European Commission Directorate-General for Trade

Pakistan

The EU and Pakistan have strong trade ties with the EU being Pakistan's most important trading partner. The EU accounted for around 20% of Pakistan's total trade in 2007. EU-Pakistan trade has increased by almost 8% annually between 2003 and 2007. In order to further promote the development of two-way trade between the parties, the EU and Pakistan agreed in May 2007 to set up a Sub-Group on Trade under the auspices of the EU-Pakistan Joint Commission. Besides discussing trade policy developments more broadly, the Sub-Group is also aiming to tackle individual market access issues which hamper trade between the two parties.

Textiles and clothing

Textiles and clothing dominate Pakistan's exports and still account for more than 70% of Pakistan's exports to the EU. In 2007, the EU imported textiles and clothing articles from Pakistan worth €2.6 billion, of which around 80% entered the EU at a preferential tariff rate. Around a quarter of these imports were bed linen, table linen and toilet and kitchen linen. Despite the elimination of quotas on imports of Chinese textile and clothing products, Pakistani exports to the EU have constantly increased in terms of value. However, relying so heavily on one product category also carries risks. Trade diversification programmes have therefore been launched to reduce Pakistan's reliance on the textiles and clothing sector.

Pakistan's integration with the world economy

In recent years, Pakistan has increasingly integrated with the global economy, leading to average real GDP growth rates of 7.3% between 2003 and 2007. In parallel, Pakistan has increased its trade with the rest of the world, with total trade rising to €40 billion in 2006. The EU supports this integration by granting Pakistan's exports to the EU reduced tariffs under the EU's Generalised System of Preferences. As a result, almost 20% of Pakistan's exports enter the EU at zero tariff and more than 70% at a preferential rate. One area of EU financial assistance to Pakistan consists of a €3million assistance programme for the implementation of the South Asian Free Trade Area (SAFTA) which strives to eliminate barriers to trade between India, Nepal, Afghanistan, Bhutan, Bangladesh, Maldives, Sri Lanka and Pakistan. The first phase of this liberalisation started in 2006. At a ministerial meeting in Berlin in February 2007, the EU and Pakistan fully recognised the importance of continuing this work together.

Barriers in the Pakistani market

The wider picture however shows that regulatory barriers continue to hold Pakistan back from developing its full trade potential: High costs of doing business, complex regulation and infrastructure bottlenecks all have a detrimental effect on trade and growth. Pakistan's trade regime and regulatory environment still remain comparatively restrictive and in 2008 the World Bank has ranked Pakistan 76 (out of 178 economies) in terms of the ease of doing business.