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European Union (EU) concerns over growing chinese influence in Pakistan’s textile sector


The EU monitoring mission comprising officials from the European External Action Service (EEAS) arrived in Islamabad on June 22nd to assess the effective implementation of the 27 international conventions on human and labor rights, environmental protection, climate change, and good governance to which Pakistan is a signatory. 

The ongoing visit of the EU monitoring mission to Pakistan in connection with the review of the GSP+ assumes significance in the backdrop of EU businessmen recently expressing apprehension over rising dependence of Pakistan on Chinese loans, which gives increasing space for manoeuvre to the latter. They apprehend that the Chinese debt trap diplomacy in Pakistan could eventually exploit the country’s textile industry to reap by proxy the benefit of GSP+ or fudging the rules of origin. It was viewed that Pakistan permission to Chinese textile firms to locate in its Special economic zones may impact their business.

The EU mission in Pakistan is to assess implementation of international conventions required to avail and continue GSP+ facility that offers tariff concessions to Pakistani exports for the EU. Due to the facility, Pakistan’s textile sector enjoys a competitive advantage vis-à-vis other exporters. However, it was noted that Chinese inroads in Pakistan textiles sector may take advantage of this facility. Beijing’s request to Islamabad to transfer thousands of hectares of land to set up textile units has come under the EU’s lens due to potential losses that may arise for its businesses. The EU business community noted that Islamabad has become ever-more dependent on China to meet its economic needs. Likewise, European businesses see this as China’s strategy to avoid complication of the issue of the rule of origin so as to benefit its textile industry from Pakistan’s GSP+ facility.

China seems to be taking advantage of the ongoing financial crisis, political uncertainty & social unrest triggered by spiralling inflation and rising cost of living. Taking advantage of this, China wants to foray in a large way into the lucrative Pak textile sector. The elements of Chinese debt trap diplomacy were coming out clearly from its irrational demands to Pakistan. China is also seeking guarantees from Pakistan that any factory including textiles or any other industrial unit in Pakistan set up and financed by China should be operated as per Chinese rules, Moreover, any discussion on trade-union rights or human right issues would not be entertained. China has further demanded that Pakistan should allow Chinese workers to work in its own textile factories.

Islamabad’s growing import of textiles and apparels from China is a concern among the EU businessmen. According to customs statistics, Pakistan’s import of textiles and apparel from the big neighbour accounts for 62% of total imports, making China the largest source for textile and garment imports. Pakistan is one of the world’s leading cotton producers, ranking among the top five in terms of yield, with cotton textile products accounting for 40% of its exports. As a major garment producer, Pakistan exports home textiles, clothing, and other processed products to the EU, the US, and other countries/regions and has witnessed a rapid growth these years.

EU’s business community was peculiarly concerned last winter when the China Chamber of Commerce for Import and Export of Textiles (CCCT) expressed interest in strengthening investment cooperation with Pakistan in textile and garment industry. “China is willing to strengthen investment cooperation with Pakistan in the textile and garment industry,” announced Zhang Xian, the Vice President of CCCT, adding that the collaboration and competition coexist for textile industry in both countries and Sino-Pakistani cooperation in the textile industry is ‘untapped’. Analysts pointed out that the Beijing’s leverage on Pakistan’s economy has grown-up substantially in recent years as China has turned out to be Islamabad’s largest creditor. It burdened Pakistan with mountains of debt, allowing China to use “debt-trap diplomacy” to gain access to Pakistani strategic assets.

The EU has asked for transparency, predictability and information on tax breaks applicable in the strategic economic zones so that its companies may also invest in Pakistan, with little progress being made since the country was put on the ‘Grey List’ by the Paris based Financial Action Task Force (FATF). Moreover, the unsustainable China-Pakistan Economic corridor (CPEC) under China’s Belt and Road Initiative (BRI) remains a highly secretive and closely guarded agreement between China and Pakistan. Although Pakistan was recently able to get a clean chit from the group of FATF observers in Berlin on June 16, it remains to be seen whether it gets a certificate for its exit from the grey list in October 2022.

Critics suggest that the EU should study the limitations and ambiguity in the GSP+ policy in order to understand how China was exploiting Pakistan on EU’s trade incentives and plug the loopholes. Others reckon that the EU should recognize the fact that a socially and economically unstable Pakistan was unlikely to be able to repay Chinese debt. Besides, EU businessmen were also concerned about the continuing human rights, blasphemy law abuse, attacks on journalists and civil society organizations in Pakistan. Though the EU Parliament resolution called on Pakistan’s government in April 2021 to “unequivocally condemn” incitement to violence and discrimination against religious minorities, Islamabad has not made any progress in this regard. The EU Mission’s findings will be part of the next GSP+ report, which will be presented to the European Parliament and Council by the end of 2022. Time will tell. 

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