TEXTILE NEWS 09-05-2010 AND 10-05-2010

Listless trading on cotton market

By Our Staff Reporter
Sunday, 09 May, 2010

KARACHI, May 8: The cotton market finished the weekend session on a cheerless note on Saturday as the battle of wits between the ginners and the spinners over the selling prices continued for the second week in a row.

Spinners and mills are now eyeing the new crop as sowing is in full swing in the entire cotton belt amid hopes that the officially certified Bt seeds of the US and the China origin may further boost production figure, some analysts said.

They said the successful cultivation of Bt varieties had doubled the total Sindh crop to well over 4m bales this year from an average of 2.5 million bales in the previous seasons.

The government has approved nine Bt varieties for sowing this season and final choice would be made for the next year after having the new crop production data in various areas, market source said.

They said release of water though a bit late in the irrigation system seemed to have accelerated the pace of new crop sowing in the entire cotton belt.

Floor brokers said ginners holding a modest unsold stock of about 50,000 bales were little worried and selling only those lots which ensured higher profit margins.

"The deadline of June 30 is still far away", said a ginner and added "the extension of bank overdraft limits for the new cotton season may not be a problem".

Although phutti prices during the current season soared to a new all-time high of Rs2,650 per 40 kg, the ginners were said to be in a strong financial positions after having sold their lint from Rs3,300 to Rs6,800 per maund.

The New York cotton futures came in for active short-covering below the 80 cents per mark and ended recovered by 0.86 and 0.24 cents for both the maturing May and July at 80.71 and 78.30 cents per lb.

But on the other hand there was no change in the local official rates which remained pegged at the last level of Rs6,700 per maund.

In the ready section, only deal of 200 bales from Burewala was reported at Rs6,800 per maund.

 

 

Action against defaulters: World Bank suggests automatic imposition of penalty electronically
RECORDER REPORT

ISLAMABAD (May 09 2010): World Bank (WB) review mission has recommended to the Federal Board of Revenue (FBR) to introduce a provision in the Income Tax Ordinance 2001 in the coming budget for 2010-11 to impose fines/penalties and default surcharge on taxpayers automatically through electronic system, and minimising discretionary powers of the tax officials.

Sources told Business Recorder here on Saturday that the WB review mission had made this recommendation in a recent report on Tax Administration Reform Project (TARP) submitted to the Federal Board of Revenue. According to the WB report, the overall collection of income tax arrears had improved during current fiscal year through enforcement of the Arrears Recovery Plan in the field formations.

For example, total arrears declined by 14 percent and the number of taxpayers in arrears also declined by 13 percent during July-February 2009-10. This is an important achievement, although it is expected that with the reactivation of the audits, the amount of arrears will increase considerably.

The WB recommended to FBR to analyse reasons for high ratio of non-filers in Regional Tax Offices (RTOs) and Large Taxpayer Units (LTUs) and directed the field formations for strict action against the non-filers. Secondly, the FBR should take away discretion of the tax officials in the application of fines, penalties and default surcharge on the registered taxpayers. The FBR should introduce relevant legislation in the tax laws to allow application of fines and default tax automatically by the information technology (IT) system without human intervention.

"In addition to prioritising enforcement effects on non-filers, amending legislation to allow automatic application of fines (penalties) and default surcharge (additional tax) on non-filers would be recommended. It is further recommended that the FBR propose in the budget 2010-11 that default surcharge and fines be applied automatically by the computer system". WB review mission observed.

In order to facilitate tax compliance, the FBR should allow computer systems to issue intimations to have the same legal effect as those notices which are duly signed by the tax officials. Under this amendment in the tax law, the notices served electronically would have same legal backing as available to the notices manually signed by the tax officials.

In the presence of the electronic system issuing intimations to the taxpayers, the staff would be free to focus on high priority areas ie to pursue non-filers for recovery of the defaulted amount. Thirdly, the FBR should place a system to categorise taxpayers to take action against major non-filers involving huge defaulted amount.

The WB said that the FBR has rich store of data about its taxpayers, which could be used to produce management information to support enforcement decisions. In this regard, the report on the categorisation of non-filers is an example to be followed. Similar reports could be issued monthly by Pakistan Revenue Automation Limited (PRAL), and IT arm of the FBR, to help LTUs and RTOs to focus on most important cases having huge potential.

The management reports on the time to issue refund cheques as well as the balance of unpaid refunds by LTUs/RTOs should be monthly to help improve refund processing. The WB has recommended to the FBR to provide management with a monthly report on non-filing based on categorisation of taxpayers. LTUs/RTOs should provide a monthly report on the balance of unpaid sales tax refunds by the LTUs/RTOs. Moreover, LTUs/RTOs should also separately submit monthly report to issue refund cheques to the registered units.

Copyright Business Recorder, 2010

 

 

VAT implementation
MOHAMMED ASHRAF

ARTICLE (May 09 2010): VAT or GST in VAT mode is normally implemented either in robust or sustained economies, but fortunately or unfortunately Pakistan is in economic laboratory of the IMF which is in a process of experimenting about the fact that what will going to happen if the VAT is implemented in a country passing through recessionary period as experienced around the globe!

It is about to be experienced in a country, riddled with economic turmoil, shrinking size of economy, severe internal political problems and chaos among its provinces over the distribution even after NFC award. This is not merely a personal opinion, but is evidenced from international press - Washington Post (Lori Montgomery) whereby the emphatic rejection by both parties in recent days of a value-added tax, a sales tax, imposed by nearly every other developed nation.

After a White House economic advisor was reported speaking semi-favourably about a VAT, the White House this week vigorously denied that President Obama is looking to include the tax in his deficit-cutting arsenal. "This is not something the president has proposed, nor is it under consideration," White House press secretary Robert Gibbs told reporters. The VAT isn't the only potential budget solution drawing fire. Republicans howled about cuts to medicare in the recent healthcare overhaul, and no one in Washington wants to raise taxes on the 98 percent of taxpayers whom the White House has defined as the middle class.

Anyway, VAT/GST has increasingly become steadily more important as a source of revenue around the globe. In Mexico and Turkey, it contributes around 50% of the government revenues. This seems to be a trend but a cautious one, and some commentators have asked why the governments don't rely even more heavily on indirect tax revenues and introduction of VAT law in Pakistan may be the answer irrespective of recessionary economy! But another answer is that higher indirect taxes are politically difficult to introduce as taxpayer often question the benefits of paying taxes.

The link between higher indirect taxes and higher prices is obvious to anyone who buys goods and services, but the link between lower corporate tax rates and increased inward investment often results in increased employment and infrastructure development, which is less well understood by robust or sustained economies instead of recessionary one! This article is endeavouring to assess the ground realities pertaining to implementation of a comprehensive value-added tax.

VAT AND REDUCED DIRECT TAX RATES Indirect taxes seem to be playing in the revenue-gathering strategies of many countries around the globe and plan to introduce the VAT in Pakistan is no exception. It may be correct that this is a world-wide trend, but there is a clear tendency in competition to attract and keep inward investment, to reduce their corporate tax rates and seek to make up the shortfall with increases in indirect taxes. This is rather than relying solely on growth brought about by corporate investment to expand the tax base.

These tactics suggest that as well as attracting new investment, retaining current investment is a success in itself. In November 2006, Lee Hsien, the Prime Minister of Singapore, while speaking to the parliament said, "if we have to bring our corporate tax down, every percentage point we bring it down will cost us $400 million a year. It is big money. Therefore, we need to consider raising indirect taxes, in other words, the Goods and Services Tax. It is now five percent; I think we need to push it up to seven percent. Even seven percent will still lower than nearly all other countries, which have GST or VAT. But if we raise it from five percent to seven percent, it will give us precious extra resources to implement social programmes."

This is exactly what the Singapore government did in its 2007 budget, announcing a two percent cut in corporate tax rates to 18 percent from next year and an increase in GST to seven percent. There seems to be a clear deviation from this principle in Pakistan's VAT introduction fiscal policy.

This nexus of introduction of VAT, coupled with reduced tax rate, is not based on any myth but on realities. For taxpayers, introduction of VAT has immediate consequences (discussed below). One of the advantages of the VAT over direct profits tax is that they supply a steady flow of funds throughout the year, rather than lump sums at widely spaced intervals evidenced in direct taxes.

This present government failed to chalk out any strategy to communicate the benefit of a 'low direct tax strategy combined with principled VAT regime. It may well be in the long-term interests of a country to follow this path, but the voters may need persuading of the benefits of paying today for better economy tomorrow.

VAT COLLECTION: FEDERATION OR PROVINCES Prior to entering into the debate of the VAT collection in Pakistan, one must look at the European Union experience. Work is under way to reform the basic structure of the tax in certain areas, such as those determining which the EU jurisdiction is entitled to the VAT being collected at present. Much of the legislative debate has been focused on how to alter the system to better reflect taxation where consumption actually occurs, principally for services that can be supplied at a distance like e-commerce, telecommunication etc.

The outcome of any new legislation in this area in the EU will see a shift of the VAT revenue from one country to another principally from low rate countries to high rate countries. And no mention of the EU VAT modernisation issues would be complete without a reference to the need to tackle the carousel/missing trader fraud issue, which is costing the EU governments very large sums in lost revenue. This drove urgent legislative change across the EU.

The issues faced by the EU are not alien to Pakistan, but will surface soon! For instance, if a person is registered as service provider in Khyber-Pakhtoonkhwa and delivers the service in Punjab on the instruction of a person registered in Sindh, then where will the input and output be paid and claimed. This and other similar peculiar issues will crop up!

Further one school of thought is of the opinion that if the provinces are finding it difficult to share, then wouldn't that also be difficult for the federation to allow input of services VAT adjustment against output of goods and federal services! Moreover, if the provincial VAT will be collected by the provinces themselves, then this may tantamount to increasing the compliance cost by the businesses which are already overburdened with 47 compliance's a year according to the World Bank survey conducted by PwC but actually they are around 58 if labour law compliance's are included.

VAT OR GST BY PROVINCES The VAT is meant for allowing credit on expenses and purchases, but it seems that even after the NFC award, the provinces are struggling for additional revenue owing to trust deficit. These issues were raised by a local expert in the VAT conference held by the FBR in Islamabad, but was not made part of the recommendation of Dr Hafeez Pasha's report.

The ground reality of operation of taxpayers is that some of the companies registered offices are located either in Sindh, Punjab or Islamabad irrespective of the fact that their operations may be carried out in Khyber-Pakhtoonkhwa or Balochistan. Consequently, the registration domain either at registered address or operational place is the key question when the provinces come to know about their actual share.

Further, continuing with the example in previous paragraphs above, if a person is registered as service provider in Khyber-Pakhtoonkhwa and delivers the service in Punjab on the instruction of a person registered in Sindh then where will the input and output be paid and claimed.

In case, if it is decided that this situation will be avoided by slapping 15% on output of services in the province, as suggested by Kaiser Bengali in the ACCA per-budget discussion, where the service provider is registered and without allowing any input either in Punjab or Sindh, then would such fixed rate cost be acceptable to businesses or could anyone call it VAT!

The Dayton Accord (2001) of Bosnia proved disastrous and they had to revert to central government. Bird and Abel (2007) study also concluded that transferring the right to the federating unit is preferable when regional units either do not have the capacity or are in a process to build the same.

RATE OF VAT The hottest debate in town is about the rate of the VAT on essential and non-essential items. As stated above, the link between higher indirect taxes and higher prices is obvious to anyone who buys goods and services. However, the approach of all Pakistan Tax Bar Association Abdul Qadir at the pre budget proposal meeting called by the chairman of the KCCI Budget and Tax Committee Qamar is more rational, which require a scientific study. The FBR chairman has also already hinted for a rate ranging between 5 to 7%. The impact can be under stood through following comparative chart.

========================================================================= COMPOSITE RATE ========================================================================= Amount VAT ========================================================================= Sale 5% 1,000,000.00 (50,000.00) Cost of Good Sold (COGS) 15% (700,000.00) 105,000.00 Other Admissible Expenses Input 15% (100,000.00) 15,000.00 VAT - (Payable) / Refundable 70,000.00 ------------------------------------------------------------------------- SINGLE RATE TILL COGS ------------------------------------------------------------------------- Amount VAT ------------------------------------------------------------------------- Sale 5% 1,000,000.00 (50,000.00) Cost of Good Sold 5% (700,000.00) 35,000.00 Other Admissible Expenses Input 15% (100,000.00) 15,000.00 VAT - (Payable) / Refundable - ------------------------------------------------------------------------- SINGLE RATE FOR SUPPLY CHAIN ------------------------------------------------------------------------- Amount VAT ------------------------------------------------------------------------- Sale 5% 1,000,000.00 (50,000.00) Cost of Good Sold 5% (700,000.00) 35,000.00 Other Admissible Expenses Input 5% (100,000.00) 5,000.00 VAT - (Payable) / Refundable (10,000.00) =========================================================================
As evident from composite rate table above, multiple rates for essential items will be deteriorating. This process would result in unnecessarily blockage of funds of businesses in the shape of refunds, meaning thereby cost of funds to businesses, which will further increase the inflation. Similar results will also be evidenced where single rates are restricted to the cost of goods sold. The ultimate solution is that the whole supply chain rates of essential items should be extended to business involved in essential items supply chain.

VAT AND TAXPAYERS ACCOUNTING SYSTEM For taxpayers, introduction of the VAT has immediate consequences. One of the advantages of the VAT over direct profits tax is that they supply a steady flow of funds throughout the year, rather than lump sums at widely spaced intervals evidenced in direct taxes.

To deliver this benefit, taxpayers, in their capacities as tax collectors, have to have accounting systems that can provide accurate real time information on transactions and the associated tax liability.

Keeping the systems up to date with tax authorities' information requirement is a major cost and resource issue for the business sector. As indirect taxes become more important to governments, so regulators are intensifying their scrutiny of business tax systems to satisfy themselves that tax revenues are not at risk.

Further, till today, the FBR failed to issue the rules relating to registration, deregistration, filing of return, declaration, summaries, statements, record keeping, accounts, related documentation, tax invoices, credit and debit notes, refunds, prepayments, audit, alternate dispute resolution, charging of fee for processing of documentation and official acts, recovery of arrears, including compounding of offence and appointment and management of e-intermediaries then how could it expect from businesses to cope with new law fortnightly.

VAT LIABILITY CONCEPT The determination of the VAT liability revolves around some important terms like input, output, adjustment (increasing and decreasing) for creditable purpose and second hand goods. Like Sales Tax Act, 1990, the VAT liability is also determined deducting the input from output. The liability may either be increased or decreased by any of the following adjustments.

(1) Cancellation of supply (2) alteration in consideration for supply (3) return of supply (4) fundamental variation in the nature of taxable supply (5) bad debt (6) goods applied for a private purpose (7) registration or cancellation thereof (8) change of rates (9) advance payment of tax at import stage (10) withholding by government and large taxpayers.

Taxpayers are cautioned that the concepts of progressive/periodic and ancillary/incidental supplies are of utmost importance and would have significant implications on supplies under contractual agreement and normal supplies.

INADMISSIBLE AND DEFERRED VAT INPUT: Unlike the Sales Tax Act, 1990, the list of inadmissible input is exhaustive, that is, input of reverse charge, purchase or import of passenger vehicle or its spare parts or repair thereof, entertainment expense and membership of club etc. Further, taxpayers will be treated to have incurred input tax (deferred VAT input) at the time of sale of second hand taxable goods.

VAT AUDIT AND ASSOCIATED PERSON: The suggested legislation prescribes various types of audit like routine, normal, forensic etc but when, how and under what circumstances it will be conducted was absent suggested by Senators Haroon and Professor Khursheed Ahmed. Further, they also rightly pointed out about the application of the concept of open market price and its implication over associated persons.

GROSSING UP: The concept of grossing up of transaction for the VAT is included in the law where the tax is borne by a taxpayer. Surprisingly, the formula of grossing up does not exclude withholding income tax. Consequently, the vicious cycle of grossing up computation would never end. The relevant provisions require afresh thought!

LEGAL DEFICIENCIES: There seems to some conceptual drafting and typographical errors in the federal law. For instance, federal list services include carriage of goods or passengers, but in the presence of FED and other indirect taxes, it would be cumbersome for end consumers to bear the cost.

Further, the VAT law seems to be a deviation from policy of registration of taxpayers as it intends to give a separate registration number instead of relying over taxpayer registration number [formerly NTN] issued under the Income Tax Ordinance, 2001.

Moreover, the concept of Federal VAT services is missing in provisions relating to imposition of tax, person liable to pay tax, value of supply and time of supply. Further, it is beyond imagination to understand the rationale why the concept of exempt and zero-rated supply was not incorporated in ancillary or incidental supplies.

In more furtherance, there seems to be a gross conceptual drafting error in Sub-Section (3) of Section 18. The number 332 used in Section 24(4)(d) should be corrected to 32 while clause (e) and (f) should be shuffled up to give the section numbering effect. Further, the Rs 1,000 limit set is refund and carry-forward sections is too low.

CONCLUSION The Dayton Accord (2001) of Bosnia proved disastrous and they had to revert to central government. Bird and Abel (2007) also concluded that transferring the right to the federating unit is preferable when the regional units either do not have the capacity or trying to build the same. The EU has not yet concluded on distribution of taxes! Consequently, the centralised dual VAT system of Germany where revenue is shared with the state is the best system (TAT 1988).

For or taxpayers, introduction of the VAT has immediate consequences. To deliver this benefit, the taxpayers, in their capacities as tax collectors, have to have accounting systems that can provide accurate real time information on transactions and the associated tax liability. Keeping the systems up to date with tax authorities' information requirement is a major cost and resource issue for the business sector.

As indirect taxes become more important to the governments, so regulators are intensifying their scrutiny of business tax systems to satisfy themselves that the tax revenues are not at risk. Contrary to this, the FBR failed to issue the necessary rules, then how could it expect from businesses to cope with new law fortnightly.

Multiple rates for essential items will be deteriorating as this would result in unnecessarily blockage of funds of businesses in the shape of refunds meaning thereby cost of funds to businesses, which will further increase the inflation. The ultimate solution is that the whole supply chain rates of essential items should be extended to business involved in essential items supply chain.

One school of thought is of the opinion that if the provinces are finding it difficult to share the services the VAT then wouldn't that also be difficult for the federation to allow input of services VAT adjustment against output of goods and federal services!

The ground reality of operation of taxpayers is that some of the companies registered offices are located either in Sindh, Punjab or Islamabad irrespective of the fact that their operations may be carried out in Khyber-Pakhtoonkhwa or Balochistan. Consequently, the registration domain either at registered address or operational place is the key question when the provinces come to know about their actual share. In case the provinces decides that they will slap 15% on output of services where the service provider is registered and will not allow any input, then would such fixed rate cost be acceptable to businesses or could anyone call it VAT!

This present government failed to chalk out any strategy to communicate the benefit of a low direct tax strategy combined with principle based VAT regime. It may well be in the long-term interests of a country to follow this path and respective assemblies may need to reconsider this instead of passing the bill in haste, but the voters may need persuading of the benefits of paying today for better economy tomorrow:

(The writer is Chairman, ACCA Budget and Tax Committee [South], member of Karachi Chamber of Commerce and Industry's Tax Committee and member Executive Committee of Professional Accountants Forum) (taxonomy.ashraf@gmail.com)

Copyright Business Recorder, 2010

 

 

Inflationary target seen rising to 14.58pc in FY10: survey

Sunday, May 09, 2010

By By Mehtab Haider ISLAMABAD: Majority of the people expect that the inflation would rise to 14.58 percent in the current fiscal 2009/10 (July-June) against the government's annual inflationary target of 9 per cent, said a quarterly survey conducted by Pakistan Institute of Development Economics. The survey has been based on the opinion of professionals, an analysis of the state of the economy and the monetary policy action. The survey says that nearly 90 per cent respondents expect inflation to be around 14.58 per cent during the current year ñ much lower than previous year's 22 per cent, but higher than the government's single-digit target. Only five per cent were of the view that the inflation would be lower and six per cent said that it would remain the same. The survey results indicate that oil and food prices remain the major contributing factors for the double digit inflation. The respondents indicate that on an average 14.39 per cent is the expected rate of inflation for the next month, 15.79 per cent for the next six months and 14.58 per cent for the current year. In response to a question regarding the nature of inflation, 28.4 per cent respondents said that it was cost-push, 10.6 per cent called it demand-pull. However, 53.2 per cent believe that rise in inflation was due to a combination of factors including demand-pull and cost-push as well as structural factors. Only 19 per cent suggest that the fiscal policy remains the most important tool for price stability. These findings are consistent with the findings of the previous two surveys, which reflected the strong opinion of the experts about coordination of the fiscal and monetary policies to control inflation. According to 28.4 per cent of the respondents, oil prices are the main contributing factor to high inflation, followed by food prices (26.3 per cent). In addition to oil and food prices, other factors contributing to inflation remain utility prices, money supply and global financial crisis. As far as question regarding the consumer prices in the next year, 55.6 per cent think that consumer prices would rise more rapidly, 23.9 per cent said it would increase at the same rate, while 2.1 per cent think that consumer prices would remain unchanged in fiscal 2010/11. In view of 89.4 per cent respondents, the law and order situation affects inflation expectations, while 7.7 per cent said it had no impact. Majority of the respondents (63.6 per cent) suggest that coordination between the monetary and fiscal policy were necessary to control inflation. According to the survey, 67 per cent respondents suggest that low-interest rate were better for the economy, while 14.8 per cent said that in the current inflationary situation high interest rate remained a better option. In response to a question regarding expectations about exchange rate for the next month and the next six months, a large group (49.3 per cent) of respondents expects that the local currency will depreciate in the coming month and 30.3 per cent think that the value of the rupee would remain the same. Around 50 per cent of the respondents said that the government policies remain insufficient to boost growth, 10.4 per cent saw these policies as useful, while the remaining failed to give opinion on this issue, the survey said. Regarding the issue of unemployment, 58.7 per cent of the respondents think that it would increase in the next six months, while 63 per cent predicted its increase over the next one year.

 

 

KCA urges govt to reopen cotton hedge trading

Sunday, May 09, 2010

By By Gohar Ali Khan KARACHI: The Karachi Cotton Association has urged the government to reopen cotton hedge trading, ensure continuity of free market mechanism and initiate steps for an increase in cotton production to meet the country's growing demand. "In the New York cotton market, hedge trading resulted in an increase in cotton price and, at present, it is hovering around 90 cents per pound against 60 cents during July last year," Sohail Naseem, Chairman, Karachi Cotton Association told The News on Saturday. "In Pakistan, no government has so far resumed futures trading after nationalisation of ginning factories and establishment of Cotton Export Corporation of Pakistan in the public sector," he said. The hedge trading in cotton, which started at KCA in 1934, was suspended by an administrative order of the government in 1976. Despite repeated demands from traders, the successive governments have failed to resume it. Naseem said that domestic prices skyrocketed to over Rs6,700 in recent days from around Rs3,500 per maund (37.324kg) in July last year. One key reason for this price hike remains traders' inability to hedge positions, he said. Highlighting the advantages of hedge trading, the KCA chairman said that it is only a mechanism to stabilise cotton prices, end speculation and benefit all the stakeholders, especially growers who face worst problems. The KCA brokers told The News that they have urged Federal Textile Minister Rana Farooq to help resolve the problems by initiating hedge trading in cotton. There are around 320 licensed cotton brokers and the government should take measures to facilitate them, they said. "Meaningful steps should be taken to reopen cotton futures market, which will benefit the KCA brokers and create job opportunities," said Abdul Qadir Ajmeri, Member Advisory Committee, Karachi Cotton Brokers Forum. Referring to the issue of cotton production, Naseem said that the KCA had been asking the government to increase cotton production by using Bt-cottonseed in 2001. But a decision in this regard had been dragged for years, he said. "India used to produce 10 million bales annually, but now its output has tripled to around 30-32 million bales during the last couple of years. It has started exporting raw cotton, whereas Pakistan is still importing the commodity to fulfill a shortfall of three million bales," he said. Naseem said that the federal cabinet of 2005 had asked the then Commerce Minister Humayun Akhtar Khan to reopen cotton futures market, but the decision was held in abeyance. At present, the Textile Ministry got the permission, but still, it is not being initiated, he said. The KCA retains a transparent mechanism of fixation of daily spot rates, which reduces speculative trade and credit risk, the cotton association chairman said. The board of the Karachi Cotton Association consists of 17 directors, of which the government appoints four directors unelected from various ministries, including finance, agriculture and commerce, he said. The textile sector is exempted from duties, Naseem said, adding that if the government wants to impose value-added tax then it should be zero-rated because 90 per cent of the cotton products are exported in the shape of yarn, towel, bed-sheets and garments. He said no ban should be imposed on any kind of exports as it makes a negative impact on the economy.

 

 

Cotton market remains listless, buyers remain on sidelines

Sunday, May 09, 2010

By By our correspondent KARACHI: Buyers remained on the sidelines because of high prices as trading on the local cotton market stayed listless, brokers at the Karachi Cotton Exchange said on Saturday. They said 200 bales of Burewala were sold at Rs6,800 and the spot rates of the Karachi Cotton Association (KCA) remained unchanged at Rs6,700 per maund and Rs7,180 per 40kg for an average quality lint. The New York cotton market regained 0.86 and 0.24 cents per pound at 80.71 and 78.30 cents. Naseem Usman, a leading broker, told The News that the mill-owners and spinners were not keen to buy raw cotton during the last week, and that is why, prices of the commodity fell by Rs200 per maund, surpassing an all-time high of Rs6,950. In Sindh and Punjab, prices ranged between Rs6,500 and Rs6,700. During the last week, a meeting was held between All Pakistan Textile Mills Association (APTMA) and the value-added sector to address the issues of yarn export quota, he said. However, buyers are saying that the ginners have sufficient stocks and they are waiting for further price hike. Representatives of the value-added sector said that they would go on strike from May 11 if their demand to impose a ban on the raw cotton and cotton yarn exports was not met. Usman said that the government has set a target of 14.0 million cotton bales in the upcoming year, which would start in the end of June.

 

Special window for trade: GSP Plus criteria

Pakistan to seek relief from European Union Sunday, May 09, 2010 By Khalid Mustafa ISLAMABAD: Pakistan plans to either seek relaxation in the Generalised System of Preferences (GSP) plus criteria or special war window for trade from European countries to increase exports so that it could cope with the huge loss incurred due to the ongoing war against terrorism, The News learnt on Saturday. "Islamabad wanted to place these demands during the Pak-EU summit due in late April, but it was postponed because of the Iceland Volcano, owing to which the flights to Europe were cancelled," a source in the Commerce Ministry said. Now whenever the summit takes place, Prime Minister Yousuf Raza Gilani would seek trade with EU under relaxed GSP Plus criteria or special window from Pakistan to increase its exports to the 28 countries bloc. Pakistan is at war with militants just to ensure the peace of entire world, particularly the United States. Pakistan has sustained massive loss of $45 billion to its economy in the wake of the ongoing war against militants and its backlash on the country's peace and economic development other than the lives of Pak armed forces and civilian causalities, the sources said. The cost of the humanitarian crisis spawned by the conflict has been the displacement of over three million people, at its peak, resulting in the budgetary outlay of $600 million for the current fiscal year alone for relief and rehabilitation of internal displaced persons, they said. The direct and indirect costs associated with being the frontline state in the war on terror have been, in sum, severe, widespread and in most cases, protracted, with the effects persisting for a fairly extended period, the sources said. "Indeed Pakistan is more than likely to face significant degree of permanent welfare loss on account of diversion of development spending to the security budget, capital flight and due to trade diversion it has suffered since 9/11." "In the wake of the ongoing war and external terms of trade shock with the international oil and food skyrocketing, about 77 million Pakistan (48 per cent of the total population) had become food insecure in 2008," they said. Hand count poverty rose by 35 per cent, more than doubled from the 17 per cent figure reported for 2007/08. This would imply an additional 29 million below the national poverty line, they said. "Since 2007/08, with the war on terror moving to qualitatively different phase, with Pakistan Army mobilising and undertaking large-scale combat operations in the countryís North West (in Malakand, Swat and the Agencies of South Waziristan, Bajaur, Mohmand and Khyber, the negative effect on the economy have greatly increased. "Keeping in view manifold economic miseries Pakistan is justified to seek special trade arrangement with the European Bloc and the United States." "We want the EU authorities concerned to relax the existing GSP Plus criteria. Under the existing criteria, imports to the EU under GSP are not allowed more than one per cent. Since Pakistan exports are 1.5 per cent to the EU, it means it does not qualify for export under the GSP Plus. That is the main reason that Pakistan wants the criteria that allows 2 per cent of exports to the EU under GSP Plus." However, seeking relaxation in GSP Plus criteria is a long process and the European Commission will take a lot of time to change the criteria because of the legislation process, the sources said. Pakistan is in dire need of immediate trade relief so the option for special window for trade for the countries, which are playing frontline state's role against terrorism, can be worked out in short time, they said. According to the data available with The News, during the last fiscal year 2008/09, Pakistan's exports to the EU countries stood at $4.8 billion, out of which textile product exports were of $3 billion. It means that the textile exports to the EU are 70 per cent of the total exports to the bloc. In case Pakistan's demand seeking relaxation in the GSP Plus criteria or special window for trade from the EU get materialised, than the country's exports would further surge by over $1 billion, which may be negligible for the EU countries, but means a lot for a country such as Pakistan.