In the last column, the curious case of Pakistan’s growing raw cotton imports (HS code 5201) in absence of concurrent increase in value-added exports was discussed. Thanks to earnings from woven cotton fabrics, Pakistan maintains its status of net exporter of cotton-based products (HS 52 category). However, further analysis reveals interesting trends in other line items.
While raw cotton trade largely mirrors the troughs and crests of commodity rates in the open market, the once yawning gap between yarn export and import is now closing in. Yarn exports over the past decade have struggled to record any marked improvement, which is often blamed on Vietnam and other East Asian countries capturing Pakistan’s market share.
Locally manufactured yarn is not just losing the popularity contest in the export market; domestic value-added sector is not its biggest fan either. For past decade, various garments, apparels, and readymade textile manufacturing associations have heavily lobbied the government to loosen the duty regime on yarn import, which they say is necessary to keep the textile sector competitive. Value added sector enjoy duty drawbacks on imported yarn (counted as re-exports), thus further disincentivizing domestically manufactured yarn’s market.
However, yarn’s woes are not entirely spinner’s fault. While domestic value-added continue to become more sophisticated, demanding better quality long and extra-long staple cotton, local growers have failed to play catch up. This is also readily captured in Pakistan’s raw cotton export profile, which displays nil export under medium to high length categories, instead listing all exports under the “other” category. If a nation exports premium quality commodity, surely there should be no shame in proudly wearing that badge?
Basic number crunching of PBS’ 8-digit trade data reveals that almost 80 percent of Pakistan’s yarn imports are concentrated in uncombed fiber, which is considered low- to medium quality by global standards. In contrast, more than 70 percent of yarn import is of high-value combed fiber. Sector analysts suggest that this is primarily imported by vertically integrated manufacturers, for use in apparel manufacturing. The incentive structure of the industry is tilted in favor of garment exporters, why should they not make good use of it?
While spinners may be at a structural disadvantage, question remains that despite historically low cotton prices over the past five years and an overvalued rupee, why did country’s raw cotton import remained primarily concentrated in the low staple and medium length category? The downstream sector has high demand for good quality yarn, whether for local consumption or export. Instead of importing premium combed fiber, what keeps the sector from importing long staple cotton to produce high quality yarn locally and service the need of value-added sector.