Implications of Liberalizing Trade and Investment with India - Industry Specific Opportunities and Threats

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INDUSTRY SPECIFIC OPPORTUNITIES     AND THREATS  

This chapter elaborates the opportunities and threats in some important sectors in Pakistan which are likely to emerge by the opening up of trade between the two countries. These sectors include: Textiles and Clothing, Iron and Steel, Chemicals and Pharmaceuticals, Automobiles, Small and Medium-sized Enterprises and Information Technology.

Textiles and Clothing
The textile and apparel sector continues to be the driving force for economic growth in both India and Pakistan. The textile and apparel sector in these countries accounts for a significant portion of traded goods, contributing 18.8 percent in India and 65.6 percent in Pakistan, of the total value of exports in FY04. Both these countries are highly dependent on the sector for creation of employment opportunities and export earnings. The dismantling of the quota regime represents both an opportunity as well as a threat: an opportunity because markets will no longer be restricted; a threat because markets will no longer be guaranteed by quotas and even the domestic market will be open to competition. Presently trade in textile and clothing between India and Pakistan is almost nonexistent. Pakistan’s total imports of textile and clothing in FY04 stood at $65.3 million (of which 85.6 percent was raw cotton imports), while exports to India stood at a dismal $11.1 million despite the grant of MFN status to Pakistan by India. It is generally apprehended in Pakistan that Indian textile products are cheaper than Pakistani products and hence will flood the domestic market once India is granted MFN status. In both India and Pakistan, the textile and apparel sectors exhibit different degrees of specialization. While firms in Pakistan are specialized in cotton textile intermediate goods (yarn and grey fabric), as well as towels and bed linen, firms in India have developed a highly complex sector covering the entire value and production chain from fibre production to garment manufacture and packaging. Firms in these two countries generally are not vertically integrated, and are, for the most part, independent, privately owned small and medium sized firms. However, several firms in the textile sector have become vertically integrated in recent years. For example, Pakistani bed linen manufacturers are large, integrated units that continue to upgrade capacity with new machines when needed. India has inherent strengths in terms of a strong multi-fibre raw material base, low cost of labor, intellectual capital, and dynamic entrepreneurship. In a recent study

Industry Specific Opportunities and Threats

published by USITC,39 India is regarded as a major alternative source to China once quotas are removed for apparel and made-up textile products. The study further stipulates, “Retailers and apparel suppliers acknowledged that India is likely to remain competitive after quota removal because of its large, relatively low cost labor force, a large domestic supply of fabrics, and the industry’s ability to manufacture a wide range of products. Retailers describe Indian firms as innovative, particularly in design functions.” International brands already present in the market include Benetton, Lacoste, Levi Strauss, Crocodile, Dockers, Lee, Wrangler, Nike, Reebok, Adidas, Zegna, Marks & Spencer, etc. On the other hand, Pakistan is termed as a supplier of limited range of products. However, it is considered a competitive supplier of cotton goods, particularly men’s apparel, home textiles, and fabrics. Composition of Cash Costs in Apparel and Textile An international comparison of the Production (%) cost structure of the textile sector Pakistan India undertaken by the Zurich-based Apparel Textiles Apparel Textiles International Textile Manufacturers’ Materials 56.1 82.4 47.8 39.3 Federation (ITMF) reveals that India's Electricity 3.5 3.9 0.9 6.4 production costs are among the highest Other energy 0.9 0.9 0.9 5.6 in the world...
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