Pakistan’s textile sector entered 2026 facing a challenging global landscape, as tightening sustainability rules in Europe, competitive pressure from redirected Chinese shipments and high domestic energy costs threaten the country’s long-standing export model. Despite a modest recovery in 2025 that lifted textile exports to around $17.85 billion, industry leaders warn that Pakistan’s preferential access to the European Union under the GSP Plus scheme is under growing scrutiny.

These concerns dominated discussions at the Global Procurement & Supply Chain Summit (GPS 2026) in Karachi, where senior executives, procurement specialists and policymakers assessed international trade shifts. Speaking at the event as chief guest, EXIM Bank of Pakistan President and CEO Shahbaz H. Syed described the situation as a “perfect storm” for the industry, driven by rising energy tariffs, demanding sustainability requirements, and shifting supply flows.

The European Union’s Green Deal is emerging as a key disruptor, reshaping how buyers source textiles. Regulations such as the Ecodesign for Sustainable Products Regulation (ESPR) and the Carbon Border Adjustment Mechanism (CBAM) are pushing procurement teams to demand digital traceability, environmental disclosures and proof of origin. Industry experts at the summit noted that most Pakistani mills do not yet possess these granular tracking systems, a gap that could limit access to European buyers irrespective of pricing.

Energy economics are adding to the strain. Elevated electricity tariffs have squeezed margins and accelerated interest in on-site renewable solutions such as solar, biomass and waste heat recovery, which are now viewed as strategic tools for both cost control and sustainability compliance. At the same time, the use of certified cotton and recycled fibres has shifted from a niche differentiator to a basic requirement for maintaining EU market access.

Competitive pressure has intensified due to redirected Chinese volumes entering Europe and the Middle East at discounted rates as the United States tightens trade restrictions on Chinese textile shipments. Summit speakers cautioned that competing solely on price will be increasingly difficult, urging Pakistani exporters to focus on value-added segments, compliance strength and shorter lead times through vertical integration. Strict adherence to EU Rules of Origin remains critical to retain GSP Plus benefits — an advantage Chinese goods cannot claim.

Technology adoption emerged as a major talking point. Industry leaders highlighted the rise of artificial intelligence in procurement forecasting, automated vendor selection, and digital product passports (DPPs) that track garments from raw material to finished product. Early adopters within Pakistan’s textile clusters have reported lower inventory waste, shorter procurement cycles and measurable energy efficiency gains through AI-based monitoring systems.

However, the biggest medium-term risk remains the potential extension of CBAM to textiles by 2027. Sector analysts caution that once applied, CBAM could impose a carbon-adjusted cost on Pakistani textile exports entering the EU. Estimates suggest that such levies could neutralise the 10–12 percent tariff advantage provided by GSP Plus, effectively eroding Pakistan’s competitive position in its largest export market.

With Europe moving towards stricter environmental procurement and buyers shifting to “traceability-first” sourcing models, stakeholders at GPS 2026 stressed that Pakistan’s textile sector will need coordinated reforms, digital traceability solutions, and cost-competitive energy to preserve market share and avoid long-term erosion of export earnings.