The local cotton industry is growing increasingly concerned over reports that the European Union (EU) may review Pakistan’s Generalised Scheme of Preferences Plus (GSP+) status in June, adding to the challenges posed by an 18% sales tax.
Pakistan was granted GSP+ status in 2014, leading to a 108% increase in textile exports to the EU due to concessional tariffs. In October 2023, the European Parliament extended this preferential trade status until 2027, allowing developing countries, including Pakistan, to continue benefiting from duty-free or minimal-duty access to European markets.
However, during a recent EU delegation visit to Pakistan, officials indicated that a reassessment is scheduled for mid-2025. A communication from a local businessman with an EU representative confirmed that while GSP+ is extended until December 31, 2027, new regulations could be implemented earlier. The EU’s inter-services monitoring mission is set to visit Pakistan in mid-2025 as part of a continuous evaluation process.
Textile industry leaders warned that any adverse review could severely impact the sector. Textile mills have recently purchased significant quantities of duty-free cotton and cotton yarn from international suppliers in anticipation of fulfilling major contracts secured at a German textile fair. This heavy reliance on imports has negatively affected local growers, ginning factories, and spinning mills, as domestically produced cotton is subject to an 18% tax while imports remain duty-free.
Pakistan Bureau of Statistics data reveals that the country spent a record $1.91 billion on cotton and yarn imports in the first half of FY25, marking an increase of $610 million compared to the same period last year. Additional shipments are expected between January and March 2025, further pressuring foreign exchange reserves.
With the GSP+ review looming, industry stakeholders fear that any trade restrictions could exacerbate the sector’s difficulties, impacting exports and increasing reliance on costly imports.
