One ministry wins, another loses

As the country continues to face a drastic drop in cotton productions for the past 14 years, the policymakers have ignored the Ministry of National Food Security and Research in taking the decision to remove regulatory duty on import of cotton.

The food ministry is committed to safeguarding the interests of farmers, while the Ministry of Commerce is tasked with protecting the textile millers.

The Economic Coordination Committee (ECC) is required to consult the concerned ministries and divisions when taking a policy decision. However, the economic decision making body took a decision to remove regulatory duty on import of cotton while ignoring the food ministry.

During the discussion, the Ministry of National Food Security and Research secretary requested the ECC to grant time for offering views and comments.

However, Commerce Division special secretary responded that the consultative process had already been carried out at the level of tariff policy board with representation of all stakeholders.

The Federal Board of Revenue (FBR) informed the meeting that they had no objection to the proposed removal of regulator duty on cotton yarn keeping in view the anticipated hardships of value added and apparel sector.

Adviser to prime minister on institutional reforms and austerity also supported the proposal as being viable for the textile sector. The ECC chairman stressed that ministries and divisions may invariably finalise the consultation prior to submitting for an informed decision.

The Ministry of Commerce informed that the National Tariff Policy 2019-24 stipulates that all proposals for levy, amendment or removal of tariffs including regulatory duties and custom duties shall be examined at the tariff policy centre and after approval by the tariff policy board (TPB) shall be submitted by the Ministry of Commerce to the cabinet or parliament, as the case may be, for consideration. Textiles and apparel sector occupies a pivotal position in Pakistan’s economy having most intensive backward and forward linkages compared to any other sector.

It contributed approximately 60% in total exports of Pakistan and 40% in industrial employment. Pakistan’s domestic cotton production had been the backbone of textile sector.

However, due to various reasons, the local production was on decline. This year the situation was more serious due to estimated production of 8.5 million bales against the 12 million bales average per year production in the last 14 years. The consumption, on the other hand, has remained around 13.8 million bales annually in the same period. Since the local production of cotton had reduced drastically, the cotton production yarn was also expected to be adversely affected in the county.

Thus, the situation was likely to create problems for the downstream value added segments of textile sector like manufacturers of fabric garments and made ups etc.

The Ministry of Commerce further informed that currently, there was customs duty on the import of cotton in the country; however, cotton yarn was subject to 5% customs duty and 5% regulatory duty. This structure along with shortage of local production of cotton had increased the protection of spinning units (yarn manufacturers) vis- a- vis, the above mentioned downstream manufacturers/value added sector.

It was proposed that 5% regulatory duty may be removed on cotton yarn till June 30, 2021 by which time the situation of cotton yarn vis-a-vis cotton production in the country would again be reviewed. The total revenue impact of the exemption for regulatory duty would be Rs185 million.

The Ministry of Commerce informed that the tariff policy board in its 18th meeting on November 12, 2020 had recommended the removal of regulatory duty on cotton yarn.

Published in The Express Tribune, December 13th, 2020.

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