The recently finalized free trade agreement between India and the European Union has sparked worries in Pakistan, particularly among industry leaders who fear potential negative effects on the country’s textile industry and the risk to millions of jobs. The agreement, announced on January 27 after negotiations between New Delhi and the EU, is currently undergoing legal review before its anticipated implementation next year. India stands to gain broad tariff-free access to the European market, encompassing textile and apparel segments, under this deal.
This development has caused unease in Pakistan, whose economy relies significantly on exports to Europe. Data from industry sources reveal that EU member nations purchase nearly $8.8 billion worth of Pakistani goods annually, constituting approximately 27% of the nation’s total exports. A substantial portion of this trade, around $7 billion, pertains to textiles alone. In contrast, India has a smaller export share directed towards the EU, making Pakistan more vulnerable to shifts in European sourcing preferences.
Pakistan has benefited from significant trade advantages under the EU’s Generalised Scheme of Preferences Plus (GSP+) since 2014, granting duty-free access for various products in exchange for commitments to labor rights, human rights, and governance standards. Presently, Pakistan enjoys duty-free access on approximately 66% of EU tariff lines. However, with the implementation of the India-EU FTA, India is poised to secure tariff-free access across all textile and apparel categories, potentially diminishing Pakistan’s former competitive edge in the European market.
Experts in the industry caution that even a slight shift by European buyers towards Indian suppliers could have severe repercussions for Pakistan. Estimates indicate that a 15% decline in Pakistan’s textile market share in the EU could result in export losses of around $1.5 billion. Additionally, Pakistan faces internal hurdles that may undermine its competitiveness, such as higher industrial electricity tariffs compared to regional competitors. Given that textiles play a crucial role in Pakistan’s export economy and are labor-intensive, projections suggest that up to 10 million jobs could be jeopardized if the country loses a significant EU market share.
