Buyers move to China affecting Pakistani leather exports
Pakistan is loosing its leather market because of China, as that country has a greater advantage in the duty drawback system, said Fawad Ijaz Khan, Chairman of Pakistan Leather Garments Manufacturers and Exporters Association (PLGMEA).
The duty drawback system refers to a duty that a manufacturer pays when he imports raw materials meant for production of export goods, which is then refunded at the shipment stage through a formula designed by the local government.
To emphasize the impact of duty drawback rate on the local exports, Mr. Khan pointed out that during the period July-March 2009; exports stood at $307 million, which were $413 million during the same period last year. Khan added that in the year preceding the previous fiscal, Pakistan witnessed record high exports at $528 million.
This reveals a decline of 26 percent in leather garments exports due to buyer's shift from Pakistan to China. Due to the global recession there was a 10-15 percent decline in the exports and rest was lost to China due to the introduction of duty drawback system there in January, informed Mr. Khan.
The leather garments exporters in China receive 13-15 percent duty drawback from the government while the Pakistani government provides a mere 2.4 percent of duty drawback to its leather exporters. This creates a competitive advantage for Chinese exporters.
With regards to the high drawback on duty paid by the Chinese government to its leather goods exporters, Mr. Khan said that they are trying to study how Chinese government can provide this much duty drawback rate and consultant has been preparing detailed worksheets of the Chinese leather garments industry, he informed.
According to Khan, in Pakistan the duty drawback rate should be at least 4.64 percent, about which the Federal Board of Revenue has been repeatedly communicated but it is still stuck with 2.4 percent.
As compared to last year, the overall leather industry exports of Pakistan have witnessed a decrease of 19 percent and the decline needs to be arrested before it affects the industry badly, said Mr. Khan. Further he mentioned that due to the ineffective law and order in the country, the industry has also lost its customers.
As the prices of leather products of the country are non-compatible with those of China, the Pakistan leather products have continued to stand in the in the global market, only because of its good quality, said Khan.
Pakistan has 1.25 percent market share in the global leather products market of $100 billion by exporting worth $1.2 billion. In the worldwide leather garments industry turnover of $6 billion, Pakistan has a larger share of exports at $528 million.
After the first and second position occupied respectively by China and Turkey, Pakistan enjoys third position in the world for its leather products. The Ministry of Industries has funded a study to help the Pakistan leather garment exports to reach $5 billion by the year 2018.