That is the message coming from government officials and industry executives in that nation who are preparing for the World Trade Organization-mandated end of quotas on textiles and apparel.
Countries around the globe are bracing for the revolutionary change coming on Jan. 1. The big unknown is which countries will be left standing when the quotas come off and a few powerhouses — particularly China — have unrestrained access to the U.S. market.
Political pundits, trade officials and corporate executives agree that Pakistan stands a good chance of surviving the transition as it capitalizes on its vertical production capacity, from its cotton crops on up to high-end apparel and home textiles production.
“I think there will be a shakeout,” said a Pakistani embassy official in Washington, who requested anonymity. “The reason there are so many suppliers in the first place is because of quota distortions.”
Pakistan supports the elimination of quotas and efforts to bring textile trade into the mainstream of the multilateral framework under the WTO, the official said.
He did not, however, downplay the threat China poses to Pakistan and all other foreign suppliers.
“China is competitive in any product we make, not only in textiles,” the official said. “But that doesn’t mean China will have all of the increases. Pakistan will come out a winner as an integrated manufacturer — from cotton production through finished products.”
Pakistan is the world’s fourth-largest producer and consumer of cotton and its economy depends primarily on cotton and textile exports as a major source of foreign exchange and employment.
The cotton textile industry remains the most significant industry for Pakistan. Last year it accounted for 46 percent of total manufacturing activity, 9 percent of the gross domestic product, 31 percent of total investment, 38 percent of industrial employment and 68 percent of total exports, according to the U.S. Department of Commerce’s Country Commercial Guide.
Textiles last year made up 53.5 percent of Pakistan’s $2.2 billion worth of imports to the U.S., and the American market represents nearly a quarter of Pakistan’s total export business.Pakistan has taken significant steps to solve difficult economic reform issues by reducing trade barriers, privatizing state-owned industries and offering incentives to attract foreign investment. Pricing has been broadly deregulated and import tariffs reduced.
However, Pakistan’s President Pervez Musharraf, has created many enemies in his own country for supporting the U.S.-led war on terror and for trying to make peace with India. The general has narrowly survived two assassination attempts in recent months.
Domestic political instability and sporadic ethnic and sectarian violence remain a problem along with the influx of millions of Afghan refugees.
In addition, documented child labor and other human rights violations factor into the foreign investment equation.
But high-level Pakistani government officials are confident the textile industry will attract foreign investment and remain competitive in cotton yarn, cotton cloth, made-up textiles, ready-made garments and knitwear.
U.S. importers will dictate which countries get the business in 2005 and beyond and at least one large retailer recently gave Pakistan a vote of confidence.
A J.C. Penney official confirmed the chain is seeking to increase textile and apparel sourcing in Pakistan to more than $200 million over the next few years.
The government of Pakistan three years ago launched a program called Textile Vision 2005 to attract more investment in the sector and diversify its product offerings.
Under the policy, the government of Pakistan planned to spend $5.7 billion over five years to bring the textile sector in line with the high tech industry before 2005. It could not be learned how much of that allocation has been spent.
The main thrust of the policy is to increase textile exports to a minimum of $7.5 billion and attract investment of $6 billion over four years.
The textile industry had a tremendous inflow of investment in value-added expansion during fiscal year 2002-2003, according to the U.S. State Department.
The Pakistani textile industry still needs about $1.5 billion in government investment to meet the challenges that may emerge in the post-quota regime, also according to the State Department.
The post-quota world has many countries clamoring for something to help them remain competitive.
Pakistan has been maneuvering for textile and apparel breaks for the past couple of years and won some concessions from the Bush administration in 2002.But the $480 million three-year apparel and textile quota package fell far short of the broad menu of trade breaks Pakistan was seeking then and will be meaningless in 2005 when all quotas are lifted.
Pakistan is also hoping for a bilateral free trade agreement with the U.S., but that could take years.
In the interim, high-level Pakistani officials continue to periodically pressure the Bush administration for more apparel and textile breaks, such as duty-free treatment.
Pakistan’s Commerce Minister, Humayun Akhtar Khan, came to Washington last June seeking duty and quota breaks but left empty-handed.
“When quotas go, Pakistan will be left in the middle,” Khan said during that visit. “We will be at a tariff disadvantage. In the short- to medium-term we think some kind of tariff incentives should be given to Pakistan to offer us a level playing field to compete.”
Khan said Pakistan’s advantages lie in its vertical infrastructure and cotton production.
“There are giants like China and India that perhaps have the same advantage, but there are some areas where we can compete effectively,” Khan said. “China is an enormous producer but China is a WTO member and has to comply with the things that come with [WTO membership].”
He also noted Pakistan is an ally of China, which could represent a huge market for Pakistan’s exports of cotton fiber and other raw materials once quotas are lifted.
Pakistani importers and manufacturers and U.S. importers are gearing up and banking on Pakistan’s existing infrastructure.
U.S. executives closely guard their sourcing strategies but one retail executive, who spoke on the condition of anonymity, said Pakistan will become a bigger player in the company’s sourcing plans.
“We see Pakistan as one of the big winners when quotas go away,” the retailer said. “One reason is the availability of yarn. Pakistan spins one-third of the yarn in the world.”
The retail executive said Pakistan has been “hand-tied” by many years of quotas, adding he feels the country is poised for rapid expansion.
Another attraction is Pakistan’s plan to develop high-speed vessels with 16-day service to the U.S. That’s four days faster than the quickest service currently available.The retailer sources less than 1 percent of its products in Pakistan but plans to increase production of knit apparel and home textiles to more than 10 percent in two years.
The executive said his company is focusing on five countries when quotas are lifted: Pakistan, India, Bangladesh, Vietnam and China.
In Pakistan, companies have been making capital investments at home and expanding overseas offices in anticipation of 2005.
Karachi-based sourcing agent Nexus International set up marketing offices in Atlanta and Houston three years ago with the intent of making itself more accessible to U.S.-based clients. The firm, which represents more than 15 vendors in Pakistan, offers U.S. importers women’s and men’s shirts and jackets.
Haroon Ahsan, president of Apparel Trends Inc., the U.S. arm of Nexus, said the company’s move to the U.S. was intended to improve service and make its customers “more comfortable.”
“It will be a competitive situation in 2005,” said Ahsan. “It will be survival of the fittest and come down to whoever provides better service, quality and price.”
Unlike Pakistani government officials, Ahsan believes quotas are a good thing because they guaranteed a piece of the U.S. market.
He said he expects apparel and textile prices to drop sharply when quotas are lifted and he is counting on help from the Pakistani government.
“The government is talking about a package deal to compensate exporters” with subsidies, said Ahsan. “They need to make it viable to export, and profitable instead of taking losses.”
Ali Sufian, a merchandiser at Cotton Connection, a buying house in Pakistan that represents home textiles vendors, said compliance with international labor laws is the primary area of concern as quotas are lifted and competition accelerates.
“The main issue when quotas are lifted is having vendors be in compliance with child labor and safety laws,” said Sufian.
To that end, a group of 30 Pakistani manufacturers is working in conjunction with the government to bring more factories into compliance under a policy known as the Pakistan Compliance Initiative, Sufian said.
“That will make companies more attractive so when big stores like Wal-Mart come in and ask for compliance, we can give it to them,” he said.He said a big U.S. buying group that could include Wal-Mart executives is scheduled to visit Pakistan this month, at which time the vendors will demonstrate the 1 1/2-year-old PCI.
“It was a big step to come together with the government agencies to address the problems, which range from minor to major,” said Aleema Khan, director of Cotton Connection. “Every U.S. company has strict compliance standards, including Wal-Mart, Kmart and Martha Stewart.”
Aside from compliance, Pakistan will have a competitive edge based on its bountiful cotton crops, according to the two Cotton Connection executives.
Sufian acknowledged that China will pose a threat but claimed that country has one big drawback in that it consumes some 70 percent of its cotton crop, while Pakistan exports roughly 70 to 80 percent of its cotton. That surplus supply means that Pakistani producers could have access to vastly more cotton if sales growth made it necessary.
“The biggest asset we have is cotton,” said Khan. “Pakistan has the highest surplus and lowest domestic consumption and that gives us an advantage over China, which ran out of cotton this year.”
She acknowledged, however, that China will always have its place.
“But once China starts competing on an equal basis and stops manipulating its currency, it won’t be much different than Pakistan and India,” Khan said. “It will become a single platform.”
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