Ministry of Textile Industry, has, reportedly, compelled the Commerce Ministry to review the negative list prepared in haste, after hearing that the proposed arrangements will not only result in MFN status but a Free Trade Agreement (FTA) with a major impact on Pakistan's industry, well informed sources told Business Recorder.
A letter written by a Director of Textile Ministry's Research Development and Advisory Cell, Kanwar Usman to Secretary Commerce, Zafar Mahmood, was enough to stun the Commerce Ministry on this issue. The Textile Ministry, in its comments on the Commerce Ministry's summary said that the latter was given a mandate by the Cabinet for complete normalisation of trade with India. The Ministry of Commerce opted for an approach to replace positive list with negative list (appendix G) in Import Policy Order (IPO). Under the Rules of Business, it is mandatory for the Commerce Ministry to consult Ministry of Textile Industry; however, the latter was not consulted on the approach or the criteria for the preparation of this negative list.
The incomplete negative list earlier received from the Ministry of Commerce was discussed with the textile associations and it was observed that different associations have divergent points of view on similar tariff lines. The Textile Ministry explained that as it is known textile value chain consists of ten industrial sub-sectors, which are highly integrated and interdependent. The final product of one sub-sector is the basic raw material for the other sub-sector industry. Similarly, the interests of a commercial exporter/importer, manufacturer and exporter, vendor industry and composite units differ immensely. At this point of time, appendix G only allows import of yarn and very technical fabric items limited to 102 textile tariff lines.
India claims that Pakistan has been given MFN status since 1996 and has no discriminatory technical or non-tariff barriers for Pakistan. Also, more than 80 percent of Pakistani exports are getting preferential tariff rates due to SAFTA.
Pakistan has not been yet able to export more than $272 million to India while India has exported around $1.5 billion worth of commodities while only being allowed 1900 tariff lines. In case of textile, which is Pakistan's main exporting sector, Pakistan only exported $45 million worth of textile products to India whereas India exported $566 million worth of textiles product in the calendar year 2010 in the presence of appendix G.
The Textile Ministry further said that looking at the excitement of getting zero tariff in merely 75 lines in EU out of which 20 have quotas, Pakistan must consider the vast opportunity being provided to Indian industry by removing appendix G while having SAFTA on ground with a small sensitive list. India has separate sensitive list for LDCs and NLDCs and still has not shared the SAFTA reduced sensitive list for NLDCs.
It may also be noted that Indian subsidy programmes are highly budgeted. At present India has non-advalorem duties on major export items eg Indian Rs 350 on cotton shirts. India also has huge state owned textile mills and has controlled cotton trade. Just two years back, Indian government procured around 9 million bales of cotton. Similarly, India has various technical barriers to trade already for protection of their industry as a whole and has repeatedly used anti-dumping measures.
Conversely, Pakistan's industry is facing acute shortage of electricity and gas with appreciating input costs. The quantum of non-performing loans is increasing while exports have shown a declining trend. Pakistan has only single sensitive list for SAFTA unlike India with separate lists for LDCs and NLDCs.
The proposal of mutual recognition will help Pakistani exporters to understand the non-tariff barriers of India but will not in any case erode technical barriers. It will take Pakistan's industry sometime to recognise, learn and educate itself on standards. Further, in absence of any tariff policy and textile standards, Pakistan would not be on a level playing field with the Indian industry.
While challenging Commerce Ministry on applicable tariff, the Ministry of Textile Industry said that the tariff applied on imports from India is not same as for any other WTO member state as stated in the summary of the Commerce Ministry. Pakistan and India are signatory of SAFTA and other than the sensitive list ie more than 800 percent tariff lines, the rates have reduced drastically during last six years.
Though the Cabinet had endorsed the efforts of the Commerce Ministry after reviewing its presentation, no summary was presented to the Cabinet and views of line Ministries were not obtained on the roadmap. Further, the Ministry of Commerce did not consult Ministry of Textile Industry before or after any Secretary level talks with Indian counterparts for negotiating normalisation of trade whereas the Rules of Business 1973 section 2 para 1(ii) of the Commerce Ministry clearly stipulates that the Ministry of Textile Industry should be consulted in trade negotiations.
The process to formulate a negative list was initiated in April 2011; however, the Commerce Ministry did not consult the Ministry of Textile, which represents the largest manufacturing sector of Pakistan till Ministry of Textile Industry itself initiated communication in November 2011.
The criteria for analysing the negative lists do not appear to have taken into consideration the following aspects: (i) the impact of open trade with India on industry especially SME sector, at tariff rates below 6 percent on 80 percent of commodity tariff lines after 2012 which are lesser than MFN; (ii) SAFTA is a more liberal agreement than China-Pakistan FTA phase -1; (iii) the impact of previous FTAs on Pakistan's industry and; (iv) comparative and competitive advantage for various industries at the time of power shortage, high level of non-performing loans and high rate of inflation on basic input costs with Indian industry.
The Textile Ministry argues that moving from positive list to negative list should be read with the SAFTA implications in which 80 percent of the tariff lines would be opened on 0.5 percent. According to the Textile Ministry, the sudden exposure of Pakistan's manufacturing sector to trade with India on reduced rates needs to be evaluated and an impact study should have been conducted. The scope of the study to evaluate the impact of trade normalisation road map was limited to merely an academic exercise of evaluating simple trade figures and the lists rather than analysing the impact on the industry/economy.
Further cementing the arguments against what the Commerce Ministry did with the local industry in the name of trade normalisation with India, the Textile Ministry argued that the list contains 77 textile tariff lines as a replacement to approximately 800 restricted tariff lines though appendix G contains only one tariff line of cotton based cloth, however, does not include its similar, downstream or upstream product. Similarly, the list contains polyester based filament yarn and its fabric, however, does not contain its downstream products (majority of its garments) and its upstream industry PTA thus creating an imbalance in the value chain. As indicated in the Commerce Ministry's proposal, the negative list also has no standing in the legal framework of WTO as well as SAFTA. The Ministry of Textile Industry is not proposing any addition in the list as it will only operate for ten months.
Furious over Commerce Ministry, the Textile Ministry also stated that the list also contains 311 tariff lines of auto sector, it is unclear whether the same academic neutrality and transparency and same principles as indicated in the summary have been applied on that sector.
Government of Pakistan has limited experience in handling defence trade mechanism and has very small set up to implement such measures. A highly skilled well-budgeted organisation along with organised domestic sector may take years to develop and till such time there would be no mechanism available for the domestic industry.
It may be added that a sudden change in dynamics of India Pakistan trade relation ie from 80 percent ban on imports to almost zero-rated imports on more than 80 percent of items within a timeframe of few months appears to be an extreme measure. Further opening of land route will affect inter-Pakistan trade dynamics as well.
Ministry of Textile Industry, in its comments on the Commerce Ministry's summary, stated that in case of its approval, it will not only result in MFN status to India but a Free Trade Agreement (FTA) with the most impact on Pakistani industry.
Further, the Ministry of Commerce has not mentioned any economic benefit emanating from this new arrangement. The Commerce Ministry has also not mentioned how this initiative will increase Pakistan's exports to India, which currently is at $272 million with the availability of MFN and SAFTA reduced rates.
The Textile Ministry has recommended that the road map for normalisation of trade should include a separate NLDC sensitive list in SAFTA containing textile tariff lines which are not currently part of appendix G. The list should be reduced in a phased manner in next five years which may then equal Pakistan's present sensitive list for SAFTA. The Textile Ministry has also recommended that textiles negative lists should be reviewed in light of effective protection required by the local manufacturing.
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