ISLAMABAD: India has been a major beneficiary of duty-free import of cotton yarn by Pakistan for about four years, which has badly hit the domestic industry and agricultural sector of the country, even though Islamabad has not yet granted Delhi the most-favoured nation (MFN) status.
The Federal Board of Revenue (FBR) exempted cotton yarn imports from 5% customs duty by issuing an SRO in 2010 on the recommendation of the Ministry of Textile Industry and after approval of the Cabinet Committee on Textile, chaired by then finance minister Shaukat Tarin.
According to sources, the issue came up for discussion in a meeting of the Economic Coordination Committee (ECC) of the cabinet on April 17 this year.
Meeting participants said the demand and supply situation stabilised a few months after the removal of customs duty as new cotton crop hit the market. Regulatory duty and quota regime on yarn exports were abolished, but the SRO about scrapping of customs duty was not withdrawn.
Citing examples, they told the ECC that though applied MFN rate on cotton yarn remained zero in Pakistan, in India and China it was 10% and 5% respectively.
They also quoted recent data, pointing out that import of cotton yarn was increasing rapidly and the yarn industry of Pakistan had started feeling the heat of the extraordinarily liberal tariff regime.
The increase in imports mainly came from India that was providing huge subsidies in the form of duty drawback, interest rate concessions and infrastructure schemes for its cotton yarn industry.
The ECC was informed that the recommendation for duty removal was made in 2009-10 to ease pressure on the yarn demand and supply situation for the domestic downstream industry since prices of cotton and its downstream products had skyrocketed in the international market, resulting in increased export of cotton yarn from Pakistan.
The decision was taken as a short-term measure in a bid to provide relief to the downstream industry by reducing the cost of import and applying quotas on yarn export from the country.
The Ministry of Textile Industry recommended that the old 5% customs duty on cotton yarn import could be restored now. The ECC agreed and after deliberations approved the proposal.
An industrialist associated with the cotton ginning sector told The Express Tribune that the exemption from customs duty had hit the domestic industry hard as it drove down demand for local cotton and pushed lower prices paid to farmers.
“The benefits came only at the cost of domestic industry and poor farmers. Indian exporters also took advantage of the situation and got rebate from their government as well,” he said.
Published in The Express Tribune, April 26th, 2014.
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