As EU and India transfer nearer, the place does Pakistan stand?

At a time when headlines are dominated by larger tariffs and financial nationalism, the proposed free commerce settlement between the European Union and India sends a special sign. It means that international commerce will not be ending however altering form. International locations nonetheless search entry to massive markets, predictable guidelines, and dependable companions. The EU-India talks replicate this seek for stability in an unsure international financial system.

Negotiations between the 2 sides have continued for practically 20 years, with lengthy intervals of sluggish progress. What lastly created momentum was a shift within the international commerce surroundings. America raised tariffs on a number of companions, with some affected greater than others. Indian exports to the US, notably textiles and clothes, confronted a further tariff of as much as 50%. This disrupted orders and inspired patrons to search for different suppliers.

The EU additionally confronted new US tariffs of round 15% on merchandise resembling vehicles, equipment, prescription drugs, and luxurious items, a lot of which face excessive safety in India. Consequently, either side noticed higher worth in advancing their very own settlement and lowering dependence on the US market. The financial base for such a deal is already substantial. Bilateral commerce in items stands at round $136 billion. The EU is India’s largest buying and selling accomplice, accounting for about 17% of India’s items exports, valued at roughly $76 billion, whereas India imports round $60 billion from the EU. India’s exports to Europe are additionally various, spanning electronics, chemical compounds, fuels, equipment, iron and metal, prescription drugs, gems and jewelry, in addition to textiles and clothes. This range provides India a robust platform to learn from deeper market entry.

For Pakistan, these developments naturally increase vital questions. The EU is Pakistan’s largest export market, absorbing greater than 27% of its exports, or about $8.8 billion in fiscal yr 2025. Pakistan presently enjoys duty-free entry on over 85% of its exports beneath the GSP Plus scheme, which is secured till not less than December 2027 and is now into consideration for renewal.

Pakistan’s exports to Europe are, nonetheless, extremely concentrated. Round 70% consists of knitted and woven clothes and residential textiles resembling shirts, denims, mattress linen, and towels. In these merchandise, Pakistan presently advantages from a choice margin of round 5-9%. If the EU grants India related or higher entry beneath an FTA, this margin may slender, intensifying competitors. For many different industrial merchandise, EU tariffs are already low, limiting the worth of preferences. There may be additionally dialogue round Basmati rice. Some concern that an EU-India settlement or adjustments to GSP Plus may harm Pakistan’s rice exports. In observe, Pakistan’s foremost Basmati varieties already enter the EU at zero obligation beneath the WTO commitments, and that is unlikely to alter because of an EU-India deal. The extra related concern pertains to geographical indications. If India secures unique recognition for Basmati restricted to its personal varieties, Pakistan may face advertising and labelling challenges in Europe. That is primarily a authorized and diplomatic difficulty, not a tariff one, and it requires energetic engagement.

The broader lesson lies within the altering nature of commerce agreements. The EU-India deal is anticipated to cowl over 95% of products commerce and lengthen into companies, funding, and requirements, aiming at deep and long-term integration. Pakistan’s agreements, in contrast, usually cowl lower than 5% of tariff traces and infrequently transcend items, limiting their financial impression. Even the settlement with China, Pakistan’s largest FTA, covers lower than one-third of bilateral commerce. India has additionally moved sooner in constructing a community of commerce agreements. In recent times, it has concluded or superior offers with companions such because the UAE, the UK, and the EFTA nations, alongside current agreements with Japan, South Korea, Australia, and Asean. Pakistan, by comparability, lacks FTAs with most main economies and stays comparatively much less built-in into international commerce networks.

One other lesson is the danger of relying too closely on unilateral choice schemes. GSP-type preparations are conditional and topic to monitoring. They are often suspended or withdrawn. Many nations, together with Vietnam and India, have due to this fact shifted in the direction of reciprocal FTAs to safe extra steady market entry and higher coverage certainty. The optimistic aspect is that Pakistan is now higher positioned to rethink its technique. Gradual tariff reductions have lowered adjustment prices and made reciprocal agreements extra possible. This creates house to deepen current agreements and pursue new ones with massive markets such because the EU and the UK.

There is no such thing as a quick disaster. An EU-India settlement will nonetheless take time to enter into pressure, and tariff reductions shall be phased in over a number of years. This supplies Pakistan with some respiratory room. That point must be used to enhance export competitiveness by addressing sensible constraints resembling excessive power prices, taxation, and entry to finance. Within the close to time period, safeguarding GSP Plus stays vital. On the similar time, Pakistan ought to put together severely for a complete commerce settlement with the EU reasonably than counting on preferences alone. The worldwide buying and selling system is reorganising round deeper partnerships and clearer guidelines. As others transfer forward, standing nonetheless will not be a protected choice. Pakistan should select between shaping its place within the rising commerce panorama or adjusting to selections made by others.

The author is a member of the Steering Committee on the Implementation of Nationwide Tariff Coverage 2025-30. He has beforehand served as Pakistan’s ambassador to the WTO