Why Pakistan Is Sweating Over India-Europe Trade Deal, Read In Details
New Delhi : The ‘mother of all trade deals’ between India and the European Union (EU) has not only caused ripples in the US, but also closer home, across the border in Pakistan. The free trade agreement (FTA), years in the making, will give India broad market access to those sectors that have long underpinned Pakistan’s export success in Europe, especially textiles and apparel.
The Shehbaz Sharif government is in panic mode. The EU is Pakistan’s second-largest export market, and at stake is $9 billion (Rs 8.25 lakh crore) in annual shipments, mostly textiles and apparel. Pakistan’s foreign ministry on Friday said it was in touch with the European Union to tackle any impact on its exports in the wake of the trade deal with India. Moreover, Pakistan’s Deputy Prime Minister Ishaq Dar also held a hastily arranged inter-ministerial meeting to review the situation.
The timing of the India-EU FTA could not be more unsettling for Pakistan, coming as it struggles to scale up exports and its economy is in tatters. According to a World Bank report, Pakistan’s export share has sharply fallen from 16% of GDP in the 1990s to about 10% in 2024. At the centre of Pakistan’s concern is that the India-EU deal would weaken its competitive edge in the European market.
Under the GSP+ status, granted in 2014, Pakistan saw its textile exports to Europe increase by 108%. In fact, the 27-member EU bloc accounts for nearly $7 billion, or 40%, of Pakistan’s textile shipments each year. Crucially, the GSP+ status for Pakistan will expire next year. The textile sector is Pakistan’s largest industrial employer and biggest source of its export earnings. The sector provides employment to around 15 to 25 million people.
On the other hand, before its trade deal with the EU, India’s textile and apparel products faced tariffs of up to 12%. This will give India a massive competitive edge in exporting labour-intensive goods hit hard by Trump’s tariffs, including apparel, gems, jewellery and footwear. As a result, needless to say, Pakistan will lose the unbridled export advantage it enjoyed.
All these years, there have been questions of why Bangladesh earns $30 billion in exports to the EU, and India cannot do it. It was because Bangladesh, being a Least Developed Country (LDC), had zero duty, Goyal said. With the FTA deal with the EU, the dynamics have now fundamentally changed. Tariffs on Indian textiles and apparel will fall to zero from the first day the deal comes into effect.
Moreover, there is also no confirmation if the EU would extend the GSP+ status, as the bloc looks to ramp up bilateral trade deals to reduce dependence on an unstable US and an aggressive China. Giving the Sharif government a reality check, Pakistan’s former Commerce Minister, Dr Gohar Ejaz, said Islamabad’s “zero-tariff honeymoon” with the EU market was over. Dr Ejaz underlined that 10 million jobs were at risk.
“Pakistan must enable industry to compete in the region at regional energy, tax, and financing costs. Industry can no longer bear the burden of systemic inefficiencies,” he tweeted. Pakistani exporters have warned that unless the government lowers production costs, especially energy tariffs, the country could face a declining market share in Europe and job losses in the textile sector, as reported by Dawn.