India’s New Trade Deals Raise Competitive Pressure on Pakistan’s Key Export Industries

4th February 2026 — Karachi, Pakistan

Recent global trade shifts, especially the India–European Union Free Trade Agreement (FTA) and evolving tariff landscapes with the United States, are expected to put new competitive pressures on Pakistan’s export economy—particularly its largest industrial sectors.

Media reports and industry statements highlight the scale of this shift and what it could mean for Pakistan’s export performance going into 2026.

India Gains Tariff Advantages in Major Markets

India has secured tariff-free or greatly reduced access to the European Union market under the new EU-India trade deal, removing most import duties on Indian textiles, apparel, leather goods, and footwear. Previously, India faced standard EU tariffs of up to about 12% on textiles and apparel. Under the new agreement, these tariffs will be eliminated on nearly all goods exported by India to the EU.

At the same time, a reported US-India deal would lower certain US tariffs on Indian imports from around 50% to 18%, significantly improving Indian exporters’ competitiveness in that market.

Pakistan’s Export Landscape

Heavy Reliance on the EU Textile Market

The European Union is Pakistan’s most important export destination, accounting for around 27.2% of Pakistan’s total exports—about USD 8.8 billion in FY2025. Of these, nearly USD 7 billion worth of textile and apparel shipments go to the EU each year.

Pakistan has benefited from the EU’s Generalised Scheme of Preferences Plus (GSP+), which gives preferential duty-free access on approximately 66% of its export tariff lines. Under this scheme, about 89% of Pakistani textile and apparel exports enter the EU duty-free, giving exporters a meaningful cost advantage versus competitors.

Industries Expected to Face Competitive Pressure

1. Textiles & Apparel

Pakistan’s textile sector constitutes one of its most significant industrial engines, responsible for the majority of its export earnings. Because Indian exporters will now face similar or zero tariffs in the EU, Pakistan could see its price advantage erode.

Analysts estimate this could translate into a 5–10% loss of market share in the EU textile market—a potential export value loss of USD 450 million to USD 900 million annually if competition shifts significantly.

2. Home Textiles & Fabrics

Products such as towels, bed linen, and other home textiles, long key contributors to Pakistan’s textile export volume, may face stronger competition from Indian manufacturers now exporting identical goods duty-free in the EU.

3. Leather Goods & Footwear

Leather products and footwear—both export categories where Pakistan traditionally competes—could see reduced competitiveness as Indian counterparts enter the EU market without import duties.

4. Other Labor-Intensive Export Goods

As India expands preferential access, sectors like packaged apparel, certain engineered goods, and leather accessories could also experience market share challenges.

Broader Trade Impacts on Pakistan

Textiles and Apparel Dominance: Pakistan’s textile exports dominate its trade profile, traditionally accounting for more than 60% of total merchandise exports and employing millions across the value chain. Reports suggest that the combined impact of new trade deals with the UK and EU could put approximately USD 9–10 billion in Pakistani exports at risk, especially in textiles.

Exposure to Tariff Changes Beyond the EU: While the Pakistan–US trade relationship has been affected by tariff fluctuations in recent years, the global competitiveness landscape is now shifting more rapidly, with neighboring exporters gaining advantages in multiple markets.

What This Means for Pakistan

The changing tariff landscape suggests that tariff preference alone will no longer be sufficient to guarantee export competitiveness. With Indian exporters gaining duty-free access in major markets like the EU and potentially improved access in the US, Pakistan’s export sectors may come under significant pricing and volume pressure.

To sustain and grow export performance, experts argue Pakistan will need to focus on:

• Improving logistics efficiency

• Reducing production and compliance costs

• Enhancing delivery speed and reliability

• Diversifying export destinations and products

These measures could help Pakistan navigate a more competitive global trade environment in 2026 and beyond.