Pakistan : Filament Yarn Units Winding Business Due To Import Duty

The polyester filament yarn (PFY) industry has been facing crisis since cut in import duty on filament yarn in December 2002 to 20 per cent from 25 per cent , In less than two years about four four manufacturing units of polyester filament yarn (two in Karachi and one each in Punjab and Balochistan) has wind up their business which has resulted into 600-700 job loss and waste of Rs1.5-2 billion in investment. Another five units (including three in Balochistan), involving an investment of Rs2.5-3.0 billion with employees strength of 700 people, are partially closed down and on the verge of permanent closure due to heavy losses. With inclusion of these nine units, there are 19 plants in the country. Imports of polyester filament yarn had increased from the Far East to 35,000 tons in 2001-2002 from 7,000 tons in 1998-1999. The imports were expected to touch 42,000 tons by the end of 2002-2003 as it had already reached to 35,000 tons in July-March 2002-2003. Over the years, Koreans, Taiwanese, Malaysians, Indonesians had expanded their supplies to China but now China has expanded tremendously forcing the Far Eastern countries to dump their products elsewhere. The officials said importers in Pakistan had further compounded the problem for the local industry by under- invoicing and dumping, nullifying the impact of import duty. The officials said that the 2003-2004 budget proved a sheer disappointment for the PFY manufacturers as the government had not provided any relief to the local manufacturers. No reduction has been made in the duty of PTA (pure terephthalic acid) and MEG (mono ethelene glycone), raw materials of the polyester filament yarn industry, in the new budget. In addition to that, they said, they were expecting an increase in import duty on polyester filament yarn to 25 per cent from 20 per cent, but no decision had been taken in this regard. The consumption of polyester filament yarn in the country has, however, grown from 85,000 tons (four years ago) to around 120,000 tons today. Domestic production of polyester filament yarn industry has hovered between 75,000-83,000 tons per year in the last three years. However, local production may come down this year due to closure of units. Officials said the cut in import duty on polyester filament yarn results in annual revenue loss of Rs161 million while on the other hand, higher filament yarn import means that at 40,000 tons per year import, the country is spending $48 million extra foreign exchange (compared to the situation if this 40,000 tons was produced locally with capacity which is already available). Officials were of the view that cut in import duty on raw materials like PTA was not possible as long as import duty on PTA had been frozen at 15 per cent due to sovereign guarantees by government of Pakistan to ICI. Besides, the cut in import duty on polyester filament yarn was done in December 2002 on the excuse that the polyester weaving industry had been shrinking which was a wrong representation since use of polyester filament yarn and imports had increased. In 2003-2004, the government had relied on the private sector as a driver of its economic growth and investment to the GDP ratio is targeted at 16.8 per cent. Various ministries had been repeatedly exhorting the industrialists to redouble their efforts and participate in investment acceleration drive. The official in a polyester yarn industry said that there had been no major breakthrough in investment. One of the main reasons is that margin in manufacturing sector has substantially been eroded following cut in customs tariff and inflow of smuggled goods. Many leaders in manufacturing sector suggest that the 2003-2004 budget has not addressed these issues.