, dyeing, printing and finishing sufficient transformation to be originating goods).

Source:

Compiled by WTO Secretariat.

162 6.3.2 WTO Notifications

There are more than 32 WTO notifications (2007). They cover anti-dumping, safeguards, subsidies, countervailing measures, technical barriers to trade, state trading, and intellectual property.

Table 33: WTO Notifications, 2001 to End-September 2007

Legal basis, instrument or provision Agreement on Implementation of Article VI of the GATT 1994 (Article 16.4) Agreement on Implementation of Article VI of the GATT 1994 (Article 18.5) Subject Anti-dumping actions (taken within the preceding six months) Laws/regulations (and changes thereto, including changes in the administration of such laws) Countervailing duty actions (preliminary and final) Laws/regulations (and changes thereto, including changes in the administration of such laws) Administrative arrangements; laws/regulations (and changes thereto) Termination of safeguard investigation Foreign trade by state trading enterprises Laws and regulations WTO documents G/ADP/N/158, 03/08/2007 G/ADP/N/161, 11/09/2007 G/ADP/N/1/PAK/2/Suppl.2, 14/04/2003 Frequency Semi-annual or ad hoc

Ad hoc as and when a Member establishes or changes laws and regulations Ad hoc

Agreement on Subsidies and Countervailing Measures (Article 25.11) Agreement on Subsidies and Countervailing Measures (Article 32.6)

G/SCM/N/153/Add.1, 18/04/2007 G/SCM/N/130/Add.1/Rev.3, 01/05/2007 G/SCM/N/1/PAK/2/Suppl.2, 14/04/2003

Ad hoc as and when a Member establishes or changes laws and regulations Ad hoc (promptly after the establishment of laws, regulations, etc. with updates) Ad hoc Annual

Agreement on Safeguards (Article 12.6)

G/SG/N/1/PAK/3, 10/10/2003

Agreement on Safeguards (Article 12.1(c)) Understanding on the Interpretation of Article XVII of GATT 1994 (Article XVII:4(a)) Agreement on Trade-Related Aspects of Intellectual Property Rights (Article 63.2) Agreement on Technical Barriers to Trade (Article 10.6)

G/SG/N/9/PAK/1, 04/10/2005 G/STR/N/9/PAK, 07/07/2003

IP/N/1/PAK/I/2, 01/10/2004

Once or ad hoc

Measures in force

G/TBT/N/PAK/25, 06/06/2007

Ad hoc

Source: WTO Central Registry of Notifications.

6.4

Industrial Sector of Pakistan In Pakistan the Agriculture sector provides the basic raw material to industrial

sector and the performance of the agriculture sector casts shadows on industrial sector invariably. The sector comprises of Textile and ancillary industry. Engineering & Automobile Industry, Fertilizer, Cement Industry, Chemical, Paint & Varnish Industry, Mining & Quarrying sector and Small and Medium Enterprises. Being the second largest sector of the economy, it contributed 25 percent to GDP in 2006-07 with a broad based growth of 8.45 percent. Large scale manufacturing accounted for 69.5 percent of the Industrial GDP with a growth of 8.75 percent, though the last year growth in the sector was 10.68 percent. There were many reasons to this

163 decline such as reduced production of cotton crop, sugar shortage, steel and iron problems and high oil prices. The main contributors to industrial growth are the textile group, 18.9 percent (cotton, 7 percent, cotton yarn, 11.9 percent), food and beverages group, 26.4 percent, (cooking oil 6.8 percent, sugar 19.6 percent), the non- metallic mineral products group, (cement 21.11 percent), the automobile group, (car and jeeps 3 percent, motorcycles / scooters 12.30 percent, tractors 11.40 percent). According to economic Survey 2006-07, the textile industry of Pakistan is amongst the best in the world. Presently, installed number of textile units of different capacity is over 500; however, many of them are shut down. The availability of basic raw material (cotton) and cheap labor has played a major role in the growth of the industry. Textile industry is the main contributor to export earning and have immense potential in the global market. In 2005, it showed (though modest) growth of 5 percent. However, the garment and knitwear sectors need more attention. The industry to meet the challenges of post quota period is gearing it self up to face the challenge through balancing, modernization and restructuring (BMR). Major investment has been made in the spinning, weaving, processing, and made up sectors. It has created around 454,000 direct jobs along with enhancing the production capacities. Import of textile machinery is the single largest item in the machinery group. Textile machinery worth US $ 771.500 million was imported in 2006-07. Installation of new machinery has facilitated yarn and cotton production. As a result exports grew up to $10.37 billion in 2005-06. It is expected that exports will touch $12 billion in 2006-07. 6.4.1 Ancillary Textile Industry Cotton ginning, cotton yarn, cotton fabric, fabric processing (grey dyed-printed) home textiles, towel, hosiery & knitwear and ready made garments are the component of textile industry. Interestingly, these products are produced both in organized large - scale sector as well as in un-organized cottage and medium & small units. Ginning is the first mechanical process involved in the processing of cotton and it separates lint from seed. Spinning converts fibers into yarn. This is the first process in the value chain that converts ginned cotton into cotton yarn. A bad job in the spinning industry goes through

164 out the entire chain. Pakistan has the third largest spinning capacity in Asia, (7.6 %) and a capacity of 5 % of the total world. There are three sub-sectors in weaving; integrated, independent weaving units and power looms. Modest investment has taken place in the sector. Due to the policies of the Government, the power loom sector is on the way to modernization and has recorded high growth. However, the sector is producing low value added grey cloth due to limited access to credit facilities to buy modernized equipment. Cotton Cloth is made in organized mill sector as well as in the non mill sector. Out put of non mill sector is seven times more than the mill sector. Cloth sector renders services to down stem sectors like Bed Wear, Made ups and Garments. Table 34: Profile of Textile Industry
SUB-SECTOR 1. Ginning 2. Spinning 3. Weaving Composite Unites Independent Mills Power Loom Sector 4. Finishing Organized Sector Small Scale Sector 5. Garment Units 106 625 5,000 450,000 Sewing Machines 650 M PCs 2,700 M.Sq. MT 50 140 20,000-25,000 Shuttle-less looms 225,000 Conventional looms 5,600 M. Sq Mt (Approx) NO OF UNITS 1221 456 SIZE (INSTALLED CAPACITY) 5,488 Saws a) 9.6 million b) 146,640 Rotors PRODUCTION 10.314 M Bales 1.818 M. Kgs Yarn

6. Terry Towels

400

7,600 looms

55 M. Kgs

Source: Textile Ministry and Board of Investment

Textile down stream industry comprises of Hosiery industry, Readymade Garment industry, Towel industry, Tarpaulin & Canvas, and Synthetic Fiber Manufacturing Sector. Hosiery industry consists of around 12,000 Knitting Machines with capacity utilization of around 70 percent. Readymade Garments industry earns around $1 billion from exports, and enjoys duty free import of machinery and income tax

165 exemptions. This is the highest value addition segment of textile industry and consists of large, small and medium scale units. Towel industry is heavily export oriented and comprises of 7500 Towel Looms both in the organized and un- organized sector. Tarpaulin & Canvas sector produces sun blinds, tents, sails, pneumatic mattresses and camping goods. The 90 percent of the production is exported, and local consumption is only 5-10 percent. Synthetic Fiber Manufacturing Sector has made progress to catch up with the demands of the textile sector. There are seven Polyester fiber Units producing 625000 tons per annum. Two Acrylic Fiber Units and one Viscose fiber Unit have also gone into production. Synthetic Fiber Manufacturing, Filament Yarn Manufacturing, and Art Silk & Weaving industries are also working. 6.5 Small and Medium Enterprises (SMES) SMEs are the real back bone of both developing and developed economies and same is true for Pakistan. Studies show that their contribution is over 55 percent to GDP, and over 65 percent to total employment in the high income countries. SMEs and informal enterprises create around 60 percent of jobs in low income countries and their contribution to GDP is 70 percent. In the middle income countries they create 95 percent of jobs and add about 70 percent o GDP. (Economic Survey 2006-07) In Pakistan this sector contributes 30 percent to GDP, 25 percent to manufactured exports, 78 percent to labor force and 35 percent to value addition in manufacturing. Around 3.2 million SMEs are working in Pakistan, and their activities range from trade, whole sale, and retail to restaurants etc. Realizing the significance of the sector Government has started giving due attention on the development of the sector and efforts are made to identify the bottle necks and constraints of sector. SMEs policy is in place. Small and Medium Enterprise Development Authority (SEMEDA) has been set up to look after the sector. Asian Development Bank is giving support to sector and local banks have also enhanced the lending ceiling. However, non availability of funds is the major set back to development of the sector. Other impediments include lack of information, technology & innovation, and connections.

166

SME Policy, 2006-07 The objective of SME Policy is to provide a frame work (short, medium and long-term) along with an implementation mechanism to achieve higher economic growth based on SME and led by private sector development. Following are the broad principles:

The SME Policy may be implemented and supported through an SME Act 2006 Measures should be taken for promotion of Entrepreneurship Culture and support for growth of existing enterprises.

Different enterprise

sets of policy measures may be adopted for small and for medium

Special focus may be given to women and marginalized groups within the policy Rural based and agro processing enterprises may be supported For SME development, decisive and concurrent measures such as business regulations, fiscal, trade rules, labor, incentives and support should be taken

Private sector will be involved in implementation of the policy

Source: SME Bank

6.6

Industrial Policy

There is no Industrial Policy as such. The researcher was informed over the phone (Dy. Secretary, Ministry of Industries. May, 2008), that bits and pieces from different policies, especially the Investment Policy are being used for direction. The website of the Ministry of Industries & Production also does not carry any policy guidelines. 6.7 Investment Policy, 2006-07 Pakistans Investment Policy is very liberal and forward looking. Following are the highlights of the Investment Policy:

All economic sectors in Pakistan open to FDI (except Arms and Ammunition, High Explosives, Radioactive Substance, Security Printing and Currency & Mint).

100% foreign equity allowed Remittance of royalty, technical & franchise fee, capital, profits and dividends allowed Attractive incentive packages:-

167

0-5% customs duty on import of machinery No sales tax & withholding tax on import of machinery Import of raw material for export oriented manufacturing zero-rated Initial depreciation allowance at the rate of 50 %

Network of Export Processing Zones/Industrial Estates for establishment of industries and businesses

Foreign investment fully protected under the;

Promotion & Protection Act 1976 Protection of Economic Reforms Act 1992

Bilateral Agreements to boost the confidence of the investors and investing countries

Investment Promotion & Protection Avoidance of Double Taxation Treaty

: :

47 Countries 52 Countries.

Table 35: Investment Policy Matrix

Non -Manufacturing Sectors Policy Parameters Manufacturing Sector Services including IT & Agriculture Telecom Services Not required except specific licenses from concerned agencies. Allowed Infrastructure & Social 60% 100% in CAF 0.3 0 100% 0.3 5% 50% Allowed as per guidelines - Initial lump-sum upto $100,000 - Max Rate 5% of net sales - Initial period 5 years 100% 0.15 0-5%

Govt. Permission Remittance of capital, profits, dividends, etc Upper Limit of foreign equity allowed Minimum Investment Amount (M $) Customs duty on import of PME** ***Tax relief (IDA, % of PME cost) Royalty & Technical Fee

Not required except 4 specified industries * Allowed 100% No 5% 50% No restriction for payment of royalty & technical fee.

*Specified Industries: **PME= Plant, Machinery and Equipment - Arms and ammunitions I***IDA= Initial Depreciation Allowance - High Explosives. - Radioactive substances - Security Printing, Currency and Mint. No new unit for the manufacturing of alcohol, except, industrial alcohol Source: Board of Investment

168 6.8 Textile Policy, 2007 Export Plan 2006-13 seeks to increase textile and garment sectors exports from $9.98 billion in the fiscal year 2006 to $24.36 billion by the fiscal year 2013. The textile exports target for the current fiscal year has been set at $12 billion. (Daily Times, 23 August, 2007). The Ministry of Textile Industry has proposed an attractive incentive package to be included in forthcoming Textile Industry Development Policy 2007 to meet this target. The aim of the policy is to develop international competitiveness of textile sector on war footing in the short as well as in the long run. According to the proposed policy:

A sizeable machinery-manufacturing base inside the country is a requirement of textile industry, being the largest industrial sector. Import of textile machinery causes out flow of foreign exchange, therefore, incentives like zero-rated import of plant and equipment, tax holidays for initial 10 years, inclusion of their endproduct in any future scheme designed to subsidize import of textile machinery be given to attract foreign investment in textile machinery manufacturing sector.

Incentive package of tax holidays for 10 year and 50 percent of the normal rate for the next 5 year to encourage foreign investment in cotton warehouses on the pattern of Bangladesh. (This initiative is a part of the approved export development plan of the Planning Commission of Pakistan )

Provision of land on concessionary terms and conditions Fiscal incentives; exemption of custom duties and taxes on import of capital equipments (plant, machinery and accessories), corporate income tax holiday

Chinese investment to be encouraged in dedicated textile industrial parks to be setup by the government

Exemption from income tax for foreign consultants and technicians hired by the textile industry to enhance productivity of local business

6.9

Private Sector Stake Holders The Government also receives formal and informal advice from the private sector

on trade issues and policies. Federation of Pakistan Chambers of Commerce & Industries (FPCC& I) represents directly or indirectly almost the entire private sector and industry

169 in the organized sector. Membership of FPCCI is confined to chambers and associations representing specific products or industries. Federation has 32 chambers and 65 sector specific associations as members. The primary aim of FPCCI is advocacy to promote, and safeguard the interest of private sector. It serves as a bridge between the private sector and the government. FPCCI has affiliations and linkages with the following international business entities: The Islamic Chamber of Commerce and Industry The International Chamber of Commerce (ICC) ECO Chamber of Commerce & Industry SAARC Chamber of Commerce & Industry G-77 Chamber of Commerce & Industry Confederation of Asia & Pacific Chambers of Commerce & Industry (CACCI) 6.10 International Trade and Developing Countries IMF in a report (2001) asserts that integration into global economy is a powerful instrument for countries to promote economic growth, development and poverty alleviation. The report further elaborate that integration of world economy has raised living standards all over the world. And most of the developing countries have shared this prosperity. In some countries the incomes have gone up dramatically. The

developing countries as a group are becoming increasingly important in world trade, accounting for one-third of world trade. The share was very humble in early 1970s (about a quarter only). Estimated gains from free merchandise trade ranges from US $ 250 billion to US$ 680 billion per year according to this report. Though two third of these gains direct to industrialized countries but developing countries also reap the benefits as their share in the gains is twice the level of aid they are receiving currently. The progress in China and India and other higher-income countries in Asia (Korea, Singapore etc) have been spectacular because they opted for trade liberalization and other market oriented reforms. Success of East Asia is attributed to fall of average import tariffs from 30 percent to 10 percent over the last 20 years.

170 Sustained economic growth needs open trade and investment policies with rest of the world. Opening up the economies has enabled many developing countries, which are defined by the World Bank as the new globalizers, to develop competitive advantage. The number of people living in absolute poverty has declined by over 120 million (14 percent) between 1993 and 1998 in these countries, (World Bank). There is evidence that outward looking countries have consistent growth which is faster than the inward looking countries, (IMF, 1997). Findings are that recently opened economies with lowering of tariffs (like India, Vietnam and Uganda) have faster growth and substantial poverty reduction, (David, 2001). Dollar and Kraay, (2001) emphasized that free trade benefits poor and increases their incomes because subsidies are channeled to narrow privileged interests.

6.11

Economic Structure and Economy of Income Tony Killick, (The Adaptive Economy) has given the following economic

structure for the low, middle and high income countries, associated with Hollis Chenery. To further dilate upon the structure, it is mentioned that the low income countries are the one where per capita income is below US $ 300. In the middle income countries, the predicted value of per capita income is US $1000. (The predicted value is based on the assumption of population of 20 million people). In the high income countries per capita goes beyond US $ 4,000. Table 36: The Economic Structures of Low- Middle- and High-Income Countries
Indicator Low-income Middle-income High-income

As a percentage of GDP 1. Gross Domestic Saving 2. Investment 3. Trade: Exports Imports 4. Food consumption 5. Agriculture 6. Manufacturing 7. Services As a percentage of merchandise exports
8. Primary products (nonfuel) 9. Manufactures Source: Syrquin and Chenery (1989)

9 14 16 21 39 48 10 31
71 7

20 23 23 26 29 23 18 38
42 20

26 26 23 23 15 7 28 47
28 61

171 6.12 Aim of Trade Pronk, (2004) argues that Trade is not an aim itself. The ultimate objective of economic policy making is not to expand trade, but to increase income and welfare. Trade is an instrument. Its expansion should be assessed against the objectives. He further mentions that trade gains can be static resulting from an optimum allocation of resources in a competitive world, and there are dynamic gains due to openness of trade thus contributing to investment, knowledge, innovation, productivity, and growth. 6.13 Trade Has Worked for Pakistan The per capita income in Pakistan was $ 79 in the 1950s. The per capita income in Pakistan increased by over five times from $79 in 1950 to $429 in 2001, according to a report, (Dawn, 2005). Per capita income was $ 492 in 2002-03. (Economic Survey, 2002-03).

Dawn, (2004), while quoting then prime minister has reported that Senate was told that the per capita income would reach $ 600 in 2004. In a recent report (2007), Pakistani Defence Forum has mentioned that Pakistan has per capita income of $ 847 now as compare to $441 in 1999, which is nearly 100% increase. In 1999-2000, it was $426. In six years the per capita has almost doubled. While talking to BBC World, then prime minister said that Pakistans per capita income has reached to $ 800 per annum, almost double in four years. He further mentioned that, we have no restriction on trade from any country. Tariffs have been reduced. Pakistan is most open trade country in South Asia, (Dawn 2006)

172 References Adelman Irma (1999). The Role of Government in Economic Development, Working Paper, No. 890, Department of Agriculture and Research and Policy Division of Agriculture and Natural Resources, University of California Bates, Robert (1997), Open Economy Politics: The Political Economy of the World Coffee Trade, Princeton University Press. Economic Survey of Pakistan (2002-03) David Dollar and Aart Kraay, (2001): Trade, Growth and Poverty, World Bank mimeo, 2001 David Dollar, (2001): Globalization, Inequality, and Poverty, World Bank mimeo, 2001 Dawn (10 April, 2004): Per Capita Income to reach $600 this year, says Shaukat: http://www.dawn.com: Retrieved on 2008-05-25 Dawn, (3 January 2005): Less people, More prosperity; http://dawn.com: Retrieved on 2008-05-25 Dawn (2006): Pakistans per capita income at $ 800: (5, February, 2006) Retrieved on 2008-05-25 Government of Pakistan, Islamabad: http://www.pakistan.gov.pk IMF, (2001): Global Trade Liberalization and the Developing Countries; IMF Issues Brief: http://www.imf.org : Retrieved on 05-21-2008 Jan Pronk, (2006): (Dutch politician and Diplomat): Trade Liberalization: A Political Approach: http://www.janpronk.nl

Killick Tony: The Adaptive Economy: Adjustment Policies in Small, LowIncome Countries. Economic Development Institute of the World Bank, EDI Development Institute (ODI)

173

Pakistan Defence Forum: http://www.pakistanidefenceforum.com: Retrieved on 2008-05-25 The Planning Commission of Pakistan: http://www.pakistan.gov.pk Trade Policy Speech: Minister for Commerce, (2008), Ministry of Commerce, Government of Pakistan, Islamabad. http://www.commcerce.gov.pk UNDP, (2006): Sectoral and Contextual Studies on Trade: Trade Initiatives from Human Development Perspective Project (TIHP- UNDP), A Country Case Study. United Nations Development Program, Pakistan Welch Jack (1997): Jack Welch Speaks: Wisdom from the Worlds Greatest Business Leader, Janet C. Lowe, John Wiley & Sons Inc, New York World Bank, Poverty Rates; (1981 - 2002): Retrieved on 2007-06-04. World Bank: Globalization, Growth, and Poverty: Facts, and an Agenda for Action http://www.worldbank.org: Retrieved on 2007-12-29 World Trade Organization, (WTO): http://www.wto.org WTO Industrial Negotiations: Implications for Pakistan: Actionaid, Pakistan www.actionaid.org/pakistan http://www.worldbank.org :

174

CHAPTER - 7 DEVELOPMENT OF BT COTTON IN PAKISTAN

7.1 Introduction Globally, cotton and other crop plants require an intensive use of pesticides to inhibit insect/pests population (PARC, 2007). In Pakistan, over the past 30 years, pesticides are being used to protect cotton crop against sucking and chewing insects. Among the chewing, lepidopteran are the primary pests causing 20-30 percent annual yield losses in the country. Different approaches have been used to develop inbuilt resistance against the bollworms and the only successful approach to engineering crops for insect tolerance/resistance is the use of addition of Bt toxin, a family of toxins originally derived from soil bacteria (PARC, 2007). Major advances in biotechnology have made it possible to directly identify and isolate genes, know their functions, and transfer them from one organism to another which have many applications for increasing plant productivity, improving plant resistance to diseases and pests, and improving the quality of the output (Gandhi and Namboodiri, 2006). Bt cotton was among the first transgenic crops to be used in commercial agriculture. A gene from the soil bacterium Bacillus thuringiensis (Bt) has been transferred to the cotton genome (Qaim et al., 2003). This gene codes for production of a protein that is toxic to the cotton bollworm, a severe insect pest in most cotton-growing regions of the world (Qaim and de Janvry, 2004). Bt is a gram-positive, aerobic, spore- forming bacteria that is found in soil, plant surfaces and in grain storage dust (Qaim et al., 2003). There are almost eighty different serotypes of Bt, which are capable of producing many different toxins, including endotoxins, exotoxins and enterotoxins (PARC, 2007). Toxins produced by Bt are known as "Bt toxins". The Bt toxins consist of two main types, Cry (crystal) toxins (cry genes) and Cyt (Cytolytic) toxins. The Cry proteins are effective against different insect orders, being the most effective against lepidoptera (caterpillars), coleoptera (beetles) and diptera - small flies and mosquitoes (Qaim and Zilberman, 2003).

175 At the moment, Monsanto launched Bollgard II by combining Cry2Ab2 and Cry1Ac proteins in a single product provides an additional tool to delay the development of insect resistance to Cry proteins in cotton which provides increased control of cotton bollworm, as well as certain secondary insect pests of cotton, including armyworm (PARC, 2007). 7.2 Background of Bt Cotton in the World Bacillus thuringiensis, commonly known as Bt is a bacterium that occurs naturally in soil which has been used as a biological pesticide for more than 50 years (Qaim and Zilberman, 2003). It is a gram positive bacterium discovered by Japanese bacteriologist during 1901, from diseased silkworm (Bombyx mori) larvae, produces proteinaceous crystalline inclusion bodies upon sporulation. Berliner isolated from diseased larvae of Ephetia kuhniella and designated as Bacillus thuringiensis during 1915. Further research on Bt by Steinhaus (1951) led to renewed interest in biopesticides and as a result more potent products such as Thuricide and Dipel were introduced (Barton et al., 1987). There are several subspecies of this bacterium which are effective against Lepidopteran, Coleopteran and Dipteran insects (Hoftey and Whitley, 1989). Formulations based on Bt occupy the key position accounting for 90% of the total biopesticides (Neale, 1997). The insecticidal proteins produce in the crystal form constitute two different families, Cry and Cyt, which have been further classified on the basis of amino acid identity into 300 Cry and 22 Cyt subgroups (http://epunix.biolos.susx.ac.uk/home/Neil_Crickmore/Bt/ toxins.html). The identification of Bacillus thuringeinsis var kurstaki strain provided a boost for the commercialization of Bt product in the market. The problems associated with the Bt formulation based biopesticides such as shelf life, potency and the presence of viable spores have been overcome by using modern tools in microbiology and genetic engineering (PARC, 2007). Genes encoding for the - endotoxins have been cloned since 1980s (Schneph and Whitley, 1981) and the expression of introduced gene in tobacco and tomato provided the first examples of genetically modified plants with resistance to insects (Barton et al., 1987).

176 7.3 Is there a Need to Grow Bt Cotton in Pakistan?

In 1960s, Pakistan's population was 96.32 million, which grew to 122.49 million in 1990s and 163.76 million in 2008-09 (Government of Pakistan, 2009). Due to a sharp decline in mortality since the 1650s without a corresponding reduction in fertility, the population growth rate has increased from 2 percent in 1950s to 3 percent in 1980s. With accelerated efforts of the national population planning programme and other socioeconomic changes, a decline in fertility and birth rate occurred during the 1990s, thereby reducing the population growth rate to 2.6 percent during inter-census period of 1981-1998, and further to 1.87 percent per annum by the year 2005 which is still amongst the highest in the region (Government of Pakistan, 2009). Given the existing trend, total population is estimated to reach 167 million by the year 2010 and 194 million by 2020 (NIPS, 2008). In the wake of growing population, the need for food security, provision of employment opportunities and housing are being burden on the economy and without population stabilization, addressing the critical issue such as global warming, biodiversity, the environment, energy, food supply, water supply, migration and security is extremely difficult (Government of Pakistan, 2009).

These population and resource facts, combined with a renewable commitment to fighting poverty, indicate that the main thrust of national policies aimed at solving issues of rural poverty and food insecurity must include broader agricultural and rural development objectives, such as significant increase in food production (Hayee, 2005). He further argued that to escape from poverty, rural population depends directly or indirectly on increased agricultural productivity and an innovation that increases productivity will have a major impact on food-security efforts. Bt cotton can play a significant role to enhance agricultural productivity as the productivity of cotton in Pakistan is 0.5 ton/ha as compared productivity of Bt cotton in China is 9 ton/ha which implies a huge cotton productivity gap. This gap can be narrowed down by the adoption of Bt cotton in Pakistan which will have major impact on food security efforts in the country.

177 7.4 Development of Bt Cotton in Pakistan

Pakistan, unlike its neighbor India was slow to adopt Bt cotton and proper legislation (Biosafety rules, SOPs for GM crop release, Plant Breeders Rights and Seed Act 1976 amendments) was either delayed or not yet promulgated thus delaying the available technology to the farmers. Rao (2009) narrated the history of development of Bt cotton in Pakissan.com. Pakistan Atomic Energy Commission (PAEC) had sought special permission in 1997 from the Ministry of Environment under Voluntary Code of Conduct for release of GMO into the environment prepared by NIBGE; and it conducted, checked and analyzed many safety tests on various cotton varieties which contain gene of genetically modified organism called Bacillus thuringiensis (Bt), a bacterium that is deadly to the Sundies.

Pakistan enacted the Biosafety Rules in April 2005 which provide legal requirements for import, export, transport, and handling of biological agents, genetic engineering organisms or vectors, seeds, crops and foods, besides setting conditions for the researchers; seeds developers and companies (Pakissan.com). In May 2005 PAEC provided 40,000.00 Kg basic seed of Bt cotton (insect resistant) varieties IR-FH-901, IR-NIBGE2, IR-CIM-448 and IR-CIM-443.

Recently, National Biosafety Committee (NBC) of EPA of GoP approved six cases of Bt cotton (Cry lAc- event MON 531) based on previous history of its safe usage in other parts of the world. The MON 531 event is not patented in Pakistan and GoP is using flexibility of TRIPS regulation of Data Exclusivity (39A) allowing parties to use Biosafety data of others. At least six national seed companies have been given permission for field testing. It will take another year for commercial approval and officially approved BT cotton (+MON531 event) will not be available till 2010-11 season. Meanwhile unapproved seed sale of Bt cotton will touch the mark of almost 100% during this season which will sta;t in April-May this year. GoP also approved import of Bt cotton hybrid seed to Monsanto as well as to National seed company (Guard) from India. Another approval was given to import Bt cotton from China (Ali Akbar and Auriga) for evaluation (Pakissan.com).

178 A positive development was approval of Monsanto plan to introduce advanced GM crop technology in Pakistan by GoP during 2009. In this regard Ministry of Food and Agriculture (MINFAL) has been working on a two pronged strategy i.e. developing the technology through indigenous capabilities as well as inviting the multi-national companies (MCS) to bring in the latest cotton production and protection in the country (Government of Pakistan, 2009). In this respect letter of intent and memorandum of understanding has been signed with Monsanto company for introduction of latest technology (bollgard-II) in the country to maximize cotton production. National Biosafety Committee (NBC) of Ministry of Environment ahs also authorized biosafety clearance to eight cotton varieties with bollard-1 in the country (Government of Pakistan, 2009). It is expected that if followed in letter and spirit this will pave the way for establishment of viable seed industry in Pakistan (Pakissan.com).

Cotton is cultivated on large area in Pakistan-3.2 million ha and thus a lucrative seed market for MNC, Chinese seed companies as well as for national seed sector. It is essential that GoP should move faster to formulate efficient and effective laws to build viable seed sector in the country. Technology is available, though at a cost. Almost 100 percent Bt cotton in India is by foreign technology (not by their public sector!!) Asking price is also declining rapidly. Even genuine investor needs returns of his investment. In order to achieve target of 20 million bales in 2015 we have to make best use of available technologies from USA, China and even from India. A level plaing flied is needed for public as well as for private (national/MNC) sector (Pakissan.com).

7.5

Global Adoption of Bt Cotton

Bt cotton was among the first transgenic crops to be used in commercial agriculture (Qaim et al., 2003). Commercial cultivation of Bt cotton has taken in US, Australia and Mexico in 1996, and by China and South Africa after a lag of one year. Countries such as India, Indonesia and Colombia have taken up its commercial cultivation much later, since 2002. Over half of the world cotton production is from Biotech cotton (not only Bt but herbicide tolerant also). More than 15 cotton producing countries officially approved

179 cultivation of Biotech cotton. Among the top cotton producing countries, Pakistan is a major exception.

Bt was developed by the US company Monsanto as one of the first GM crop technologies which became commercially available in the mid-1990s (Gandhi and Namboodiri, 2006). Since the introduction transgenic crops in 1996, there has been a substantial increase in their area (Chaturvedi, 2002). Bt is currently grown in a large number of countries, including United States (95%), China (95%), Australia (89%), South Africa (80%), India (70%), Argentina (40%), Indonesia and Pakistan (Gandhi and Namboodiri, 2006 and PARC, 2007).

In the USA and China, Bt cotton covers about 3040 per cent of the cotton area in both countries (Qaim de Janvry, 2005). Recent studies show that USA and Chinese Bt adopters realize significant pesticide and cost savings in most cotton-producing regions (Carpenter et al., 2002; Pray et al., 2002; Huang et al., 2002a). Preliminary benefits of Bt cotton have also been reported for South Africa (Thirtle et al., 2003; Ismael et al., 2002) and Mexico (Traxler et al., 2001). Nonetheless, relatively little is known about Bt insecticide interactions and productivity effects under different agroecological conditions (GRAIN, 2001). The broader impacts of GM crops in general, and Bt cotton in particular, are still a matter of controversy, especially with respect to long-term environmental implications and sustainability (Batie and Ervin, 2001; Benbrook, 2001; UK Soil Association, 2002). This holds true both in developed and developing countries.

USA, China and Australia have reported positive experiences with Bt cotton. Bt cotton has spread very rapidly in China. There is good demand for it from the farmers since it reduces the cost of pesticide applications as well as the exposure to pesticides (Gandhi and Namboodiri, 2006). In China the government has played a major role in providing GM technology to the farmers (Pray, EC, et al, 2002).

In Argentina, Bt cotton was patented by Monsanto and released in 1998 by Gentica Mandiy, a joint venture between Monsanto, Delta and Pine Land (D&PL), and the local

180 company Ciagro (Qaim and de Janvry, 2004). Unlike other countries, however, in Argentina the diffusion of Bt cotton has been rather slow. According to official statistics, four years after its introduction, Bt technology only covered about 5% of the national cotton area in Argentina as compared to GM soybeans which were adopted almost completely in the country within a similar time frame (Qaim and de Janvry, 2004). However, their introduction in India has been relatively late and controversial and they still have considerable ground to cover in the country (Gandhi and Namboodiri, 2006).

7.6

Adoption of Bt Cotton in Pakistan

Pakistan, unlike its neighbor India was slow to adopt Bt cotton. Proper legislation (Biosafety rules, SOPs for GM crop release, Plant Breeders Rights and Seed Act 1976 amendments) was either delayed or not yet promulgated thus delaying the available technology to the farmers (PARC, 2007). Bt cotton (insect resistant) varieties IR-FH-901, IR-NIBGE-2, IR-CIM-448 and IR-CIM-443 were grown over 8,000 acres of land during 2005-06. Large quantities of illegal Bt seed are in use. PARC (2007) revealed that area under illegal Bt cotton is 80 percent with nearly 36 unapproved varieties. Most of these varieties are Cotton leaf curl virus susceptible, poor in fiber quality and high input demanding unapproved varieties. Almost all these varieties employed Monsanto Cry1Acgene (MON 531) as it was not patented in Pakistan.

7.7

Impact of Bt Cotton in the World

Qaim and de Janvry (2003) analyzed the adoption and impacts of Bt cotton in Argentina against the background of monopoly pricing. Based on survey data, it is shown that the technology significantly reduces in secticide applications and increases yields; however, these advantages are curbed by the high price charged for genetically modified seeds. Using the contingent valuation method, it is shown that farmers average willingness to pay is less than half the actual technology price. A lower price would not only increase benefits for growers, but could also multiply company profits, thus, resulting in a Pareto improvement.

181

Qaim et al. (2003) assessed the agronomics and sustainability of transgenic cotton in Argentina. Study results revealed that Transgenic Bt cotton can halve pesticide application rates in Argentina while significantly increasing yields. Yield effects are bigger than in other countries, due to the current low levels of insecticide use. Although smallholder farmers are not currently using the technology, gross benefits are predicted to be highest for them. Biological model simulations showed that rapid resis-tance buildup in pest populations appears to be unlikely if mini-mum non-Bt refuge areas are maintained.

Qaim and de Janvry (2004) carried out adoption and impacts of Bt cotton in Argentina against the background of monopoly pricing. Survey data revealed that the technology significantly reduces insecticide applications and increases yields; however, these advantages are curbed by the high price charged for genetically modified (GM) seeds. Studies showed that farmers average willingness to pay is less than half the actual technology price. A lower price would not only increase benefits for growers, but could also multiply company profits.

Purcell and Perlak (2004) assessed the global impact of insect-resistant (Bt) cotton. Study results revealed that insect-resistant (Bt) cotton has been rapidly adopted since its introduction in 1996. Farmers around the world both large and smallholders benefit from this technology through increased productivity, convenience, and time savings. The vast majority of farmers using Bt cotton globally are smallholder farmers. The economic, environmental, and social benefits derived from adoption of this important tool have very positive implications for the farmers.

Qaim and de Janvry (2005) analyzed the effects of insect-resistant Bt cotton on pesticide use and agricultural productivity in Argentina. Farm survey data revealed that the technology reduces application rates of toxic chemicals by 50 per cent, while significantly increasing yields. Using a damage control framework, the effectiveness of Bt versus chemical pesticides was estimated, and technological impacts are predicted for different farm types. Gross benefits could be highest for smallholder farmers, who are not currently

182 using the technology. The durability of the advantages is analyzed by using biological models to simulate resistance development in pest populations. Rapid resistance buildup and associated pest outbreaks appear to be unlikely if minimum non-Bt refuge areas are maintained. Thus, promoting a more widespread diffusion of Bt cotton could amplify the efficiency, equity, and environmental gains. Conclusive statements about the technologys sustainability, however, require longer-term monitoring of possible secondary effects and farmers behavior in maintaining refuges.

Hofs et al. (2006) assessed the impact of Bt cotton adoption on pesticide use by smallholders: a two year survey in Makhatini Flats, South Africa. The survey explored insecticide use in fields cropped with conventional or Bt cotton varieties in a smallholder farming area. The study was carried out during the 2002-2003 and 2003-2004 growing seasons as part of a broader survey based on daily monitoring of a sample of smallholdings. The adoption of Bt cotton led to a decrease in pyrethroid use, but the level of insect resistance of this cultivar was not sufficient to completely drop this pesticide from the spraying programme. On the other hand, organophosphates were still being applied in substantial amounts, thus raising questions as to the impact of Bt cotton adoption on farmers' health. The overall economic results obtained with Bt cotton were slightly positive despite the low cotton yields obtained in the Flats during our survey. Bt cotton adoption did lead to labour savings, but the extent of this gain was not as high as expected. In conclusion, cropping Bt cotton in Makhathini Flats did not generate sufficient income to expect a tangible and sustainable socioeconomic improvement due to the way the crop is currently managed. Adoption of an innovation like Bt cotton seems to pay only in an agro-system with a sufficient level of intensification.

Gandhi and Namboodiri (2006) analyzed the adoption and economics of Bt cotton in India. Survey findings revealed that biotech crops, which made their appearance in the world about a decade ago, have gained substantial popularity and acceptance in many parts of the world including US, China, Australia, Mexico, Argentina and South Africa. However, their introduction in India has been relatively late and controversial and they still have considerable ground to cover in the country. Data from the survey, which covered the

183 important cotton states of Gujarat, Maharashtra, Andhra Pradesh and Tamil Nadu, and 694 farmers, indicates that Bt cotton offers good resistance to bollworms as well as several other pests. The incidence of these pests is reported to be considerably lower in Bt cotton as compared to Non-Bt cotton. The yields of Bt cotton are found to be higher and the yield increase/difference statistically significant in all the states under both irrigated and rain-fed conditions. As a result, given the good market acceptance of the product, the value of output per hectare is higher in all the states and conditions. The question of higher cost of cultivation exists, and is confirmed, mainly because of high seed cost and not commensurate reduction in pesticide cost. However, the profit is found to be higher in all the states to the estimated extent of about 80-90 percent on an average when the effects of associated inputs are included. The returns are highest in Maharashtra followed by Gujarat and then Andhra Pradesh. Subjective assessment indicates that farmers see advantage in Bt cotton in pest incidence, pesticide cost, cotton quality, yield and profit. Almost all farmers indicate that they plan to plant Bt cotton in the future. To increase the benefits from the technology, the farmers strongly urge reduction in the seed cost, greater field extension and demonstration work on the correct practices, and more Bt cotton varieties to suit the diverse agroecological settings of India.

Frisvold and Reeves (2007) analyzed the economy wide using global trade analysis project model. Productivity gain estimates are based on 2005 adoption rates for Bt cotton in seven countries. Global economic benefits are nearly $1.4 billion, while US benefits are over $200 million. Increased production from Bt cotton adoption leads to a 3% reduction in the world cotton price. Employment and trade balances in the textile and apparel sectors increase for China and India, but generally decline elsewhere. Individual countries obtain greater economic welfare gains if they adopt Bt cotton than if they do not adopt. Nonadopting regions lose cotton market share to adopting regions.

Wang et al. (2008) assessed the impact of Bt cotton on the farmers livelihood system in China. A sample of 169 farmers and extension personnel in the main cotton production areas in Hebei province in the year 2002 and 2003 was taken. The results showed that the application of Bt cotton increased the cotton growing area as well as farmers'

184 income due to higher productivity of Bt cotton. For 67% of the farmers interviewed, cotton area has been continuously increasing since 1997. The income from cotton played a significant role in the investment to education, leisure and health care. The socio-economic impacts of cotton production are nevertheless not yet optimal because there were still many factors limiting them. Lack of labor and land were the main limiting factors. Productivity is restrained by the high price of Bt cotton seeds which pushed farmers to keep seeds from their own cotton production (42% of the farmers in 2002 and 2003). Farmers are still lacking technical command in using Bt-cotton: 78% of the farmers admitted that while more than 94% of the farmers complained not getting information from local extension and technical services. More success in using Bt-cotton calls upon going beyond providing seeds and asks for continuous assistance from research and extension department, notably to achieve a full knowledge of the Bt-cotton characteristic so as to optimally integrate it into the farmers system.

7.8

Performance of Bt Cotton in Pakistan

Hayee (2005) conducted a study entitled Cultivation of Bt Cotton Pakistans Experience. Study results revealed that illegal import and multiplication of Bt cotton seed in Sindh and Punjab provinces of Pakistan created havoc at farmers' fields. Absence of biosafety guidelines at government level and awareness at farms level further complicated the issue in the country. Those were the civil society organizations that brought the problem at national as well as government level and attempted to protect the national biodiversity and farmers' interests.

Hayee (2005) conducted a study entitled Cultivation of Bt cotton Pakistans experience. The results of study revealed that illegal import and multiplication of Bt cotton seed in Sindh and Punjab provinces of Pakistan created havoc at farmers' fields. Absence of biosafety guidelines at government level and awareness at farms level further complicated the issue in the country. Those were the civil society organizations that brought the problem at national as well as government level and attempted to protect the national biodiversity and farmers' interests. To mitigate the issue in future, the author made some recommendations

185 which are as under: There is a need to create awareness at public as well as private level regarding safe use of biotechnology, its allied issues and their impact on various elements of our ecosystems. Capacity building in the areas of biosafety conservation, regulations and their effective implementation is proposed. Establishment of National Biosafety Implementation and Monitoring Committee, comprising biological scientists, social, political and legal personnel for effective implementation of the biosafety guidelines at national level are also proposed. Intellectual property rights (IPR), biosafety and ethics needs to be addressed at public and private level and must be openly debated by all the stakeholders. Scientific research may be conducted on long-term effects of biotechnology along with ethical and safety principle. Considering the potential risks involved in development, release and use of transgenic organisms in the open environment, safety of users and the environment must be ensured. There is need to develop and adopt safety protocols during laboratory experiments as well as during eventual use of GMOs and products derived thereof. Pharma crops using HIV-1, AIDS virus should be banned from the open fields, as they will contaminate our food supply with dangerous consequences, not only for human beings also for the other organisms in the food chain.

Rao (2009) assessed the performance of IR-FH-901, IR-NIBGE-2, IR-CIM-448 and IR-CIM-443 Bt varieties planted on 8000 acres of land in season 2005-06. Study findings revealed that adopters of Bt cotton varieties in Bahawalpur, Multan, Muzaffergarh and Karor Pakka observed and evaluated independently its resistance and susceptibility to different pests including factors like abiotic stress and yield than compared it with non Bt cotton varieties grown in the same locations. A large number of farmers have visited these fields, and become aware of the benefits of the locally developed Bt cotton.

Although germination of these Bt cotton seed varieties varied from 65 - 85 percent, but mixing or impurities were less than 2 percent. In the beginning overall attack of Lashkari Sundi American Sundi and other bollworms remained low as compared to previous years but attack of sucking pests like Jassid, Whitefly, Thrips and other Aphid were high in both Bt and non Bt cotton crops. No serious incidence of cotton leaf curl virus disease was reported in Bt cotton varieties. Heat stress in cotton crop was also recorded in

186 different region, however no stress was observed in Bt cotton varieties.

Bt cotton varieties yielded significantly more per acre as compared to non Bt cotton varieties - an average 23-28 maund (40 Kg) per acres versus 17-20 maund to traditional cotton varieties. This translates into more than 30 percent increase in yield. It is noteworthy that in Bt cotton crops average number of cotton Bolls per plant are 120 while average Boll weight is app. 1.75 grams including seeds and number of plants per acre are as recommended by the department of agriculture. The economical gain by using Bt cotton per acre is more than Pak Rs. 3,000 at the market sale price of Rs. 1100/ Maund. In Pakistan average cotton grower has 10 acres of land; increase in such small income per acre would improve his quality of life. It is expected that cotton growers should have Bt seeds of the above varieties for at least 75,000 acres of land in 2006-07.

PARC (2007) assessed the status of cotton harboring Bt gene in Pakistan. A survey was conducted in the cotton growing areas of Sindh and Punjab provinces during July August, 2007. The major objective was to investigate the presence/absence of Cry toxin in Bt transformed cotton. In Sindh province, ten districts (Hyderabad, Nawabshah, Sanghar, Mirpur Khas, Dera Allah Yar, Umer Kot, Matiari, Khairpur, Sukkar, and Nowshero Feroze) were surveyed and samples of cotton were collected from 42 different locations. It was observed that almost 80 percent of cotton growing area in Sindh has become under Bt cotton. Study results revealed that an exotic source of Bt cotton named as Australian Bt was also found in the field. A very high incidence (60-100%) of CLCuV infection was observed in Aus-Bt cotton. Similarly, eleven districts (Multan, Khanwewal, Lodhran, Bahwalpur, Rahim Yar Khan, Vehari, Bahawalnagar, Pakpattan, Sahiwal, Jhang and Faisalabad) were surveyed in the Punjab province and samples were collected from 84 different locations. Almost 50 percent area has been occupied by Bt cotton in these districts. In Punjab, Bt cotton is grown with different names, however, Bt-121 has occupied major area. A range of segregation (10-20%) was observed in some of the fields of Bt cotton.

Five samples were randomly collected from each location. Of these five, two were further subjected to ImmunoStrip analysis for the detection of Bt-Cry protein. The results of

187 ImmunoStrip analysis revealed that 81 percent (34/42) and 90 percent (76/84) samples from Sindh and Punjab provinces, respectively, were positive for Bt protein. The level of Bt gene expression varied from low (+) to high (+++) indicating that source of seed is different. All positive samples harbored CryIAb/Ac gene, whereas, none of the sample was found to have Cry2Ab and CryIF genes. A part of the samples within a location giving negative response indicates the possibility of seed mixing/segregation for Bt gene. The samples showing negative reaction in the ImmunoStrip analysis were further analyzed to confirm their transgenic nature by ELISA for npt- II (Kanamycin) marker gene encoded protein. Overall, Bt transgenic cotton is widely grown in the cotton growing areas of Sindh (80%) and Punjab (50%).

7.9

Conclusions and Suggestions Bt transgenic cotton is widely grown in the cotton growing areas of Sindh and

Punjab. The level of Bt gene expression varied from low to high indicating that source of seed is different. ImmnunoStrip analysis revealed that only CryIAb/Ac gene is present in exotic as well as in the local germplasm. None of the sample harbor Cry2Ab and CryIF genes in the cotton area surveyed. A part of the samples within a location giving negative response indicates the possibility of seed mixing/segregation for Bt gene. All the Bt transformed germplasm is susceptible to CLCuV. The exotic germplasm was comparatively more susceptible to CLCuV than the local. Incidence of CLCuV was higher than previous years (farmer saying). Mealy Bug presence was clearly noticed in majority of the fields. Irrespective of intensity/incidence, CLCuV was present in the cotton area surveyed. Bt-Cry genes have wolrdwide proven performance to increase cotton production by providing protection against boll worm. In order to fully utilize its potential in Pakistan, government and all key stakeholders will have to integrate. A more efficient use of this important biological insecticide can be achieved by adopting following measures: National Biosafety Guidelines, 2005, must be followed to approve all genetically modified crop varieties including cotton. This will encourage the introduction of this advanced technology through legal means with its complete package of benefits. After

188 approval of Bt cotton cultivation by Govt. of Pakistan, R&D sector should be encouraged to transfer Bt-Cry genes into such genetic backgrounds which: (i) must have resistance against CLCuV (ii) are suitable for a given ecology and (iii) meet the set fiber quality parameters (fiber length and strength, GOT% etc.) and other desirable features required for the release of a normal commercial variety. Diversity of Bt-Cry genes has to be maintained under a timeframe for durable resistance and to enhance the life of Bt transformed cotton varieties. Repeated use of only one Bt gene may result in the development of cross resistance in insect pests over a period of time. Effective, stringent, and transparent enforcement of quarantine measures must be observed on the import of exotic plant materials. The uncontrolled import of genetically engineered varieties might irreversibly damage our cotton crop, just like Banana Bunchy Top Virus from untested and non approved Australian variety of banana has done in Sindh. The introduction of Aus-Bt cotton in Sindh province, which is highly susceptible to CLCuV, will increase the inoculum pressure. This will play a role in the evolution of new virus strain as it has happened in case of Burewala virus resulting in huge losses to cotton crop in the country. Expression of Bt-Cry genes in the approved cotton varieties need to be continuously monitored during the crop growing season and over the years according to standards described in this report. A threshold level of Bt toxin Cry-protein is very crucial as extremely low level of toxin may lead to the development of cross resistance. There is a need to develop awareness among the farmers regarding the appropriate management practices for fully utilizing the Bt potential taking into account the ineffectiveness of Bt against sucking insects pests which require conventional pest management measures.

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Huang, J., S. Rozelle, C. Pray, and Q. Wang (2002a), Plant biotechnology in China, Science 295: 674677.

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Neale, , M.C. 1997. Bio-pesticides- hormonisation of registration requirements within EU directive 91-414. An industry view. Bulletin of European and Mediterranean Plant Protection Organization, 27, 89-93.

PARC. 2007. Status of cotton harboring Bt gene in Pakistan. Plant Biotechnology Program, Institute of Agri-Biotechnology and Genetic resources, National Agricultural Research Centre, Islamabad.

Pray, C.E., J. Huang, R. Hu, and S. Rozelle (2002), Five years of Bt cotton in China the benefits continue, The Plant Journal 31: 423430.

Qaim, M., Zilberman, D. 2003. Yield effects of genetically modified crops in developing countries. Science 299, 900-902.

191 Qaim, M., Cap, E.J. and de Janvry, A. 2003. Agronomics and sustainability of transgenic cotton in Argentina. AgBioForum, 6(1&2): 41-47.

Qaim, M. and de Janvry, A. 2003. Genetically modified crops, corporate pricing strategies, and farmers adoption: The case of Bt cotton in Argentina. Amer. J. Agr. Econ. 85(4) (November 2003): 814-828.

Qaim, M. and de Janvry, A. 2004. Cheaper GM seeds could boost adoption, farm benefits and company profits: The case of Bt cotton in Argentina. Crop Biotech Brief, Vol.IV, No.1, 2004.

Qaim, M. and de Janvry, A. 2005. Bt cotton and pesticide use in Argentina: Economic and environmental effects. Environment and Development Economics 10: 179200.

Rao, I.A. 2009. First Bt cotton grown in Pakistan. Pakissan.com

Schnepf, H.E., Whitley, H.R. 1981. Cloning and expression of Bacillus thuringiensis crystal protein gene in E. coli. Proc. Natl.Acad. Sci. USA, 78, 2893-2897.

Traxler, G., S. Godoy-Avila, J. Falck-Zepeda, and J. Espinoza-Arellan (2001), TransgenicCotton in Mexico: Economic and Environmental Impacts, Auburn: Auburn University.

UK Soil Association (2002), Seeds of Doubt: North American Farmers Experience of GM Crops, Bristol: UK Soil Association.

Wang, G., Wu, Y. Gao, W., Fok, M. and Liang, W. 2008. Impact of Bt cotton on the farmers livelihood system in China. ISSCRI International Conference Rationales and evolutions of cotton policies, Montpellier, May 13-17, 2008.

192

CHAPTER 8 CONCLUSIONS AND RECOMMENDATIONS

Cotton- Textile and Apparel sector is the largest sector of the countrys export earnings with more than 60 percent share. Cotton contributes 8.6 percent of the value added in agriculture and around 1.8 percent to GDP. Cotton is the principal cash crop of Pakistan, second to wheat also acts as source employment to the country labor force especially in rural areas. Pakistan is the 4th largest producer after USA, China and India with 12 percent share in the world. Pakistan Cotton-Textile manufacture export consists of Cotton Yarn, Cotton Cloth, Knit wear, Bed wear, Towels, Tents, Canvas and Tarpaulin, Ready made Garments, Synthetic Textiles and Made up Articles.

Pakistan has great potential for exporting cotton and cotton manufacturing especially after phasing out of the Agreement on Textile and Clothing (ATC), which replaced the Multi-Fiber Arrangement (MFA) in 1995. Due to this, exports of many cotton producing countries went up. Chinas exports continued to increase the market share in all major developed import markets. The combined textiles imports of the three economies: Canada, the United States and the EU from China rose by 41 per cent in 2005. Interestingly, some smaller suppliers expanded their textiles and clothing exports even faster than China and the share of least developed countries in imports of the United States and the European Union went up in 2006. Imports of textiles and clothing have increased by 5.5 per cent, to about $350 billion in 2006 for the four major developed markets. The increase was slightly faster than the preceding year. In the US market, China gained as a leading supplier, but at the same time imports from smaller Asian suppliers also rose rather faster than those from China. There was a sharp rise of EU clothing imports from Hong Kong and China in 2006. Among the developed markets Japans textiles and clothing imports are mainly concentrated on China

193 because of geographic proximity and the absence of import quotas in the past. More than three-quarters of Japans textiles and clothing imports came from China in 2006. Most significantly, the share of imports of clothing was more than 80 per cent. Amongst the four major developed markets, Canada was on the top in textiles and clothing imports in 2006. Its imports from China went up by more than 20 per cent. As a whole 2006 was a very favorable one for the textile trade of the developing countries. Pakistans share grew by 12 percent each in US and EU markets, followed by 9 percent in Canada market, and -7 in Japan market during 2006 as compare to previous year.

Nonetheless Pakistan has greater opportunities in exporting cotton and cotton manufacturing but it is unfortunate and unfavorable that these exports concentrate on few regions like USA, Canada, Japan, KSA, and UAE. Pakistan has to diversify its export on other regions and countries

Analytical findings reveal that Pakistan has comparative edge on the basis of Comparative Advantage, Reveal Comparative Advantage, Relative Trade Advantage, and Trade Complementarities. The estimated value of revealed comparative advantage of cotton in Pakistan is 18 which is very high than unity. This value reveals that Pakistan has great opportunities in the export of cotton and cotton manufacturing. Moreover, the estimated values of balasa and Lafay index for all cotton and cotton products is very high which reveal that Pakistan has trade competitiveness in the cotton and cotton manufacturing. The estimated value of relative trade index for primary products, cotton seed, cake of cotton seed and cotton linter, are positive which imply that these products are highly competitive, while oil of cotton seed and cake of cotton seed are uncompetitive. Furthermore, the value of trade complementarities variable for USA, EU, Japan and Canada (trading countries) are greater than unity except SAARC countries. This means that trading with SAARC countries in cotton and cotton products is less profitable as compared to other countries where cotton trading is highly profitable. Still domestic resource cost analysis (DRC) proves that Pakistan has greater opportunities in cotton production. The values of reveal comparative advantage and relative trade advantage further suggest that Pakistan has greater opportunities and

194 prospects for exporting cotton and cotton manufacturing. Similarly trade complementarities show and suggest that Pakistan should focus on Middle east market with highest trade complementarities, followed by Canada, USA, EU, SAARC countries and then Japan.

Bt transgenic cotton is widely grown in the cotton growing areas of Sindh and Punjab. Bt cotton can play a significant role to enhance agricultural productivity as the productivity of cotton in Pakistan is 0.5 ton/ha as compared productivity of Bt cotton in China is 9 ton/ha which implies a huge cotton productivity gap. This gap can be narrowed down by the adoption of Bt cotton in Pakistan which will have major impact on food security efforts in the country.

8.1

Recommendations

Though Pakistan has great opportunities and also has the market potential for exporting cotton and cotton manufacturing but after the termination of MFA, Pakistan now faces greater competitions and tough time with other cotton producing countries especially neighboring China and India. Keeping in view the present scenario the following recommendations are extended for better and long term export prospects for Pakistan cotton sector to remain in, in the world market.

Cost efficiency: low cost of production is the first step for competitiveness. To fetch greater margin and gaining from competition our cost of cotton production must be low. Pakistan has the advantage of economical harvesting as this activity is almost labor intensive. Similarly low cost production technology especially plant protection measures should be economical.

Higher productivity with quality of cotton: Adoption of BT cotton in compliance with SPS measures and IPM practices will enhance cotton productivity and consequently its exports. Effective, stringent, and transparent enforcement of quarantine measures must be observed on the import of exotic plant materials. The uncontrolled import of genetically engineered varieties might irreversibly damage

195 our cotton crop, just like Banana Bunchy Top Virus from untested and non approved Australian variety of banana has done in Sindh. The introduction of Aus-Bt cotton in Sindh province, which is highly susceptible to CLCuV, will increase the inoculum pressure. This will play a role in the evolution of new virus strain as it has happened in case of Burewala virus resulting in huge losses to cotton crop in the country. Expression of Bt-Cry genes in the approved cotton varieties need to be continuously monitored during the crop growing season and over the years according to standards described in this report. A threshold level of Bt toxin Cry-protein is very crucial as extremely low level of toxin may lead to the development of cross resistance. There is a need to develop awareness among the farmers regarding the appropriate management practices for fully utilizing the Bt potential taking into account the ineffectiveness of Bt against sucking insects pests which require conventional pest management measures.

Diversification: Pakistan total export in general and cotton and cotton manufacturing export in special are concentrated on few region/countries. These region/countries are namely, USA, Canada, Japan, EU, KSA, and UAE. There are only five countries that produce about 97 percent of the world cotton while the rest are cotton importers. Pakistan should explore other markets especially the Latin American countries and African countries for sustainable export earnings.

Policy formulation: Government should adopt export oriented policies with more focus on value chain rather than raw material exports. Bangladesh imports raw cotton and cotton yarn and export cotton manufacturing more than Pakistan. The cancer of subsidy to textile is long time debatable issue in Pakistan. The argument of infant industry is no more valid for textile industry. To make this industry more competitive government should gradually withdraw subsidy. The exporters should be facilitated with easy non-trade barriers and unnecessary formalities.

Output is always uncertain and input is always certain and expensive. To make a dynamic policy, negative aspects (thou shall not etc) needs to be taken out and

196 positive dimensions brought in. The underlined philosophy of new liberalism is that the individuals have to censor themselves; there can not be any market oriented external censor.

Market prospects: The agricultural attach in all embassies of Pakistan abroad should be eminent agricultural scientists and they should advocate for better market ties through different means. They should annually organize cotton based products fair and exhibitions. They should also make arrangements for delegates to visit Pakistan textile industries and should arrange visits of Pakistani exporters to their working countries.

Pakistans participation in international trade has paid dividends and has led the country to improvements in its economy. From a low income country Pakistan has come up to a middle income country with per capita of over $ 800, (Chapter Six: 6:12: refers). Per capita income that was only $79 in 1950 went up to more than $ 800 in 2006.

8.2

Future Research The researcher ends research with the motivation and aim to start a new research on

trade and development to devise and design a practical model for trade diversification and mainstreaming trade in poverty alleviation policies. Models are never static but fulfill a purpose and that is to enable future improvement and additions. Pakistan has huge untapped potential. So far, a single sector of economy; Cotton, Textile and Apparel sector has contributed in scaling Pakistan from a low income country to a middle income one. Indigenous trade initiatives and technologies can lead to creation of a trade regime that underscores the National goals of sustainable economic growth leading to socio economic development of the People of Pakistan, and to positioning Pakistan as a reliable trading partner, and a hub of economic activity.

197

Hypothesis is proven that international trade can help the country to work its strengths and develop itself. This despite the fact that Pakistans major export is based on Cotton- Textile and Apparel Products, however, it also poses a threat that in case Pakistan has to carry on this trend then it must diversify its trade and not be dependent on Cotton Textile and Apparel sector alone. Economy is always a moving target. The goal post will always and continuously keep on shifting, and policy and strategies must be evolutionary so that one continues work through the current trend.

APPENDICES

xxii

INSTALLED CAPACITY IN THE TEXTILE SECTOR

(For month of Dec 2007)
S.No 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Name of Mills A.A COTTON MILLS A.A SPINNING MILLS A.A.TEXTILE LTD.NO.1 (IBRAHIM FIBR) A.A.TEXTILE LTD.NO.2 (IBRAHIM FIBR) A.J.SPG.MILLS (HIMALIYA) A.J.TEXTILE MILLS LTD A.M.Z.SPG.& WVG.MILLS(KARIM) ABBAS SPINNING & WVG MILLS ABBASI TEXTILE MILL ABDULLAH TEXTILE MILLS LTD. ACCORD TEXTILES LTD ADIL TEXTILE MILLS ADNAN TEXTILE MILLS LTD. AGAR TEXTILES L (CALICO) AHMAD DIN TEX.MILLS (RAO) AHMAD HASSAN TEXTILE AHMED FINE TEXTILE MILLS LTD. AHMED ORIENTAL TEXTIL AISHA COTTON MILLS AKRAM INDUSTRIES LTD AL MOQEET TEXTILE MILLS AL TEXTILES LTD. AL ZAMIN TEXTILE MILLS(MUSTAFA) AL-AHMAD TEXTILE MILL ALAM COTTON MILLS ALAM SPINNING MILLS AL-AZHAR TEXTILE MILL AL-BASIT TEXTILE MILLS LTD (COTEX) ALHAMD TEXTILE MILLS ALI AKBAR SPINNING ALI ASGHAR TEXTILE ALI HAQ TEXTILE MILLS ALI TEXTILE (JHANG) AL-KARAM TEXTILE NO.1 AL-KARAM TEXTILE NO.2(AMNA IND.) ALLAWASAYA TEXTILE Location BHAIPHERU KHURRIANWALA FAISALABAD FAISALABAD SHEIKHUPURA GADOON AMAZAI KOTRI KOTRI RAHIMYAR KHAN MIANCHUNNU KAMALIA BHIKKI KARACHI KOTRI FAISALABAD CHOWK SARWAR RAHIMYAR KHAN RAHIMYARKHAN SITE HABIBABAD NOORIABAD LAHORE KHURRIANWALA NOORIABAD R/MANGA ROAD LAHORE BAHAWALPUR NOORIABAD D.G.KHAN FEROZWATTOAN KARACHI LAHORE JHANG LANDHI LANDHI MULTAN SPINDLE 22672 50544 19008 21600 15840 47520 24960 13872 49384 7008 19200 17280 0 13056 18720 17640 22560 17496 17952 22560 19008 20160 14400 0 30240 18000 19560 0 121080 24480 34000 0 25992 62400 20664 28672 ROTOR 0 0 0 0 0 0 0 0 0 1600 0 0 2496 0 0 0 0 0 0 0 0 0 0 1200 0 0 1544 0 0 0 3600 0 0 0 0 CLOSED CLOSED CLOSED Status

CLOSED

xxiii
MILLS 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 ALLIANCE TEXTILE MILL AL-NASR TEXTILES LTD. AL-QADIR TEXTILE MILL AL-QAIM TEXTILE MILL AMER COTTON MILLS AMIN SPINNING MILLS AMIN TEXTILE MILL NO2 AMIN TEXTILE MILLS AMJAD BROTHERS LTD. AMJAD TEXTILE MILLS AMNA INDUSTRY (ALKARAM-2) AMNA TEXTILE INDUSTRIES AMSA TEXTILE MILLS AMTEX PVT. LTD. ANMOL TEXTILE MILLS(OKARA) ANNOOR TEXTILE MILL ANOUD TEXTILE MILLS ANWAR TEXTILE MILLS APOLLO TEXTILE MILLS LTD.NO.3 APOLLO TEXTILE NO.1 APOLLO TEXTILE NO.2 ARAIN FIBRES LTD. ARAIN MILLS LTD ARAIN TEXTILE MILLS AREEHA (PVT.) LTD. ARSHAD TEXTILE MILLS ARSHAD USMAN TEXTILE ARTISTIC DENIM MILLS LTD. ARTISTIC MILLINERS (SPINNING) ARUJ TEXTILE MILL ASHER IMRAN SPG.MILLS(HALA) ASHIANA COTTON PROD. ASHRAF SPINNING ASIM TEXTILE MILLS ASLAM TEXTILE MILLS ATARA TARPAULINE &TEX ATTOCK TEXTILE MILLS AWAIS QURNI SPINNING AYESHA SPINNING MILLS AYESHA TEXTILE NO.1 AYESHA TEXTILE NO.2 AZAD TEXTILE MILLS AZAM RAZA TEXTILE JHELUM MANGA RWROAD CHAKWAL CHAKWAL JAMBER MIRPUR SHEIKHUPURA KOTRI KASUR BASTI MALUK LANDHI FAISALABAD F.B.AREA FAISALABAD OKARA DHABEJI NOORIABAD DHABEJI MUZAFFARGARH MUZAFFARGARH MUZAFFARGARH D.G.KHAN BASTI MALANA D.G.KHAN BASTIMANALA JARANWALA SHEIKHUPURA KARACHI KARACHI DINANATH PHOLNAGAR JHANG LAHORE KHURRIANWALA JARANWALA KAHNA NAU JAND SARGODHA SHEIKHUPURA ISMAILABAD SHEIKHUPURA MANGLA BHONG LAHORE 28704 41376 36240 26880 23424 12480 31116 17056 0 33408 20664 7680 0 27600 37440 20880 23664 21468 22080 16800 18240 21120 20160 18240 20106 17496 17184 11600 10296 12480 16800 24240 0 19200 15360 0 12480 0 41032 41580 31356 25296 0 0 0 0 0 0 0 0 0 600 0 0 0 1600 2100 0 0 0 0 0 0 0 0 0 0 0 0 0 864 768 0 0 0 1000 0 0 1960 0 1200 0 0 0 0 0 CLOSED CLOSED

CLOSED

CLOSED

xxiv
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 AZAM TEXTILE MILLS AZGARD NINE LIMITED (LAGLER) AZIZ SPINNING MILLS AZIZ SPUNTEX (PVT)LTD AZMAT TEXTILE MILLS BABRI COTTON MILLS BAIG SPINNING MILLS BAJWA SPINNING MILLS(TEX.CORP.) BASHIR COTTON MILLS BEXITEX LTD. BHANERO TEXTILE NO.1 BHANERO TEXTILE NO.2 BILAL FIBRES LTD. BILAL SPINNING MILLS BILAL TEXTILE MILLS BISMA TEXTILE MILLS BISMILLAH TEXTILE MILLS BLESSED TEXTILES LTD BLUE STAR SPINNING BROTHERS COTTON INDUSTERY BROTHERS TEXTILE MILL BUREWALA TEXTILE MILL C.A TEXTILE MILLS CENTRAL COTTON NO.3 CENTRAL COTTON NO.4 CENTRAL COTTON NO1&2 CENTRAL FIBRE IND. CHAKWAL SPINNING MILL CHAKWAL TEXTILE MILLS CHAUDHARY FIBERS CHAUDHRY TEXTILE MILL CHAWLA SPINNING MILLS CHENAB LTD. CHINIOT TEXTILE MILLS CHIRAGH TEXTILE MILLS CHOTI TEXTILE MILLS(GHAZI) COLONY INDUSTRIES(SHEIKH) COLONY SARHAD TEXTIL COLONY TEXTILE MILLS COLONY THAL TEXTILE MILLS COMFORT KNITWEARS LTD PHOLNAGAR MANGA RAIWIND MUZAFFARGARH DHABEJI KOHAT SITE HYDERABAD NANKANA LAHORE KOTRI FEROZWATTOAN JARANWALA PHOLNAGAR FAISALABAD FEROZWATTOAN FAISALABAD FEROZWATTOAN LAL SOHANRA KARACHI PHOLNAGAR DAWOODABAD SHEIKHUPURA ROAD KOTRI KOTRI DHABEJI MARIPUR ROAD PHOLNAGAR CHAKWAL MULTAN SHEIKHUPURA FAISALABAD TOBATEKSINGH PHOLNAGAR MANGA RWROAD D.G.KHAN MANGA RWROAD ISMAL KOT MULTAN ISMAIL PUR FEROZPUR ROAD 19200 0 17280 0 24864 54288 15192 12400 20640 0 26304 41472 29016 40160 20640 17136 9144 23376 15360 0 17280 42912 13728 14384 12544 26904 8576 33960 16932 0 5928 25000 19200 18456 20184 39696 34104 24960 186576 28896 17592 0 672 0 600 0 0 0 0 0 780 192 0 0 0 0 164 0 0 0 0 0 0 0 0 0 0 0 0 400 2000 0 0 0 0 0 0 0 0 408 0 CLOSED

CLOSED CLOSED

CLOSED

CLOSED CLOSED CLOSED

CLOSED

xxv
CRESCENT BAHUMAN LIMITED CRESCENT COTTON PROD CRESCENT FIBRE LTD. CRESCENT FIBRE LTD.02 CRESCENT SPINNING CRESCENT TEXTILE MILL CRESCENT UJALA MILLS CRESCOT MILLS LTD. CRESTEX COTTON NO.1 CRESTEX COTTON NO.2 CRYSTAL TEXTILE MILLS D.M. TEXTILE MILLS D.S INDUSTRIES D.S.TEXTILE MILLS LTD DAR ES SALAAM TEXTILE DARUL BARKT IND DATA TEXTILE LTD. DAWOOD COTTON MILLS DAWOOD SPINNING MILLS DEWAN FAROOQ SPG DEWAN KHALID TEXTILE DEWAN MUSHTAQ TEXTILE DEWAN TEXTILE MILLS DIAMOND INTER.CORP. DIN TEXTILE MILL NO.1 DIN TEXTILE MILLS LTD.NO.3 DIN TEXTILE MILLSNO.2 DOSTSONS COTTON MILLS EASTERN SPINNING MILL EHSAN ELAHI IND.(ALFALAH) EJAZ SPINNING MILLS EJAZ TEXTILE MILLS ELAHI COTTON MILLS ELITE TEXTILE MILLS ELLCOT SPINNING MILL EMPIRE TEXTILE MILLS FAHAD JAVED SPG MILLS FAISAL ASAD TEXTILE FAISAL SPINNING MILLS FAROOQ AHMED COTTON FAROOQ HABIB TEXTILE FATEH TEXTILE NO.1 FATEH TEXTILE NO.2 FATIMA ENTERPRISES FATIMA ENTERPRISES

121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165

HAFIZABAD JARANWALA NOORIABAD BHIKKHI BHIKKHI FAISALABAD JHANG KOTRI KOTLA KAHLOON KOTLA KAHLON FEROZ RAWALPINDI SHEIKHPURA SHEIKHUPURA MURIDKE SHEIKHUPURA PHOLNAGAR KARACHI RAIWIND MANGA RD. KARACHI KOTRI HYDERABAD KOTRI HUB CHOWKI PATOKI KASUR PHOLNAGAR NOORIABAD MAGAG RWROAD MULTAN SHEIKHUPURA PHOOL NAGAR MANDRA SITE MOUZA ROSSA MANGA SHEIKHUPURA CHOWK SARWAR SHEED NOORIABAD NOORIABAD DINANATH HYDERABAD HYDERABAD MUZAFFERGARH AKHTARABAD

8576 19680 18336 23328 22080 120288 25856 30296 22080 19200 22704 34188 16320 18528 21600 0 14400 58776 15480 28800 26624 25776 59208 14400 22080 24192 22080 0 31820 14448 50800 27840 12432 31416 49728 20000 360 21120 30720 0 20160 14400 16320 63312 14400

576 0 0 0 0 1000 0 0 0 0 0 0 0 0 1600 0 0 0 0 0 0 0 0 0 0 2880 0 0 0 0 0 0 0 0 0 0 0 1152 0 0 0 0 1080

CLOSED

CLOSED

CLOSED CLOSED

CLOSED

xxvi
2(ZAHUR) 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 FAWAD TEXTILE MILLS FAYAKUM TEXTILE MILLS FAZAL CLOTH MILLS FAZAL CLOTH MILLSNO.3 FAZAL FIBRES LIMITED FAZAL KARIM TEXTILE FAZAL TEXTILE MILLS FEROZE TEXTILE MILLS FIMCO IND.(SHAHYAR NO.2) FRIENDSHIP TEXTILE FRONTIER TEXTILE MIL G.M.SPINNING MILL GADOON TEXTILE MILLS GALAXY TEXTILE MILLS LTD. GANI SPINNING MILLS (SHAHYAR (OE) GHARO TEXTILE MILL GHAZI FABRICS INTER. GHULAM MURTAZA TEXTIL GLAMOUR TEXTILE MILLS GLOBE TEXTILE MILLS GLOBE TEXTILE(OE) LTD GOLDEN TEXTILE MILLS GOODLUCK TEXTILE MILLS GRACE TEXTILE MILLS GRANADA TEXTILE MILLS GREEN HOUSE SPG.(SUPERSPUN) GUL AHMED TEXTILE MIL GULISTAN FIBRES LTD. GULISTAN SPINNING GULISTAN TEXTILE MILL GULISTAN TEXTILE NO.2 GULISTAN TEXTILE NO.4 GULSHAN SPINNING NO.1 GULSHAN SPINNING NO.2 GULSHAN SPINNING NO.3 HABIB HASEEB SPG.MILLS HAFEEZ TEXTILE MILL HAFIZ TEXTILE MILLS HAJI MOHAMMAD ISMAIL HAJRA TEXTILE MILLS HAMAZIZ INDUSTRIES HAMEED WAHEED TEXTILE PHOLNAGAR NOORIABAD FAZAL NAGAR FAZAL NAGAR NOORIABAD MANGLA F.B.AREA HUB CHOWKI KOTRI HUB CHOWKI LAKKI MARWAT MURIDKE GADOON JHANG NOORIABAD GHARO PHOLNAGAR JARANWALA MANGA RAIWINDROAD LANDHI KOTRI DINANATH HUB CHOWKI LAHORE BUCHAIKI MULTAN LANDHI KOTRI JUMBER SAMASATTA TIBASULTAN FEROZWATTOAN TIBBA SULTANPUR JAMALABAD CHANDI KOT KHURRIAN WALA MIRPUR SITE KOTRI SHEIKHUPURA RAIWIND KHURRIANWALA 14400 6700 98340 26064 0 18240 59508 0 12096 7224 14400 25108 189784 19200 8640 13200 51072 0 17280 47840 0 14400 26872 0 17280 14400 113232 0 19200 32288 31392 44856 0 21264 23303 20640 12600 16400 0 31880 0 8000 0 0 0 0 1152 0 0 3136 0 2880 0 0 0 0 1584 0 0 400 0 0 4240 0 0 1680 0 0 0 1680 0 0 768 0 1440 0 0 0 0 1728 0 1440 1600 CLOSED CLOSED

CLOSED

CLOSED CLOSED CLOSED CLOSED

CLOSED

CLOSED

CLOSED

CLOSED

xxvii
208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 HAMID TEXTILE MILLS HAMRAZ INDUSTRIES HAQ TEXTILE MILLS HARAPPA TEXTILE MILL HARUM TEXTILE MILLS (NAYAB) HASEEB SPINNING MILLS HASHIR TEXTILE MILLS (MOHIB) HASHMI SPINNING MILLS(CAPITAL) HASSAN SPINNING MILL HATTAR TEXTILE MILLS HIRA SPINNING(SHARIF) HI-TECH SPINNING MILL HUSAIN INDUSTRIES HUSSAIN MILLS LTD. IBRAHIM TEXTILE NO.1 IBRAHIM TEXTILE NO.2 IBRAHIM TEXTILE NO.3 IDEAL SPINNING MILLS IDREES TEXTILE MILLS IHSAN COTTON PRODUCTS IHSAN RAIWHND MILLS IIS TEXTILE (RAINBOW) IMPERIAL TEXTILE MILL IMTIYAZ TEXTILE MILLS(HAJI A.D) INDUS DYG.& MFG.CO. INDUS DYG.& MFG.CO.LTD INDUS SPINNING MILL INDUS TEXTILE MILL INTERNATIONAL TEXTILE ISHAQ TEXTILE MILLS ISHTIAQ TEXTILE MILL ISLAND TEXTILE MILLS ITTEFAQ TEXTILE NO.3(MARRIYAM) J.A.TEXTILE MILLS J.K.FIBRE MILL( SHAHID) J.K.SPINNING (ZEESHAN) JAHANIAN FIBRE (PVT.) LTD. JAKKEY TEXTILE MILLS JAMHOOR TEXTILE MILLS JAMIA SPG & WVG MILLS JANANA DE MALUCHO JUBILEE SPG&WVG MILLS JUNAID COTTON MILL WAN-ADHAN MIRPUR SAKRO KHURRINWALA HARAPPA KOTLA KAHLOON NIA LAHORE MUZAFFARGARH RAJA JANG KHURRIANWALA GADOON AMAZI RAIWIND/MANGA RD. MANGA RAIWIND ROAD LANDHI FAZALABAD KHURRIANWALA KHURRIANWALA KHURRIANWALA SHEIKHUPURA ROAD FEROZWATTOAN MANGA RAIWIND KASUR PHOLNAGAR KHANPUR SHAMALI CHICHAWATNI BAGGASHER HYDERABAD HYDERABAD HYDERABAD KORANGII JARANWALA NOORIABAD KOTRI PHOLNAGAR FAISALABAD FAISALABAD KHURRIANWALA JAHANIAN SITE MIAN CHANNU SITE KOHAT SITE KOTRI 0 0 0 18480 19200 19184 104280 17280 23040 19200 21120 0 28840 28808 21600 17280 19200 16464 27684 0 6048 0 16464 0 62912 20448 12048 24800 0 16320 17280 19200 17280 20760 44808 15360 0 0 24960 0 70896 22388 13456 1344 1600 864 0 0 0 0 0 0 0 0 1800 0 2000 0 0 0 0 0 2664 0 3200 0 800 0 0 0 0 1080 0 0 0 0 0 0 0 600 1100 0 1024 200 0 0 CLOSED CLOSED

CLOSED CLOSED

CLOSED CLOSED

CLOSED

CLOSED

xxviii
JUPITER TEXTILE MILLS LTD. KAMAL SPINNING MILLS KAMANI TEXTILE MILL KASHIR TEXTILE MILLS KASHMIR TEXTILE MILL KASSIM TEXTILE MILLS KHALID NAZIR SPINNING KHALID SHFIQUE SPG. KHALID SIRAJ TEXTILE MILLS LTD. KHAS TEXTILE MILLS KHAWAJA SPINNING MILL KHAWAJA TEXTILE MILLS KHOKHAR TEXTILE MILLS KHURSHID SPINNING MIL KHYBER SPINNING MILLS KHYBER TEXTILE MILLS KOHAT TEXTILE MILLS KOHINOOR INDUSTRIES KOHINOOR SPINNING NO3 KOHINOOR SPINNING1&2 KOHINOOR TEXTILE MILL KOHINOOR(GUJAR KHAN) KOTRI TEXTILE MILL KUNJAH TEXTILE MILLS LAHORE SPINNING MILLS LAHORE TEX.&GEN MILL(MARGALA 3) LAHORE TEX.&GEN.NO.2 LATIF COTTON MILLS LATIF FIBERS LTD. LATIF SHAKIR TEXTILE LATIF SPINNING MILLS LATIF TEXTILE MILLS LEGLER NAFEES DENIM LEGLER-NAFEES COTTON MILLS M.D.TEXTILE MILLS M.F.M.Y.INDUSTRIES M.G.M. CORPORATION M.I.TEXTILE MILLS MADINA WEAVING MILLS MAHMOOD TEXTILE MILLS Ltd. MALIKWAL TEXTILE MILL MANZOOR TEXTILE MILLS MAQBOOL TEXTILE MILLS

251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293

HYDERABAD FAISALABAD MANDRA SHAHKOT MIRPUR LANDHI KAMOKE RUSSA VILLAGE PHOOL NAGAR NOORIABAD EMINABAD BHIMBER D.D. PANAH ROAD KHURIANWALA GADOON BALDHER SAIFABAD FAISALABAD CHAKWAL CHAKWAL RAWALPINDI GUJAR KHAN DHABJI MANGOWAL PHOLNAGAR MURIDKE MURIDKE NOORIABAD NOORIABAD GADOON LANDHI NOORIABAD MANGA MUZAFFARGARH KOTH KAMOKE KARACHI FEROZWATTOAN AASAL- RWROAD BUREWALA MUZAFFARGARH KUTHIALA SHEIKHAN HABIBABAD MUZAFFARGARH

0 9360 12480 17280 12600 0 17280 19200 17280 0 20376 12480 15360 14400 23040 51240 44400 71648 28800 45216 133675 56592 12400 40320 12500 15816 29904 25104 26016 14400 10560 0 0 32784 0 9200 21040 0 0 79632 18576 26880 39312

0 0 0 0 0 1464 0 0 0 2464 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1152 0 0 0 1992 672 0 1896 0 0 3000 800 0 0 0 0

CLOSED CLOSED CLOSED

CLOSED CLOSED

CLOSED

CLOSED

CLOSED

xxix
MAQBOOL USMAN FIBRES (PVT) LTD. MARGALA TEXTILE 1&2 MARHABA TEXTILE LTD MARIAM TEXTILE NO.1(ITTEFAQ) MARIAM TEXTILE NO.2(ITTEFAQ) MARRAL FIBRES (PVT) LTD. MARRAL TEXTILE MILLS MASOOD SPINNING MILLS MASOOD TEXTILE MILLS MAYFAIR SPINNING MILL MEHR DASTGIR SPINNING MEHR DASTGIR TEXTILE MEHRAN RAMZAN TEXTILE MEKOTEX (PRIVATE)LTD METCO TEXTILE METROPOLITAN (COFCOT) MIAN TEXTILE IND.LTD MIMA COTTON MILLS MODERN TEXTILE MILLS MODIFIL INDUSTRIES MOHAMMAD FAROOQ TEX. MOIZ TEXTILE MILLS LTD. MONNOO INDUSTRIES LTD MONNOOWAL TEXTILE MILLS LTD. MORO TEXTILE MILLS MUKHTAR TEXTILE MILLS (FRIENDS) MULTAN TEXTILE WORKS MUSARAT TEXTILE MILLS MUSHARKA SPINTEX LTD. MUSTAFA INDUSTRIES N.N.TEXTILE MILL N.P.COTTON MILLS N.P.SPINNING MILLS N.P.WATERPROOF TEX. NADEEM TEXTILE MILLS NAFEESA TEXTILE LTD. NAGARIA TEXTILE MILLS NAGINA COTTON MILLS NAJIA SPINNING MILLS NASEEM SPINNING LTD NATIONAL SPINNING MILLS

294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334

BHIKHI HASSABABDAL NOORIABAD LAHORE PHOLNAGAR MULTAN BHAIPHERU KABIRWALA FAISALABAD MANGA RW.ROAD MULTAN MULTAN MANGA RW. ROAD LANDHI NOORIABAD HYDERABAD PHOLNAGAR FAISALABAD TANDOJAM F.B.AREA KORANGI RAIWAND LAHORE MIAN CHANNU MORO NIA LAHORE MULTAN FAISALABAD MULTAN JUIANWALA MOR HUB CHOWKI HUB CHOWKI RAIWIND HUB CHOWKI NOORIABAD THEING MOOR LANDHI KOTRI HABIBABAD HABIBABAD KOTRI

20640 27720 14480 13740 12480 0 17544 22032 14400 30816 17280 12480 17280 0 24252 39600 18456 23640 4490 0 12584 25177 12480 20208 15360 14400 0 0 0 0 0 0 37808 0 32304 33664 20700 47040 9072 0 13872

0 0 0 0 0 1000 0 0 0 0 0 0 0 2520 0 0 0 0 480 3200 0 0 0 0 0 0 100 1296 400 600 1376 2880 200 1800 0 0 0 0 0 1200 0 CLOSED

CLOSED CLOSED

CLOSED CLOSED

CLOSED

xxx
335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360 361 362 363 364 365 366 367 368 369 370 371 372 373 374 375 376 377 378 379 380 NAUROZE ASSOCIATES NAVEED TEXTILE NO.1 NAVEED TEXTILE NO.2 NAZIR COTTON MILLS NEELUM TEXTILE MILLS NISHAN-E-QADIR TEXTIL NISHAT (CHUNIAN) LTDNO.1&2 NISHAT MILLS LIMITED NISHAT PRODUCTS LTD. NOON TEXTILE MILL NOOR SPINNING MILLS NORRIE TEXTILE MILL NORTH STAR TEXTILES NUSRAT TEXTILE MILL OLYMPIA BLENDED NO.2 OLYMPIA BLENDED NO.1 OLYMPIA SPG&WVG.MILL OLYMPIA TEXTILE MILL PAK KUWAIT TEXTILE PAK LAND TEXTILE MILLS PAK PANTHER SPINNING PARADISE FIBRES PVT LTTL PARADISE SPG(ZAHUR.3) PARAMOUNT SPINNING PIONEER SPINNING MILL PIONEER TEXTILE MILL PLATUNUM SPG MILLS POPULAR FIBRE MILLS POPULAR SPINNING MILL PREMIUM TEXTILE LTD. PRIDE SPINNING MILLS PURJNAD TEXTILE MILLS QADRI TEXTILE MILLS QUALITY TEXTILE MILLS QUETTA TEXTILE NO.3 QUETTA TEXTILE NO.4 QUETTA TEXTILE NO1&2 QURESHI TEXTILE MILLS QUTUB TEXTILE MILLS RAFI COTTON (AWAN1) RAFIQ SPINNING MILLS LTD. RAHIMBAKSH TEXTILE RAHMAN COTTON MILLS RAHMANIA TEXTILE MIL RAHMAT WAZIR TEX.(HASSAN AFTAB) RAI TEXTILE MILLS MULTAN SHEIKHUPURA SHEIKHUPURA KHARIANWALA KHARIANWALA KOT LAKHPAT KAMOGAL FAISALABAD MULTAN BHALWAL SHEIKHUPURA NOORIABAD NANKANA JAUHARABAD CHICHUKIMALIA CHICHUKIMALIA LANDHI SHEIKHUPURA JAUHARABAD MANGA MANGA RWROAD BHAIPHERU PHOLNAGAR KOTRI PHOLNAGAR KORANGI RAIWND NOORIABAD NOORIABAD NOORIABAD FAISALABAD MULTAN BAHAWALNAGAR FEROZWATTOAN KOTRI PHOLNAGAR KOTRI MIAN CHUNNU SHEIKHUPURA KHURRIANWALA FAISALABAD D.G KHAN TAKHT I BHAI FAISALABAD JUIANWALA MOR DINANATH 12400 12480 24792 28800 0 0 129624 183038 0 16100 0 14400 53280 20520 22192 14760 44484 23288 42240 0 33304 20592 20520 24000 15408 0 6500 24840 16176 36672 15360 12400 12480 24240 15120 17600 13960 16752 0 17280 9600 12480 84456 24400 12480 12480 0 0 0 0 2592 1004 0 0 2496 0 1400 400 0 0 0 0 0 0 0 0 0 0 0 0 0 1200 0 0 0 0 0 0 0 0 0 0 864 0 1600 0 3000 0 0 0 4400 0

CLOSED CLOSED

CLOSED

CLOSED

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xxxi
RAMBOW INDUSTRY (I.I.S TEXTILE) RAMZAN BUKSH TEXTILE RASHID TEXTILE MILL RAVI SPINNING MILLS RAVI TEXTILE MILLS RAWAL TEXTILE MILLS RAYON TEXTILE MILLS REDCO TEXTILE MILLS REGENT TEXTILE LTD RELIANCE COTTON SPG. RELIANCE WEAVING MILLS RESHAM TEXTILE IND RIAZ TEXTILE MILLS RIZWAN TEXTILE MILLS ROOMI SPINNING MILLS(SINTEX) ROYAL TEXTILE MILLS RUBY TEXTILE MILLS S.A.F. TEXTILE LTD. S.FAZALILAHI & SONS S.Q TEXTILE MILLS SADHUJA TEXTILE MILLS SADIA TEXTILE SADIQ TEXTILE MILLS SADIQABAD TEXTILE MILLS SAFOORA SONS WASTE SAHRISH TEXTILE MILLS (FRIENDS) SAIF TEXTILE MILLS SAITEX SPINNING MILL SAJJAD TEXTILE MILLS SALFI TEXTILE MILLS SALIM YARN(SHAHYAR 1) SALLY TETILE MILLS SALMAN NOMAN ENT.LTD SANA INDUSTRIES LTD. SANAULLAH WOOLLEN SAPPHIRE FIBRES 1&2 SAPPHIRE FIBRES NO.3 SAPPHIRE TEXTILE NO.1 SAPPHIRE TEXTILE NO.2 SAPPHIRE TEXTILE NO.3 SAPPHIRE TEXTILE NO.4 SAPPHIRE TEXTILE NO.5 SARDARPUR TEXTILE SARFARAZ TEXTILE MILLS SARFRAZ

381 382 383 384 385 386 387 388 389 390 391 392 393 394 395 396 397 398 399 400 401 402 403 404 405 406 407 408 409 410 411 412 413 414 415 416 417 418 419 420 421 422 423 424 425

PHOLNAGAR PHOLNAGAR SITE MANGA RWROAD LAHORE CHICHUKIMALIA SITE RAWAT SITE FEROZWATTOAN

0 17280 11120 14400 17640 19776 0 14400 19776 26976

3200 0 1536 0 0 0 1728 0 0 0

CLOSED

CLOSED

HABIBABAD FEROZWATTOAN CHAKWAL MIANCHANNU GADOON AMAZAI MANGA RWROAD SHEIKHPURA SITE FAISALABAD MORO KARACHI MULTAN MULTAN MULTAN NIA LAHORE GADOON PHOLNAGAR PHOLNAGAR LANDHI KOTRI JAUHARABAD PHOLNAGAR HUB CHOWKI KARACHI KHARIANWALA FEROZWATTOAN KOTRI KOTRI NOORIABAD JUMBER FEROZWATTOAN PHOLNAGAR CHINNIOT SARFRAZ NAGAR

17280 33936 51660 0 25920 17280 30816 0 0 27216 2832 5000 24880 0 13680 88476 17280 18288 19920 12312 40309 17760 26944 6336 38832 43920 43680 27144 0 17280 18528 15120 24768 47880

0 0 0 1200 0 0 0 2680 1400 0 0 0 0 200 0 0 0 0 0 0 0 0 0 120 0 0 0 0 3504 0 0 0 0 0 CLOSED

CLOSED CLOSED

xxxii
YAQOOB(ZAHUR 2) 426 427 428 429 430 431 432 433 434 435 436 437 438 439 440 441 442 443 444 445 446 447 448 449 450 451 452 453 454 455 456 457 458 459 460 461 462 463 464 465 466 467 SARGODHA SPINNING SARGODHA TEXTILE MILL SARHAD TEXTILE MILLS SARITOW SPINNING MILL SCHON SPINNING MILLS SERVICE INDUSTRIES SHADAB TEXTILE MILLS SHADMAN COTTON MILLS SHADMAN COTTON NO.2 SHADMAN COTTON NO.3 SHAFI SPINNING MILLS SHAFIQ TEXTILE MILLS SHAH JEWANATEX MILLS SHAHAB FIBRES SHAHBAZ GARMENTS(YASIR) SHAHDADKOT TEXTILE SHAHEEN COTTON FACTORY SHAHEEN COTTON MILL SHAHNAWAZ TEXTILE SHAHPUR TEXTILE MILL SHAHZAD TEXTILE NO.1 SHAHZAD TEXTILE NO.2 SHAMA COTTON MILLS (SAFURA) SHAMS TEXTILE MILLS SHEIKHUPURA TEXTILE SHOIAB SALMAN BROTHER SIBTEX (PVT) LTD. SIDDIQSONS DENIM MILL SIFTAQ INTERNATIONAL SILVER FIBRE SPINNING SILVER TEXTILE MILLS(AJAX) SIND FINE TEXTILE SITARA CHEMICAL NO.1 SITARA CHEMICAL NO.2 SITARA SPG MILLS SOHAIL TEXTILE MILLS SONIJA TEXTILE MILLS SPINCOT MILLS (NAVEED.3) SPINGHAR TEXTILE SPINTERE ENTERPRISES STANDARD TEXTILE MILLS(AL-AMIN) STAR TEXTILE MILLS FAISALABAD SARGODHA GADOON PHOLNAGAR SITE GUJRAT SHEIKHUPURA KOTRI FEROZWATTOAN FEROZWATTOAN FEROZWATTOAN F.B.AREA GHOUSPUR MULTAN KHURRIANWALA SHAHDADKOT SARGODHA SHEIKHUPURA MANGA RWROAD JUMBER SHEIKHUPURA SHEIKHUPURA KOTRI CHINIOT PHOLNAGAR SAHIWAL FAISALABAD HUB CHOWKI NOORIABAD KHARIANWALA KARACHI SHIKARPUR KHURRIANWALA KHURRIANWALA FAISALABAD JHAMKE, SITE-KARACHI. FAZALABAD HATTAR MIANCHANNU KOTRI SITE 51405 31440 22704 18240 12624 47420 26880 23376 21288 30384 0 28000 16320 0 0 25056 0 32928 21528 18240 20640 17712 0 40320 16320 0 0 13440 0 16320 0 0 19200 18240 23328 25872 0 31144 14400 16500 14616 20320 0 0 0 0 1000 0 0 0 0 0 1512 0 0 0 864 0 1000 0 0 0 0 0 1120 0 0 2000 0 1944 1536 0 1900 1176 0 0 0 0 400 0 0 0 1920 0 CLOSED

CLOSED

CLOSED CLOSED CLOSED CLOSED

CLOSED

CLOSED

xxxiii
468 469 470 471 472 473 474 475 476 477 478 479 480 481 482 483 484 485 486 487 488 489 490 491 492 493 494 495 496 497 498 499 500 501 502 503 504 505 506 507 508 509 510 511 512 SUFI TEXTILE MILLS SULEMAN SPINNING MILL SULTAN TEXTILE MILLS SUN RAYS TEXTILE MILL SUN RISE TEXTILE SUNSHINE COTTON MILLS SUPERIOR TEXTILE MILL SURAJ COTTON MILL NO.1 SURAJ COTTON MILLS NO.2 SURRIYA TEXTILE MILL TAHA SPINNING MILLS TAJ TEXTILE MILLS TANVEER SPG.& WVG. MILLS LTD. TAQEES (PRIVATE) LTD TARBELA COTTON & SPINNING TARIQ INDUSTRIES LTD TARIQ SPINNING TATA TEXTILE MILLS TAXILA COTTON MILLS TAYMOOR SPINNING MILL TAYYAB TEXTILE MILLS THREE STREE HOISERY MILLS NO.1 THREE STREE HOISERY MILLS NO.2 TIME TEXTILE INDUSTRY TRIBAL TEXTILE MILL TRITEX COTTON MILLS UMER SPINNING MILLS UNI SPINNERS LTD. UNITED TEXTILE MILLS(SILVER) UNIVERSAL TEXTILE USMAN LIMITED USMAN TEXTILE MILLS WANHAR TEXTILE MILLS WAQAS SPINNING (AAJ) WINDHER TEXTILE MILLS WISAL KAMAL FABRICS YAHYA TEXTILE MILLS YAN TEXTILE IND.LTD YOUSAF WEAVING MILLS YUSUF TEXTILE MILLS ZAFAR TEXTILE MILL ZAHID INDUSTRIES ZAHIDJEE FABRIC LTD. ZAHIDJEE TEXTILE MILL ZAHUR TEXTILE MILLS JHANG D.G.KHAN SITE KHANPUR SHOMALI SHEIKHUPURA ROAD JUIANWALA MOR MANGA RWROAD NOORIABAD SHAKOT KOTRI FEROZWATTOAN PHOLNAGAR SHEIKHUPURA SITE HARIPUR SHAH KOT GUJRAWALA KHANPUR BAGGASHER HASANABDAL BHAGTANWALA CHINIOT MULTAN MULTAN KARACHI DERA ISMAIL KHAN JUMBER FAISALABAD KARACHI HYDERABAD F.B.AREA HUB CHOWKI SITE FAISALABAD SHORKOT WINDHER SHEIKHUPURA D.G.KHAN MANGA RWROAD PHOLNAGAR KORANGI JAUHARABAD OKARA FAISALABAD KHURRIANWALA PHOLNAGAR 20464 20160 12600 33063 0 15540 17280 24576 41856 19020 11088 39360 22704 10240 25296 0 0 44400 27588 16632 19680 21672 11496 4928 19812 25920 16128 12480 9440 3456 14400 0 0 13392 144 14544 21408 0 18800 24336 24960 0 16512 23184 27360 1000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1400 2000 0 0 0 0 0 0 0 0 0 0 0 0 1400 0 1080 1200 0 0 1200 0 1400 0 0 0 400 0 0 0

CLOSED

CLOSED CLOSED CLOSED CLOSED

CLOSED

CLOSED CLOSED

xxxiv
513 514 515 516 ZAIBTUN TEXTILE MILL ZAINAB TEXTILE MILLS ZAMAN TEXTILE MILLS ZIA UL REHMAN TEXTILE TOTAL SITE KHURRIANWALA KOTRI FAISALABAD 12432 38400 20640 0 11048270 0 0 0 0 168508 CLOSED

xxxv

DEWAN SALMAN FIBER LTD

PROFILE
Dewan Salman Fiber Limited (DSFL) is a Pakistan-based company. The Company is engaged in manufacture and sale of Polyester, acrylic fiber and tow products. During the fiscal year ended June 30, 2006, the company produced 104,364 tons of polyester staple fiber, and 12,194 tons of acrylic fiber and two.

Net Profit Margin Operating Margin EBITD Margin Return on Average Assets Return on Average Equity Employees

Quarterly (Dec 07) -54.63 % -34.66 % -21.03 % -141.54 % 3,745

Annual (2006) -0.61 % 3.64 % 9.20 % -0.45 % -1.93 % -

Annual (TTM) -

xxxvi

NISHAT (CHUNIAN) LIMITED

PROFILE
Nishat (Chunian) Limited is a Pakistan-based company engaged in the business of spinning, weaving, dyeing, stitching, processing, doubling, sizing, buying, selling and otherwise dealing in yarn, fabric and made-ups made from raw cotton, synthetic fiber and cloth and to generate electricity for internal use. As at June 30, 2007, the company operated 142,196 spindles, 293 air jet looms, one dyeing and stitching plant, a modern dyeing and finishing plant having capacity of 71.000 meters per day and captive power plants with a total capacity of 33 megawatts.

Quarterly (Dec 07) Net Profit Margin Operating Margin EBITD Margin Return on Average Assets Return on Average Equity Employees -6.76 0.64 % -4.96 % -19.74 % 4,859

Annual (2007) 0.13 % 8.73 % 0.11 % 0.37 % -

Annual (TTM) -0.02 % 7.65 % 13.44 % -0.02 % -0.07 % -

xxxvii

IBRAHIM FIBERS (IBFL)

PROFILE
Ibrahim Fibers Limited is incorporated in Pakistan under the Companies Ordinance 1984, and is listed on all stock exchanges in Pakistan. The Principal business of the company is manufacture and sale of Polyester Staple Fiber and Yarn. Share Price Rs. 2003 High Low Average 31.70 16.15 23.93 2004 44.00 29.00 36.50 2005 55.00 36.00 45.50 2006 45.90 34.30 40.10

xxxviii

THE CRESCENT TEXTILE MILLS LIMITED

PROFILE
The Crescent Textile Mills Limited is engaged in the business of textile manufacturing consisting of spinning, combing, weaving, dyeing, bleaching, printing, buying, selling and dealing in yarn, cloth, and other goods and fabrics made from raw cotton and synthetic fibers. It also operates a cold storage, which provides storage facilities to farmers. The Company is capable of producing yarn from 06 count to 120 count, carded and combed in 100% cotton, as well as blends with poly cotton. Its spinning units are equipped to produce regular ring spun yarn, compact ring spun yarn, spandex yarn, slub yarn, and multi-count and multi-twist yarn. The Company has 168 air-jet looms and 12 towel air jet looms to convert its own yarn into customer specific cloth/terry fabrics. The Company has a stitching division, where a range of home textile and hospitality products are made. These include quilted bed-ina-bag items, bed linen, table linen, kitchen linen and furnishings. Quarterly Mar 08) Net Profile Margin Operating Margin EBITD Margin Return on Average Assets Return on Average Equity Employees 1.31% 4.47% 1.15% Annual (2007) 1.53% 1.46% 6.20% 1.01% Annual (TTM) 0.79% 1.24% 5.13% 0.62%

2.84% 4,408

2.48% -

1.71% -

198

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