The long-awaited free trade agreement between India and the European Union, often described as the “mother of all trade deals,” has triggered unease not only in the United States but also across the border in Pakistan. Years in the making, the pact will grant India wide-ranging access to European markets in sectors that have traditionally been the backbone of Pakistan’s export success to the EU, particularly textiles and apparel. These labour-intensive industries had earlier borne the brunt of the 50 per cent tariff imposed by former US President Donald Trump on Indian goods. With the India–EU agreement now in place, Pakistan is increasingly feeling the pressure and appears to be reacting with growing alarm.
The government led by Prime Minister Shehbaz Sharif has moved into what many observers describe as a state of panic. The European Union is Pakistan’s second-largest export destination, with nearly $9 billion worth of annual exports at stake, the bulk of which comes from textiles and clothing. Acknowledging the seriousness of the situation, Pakistan’s foreign ministry said it has initiated discussions with the EU to assess and mitigate the potential fallout of the India–EU trade deal on Pakistani exports. In parallel, Deputy Prime Minister Ishaq Dar convened an urgent inter-ministerial meeting to review the implications, shortly after Prime Minister Sharif held talks with the EU’s ambassador to Pakistan.
Explaining the government’s response, a spokesperson for Pakistan’s foreign ministry said Islamabad was engaging both individual EU member states and the European Commission in Brussels to closely monitor developments and safeguard Pakistan’s trade interests. These diplomatic efforts underline the depth of concern within the Sharif administration about losing ground in a market that has long been vital to Pakistan’s export economy.
The timing of the India–EU FTA could hardly be worse for Pakistan, which is already grappling with a fragile economy and struggling to expand its export base. According to World Bank data, Pakistan’s exports as a share of GDP have declined sharply, falling from around 16 per cent in the 1990s to roughly 10 per cent in 2024. Against this backdrop, the prospect of intensified competition from India in Europe has amplified fears within Pakistan’s industry and policy circles.
At the heart of Pakistan’s anxiety lies the possibility that the India–EU agreement will erode its long-standing competitive advantage in the European market. Pakistan currently benefits from the EU’s Generalised System of Preferences Plus (GSP+) scheme, which allows duty-free access for nearly two-thirds of its exports. Since the GSP+ status was granted in 2014, Pakistan’s textile exports to Europe have more than doubled, rising by over 100 per cent. Today, the EU accounts for about $7 billion, or roughly 40 per cent, of Pakistan’s total textile exports. However, this preferential arrangement is due to expire next year, adding to the uncertainty.
The textile sector is Pakistan’s largest industrial employer and the single biggest source of export earnings, supporting an estimated 15 to 25 million jobs. Any loss of competitiveness in the European market could therefore have severe social and economic consequences, including large-scale job losses and further stress on an already strained economy.
In contrast, the trade deal offers India a significant boost. Before the agreement, Indian textiles and apparel faced EU tariffs of up to 12 per cent. Under the new FTA, the EU will progressively eliminate or reduce tariffs on 99 per cent of Indian goods over seven years, while India will cut or remove duties on 97 per cent of EU imports. This shift sharply improves India’s position in exporting labour-intensive goods such as clothing, footwear, gems and jewellery, many of which had been hit hard by US tariffs.
As a result, Pakistan risks losing the export advantage it enjoyed for years under the GSP+ framework. Similar pressure is expected to be felt by Bangladesh, which has also benefited from duty-free access to the EU as a least developed country. With Indian goods set to become far more competitive, both Pakistan and Bangladesh now face the prospect of tougher competition in Europe.
This changing dynamic was acknowledged by Union Minister Piyush Goyal after the deal was finalised, when he noted that India’s limited presence in the EU textile market in the past was largely due to tariff disadvantages, unlike countries such as Bangladesh that enjoyed zero-duty access. The new agreement, he said, fundamentally alters that equation.
Industry voices in Pakistan have been quick to sound the alarm. Leaders from the country’s textile sector have warned that India’s enhanced competitiveness effectively neutralises Pakistan’s GSP+ edge and could even surpass it in several segments. With no certainty that the EU will extend Pakistan’s preferential status, exporters fear a steady erosion of market share.
Former commerce minister Gohar Ejaz offered a blunt assessment, saying Pakistan’s “zero-tariff honeymoon” with Europe is effectively over and cautioning that millions of jobs are at risk unless urgent reforms are undertaken. Exporters have echoed this concern, urging the government to urgently reduce production costs, particularly high energy tariffs, to help domestic industry survive intensifying regional competition.
Responding to mounting pressure, the Sharif government announced a reduction in electricity tariffs for industrial consumers, aiming to lower costs and cushion exporters from the anticipated shock. Nevertheless, many analysts believe that the India–EU trade pact represents a structural shift that will be difficult for Pakistan to counter in the long term.
In effect, what has been hailed as a landmark achievement for India and Europe is being viewed in Islamabad as a major setback. For Pakistan’s export-driven textile sector, the India–EU “mother of all deals” threatens to become one of the most significant challenges it has faced in decades.
