ISLAMABAD: The recently concluded Free Trade Agreement between India andthe European Union, signed on January 27, 2026, has sent shockwaves throughPakistan’s economy, particularly its vital textile sector. Industry leadersand analysts warn that the deal, granting India near-total duty-free accessto the EU market, effectively neutralises Pakistan’s longstandingpreferential advantage under the GSP scheme. With the EU serving asPakistan’s largest export destination, absorbing around 27 per cent oftotal shipments valued at roughly $8-9 billion annually, the agreementposes an existential threat to billions in export earnings and millions ofjobs.
The core issue lies in the tariff parity created by the FTA. Pakistan hasbenefited from the EU’s Generalized Scheme of Preferences Plus since 2014,allowing duty-free or reduced-duty entry for approximately 66-80 per centof its export lines, with textiles and apparel forming the bulk. Thispreferential treatment contributed to a 108 per cent surge in textileexports to Europe over the years. However, the India-EU deal eliminatestariffs on 99 per cent of Indian exports by value, including immediate zeroduties on textiles, apparel, leather, and footwear—sectors where Indiapreviously faced 8-12 per cent tariffs. Pakistani exporters, despiteenjoying zero duties under GSP, now face equivalent or worse competitionas Indian goods enter at the same price level.
Textile and apparel exports dominate Pakistan’s trade with the EU,accounting for nearly 39 per cent of total textile shipments and asignificant portion of the $7-9 billion in annual exports to the bloc. Inrecent years, Pakistan’s textile exports to Europe stood marginally aheadof India’s despite the latter’s tariffs, highlighting the critical role ofGSP preferences. With India now enjoying permanent, unconditionalzero-duty access through a bilateral treaty, analysts predict aggressiveprice undercutting, market share erosion, and margin compression forPakistani products in value-added segments like knitwear, ready-madegarments, and home textiles.
The timing exacerbates the crisis. Pakistan’s GSP status expires inDecember 2027, with renewal uncertain amid stricter EU compliancerequirements on human rights, labour standards, and environmental norms.Industry voices, including those from the All Pakistan Textile MillsAssociation and the Federation of Pakistan Chambers of Commerce andIndustry, describe the FTA as the end of Pakistan’s “zero-tariffhoneymoon.” Exporters fear that without urgent reforms, the country couldlose up to $9 billion in exports, triggering factory closures andwidespread unemployment in a sector that employs millions directly andindirectly.
Beyond tariffs, structural disadvantages compound the threat. Indianmanufacturers benefit from vertical integration, lower energy and financingcosts, larger-scale production, and stronger compliance with EU non-tariffbarriers such as sanitary, phytosanitary standards, ESG requirements, andcarbon border adjustments. Pakistani firms struggle with high productioncosts, energy tariffs, and logistical inefficiencies, making it harder tocompete on price, quality, and speed even if preferences persisttemporarily. Financial analysts warn that the deal could acceleratedeindustrialisation in labour-intensive industries, worsening Pakistan’strade deficit and external account vulnerabilities.
Government response has been swift but reactive. The Foreign Officeconfirmed ongoing engagement with EU authorities to mitigate impacts, whilehigh-level meetings involving Prime Minister Shehbaz Sharif and DeputyPrime Minister Ishaq Dar reviewed the situation. Exporters urge immediatepolicy interventions, including regional benchmarking of energy and gastariffs, tax relief, export incentives, and streamlined foreign exchangeprocedures. Diversification into new markets like the GCC, ASEAN, andAfrica, alongside upgrading to sustainable and high-value products, is seenas essential for long-term survival.
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The broader implications extend to economic sovereignty and employmentstability. With textiles comprising 60 per cent of Pakistan’s merchandiseexports and serving as the largest industrial employer, any significantdownturn risks a balance-of-payments crisis and heightened reliance onexternal financing. Former commerce ministers and think tanks label the FTAa “wake-up call” or even the “mother of all problems” for Pakistan’s $9billion export industry, emphasising that preference-based advantages areno longer sustainable in a shifting global trade landscape favouringbilateral deals.
In conclusion, the EU-India FTA represents a seismic shift that demandsprofound reforms from Pakistan. Failure to address cost competitiveness,regulatory alignment, and market diversification could result inirreversible losses, underscoring the urgency for strategic action tosafeguard this economic lifeline.
[Image of Pakistani textile workers in a factory, showing looms and fabricrolls, representing the threatened industry sector.]
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