Why India-EU FTA is ‘mother of all tensions’ for Pakistan | EXPLAINED | India News

India-EU FTA: The signing of the India-European Union (EU) Free Trade Agreement (FTA) was announced at the 16th India-EU Summit held during the visit of European leaders to India. The official announcement of this agreement marks an important period in relations between the two economies. As they became key global partners, Pakistan would become tense and shift in its chair with mild unrest.

It is important to understand why an agreement between India and the EU has caused panic for Pakistan.

Also Read – One deal, three setbacks: How India spoiled Türkiye, Pakistan and Bangladesh with EU trade deal

Why is the India-EU FTA increasing tensions in Pakistan?

Bilateral trade ties between Pakistan and the EU are governed by the 2004 Cooperation Agreement and trade and investment promotion is also part of the EU-Pakistan 5-Year Accession Plan from 2012.

According to a website of the European Union, Pakistan benefits from the trade opportunities offered by the EU Generalized Scheme of Preferences (GSP) and has therefore been benefiting from it for years.

Since January 1, 2014, Islamabad has been enjoying tariff preferences with mostly zero duty on two-thirds of all product categories. The website stated that textiles and clothing dominate the EU’s imports from Pakistan and will account for 75.8 percent of the EU’s total imports from Pakistan in 2024. Approximately 89 percent of textiles and clothing imported from Pakistan enter the EU at a preferential tariff rate.

More than 85 percent of Pakistan’s exports, including textiles and clothing, enter the EU duty-free and quota-free. This represents almost 20 percent of Pakistan’s global exports, according to the website.

Pakistan is the biggest beneficiary of the EU’s GSP+ regulation.

The EU-India partnership also includes counter-terrorism cooperation, which will become an imminent problem for terrorists operating outside Pakistan.

India-EU FTA

India and the EU are the 4th and 2nd largest economies accounting for 25 percent of Global GDP and account for one-third of global trade. The integration of two large, diverse and complementary economies will create unprecedented trade and investment opportunities.

The total market is estimated at over 2091.6 lakh crore, bringing opportunities for 2 billion people in India and EU.

This FTA also has strategic importance because with it, India-EU relations will transform from traditional to a modern, multifaceted partnership.

According to the statement made by the Ministry of Commerce and Industry, India has gained strategic access to European markets. India received privileged access to European markets on 97 percent of its tariff lines:

• Tariffs on key labour-intensive sectors will be removed immediately in the 70.4 per cent tariff brackets covering 90.7 per cent of India’s exports;
• The 20.3 per cent tariff lines covering 2.9 per cent of India’s exports will have zero duty access for 3 and 5 years on certain seafood, processed foodstuffs, weapons and ammunition, among others;
• According to the ministry, the 6.1 per cent tariff lines covering 6 per cent of India’s exports will have preferential access through tariff reduction for certain poultry products, canned vegetables and bakery products, among others.

Indian Minister of Commerce and Industry Piyush Goyal had previously stated that the reason why Bangladesh was able to obtain a share worth billions of dollars in textiles was mainly due to zero taxes.

Now India is in the picture; It can increase textile exports and capture the market.

With India now having better access to EU markets, Pakistan and Bangladesh are likely to face increased pressure as products will become more competitive in terms of pricing. The decrease in the cost advantage of Indian exporters may lead to a decrease in Pakistan’s market share. Competition is expected to intensify as New Delhi benefits from lower tariffs and improved access, potentially reshaping regional trade dynamics and impacting Islamabad’s export volumes.