India-EU Trade Deal Emerges as Major Export Shock for Pakistan’s Economy

The recently concluded India–European Union Free Trade Agreement (FTA), often described as the “mother of all trade deals”, is reshaping global trade equations—and its ripple effects are being felt sharply in Pakistan. While the agreement is being hailed in India as a strategic economic breakthrough, it is increasingly viewed across the border as a significant setback, particularly for Pakistan’s export-dependent economy.

At the heart of Islamabad’s concern lies Europe’s importance as an export destination. The European Union is Pakistan’s second-largest export market, accounting for nearly $9 billion in annual shipments, the bulk of which comes from textiles and apparel. These are the very sectors that will now see intensified competition from India due to tariff advantages granted under the new trade pact.

The anxiety within Pakistan’s government has been evident. Officials have confirmed that Islamabad is engaging both EU institutions and individual member states to assess the impact of the India-EU FTA. Emergency consultations were held involving senior ministers, following discussions between Shehbaz Sharif and the EU’s envoy to Pakistan. Deputy Prime Minister Ishaq Dar also convened inter-ministerial meetings to evaluate the potential fallout.

Pakistan’s vulnerability stems from its reliance on the EU’s Generalised System of Preferences Plus (GSP+), which has allowed duty-free access for roughly two-thirds of its exports since 2014. This preferential status helped Pakistan’s textile exports to Europe grow significantly over the past decade. However, GSP+ is due to expire next year, and there is no certainty of its renewal—especially as the EU increasingly favours bilateral trade agreements over unilateral concessions.

The India-EU FTA fundamentally alters this balance. Under the agreement, tariffs on nearly 99% of Indian exports to the EU will be eliminated or significantly reduced over time. For textiles and apparel—where India previously faced duties of up to 12%—tariffs will gradually fall to zero, immediately narrowing the cost advantage Pakistan once enjoyed.

India’s leadership has openly highlighted this shift. Union Commerce Minister Piyush Goyal noted that India’s inability to match countries like Bangladesh in EU exports was largely due to tariff barriers—barriers that the new FTA dismantles.

Industry voices in Pakistan have warned of serious consequences. Textile manufacturers caution that millions of jobs could be at risk unless production costs are reduced and competitiveness improved. Energy prices, taxation and financing costs remain major hurdles for Pakistani exporters, making it difficult to compete with Indian firms benefiting from tariff-free access.

In response, Pakistan has already announced a reduction in electricity tariffs for industrial consumers in an effort to soften the blow. However, analysts note that such measures may offer only temporary relief in the face of structural challenges.

For India, the agreement is a strategic win that strengthens its position in global value chains and offsets tariff pressures from other markets. For Pakistan, however, the India-EU FTA represents a decisive shift—one that could erode its long-held export advantages in Europe unless rapid reforms follow.