Why Bangladesh and Pakistan have been shaken by the massive India-EU Free Trade Agreement

The recently announced EU–India Free trade Agreement (FTA) has sent ripples across South Asia, particularly in Bangladesh and Pakistan. Governments, exporters, and industry bodies in both countries have expressed deep concern that the deal could fundamentally alter the competitive balance in the European market, which has long been a cornerstone of their export-driven economies.

Under the proposed agreement, Indian goods are expected to gain significantly improved and largely duty-free access to European markets. This prospect has unsettled exporters in Bangladesh and Pakistan, who have traditionally benefited from preferential trade schemes that gave them an edge over Indian manufacturers, especially in labour-intensive sectors such as textiles and apparel.

“India has now opened an economic front,” an office-bearer of a Pakistani traders’ association was quoted as saying by Pakistani daily Dawn. The remark reflects the intensity of concern within Pakistan’s business community, which has drawn parallels between the economic implications of the FTA and New Delhi’s assertive posture during Operation Sindoor.

For decades, Pakistan and Bangladesh have enjoyed favourable access to the European Union through mechanisms such as the Generalised Scheme of Preferences (GSP) and the Everything But Arms (EBA) initiative. These arrangements helped make Europe Pakistan’s second-largest export market outside Asia and Bangladesh’s single biggest export destination.

Through these preferential schemes, both countries secured duty-free and quota-free access for a wide range of products, particularly textiles and garments, which account for a substantial share of their foreign exchange earnings. This structural advantage over India is now at risk of being diluted.

The EU–India FTA threatens to weaken this long-standing edge by granting Indian goods extended and duty-free access to nearly 93% of exports destined for the European market, fundamentally reshaping competitive dynamics.

Trade relations between Bangladesh, Pakistan and the European Union

EU–Pakistan trade relations are anchored in the 2004 Cooperation Agreement, with further momentum provided by the EU–Pakistan five-year Engagement Plan adopted in 2012. These frameworks aimed to strengthen bilateral trade ties and encourage investment.

In addition, Pakistan has enjoyed GSP+ status since 2014. Under this arrangement, the EU allows duty-free access to nearly 85% of Pakistani exports — equivalent to around 20% of Pakistan’s total global exports. In return, Pakistan is required to ratify and effectively implement 27 international conventions covering Human Rights, labour standards, environmental protection, and good governance, monitored by an EU oversight mission.

According to the European Commission, Pakistan ranked as the EU’s 48th-largest trading partner in goods in 2024. Conversely, the EU was Pakistan’s second-most important trading partner, accounting for 12.4% of its total trade. Bilateral trade in goods between the EU and Pakistan stood at €12 billion in 2024.

Textiles and apparel dominated Pakistan’s exports to the EU, making up 75.8% of total shipments in 2024. EU exports to Pakistan largely comprised chemicals, machinery, appliances, and base metals.

Bangladesh, meanwhile, has been one of the biggest beneficiaries of preferential EU market access. Its status as a Least Developed Country (LDC) since 1975 enabled it to benefit from the ‘Everything But Arms’ (EBA) scheme, which grants duty-free and quota-free access to all products except arms and ammunition.

Bangladesh emerged as the largest beneficiary under the EBA arrangement, with exports worth €17.1 billion enjoying these privileges in 2023. In 2024, total EU–Bangladesh trade reached €22.2 billion, making Bangladesh the EU’s 36th-largest trading partner and positioning the EU as Bangladesh’s biggest export market.

Textiles accounted for nearly 94% of Bangladesh’s exports to the EU in 2024, while EU exports to Bangladesh were primarily machinery, appliances, and chemical products.

Why the EU–India FTA gives New Delhi an upper hand over Islamabad and Dhaka

Historically, Indian exporters faced less favourable access to European markets compared to their counterparts in Bangladesh and Pakistan. Prior to 2026, Most Favoured Nation (MFN) tariffs applied to Indian goods entering the EU. These MFN rates are standard, non-discriminatory tariffs imposed by World Trade Organization (WTO) members.

For example, MFN tariffs on marine and fishery products were around 26%, while textiles attracted duties of approximately 12%. Despite these disadvantages, trade between India and the EU expanded by nearly 90% over the past decade.

The EU is currently India’s largest trading partner, with bilateral trade in goods reaching €120 billion in 2024, accounting for 11.5% of India’s total trade. India, in turn, represented 2.4% of the EU’s overall goods trade, ranking as its ninth-largest trading partner.

The EU’s major imports from India include machinery and appliances, chemicals, base metals, mineral products, and textiles. Its key exports to India consist of transport equipment, chemicals, and machinery.

Once ratified, the EU–India FTA is expected to significantly deepen this already strong relationship. The proposed elimination of 90% of tariff lines — covering 91% of trade value — would provide a substantial boost to labour-intensive Indian sectors such as textiles, apparel, footwear, leather goods, and jewellery.

According to Reuters, India currently accounts for only about 3% of the EU’s $250-billion apparel market, which is dominated by china, Bangladesh, and Vietnam due to lower tariff barriers. With these barriers set to fall, industry experts anticipate much faster growth for Indian exporters.

Analysts and industry bodies estimate that India’s textile and apparel exports could grow by 20–25% annually once the FTA becomes fully operational, potentially pushing the sector towards an ambitious $100-billion export target by 2030.

Why the EU–India FTA has spooked Pakistan and Bangladesh

Although the EU–India Free Trade Agreement is unlikely to come into force before 2027, pending ratification by the European Parliament, the announcement alone has deeply alarmed exporters in Pakistan and Bangladesh.

Saquib Fayyaz Magoon, vice president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and chairman of the Businessmen Panel Progressive (BMPP), warned that the deal could seriously undermine Pakistan’s position in European markets.

“Once India secures zero-rated access under the EU deal, Pakistan’s advantage will vanish and our exports could suffer a severe blow,” Magoon told Dawn. He cautioned that losing market share in Europe could have long-term consequences, noting that re-entering lost markets is extremely difficult.

Drawing an analogy with Operation Sindoor, Magoon urged the Pakistani government to provide strong support to exporters, saying that just as the armed forces prevailed on the battlefield, the business community now needs help to fight an “economic war”.

Faisal Arshad, head of the Hosiery Manufacturers and Exporters Association, echoed these concerns. He warned that Indian exporters could aggressively undercut prices in the EU market, arguing that Pakistan’s reliance on GSP+ status alone is no longer sufficient.

“Tariff-free access without recognition of compliance and cost burdens creates an uneven playing field,” Arshad said, highlighting the structural challenges faced by Pakistani manufacturers.

In Bangladesh, the outlook is equally worrying, if not more so. The country is set to lose its duty-free access to the EU apparel market within three years after graduating from LDC status in November 2025. Combined with India’s impending duty-free access, this shift could steadily erode Bangladesh’s traditional dominance in European textile markets.

Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), told The Daily Star that the implications would be particularly severe for the apparel sector. He stressed that Bangladesh must urgently prepare to secure GSP+ status and explore bilateral free trade agreements to retain market access.

Fazlul Hoque, managing director of a knitwear factory exporting primarily to Europe, warned that the FTA could further weaken Bangladesh’s price competitiveness. He noted that if Bangladeshi exporters are forced to pay customs duties while competitors enjoy duty-free access, buyers would have strong incentives to divert orders elsewhere.

The EU–India Free Trade Agreement represents a structural shift that could redraw long-standing competitive hierarchies in global trade. While Bangladesh and Pakistan have relied on preferential regimes to support export growth, India’s entry on near-equal tariff terms introduces a powerful new competitor.

Unless Islamabad and Dhaka adapt swiftly through diplomatic engagement, trade diversification, and targeted industrial support, their privileged access to European markets may gradually erode in the years ahead.