ISLAMABAD: The India–European Union Free Trade Agreement has sparkedconcern across Pakistan’s policy, business, and diaspora circles, largelydue to fears of losing export competitiveness in one of the country’s mostimportant markets. Yet beyond the immediate anxiety lies a strategicopening. If approached with urgency and foresight, the changing tradelandscape could serve as a catalyst for long-overdue reforms,diversification, and modernization of Pakistan’s export economy rather thana setback.
The European Union remains Pakistan’s single largest export destination,accounting for more than a quarter of total exports, driven primarily bytextiles, garments, and value-added apparel. For years, Pakistan benefitedfrom preferential access under the GSP Plus framework, which helped sustainexport volumes despite domestic structural weaknesses. The India–EUagreement alters this equation by giving Indian exporters similar or betteraccess, intensifying competition in segments Pakistan has traditionallydominated.
Textiles are at the center of this challenge. India’s scale, supply chainintegration, and diversified product mix allow it to compete aggressivelyon price and volume once tariff barriers fall. Pakistani exporters, alreadyburdened by higher energy costs, logistical inefficiencies, and limitedtechnological upgrading, risk losing orders if competitiveness is notaddressed. However, this pressure also highlights the need to move beyondreliance on low-margin textile exports.
One strategic opportunity lies in accelerating export diversification.Pakistan’s export basket remains narrow compared to regional peers. Byprioritizing sectors such as engineering goods, pharmaceuticals, processedfoods, and chemicals, the country can reduce vulnerability to shocks in asingle market or industry. Diversification also enhances bargaining powerin future trade negotiations and improves resilience against global demandfluctuations.
The services sector offers even greater potential. Pakistan’s informationtechnology and business process outsourcing exports have grown steadily inrecent years, supported by a young, English-speaking workforce andexpanding digital infrastructure. Unlike goods, services exports are lessaffected by tariff-based competition. Targeted incentives, regulatoryclarity, and branding initiatives could help Pakistan expand its footprintin European technology, fintech, and remote professional services markets.
Upgrading industrial capacity is another critical pathway. Competing in apost-FTA environment requires efficiency rather than protection.Investments in automation, energy-efficient machinery, and compliance withinternational quality and sustainability standards can narrow the cost gapwith regional competitors. Countries that successfully adapted to similartrade shocks did so by pairing trade policy with industrial modernizationrather than short-term subsidies alone.
Pakistan can also leverage sustainability as a competitive advantage.European markets increasingly prioritize environmental, social, andgovernance standards. By aligning export industries with green productionpractices, renewable energy usage, and transparent labor standards,Pakistani exporters can position themselves as responsible suppliers. Thisapproach not only preserves market access but can also command premiumpricing in select segments.
Diplomatic and trade engagement with the European Union remains essential.While the India–EU deal reshapes competition, it does not negate Pakistan’sexisting trade relationship with Europe. Proactive dialogue focused onsector-specific cooperation, regulatory harmonization, and investmentfacilitation can create new avenues for growth. Trade diplomacy should beviewed as an ongoing process rather than a one-time agreement.
Domestic policy reform will determine whether Pakistan can capitalize onthis moment. Exporters consistently cite high energy tariffs, inconsistenttaxation, and slow customs procedures as barriers to competitiveness.Addressing these structural issues would improve export performanceregardless of external trade developments. The India–EU agreement merelyunderscores the cost of delaying reforms that were already overdue.
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Support mechanisms for exporters should shift from broad incentives totargeted competitiveness tools. Export financing tied to technologyupgrades, training programs for workforce skill enhancement, and supportfor product development can help firms move up the value chain. Suchmeasures encourage sustainable growth rather than dependence onpreferential treatment.
Regional trade integration also deserves renewed attention. Whilegeopolitical realities complicate South Asian trade, pragmatic economicengagement through regional frameworks could open alternative routes forexports and supply chains. Expanding trade corridors westward and northwardcan reduce over-reliance on European demand and dilute competitivepressures stemming from bilateral trade deals elsewhere.
Human capital development is another underutilized advantage. Pakistan’sdemographic profile provides a steady supply of labor, but productivityremains low due to skills gaps. Aligning vocational training and highereducation with export-oriented sectors can strengthen competitiveness overtime. Skilled labor supports higher value exports, innovation, andentrepreneurship, all of which are critical in a more competitive globalenvironment.
The India–EU trade agreement should therefore be viewed less as a threatand more as a strategic signal. Global trade is consolidating into deeperpartnerships, and countries that fail to adapt risk marginalization.Pakistan’s response will test its ability to think beyond short-term tradebalances and adopt a long-term vision centered on competitiveness,diversification, and reform.
If Pakistan uses this moment to modernize its export base, strengtheninstitutions, and expand into new sectors, the India–EU deal could become aturning point rather than a setback. Strategic adaptation, notprotectionism, will determine whether Pakistan emerges stronger in anincreasingly competitive global economy.
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