Brexit and Pakistan’s textile

Business Recorder (BR) Research

Earlier this week, this column discussed the possible impact of the Brexit on Pakistani exports, with textile being mentioned as the main casualty (Read “Brexit and Pakistani trade,” published June 29, 2016). The latest news was also in congruence with the discussion, as the Commerce Ministry touted similar reasons as a warning for declining exports in the coming years. Today’s discussion takes an in-depth look at Pakistan’s textile exports to the UK to see which segments would be most vulnerable.

First, a little preamble: In international trade, Textile falls under Section XII, listed into fourteen HS codes (HS50-63). For Pakistan, just four of these amount to around 94 percent of total textile exports. These are: Cotton (HS52-); Articles of apparel and clothing accessories, knitted or crocheted (HS61-); Articles of apparel and clothing accessories, not knitted or crocheted (HS62-); and Other made up textile articles (HS63-). So, we can safely use these four categories as a measure of total textile exports. We are unconcerned with silk or wool or carpets etc. as they amount to just six percent of our textile trade.

Currently, textile makes up 76 percent of our total $1.6 billion exports to the UK. However, this wasn’t always the case, as textiles share as a percentage of exports has increased from 69 percent in FY12, vis-a-vis a huge jump in total exports in FY 14. This can be attributed to the GSP Plus deal. The graph shows how the growth rates of the textile categories, otherwise moribund, received a shot in the arm in FY14. Still, it’s not nearly enough to say that Pakistan capitalized on the opportunity. Largely, the industry’s consensus is that the GSP Plus opportunity has been wasted due to load shedding, high cost of doing business, and unfavorable exchange rate.

Our most prized export to the UK has been from the HS63 category, with consistent rapid growth each year. By and large, the exports under this HS code to the UK are made up of linen for beds, tables, kitchens, and toilets. The least-performing segment has been HS52, which is mostly made up of cotton and different varieties of cotton fabrics. Clearly, the UK is

more interested in the value-added products that we have to offer – bed wear, shirts, suits, hosiery, etc. The exports to the UK make up 15 percent, 12 percent, and 14 percent of all our exports in the HS61, HS62, and HS63 categories, respectively. Suffice to say, its an important market for our value-added textile industry.

However, while the UK happens to be an integral market for us, our market capture of the UK is anything. But the fifth-largest importer in the world, UK imported some $36 billion worth of textiles in 2014, of which Pakistans share was just three percent, vis-a-vis China’s 27 percent, India’s seven percent, and Turkeys eight percent share. These are our main competitors in the region, and they too will be feeling the pinch; with the Brexit and the subsequent free-fall of the currency, there will be pressure on the UK imports. Our value-added textile industry is likely to suffer in the near term, regardless of the FTA negotiations, due to the currency impact alone.

First published: July 1, 2016.