Review of GSP+ status stokes fear in industry

LAHORE: Already hard-pressed by the imposition of an 18 per cent sales tax, the local cotton industry is panicky about reports of a review of GSP+ status by the European Union.

The status was granted by the European Union in 2014, which led to a 108pc hike in Pakistani textile exports to the EU due to concessional tariffs.

In October 2023, the European Parliament unanimously voted to extend the GSP+ status for another four years until 2027 for developing countries, including Pakistan, to enjoy duty-free or minimum duty on European exports.

However, during the recent visit of an EU delegation to Pakistan, it was announced that the economic bloc would review this status in June, stoking fears in the cotton industry.

European Union’s monitoring mission due in June

A communication with the local representative of the EU by a concerned businessman revealed that though the GSP had been extended until Dec 31, 2027, new regulations are likely to enter into force much earlier than that.

“GSP monitoring is a continuous process. The inter-services monitoring mission is expected in mid-2025 as part of the ongoing process,” the EU representative said in response to a query on Feb 2.

The businessman from the textile industry, who requested not to be named, apprehends that any negative review of the GSP+ status could further plunge the sector into crisis because, in the hope of sending more textile products’ export consignments to Europe after winning handsome contracts in the recent textile fair in Germany, textile mills have purchased duty-free cotton and cotton yarn in large quantities from abroad.

As the import of cotton and cotton yarn is duty-free, while there is an 18pc tax on local cotton, the millers have been importing the commodities in large quantities from abroad this year at the cost of growers, ginning and spinning sectors.

The data released by the Pakistan Bureau of Statistics reveals that the country spent a record $1.91 billion on the imports of cotton and yarn in the first half of FY25, a surge of $0.610bn over the same period last year.

Reports suggest that large shipments of cotton and cotton yarn are also expected during January-March 2025 at the cost of precious foreign exchange.

Cotton Ginners Forum Chairman Ihsanul Haq says that though total domestic cotton production this year has been about 50pc less than the target and 34pc less than the last year’s production, there is an increase in cotton stocks in ginning factories. As of Jan 31, at least 486,000 bales of cotton are lying with the ginning factories, 114,000 bales or 31pc more than last year.

He says that textile mills have so far purchased only 4.978m bales from local ginning factories during the ongoing season, which is a record 2.7m bales or 35pc less than the purchases of last year during the same period.

Published in Dawn, February 6th, 2025