The recently finalised EU–India Free Trade Agreement (FTA), described by Brussels as “the mother of all agreements”, is a crucial development that should prompt Pakistan to reassess its export strategy. The European Union or EU is not just another market for Pakistan; it is the cornerstone of the country’s export economy. Approximately 40pc of Pakistan’s exports head to the EU, with textiles and clothing representing nearly 76pc of those exports in 2024.
This heavy concentration on a single market and product category brings both advantages and risks. On one hand, European demand has traditionally been stable, and the Generalised Scheme of Preferences Plus (GSP+) has provided Pakistani exporters with sustained market access for value-added textiles. On the other hand, such reliance makes Pakistan highly vulnerable. Any reduction in competitiveness — whether through tariffs or non-tariff barriers — can quickly lead to lost orders, idle factories, job losses, and increased pressure on foreign exchange reserves.
Impact of the EU–India agreement
The vulnerability of Pakistan’s export sector will potentially come under strain due to the EU–India agreement. Indian exports, including textiles, will benefit from phased tariff reductions, eventually achieving zero duties for key products. Pakistani exporters have long relied on their preferential margins under GSP+ to compete in Europe. However, even with these preferences, Pakistan’s textile exports to the EU do not match China’s volume, and its share in core product categories (HS codes 61, 62, and 63) is not significantly larger than India’s, despite the 10-12pc tariffs India was facing.
As tariff preference margins diminish, the focus will shift from tariffs to core business fundamentals — areas where Pakistan has repeatedly delayed reforms. These include energy costs and reliability, turnaround times, compliance, exchange-rate stability, workforce skills, productivity, and product development.
With India’s tariff disadvantage disappearing, even a 15pc reduction in Pakistan’s EU textile share would mean a loss of approximately $1.5bn in exports
Without addressing these fundamentals in a comprehensive manner through benchmarking with alternative sourcing countries, Pakistan’s competitive edge will erode further. This is not to belittle the prime minister’s recent relief on energy and refinance costs, which will have a positive impact of about 2pc on exporters.
Comparative exposure:
India vs Pakistan
Comparing India and Pakistan underscores the risks of over-concentration. For India, the EU is an important market, but not an existential one. In 2024, India exported $97.2 billion to the EU out of total global exports of $441.7bn, meaning only about 22pc of its exports were EU-bound. In contrast, about 42pc of Pakistan’s exports relied on the EU, highlighting a much greater exposure to market shocks.
In textiles alone, the EU imported roughly $9bn from India and $9.7bn from Pakistan in 2024. Although both countries are similar in export value, for Pakistan, textiles to the EU represent the engine of its export economy, while for India, they are just one component of a diverse export portfolio.
With India’s tariff disadvantage disappearing, even a small shift in EU orders could disproportionately harm Pakistan. There is significant product overlap and reliance on cotton; India’s costs are lower, productivity is higher, it has a scale benefit, and its man-made fibres are more competitive. A 15pc reduction in Pakistan’s EU textile share would mean a loss of approximately $1.5bn in exports.
While India is less likely to gain from Vietnam (which will benefit further from the EU–Vietnam FTA by 2027) or Bangladesh (which enjoys quota-free, duty-free access under Everything but Arms), India stands to benefit as buyers diversify away from China under the China+ thrust and choose to substitute some sourcing away from Pakistan.
Over time, India could add $3–4bn in additional textile exports to the EU. A third to a half of this could be at Pakistan’s cost, though buyers are unlikely to switch all sourcing away from Pakistan.
Recommended actions for Pakistan
First, the GSP+ must be defended through visible action: The government must protect GSP+ by ensuring compliance with labour, environmental, and governance conventions. Export policy reforms, especially in energy, taxation, and exchange rates, are essential. Non-compliance puts export revenue at risk, especially as GSP+ has barely compensated for Pakistan’s 40pc higher energy costs compared to India — a cushion that may soon disappear.
Despite the reduction in energy cost as a result of the prime minister’s relief package, it remains significantly higher than our eyeball competitors. In the last year, the Indian Rupee has depreciated, while the Pakistan Rupee has appreciated in value, thus affecting export competitiveness.
Second, we have to move beyond tariff preferences. Exporters need to recognise that competing on tariff margins alone is no longer sufficient. The new focus must be on cost, quality, product range, sophistication, compliance, reliability, and trust. Addressing skills gaps, possibly by bringing in experienced supervisors from countries like Sri Lanka, will be vital.
Third, standards-driven trade must be prioritised and prepped for. Europe is increasingly enforcing standards that act as “shadow tariffs” on non-compliant suppliers. Pakistani exporters must prepare for carbon reporting and evolving EU border adjustment mechanisms to maintain access.
Fourth, Pakistan must diversify not only within textiles (eg, man-made fibres, technical textiles, performance wear, and design-led home products) but also geographically, by developing new export destinations. India’s resilience comes from market and product diversification, allowing it to adapt to changing conditions.
While Pakistan cannot influence the terms of the EU–India agreement, it can take decisive steps to ensure its textile industry remains competitive as preferences erode. The EU is a lifeline for Pakistan’s exports. It is crucial that Pakistan stops treating this market as a comfort zone and instead undertakes the necessary reforms to safeguard its economic future.
The writer is a former CEO of Unilever Pakistan and of the Pakistan Business Council and serves on the boards of several public companies.
Published in Dawn, The Business and Finance Weekly, February 2nd, 2026
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