Shifting Fabrics of Trade: How the EU–India Free Trade Pact Is Recasting the South Asian Textile Landscape
In late January 2026, a landmark trade agreement between India and the European Union — hailed by some as the “mother of all trade deals” — reverberated beyond diplomatic halls to impact regional economies with deep stakes in global commerce. While the EU-India free trade agreement (FTA) is expected to unlock new export opportunities for Indian industry, it has also stirred alarm among Pakistani exporters, especially in the textile sector, who warn that longstanding advantages could quickly vanish. Policymakers, business leaders and workers alike are watching closely as a complex web of trade dynamics unfolds.
A New Chapter in EU–South Asia Trade
The EU–India trade pact represents years of negotiation aimed at reducing barriers between two of the world’s largest economic blocs — the European Union and India. The deal is designed to eliminate or sharply reduce tariffs on a wide range of goods and services, simplify customs procedures and enhance market access on both sides. In particular, India’s textile and apparel sectors stand to benefit significantly from the removal of duties that for decades have made their goods more expensive to sell in Europe relative to competitors.
European Commission officials have described the agreement as a strategic boost for trade diversification amid global economic uncertainty. It is positioned as a counterbalance to pressures from protectionist policies elsewhere, especially in the United States, and as a platform to expand economic ties with Asia.
For India, trade negotiators and business groups say the pact could open markets worth hundreds of billions of dollars and create jobs in labour-intensive sectors such as textiles, garments, leather and footwear. The projected gains extend to agricultural products, leather goods, plastics and metal products — all areas where lower or eliminated tariffs can rapidly improve competitiveness in Europe.
Pakistan’s Textile Industry and Its EU Strategy
Pakistan has traditionally relied heavily on the textile industry — its largest manufacturing sector — as a driver of exports and employment. According to economic data, textiles account for most of the country’s foreign exchange earnings and engage millions of workers, directly and indirectly.
Under the European Union’s Generalised Scheme of Preferences Plus (GSP+), Pakistan has had duty-free access to a significant portion of EU tariffs on textiles and apparel. This preferential treatment has given Islamabad’s manufacturers a competitive edge over producers in other developing regions who faced higher tariff barriers when exporting similar products to Europe.
That edge was not absolute — for example, GSP+ does not cover 100% of tariff lines, and Pakistan’s exporters still faced indirect costs and compliance requirements — but it helped cement the EU as one of the country’s largest export markets. In recent fiscal years, the bloc accounted for billions in Pakistan’s textile and apparel exports.
What Has Changed? The FTA’s Impact on Comparative Advantage
The introduction of the EU–India FTA alters this competitive landscape. With the pact coming into effect, Indian exporters will enjoy tariff-free or deeply discounted access to the European market across hundreds of tariff lines that previously carried duties of up to 10–12% or more. This means Indian textiles — once relatively expensive in Europe due to tariffs — can now compete on price, speed and compliance alongside producers in Bangladesh, Vietnam, Turkey and Pakistan.
According to industry analysts tracking the fallout, this tariff alignment may partially erode the tariff gap that Pakistan’s industry long relied on to remain competitive. Where Pakistan enjoyed duty-free access on a large share of cotton and textile products, India’s new zero-duty status now places it on equal footing. In segments where Pakistan once held a slight price advantage, Indian goods could now undercut or capture market share, especially in mid-value garments and home textiles.
Estimates from trade experts suggest Pakistan could lose between 5% and 10% of its EU textile export share due to the deal — a significant shift for a sector that accounts for a large chunk of the country’s foreign earnings.
Voices from Pakistan: Industry Concerns and Fears
The response from Pakistan’s export community has been one of concern and urgency. Leaders in textile manufacturing and trade associations have described the EU–India FTA as a potential “wake-up call,” warning that Pakistan’s tariff advantage might vanish once Indian goods enter the EU market on the same preferential terms.
Industry executives have cited challenges beyond tariffs, noting that high production costs, particularly energy prices, further weaken Pakistan’s ability to compete on the global stage. For example, electricity tariffs for manufacturers are reportedly higher than those in many regional competitor countries, adding layers of cost pressure on already tight profit margins.
Economic analysts within Pakistan have echoed these concerns, arguing that reliance on preferential access alone may not be enough to sustain exports in a more competitive environment. One former commerce minister warned that billions of dollars in exports and millions of jobs are potentially at risk if structural reforms are not undertaken.
Domestic and Political Reactions
Islamabad has acknowledged the need to review the implications of the FTA with India, even as officials stress a continued commitment to trade relations with the European Union. Pakistan’s Foreign Office has emphasized that GSP+ remains a “win-win template” for cooperation, and that efforts will be made to strengthen trade partnerships across multiple sectors.
Yet behind diplomatic language, there are broader political implications. The EU–India deal comes against a backdrop of complex geopolitical tensions in South Asia, including longstanding rivalries and trade disruptions between India and Pakistan. While the FTA is a commercial agreement, its resonance is felt in diplomatic corridors, where trade is deeply linked with national economic strategies and regional influence.
Impact on Workers and Local Economies
For countries like Pakistan, where the textile sector employs millions, any downturn in export demand can have direct consequences on jobs, wages and regional livelihoods. Small- and medium-sized manufacturers — often less equipped to absorb sudden shifts in market access — are particularly vulnerable.
Beyond direct manufacturing jobs, reductions in export volumes could ripple through supply chains, affecting cotton growers, transporters, logistics providers and ancillary industries. Smaller towns heavily dependent on textile factories might face slowing economic activity, especially if competitive pressures persist.
In India, the opposite implications are emerging. The FTA is expected to boost employment in textile clusters, particularly in regions where labour-intensive segments are the norm. With tariffs removed, Indian products may find larger footing in European retail markets, potentially creating new jobs and supporting rural incomes tied to cotton and garment production.
Longer-Term Outlook and Policy Options
Looking ahead, Pakistan’s policymakers are confronted with challenging choices. To mitigate the effects of lost comparative advantage, experts have called for comprehensive structural reforms aimed at reducing energy costs, simplifying tax regimes, modernizing industrial infrastructure and enhancing quality standards. Such changes could help Pakistani exporters remain competitive, even as tariff barriers fade for rivals.
Some analysts suggest exploring regional trade cooperation frameworks or negotiating new preferential access agreements with other global partners to diversify export destinations. Others emphasize the importance of investment in technology, automation and design capabilities to move Pakistan’s textile products higher up the value chain.
For India, the EU agreement marks a milestone with the potential to reshape its export profile. However, Indian exporters must also navigate compliance requirements, stringent quality standards and competition from other low-cost producers. The success of India’s industry in capturing EU market share will depend not just on tariff elimination, but on supply chain efficiency, branding and sustainability practices that European buyers increasingly demand.
Conclusion
The EU–India free trade agreement has set in motion a major shift in South Asian trade dynamics, particularly for textile-dependent economies. While it promises growth and opportunity for Indian exporters, it has also raised urgent concerns in Pakistan about competitiveness, jobs and economic stability. As markets adjust, policymakers in both countries face the task of navigating change — balancing national interests, economic reforms and engagement with global partners. In an interconnected global economy, such shifts illustrate how trade policy can have profound impacts far beyond boardrooms, touching the lives of workers, businesses and entire communities.