How India's "Mother Of All Deals" With EU Wipes Out Pakistan's Trade Advantage

India and the European Union signed a Free Trade Agreement in New Delhi on January 27, after 20 years of negotiations. The pact brings together two economies representing almost a quarter of the world's population, 25 per cent of global GDP, and 2 billion people.

However, Pakistan said on Thursday that it was in touch with European Union authorities to tackle any impact on its exports in the wake of a trade agreement between India and the 27-nation bloc.

Why Pakistan Fears The India-EU FTA

For years, Pakistan has held a competitive advantage over India in the European market due to the Generalised Scheme of Preferences Plus (GSP) status. Through this, Pakistan enjoyed zero-duty access to the EU for nearly 66 per cent of its export lines, including textiles and apparel. On the other hand, Indian exporters faced significant tariffs, often ranging from 9 per cent to 12 per cent for similar goods.

Pakistan's textile exports stand at $6.2 billion, marginally ahead of India's $5.6 billion exports, despite the latter facing tariffs.

The "mother of all deals" gives India sweeping duty-free access to the EU, effectively neutralising Pakistan's advantage over India. Moreover, Pakistan's GSP status, which was granted by the EU in 2014, will expire in December next year. 

In the wake of the landmark FTA billed as the "mother of all deals", the business community in Pakistan fears losing its export edge against other competitors since the EU remains Pakistan's largest export destination.

Now Pakistan faces a double-edged sword. They are losing their pricing edge to India through the trade deal, and they face the potential total loss of their own preferential access if the GSP+ is not renewed after 2027.

How Pakistan Has Reacted

"India has become significantly more competitive in the EU market, effectively neutralising and, in several segments, overtaking Pakistan's GSP+ advantage," said Kamran Arshad, chief of the All Pakistan Textile Mills Association.

Saquib Fayyaz Magoon, chairman of the Businessmen Panel Progressive (BMPP) and vice president of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI), told the Dawn that, "Once India secures zero-rated access under the EU deal, Pakistan's advantage will vanish and our exports could suffer a severe blow." He warned that once the market is lost, regaining entry becomes "extremely difficult".

"The EU GSP+ scheme for Pakistan has proven to be a win-win template for bilateral cooperation, both for Pakistan and the EU. Imports of textiles and apparel from Pakistan to the EU cater for the consumer market, providing an uninterrupted supply of affordable goods through the arrangement," Tahir Andrabi, spokesperson of the Ministry of Foreign Affairs of Pakistan, said.

He said that the issue of the GSP+ matter came under discussion during the strategic dialogue held late last year, and it also figured in numerous subsequent engagements with the EU and with the constituent countries of the EU.

"We are following this matter bilaterally with the EU member states and also collectively with the EU headquarters in Brussels," he said.

Pakistan's former Commerce Minister, Dr Gohar Ejaz, in a scathing post on social media, wrote that Islamabad's "zero-tariff honeymoon" with the EU was over and that 10 million jobs were at risk.

"The Government of Pakistan must enable industry to compete in the region at regional energy, tax, and financing costs. Industry can no longer bear the burden of systemic inefficiencies," he wrote.

Once implemented, nearly 95 per cent of Indian "labour-intensive" exports will enjoy duty-free access to the European Union, while the import of luxury cars and wines from there will become less expensive in India.