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Effects of textile industry on growth of economy of Pakistan

CHAPTER 1

The study investigated the effects of textile industry on the growth of economy of Pakistan before and after establishment of world trade organization, 1995. The aim of the study was to gain insight about the effects of textile industry on the growth of Pakistan’s economy.

The reason for selecting the topic “The effects of textile industry on the growth of economy of Pakistan before and after establishment of world trade organization, 1995” was to explore this topic in Pakistan that how our textile industry is directly affects our economy. Although there are many researches conducted just to explore that how Pakistan’s economy is affected before and after the establishment of world trade organization.

Industry is considered as the basic element of any country especially textile industry contributes significantly to the country’s GDP (Gross domestic product), exports as well as employment. The textile industry is one of the most important sectors of Pakistan. It is, in fact, the backbone of the Pakistani economy. It has a total established spinning capacity of 1550 million kgs of yarn, weaving capacity of 4368 million square meters of fabric and finishing capacity of 4000 million square meters. The industry has a production capacity of 670 million units of garments, 400 million units of knitwear and 53 million kgs of towels.

The industry has a total of 1221 units engaged in ginning and 442 units engaged in spinning. There are around 124 large units that undertake weaving and 425 small units. There are around 20600 power looms in operation in the industry. The industry also houses around 10 large finishing units and 625 small units.

Pakistani textile industry has about 50 large and 2500 small garment manufacturing units. Moreover, it also houses around 600 knitwear-producing units and 400 towel-producing units.

According to Dr. Mirza Ikhtiar Baig (2010) the current global situation of the textile industry and the share of the Pakistan in global textile industry is the main subject of our topic. The textile demand in the world increased massively in last few decades. The global share of the textile increase about 18$ trillion and it is expected to increase 6.5% in future year. China is known as the major exporter country of the textile goods in the world. The world wide textile export is around 400$ billion. The Asian Countries have the major share in global textile export .The share of the china is around 55$ billion, the share of the Hong Kong is around 38$ billion, the share of the Korea is around 35$ billion, the share of the Taiwan is around 16$ billion and the share of the Indonesia is around 9$ billion, India also emerged as the major exporter of textile goods. In case of Pakistan, Pakistan also emerged as the textile exporter in the world. Pakistan emerged as the major exporter of the cotton and cotton yarn, Pakistan export the 30% of textile cotton yarn and 8% cotton fabric to the world. Pakistan total textile export is 7.4$ billion in 2002 which account the 1.2% share in the world textile export. Pakistan mostly exports the textile raw materials to the world and did not export the value added items, this is the main problem of Pakistan textile sector. Pakistan should learn from Bangladesh who imports the raw cotton from Pakistan and other countries and then made the value added items and export it to the world. If we want to increase our textile revenue then we focus on the value added items in future exports.

1: TEXTILE INDUSTRY IN Nationwide Financial System:

Fabric visualization-2005 has been aimed at an open market, unique, market driven and vibrant textile sector, which is globally incorporated, worldwide spirited and fully equipped to abuse the opportunities shaped by Fabric goods are the vital individual necessities after then food. Textile sector in Pakistan playing the important role in the growth of our national economy, it has the big share in our GDP growth rate. It is playing the impotent role in our export sector, employment sector and investment sector. It has the major share in our foreign exchange earnings. It has the largest share in our manufacturing sector. Textile share in overall manufacturing is about 46%; foreign export earning is about 68% and 38% share in services sector. In spite of the government's efforts to diversify the exports sector and as well as industrial sector, the textiles sector of Pakistan still the backbone of industrial activity in the country.

FABRIC VISUALIZATION 2005:

According to survey (2005) Fabric visualization 2005 is a vision about the new techniques introduce in sector. The vision about the, free entry and exist, barrier free markets, concept of competitive markets, dynamic and innovative which is internationally integrated and fully equipped to exploit opportunities created by the Multi Fiber arrangement at international level. At present Pakistan hold the 8th position in Asian countries Pakistan can take the 5th or 4th position if Pakistan fully exploits the opportunities created by MFA.

THE FUTURE AND DEVELOPMENT OF THE TEXTILE EXPORTS

The development of the textile industry is heavily depending upon the GATT rounds which ultimately become the reason of the establishment of WTO in 1995. The main agenda of the GATT rounds is to obligation of quotas system, unilaterally, bilaterally, multilaterally in the textile sector. It means that there will be no quota on textile products. Pakistan is also the member of the GATT rounds and then after the member of the WTO and the benefits of the GATT rules. In GATT rounds and WTO, USA and EU was in favor of the some restriction on China’s textile exports. Pakistan and India treated most favorite nation because both are the founding nations.

.

1.1.3. QUOTA NATIONS PART IN PSKISTAN’S TEXTILE EXPORTS

USA

44.5%

EU

50%

CANADA

1.7%

TURKEY

3.6%

1.1.4. STRENGTH AND LIMITATIONS OF PAKISTAN:

The share of the textile sector of overall world export is around 6%, which is accounted nearly370$ billion. The share of the clothing goods is around 210$ billion and remaining the share of the yarn and raw cotton. In case of Pakistan, the textile sector has the major share in Pakistan export. The 60% to 70% export of the Pakistan is depend on the textile sector which is accounted nearly 7$billion in year 2002-2003.The share of the raw cotton and yarn is about 30% and share of the fabric is nearly 35% (Ayesha Fayyaz, 2010).

1: The 15 EU member’s countries are the highly developed countries of the world and they are the main importers of textile goods. On 1st may 2004 the ten others countries are also join the EU, these 10 newly members are comparatively less developed and more economical to compare with 15 countries thus EU companies relocate their units in those countries for cheap textile manufacturing and export more textile goods. The EU export increased and became 11% of the world textile export.

2. The EU member’s countries increase the employment level in this sector. That’s why they are more focus on development of this sector. The 2.5 to 3.5 million people are employed in this sector.

3. Presently another threat of Pakistani exporter is that if EU withdraws his 0% duty under EU GSP scheme, then Pakistani exporters face the damages in her expert volume.

4. In case of the USA more than one million people are employed in the textile sector. In USA there are thousands of companies who produce the textile goods. The companies mainly in South Carolina, North Carolina, Georgia, Virginia and state of Alabama. These state protested against the 0% duty on textile goods. After the establishment of WTO and Asian crises nearly 250 units shut down and more then two laces people lost their jobs. Thus in 2004-2005 the USA Government impose the quota with different percentage on textile goods.

Composition of Quota Goods

USA

EU

CANADA

TURKEY

TOTAL

Fabric

69%

12.4%

Quota free

2.2%

21.5%

Garments

30%

18.4%

1.1%

0%

49.5%

Made Up

7.6%

17.2%

0.6%

0%

25.4%

Yarn

Quota free

2.2%

Quota free

1.4%

3.6%

Total

44.6%

52.2%

1.7%

3.6%

100%

At present USA will also concentrate on the high tech textile goods to compete the modern world. USA focuses on non-woven, particularly focus on the hygiene products like children’s diapers and wipes, feminine hygiene, adult incontinence and highly end fashion items, particularly for women's wear.

USA and EU wants the better market access to their textile products and on the other hand they also want to implement the rules of the WTO on tariffs, quota and intellectual property rights. They also want to implement the rules which are mentioned in GATS and WTO like environmental conditions, laborers facilities, wage rate and tax collection system. Pakistani exporters will prepare to fight these challenges of the modern world.

USA imposes safety measures on textile exports, which can also effect on Pakistan exports, but the Pakistani exporters having the chance to get the benefit from the quota restriction on China and Vietnam imposed by the USA in 2005 as cited in Dawn News & the Economist Magazines (2000).

Corporation in different sectors is key to success; if the Pakistan Government and the private sectors cooperate with each other it is beneficial for the Pakistan textile industry. The government should be encouraged of production of MMF synthetics, and the private sector should be encouraged the buffer stock scheme of cotton and stock pile schemes. The Government should reduce the duties on textile machinery and other equipments. The Pakistan Government should provide the facilities to the exporters to start the business. The cost of start new business in Pakistan is very high to compare with the regional countries so the Government, Ministry of Commerce and Stat Bank of Pakistan should take steps to facilitate the business man. The ministry of Commerce focuses on three weakest links in the textile like dying, marketing and ginning.

The Government of Pakistan and State bank of Pakistan should provide loans to the exporters to expand her businesses and improve the quality of the goods at international standard. The interest rate on the loans must be low to compare with market.

1.1.5. RISE IN FABRIC EXPORTS MANUFACTURING IN PAK:

In international market there sharp propaganda against the quality of the Pakistan textile products. Pakistan faced the challenges of the high quality and the competition with the regional countries. After the abolition of the textile quota from January 2005 Pakistan surprised the all competitive countries to increase its global share of exports and get additional foreign exchange. Pakistan also improve its quality of the textile products that’s became the reason to earn extra revenue.

According to The Nation’s Money magazine (2005) after the abolition of the quota free world trade on textile products the Pakistan textile sector earns 3.6$ billion through exporting textile products, which show the 10% growth over the corresponding period of the last year. The different textile experts having the opinion that the textile exports of the Pakistan is expected to increase 5$ billion during the first six months after the abolition of the quota regime (January – June 2005). The total export of the year 2004- 2005 is expected to increase 8.5$ billion.

In 11 months of year 2005 the textile industry of Pakistan earn 7.70$ billion worth of foreign exchange earnings, which show the significantly increase in the foreign exchange earnings to compare with the previous years. In May 2005 the textile exports of the Pakistan increase 830$ million as against 650$ million in April, it’s show the pleasant trend in textile sector of Pakistan.

The Pakistani textile manufacturers are very optimistic in nature and want to increase the international share, and they have target to increase the exports around 10$ billion US dollars. The textile industry can achieve this target; if the industry is steadily increase its exports share in the international market. The Pakistani textile manufacturers claim that the textile products such as, yarn, fabrics, cloth and bed linen are the most competitive items in the world, the quality of these products are very fine to compare with other world. These items have a major share in our overall textile exports. They claim that the leading textile producers and the exporters of the world like China, Germany, Bangladesh, and Sri Lanka import these products from Pakistan and convert them into high fashion items and export the world.

After few months of establishing the quota-free global trade of textile, the knitwear and readymade garment sectors in Pakistan faced a pressure, but now these two segments of the Pakistan textile industry also show improvement in manufacturing of the products. The other segments of the Pakistan textile like yarn, bed linen, clothing, are doing well before and after the new WTO regime. Since 1999 to 2005 a sizeable investment nearly 5$ billion to 6$ billion US dollars are invested in Pakistan, which have pleasant effects on local textile industry.

There is huge investment in Pakistan textile industry; this investment developed the textile sector. The investment in the textile sector is divided between different segments of the industry. The spinning has made 46% of the total investment; the weaving sector has made 24%. Textile processing has made 12%, made-up 8%, knitwear and garments 5%and 5% invest in the synthetic textile sector. The textile industry of Pakistan is expected to receive investment more than 6$ billion US dollars by the year 2010 and this investment will increase the capacity and the quality of the products.

According Tariq Mahmood Acting chairman all Pakistan mills association The USA imposed some restriction on Chinese textile products; this restriction is also beneficial for the Pakistan textile exporters. The EU and USA gives the bulk of the textile orders to the Pakistan because the Pakistan has the capacity to achieve the target on time. Presently the USA and Europe became the major market of Pakistan textile products, and Pakistan generates large amount of the revenue. .

Soon after launching the quota-free international trade under the rules of WTO, Chinese started marketing their textile products vigorously in the USA, Europe and other major consumer countries of the world and wants to capture the local market. This behavior of the china badly damaged the local textile industry of the Europe and USA, and ultimately this became the reason of the trade war between china and EU, USA so the EU and USA wants to impose some restriction on textile products. For the last few days a tug of war started between china and USA on the issues of the revaluation of the Yuan (Chinese currency), Dumping, terrifies and this war between USA and China is beneficial for the Pakistan textile sector.

The Tsunami factor had also become the reason of the development of the Pakistani textile industry, because Tsunami heavily damaged the textile industry of the Indonesia, India and Bangladesh.

The re-location of the textile industry in EU and USA had also beneficial for the Pakistani textile exporters, because they mostly fulfils there textile needs from Pakistan. They import the different products from Pakistan and used it in her products. The textile industry of Pakistan had equipped itself at the international standard after the abolition of the quota system and imports the advanced textile machinery to improve the capacity and quality.

The textile sector invest more than 4$billion US dollars in last four to five years, investment on the latest machinery, infrastructure, communication, expansion, manpower and designing. The industry believes that this investment in industry will comfortably meet the up comings challenges of the advanced world.

Cotton is the basic need of the textile industry, and Pakistan is the leading producer of the cotton in the world. Pakistan producing the 12 to 14 million bales of the cotton annually. The Government of Pakistan should take step to promote the research on cotton which increases the production and the quality of the cotton; through research on cotton we can produce the disease free cotton. After the abolition of the quota system the textile industry has believe to need the 16 million bales of cotton annually, the 14 million of bales produce locally and 2 million of bales import from the other countries. If we focus on the research we can fulfils the need of textile industry, and also export the other countries.

1.1.6. Complication and Problems in Textile Investment

1: Lack of road and rail network facilities in the country.

2: Poor management by the different governmental agencies.

3: Bad governance and poor law and order condition in the country (especially in Karachi and Khyber Pukhtunkhawah.

4: Bad image of Pakistan portrayed by the international media and international agencies.

5: Warnings, which are issued by the foreign countries to their citizens to stop travelling of Pakistan is also the big hurdle in Pakistan development.

6: Pakistan is the member of the WTO and sign’s many international agreements like intellectual property rights and international arbitration agreements which enforce Pakistan to obey the rules.

7: Poor communication facilities are also the major hurdle in Pakistan textile development.

8: Corruption in Governmental department is also the major issue of the Pakistan development.

9: Severe electricity shortfall in the country.

10: Financial instability in the country which became the reason of the decrease in foreign investment.

11: Our utility rates are too much high to compare with the regional countries.

12: Our tax collection system is very weak, which also one of the main hurdle in our development.

13: Energy crises in the country (crises in natural gas/ crises in the accessibility of petrol).

14: The good quality soft water is not available for our textile sector (especially in Karachi).

15: Negative impact of SRO’s culture.

.

1.2. MOTIVATION OF RESEARCH:

There is a need to explore the factors influencing the overall productivity and development of the textile industry of Pakistan and the problems faced by the textile industry of Pakistan, so that it can help the policy makers to shape the different policies to tackle with the various issues of the textile industry, and it can only be done with the help of the research.

There is a need to conduct study on this topic so that it can be beneficial for the individuals as well as the Pakistan’s economy. The issues faced by the textile industry at current need to be studied and can only be solved through proper policy implications.

There is a need to explain the various factors affecting the textile industry of Pakistan so that the policy makers have an idea to explore the responsiveness of the textile industry due to current trade policies which will in turn help them to identify the different policy measures to enhance the textile industry in our country.

1.3. RESEARCH QUESTION:

It is believed that the textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends largely on the development of this sector. Here in this research, an attempt is made to study the effect of textile industry on the growth of the economy before and after the establishment of WTO (1995) from 1947 till current. The basic research question arises from the discussion is that whether the textile industry contributed positively towards economic growth in the country? The research tries to find out the accurate answers of this question by using econometric models.

1.4 RESEARCH OBJECTIVES:

The textile industry acts as the backbone of any economy, and the development and prosperity of the economy depends largely on the development of this sector. This study was conducted how the textile industry is contributing significantly towards economic growth

1.4.1 HYPOTHESIS:

H0 Textile industry does not directly related to the development of the economy.

H1 Textile industry directly related to the development of the economy

CHAPTER 2; BACKGROUND

According to Dawn News & the Economist Magazines (2008), in 1947 after self-rule, only two textile mills were working with 80,000 spindles and 3,000 looms. At that time our domestic need was 8 % only.

1950

The organized development of cotton textile mills started in the late 50’s. In 1952 PIDC and in 1953 Vatika Textile Mill at Karachi was organized.

1960

By mid 60’s about 180 units of textile bleaching, printing and processing

units in Pakistan. A number of spinning units comprising of only 12,500 spindles were set up. Newly established mills were based upon imported technology but there was lack of technical staff and shortage of capitals. Pakistan’s textile industry has lost its relatively more prominent position of the 1960s and 1970s, and today holds a little over 2 per cent of the world market. Pakistan enjoyed a very dynamic performance in the 1960s, and was among the leading; underdeveloped countries that were emerging in the world cotton textile market. In fact, Pakistan’s record was quite envious, as between 1962 and 1970 it cornered over 11 per cent of the world market (Admin, 2010).

1970

During the era of 70-71 there were 113 textile units and the industry had 2,605 spindles and 30 thousands looms. After the separation of East Pakistan, Cotton Export Corporation of Pakistan was established this meant that most of the private sector was taken over by the state. The textile industry suffered heavy looses because the export cotton controlled by CEC (Cotton Export Corporation of Pakistan), and the import of machinery was made difficult due to shortages of foreign exchange (Admin, 2010).

1980

This phase brought a relief to the textile Industry of Pakistan. There was a rapid growth in spinning sector. Till 1980-81 spinning continued to expand to 4033 thousand spindles in 203 spinning units, and working capacity amounted to 2833 thousand spindles. The textile sector holds a very important position in Pakistan’s economy in terms of employment value added and exports. It has the highest manufacturing value added for any industry amounting to 17.5 per cent. Similarly, about one-third of the entire manufactured employment is in the textile sector. In terms of exports, approximately 30 per cent of Pakistan’s total export came from cotton textiles in 1990/1, up from 20 per cent in 1982-3. Cotton yarn’s contribution to exports increased from 10 in 1982 to 18 percent in 1990.

1990

Machinery for producing garments and made-up was also freed from import duty. As a result, a huge expansion in the spinning sector took place in the first five years of the 1990s. World demand for good quality, wide width fabrics grew and replacement and a modernization process started. With these developments, production and export value-added items such as bed-sheets and home furnishing started. Structural changes with the replacement of outdated machinery and modernization in the industry still continued in

view of world competition. In 1991-92 Pakistan produced a record high crop of 12.8 million bales.1993 to 1998; Pakistan recorded a development of 101% per year in cloth manufacture while its position is third after China and India in the world wide yarn manufacturing. The place of Pakistan’s textile manufacturing relatively persist and further following the full execution of WTO (World Trade Organization) contract from 2005 beyond when a period of open trade will establish internationally. In 2000-2001 Pakistan's Cotton production and consumption was almost equal around 10.45 million bales (Arshiya Fayyaz, 2008).

World Trade Organization and textile industry:

World Trade Organization (WTO) a foreign organization which support deal between member countries, look after nationwide trade contracts and resolves disputes when they arise (Business dictionary, 2010).

According to Kimberly Amadeo, the WTO (World Trade Organization) is a set where associate administration goes, to try to solve the trade issues they face with one another. At its heart are the WTO agreements, discussed and noticed by the volume of the world’s dealing states. But the WTO is not just about relaxing trade, but in some conditions its rules hold up trade blockade — for example to defend clients, avoid the increase of virus or look after the atmosphere.

World Trade Organization's (WTO) Impact on Textile Industry in Pakistan:

According to Jabir & Rafique The contract on fabric and clothes, which were ingredient of the Uruguay Round trade discussions; aim to abolish the component of inequity in textile and clothing. An agreement on textile and clothing (ATC) actually does is to give marketplace entrée to developing nations and does these throughout two belongings.

A: amalgamation

B: development tariff

We should not observe the scientific feature of ATC (agreements on textile and clothing) now, but focus on what is happening since January 1, 2005. There is a crowd of questions that would turn into greatly important for trade in textiles and apparel. Pakistan's exports of textiles and apparel are probable to rise 8-billion us dollars score in 2003-04 to previous years about US$7-billion exports, current sky-scraping prices of yarn not withstanding. Pakistan will face equally intimidation and opportunities from January 1, 2005.

The fundamental problem which will crash exports in 2004, but not yet determined are:

1. Whether the EU (European Union) and U.S.A. will permit carry-forward in 2004 as required by all rising nations.

2. Whether delivery received January 1, 2005 beyond will be free irrespective of the year of delivery or may be, for these, suitable quota permit could be essential, or these supplies may be drove back or taken away by customs.

3. How the EU make a strategy to contract with free activities of supplies from the 10 fresh associate nations which will connect the Europe union on May 1, 2004.

Pakistan by no means is capable to completely use part available to it; usually, 25% of the quotas stay unutilized. The proportion consumption of quotas remains unutilized. In 2002, an entirety amount of 4,646 million cube meters be offered to Pakistan from the listed nations. An amount of 1,147 million stays unutilized. Per unit price obtain in 2002; the unutilized value explains US$600 million (Osaka Senken, 2004).

Cotton and fabrics have the greatest industrialized base. In the previous years, the section of knitwear, blanket, dry items and chosen stuff of handy clothes have shown an significant increasing trend in exports. Though, the Pakistani cloth mill is comparatively weak in artificial fiber goods, natural fiber clothes and fancy clothing.

The impact of complete addition is probable to hit this sector hard. Because of back-loading, the limitations would stay in place till the end of 2004. As a result, no alteration era would be offered to the manufacturing. This unexpected swap from a limited to a open atmosphere would surely attach to the alteration difficulties of untrained units (Osaka Senken, 2004).

The further influential feature since January 1, 2005 will be:

1. Skills on which there has not been adequate center until now. The customary vision of negotiators, so as to contemptible employment and a rich delivery of yarn is not true any longer.

2. After that is user flavor. Requirement for cotton and for fabric and clothing is common. So we should develop a spirited benefit on the goods and services that we had a relatively gain on it.

3. While there will be no restrictions on exports; however rivalry from China and the Asian tigers with apparent additions in the non-tariff fence should be kept in view.

Uruguay round was established because it was thought that in year 2005 this round would be a round to end other rounds. EU, Japan and other countries made a lobby to initiate a new round. In November 2001, 4th WTO Ministerial meeting, the Doha expansion program, basically the start of a new polygonal trade negotiation round was certified. Fresh problems were raised, and these problems were discussed in 2005. The 5th Ministerial Conference commence in Cancum, Mexico gave the notion that the urbanized world required to eat its cake and have it too.

On the other hand the unpleasant act, skill, transformation, important reserves, marketplace, particular tax talks and particular local provision should be followed.

To sum up, the Pakistani cloth manufacturing should not relay on usual marketplace, models and conventional ways, because there is no assurance that the offered model will persist as it is..

CHAPTER 3

LITERATURE REVIEW

Dr. Noor Ahmed Mammon, (2010) analyzed the establishment and development of the denim sub sector. According to him, the weaving part in Pakistan generally is paying intense attention to the significant success of the denim sub sector. The clothing industry of Pakistan openly benefits from the latest developments in the denim adding up advanced price to the textile formed in Pakistan. The Denim area in Pakistan still much smaller in terms of scale is leading the system for the whole industry.

Aftab A Khan & Mehreen Khan (2010) examine the challenges of this decades, and examine that Pakistan faces the toughest challenges in this decades. According to their research the internal condition of Pakistan is very bad and the exporters face the huge challenges. The exporters of Pakistan face crises of electricity breakdown, Shortfall of Gas, high inflation rate, political instability, terrorism, high interest rate, and problem of the foreign visas. According to their report the Government of Pakistan should take steps to solve these problems because textile industry is backbone of our exports.

Jodie Keane et al, (2008) examine the job of fabric and clothing industry in enlargement and expansion strategies in developing countries. They propose that textile and clothing industry are significant in economic and social conditions, in the short-run by providing income, jobs, particularly for women, and foreign exchange receipts and in the long-run by providing countries the chance for continued economic growth. According to them, the potential of the fabric and clothing industry to contribute to long-run expansion and progress will depend not only on the characteristics of the investor, but also on the worth as well as efficiency of government policies and institutions in rising countries to put up on this deal.

Dr. A. Ali & Mohammad Munir (2008) analyzed the Pakistan’s textile export in international market. They analyze that the share of the bed wear, towels and knitwear has increased over the last six to seven years and they became the major export of our textile sector. The share of the other textile items like hosiery, denim and other textile items remained inactive and changed marginally. The study also tell that after the quota free regime in textile the competition increased too much so Pakistan need to focus on the quality of the product.

Afia Malik, (2004) examines the situation of Pakistan textile industry after the establishment of WTO (1995). After the establishment of WTO in 1995 the trade between developing to developed countries should completely free quantitative restrictions on textile goods and trade governed by the normal GATT rules. The report examines the growth of the textile industry after WTO (1995). The report examines the current situation of textile sector and also examines the different segments of textile industry. The report tells that fabric and clothing are the major segments of our textile sector but in international the share of these two segments is low to compare with others that are why competition is very high. Another problem of our textile sector is the quality of products the quality of our products is low to compare with international markets. We need to use the advanced technology in our textile sector and improve our quality and capacity.

Hildegunn k. Nordas, (2004) examines the structure of the textile and clothing industry and discusses about technology and the advancement the textile sector. They examine the growth of the sector after the quota elimination. They say that after elimination of quota the textile sector in the developing countries perform well. They say that after the establishment of the WTO (1995) the trade patterns are changed in the countries.

Rodrik and Rodriguez, (2000) summarized the theoretical foundations and empirical evidence of a dynamic link from trade policy to economic growth. This literature review is based on reduced-form cross-country regressions.

Mahmood et al, (1996) Pakistan will have an additional market access of about 62 percent and 67 percent for textile and clothing respectively with the eradication of MFA in 2005.

Akhter Alam (1991) examines the growth of the textile industry in Pakistan. He say that textile industry of Pakistan truly developed during 1950 to 1970,and have major share in growth of the economy, but in the reign of Zulfiqar Ali Bhutto the nationalization policy of the government effect the industry too much and investment in the industry became zero. However the growth and improvement have seen in the industry during the last few years.

Trela and Whalley (1990) are the economists who estimate that Pakistan would 0.008$ billion US dollars after the removal of the quota and tariff. However, remove only the bilateral quota but the tariffs were not removed. That’s why the Pakistan and other developing countries faced crises. Developed countries was not want to remove the tariff because they feel that after removal the tariff they faced crises in her own textile industries.

CHAPTER 4: METHODOLOGY

4.1. SAMPLE SIZE

The sample of the study was 80 respondents and study was based on a survey which was conducted with different respondents.

4.2. RESEARCH TOOLS

Questionnaire

Websites

Articles

4.3. DATA COLLECTION

Data was collected through questionnaire and other sources i.e. websites, articles etc.

4.4. DATA ANALYSIS

Collected data was analyzed through computer. Table and graphs were prepared according to data received.

4.5. SURVEY RESULTS

1. What is your gender?

Male

50

Female

30

62%

38%

male

female

2. Do you think that textile industry of Pakistan is contributing significantly towards economic growth?

Yes

59

No

11

Don’t know

10

3. The development of the textile industry is directly related to the development of the economy?

Yes

60

No

13

Don’t know

7

4. The textile sector of Pakistan acts as the backbone of the economy.

Agree

50

Strongly agree

20

Disagree

10

5. Enhancement of the textile industry will boost up economic growth in the country.

Agree

55

Strongly agree

20

Disagree

5

6. Do you think that textile industry was more successful before the establishment of WTO?

Yes

20

No

40

Don’t know

20

7. Are WTO policies favorable for Pakistan’s textile industry?

Yes

57

No

8

Don’t know

15

8. Did the textile industry of Pakistan grow after the establishment of WTO?

Yes

59

No

7

Don’t know

14

9. The textile sector is considered as the single major determinant of growth in manufacturing sector.

Agree

30

Strongly agree

40

Disagree

10

10. Bad political condition and governance of the government of Pakistan has been a threat to the textile industry.

Agree

50

Strongly agree

20

Disagree

10

11. Pakistan’s bad image portrayed by the international media is affecting the performance of its textile industry or not?

Yes

66

No

8

Don’t know

6

12. Lack of infrastructure is a hindrance in the way of development of the textile industry.

Agree

50

Strongly agree

25

Disagree

5

13. Were WTO policies helpful for the growth of textile industry of Pakistan?

Yes

59

No

7

Don’t know

14

14. Did you believe that development of the Pakistan economy depends largely on its textile sector?

Agree

35

Strongly agree

25

Disagree

20

15. Is the present non-quota regime of WTO greatly in favor of Pakistan’s textile industry?

Yes

60

No

10

Don’t know

10

16. Do you think that Pakistan needs to concentrate more on value addition.

Agree

60

Strongly agree

10

Disagree

10

17. Public-private interaction can prove helpful in enhancing productivity of textile industry.

Agree

60

Strongly agree

12

Disagree

8

18. Can improvement of infrastructure enhance textile productivity, and hence increase economic growth in Pakistan?

Yes

68

No

5

Don’t know

8

19. The abolishment of textile and clothing export quotas is in favor of Pakistan’s textile sector.

Agree

55

Strongly agree

18

Disagree

7

20. Establishment of human resource development centers can help boost textile productivity.

Agree

50

Strongly agree

28

Disagree

2

CHAPTER 5: CONCLUSIONS AND RECOMMENDATIONS:

The following portions have been adapted from the World Bank Report of 2004 titled “fabric and garments strategy Note: suggestions for Pakistan to eliminate fabric and garments sell abroad quotas”

5.1. Policy recommendations:

The policies are given below which we can use in Pakistan’s textile sector.

Improve Productivity level

After the abolition of quota system Pakistan need to focus on the enhance production capacity in textile sector. Pakistan need to focus on the value added items, fashion garments and the final goods. Textile sector is back bone of our country development, so Pakistan needs to focus on this sector which contributes more than half of the GDP. After enhance the production sector capacity Pakistan can easily achieve the challenges of bulk quantity orders on time (mostly from USA).

Improve process Efficiency

Pakistan must concentrate on the production process of textile and increase the efficiency level on that area where cost is relatively higher to compare with others because this higher cost has negative impacts on the growth.

Improve quality of the Product

Quality of the product plays important role in international market, so Pakistan must need to focus on the quality of textile products. After abolition of quota system the competition increased too much between the developing nations to capture the market of USA and EU. Presently the quality is the only key factor through which we can increase our production.

Diversification of the textile Industry

Change is the global phenomena. Pakistan did not focus on the one segment of the textile sector; Pakistan must focus on the other segments like fashion items, denim, ladies bags, towels, baby’s clothes, sweaters and other products. Presently Pakistan only focuses on the men’s knit shirts, bed sheets and hosiery items. Pakistan must diversify his textile sector with passage of time.

Provide Investment Opportunities

Pakistan must focus on the increase the investment opportunities both at national and international level. Following are the major hurdles in Pakistan investment process:

Shortfall of the electricity

Poor administration

Low productivity of the labor

Law and order conditions in Pakistan is very bad, no investment take place in security threat. Pakistan must focus on improve the security conditions.

Increase the infrastructure facilities

If Pakistan solves these key issues the investment in Pakistan increases dramatically.

Promotion of Regional Trade Agreements (RTAs)

Pakistan focuses on the regional trade agreements because presently the global situation of the world wants the regional trade. In regional trade the cost of trade is relatively low to compare with other world. Pakistan must sign the textile trade agreements with regional countries like India, Iran, Afghanistan, china and Arab world. Pakistan sign’s the agreements like SAARC and ECO.

Focus on labor intensive products

Pakistan is the 6th most populous country of the world and the mostly population of Pakistan is unemployed, so the Pakistan must need to focus on the labor intensive sectors. The textile sector of Pakistan is the labor intensive sector and it has the important role in overall employment. Pakistan need to focus on those segments of the textile where more laborers are required like highly fashion items and ladies clothes.

Public-Private Interaction

Public - private interaction is very impotent in every sector. The government of Pakistan should take steps to increase the public - private interaction. The government should facilitate the textile exporters and starts the textile training schools at national level. The government should take steps to starts research and development program in textile sector.

Increase Foreign Direct Investment (FDI)

FDI plan an important role in the development of any country.FDI in textile industry of Pakistan has reached to 4$ billion US during the last four to five years, which has led to improve the productivity of the textile sector, both in terms of quality and quantity. Increase investment generates more than 300,000 new jobs in different segments of textile. However, the volume of investment is not satisfactory as compared with the potential available in Pakistan's Textile Sector. There is urgent need of investment to upgrade the whole system of textile.

Emphasis on Value Added and final products

Pakistan should emphasis on the final goods and value added products. Pakistan is the leading exporter of the yarn, cotton and fabrics but Pakistan should emphasis on the garments, hosiery, knitwear, fashion items, towels and other textile goods. The export of these goods would increase the export volume and the growth rate of the country.

Improve the skills of laborers

Pakistan government should need to focus on the establishment of the labor skill centers. These centers developed the human skills and increase the efficiency. The government should concentrate to increase the numbers of the vocational and technical institutes where advanced education gives to the laborers.

5.1.14. Establishment and certification of Laboratories

After the establishment of WTO the world trade required some certification from different international certified laboratories like ISO, WRAP, etc. These international standard laboratories did not set their office in Pakistan so that Pakistani exporter’s spend lot of her money to get the certification. If WTO and Government of Pakistan try to establish these laboratories in Pakistan then precious foreign exchange can saved.

Cast of doing business is high

Presently the cost of doing business in Pakistan is very high to compare with the regional countries like India, China and Bangladesh, which became the reason that Pakistani products face the high competition in international market. It is feared that if the cost of doing business in Pakistan is not similar with the regional countries then there is no place of Pakistani products in international market. So that Pakistan need to focus on the production cost and quality.

Focus on Man Made Fibers (MMF)

Pakistan need to focus on the manmade fibers (MMF), and gradually increased these fibers in production process. .

In a nutshell, Textile industry of Pakistan is contributing significantly towards economic growth. Development of the textile industry directly related to the development of the economy. The textile sector of Pakistan acts as the backbone of the economy. Enhancement of the textile industry will boost up economic growth in the country. Lack of infrastructure is a hindrance in the way of development of the textile industry. Establishment of human resource development centers can help boost textile productivity. An increase in the productivity of textiles and garments would increase the overall national welfare of Pakistan.

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