Why India–EU FTA Has Alarmed Pakistan and Bangladesh Exporters

The newly concluded India–EU Free Trade Agreement has triggered unease across South Asia, particularly in Pakistan and Bangladesh, where exporters fear a sharp erosion of their long-standing advantages in the European market. By granting Indian goods expanded and near duty-free access to the European Union, the agreement is being viewed as a structural shift that could redraw competitive hierarchies in one of the world’s most lucrative trading blocs.

For decades, exporters in Pakistan and Bangladesh have benefited from preferential trade arrangements with the European Union. These included schemes such as the Generalised Scheme of Preferences and the Everything But Arms framework, which enabled both countries to ship goods—especially textiles and garments—to Europe with minimal or zero duties. Europe remains the largest export destination for Bangladesh and one of Pakistan’s most important overseas markets, making any change in access conditions a matter of serious concern.

The anxiety has intensified because the India–EU FTA allows duty-free access for nearly 93 per cent of Indian exports to Europe once fully implemented. This move is expected to dilute the tariff advantage enjoyed by Pakistan and Bangladesh, particularly in labour-intensive sectors such as textiles, apparel, footwear, leather goods, and jewellery. Exporters in both countries fear that Indian manufacturers, backed by scale and diversified supply chains, could aggressively undercut prices in the European market.

In Pakistan, the agreement has been described by trade bodies as the opening of a new “economic front” by New Delhi. The concern stems from the fact that Pakistan’s exports to the EU—worth around €12 billion annually—are heavily concentrated in textiles and clothing, which account for over three-fourths of its shipments to the bloc. Although Pakistan currently enjoys GSP Plus status, which provides duty-free access for a large share of its exports, industry leaders worry that this advantage will diminish once Indian goods begin entering the EU market without tariff barriers.

Bangladesh faces an equally complex challenge. The country has long been the single largest beneficiary of the EU’s Everything But Arms arrangement, with garments accounting for nearly 94 per cent of its exports to Europe. However, Bangladesh lost its Least Developed Country status in late 2025 and is set to gradually lose EBA benefits over the next few years. This transition, combined with India’s duty-free entry into the European market, could weaken Bangladesh’s dominance in apparel exports and squeeze margins for manufacturers already operating on thin profitability.

India, by contrast, enters the agreement from a position of growing trade strength. Until now, Indian exports to the EU were subject to Most Favoured Nation tariffs under World Trade Organisation rules, with textiles facing duties of around 12 per cent and seafood products attracting even higher rates. Despite these barriers, trade between India and the EU has nearly doubled over the past decade, reaching about €120 billion in 2024. The FTA is expected to accelerate this growth by removing tariffs on over 90 per cent of goods in value terms.

Industry analysts believe the agreement could significantly boost India’s share in the EU’s massive apparel market, where it currently accounts for only a small fraction. With tariff barriers removed, Indian textile and garment exports are projected to grow at a rapid pace in the coming years, potentially reshaping sourcing patterns for European buyers.

The announcement alone has already unsettled exporters in Islamabad and Dhaka, who warn that once market share is lost, regaining it will be extremely difficult. Unless Pakistan and Bangladesh adapt through trade diversification, productivity upgrades, and new bilateral agreements, their preferential access to Europe may steadily erode as India emerges as a formidable new competitor under the India–EU FTA.