Impact of WTO on textile & clothing Industries

Assignment On Business Research Methodology Topic: Impacts Of WTO on Textile And Clothing Export

Submitted to: MR. ASGHAR AFTAB

Submitted by: Asjad Jamshed BBA (Hons) 4th Semester

INSTITUTE OF MANAGEMENT STUDIES UNIVERSITY OF PESHAWAR

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Impact of WTO on textile & clothing Industries

PREFACE

THIS ASSIGNMENT IS ON IMPACT OF WTO ON TEXTILE AND CLOTH EXPORTS. I HAVE TRIED MY BEST TO MAKE THIS ASSIGNMENT AS MUCH RELIABLE AND VALID AS POSSIBLE. THIS ASSIGNMENT IS CONCLUSION OF GREAT EFFORT. I HAVE WORKED HARD WITH DEVOTION AN ORDER TO PRESENT A HIGH CALIBER ASSIGNMENT. MANY OF MY FRIENDS HELPED ME IN COLLECTING INFORMATION ALSO IN PREPARATION OF ASSIGNMENT. MY TEACHER SIR. ASGHAR AFTAB, PROVIDED ME VERY PRECIOUS KNOWLEDGE ABOUT BUSINESS RESEARCH

METHODOLOGIES. I HOPE THAT THIS IS A HIGH CALIBER AUTHENTIC WORK. I ALSO HOPE THAT THIS IS A SIMPLE, UPDATED AND PURELY FOCUSED ON THE IMPACT OF WTO ON TEXTILE AND CLOTH EXPORTS. I HAVE TRIED MY BEST TO FULFILL ALL ETHICAL REQUIREMENTS AN ORDER TO PRESENT AN UNBIASED ASSIGNMENT. I AM EXTREMELY THANKFUL OF ALL MY FRIENDS WHO PROVIDE ME VERY SOURCEFUL INFORMATION RELATED TO WTO IMPACT ON TEXTILE AND CLOTH EXPORTS, PARTICULARLY MR. BASHIR (SALES AND MARKETING MANAGER). HE MADE ME ABLE OF DOING SUCH A HIGH LEVEL WORK IN A VERY SHORT TIME. I HOPE THAT EVERY ONE CAN GET BENEFIT OF THE REPORT.

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Impact of WTO on textile & clothing Industries

TABLE OF CONTENTS

Methodology.................................................................................................. Introduction.................................................................................................... Misconceptions.............................................................................................. The textile exports and challenges ahead....................................................... Factors, which should be taken into, account................................................ Recommendation .......................................................................................... References...................................................................................................... Bibliography..................................................................................................

1 2 3 5 8 10 12 13

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Impact of WTO on textile & clothing Industries

INTRODUCTION

This is a modern era, which demands modernization. Modernization in technologies, thoughts and economic plantings and relations.. in this era all those nations get economic stabilities and growth who pace with the world. Because of modern technologies and quick means of communication the whole world has become the global village and inter dependency has increased very much. In this global village each country should have close and congenial relationship with others.thier interests have become so common that any country cannot bypass the other. There are many regional blacks in the world. They are all are struggling for the security of their interests and economic building. They have given each other the (mfn) most favorite nation status. They are cooperating in all the matters of their interests. They make the trade agreements and impose restrictions on those opponent countries violating any rules, which are harmful to their interests. Pakistan is also the member of three regional blacks, like Asian, saarcand eco, but their trade performance is not so much good. In order to strengthen it’s trading performance and build a stable economy. Pakistan has signed the wto agreement. wto is being implementing from 1st January 2005. it is being predicted that Pakistan will gain a lot after the signing wto. wto become into existence in 1995, previously known as (GATT) general agreement on tariffs and trade. Its head office in Geneva (Switzerland). Its total members are about 145 and increasing sharply. Pakistan as a member of wto will follow the principle of common market. it is one of the basic principle of wto and the whole building stand on this principle. free trade does not mean free form all cost, but wto emphasize on lowering the trade barriers. METHODOLOGY For the successful accomplishment of assignment on the topic,,the impacts of WTO on the textile and clothing industry,,. i have used different sources and methods for collecting and analyzing data. These sources are

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Impact of WTO on textile & clothing Industries

1) Newspaper: - I read the newspaper like dawn, the news, and daily mushriq. 2) Internet is one of source through which i collected up to date and reliable data. 3) I also read two or three books on the subject of wto, but the most related book was written by salahuddin, title was wto and Pakistan. 4) i have listened the speech of prime minister Shaukat Aziz and the commerce minister Hamayun Akhtar on the subject of wto. 5) i also visited the (nipa) national institute of public administration, where i met Mr. Sardar Mohammad Ali (instructor). Who gave me a lot of information on wto.

MISCONCEPTIONS

1) There are many misconceptions exist in general public about the wto. Some people say that wto is undemocratic, while in reality it is more democratic than simple rules of majority because no decisions can be taken unless the consensus of all its members. Every country has a voice and is convinced for joining a consensus. 2) Some people argue that wto will dictate the governments. The wto does not tell the government what to do and how to conduct their trade policies. Rather, it is a (members driven) organization. Every country has full freedom to design their trade policies. 3) Most of the people fear that wto is the tool of powerful lobbies. the answer is that it is not a tool of powerful lobbies, it can be use to resist the lobbying because wto is an organization of governments. The private sector, ngos, and other lobbying groups do not participate in wto activities. 4) The main point here is that wto is not free trade at any cost. One of the principles of wto system is for countries to lower their trade barriers and to allow trade to flow freely. But how much low those barriers should go is something member countries bargain with each other. The wto provides a forum for negotiation and liberalization. 5) Some people say that wto will environment. So wto is not anti environment, because the preamble of the marrakesh agreement establishing the wto includes among its

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Impact of WTO on textile & clothing Industries

objectives, optimal use of the world’s resources for sustainable development and environmental protection. wto allows member countries to take action to protect human, animal or plants life or health, and conserve the exhaustible natural resources. 6) wto is not only concerned about the commercial interests, but also take into account the sustainable developments. Sustainable development is the principal objective of wto agreement. The agreements also include important provisions that take specially the developing countries into account. Under such agreements the least developed countries will receive special treatments.

THE TEXTILE EXPORT AND CHALLENGES AHEAD The textile and clothing (t&c) sector is one of main pillar of Pakistan’s economy. This sector contributes about the 64per cent in the total export. It also provides employment to 250 million people and 9% to gdp. The total t&c trade is regulated by the agreement on textile and clothing of wto. The agreement provides for the complete phasing out of the quantitative restrictions on the export of t&c products. However, from January 1st 2005 when quota restrictions are completely lifted, market access to the economies of European union and America will increase. This will also increase price competition. as price competition increases, profit will be squeezed. Many developing countries will lose their market share and other will enjoy the economy of large scale and thus increase its market share. the developing countries like Bangladesh which is not subjected to quota restriction may lose its market share .moreover, the lifting of quota restrictions will shift the market from

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Impact of WTO on textile & clothing Industries

seller to buyer. The open market for t&c poses numerous challenges for developing country like Pakistan. The easy access to the market will be beneficial for some countries, while some countries will find it difficult to maintain their market share. In order to know the likely position of Pakistan in post wto regime. it imperative to look the pattern of Pakistan’s exports. The total t&c market is $353 billion. of this the share of textile is about $152billion and the share of clothing is about $102 billion. Pakistan accounts for nearly 6per cent of the total merchandise traded. the largest t&c exporter is European union whose export receipts exceed $ 102 billion-nearly per cent of the global export. The second largest t&c exporter is china whose share is about $96 billion-nearly 27 per cent of the global exports. the other major exporters are USA, turkey, Taiwan, India and Mexico. The export of t&c for pakistan is about $7billion which is only 2% of the t&c global export. Out of this 69% is of textile and 31% of clothing. This is in contrast with global t&c trade where the share of textile and clothing is 43 and 57 per cent respectively. the USA and EU are Pakistan’s largest buyers whose share in the exports is 21per cent and 20per cent respectively. The percentage share of Canada and turkey, the two other quota countries, in Pakistan’s global export is 1.5and 0.9per cent respectively. The total value of export to quota countries is to the $5 billion which is 70 per cent of total exports .of the non quota export markets, the largest share is held by the middle east, which is $ 913 million is 8.3%.

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Impact of WTO on textile & clothing Industries

this is followed but the Chinese (including Hong Kong market which at $587 million constitute 5.3%. the share so other markets value wise is :south Korea $147 million , saarc region $124 million ,asean region $108 million ,Australia $90 million, south Africa $76 million, and Japan $70 million. Categories-wise, the largest share is held by made up which constitute 28.7% of the total t&c exports. This followed by fabric, which account for 18.7% of the exports. The percentage share of other categories is knit wear 15.9; ready made garments 15.2; yarn 12.9; synthetic 8 and row cotton 0.68. As the two largest markets for t&c exports are the quota countries, the eu and USA, the removal of quantitative restrictions will give greater market access to Pakistan’s exports. However, there are a few factors which must be taken into account before drawing any conclusions about a likely increase in Pakistan’s market share. FACTORS, WHICH SHOULD BE TAKEN INTO ACCOUNT 1) Pakistan has never realized its full quota in these two markets (EU &USA) Pakistan has been around 70 per cent only. And it is widely predicted that countries failing to realize their full quota may find it difficult to secure a substantial increase in their market share. 2) Market access for exports of other developing countries to the usa & eu will also increase. This means our exports will face greater competition. China is the largest supplier of us textile imports accounting for nearly 16 percent of us imports.

The second and third largest supplier to us textile market among developing countries is

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Impact of WTO on textile & clothing Industries

Mexico and India respectively. The Mexico share is 10% while Indian share is 8%. Pakistan whose share in us textile imports is about 7% is the fourth. The next largest supplier is South Korea whose exports constitute 6.2 percent of us textile imports. Clothing exports to the USA are in excess of $1 billion. However, these exports constitute less than 2percent of total us clothing imports. Again, china is the largest supplier of us clothing purchases. The value of Chinese clothing exports to the us market is more than $10 billion, which constitutes over 15 percent of the us clothing imports. If we add the Hong Kong’s clothing exports, which are over $4 billion, Chinese share in us, market becomes even larger. Definitely with the removal of quota restrictions, the share of developing counties in eu imports will rise. but which country will grab the larger share of the cake? Courtesy the economies of scale and a highly subsidized economy, which make Chinese products more, price competitive than any other country. Besides, since international economic relations are based on a quid pro quo, the eu attracted by the world’s largest market, may give china special treatment. However unlike other developing counties, china will face quantitative restrictions till the end of 2007. This will give some, breathing space to other developing economies like India and Pakistan. Pakistan’s problems in wto 1) Three tariff and non-tariff barriers will remain intact. in fact non tariff barriers like environment, technical and labor standards and anti-dumping duties will assume greater significance. Pakistan may find it a lot difficult to comply with these non-tariff barriers.

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Impact of WTO on textile & clothing Industries

2) China is among the fastest growing textile buyers in the world. In 1980, china accounted for 1.9 percent of global imports. In 1990, the share increased to 4.9 percent and presently it is well in excess of 8percent. moreover, Pakistan and china have a preferential trade agreement (pia) under which exports to china will be given preferential tariff treatment; however, at present Pakistan’s share in Chinese textile imports is less than 4 percent. for the Chinese textile market, Pakistan will face tough competition from Taiwan, Japan and Korea. 3) Arguable the greatest weakness of Pakistan in the post-mfa regime is that it is not a member of any vibrant regional organisation.this an era of regional trade alliances (rta). The members of an rta give tariff concessions to each other over and above their commitments under the wto. Though Pakistan is a member of two rtss-- saarc and eco--their trade performance has so far been disappointing. For example, intra saarc trade accounts for less than 5 percent of the total trade of the seven member countries. Recently agreement on safta has been concluded which seeks to promote intra-saarc trade; however, its success depends upon pak-india relations. 4)

Another weakness is the low labor productivity. Cheap labor is an advantage. However, this advantage is lost if labor is not productive. 5) Labor in Pakistan is of low productivity because of human resource development (hrd) has been a low priority area in Pakistan in both public and private sectors. high cost of utilities and high interest rate in Pakistan increase the cost of doing business and make our exports less price competitive than many developing countries.

6) Finally, there is the problem of cotton contamination. Contamination of cotton starts at

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Impact of WTO on textile & clothing Industries

picking stage and continue till pressing of cotton into bales. This badly affects the quality of the final product.

RECOMMENDATIONS In the light of my research and analysis on the topic of impacts of wto on textile and clothing exports. As Pakistan has signed the WTO agreement and implementing from 1st January 2005. There are some suggestions in my mind. If Pakistan follow these suggestions. It will give positive results. 1) As wto intensifies the competition, because different products will be available in the market in post wto regime. So Pakistan should concentrate on the quality of its textile and clothing products. China is one of the largest exporters of t&c products, but china will face quantitative restrictions till 2007. this is chance for Pakistan to capture the market. 2) Hi-technologies should be used in the production, in order to lower down the cost of production. 3) New textile and clothing policies should be established in accordance with the current situation. 4) Textile and clothing industries should be given special attention. Special incentives should be offered to attract more investments in this sector. 5) Agriculture sector is backbone of the textile and clothing industry. So this sector should be developed. Modern technologies must be used in agriculture sector, new and improved seeds, fertilizers, pesticides and assistances should be provided at low cost and easily.

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Impact of WTO on textile & clothing Industries

6) New dams should be building up, in order to resolve the water crisis. 7) The government should extend agricultural as well as industrial credits for the development of these two sectors, because both are interrelated.

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Impact of WTO on textile & clothing Industries

REFERENCES I thoroughly studied the followings sources for the completion of my assignment on the topic (impacts of wto on the textile and clothing industry).

1. Dawn, April 19th 2004 article; textile exports and challenging ahead.
2. Internet source; • www.google .com WWW.WTO.ORG WWW.PAKISTAN.COM www.globalexchange.com

• •

3. WTO & Pakistan written by m. Saeedullah Yosufzai published in 2003 in Pakistan.

4. Daily

mushriq 26th December 2004, the interview by the Prime Minister

Shauket Aziz.

5. The views of Mr. Munir Ahmad publish in Akhbar-e-Jaha in 11th November
2004. I also visited national institute of public administration (nipa). Where I met Mr. Sardar Mohammad Ali (instructor). I got most relevant information’s about the WTO.

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Impact of WTO on textile & clothing Industries

BIBLIOGRAPHY • C.Shaffer Gregory (Dec, 2003), defending interests: public private partnership in WTO litigation.

Daily

mushriq,

April

19th

2004,

title

textile

exports

and

challenging ahead. • Madeley john (December, 2002), hungry for trade, how the poor pay for free trade. • • M.Hoekman Bernard (June, 2002), development, trade, and WTO.

M.Saeedullah Yosufzai (2003), WTO&Pakistan. WWW.GLOBALEXCHAGE.COM WWW.WTO.ORG

• •

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