Economic Fallout: The EU-India Free Trade Agreement and Pakistans Trade Vulnerability

Usman Qadir and Amjad Masood
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Usman Qadir: Pakistan Institute of Development Economics, Islamabad
Amjad Masood: Pakistan Institute of Development Economics, Islamabad

No 2026:52, PIDE Policy View Point from Pakistan Institute of Development Economics

Abstract: The European Union-India Free Trade Agreement (FTA), signed on January 27, 2026, marks a strategic development in the global political economy. The agreement offers tariff reductions, thereby facilitating greater access of Indian exports to the EU market across a wide range of goods, with limited coverage of agricultural products. In bilateral trade terms, the FTA holds significant implications for economies, including Pakistan, that are considerably dependent on the European Union as a major export destination. A preliminary analysis based on Computable General Equilibrium (CGE) simulations suggests that Indias exports to the EU could increase by between 21.23% and 33.63% as a result of improved market access and its larger production base. In absolute terms, this translates into an estimated additional export gain of approximately USD 16.7-26.5 billion. Part of this increase would arise from trade diversion away from competing exporters. For Pakistan, exports to the EU are projected to decline by between 0.12% and 0.18% in the short term, equivalent to a modest reduction of roughly USD 11-16 million.

Keywords: EU India FTA 2026; Pakistan exports EU impact; trade diversion analysis; CGE simulation trade effects; GSP Plus Pakistan EU; textile exports competition; India EU trade growth; Pakistan trade competitiveness; EU import textile market share; global trade policy analysis (search for similar items in EconPapers)
Pages: 8 pages
Date: 2026
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