International BusinessTopic: Effects of Tariff

Presented To: Mr. Waqas RazaPresented By: M.Hashaam

Roll no. : AM552381

Introduction of Tariff’s• Definition:“A tariff is simply a tax (duty) levied on a product when it crosses national boundaries”.

Types of Tariffs• Import tariffs: Taxes on goods that are imported into a country. They are more common than export tariffs.• Export tariffs:Taxes on goods that are leaving a country. This may be done to raise tariff revenue or to restrict world supply of a good.

Types of Tariff• Protective tariffs: Tariffs levied in order to reduce foreign imports of a product and to protect domestic industries.• Revenue tariffs: Tariffs levied in order to raise revenue for the government.• Specific tariffs: Tariffs that levy a flat rate on each item that is imported. • Ad valorem tariffs: Tariffs based on a percentage of the value of each item.• Compound tariffs: Tariffs that are a combination of specific tariffs and ad valorem tariffs.

Reasons for Tariff’s

To protect newly established domestic industries from foreign competition.

To protect aging and inefficient domestic industries from foreign competition.

To protect domestic producers from "dumping" by foreign companies or governments.

To raise revenue.

LIST OF TARIFFS IN PAKISTAN

Following are the tariffs in Pakistan:1 Import duty2 Export duties3 Regulatory duties4 Additional customs duty

Impact of Tariff’s The redistributive effect

the transfer of consumer surplus, in monetary terms, to the domestic producers of the import-competing product.

The protective effect the loss to the domestic economy resulting from wasted resources

used to produce additional cloth at increasing unit costs. The revenue effect

the tariff proceeds paid to its government. The consumption effect

arises from the decrease in consumption resulting from the tariff's artificially increasing the price.

The terms of trade effect the amount of the tariff revenue paid by foreigners because the

world price of their exports has fallen.

Case Study

TEXTILE INDUSTRY OF PAKISTAN

• The textile industry is often considered the backbone of the Islamic Republic of Pakistan’s economy.

• Pakistan’s textile Industry is the fourth Largest Cotton Producer.

• 6th largest importer of raw cotton• The Third largest Consumer

Introduction

INTRODUCTION

• The textile industry contributes approximately 46 percent to the total output or 8.5 percent of the country GDP.

• In Asia, Pakistan is the 8th largest exporter of textile products providing employment to 38 percent of the work force in the country.

OVERVIEW• Pakistan’s textile industry ranks amongst the top

in the world. Cotton based textiles contribute over 60% to the total exports, accounts for 46% of the total manufacturing and provide employment to 38% manufacturing labor force. The availability of cheap labor and basic raw cotton as raw material for textile industry has played the principal role in the growth of the Cotton Textile Industry in Pakistan.

HISTORY OF TEXTILE IND.

PIDC came into being which had the main objective of industrializing the

country in major fields

The modern development of the sector started in 1953 with the inauguration of

the Valika textile Mill at Karachi.

Pakistan's industrialization began in the 1950s with the textile industry at

its center1950’s

HISTORY OF TEXTILE IND.

There was a rapid growth in spinning sector.

Till 1980-81 spinning continued to expand.

The eighties brought a relief to the textile industry due to the boom in international market and industry

friendly policies of the government. 1980’s

HISTORY OF TEXTILE IND.

World demand for good quality, wide width fabrics grew and replacement and

a modernization process started.

Machinery for producing garments and made-ups was also freed from import

duty. As a result, a huge expansion in the spinning sector took place in the first five

years of the 1990s.

The number of units rose to 440 in 1996-971990’s

HISTORY OF TEXTILE IND.

Textile exports managed to increase at a very decent growth of 16% in 2006.

Textile exports share in total export of Pakistan has declined from 67% in 1997

to 55% in 2008, as exports of other textile sectors grew

Textile exports in 1999 were $5.2 billion and rose to become $10.5

billion by 2007.1999 to

2008

HISTORY OF TEXTILE IND.

10 percent of the spinning mills and fabric printing units have shut down, and half of the remaining plants are

struggling to survive

thousands of textile workers poured out onto the streets of the city, burned tires,

and shouted slogans against the government.

Pakistan’s $13.8 billion textile industry is struggling to survive a critical

shortage of energy to run its plants.2012

HISTORY OF TEXTILE IND.

Textile millers, workers in gas protest

2013

TEXTILE SECTOR’S CONTRIBUTION TO THE ECONOMY OF PAKISTAN

• According to the economic survey of Pakistan 2008-09 the Pakistan textile industry contributes more than 60% to the country total exports, which amounts to around 5.2 billion US dollars.

• According to the 2012 Economic Survey of Pakistan, issued by the finance ministry, the textile industry itself constituted about 4% of the total size of the economy.

TOP BUYERS OF PAKISTANI TEXTILE GOODS ARE

• USA, EU, Gulf region, UK, Hong Kong, Japan, Korea, Saudi Arabia, Italy, Turkey, Germany, Norway, France, Canada, Sweden, Australia, etc.

TEXTILE NEWS

• Textile industry of Pakistan worst hit by power cuts

“The energy crisis has forced the textile mills to close their units, especially in Punjab the industry is under severe pressure. Chairman APTMA Punjab, Shahzad Ali Khan, said daily electricity load shedding has increased to 12

hours.”

‘’A spokesman for the All Pakistan Textile MillsAssociation (APTMA) claimed that 60 to

70 per cent of the industry had been affectedand was unable to accept export orders coming

in from around the globe, as a result of gas load shedding ‘’

Textile Industry Pros And Cons

Pakistan has the advantage of cheap labor as compared to its competitors, but unfortunately the labor productivity is very low

ADVANTAGEThere are hardly any training programs to develop on the skills of these labors and the craftsmen depend upon their inherited skills with no advancement and

DISADVANTAGE

STRENGHTS

• Self reliance • Manufacturing flexibility• Abundance of raw material production 32• Design expertise • Availability of cheap labour • Growing economy and domestic market • Progressive reforms

WEAKNESSES Research & Development (R&D) Developed countries are using the technology of

biotechnology and genetic engineering to increase the quality and quantity of their cotton production. In Pakistan, there is very some research done on small scale by private companies. Practically no efforts are being made by the APTMA in the R&D of the textile industry to enhance the quality of its products.

WEAKNESSES

• Highly fragmented sector• High dependence on cotton • Lower productivity • Declining mill segment • Technological obsolescence • Non participants in trade agreements‐

WEAKNESSES

Poor quality standards. Pakistan’s textile industry should focus on

latest material handling techniques and should train workers. The inability to timely modernize the equipment, machinery and labor has led to the decline of Pakistani textile competitiveness

THREATS New competitors Pakistan is facing new competitors in textile sector such as

Bangladesh, Vietnam and Turkey. Though we cannot avoid competition but we can always stay ahead of them by reforming our strategies and educating our entrepreneurs so as to move one step forward in every aspect.

Phasing out of quota system As the quota system is ruled out by WTO, there is a threat by the

Chinese and Indian manufacturers to gain most of the market share. We have high costs, low labor productivity and inefficient production processes.

THREATS

3. Fashion life cycle Fashion changes day by day these days. Media has so much

penetrated in our daily lives that we easily adapt ourselves as it wants us to. This has resulted in shortening the fashion lifecycle thus increasing the fashion risk.

Now the buyer does not want to wait long for his consignment because he is insecure that by the time it will reach to him he will lost its demand due to change in fashion. Therefore, they prefer to buy from neighboring countries even at higher cost to get their products instantly rather than to wait weeks or months for their consignments to reach them.

• Stiff competition from developing countries; especially China and India.

• Pricing pressure • Locational disadvantage • International labour and environmental laws

CONCLUSION

Textile industry is the backbone of the Pakistan’s economy. The textile industry of Pakistan plays an

important role in earning foreign exchange, providing employment to the country. Pakistan’s textile

industry is going through one of the toughest periods in decades. Our textile sector needs to capitalize on

the new emerging opportunities by adhering to global best practices, adapting rapidly changing technologies,

better supply chain management while trying to reach global value chains.

RECOMMENDATIONS

• Remedy Though Foreign Direct Investment (FDI)• Image Building Of Pakistan To Attract Foreign Direct

Investment (FDI)• Subsidy Removal Should Be Taken A Back• Interest Rate Should Be Low Down In Order To Survive

This Industry• Electricity & Gas Tariff• Removal of Energy Crisis• Exploration of new Export Markets• Reducing the cost of doing Business in Pakistan

Thank You