The Textile Imbroglio
Pakistan is one of the largest producers of raw cotton in the world. Over the years, a sophisticated textile industry has been established, downstream many garment industries and other textile finishing factories have come into line giving value-added benefit to the nation to complement the hard work done by our farmers in the production of raw cotton. Pakistan has developed a fine balance between the exporting of raw cotton and finished products, taken cumulatively these are the largest earners of foreign exchange for our country. Because of protectionist measures employed increasingly by the developed world, our major source of hard cash earnings is seriously threatened. The quotas allocated to us do not reflect the base of our raw cotton production and the major percentage of our population whose lives are directly dependent upon cotton’s cumulative performance in the export sector. In contrast, countries that do not produce much cotton, if any, like Taiwan, S. Korea, Hong Kong, Philippines, Thailand, etc have quotas much in excess to what they should have, given the statistical facts and figures. Garment manufacturing factories in the aforementioned countries had proliferated because of cheap labour and we ended up right down the line as compared to them with respect to textile quotas when quotas were first imposed, taking into account their then respective exports.
Since the imposition of textile quota restrictions, we have fought an increasingly losing battle with respect to increased entry into the greatest market of the developed world, the US of A. Instead of holding out a begging bowl for loans and credits, we would have been much better off asking for a substantial increases in our textile quotas, our foreign exchange earnings would then have been in excess to our aid requirements. Our government planners and negotiators failed miserably, because the obtaining of loans may have been relatively easy two decades or so ago, we followed the line of least resistance. The best chance we had of getting our just share was at the beginning of the Afghan war when the free world, including the major developed countries led by the US, were keen to establish Pakistan as the frontline state opposing Soviet intervention and expansion. At this time we could have unilaterally written out our terms and conditions for increased textile quotas in lieu of economic and military aid, even supplementing them. Unfortunately we failed to take the long-term view, a decade later the circumstances have changed and we are lucky in being given the time of the day.
Over the past six or seven years, the Ministry of Commerce has been engaged in what can be termed as a last ditch battle in negotiations with the US Department for Commerce in textile quota negotiations. Once the first elected government was in position, Ms Benazir had a unique chance to force the issue, given her strong support in the US Congress. Unfortunately for Pakistan, in the agenda of Sardar Faisal Saleh Hayat, the PPP’s Commerce Minister, textile quotas were not given the priority they should have had. However, some very able bureaucrats within the Commerce Ministry were involved in the negotiations and along with a concerned group of businessmen textile specialists, they did accomplish a modest success of sorts. Overall, the relationship between the US and Pakistan is not a happy one anymore, mainly because of the nuclear issue, drug proliferation, suspected support for “terrorism”, drug-money laundering etc, the general environment to get more concessions out of the US has deteriorated and induction of textile quotas further may be used as a Sword of Damocles over our national heads. The present Federal Commerce Minister, Malik Naeem Khan, has given textiles the highest priority in his order of things and one expects a pragmatic hands-on multi-faceted approach to ease the pressure on the export of Pakistani textiles of great concern to Pakistan should be the machinations of a few unscrupulous manufacturers/exporters who, hand in glove with concerned State Bank Officials, some nationalised banks and shipping companies are engaged in third country operations, i.e. Pakistani textiles are actually exported from Pakistan but reach the US as originating from those countries not affected by quota restrictions e.g. Bangladesh, Thailand, Malaysia, etc. This scam is perpetrated by switching Bills of Lading with the willing connivance of the shipping companies and counterparts official agencies in third countries.
Circumventing of quota restrictions may bring temporary benefit to Pakistan and the individual companies manipulating this to their benefit, in the long run these are subject to being penalised by the importing countries who may further reduce the textile export quotas to the detriment of a vast majority of our genuine manufacturers/exporters. On May 3, 1992 a US Congressional enquiry focussed on third country operations to evade textile quota restrictions with particular reference to Pakistan, if it can be proven that indeed such evasion has been resorted to, it would mean serious problems for Pakistan. This situation would be further aggravated if US Congressmen were to come to the conclusion that the circumvention was possible because of State intervention and connivance. To best illustrate this issue, a recent case is highlighted.
For several years, a Pakistani manufacturer/exporter was doing good business with a leading importer of finished textiles in the US. The US company is one of the largest suppliers of bed-sheets, hospital requirements, towels in the US. In March/April 1991, the Pakistani company informed its US counterparts that since its textile quotas were exhausted, it would export the US company’s requirements from non-quota (for that item) Bangladesh, from the factory owned by the Pakistani company in the Bangladesh Export Processing Zone (BEPZ) in Chittagong. The US company opened a Letter of Credit (LC) on the Pakistani company in the BEPZ in Chittagong for goods to be of Bangladeshi origin, shipped from Bangladesh. When the goods arrived in the US, the US Customs seized the consignment since they suspected that it was shipped from Pakistan and not Bangladesh. On further enquiry, this was found to be true, as the goods were actually shipped from Pakistan, the Ship supposedly carrying the goods did not even berth at Chittagong during this period. A flurry of legal suits and counter-suits were filed in the US, the Pakistani exporter giving an affidavit claiming that the name of buyer on the original Bill of Lading was altered because of permission given by the State Bank of Pakistan (SBP). A legal counsel for the US company then flew down to Karachi from New York to check the veracity of the various statements made by the Pakistani company. Initially he received cooperation from the SBP, the Export Promotion Bureau (EPB) and the bank concerned, the United Bank Limited (UBL), soon after the name of the particular exporter came up, doors began to shut all over.
The lawyer requested for a meeting with the concerned officials of the Exchange Control Department (ECD) of the SBP and apprised them of the evidence at hand, including giving them copies of the doctored Original Bills of Lading. The US lawyer expected that SBP would react by giving due notices to the exporter, UBL and the shipping company since the evidence of forgery was quite apparent. At the very least, he requested that SBP clarify the wrong impression given by the affidavit of the Pakistani exporter when he had wrongly given the impression that when SBP allowed tampering with the original Bill of Lading. In actual practice, when a foreign importer refuses on some pretext or the other to accept a consignment after it has arrived at the destination, the SBP does allow change of consignee on application by the exporter by allowing the bank handling the original shipping documents to endorse it to the new-buyer on various documents. In this case, a senior official of the ECD flatly refused to state what he labelled as the “obvious”, i.e. doctoring of the Bill of Lading by the importer with or without the connivance of UBL. His contention was that since no one was allowed to commit forgery, why should he state the “obvious”? On being requested to simply give the SBP procedure for change of consignee he refused to do that either. When it was pointed out that a felony was being indicated out to him along with proof, he stated that it was not his job to take cognisance of the same!
Large-scale bungling by Pakistani exporters in textiles using non-quota third country ports cannot be possible without active connivance by elements within SBP, the concerned bank, the shipping company and the counterpart authority in the third country. In this case what is obvious is that the exporter had spread good money around to obtain obstruction to any enquiries within and by the SBP and UBL. What is also obvious is that this scam could not have taken place without active connivance by senior officials of the Bangladesh Export Processing Zone (BEPZ) which allows this racket to function. They have imposed proforma penalties on a number of Pakistani exporters from time to time, but in this case BEPZ suddenly clammed up for some “obvious” reasons. The ramifications of this case reach much deeper but the seemingly active connivance (by the benign indifference to the “obvious”) of SBP officials is extremely disturbing, particularly in view of the on-going FCBC scandal in the US where the SBP is (wrongly) accused of trying to launder drug money because of the unfortunate wording of the AD. Among others, we (THE BONDS ISSUE, The Nation, Tuesday April 14, 1992) have constantly supported the SBP as a bastion of truth, this is extremely important for the continued financial credibility of Pakistan. The attitude of SBP officials when hard evidence was placed before them was shocking. It should now be easy for Solarz and Co within the US Congress to prove active State connivance/collaboration in the scam.
The Federal Commerce Minister, Malik Naeem Khan, made immediate moves to take preliminary action against the manufacturer/exporter when he was apprised of the details of the case. The Chairman EPB incidentally was making his own preliminary moves in this instance but was strengthened by the Minister’s intercession. Unscrupulous exporters and conniving officials must be made examples of or this nation will face a credibility catastrophe in international monetary circles. While businessmen can be expected to try and beat the system, punitive measures are extremely necessary for corrupt elements identified within the system. Unless we re-establish our financial credibility, our greatest foreign exchange earner will buckle under international pressure.
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