The recently concluded European Union-India Free Trade Agreement (FTA), finalized in early 2026 after nearly two decades of negotiations, represents a structural shift in global trade architecture, one that places the services sector at the core of export competitiveness. For Pakistan, this agreement is not merely an economic development between third parties; it is a strategic benchmark that highlights urgent priorities for national export strategy and long-term external sector resilience.
Even before the FTA was fully ratified, services trade between India and the EU had nearly doubled in just a few years, reaching approximately Euro 60 billion in 2023. India’s total services exports exceeded USD 380 billion in FY2024-25, representing more than 40 percent of its overall export basket. By contrast, Pakistan’s services exports remain modest, about USD 6-7 billion in the same period. Trade in services between Pakistan and the EU is estimated at around Euro 2 billion annually, a fraction of India’s services linkage with Europe.
The breadth of services covered in the India-EU FTA is remarkable: preferential market access commitments in over 140 services subsectors, including IT, business process outsourcing, financial services, telecommunications, and professional consulting. Furthermore, the agreement includes clear regulatory commitments and frameworks to enhance market access predictability and temporary mobility for skilled professionals, crucial enablers for services firms.
These provisions go well beyond the status quo under the World Trade Organization’s General Agreement on Trade in Services (GATS), signalling a new generation of trade agreements where services are systematically integrated into the core of trade liberalization.
Global trade dynamics are evolving. Traditional goods-focused exports, while still important, face increasing pressure from supply chain disruptions, tariff competition, and input cost volatility. Services exports, on the other hand, tend to carry higher value-added, are less trade-cost sensitive, and often reinforce competitive advantages in technology, knowledge, and human capital.
India’s services performance illustrates this shift. The IT and software sector alone accounts for around half of India’s services exports, with strong demand from Europe, North America, and global markets. Services have also helped moderate India’s current account dynamics, providing stability amid volatile commodity prices.
Pakistan’s services sector has grown, but the scale is comparatively small. The incremental increase in IT exports, an area of noted progress, still represents a tiny share of global potential. Crucially, Pakistan’s economic strategy remains heavily skewed toward textile and apparel exports, which accounted for an estimated 60-65 percent of total exports in FY2024-25. While textiles benefit from preferential market access under the EU’s GSP+ scheme, discretionary tariff preferences are not a long-term substitute for deeper, rules-based integration.
In light of the India-EU FTA, several strategic lessons emerge for Pakistan’s policymakers and export community:
Pakistan must broaden its export base beyond traditional goods to high value-added services, especially information technology, digital services, creative industries, and professional services. These sectors enjoy strong global demand and can be scaled rapidly with appropriate policy backing.
Competitive services trade requires regulatory credibility. Pakistan needs modern frameworks around data protection, cybersecurity, digital payments, and financial services compliance. Aligning domestic regulation with international norms enhances market access and reduces transaction risk for exporters.
Negotiations with the EU and other major economies (the United Kingdom, Gulf Cooperation Council, ASEAN) should prioritize services liberalization and mobility commitments. Business communities consistently cite restrictive visas and unclear regulatory pathways as barriers to services trade, issues that structured trade negotiations can address.
India’s success is grounded in decades of investment in technical education, digital infrastructure, and human capital. Pakistan must accelerate initiatives that build skills pipelines in software development, data analytics, fintech, and other emerging services fields. This includes incentivizing certification programmes, industry clustering, upskilling initiatives, and expansion of broadband access.
Pakistan’s export promotion focus has traditionally been goods-centric. Establishing dedicated support, including advisory services for regulatory compliance, export contracting, intellectual property protection, and cross-border taxation, will enable service firms to compete more effectively abroad.
The India-EU FTA is more than a commercial agreement; it is a blueprint for how advanced economies are integrating services into their trade strategies. For Pakistan, the implications are both competitive and aspirational. Without a deliberate pivot to services exports backed by structural reforms and trade diplomacy, Pakistan risks ceding ground in vital segments of the future global economy.
The recent gains in Pakistan’s IT exports, with reported double-digit growth rates in early 2025-26, are encouraging. However, to transition from niche growth to substantive contribution to national export earnings, Pakistan needs to embed services trade into its macroeconomic strategy, not as an afterthought, but as a central pillar.
The India-EU deal should serve as a wake-up call: economies that integrate robust services trade frameworks alongside traditional exports will be better positioned to navigate global volatility, attract investment, and secure long-term economic growth. For Pakistan, the future of export competitiveness depends on embracing this shift with urgency and strategic clarity.
(The writer is an Associate Research Fellow, Sustainable Development Policy Institute (SDPI))
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