There is a peculiar ritual in Islamabad whenever the European Union extends the Generalised Scheme of Preferences Plus (GSP+) status. Bureaucrats congratulate one another, press releases claim a diplomatic victory, and the textile sector breathes a collective sigh of relief. This self-congratulation, however, masks a dangerous complacency.
While the extension of the GSP+ regime until 2027 has provided a temporary lifeline, the mood in Brussels is shifting. The recent warnings from the European Union (EU) Ambassador — stating that Pakistan needs to do more — are not merely diplomatic pleasantries. As we inch closer to the 2027 expiration, Pakistan faces a dual threat: a stagnant domestic human rights record as per GSP+ standards and a rapidly evolving, more protectionist Europe.
For over a decade, GSP+ has been the single most effective economic steroid for Pakistan. The numbers tell the story of a desperate reliance. Since the status was granted in 2014, Pakistan’s exports to the EU have surged by nearly 92 per cent, rising from $4.7 billion in 2014 to approximately $9bn in the FY25 fiscal year.
The European Union is now our second most important trading partner, absorbing nearly 28pc of our total exports. For an economy gasping for foreign exchange and struggling with a chronic balance of payments crisis, duty-free access to the single market is not a luxury; it is oxygen. Without GSP+, our key export — especially textiles, which make up over 75pc of our EU-bound shipments — would face the Most Favoured Nation (MFN) tariffs of roughly 12pc. In an industry where margins are measured in cents, that surcharge would mean a death sentence.
As we inch closer to the 2027 expiration date of the GSP+ regime, Pakistan faces the dual threat of a stagnant domestic human rights record and a more protectionist Europe
Yet, we treat this privilege as a permanent entitlement rather than a conditional incentive. The first crack in the foundation is the widening gap between legislation and implementation. While Islamabad takes comfort in having ratified the requisite 27 international conventions, Brussels is no longer interested in signatures. They are looking at the application of laws.
The requirements for the post-2027 regime are set to become far more rigorous. The list of mandatory conventions is expected to expand from 27 to 32. New additions will likely include stricter adherence to the Paris Agreement on climate change and protocols against transnational organized crime.
Meanwhile, our compliance record is flashing red. Their perceived suppression of digital rights and internet freedom is now a trade issue. A Europe dealing with war on its own continent is not willing to relax the suppression of civil liberties in other regions. The upcoming monitoring mission will likely be the decisive factor for our re-application in 2027.
While Pakistan congratulates itself on $9bn in exports, our competitors are playing a different game. Vietnam, once a peer, has left us in the dust. In 2023 alone, Vietnam’s exports to the EU topped $50bn.
How did they do it? While Pakistan relied on GSP+ to sell basic bed linen and towels, Vietnam negotiated a full Free Trade Agreement that came into effect in 2020. They diversified beyond textiles into electronics and machinery. Even within textiles, Vietnam and Bangladesh have aggressively pivoted to man-made fibres, which now command a larger share of the global market than cotton.
Pakistan remains addicted to cotton-based low-value exports. Bangladesh, holding a 21pc share of the EU’s non-EU apparel market compared to our single digits, is already preparing for its graduation from the ‘least developed countries’ status by negotiating new partnership terms. Meanwhile, we are standing still on a moving walkway.
The second, and perhaps more lethal threat, is the changing political and legal anatomy of Europe itself. The Europe of 2025 is not the Europe of 2014. A rightward shift across the continent — ushering in a new era of economic protectionism — is coinciding with the EU’s new Corporate Sustainability Due Diligence Directive.
This directive changes the playing field entirely. It holds European companies legally liable for environmental and human rights violations in their supply chains. If a factory in Faisalabad dumps untreated water or relies on underpaid contract labor, the liability now travels all the way to a retailer in Berlin. European buyers are already risk-averse; facing potential lawsuits at home, they will not hesitate to cut off Pakistani suppliers that cannot prove impeccable compliance standards.
Pakistan’s textile industry needs to understand that the days of competing solely on price are ending; the new competition is on compliance. While advocating for an enabling environment is, indeed, warranted.
In order to secure the GSP+ lifeline beyond 2027, the government must urgently address the uncompetitive energy costs crippling the value-added textile sector. Currently, Pakistani exporters pay an average industrial tariff of 13.2 cents/kWh, significantly higher than regional competitors like Vietnam (7.0 cents), India (9.5 cents), and Bangladesh (10.2 cents).
This 30-80pc energy cost premium erodes the 9.6pc duty advantage offered by GSP+. Immediate governmental support is required to remove cross-subsidies through decoupling industrial tariffs from residential subsidies to achieve a regionally competitive rate of 9 cents/kWh. Additionally, zero-rated status should be restored in a way that automates sales tax refunds to resolve the liquidity crunch preventing modernization in knitting and finishing units.
We are sleepwalking toward a cliff. If Pakistan loses GSP+ in 2027, or if we fail to qualify for the successor arrangement due to our inability to meet the new Plus requirements, the economic shock would be catastrophic.
The government must stop viewing GSP+ as a trade negotiation and start viewing it as a domestic reform agenda. Diplomatic lobbying can buy time, and it has bought us until 2027. But it cannot buy compliance. The window is closing.
The writer is a Director of the Federation of Pakistan Chambers of Commerce & Industry.
He can be contacted at [email protected]
Published in Dawn, The Business and Finance Weekly, January 25th, 2026
