Major Features of the UK, India FTA

The United Kingdom and the Republic of India concluded negotiations on a Comprehensive Free Trade Agreement (FTA) on 6 May 2025. The agreement was subsequently signed on 24 July 2025. Alongside the FTA, both nations have agreed to negotiate a Double Contributions Convention (DCC), which will come into force in line with the wider trade deal.

Through this deal, India will remove or reduce tariffs on 90% of tariff lines, covering 92% of existing goods imports from the UK. India on the other hand will cut tariffs worth approximately €400 million annually, which is projected to more than double to around €900 million after ten years of staging.

The United Kingdom and Pakistan

The trade relationship between Pakistan and the United Kingdom is robust and growing, with bilateral trade reaching a record high of over €5.5 billion, establishing the UK as Pakistan’s third-largest export destination and its most significant economic partner in Europe. This partnership is characterized by a strong UK investment presence, with more than 200 British companies operating in Pakistan and contributing over €3 billion in investment, playing a vital role in employment, technology transfer, and tax revenues.

Export Portfolio Diversification (EPD) Matrix

The Export Portfolio Diversification (EPD) Matrix is a tool used to evaluate the performance and potential of export products across different markets.

• Rising Stars (28 sectors): Pakistan is capturing market share in a growing UK market, led by a structural pivot from raw textiles toward value-added agribusiness and high-tech sectors like electrical machinery (+23%) and pharmaceuticals (+13%).
• Lost Opportunity (8 sectors): Despite a contracting overall UK import market, Pakistani suppliers successfully expanded their market footprint in home textiles (+1%), iron/steel (+12%), and resilient niche segments.
• Retreat (10 sectors): Capital is naturally migrating away from low-value, raw commodities (like raw cotton and fibers) as both UK demand and Pakistani production contract in tandem toward an orderly structural phase-out.
• Falling Stars (22 sectors): Trade policymakers face severe competitive erosion in expanding UK markets, marked by declining shares in core agribusiness (rice, spices, dairy) and critical heavy manufacturing (machinery, aviation, aluminum).

Table 1: Pakistan’s Competitive Advantages in the UK Market

Key Findings:

1. The India-UK FTA facilitates significant tariff liberalization on premium British commodities. India will immediately reduce its import duties on Scotch whisky from 150% to 75%, alongside a structured reduction in automotive tariffs—historically capped at 110%—down to 10% under a preferential tariff rate quota (TRQ) mechanism.
2. UK companies get a special shortcut to bid on Indian government contracts. They will get preferred treatment as long as 20% of their product comes from the UK. However, this deal only covers the central government, completely leaving out India’s massive state-level public spending.
3. The deal fails to help the UK’s strongest sector: financial services. Foreign ownership in Indian banks and insurance firms remains permanently capped at 74%, and India has refused to loosen its strict licensing rules for foreign banks.
4. Trade patterns are changing fast. Indian smartphone exports to the UK went from zero to €1.2 billion in just a few years. Meanwhile, pearls have surprisingly become the UK’s single largest export to India, peaking at €6.2 billion.
5. British investment into India doubled in a single year, making the UK India’s fourth-largest source of foreign funding. At the same time, the number of Indian-owned businesses operating inside the UK grew by 60%, pulling in nearly €106 billion in revenue.
6. Pakistan-UK trade has hit an all-time high of over €5.5 billion, making the UK Pakistan’s third-largest export market. More than 200 British companies are active in Pakistan, contributing nearly €3 billion in investment.
7. On the basis of the DCTS – UK’s trading scheme, 94% of Pakistani goods enter the UK tax-free, saving local exporters around €120 million a year. The remaining 6% face standard global taxes.
8. To sell to top British retailers, Pakistani factories must prove they follow international standards (like organic or sustainable cotton rules). However, the high cost of getting these official certificates blocks smaller Pakistani firms from competing.
9. Pakistan relies on just four markets—the US, EU, UK, and China—for 60% of its entire export economy. This concentration makes Pakistan highly vulnerable if any of these nations decide to change or cancel their trade favor schemes.

Recommendations

1. Move from a basic proposal to active negotiations for a formal Free Trade Agreement. This locks in permanent, guaranteed trade benefits instead of relying on temporary, one-sided UK preference schemes (like the DCTS).
2. Create a government grant to help medium-sized textile and clothing companies pay for international environmental and labor certifications. This will help them meet the strict standards required by British retailers.
3. Set up a monitoring team to watch how the new India-UK trade deal changes British regulations. This ensures new labeling rules or standards do not quietly push Pakistani goods out of the market.
4. Use Pakistan’s embassy network & the Pakistani diaspora in London to connect local food brands with major UK supermarkets. Fast-growing sectors like processed foods (+29%) and bakery products (+19%) face fewer border checks than raw crops and have massive growth potential.
5. Stop relying permanently on one-sided trading favors from foreign governments, which can be canceled at any time. Instead, focus long-term policy on cutting domestic manufacturing costs, improving shipping logistics, and making Pakistan genuinely competitive on its own merits.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The study identifies significant unrealized export opportunities across a broad range of sectors and markets. It evaluates Pakistan’s existing export strengths, highlights areas where exports remain below potential, and identifies new product categories that could support diversification and long-term export growth. The findings aim to support policymakers, businesses, and trade institutions in designing more targeted export promotion strategies and strengthening Pakistan’s integration into global markets.

Pakistan’s Export Structure Remains Highly Concentrated

Pakistan’s export basket continues to be dominated by a limited number of sectors, particularly textiles and apparel, along with selected agricultural products. While these sectors remain important sources of export earnings, the high concentration of exports increases vulnerability to external demand shocks, price fluctuations, and changes in global market conditions. The analysis highlights the need to broaden the export base and reduce dependence on a narrow range of products.

Figure 1: Distribution of Pakistan’s Exports Across Sectors

Source ITC

Pakistan Lags Behind Regional Competitors in Export Diversification

A comparison with major Asian economies shows that Pakistan’s export diversification remains relatively limited. Countries such as China, Vietnam, and India have developed broader export baskets and stronger participation in diversified global value chains. Pakistan continues to rely on a narrower range of products and demonstrates lower product diversification, restricting its ability to capture emerging opportunities in global trade.

Figure 2: Comparative Overview of Export Diversification Performance

Source ITC

Export Diversification and Competitiveness Opportunities

The study identifies significant opportunities to diversify Pakistan’s exports beyond its traditional export base. Promising prospects exist in industrial and intermediate goods, chemicals, plastics, fertilizers, processed foods, fisheries, fruits and vegetables, construction materials, light manufacturing, and selected consumer products.

Developed markets offer high-value opportunities but require greater compliance with international standards, stronger quality assurance, and higher levels of product differentiation. In contrast, regional and emerging markets provide relatively easier access for price-competitive products and intermediate goods.

The competitiveness analysis shows that Pakistan has an established presence in several export categories but remains concentrated in lower and middle-value segments. In most developed markets, Pakistan’s competitiveness is driven primarily by cost advantages rather than branding, innovation, or quality positioning.

Strengthening value addition, product upgrading, branding, and quality enhancement will be essential for improving competitiveness, expanding market penetration, and achieving sustainable export diversification.

Challenges

Infrastructure and Logistics Constraints

Weak transport infrastructure, inefficient logistics systems, and high trade costs continue to undermine export competitiveness. Port inefficiencies, inadequate warehousing facilities, limited cold-chain infrastructure, and reliance on road transport increase shipment costs and reduce the reliability of export supply chains, particularly for high-value and time-sensitive products.

Low Productivity and Limited Value Addition

Pakistan’s exports remain concentrated in low-to-medium value segments, reflecting persistent productivity challenges and limited product upgrading. Weak industrial efficiency, low technological adoption, and insufficient investment in branding, innovation, and quality enhancement constrain the country’s ability to compete in higher-value international markets.

Regulatory and Institutional Inefficiencies

Complex regulatory procedures, weak institutional coordination, and high compliance costs increase the cost of doing business and discourage export expansion. Small and medium-sized enterprises (SMEs) are particularly affected by limited access to formal finance, cumbersome procedures, and difficulties in meeting international standards and certification requirements.

Macroeconomic Instability and Policy Uncertainty

Recurring macroeconomic imbalances, exchange rate volatility, inflationary pressures, and rising production costs create uncertainty for exporters and investors. Frequent policy changes and inconsistent implementation further weaken long-term business planning and reduce confidence in export-oriented investments.

Weak Integration into Global Value Chains

Pakistan remains insufficiently integrated into regional and global production networks. Limited participation in higher value-added stages of production, weak linkages with multinational supply chains, and low export sophistication continue to restrict opportunities for sustained export growth and diversification.

Recommendations

Targeted Export Diversification

Reducing export concentration requires a shift from broad sector-based support toward product-specific export promotion. Priority should be given to products and sectors with demonstrated export potential, particularly processed foods, fisheries, pharmaceuticals, chemicals, light manufacturing, and selected industrial products.

Upgrading Competitiveness and Value Addition

Improving competitiveness will require greater focus on product quality, innovation, branding, certification, and value addition. Strengthening Pakistan’s position in higher-value market segments can enhance export earnings and reduce dependence on price-based competition.

Improving Trade Facilitation and Logistics

Investments in transport infrastructure, logistics services, customs modernization, and trade facilitation measures are essential to reduce export costs and improve supply chain efficiency. Better logistics performance can enhance market access and strengthen Pakistan’s competitiveness in international markets.

Strengthening Market Intelligence and Export Promotion

More effective trade intelligence systems are needed to align export products with market-specific demand. Enhanced use of product-level analysis, buyer networks, trade promotion activities, and market information platforms can improve export penetration and support diversification efforts.

European Union Regulations Applicability to Pakistan

Pakistani companies do not have to file directly under these EU rules. However, EU buyers will require Pakistani manufacturers to meet these standards as a condition for doing business and the compliance burden will ultimately fall on Pakistani factories. The expected timeline of the new regulations and their impact is given below.

Table 1: EU Regulations Applicability to Pakistan

Recommendations

The recommendations for helping Pakistan comply with the EU’s new protocols as they relate to Pakistan’s textile exports to the EU are summarized below.

1. Unified Compliance Framework: A standardised compliance and auditing system aligned with EU requirements needs to be developed. Its cost should be shared between manufacturers, the export industry, government of Pakistan, and buyers.
2. Incentives for Compliance Investment: There should be tax benefits or rebates as incentives for companies that implement with such initiatives.
3. Long-Term Energy Policy: The government needs to provide long-term stability in energy pricing so companies can make sustainable investment decisions with lower risk.
4. Resolve EFS Sales Tax: Imported chemicals benefit from duty exemptions, while compliant local chemical manufacturers and their customers are not treated equally. It needs to be resolved so that compliant manufacturers are not disadvantaged.
5. Shared Infrastructure for SMEs: Centralised Effluent Treatment Plants (CETPs – shared wastewater treatment facilities for clusters of factories) and special economic zones with shared infrastructure would reduce the per-unit compliance cost for smaller manufacturers. Government incentives for renewable energy and wastewater recycling are also needed.
6. Accelerate the National Digital Product Passport (DPP) Platform: The National Compliance Centre’s national DPP dashboard needs to be fast-tracked, formally funded, and integrated with the Pakistan Single Window system at minimal transaction cost to SMEs.
7. SME Financial and Technical Support: SMEs that cannot afford the initial investment for compliance software or infrastructure should receive financial support through available funds, green loans or other handholding financial support.
8. Upgraded Chemical Testing Infrastructure: Upgraded chemical testing labs are needed for the sector. A national-level investment in accessible, affordable testing infrastructure would reduce dependence on expensive third-party or overseas testing.
9. Link Compliance to Business Volume: Brands and buyers should have a dialogue with their suppliers making clear that if suppliers comply, buyers will buy more from them. It should be linked directly to more business.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The study finds that Pakistan trades almost nothing with the five EAEU member states i.e. Russia, Kazakhstan, Kyrgyzstan, Belarus and Armenia, despite their combined GDP of $2.6 trillion and a population of 183 million. Exports stood at $355 million and imports at $667 million in 2024 and these figures have barely moved since the bloc’s inception in 2015. Two recent developments however have made the cost of that void impossible to ignore.

The closure of the Strait of Hormuz has disrupted the Gulf energy shipments Pakistan relies on and second is the  India‑EU Free Trade Agreement of January 2026 which has removed a 10 to 12 percent tariff advantage that Pakistani textiles held in European markets for two decades under the EU GSP+

Using mirror trade data from the International Trade Centre and UN Comtrade, Export potential under a comprehensive FTA with the EAEU exceeds $9 billion annually, with textiles and apparel accounting for more than half of the identified potential.

Figure a: Pakistan’s Export Potential by Strategic Cluster (Values in USD Million)

Note: Potential estimates assume full diversion of global trade flows to the bilateral corridor. Actual outcomes will depend on enabling factors. The realistic near‑term potential (10-15% capture) would be lower.

On the import side, the EAEU can supply nearly all of Pakistan’s crude oil, natural gas, diesel, fertilisers, polymers, and base metals.

Figure b: Pakistan’s Import Potential by Strategic Clusters (Values in USD Million)

Note: Potential estimates assume full diversion of global trade flows to the bilateral corridor. Actual outcomes will depend on enabling factors. The realistic near‑term potential (10-15% capture) would be lower.

Three operational shortcomings block the flow.

• First, no reliable cross‑border payment channel exists under sanctions. Banks hesitate to process transactions to Russia and Belarus. Workarounds through Dubai, Hong Kong, or cryptocurrency are inefficient and inaccessible to most firms.
• Second, no integrated logistics corridor for perishable goods has been developed. The overland route through Afghanistan is closed. The maritime route is slow and expensive. A new road corridor through Iran opened in April 2026, but it is not yet a fully functional
• Third, mutual recognition of sanitary and industrial standards has not been agreed. Every shipment faces fresh inspections.

A phased roadmap is recommended

The report recommends action across three time horizons. Each horizon addresses specific constraints.

Immediate (0‑24 months)

• Establish a government‑backed non‑dollar settlement channel using rupee‑ruble or rupee‑yuan accounts at designated public banks
• Back exports with export credit guarantees to de‑risk transactions for small and medium sized enterprises
• Reduce the LNG tariff on imports from 11 percent to 2‑3 percent
• Negotiate a limited preferential agreement covering textiles, agricultural products, and other low hanging fruits with high export potential
• Publish clear customs procedures for the Pak‑Iran Transit Corridor and negotiate transit agreements with Iran and Turkmenistan

Medium‑term (3‑5 years)

• Complete the Uzbekistan‑Afghanistan‑Pakistan railway line to cut transit time from 35‑45 days by sea to 20‑25 days by rail
• Negotiate mutual recognition agreements for phytosanitary, pharmaceutical, and industrial standards
• Formalise the role of the Belarusian Universal Commodity Exchange as a secure settlement platform
• Establish a joint working group with central banks to resolve operational payment issues

Long‑term (5+ years)

• Pursue a comprehensive free trade agreement covering all goods, services, investment, and government procurement
• Promote joint ventures in textiles where EAEU members supply machinery and technology and Pakistan contributes raw cotton and labour.
• Promote joint ventures in agricultural machinery by drawing on EAEU members with manufacturing capacity for tractors and harvesters to support local assembly in Pakistan.
• Position Pakistan as a regional energy trading hub by upgrading refining capacity and securing long‑term supply contracts with Russian and Kazakh producers

Political will is present

Kazakhstan and Uzbekistan sent their presidents to Islamabad in early 2026. Pakistan and Armenia established diplomatic relations. The EAEU and Pakistan agreed in April 2026 to form a joint feasibility study group. What remains is the detailed work of implementation. This report provides the evidence and the roadmap for that work. The cost of inaction is continued dependence on a single maritime chokepoint for energy and a single export market for manufactured goods. However, the cost of building the necessary infrastructure is manageable. The choice is whether to start now or to wait until the next crisis makes the decision unavoidable.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The European Union and India

On January 27, 2026, India and the EU finalized a historic FTA at the 16th India-EU Summit in New Delhi, concluding negotiations that began in 2007. The agreement creates a free trade zone of nearly 2 billion people with a combined market of over €22 trillion, accounting for one-fifth of global GDP and one-quarter of the world’s population. With bilateral goods trade already at €120 billion annually (plus €59.8 billion in services), the FTA is expected to double EU goods exports to India by 2032. This agreement represents the most ambitious trade liberalization India has ever granted and one of the largest trade agreements ever negotiated.

In August 2025, the US imposed punitive tariffs of up to 50% on 70% of Indian exports—including textiles, auto parts, steel, gems, pharmaceuticals, and chemicals—due to India’s Russian oil imports. The Kiel Institute estimated this would reduce India’s output by 1.64% (≈€53 billion annually). Meanwhile, the US also threatened tariffs on European goods in early 2025 over Greenland-related disputes, prompting India-EU collaboration.

The agreement provides unprecedented market access on both sides, with the EU eliminating tariffs on over 90% of tariff lines (99.3% by value) and India eliminating tariffs on 86% of tariff lines (96.6% by value). Overall, the tariff reductions will save around €4 billion per year in duties on European products.

The European Union and Pakistan

The EU is Pakistan’s third largest export destination and second-largest trading partner overall. Total bilateral trade stood at approximately €12 billion in 2025. Pakistan’s exports to the EU reached €8.69 billion in 2025. Since 2014, Pakistan has benefited from the EU’s GSP+ scheme, which grants duty-free access to approximately 66% of its tariff lines.

Export Portfolio Diversification (EPD) Matrix

The Export Portfolio Diversification (EPD) Matrix is a tool used to evaluate the performance and potential of export products across different markets. The EPD Matrix below represent the analysis of the products with import value greater than €10 million on the HS-02 Level.

Rising Stars (High EU & Pakistan growth), led by textile articles (HS 63) and niche sectors like medical instruments (HS 90), are Pakistan’s top priority for investment. Lost Opportunities (High EU growth / Low Pakistan growth), including pharmaceuticals (HS 30) and machinery (HS 84) reveal critical underperformance in fast-growing EU markets. Falling Stars (Low EU growth / High Pakistan growth): mainly traditional textiles like cotton (HS 52) serve as stable cash cows needing efficiency and market defense. Retreat (Low EU & Pakistan growth) such as iron and steel (HS 72) and raw hides (HS 41) represent declining sectors with little strategic value.

Key Findings

1. Pakistan is the world’s largest beneficiary of the GSP+ scheme. Approximately 86% of its exports to the EU use these preferences, with a 95% utilization rate. This creates a “single-point-of-failure” risk; any change in GSP+ status would immediately jeopardize a significant volume in trade.
2. With the India-EU Free Trade Agreement finalized in early 2026, India’s current 12% tariff disadvantage in textiles is being phased out. Once India reaches zero-duty access, Pakistan will lose its tariff edge unless it improves quality and sustainability.
3. Pakistan has worked on improving its regional industrial competitiveness by implementing a major tariff reform in February 2026. By reducing electricity rates from a high of 11.9 Euro cents/kWh (which caused 150+ factory closures) to approximately 7.9–8.1 Euro cents/kWh. The revised tariffs are however officially notified to remain in effect only until December 31, 2026.
4. A critical layer of uncertainty is the expiration of Pakistan’s current GSP+ scheme in December 2027. This creates a “cliff-edge” scenario:
   1. Scenario 1 (Renewal with Conditions): Even if GSP+ is renewed, Pakistan will face continued compliance costs and periodic reviews, while India enjoys unconditional FTA access. The playing field will be tilted in India’s favor on certainty, if not on tariffs.
   2. Scenario 2 (Non-Renewal): If GSP+ is not renewed, Pakistan’s exports to the EU would revert to Standard GSP (with partial preferences) or Most Favored Nation (MFN) terms, facing duties of approximately 9–12%. In this scenario, Indian goods would have a 9–12% price advantage over Pakistani goods in the EU market.
5. Foreign Direct Investment (FDI): The India-EU FTA acts as a powerful magnet for investors, offering a stable, rules-based framework and access to a massive market. With 6,000 European companies already in India and goals to double bilateral trade, European firms are “preparing for a post-ratification phase” by expanding manufacturing in India.

Recommendations

1. Pakistan must stop futile comparisons with India and pivot inward, focusing on what it can uniquely offer the world. The India-EU FTA signals that relying on tariff preferences is outdated; instead, Pakistan needs a competitive, diversified export sector through energy cost reduction, compliance upgrades, market diversification, and securing GSP+ beyond 2027. Competitiveness, not fear, is the only durable defence.
2. Pakistan’s heavy reliance on cotton-based textiles (over 70% of exports) ignores the market reality that man-made fibers (MMF) now account for 74% of global fiber consumption. Shifting to MMF would break the climate-vulnerable “Cotton Trap,” reduce water footprints, and open high-value technical textile markets like medical gowns and automotive airbags—diversifying exports beyond shrinking traditional apparel segments.
3. Pakistan must launch an urgent diplomatic offensive to secure GSP+ renewal beyond 2027 by demonstrating compliance with 32 EU conventions and negotiating for ‘Single Transformation’ rules to access high-growth MMF segments. Resources should shift from declining products (basic bedlinen) to high-demand categories like athletic wear and medical textiles, while institutionalizing factory-level labor and environmental monitoring to pass the 2026 EU inspection.
4. Creating sector-specific credit guarantee schemes for high-potential export industries: Commercial banks often refuse to lend to exporters, especially in new or “high-potential” sectors (like IT, engineering, or pharmaceuticals) because they view them as risky. A credit guarantee scheme acts as a government-backed safety net. Pakistan already has the SME Asaan Finance (SAAF) scheme. This concept can be extended and refined specifically for “Export to EU” sectors, requiring less fiscal outlay than a bank and providing immediate liquidity to high-growth areas.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The study examines the major trade corridors linking Pakistan with Afghanistan, the Central Asian Republics (CARs), Russia, and beyond into Europe. It identifies key border crossings, transit routes, and road networks that facilitate regional trade flows, while also highlighting existing bottlenecks and inefficiencies affecting cross-border connectivity.

As part of this analysis, the study explores opportunities to enhance trade integration with Afghanistan, Central Asian Republic, (Turkmenistan, Uzbekistan, Tajikistan, Kazakhstan, Kyrgyzstan) Russia, and Europe focusing on both current infrastructure and future connectivity prospects. It also evaluates the long-term potential of developing these corridors into a more efficient and integrated regional trade network. The study is undertaken within the broader framework of promoting Pakistan’s role as a regional trade and transit hub. By identifying strategic opportunities and constraints, it aims to provide actionable insights and policy recommendations to strengthen connectivity, improve transit trade efficiency, and support regional economic integration between Pakistan, Afghanistan, Central Asia, Russia, and Europe.

Demographic and Economic Foundations

Pakistan’s large and growing population—exceeding 251 million in 2024—provides both a substantial domestic market and a labor base that can support trade-led growth. Although population growth has gradually moderated, urbanization is accelerating, reinforcing demand for infrastructure, logistics, and trade-related services. Economically, Pakistan showed signs of stabilization in 2024, with a GDP of US$380 billion and growth recovering to 2.26 percent, alongside a sharp decline in inflation. However, persistent trade deficits underscore structural weaknesses in export competitiveness and highlight the importance of leveraging transit trade as a complementary growth channel.

Pakistan–Afghanistan Trade Routes Connecting Major Cities

Pakistan’s overland corridors with Afghanistan serve as critical gateways for bilateral and regional trade, enabling access to Central Asian markets. Key routes—including Peshawar–Kabul, Ghulam Khan–Kabul, Quetta–Kandahar, Kamr-din-karez–Moqar and Angoor Adda–Ghazni—enhance cross-border connectivity, strengthen trade integration, and promote regional economic cooperation. Major border crossings such as Torkham, Chaman, and Ghulam Khan link Pakistani cities to key commercial hubs like Kabul, Kandahar, and Herat, facilitating efficient transit trade and supporting Pakistan’s role as a regional trade hub.

Figure: 1 Map of Pakistan’s Trade Routes to Afghanistan

Source: USAID| PREIA -Pakistan Regional Economic Integration Activity

Pakistan Transit Trade Corridor to Central Asia Via Afghanistan

Pakistan’s transit trade routes to Central Asia, using Afghanistan as a land bridge, are vital for enhancing regional connectivity and expanding economic opportunities. Key corridors—including Torkham, Ghulam Khan, Chaman, Badini Trade Terminal, and Zhob (Kamr-ud-Din Karez)—link Pakistan with major Afghan hubs such as Kabul and Kandahar, from where road networks extend to Turkmenistan, Uzbekistan, Tajikistan, Kazakhstan, and Kyrgyzstan. These routes facilitate the movement of goods, strengthen Pakistan’s regional trade presence, and support broader economic integration across South and Central Asia.

Pakistan– Afghanistan–Tajikistan Transit Trade Route

The Pakistan–Afghanistan-Tajikistan transit trade route provides an important regional trade link. The primary route originates in Peshawar, enters Afghanistan via the Torkham border, passes through Kabul, and continues to Sher Khan Bandar before crossing into Tajikistan and reaching Dushanbe. An alternative route runs from Pul-e-Khumri to the Hairatan border, transits through Uzbekistan, and then connects to Tajikistan, while also leading to Dushanbe as an alternate. Together, these routes enhance bilateral and regional trade connectivity and provide Pakistan with strategic access to Central Asian markets.

Figure: 2 Map of Pakistan’s Trade Routes to Tajikistan Via Afghanistan

Source: USAID | PREIA

Export Opportunities for Pakistan in the Central Asian Republics and Russia

Untapped Market Potential

The analysis reveals significant gaps between Central Asian Republics’ imports from the world and from Pakistan, indicating substantial untapped export potential. Despite strong global export performance, Pakistan’s market share in CARs remains limited, particularly in high-demand products.

High-Potential Product Categories

Key export opportunities exist in pharmaceuticals, citrus fruits, rice, potatoes, sugar, textiles, sports goods, soaps, and processed foods. Products such as medicaments, mandarins, rice, and sugar show high demand in the CARs markets, while Pakistan has proven export capacity in these sectors.

Priority Markets in Central Asia

Uzbekistan and Kazakhstan emerge as the largest and most promising markets, followed by Tajikistan and Kyrgyzstan, where Pakistani exports have shown gradual growth. Turkmenistan, although smaller, also presents opportunities in selected products.

Pakistan’s Export Opportunities, Potential, and Comparison of Key Economic Indicators with Central Asia and Russia (2024)

Pakistan’s exports to the Central Asian Republics (CARs) remain limited despite considerable potential. The estimated export potential is about $436 million, while current exports are only around $202 million, indicating a large untapped market. Among the CARs, Kazakhstan and Uzbekistan offer the greatest opportunities due to their larger economies, higher purchasing power, and sizeable populations. Beyond Central Asia, Russia represents an even larger market in the Eurasian region, with a GDP of about $2.09 trillion, a population exceeding 143 million, and relatively high per capita income, making it an important potential destination for Pakistan’s exports.

Table: 1 Pakistan’s Export Potential and Key Economic Indicators (2024)

Challenges

Worsening Internal Security Conditions in Pakistan

Border Provinces, particularly Khyber Pakhtunkhwa and Balochistan, have experienced rising security challenges due to increased militant activity. This has disrupted trade routes, heightened transportation risks, and increased the cost of doing business, negatively affecting trade with Central Asia.

Cross-Border Tensions and Regional Security Risks

Ongoing tensions between Pakistan and Afghanistan have resulted in periodic border closures, causing delays and supply chain disruptions. Persistent security concerns and the presence of militant groups continue to undermine the reliability of regional trade corridors.

Collapse of Transit Trade and Regional Connectivity

Transit traffic through Pakistan to Afghanistan and Central Asia has declined sharply, weakening Pakistan’s credibility as a transit hub. The near halt in trade with Afghanistan has further encouraged regional partners to seek alternative routes.

Loss of Export Markets and Trade Volumes

Trade disruptions have led to a significant decline in Pakistan’s exports to Afghanistan and Central Asia, particularly in cement, pharmaceuticals, and perishable goods. Export volumes have fallen sharply, reducing Pakistan’s presence in regional markets.

Payment and Financial Transaction Barriers

Pakistani exporters face serious payment constraints due to restrictions on the repatriation of foreign currency. The current limit of USD 5,000 per individual creates major difficulties for businesses involved in large-value transactions.

Recommendations

Strengthening Transit Trade Governance

Establish a National Transit Trade Coordination Mechanism under a central authority to ensure alignment among federal and provincial stakeholders, harmonize transit regulations, and streamline decision-making. A clear institutional ownership will reduce fragmentation and improve efficiency in transit operations.

Improving Border Management and Customs Facilitation

Upgrade border infrastructure at key crossings such as Torkham, Chaman, and Ghulam Khan, as well as emerging terminals like Zhob Kamr-Ud-Din Karez and Badini Trade Terminal. Introduce risk-based inspections, digital customs clearance, pre-arrival processing, and electronic documentation to reduce transaction costs and improve corridor reliability.

Upgrading Transport and Logistics Infrastructure

Enhance intermodal connectivity and logistics services by upgrading roads linking border terminals to national highways and ports. Invest in rail freight, dry ports, and logistics hubs along transit routes to support bulk and long-haul cargo movement. Public–private partnerships can accelerate these investments.

Enhancing Regional Agreements and Trade Diplomacy

Strengthen bilateral and regional transit agreements with Afghanistan, Central Asian Republics, Iran, China, Turkey, and Russia. Address non-tariff barriers, promote mutual recognition of standards and transit documents, and position Pakistan as a reliable regional transit partner.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Africa’s Economic Profile and Strategic Importance

Africa is characterized by a 1.5 billion strong population, growing trade volumes, and increasing integration into global markets. The continent’s population growth rate exceeds 2%, significantly outpacing both India and Pakistan’s.

North African economies generally exhibit higher per capita incomes and stronger human development indicators, while Sub-Saharan Africa accounts for the bulk of the continent’s population and potential for trade expansion.

Africa’s economic structure reflects a combination of primary resource extraction and expanding services and industrial sectors. The continent holds approximately 30% of the world’s mineral reserves, including critical minerals essential for modern technologies. Simultaneously, rising urbanization and infrastructure development are driving demand for manufactured goods, pharmaceuticals, construction materials and consumer products.

The continent is, additionally, characterized by its many regional economic blocs, many with overlapping memberships and varying degrees of integration and operationalization.

Diplomatic and Economic Engagement: Pakistan vs India

A central finding of the report is the disparity between Pakistan and India in the depth and breadth of engagement with Africa. While both countries share historical linkages with parts of the continent, India has institutionalized its Africa outreach through sustained high-level diplomacy, concessional credit lines, development cooperation initiatives and extensive private-sector participation.

Pakistan, by contrast, has historically maintained more limited diplomatic coverage and commercial outreach. Although recent initiatives under the “Look Africa” and “Engage Africa” frameworks indicate renewed interest, the scale of engagement remains modest. Pakistan’s aggregate trade with Africa is significantly smaller than India’s, reflecting both structural economic differences and institutional limitations.

Current Trade Patterns and Structural Imbalances

Figure: Pakistan & India’s shares in Africa’s exports & imports

Source: ITC Trade Map

Pakistan’s trade with Africa has grown in recent years, with exports increasing at a compound annual growth rate of 11.3% since 2020. However, export structure reveals significant concentration. 61.9% of Pakistan’s exports to Africa consist of semi- or wholly-milled rice, broken rice and worn clothing. Together, these categories account for a disproportionate share of total export value indicating limited integration into higher value-added manufacturing segments.

In contrast, India’s export profile to Africa is markedly diversified. Its leading exports include refined petroleum products, motor vehicles, construction machinery, pharmaceuticals, vaccines and electronics.

Another structural issue is the mismatch between Pakistan’s global export strengths and African import preferences. While textiles form a dominant share of Pakistan’s global exports, Africa does not represent a particularly large market for these categories. India’s export mix, on the other hand, aligns more closely with African demand for fuels, transport equipment, machinery and pharmaceuticals.

Geographically, Pakistan’s export footprint in Africa remains limited, with insufficient penetration into wealthier and more industrialized markets in North Africa and major sub-Saharan economies. India has achieved stronger presence in markets such as South Africa, Nigeria, Kenya and Tanzania, reflecting sustained commercial engagement and regulatory adaptation.

Sectoral Potential and Strategic Opportunities

The report identifies several sectors where Pakistan has the potential, whether due to favourable demand-side tailwinds or existing production capacities, to meaningfully scale up exports and penetrate new markets in the medium and long terms.

Pharmaceuticals
Africa’s growing disease burden, population expansion and underdeveloped local manufacturing capacity generate substantial demand for generic pharmaceuticals with market demand slated to reach 9,290.0 USD Mn by 2030. Pakistan possesses manufacturing capabilities in generic medicines and can leverage its existing production base along with regulatory harmonization, quality certifications and sustained marketing efforts to compete effectively with established suppliers, particularly India.

Plastics and Manufactured Goods
Industrial expansion and urbanization drive demand for plastics and intermediate goods, with the continent importing 28,349.3 USD Mn worth of plastics in 2024. Pakistan’s domestic production capacity provides scope for expanding exports, considering the relative absence of India from this sector, provided cost competitiveness and logistical efficiency are improved.

Copper and Articles of Copper
Africa’s copper imports have grown steadily, rising to 5,731.4 USD Mn in 2024, particularly in refined copper cathodes and wires. Although Pakistan’s current presence in this segment is negligible, expected investments in mining, extraction and logistics combined with additional smelter and electro-refining facilities could position the country to capture emerging demand linked to infrastructure and renewable energy development.

Livestock and Meat
Africa’s rising meat consumption presents opportunities in livestock, frozen and value-added meat products, with the continent importing 1,647.5 USD Mn worth of livestock and 4,963.7 USD Mn worth of meat in 2024. Pakistan’s experience with halal exports to the Gulf and expanding cold-chain investments create potential entry points pending compliance with diverse sanitary and veterinary standards.

Cement and Clinker
Rapid urbanization and infrastructure projects across the continent sustain demand for cement and clinker, with the continent importing 1,239.5 USD Mn worth of cement and 1,454.9 USD Mn worth of clinker in 2024. Pakistan has recorded growth in cement and clinker exports to Africa holding a measurable but modest market share. Further strengthening competitiveness would entail enhancing port mechanization and reducing freight costs.

Surgical Instruments
Pakistan’s established surgical instruments sector offers potential, though exports to Africa only constituted 3.6% of global sales for Pakistan. Pakistan has a strong case for its exports in the North, South and East African markets pending improvements in domestic logistics, direct shipping and improved brand marketing.

Rice
Rice exports have performed strongly, benefiting from competitive pricing and regional demand, with exports to Africa surging to 942.6 USD Mn in 2024. With inroads into the African market made in India’s absence, Pakistan has significant potential for ramping up exports, contingent on reduced costs.

Stakeholder Engagement
As part of the report, stakeholders represented by appointed trade officers/attaches, exporters and experts with insight into the African space were interviewed regarding the opportunities and challenges faced by Pakistan in the African market and their observations and recommendations are included in the study.

• Orient private sector interest towards Africa by sponsoring African delegations to build B2B rapport and offer diversity and professional conduct training sessions for Pakistani exporters.
• Reduce transport costs and times by expediting direct shipping routes between Karachi and Mombasa and Djibouti, upgrading port mechanization and rationalizing port tariffs in line with regional peers.
• Bolster commercial and diplomatic presence in the country by intensifying diplomatic engagements, participating in African-delegate-attended trade fairs and pursuing joint venture in domains of Pakistani expertise.
• Improve trade financing by signing re-insurance treaties between EXIM Pakistan and global re-insurers and expanding product offerings to include buyer’s credit, working capital finance and sector specific products.
• Improve business mobility by pursuing G2G cooperation to introduce e-Visa facilities for exporters and investors, expanding diplomatic missions and conducting feasibility studies for direct flights between underserved destinations.
• Prioritize the resolution of non-tariff barriers including logistics, business networking, trade financing, mobility restrictions, and diplomatic and commercial presence over negotiating trade pacts solely for tariff relief.
• Improve bilateral business prominence and advocacy by establishing joint business councils in un-served countries and re-activating dormant councils.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Despite being involved in diplomatic missions and cooperation forums since the late nineties, Pakistan’s trade profile with ASEAN has not matured. In a region that has a population of almost 700 million and a combined economy worth 3.9 trillion USD, Pakistan’s exports stood at 2.24 billion USD in 2024 (only 0.12 percent of the global exports going to ASEAN), 60 percent of which comprise cereals, vegetables and mineral fuels. Out of which the export of rice is uncertain in the coming years given Indonesia’s rising self-sufficiency and the Philippines’ protectionist policies, so the current dependance on a single crop should clearly not be Pakistan’s leading export strategy.

Pakistan has also persistently been in a trade deficit with ASEAN that now stands at 4.5 billion USD out of 9 billion USD of total trade. ASEAN’s exports have a high complementarity with Pakistan’s import needs -particularly palm oil imported from Indonesia and Malaysia which makes up 43 percent of the imports- but the converse is not true. The Free Trade Agreement with Malaysia that came into effect in 2008 and the Preferential Trade Agreement with Indonesia that came into effect in 2013, have both been underutilized and as a result have failed to provide the expected export-led growth. Following the traditional textile blueprint is riddled with its own issues as listed below.

Challenges in Textile-led Exports to ASEAN:

• From the demand-side, ASEAN generally speaking is a market that prefers low-cost, medium quality garments and home textiles. The textiles that Pakistan exports to the US and the EU are premium, 100 percent cotton that are unable to fetch the same prices from consumers with a low-cost of living.
• Competition on price by China and other intra-ASEAN textile strongholds like Vietnam and Cambodia, as well as Bangladesh has become incredibly fierce. Undocumented textile trade by China as well as those by fast fashion e-commerce giants like Temu and Shein further hurt Pakistan’s chances to win on customization.
• The high energy costs, labor costs and duties on yarn and fabric through the EFS scheme would cancel out the effect of any tariff concessions.
• Not to mention demand is also evolving towards iron-free, wrinkle-free clothing that come from using synthetic fibers like polyester- a material that Pakistan is falling behind in
• Cotton yarn, denim and fabrics have a strong and stable demand in Vietnam and Cambodia due to their textile value chains and insufficient local supplies. But volatile cotton output and outdated ginning methods have placed the sector in jeopardy for Pakistan.

This report focuses on the missing potential in current exports and explores possible new exports that Pakistan should make inroads to diversify given ASEAN’s market dynamics.

Some Policy Recommendations Include:

• Surpassing the Technical Barriers of Pharmaceutical Exports. The two tariff lines for medicines (HS-300490 and HS-300439) had a combined market size of 43 billion USD in 2024 and is expected to grow given the demand for low-cost, generic medicines. However long booking and inspection periods by ASEAN authorities stand as hurdles and collaboration with Pakistani authorities like DRAP needs to be further facilitated to harmonize regulations between the partners.
• Penetrating Software Designs for Semiconductors. Given the established semiconductor manufacturing industries in Malaysia and other ASEAN members, the demand for this segment in tech-exports should be explored. Networking events between NECOP and the relevant stakeholders in ASEAN should be further pushed to fill in the knowledge gap
• Planning for Continuity in Halal Meat Exports at the beginning of the supply chain by reducing the cost of animal feed and improving cattle genetics for better weight gain will aid in being price competitive with other suppliers like India.
• Investing in the Branding of Surgical Instruments. Pakistan has performed very well in global exhibitions, and given ASEAN’s market size of 8 billion USD, the gap can be further bridged by enhanced packaging and marketing.
• Exploring Opportunities in Heritage Tourism by inviting ASEAN travel and tour companies to Buddhist heritage sites in Taxila and Khyber-Pakhtunkhwa alongside Pakistan’s natural landscapes.
• Investing in Kinnow Exports as Forex Earners by negotiating lower concessions with the Philippines, opening up the necessary air cargo routes so they retain their colour and freshness, and by pushing MRAs to make the certification of SPS standards easier.
• Complying with the SPS Standards of Rice and Maize. Problems of high moisture content, aflatoxin and the khapra beetle do arise in maize consignments. Short-shipments and more than 5 percent broken rice content occur in rice orders and must be monitored.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

This report examines the potential of a Free Trade Agreement (FTA) between the Islamic Republic of Pakistan and the Southern Common Market (MERCOSUR). The bloc, comprising founding members Argentina, Brazil, Paraguay and Uruguay, along with its newest full member, Bolivia (accession completed in 2024), represents a major global economic force, with a combined market of over 282 million people and a total GDP of approximately $2.98 trillion in 2024.

Figure 1 shows the trade balance of MERCOSUR from 2020 – 2025.

Pakistan signed the trade framework agreement with MERCOSUR in 2006 with the aim of initiating negotiations to signing a Preferential Trade Agreement (PTA). However, the two sides could not make significant progress in that direction in subsequent years or significantly enhance bilateral economic cooperation.

In early 2019, Pakistan explored the possibility of moving toward a Free Trade Agreement (FTA) with the bloc, saying it could help bridge the trade deficit with the Latin American states, but the initiative once again did not progress far.

Trade volume is significantly low, with Pakistan’s share in MERCOSUR’s overall trade being less than 0.06%. The trade balance has consistently favored MERCOSUR, which primarily exports agricultural goods and machinery to Pakistan, while Pakistan’s main export to the bloc is textiles. Figure 2 shows Pakistan’s Bilateral trade with MERCOSUR from 2020 – 2024.

Figure 3 illustrates the significant untapped export potential for Pakistan within the MERCOSUR bloc, with Brazil standing out with an export potential exceeding $140 million, followed by Argentina at approximately $60 million. Pakistan’s exports to the bloc show steady and consistent growth. The total value increased from $174.52 million in 2022 to $209.41 million in 2024, a growth of nearly 20%.

Pakistan’s exports are heavily concentrated in textiles. The top 3 categories at the HS-02 level (Cotton, Other made-up textiles, and Knitted apparel) alone consistently account for one-third of Pakistan’s exports to MERCOSUR. Surgical Instruments (HS 901890), Inflatable Balls (HS 950662) and Truck/Bus Tires (HS 401120) were amongst the top export products at the detailed HS-06 level.

The report identifies Cotton (HS code ‘520100) as the top export, constituting the majority of MERCOSUR’s exports to Pakistan. In 2024, cotton exports ($169 million) represented 30.5% of all MERCOSUR exports to Pakistan. Soybean oil (HS code ‘150710’) is the second most important export product. Despite a dip in 2024, it remains a key commodity, highlighting MERCOSUR’s role in supplying Pakistan with essential food/edible oil products. Beyond this, MERCOSUR has successfully carved out niche roles in specific Pakistani markets such as Pepper (‘090411’) and Wood Pulp (‘470329’).

The report also provides a consolidated overview of India’s PTA with MERCOSUR and lessons Pakistan can learn from that. Pakistan must establish a clear strategy based on offensive and defensive interests, informed by the India-MERCOSUR precedent. Its offensive interests should focus on securing deep tariff preferences for its value-added textile and apparel sectors (HS 50-63), particularly home textiles, garments, and specific cotton fabrics, where India has gained little. For unique agricultural products like Basmati rice (HS 100630) and mangoes (HS 080450), Pakistan should aim for high preference margins or Tariff Rate Quotas (TRQs).

Services Trade Potential

The services trade relationship between Pakistan and the Southern Common Market MERCOSUR is currently negligible but poised for growth. It represents a large untapped frontier for Pakistan to diversify its exports beyond traditional goods and rebalance its trade deficit with the bloc.

Pakistan’s IT services exports are growing rapidly overall but remain negligible in MERCOSUR, despite the bloc’s large and growing IT import market. Uruguay, though a small market, serves as Pakistan’s current entry point, while Brazil offers the highest potential value. However, barriers like restrictive visa rules, data privacy laws, and language constraints hinder market access. Without a focused trade strategy, Pakistan risks missing a key opportunity to diversify exports and reduce its trade deficit with the bloc.

Barriers to Trade

1. Currency Volatility and Exchange Rate Considerations in MERCOSUR: Traders must account for Argentina’s high inflation and parallel exchange rates, which complicate financial dealings. The other member states maintain more predictable currencies, but the wide range of exchange rates (e.g., 1 USD = 5.4 BRL vs. 6,700 PYG) requires careful financial planning for Pakistani exporters and importers.
2. MERCOSUR’s Structural and Political Barriers to Trade: A major roadblock to trade expansion in MERCOSUR is the official rule of the Customs Union, which mandates that no single member country (like Brazil or Argentina) can sign its own Free Trade Agreements (FTAs) with non-bloc countries. Instead, all external trade agreements must be negotiated by MERCOSUR as a whole to protect the shared tax on imports (CET).
3. Textile Trade Barriers: The MERCOSUR bloc, anchored by Brazil stands as a global powerhouse in textiles and apparel. The domestic industry meets the vast majority of local textile demand itself. Consequently, the market opportunity for major textile exporters like Pakistan remains limited, as Brazil’s self-sufficiency creates a significant barrier to entry for external competitors.
4. Geographical Barrier: The great physical distance between Pakistan and MERCOSUR, over 13,000 kilometers, is a major barrier to trade. It causes two main problems: high shipping costs and long delivery times. The long shipping route results in freight costs that are 30-50% higher than those of competitors closer to the market, like those in Asia or the Americas. This makes Pakistani goods expensive in the region. Shipping times are long, often 65 to 90 days
5. Country-Specific Laws and Non-Tariff Barriers: Brazil’s tax and regulatory system is a major barrier. The main problem is a system of taxes that add up, making imported goods much more expensive. Beyond taxes, regulatory rules are a major trade barrier. Agencies like ANVISA for health products and INMETRO for technical standards have strict rules. These are time consuming requirements and can prevent products from entering the market.

Argentina uses government rules to protect its foreign currency and local businesses. A main method is requiring special import licenses for many goods, like textiles. Furthermore, the government often limits access to foreign currency, making payments difficult and risky for exporters. Heavy paperwork, having documents approved by an Argentine consulate, adds more delays and costs.

Recommendations

1. Primary Objective: Based on the analysis, it is therefore recommended that Pakistan adopt a calibrated approach by initially pursuing a limited-scope Preferential Trade Agreement (PTA) with MERCOSUR. This strategy would enable targeted access to key imports such as essential raw materials, energy products, and agricultural inputs, while safeguarding domestic industries from exposure to competitive pressures.
2. Systematically Dismantle Non-Tariff Barriers:

• Negotiate the terms of the “legal representative” requirement to provide more flexibility for exporters, such as shorter contract terms or clearer processes for changing representatives.

• Negotiate mutual recognition of Pest Risk Assessments (PRA) with SENASA and other regional bodies to unblock agricultural exports.
• The Government of Pakistan must urgently invest in creating internationally accredited certification bodies to overcome a major technical barrier.
• Given that textiles form the backbone of Pakistan’s exports, securing meaningful tariff concessions in this sector must be a negotiating objective, learning from the precedent set in the EU-MERCOSUR talks and the shortcomings of the India-MERCOSUR PTA.

3. Address Internal Policy Misalignment and Enhance Support:

• Review and align Pakistan’s own tariff policy to ensure it does not penalize export-oriented industries by making raw materials more expensive than finished goods.
• Pakistan must bolster its own cotton production. As the textile industry grows and consumes more cotton, it is important to become more self-sufficient. Policy should help local seed companies create high-yield, pest resistant cotton varieties. It must also leverage the 18% sales tax on local cotton to encourage, not hurt, domestic growers.
• Support should be provided for R&D to develop new products and adapt existing ones to specific foreign market trends, addressing the fundamental lack of innovation highlighted in the supply-push model.
• Support should be provided to industries in obtaining organic and eco-certifications to compete with rivals like India on the evolving standards of the South American market.

4. Leverage Immediate Opportunities and Facilitate Engagement

• Negotiations should immediately capitalize on the current liberal economic policies in Argentina to secure strong initial terms. Argentina’s market can serve as a gateway and a positive precedent for engaging with the wider MERCOSUR bloc.
• Actively work to streamline the visa process for Pakistani businessmen and support initiatives that improve Pakistan’s commercial image in South America.

5. Unlock Services Trade with MERCOSUR: Pakistan should immediately pursue a targeted strategy to unlock services trade with MERCOSUR.

• Upgrade the existing PTA discussion with a dedicated chapter on services to secure defined market access.
• Prioritize Mutual Recognition Agreements (MRAs) for qualified sectors (e.g., IT) and negotiate a bilateral visa facilitation agreement to ease the movement of professionals.
• To overcome the language barrier in the services sector, mandate the learning of at least one major foreign language (e.g., Spanish, Portuguese, Mandarin) during undergraduate studies. This will create a future workforce capable of building trust, understanding client needs, and directly accessing regional markets, drastically improving the competitiveness of Pakistan’s services exports.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Pakistan’s Trade with the ASEAN Region in 2024

Thailand ranks as Pakistan’s 6th largest export partner and 4th largest import partner. In terms of total trade value, Thailand is the 4th biggest trading partner for Pakistan among ASEAN countries. In 2024, Pakistan’s exports to Thailand amounted to $251.28 million and imports were around $845.44 million. Resulting in a deficit for Pakistan of -$594.16 million. Seafood dominated exports with $86.23 million (34.32% share). Pakistan ranked as 14th largest seafood supplier to Thailand (2.5% share).

Figure 1: Pakistan’s Trade with ASEAN in 2024

Trade Balance Trends (2015-2024)

Pakistan has consistently run a trade deficit with Thailand, at least from 2015 to 2024. Exports to Thailand grew at 8.52% annually, while imports decreased slightly by 0.10%. Despite export growth, the deficit remained as imports were much higher. The deficit peaked in 2018 at nearly $1,500 million.

Figure 2: Pakistan – Thailand Trade Balance from 2015-2024

Pakistan’s Existing Trade Agreements with ASEAN Member Countries

Pakistan has an FTA with Malaysia (MPCEPA – 2008) and a PTA with Indonesia (IP-PTA – 2013). In both cases, imports surged while exports showed limited growth, leading to persistent trade deficits. Under the Malaysia FTA, Pakistan received concessions on 10,593 lines and granted concessions on 6,803 lines, however, exports like rice face a 40% tariff, possibly to protect Malaysia’s domestic agriculture. However, for India the tariff is 20% due to India’s FTA with ASEAN. The Indonesia PTA also led to higher imports, with a minor improvement in exports after 2023. Findings show that Pakistan’s concessions often favour imports over exports, reducing revenue and hurting local industry.

India-Thailand, India-Asean Free Trade Agreement – Lessons for Pakistan

Thailand-India trade grew after the 2004 Early Harvest Scheme and the AIFTA agreement, but India’s trade deficit with Thailand has steadily widened because Thailand exports higher-value products while India mostly sends low-value goods. India also struggles to benefit fully due to non-tariff barriers, weak rules of origin, low utilization of the FTA, and competitiveness challenges at home. Thailand’s investment presence is much stronger in India than in Pakistan, but the irregular pattern of these investments shows that long-term capital depends heavily on clear rules, good infrastructure, and economic stability. For Pakistan, the key takeaway is to boost export competitiveness, tighten rules of origin, tackle NTMs, and negotiate more balanced trade agreements.

Figure 3: India – Thailand Trade Balance

Challenges for Pakistan

Overlapping Commodity Matrix: The products that Pakistan exports globally are similar to those that Thailand already produces and exports. Thailand has greater expertise in these sectors, which leaves very little gap or complementarity between the two economies.

Thailand’s ASEAN Relations and RCEP Membership: Thailand prioritizes trade within ASEAN and the RCEP framework, which includes major economies like Australia, China, Japan, South Korea, and New Zealand. Its geographical proximity and zero-tariff agreements with these countries make Pakistan a lower priority market for Thailand.

Limited Export Strength and Low Value-Added Goods: Pakistan’s export base is narrow, focused mainly on fisheries, textiles, rice, and fruits. Most of these products are low-value or intermediate goods and often do not meet Thai quality standards. Thailand already imports similar items from nearby countries like Vietnam and China, leaving Pakistan with little competitive edge.

Lack of Government Effort and Engagement: Pakistan has not actively engaged with the Thai government or business sector. The focus has largely remained on markets in the Middle East, Europe, North America and China. As a result, Thai businesses have limited awareness and understanding of Pakistan’s market potential. This lack of formal interaction and promotion has restricted trade opportunities.

Poor Preparation for Trade Negotiations: Pakistan’s trade agreements often lack preparation and result in unequal concessions, as seen in FTAs with Malaysia and Indonesia. A similar approach with Thailand could lead to a surge in Thai imports without a proportional rise in Pakistan’s exports.

Lessons from Existing Trade Agreements: Experiences with China, Malaysia, and Indonesia show that FTAs can widen trade deficits when not properly negotiated. Imports rise sharply while exports stagnate, hurting domestic industries. A similar case could be with Thailand, as it is a highly advanced economy with expertise in many areas and high value-added goods that are already being imported by Pakistan.

Thailand’s Efficiency and Competitiveness: Thailand enjoys strong foreign investment, especially from Japan, and has high levels of automation and, lower energy costs. Pakistan cannot match Thailand’s efficiency, scale, or competitiveness.

Issues with Pakistan’s Industrial Base: Pakistan’s industries face high energy costs, poor infrastructure, and rising input costs. The textile sector, which accounts for half of exports, faces tough competition from Bangladesh, India, and Vietnam. The leather industry is also declining because artificial leather has replaced natural leather, reducing demand.

Differences in Market Demand: Consumer preferences differ between the two countries. For example, Thailand’s demand for sticky and jasmine rice does not align with Pakistan’s export of long-grain basmati, creating limited market compatibility.

Illegal Trade and Weak Regulation: Illegal exports and poor regulation result in heavy revenue losses, it is estimated that in the case of Pakistan, around $5 billion annually is lost especially in the gemstone sector. Courier services like DHL and FedEx avoid gemstone shipments due to legal uncertainties, forcing traders to rely on informal channels.

Stringent Thai Import Requirements: Thailand’s strict food safety and phytosanitary standards, such as HACCP certification for seafood, make it difficult for Pakistani exporters to qualify. The approval process is lengthy and limits exporters to specific importers, and reduces market access.

Threat to Local Industry: An FTA could harm domestic industries, as cheaper Thai machinery, engineering goods, auto parts and other manufactured goods could potentially enter Pakistan easily, making it difficult for local producers to compete.

Visa Issues: Thailand’s stricter visa policy for Pakistanis has made business travel difficult. The online visa system is time-consuming, limiting long-term or multiple-entry visas. This restricts business interactions and hampers trade and investment opportunities.

Potential and Opportunities for Collaboration and Investment

Textiles: Pakistan’s textile exports to Thailand remain minimal despite its strong global standing. Thailand’s growing imports of apparel offer Pakistan opportunities to supply niche fabrics, value-added garments, and used clothing. Aligning with sustainability and compliance standards can help Pakistan tap into Thailand’s expanding tourism and retail sectors.

Gems and Minerals: Pakistan has vast reserves of gemstones and minerals, but much of the trade with Thailand is informal. Thailand’s expertise in gem cutting, polishing, and design can support Pakistan through joint ventures, training, and technology transfer. Improved infrastructure, certification, and formalized trade mechanisms can boost exports and attract investment.

Tourism: Thailand’s tourism earns around $50–60 billion annually, supported by strong infrastructure and management. Pakistan has high potential for tourism but lacks facilities, promotion, and training. Pakistan can also export medicines, surgical instruments, and medical textiles to support Thailand’s growing health tourism.

Food and Canning: Pakistan produces high-quality fruits like mangoes, while Thailand has advanced canning and food-processing industries. Joint ventures can help Pakistan reduce waste, improve yields, and produce value-added items like freeze-dried fruits. Adopting Thailand’s technology for drying mangoes, bananas, and peaches can boost exports.

Seafood and Meat: Pakistan’s seafood exports, particularly shrimp and fish, are increasing. Thailand already offers aquaculture consultancy, but deeper joint ventures could help Pakistan modernize processing, add value, and strengthen export competitiveness.

Automobile and Machinery: Thailand’s established automobile industry offers Pakistan opportunities to gain technical assistance and parts manufacturing knowledge.

Investments: Pakistan can attract Thai investments in fisheries, canned food, dry fruits, and cosmetics. With its large domestic market, Pakistan offers opportunities for local production, job creation, and mutual industrial growth.

Petrochemicals, Fertilizers, and Rubber: Thailand’s petrochemical sector produces materials like ethylene and propylene that Pakistan lacks. Thailand can fulfill industrial demand at competitive prices. Thailand’s fertilizer industry can support Pakistan’s agriculture through technology transfer, while its strong rubber production sector offers scope for expanding trade.

Way Forward on the FTA:

A full-scale Free Trade Agreement (FTA) between Pakistan and Thailand is not advisable at this stage as it could increase Pakistan’s trade deficit and harm local industries. While reduced duties might make essential imports cheaper, the overall impact would likely be negative because Thai products, especially automobiles, spare parts, and processed foods, would become more competitive than local ones.

Both countries export similar goods such as rice, seafood, textiles, fruits, and vegetables, which limits trade opportunities. Thailand’s larger industrial capacity, modern technology, and production efficiency make it difficult for Pakistan to compete. Pakistan’s exports are mostly low value-added and often fail to meet international quality standards.

Trade agreements with countries like China and Malaysia have shown that such agreements tend to increase imports while exports remain stagnant, widening the trade gap and hurting local industries. Therefore, instead of a full FTA, Pakistan should consider a cautious approach by negotiating limited concessions or preferential trade arrangements for essential goods. This would help reduce costs while protecting domestic manufacturers. A selective approach is therefore recommended which would not only open the Thai market for some of Pakistan’s major global exports such as textiles, but also allow Pakistani exporters to adapt their existing products and develop new offerings for the Thai market.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Background to the Study

Uzbekistan’s ongoing economic liberalization has repositioned the country as one of Central Asia’s most dynamic emerging markets. Reforms cover customs administration, tariff modernization, industrial policy, and regional connectivity. In the 2017-2024 period, Uzbekistan’s foreign trade volume has greatly expanded. The figure below shows Uzbekistan’s trade performance between 2017 – 2024.

Uzbekistan’s Trade Profile (2017–2024)

This report provides a product and policy-level assessment of Pakistan’s market access prospects in Uzbekistan. It analyses logistics constraints, regulatory asymmetries, the trade potential and sectoral competitiveness for Pakistani exports to Uzbekistan

Reporting Differentials in Trade Data Between Pakistan and Uzbekistan

A major impediment to assessing Pakistan’s trade potential with Uzbekistan is the persistent data discrepancy between Pakistan’s recorded exports to Uzbekistan and Uzbekistan’s reported imports from Pakistan. This discrepancy is shown in the figure below. This report lists a number of potential reasons behind this reporting differential, including a combination of transit-country recording (particularly via Afghanistan), under-declaration, routing through third-country trade hubs, and classification differences. This discrepancy complicates accurate estimation of bilateral trade potential which in turn conceals the actual scale of Pakistan’s commercial footprint in Uzbekistan.

Pakistan’s Export Potential to Uzbekistan

Despite the above-mentioned impediment, the analysis of Pakistan’s export composition shows a set of goods with stable market presence. The top exports are dominated by agricultural commodities, light manufactures, pharmaceuticals, and select textile products. However, the existing export basket is narrow and does not fully cater to Uzbekistan’s current industrial modernization trajectory, particularly in food processing, pharmaceuticals, industrial chemicals, electrical equipment, building materials, and value-added textiles.

To assess commercially viable expansion pathways, the report applies an HS-06 level intensive-margin model to identify Pakistan’s highest-potential underpenetrated product lines. The table below lists top 10 products where Pakistan can achieve scale rapidly due to competitive pricing and comparative advantage.

Table: Pakistan’s Top 10 Products with the Highest Export Potential at HS-06 Level at Intensive Margin in the Uzbek Market in 2024

The report also identifies a low to medium-term opportunity set in four high-value clusters based on sectoral complementarities between the two countries. The clusters are illustrated in the figure below:

Impediments to Pakistan’s Market Access to Uzbekistan

Beyond product-level trade potential, the report outlines major impediments to Pakistan’s market expansion in Uzbekistan, including:

• Sanitary, phytosanitary, and technical conformity requirements that raise compliance costs
• Bilateral logistics inefficiencies, including transit bottlenecks and multimodal coordination gaps
• Lack of formal banking channels
• Fragmented private-sector information flows; and
• The absence of structured B2B and G2G mechanisms to institutionalize commercial engagement.

The analysis concludes that the Pakistan-Uzbekistan bilateral trade relationship remains significantly below potential, largely due to logistical and procedural frictions rather than demand-side limitations. In order to address these barriers, there needs to be synchronization between private-sector players and relevant ministries on both sides, as well as government backed targeted support for businesses entering the Central Asian markets.

Findings and Conclusion

The findings presented in the report call attention to the fact that Pakistan can substantially expand its exports to Uzbekistan by improving transit efficiencies through regional corridors and utilising the complementarities outlined in the report.

This report serves as a detailed guide for exporters and policymakers seeking to engage with Uzbekistan’s evolving market. It consolidates the empirical evidence and regulatory insights necessary to formulate targeted export strategies for short-term and beyond.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

U.S Reciprocal Tariffs on all countries announced on April 2nd, 2025

Following the breakdown in negotiations and subsequent penalties for the import of Russian crude, India currently faces a tariff of 50% on most of its goods entering the US. In contrast, Pakistan’s reciprocal tariff rate was lowered to 19%. This gives Pakistan a substantial advantage over India, which is expected to make Pakistani goods significantly cheaper for US importers on an ad-valorem basis.

Overview of Reciprocal Tariffs as of October 27th, 2025

This analysis evaluates the potential for Pakistan to replace some of India’s exports to the US, noting that India’s trade with the US was approximately 17.8 times that of Pakistan’s trade with the US in 2024, and India’s exports comprise a highly diversified basket of high-value and medium-value goods, whereas Pakistan’s exports are heavily concentrated in low-value added manufactured goods.

The most compelling opportunity for Pakistan is in the textile sector, which already constituted 76.8% of Pakistan’s total exports to the US in 2024. Based on current US imports from Pakistan, the market gap potential across 14 key textile product lines is estimated to be between $715 million and $2.86 billion, if US imports from India decrease anywhere between 25% & 100%. Price competitiveness is a key driver, as 18 of Pakistan’s top 20 textile exports to the US are expected to have a lower per-unit price than Indian equivalents under the current tariffs. Products expected to benefit most include HS-63026000 ‘Toilet linen and kitchen linen …’, HS-63023190 ‘Bed linen, not knit/croc …’, and HS-61091000 ‘T-shirts, singlets, tank tops …’ , where Pakistan already has existing major exports to the US.

Beyond textiles, secondary opportunities exist in the agriculture and engineering sectors, although Pakistan’s current export volumes in these areas are much smaller. In agriculture, 15 out of Pakistan’s top 20 agri-exports to the US will be cheaper than Indian alternatives post-tariff, these include frozen fish fillets and dried fruits, however, Pakistan’s export volumes in these high-potential items are currently very low. Similarly, 14 of Pakistan’s top 20 engineering exports are expected to be cheaper than Indian alternatives, but this sector currently represents only 3.86% of US total imports from Pakistan and includes categories with less than $10 million in current exports.

It is very important to note that the US Tariffs is still a developing topic and India and the US are still negotiating to come to an agreement, hence there is a possibility that India will be able to achieve a trade deal with the US with a lower tariff.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The European Union (EU) has its historical origins in the aftermath of World War II when European leaders sought to prevent future conflicts and foster peace and cooperation among European countries.

Combined, the EU is one of the world’s largest economies. The table below lists the top 10 economies of the EU based on gross domestic product (GDP) in 2023. Following Brexit, the UK has not been included in this list.

The EU combined produced $18.06 trillion worth of goods and services in 2023, accounting for around 17.5 % of the world’s output. The following table shows the top 10 economies within the EU, where Germany has the highest GDP of $4525.7 billion and accounts for 24.3% of the EU economy. Following Germany are France, Italy, Spain, and the Netherlands.

Table 1: Top EU Economies Based on GDP 2023

Source: World Bank

Pakistan’s Trade with the European Union

The EU is a significant trading partner for Pakistan, it unilaterally granted Pakistan GSP+ status in 2014, thereby facilitating preferential access to its common market. The GSP+ has allowed Pakistan to export a wide range of products to the EU market at reduced or zero tariffs, leading to a notable increase in exports, particularly in the textiles and clothing sectors.

The following figure shows Pakistan’s trade trends with the EU for the last five years. Over the last five years, Pakistan’s trade with the European Union (EU) has seen growth. Total trade between the EU and Pakistan reached $12.1 billion in 2024, making EU Pakistan’s second most important trading partner after China, accounting for approximately 13.6% of Pakistan’s total trade. The EU is the most crucial export destination for Pakistan, with 27.6% of the country’s exports heading to the European market. Conversely, the EU ranks as Pakistan’s sixth-largest import source, with imports of $3.2 billion in 2024.

The GSP+ scheme has facilitated Pakistan’s exports to the EU, with zero import duties applied to 66 percent of tariff lines. As a result, Pakistan’s exports to the EU have consistently increased over the years, rising from $5.1 billion in 2015 to $9.0 billion in 2024, making it the largest beneficiary among all GSP+ countries.

About 78.7% of EU imports from Pakistan are imported using GSP+ preferential tariffs, showcasing the scheme’s significance in promoting trade. The current preference utilization rate, representing the ratio of preferential imports to GSP+ eligible imports, stands at an impressive 87.9%.

Figure 1: Pakistan’s Trade Trends with the EU

Source: ITC Trade Map

The table below shows Pakistan’s exports to the EU for the year 2024. Pakistan’s total exports to the EU in 2024 were $9.0 billion, accounting for 27.6% of Pakistan’s total exports to the world. Pakistan’s largest export destination within the EU was Germany, with exports amounting to $1.7 billion in 2024, and accounting for 19.2% of total exports to the EU. Excluding Germany, the top 4 consisted of Netherlands, Spain, Italy, and Belgium respectively.

Table 2: Pakistan Exports to EU Members 2024

Source: ITC Trade Map

The table below shows Pakistan’s imports from the EU for the year 2024. Pakistan’s total imports from the EU in 2024 were worth $3.2 billion, accounting for 5.6% of Pakistan’s total imports from the world. Pakistan’s largest import source within the EU was Germany, with imports of $711.1 million, and accounting for 22.5% of imports from the EU. Excluding Germany, the top 4 import sources were the Netherlands, Italy, France, and Belgium.

Table 3: Pakistan Imports from EU Members 2024

Source: ITC Trade Map

Pakistan’s Top Exports to the European Union

The table below shows Pakistan’s top 10 exported products to the EU between 2022 and 2024. Pakistan’s most exported product in 2024 to the EU was men’s or boys’ ensembles of cotton, and its exports amounted to $974.9 million. This accounted for 10.9% of all exports to the EU in 2024. Other top exported products included bedlinen of cotton & textile materials, toilet & kitchen linen, men’s or boys’ trousers, and husked or brown rice.

Table 4: Pakistan’s Top 10 Exports to the European Union

All Values in USD Million

Source: ITC Trade Map

Pakistan’s Top Imports from the European Union

The table below shows Pakistan’s top 10 imported products from the EU between 2022 and 2024. Pakistan’s most imported product from the EU in 2024 was turnings & shavings (iron or steel), and its imports amounted to $151.4 million. This accounted for 4.8% of all imports to the EU in 2024. Other top imported products included medicaments, cell cultures, worn clothing & accessories, light oils, and waste & scrap (iron or steel).

Table 5: Pakistan’s Top 10 Imports from the European Union

All Values in USD Million

Source: ITC Trade Map

Potential Trade with the European Union

Pakistan’s Potential Exports to the European Union

The table below shows Pakistan’s top theoretical potential products for additional exports to the EU in 2024. The aggregate theoretical potential for the top 10 products amounted to $6,167.4 million during this year.

Table 6: Pakistan’s Export Potential to the European Union

All Values in USD Million

Source: ITC Trade Map

Pakistan’s Potential Imports from the European Union

The table below shows Pakistan’s top theoretical potential products for additional imports from the EU in 2024. The aggregate theoretical potential for the top 10 products amounted to $21,273.5 million.

Table 7: Pakistan’s Import Potential from the European Union

All Values in USD Million

Source: ITC Trade Map

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

Today, Bangladesh ranks as the world’s second-largest apparel exporter, with annual exports exceeding $49 billion, supplying some of the world’s top fashion retailers such as H&M, Zara, Walmart, and Uniqlo. By contrast, Pakistan’s apparel exports remain below $9 billion, despite being one of the world’s top cotton producers and having a well-established textile base. This disparity raises fundamental questions: Why has Bangladesh succeeded in scaling and modernizing its apparel industry while Pakistan continues to struggle with low value addition, limited global integration, and stagnant export volumes?

This report seeks to answer some of these questions through a structured comparative analysis of the two countries’ apparel sectors. It investigates the policy frameworks, industrial strategies, export performance, pricing structures, and institutional arrangements that have shaped outcomes in both countries. It further assesses the impact of market access mechanisms (such as GSP and EBA), the role of labor market dynamics, the strength of backward linkages, and the efficiency of supply chains.

Crucially, the report aims not just to highlight differences, but to extract actionable lessons from Bangladesh’s success that can inform strategic reforms in Pakistan’s apparel sector. The goal is to offer a pathway for Pakistan to move beyond raw material exports and into high-value, diversified, and globally competitive garment manufacturing—an imperative for sustainable economic growth, employment generation, and foreign exchange stability.

Key Findings:

Pakistan’s export structure remains dominated by upstream textile products such as yarn and fabric. In 2024, of the $17.5 billion in total textile exports, only $8.71 billion came from the apparel sector —a relatively low share compared to Bangladesh, where apparel makes up 86.2% of total exports. Pakistan also continues to export raw materials to its competitors, including Bangladesh, who then add value and re-export at significantly higher margins. This export of intermediate goods limits Pakistan’s pricing power and brand visibility in the global markets.

Bangladesh’s rise in the apparel sector has been significantly aided by preferential market access, firstly due to its status as an LDC and then under the EU’s Everything But Arms (EBA) initiative. In contrast, Pakistan, despite gaining GSP+ status in 2014, has been unable to leverage this preference fully due to weak compliance, inconsistent policy implementation, and poor buyer engagement. Bangladesh’s use of bonded warehouses, back-to-back LCs, and simplified tax regimes has enhanced its trade facilitation and responsiveness to international demand.

Bangladesh enjoys considerable production efficiency, driven by labor-intensive manufacturing, high female labor participation, and industrial clustering. Proactive trade policies, institutional continuity, and strong public-private partnerships which have created an enabling environment for apparel growth. Meanwhile, Pakistan’s apparel sector is burdened by high energy costs, outdated machinery, a fragmented industrial base, and limited policy coordination at federal and provincial levels.

Major Structural Constraints in Pakistan:

1. Institutional and Policy Gaps
   Pakistan lacks a dedicated National Apparel Policy, treating instead, apparel as a sub-component of the broader textile sector. This conflation fails to recognize the distinct labor dynamics, global value chain integration, and compliance needs of garment production. Existing policies are fragmented, reactive, and often contradictory—combining import substitution rhetoric with inconsistent export incentives.

2. Labor and Skill Deficits
   Pakistan has a large labor force but suffers from low labor productivity, outdated skills, and minimal female participation in the apparel sector. In contrast, Bangladesh invested early in vocational training and created strong linkages between training institutions and industry needs. Skill shortages remain a binding constraint in Pakistan, especially in advanced apparel processes like pattern-making, quality control, and merchandising.

3. Energy and Taxation Issues
   Pakistan’s industrial electricity and gas tariffs are among the highest in the region. Apparel manufacturing, though not energy-intensive, is penalized due to cross-subsidies and fluctuating energy policies. Additionally, the shift from a 1% final tax to a 2.25% turnover tax, along with delayed refund cycles, has disrupted exporters’ liquidity and growth planning. Bangladesh, in contrast, maintains a stable and low-cost energy regime for exporters and offers real-time tax and duty refunds through simplified digital systems.

4. Weak Buyer Engagement and Global Positioning
   Bangladesh’s strong integration with global retailers like H&M, Zara, and Walmart has enabled it to align with international standards and rapidly adapt to market shifts. Pakistani firms, by contrast, remain mostly vendor-driven, supplying intermediaries rather than final brands. This limits their ability to influence product pricing, quality standards, and long-term sourcing relationships.

Strategic Recommendations for Pakistan:

Drawing from Bangladesh’s experience and the analysis of current challenges, the report outlines the following strategic interventions for Pakistan:

1. Develop a National Apparel Policy that treats apparel as an independent industry, with export-focused incentives and institutional oversight.
2. Shift focus from raw materials to finished garments, through fiscal and regulatory measures that discourage the export of yarn and fabric and support domestic garment production.
3. Revamp labor training systems, align technical education with market needs, and boost female labor force participation through gender-sensitive workplace reforms.
4. Reinstate regionally competitive energy tariffs and rationalize the taxation regime to restore cost competitiveness.
5. Facilitate global buyer engagement by re-establishing sourcing offices, improving travel ease and safety, and promoting “Brand Pakistan” through trade missions and expos.
6. Invest in product diversification, especially in high-margin segments such as MMF-based apparel, activewear, outerwear, and lingerie.
7. Improve infrastructure and logistics, particularly in key export clusters, through special economic zones, customs digitization, and reliable freight systems.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk

The Republic of Kazakhstan (Kazakhstan) is the world’s ninth-largest country by area, with an area of 2.7 million square kilometres and a population of around 20.5 million which comprises of more than 100 nationalities and ethnic groups.

The country ranks 81st among the 132 economies on the Global Innovation Index 2023 and 62nd out of 184 countries on the latest Index of Economic Freedom.

As of 2023, the real GDP growth of the economy was reported at an annual rate of 4.6%, with the total gross domestic product of $259.29 billion.

The primary export commodities include petroleum, copper, natural gas, zinc, steel and iron. In the agricultural sector, wheat exports are a major source of foreign exchange. The country also exports livestock, dairy products, oil seeds, corn grain, and other preserved goods.

Kazakhstan’s tourism sector has also shown steady growth and in 2023, the number of foreign tourist arrivals reached 9.2 million which was almost double the number of tourists who visited the country in the previous year.

The Machinery and vehicle sector together account for almost a quarter of imports. Food imports as a percentage of merchandise imports was around 9.7% in 2023. Kazakhstan is a net importer of agricultural commodities, despite being ranked 32nd out of 113 countries in the global food security index in 2022.

The figure below shows Kazakhstan’s trade balance in goods and services from 2000 to 2023.

Source: Observatory of Economic Complexity (OEC) and Asian Development Bank (ADB)

Kazakhstan’s Major Trade Partners

In 2023, China was the top trading partner of Kazakhstan. The same year, the country traded the most with China, France, Italy, the Netherlands, Russia, Spain, South Korea, Türkiye, United States and Uzbekistan.

Italy remains Kazakhstan’s largest export market and accounted for 18.74% of total exports in 2023. In terms of exports, the European Union ($41.4 billion,) China ($31.5 billion,) and Russia ($26 billion,) were the three important export markets for Kazakhstan in 2023.

Pakistan and Kazakhstan Bilateral Trade Relations

Pakistan was among the first countries to recognize Kazakhstan as an independent state in December 1991 and diplomatic ties between the two countries date back to February, 1992.

In June 2023, a significant breakthrough in trade relations between the two countries was achieved with the operationalization of the Quadrilateral Traffic in Transit Agreement (QTTA,) that allowed Pakistan to send its first transit shipment to Kazakhstan via the historic Silk Road.

The Figure below shows an overview of bilateral trade between Pakistan and Kazakhstan. Pakistan has maintained a positive trade balance over the years with Kazakhstan. In 2023, the volume of bilateral trade between the two countries amounted to $52.5 million, where Pakistan’s exports to Kazakhstan amounted to $46.8 million and Kazakhstan’s imports from Pakistan were  worth $5.7 million.

Source: Bureau of National statistics of the Republic of Kazakhstan

Pakistan’s Export Potential to Kazakhstan in Goods:

Kazakhstan presents substantial untapped export potential for Pakistan, particularly in sectors where Pakistan possesses a comparative advantage. As of 2023, Pakistan’s total export potential to Kazakhstan for its top 25 products at the HS-06 level was estimated at $1.7 billion. Key sectors include textiles, pharmaceuticals, agriculture, leather goods, and surgical instruments.

Pakistan can also explore niche categories such as processed food, spices, ethnic groceries, and Halal-certified products, in addition, leather goods, sportswear, and surgical instruments remain promising for diversification.

Pakistan’s Export Potential to Kazakhstan in Services:

Expanding services exports to Kazakhstan should be a priority area for Pakistan.

Pakistan can tap into demand for:

• IT and software development services
• Education and remote learning platforms, especially English-language instruction
• Professional consulting services, particularly in engineering, accounting, and financial services

Kazakhstan’s Export Potential to Pakistan in Goods:

Kazakhstan’s export potential to Pakistan is estimated at $4.6 billion, which is primarily driven by agriculture and metals, where Kazakhstan has a revealed comparative advantage (RCA.)

High-potential agricultural products include:

• Linseed, whether or not broken (HS-120400)
• Barley (HS-100390)
• Dried, shelled lentils (HS-071340)
• Safflower seeds (HS-120760)

In the metals and minerals sector, key products include:

• Flat-rolled products of iron or non-alloy steel (HS-720839)
• Unwrought zinc, not alloyed (HS-790111)
• Copper cathodes (HS-740311)
• Refined, unwrought lead (HS-780110)

Kazakhstan’s proximity and competitive pricing position it to compete with Pakistan’s current suppliers like China, Afghanistan, and Saudi Arabia, especially in industrial and agricultural raw materials.

Kazakhstan’s Export Potential to Pakistan in Services:

Kazakhstan demonstrates comparative strength in the services sector, particularly in:

• Transport and logistics services – critical for Central Asian connectivity
• Insurance and financial services – where Kazakhstan has developed capabilities and regulatory frameworks that  are aligned with international standards

Challenges in Exporting to Kazakhstan

Bilateral trade between Pakistan and Kazakhstan faces a series of structural, regulatory, and institutional bottlenecks that inhibit growth despite strong complementarities. The primary challenges are outlined as follows:

Key Challenges:

1. Structural and Logistical Barriers
   The absence of direct land connectivity, underdeveloped transit infrastructure, and Kazakhstan’s landlocked geography, which is further compounded by Pakistan’s reliance on unstable Afghan routes, have resulted in high freight costs and inconsistent trade flows.
2. Regulatory Misalignments
   Pakistani exporters face difficulties navigating Kazakhstan’s stringent certification standards due to Pakistan’s own weak domestic compliance ecosystem. Moreover, the absence of a preferential
   trade agreement and gaps in digital customs systems (despite the availability of tools like WeBOC and PSW) add to transaction difficulties.
3. Financial and Institutional Constraints
   Lack of direct banking channels necessitates costly third-party arrangements through intermediary banks in the UAE or the US. Exporters also operate without trade insurance or export credit guarantees, this increases their exposure to risk.
4. Product-Level Compliance Issues
   Kazakhstan mandates bilingual (Kazakh and Russian) labeling, and its phytosanitary standards often duplicate Pakistani processes that further creates redundancy and higher costs. Mutual recognition of standards remains absent.
5. Geopolitical and Security Risks
   Trade routes via Afghanistan are vulnerable to political disruptions. Instability among Central Asian Republics also hinders regional infrastructure cooperation and sustained trade flow.
6. Digital and Data Limitations
   The absence of integrated digital platforms and discrepancies in bilateral trade statistics hamper real-time decision-making and obscure the true scale of commercial activity.
7. Information and Access Gaps
   SMEs, in particular, face a lack of accessible regulatory, market, and investment information. There is also no structured B2B facilitation platform, which explains the lack of private-sector engagement.
8. Mobility and Connectivity Limitations
   Restrictive visa regimes, limited direct flight routes, and bureaucratic travel protocols hinder business travel, networking, and engagement.
9. Logistics Market Informality
   Freight networks along the Afghan corridor are often cartelized, informal, and unregulated, this drives up costs for exporters and reduces service reliability. Reverse cargo flows also remain negligible, and completely skew the cost dynamics.
10. Provincial Taxation Issues
    The 2% export cess imposed by Khyber Pakhtunkhwa government on exports adds significant cost pressures, especially for price-sensitive exports.

Key Recommendations:

To reach the full trade potential between Pakistan and Kazakhstan, the following policy and institutional interventions are recommended:

• Prioritize Connectivity Projects: Fast-track regional transport corridors including QTTA, CASA-1000, TUTAP, and the proposed Pakistan-Kazakhstan railway to reduce logistical friction.
• Strengthen Digital Infrastructure: Develop integrated trade platforms and real-time information-sharing systems, drawing on the Pakistan-China Digital Corridor as a model.
• Simplify and Harmonize Regulation: Align customs procedures, recognize each other’s certification systems, and remove overlapping NTBs through institutional cooperation.
• Develop Direct Financial Channels: Establish bilateral banking arrangements and secure settlement mechanisms to bypass third-party financial intermediaries and mitigate FX and payment delays.
• Negotiate a PTA: Conclude a Preferential Trade Agreement to provide a structured tariff framework, and reduce entry barriers.
• Regularize Transit via Afghanistan: Stabilize trade protocols with Afghanistan through trilateral engagement and streamlined border documentation.
• Promote High-Potential Sectors: Focus on priority trade sectors, such as agri-commodities, food staples, and industrial inputs, to build momentum and confidence.
• Build Broader Economic Ties: Encourage joint ventures in fintech, e-commerce, logistics, and industrial manufacturing through public-private facilitation.
• Institutionalize B2B Channels: Establish a Pakistan-Kazakhstan Joint Chamber of Commerce and dedicated bilateral working groups to open dialogue and solve operational issues.
• Launch a Business Information Portal: Provide exporters – particularly SMEs – with a bilingual, centralized portal that offers regulatory, logistical, and market intelligence.
• Facilitate Travel and Exchange: Expand direct flight operations, simplify visa regimes, and promote cultural and academic exchange to build people-to-people connectivity.
• Encourage Trade Exhibitions: Hold sector-specific trade expos in both countries to showcase capabilities and strengthen commercial partnerships.
• Improve Data Sharing: Set up a bilateral trade data platform to reconcile discrepancies, and enable evidence-based strategy formulation.
• Formalize Logistics Ecosystem: Regulate and professionalize regional logistics operators to combat cartelization and introduce licensing and quality benchmarks.
• Review Provincial Taxation: Reevaluate the KP export cess and consider fiscal incentives to preserve competitiveness of Afghan-route exports.
• Support Local Market Entry: Facilitate Pakistani firms in establishing warehouses, offices, or JVs in Kazakhstan through government advisory support and easy licensing.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 100+) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives and activities can be found on its website: www.pbc.org.pk