Pakistan’s textile sector has entered 2026 at a defining juncture, with its long-standing export model facing mounting pressure from tightening global regulations, intensifying competition and domestic cost constraints. After a modest recovery in 2025 that lifted textile exports to around $17.85 billion, industry leaders now warn that the sector’s preferential access to European markets under the GSP Plus regime is increasingly at risk.

These concerns dominated discussions at the Global Procurement and Supply Chain Summit (GPS 2026), held in Karachi, where policymakers, procurement leaders and textile executives assessed the evolving global trade environment. Addressing the summit as chief guest, Shahbaz H Syed, President and CEO of EXIM Bank of Pakistan, described the current environment as a “perfect storm”, driven by rising energy costs, aggressive sustainability regulations and redirected global supply flows.

At the core of the challenge is the European Union’s Green Deal, which is reshaping procurement standards worldwide. Regulations such as the Ecodesign for Sustainable Products Regulation (ESPR) and the Carbon Border Adjustment Mechanism (CBAM) are fundamentally altering how buyers evaluate suppliers. According to GPS Advisory Board member Imran Mushtaq, procurement is undergoing a structural shift.

“Procurement is no longer just about price; it’s about provenance,” Mushtaq said. He noted that EU regulations now require detailed traceability across the supply chain, standards that most Pakistani mills currently lack at a granular level. Without credible systems to demonstrate environmental compliance and product origin, exporters risk exclusion from key European buyers, regardless of price competitiveness.

Energy economics further complicates the picture. Pakistan’s elevated grid tariffs have significantly eroded margins, forcing manufacturers to reconsider their operating models. Industry participants highlighted that on-site renewable energy solutions, such as solar and biomass, are increasingly viewed not only as sustainability measures but also as strategic tools to manage cost volatility. Similarly, the use of recycled fibres and certified cotton has shifted from being a niche preference to a baseline requirement for access to EU markets.

Adding to regulatory pressure is the growing influx of diverted Chinese textile shipments. As the United States tightens trade restrictions on China, surplus Chinese inventory is being redirected to the European Union and Middle Eastern markets at sharply discounted prices. This has intensified competition, particularly in commoditised product categories.

Syed cautioned that Pakistani exporters cannot compete solely on price against such volumes. Instead, he urged a strategic pivot towards high-compliance and value-added segments. Vertically integrated mills, those controlling the entire value chain from spinning to stitching, retain an advantage through shorter lead times, higher transparency and better alignment with buyer compliance requirements. Crucially, strict adherence to the EU’s Rules of Origin allows Pakistani exporters to legitimately benefit from GSP Plus duty-free access, an option unavailable to diverted Chinese goods.

Technology adoption emerged as a recurring theme at the summit, particularly the role of artificial intelligence and digital traceability in procurement. Altaf Gul Muhammad, Chief Supply Chain and Operations Officer at Yunus Textile Mills, emphasised the need for stronger coordination across industry, regulators and technology providers.

He stressed that evolving procurement practices require practical alignment rather than fragmented initiatives. As part of this transition, Muhammad highlighted Digital Product Passports (DPPs) as a critical next step. “Mills must adopt blockchain-based or centralised ERP systems that can track a garment’s journey from seed to shelf,” he said, adding that such systems are rapidly becoming essential for credibility with international buyers.

Early adopters within Pakistan’s textile clusters are already reporting tangible benefits. AI-driven demand forecasting has helped leading mills reduce excess inventory by 15-20%, while automated vendor selection and predictive pricing have shortened procurement cycles by up to two weeks. In energy-intensive operations such as spinning, AI-enabled monitoring has delivered efficiency gains of 5-8% by optimising motor loads and humidity controls.

Despite these operational improvements, the most significant medium-term risk remains CBAM. Although currently applied to carbon-intensive sectors such as cement and steel, EU policymakers have signalled plans to extend CBAM to textiles by 2027. Once implemented, CBAM would effectively impose a carbon cost at the EU border, penalising exporters from countries with carbon-intensive production or weak emissions accounting.

For Pakistan, this could prove decisive. Industry estimates suggest that CBAM-related levies could offset the 10-12% price advantage provided by GSP Plus, effectively neutralising the benefit of preferential access.