India’s trade breakthrough is a wake-up call for Pakistan 

India’s newly concluded trade agreement with the European Union is being celebrated, understandably, as a diplomatic and economic success. By cutting tariffs on billions of euros’ worth of goods, the deal strengthens Europe’s efforts to diversify supply chains away from China while signalling India’s readiness to play a larger role in shaping the global trading system.

But beyond the immediate gains for Brussels and New Delhi, the agreement carries wider implications for South Asia, and particularly for Pakistan. It highlights a growing divergence within the region between countries that are adapting to a more fragmented global economy and those that remain trapped in older models of trade dependence and policy hesitation.

India has long approached free trade agreements cautiously, wary that domestic producers would be overwhelmed by imports. Its withdrawal from the Regional Comprehensive Economic Partnership in 2019 reflected that anxiety. The European deal suggests a shift in confidence. New Delhi now appears persuaded that its manufacturing base, services exports, and regulatory institutions are sufficiently robust to compete, and that strategic alignment with advanced economies matters more than protecting inefficient sectors.

Without deliberate coordination, India’s growing global integration is likely to bypass its neighbors rather than lift them.

- Javed Hassan

That confidence is not accidental. It has been built through sustained investment in human capital, physical infrastructure, and a gradual opening to foreign capital. As a result, India is no longer merely seeking access to markets; it is positioning itself to influence standards, supply chains, and investment flows. In today’s trade landscape, that distinction is decisive.

For India’s neighbors, the consequences are uneven. Smaller South Asian economies may benefit indirectly if they can integrate into Indian-centered value chains serving European demand. But such spillovers are far from automatic. South Asia remains one of the least economically integrated regions in the world. Political mistrust, weak logistics and a dense web of non-tariff barriers continue to suppress intra-regional trade.

Without deliberate coordination, India’s growing global integration is likely to bypass its neighbors rather than lift them.

Pakistan illustrates the risk most starkly. Islamabad currently enjoys preferential access to the European Union under the GSP+ scheme, which grants duty-free entry to many exports in exchange for compliance with international conventions on labor rights, governance and environmental standards. This access has supported textile exports and provided a measure of foreign exchange stability. But India’s agreement with the EU erodes the relative value of that advantage.

The threat to Pakistan is not the sudden loss of GSP+ status, but its gradual irrelevance. Trade preferences can offset inefficiency only for so long. Over time, productivity and reliability determine who survives. The deeper issue is structural. Pakistan’s export base remains narrow, heavily concentrated in low-value textiles and basic commodities. Productivity growth has been weak. High energy costs, inconsistent regulation and poor trade facilitation erode competitiveness. GSP+ has delivered market access, but not transformation. Too often, it has been treated as an alternative to reform rather than a bridge toward it.

India’s trade strategy offers an instructive contrast. Access has been paired with capability. That is the lesson Pakistan must absorb if it hopes to remain economically relevant. The task is less about defending preferences and more about upgrading its export ecosystem — investing in skills, complying credibly with international standards, and dismantling the tariff and tax structures that discourage exports. 

The implications extend to Pakistan’s ties with the Gulf region. For decades, the Gulf has been an economic safety valve, absorbing labor, providing remittances and supplying energy. More recently, it has emerged as a source of investment and preferential trade arrangements. 

These relationships offer opportunities, but also carry risks. Pakistan runs persistent trade deficits, importing far more than it exports. Without competitive export capacity, further trade liberalization could deepen dependence rather than reduce vulnerability. Preferential access is no substitute for supply-side readiness.

There is a broader regional cost as well. As India forges deeper economic ties with Europe and other advanced economies, South Asia risks becoming more fragmented, not less. The promise of regional integration, long invoked but rarely realized, looks increasingly hollow. Fragmentation means missed economies of scale, weaker bargaining power, and diminished influence in global trade negotiations.

Ultimately, India’s European deal underscores a simple but uncomfortable truth: modern trade is no longer primarily about tariffs. It is about institutions, credibility, and the ability to adapt to changing rules. Countries that invest in these foundations can use openness to accelerate development. Those that do not will find that remittances, preferences, and episodic capital inflows are insufficient to sustain growth.

For Pakistan, the choice is narrowing. It can continue to rely on negotiated exceptions and external lifelines, or it can confront the domestic constraints that limit its participation in the global economy. In a world where economic alliances increasingly shape political influence, standing still is not neutrality. It is a decision and rarely a benign one.

- Javed Hassan has worked in senior executive positions both in the profit and non-profit sectors in Pakistan and internationally. He was a senior visiting fellow at the Pakistan Study Center, Fudan University.

X: @javedhassan