Pakistan's textiles and clothing imports demand in the EU market: a cointegration-ECM analysis.

The study in hand analyses the importance and value of Pakistan's textiles and clothing export to the EU. The Correlation, Co-integration and the Error Correction Model (ECM) analyses are used. The Correlation results reveal that there exists a strong degree of association between the EU's total textiles and clothing imports and her imports of the same productsfrom Pakistan. Same is true for three major textile and clothingcategories (26, 65 and 84). The Co-integration analysis shows that there exists co-movement between the EU's total textiles and clothing imports and her imports from Pakistan, only in case of 65 -category textiles, reflecting the fact that Pakistan's performance in this category of textiles is satisfactory, relative to the other two categories.The 84- category textile and clothing products need special attention as these are relatively more important from the value addition point of view. There is a need of conducting research for finding out and identifying thetextiles and clothing productswhich have strong preferred market inthe EU. The literature reviewed reveals that the EU's trade policies have remained counterproductive to Pakistan's cotton and textile products exports to the EU on certain occas ions. Siegmann (2006) reveals that the imposition of 12 percent import duties on Pakistani bed linen together with anti -dumping duty imposed in 2004 led to reduction in its sales' growth while catalyzed the increase in China's and Turkey's market share in the EU. ADB (2006) reports decline in Pakistan's share in the EU market despite increase in the textiles and clothing exports of Pakistan due to the antidumping duty on bed linen imports and Pakistan ultimately faced her preferential access to the market of the EU (under Generalized Special Preference scheme). High costs of doing business and low productivity of labor, are also assumed to depress Pakistan's competitiveness in the global textiles and clothing export market. In contrast to Pakistan , the EU policies remained favourable to Pakistan's competitors. Concessions given to Bangladesh, Sri Lanka, and Viet Nam also hurt Pakistan's exports. According to Ahmed (2009), Bangladesh's ready-made garment industry flourished after 2005 as volume of export and shares in market of RMG kept increasing over the period of 2005 -06. This happened because of favourable preferences given to Bangladesh by USA and the EU. Similarly, Sri Lankan textiles, particularly its ready -made garments enjoyed similar privileges (Kelegama, 2009). Pakistan is also worried about the existing and probable bilateral FTAs between EU and her partners, which would provide competitive edge to counterparts of Pakistan in the EU market by minimizing NTBs, particularly in the textiles and clothing sector. If FT A status is granted to competitors of Pakistan, this may increase pressures on Pakistan in the EU market, particularly when Pakistan's competitors get a preferential status for semi-processed or highly-processed textiles (65-category and 84-category). Pakistan would then experience a decrease in textile processing imports to the EU. Same is the case with preferential rules of origin, especially in case of 65-category and 84-category textiles (CARIS, 2008 and Sadaf, 2012). This study intends to see the problem afresh, particularly from a new point of view: whether Pakistan has retained its pace of gaining share in the EU's textile and clothing imports over time. The answer of this research question would help identify the