On 27 January 2026, India and the European Union concluded negotiations for a landmark Free Trade Agreement (FTA), dubbed the “Mother of all Agreements.” The pact removes duties on nearly 99.5% of Indian exports, fundamentally reshaping the competitive dynamics of South Asian trade. For decades, India’s neighbors in the region, particularly Bangladesh and Pakistan, benefited from preferential access to the EU market. Bangladesh, under its Least Developed Country (LDC) Duty-Free Quota-Free (DFQF) status, and Pakistan, through GSP+ status, exported textiles and leather with zero duties, while India faced tariffs of 9–12% under the Most Favored Nation (MFN) regime. The new FTA effectively erodes these advantages, creating a sudden “preference shock” for these countries.
Bangladesh, the region’s largest garment exporter, faces the most immediate risk. The EU is the destination for roughly 60% of its ready-made garment exports, which previously relied on a 9–12% price advantage over Indian producers. Compounding this challenge, Bangladesh is scheduled to graduate from LDC status in late 2026. While it will retain preferential access during a transitional period, by 2029 it could revert to standard GSP or MFN terms. In that scenario, Indian exporters—who are more vertically integrated and can produce cotton, yarn, and finished garments domestically—could undercut Bangladeshi prices, potentially diverting significant trade to India.
Pakistan also faces pressures under the FTA. Its GSP+ status, granted since 2014, provides duty-free access on about 66% of tariff lines, supporting its textile sector. In contrast, the India-EU FTA offers nearly full tariff elimination for Indian exports without the conditional human rights and labor reviews that Pakistan faces under GSP+. Given India’s larger and more diversified industrial base, European buyers may shift sourcing to India to consolidate supply chains across apparel, machinery, and chemicals, leaving Pakistan more isolated as a primarily textile-focused exporter.
Sri Lanka, another GSP+ beneficiary with a strong apparel sector, encounters similar competitive pressures from the India-EU FTA. With India gaining near-complete tariff-free access and a diversified industrial base, regional competitors may experience reduced market share in the EU, forcing them to reevaluate export strategies and competitiveness in the coming years.
