Impact of China Pakistan FTA on Pakistan’s

exports across sectors: A Difference in Difference

Analysis

Jazib Mumtaz, Amina Qureshi, Ijlal Mansoor

 Contents
Introduction

Historical Trend

Research Objectives

Methodology

Results

Recommendations
 Introduction

 Pakistan’s export growth is lagging behind its import growth for the past several
decades

 Trade facilitation through increased market access plays an important role in

export growth

 Global Trend
 Around 60% of the world trade is through FTAs
 USMCA/ASEAN/PAK-China/Pak-SriLanka/
 Introduction

CPFTA-II
Early Harvest
313-unilateral concession
MFN rates Program
3700-zero duty
737 tariff lines
3700-gradual reduction in 10
concessions
years
1983-2003 2008

1963 2006 2019

Pak China Joint Committee CPFTA-1

on the Economy-Technical 2239 tariff
Cooperation 2001
Agreements in Trade,
lines
Communication and Energy
2004
 Historical Trend

25,000
Pakistan China Bilateral Trade Scenario 20,518
20,000
14,544
15,000
10,000 6,626
4,738
5,000 2,652 1,818 3,010
260 957 727
-
2003(698) 2008 2013 2018 2021
(5,000) (4,011) (3,974)
(10,000)
(15,000) (12,726)
(20,000) (17,507)
Exports Imports Deficit

Source: State Bank of Pakistan

 Historical Trend
Pakistan China Trade Growth
50%
42%
40% 38%

30%
30%
23% 26%
20% 17% 18%
12%
10% 7% 11%

0% 0%
2003-2008 2008-2013 2013-2018 2018-2021
-10% -7%
Exports Imports Deficit

Source: State Bank of Pakistan

 Historical Trend
Pakistan's Exports to China - Major Contributors
100%
9% 12% 13%
90% 0%
2% 17% 21%
6% 2%
0% 1%
0%
5%
80% 8% 5% 8%
21% 2%
1%
0%
70% 10% 7%
9% 26%
60% 6%
6% 4%
0% 2%
50% 5% 4%
0%
12%
40%
73% 4%
30% 65% 1%
5%
0%
53% 48%
20%
27%
10%
0%
2003 2008 2013 2018 2021
Raw Cotton Terapthalic acid Seafood Leather Ores
Cereals Ethyl Alcohol Copper Others
Source: State Bank of Pakistan
 Historical Trend

250%
Pakistan’s Exports to China- Product Growth Trend (CAGR)
207%
200%

150% 140%

102% 100%
100%

49%
50% 38% 33% 39%
21% 24% 18% 27%33%
18% 15% 15%
6% 2% 0% 0%
0%
-2% -2% -9%-5% -4% -3%
-15% -12%
-50%
Raw Cotton Seafood Leather Ores Cereals Ethyl Alcohol Copper

2003-2008 2008-2013 2013-2018 2018-2021

Source: State Bank of Pakistan
 Objective

 To evaluate the impact of the Pakistan-China FTA on Pakistan’s

sector-wise exports
 Each sector (treatment and control group) is analyzed in the pre-
CPFTA and post- CPFTA time period
 The study examines the inter-sector-wise benefits by comparing each
sector with a control group, which includes all other sectors that have
been granted concessions in the CPFTA
 Data and Variables

Pakistan’s exports to China has been taken as an outcome variable

 Monthly Data 2004 to 2021
Sectors
 2240 Tariff Lines
 29 sectors included in FTAs
Time Variables
 Pre and Post FTA
 Combine effect of FTA and Treatment Group
 Methodology

Difference in Difference technique

 Used to analyze policy impact on an outcome
 It is the difference in the average outcome of treatment group pre and post against average
outcome of control group pre and post
Model

•Coefficients are unknown parameters is an error term including all the determinants of Yi.
•α = constant term
•β = treatment group-specific effect
•γ = time trend common to control and treatment groups
•δ = true effect of treatment
Pre Post Post-Pre Difference
Treatment
Control
T-C Difference
 Export Trend- Various sectors
Pakistan's Exports to China - Trend (USD '000)
1,800,000
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-
2004 2008 2012 2015 2019 2021

Cereals Citrus Fruits and Nuts Copper and articles Leather

Meat Optical Photographic Plastics and articles Raw Cotton
Salt Sulphur Earth Stone Seafood Textile and Clothing Vegetables

Source: State Bank of Pakistan

 Export Trend- All sectors- (USD’ 000)
2,500,000

2,000,000 Cotton

1,500,000

2004
2007
2010
1,000,000
Copper 2013
2016
2021

500,000 Cereals
Ores Seafood SB
-
s r l s s es s es ds es s s s l es es t es es s
ct in
g
pe ee al i ts n ne ts re ri c
s al n
Ga ct ne ia od ri c
s
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ri n
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ri c rn
u h p st re ru tto to en i tu b si n ti cl i m nc o ve ee Or d u to er fo b r ag i br y in
o am abl oo b Ya
od ot co d e F C o S
p m Fu r
n a sr
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An pl
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an od ss at
Se
a a e F em D o G t W a
pr Cl f an
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Dr
y th ui ed
F ra W Oi r M n
F ev le r,c d Fl d ge n
F
al d so n d Ear q tt um t he i ve ap on tr
o aP io
u
nd ve sB bp te an le an Ve ve
m an le ro an e i g a L & N e m ec a o i t
St
a as n g x ti y s o
n i el ti c fi & Kn La
c Le ry P ar Pr lp lW ir pl ni Te To W
A r ar o us al ne Ph Pu ia Sp e, an
pa le
s
i tr ir c i c n T
Ap r tic C
ec
t ac
h
S p e
S t o
a El M

Source: State Bank of Pakistan

 Impact analysis – FTA All Sectors Phase -1- (monthly average exports-
Results
Results USD’000)
exports-USD’000)

Pre-FTA Pre-FTA Post-FTA Post-FTA Pre-Post Pre-Post

S.no Chapters Categories All Categ Treatment All Categ Treatment Control Treatment Difference in Differences

1 52 Raw Cotton 297 20,397 1,851 85,229 1,555 64,831 63,277

2 10 Cereals 998 42 4,361 12,434 3,363 12,392 9,029
3 74 Copper 1,000 10 4,586 5,677 3,587 5,667 2,080
4 26 Ores 892 3,125 4,491 8,667 3,599 5,542 1,943
5 61/62/63 Textile Clothing 986 396 4,618 4,979 3,632 4,583 951
6 3 Seafood 914 2,484 4,575 6,235 3,661 3,751 91
7 25 Stone 996 102 4,698 2,682 3,701 2,580 (1,121)
8 22 Spirits Beverages 1,000 1 4,711 2,293 3,711 2,292 (1,419)
9 12 Oil seeds 991 264 4,740 1,457 3,749 1,194 (2,555)
10 42 Leather 992 219 4,765 1,433 3,773 1,215 (2,558)
11 13 Gums Lac 991 251 4,744 1,333 3,753 1,083 (2,670)
12 8 Fruits/Dry Fruits 1,000 5 4,753 1,063 3,754 1,058 (2,696)
13 Optics 997 83 4,759 892 3,762 809 (2,954)
14 84 Machinery & appliances 990 301 4,757 952 3,768 652 (3,116)
15 95 Toys and Games 998 56 4,779 321 3,781 265 (3,516)
16 55 Stabple Fibres 997 96 4,779 325 3,782 229 (3,553)
17 2 Meat 1,000 5 4,782 227 3,782 222 (3,561)
18 68 Stone, plaster,cement 997 80 4,780 282 3,783 202 (3,581)
19 7 Vegetables 998 54 4,782 236 3,784 182 (3,601)
20 85 Electrical & equipments 999 33 4,784 165 3,786 132 (3,654)
21 71 Precious stones 1,000 7 4,788 67 3,788 61 (3,727)
22 94 Furniture 1,000 4 4,789 40 3,789 36 (3,753)
23 73 articles of iron and steel 998 56 4,787 91 3,789 35 (3,754)
24 32 Tanning and Dying 1,000 11 4,789 32 3,789 21 (3,768)
25 57 Textile Flooring 999 18 4,789 33 3,790 15 (3,775)
26 30 Pharma Products 999 17 4,789 18 3,790 1 (3,789)
27 60 Knitted Fabrics 999 35 4,789 34 3,790 (2) (3,792)
28 58 Special Woven Fabrics 999 18 4,790 10 3,790 (8) (3,798)
 Impact analysis – FTA All Sectors Phase -1- (monthly average exports-
Results USD’000)
Post-
Pre-FTA Pre-FTA Post-FTA Pre-Post Pre-Post
FTA
Difference in
S.no Chapters Categories All Treatmen All Treatmen
Control Treatment Differences
Categ t Categ t

1 52 Raw Cotton
297 20,397 1,851 85,229 1,555 64,831 63,277
2 10 Cereals
998 42 4,361 12,434 3,363 12,392 9,029
3 74 Copper
1,000 10 4,586 5,677 3,587 5,667 2,080
4 26 Ores
892 3,125 4,491 8,667 3,599 5,542 1,943
Textile
5 61/62/63
Clothing 986 396 4,618 4,979 3,632 4,583
951
 Results Impact analysis – FTA All Sectors Phase -1- (monthly average exports-USD’000)
Pre-
Pre-FTA Post-FTA Post-FTA Pre-Post Pre-Post
FTA
Difference in
S.no Chapters Categories Treatme
All Categ All Categ Treatment Control Treatment Differences
nt

7 25 Stone 996 102 4,698 2,682 3,701 2,580 (1,121)

Spirits
8 22 Beverages 1,000 1 4,711 2,293 3,711 2,292 (1,419)

9 12 Oil seeds 991 264 4,740 1,457 3,749 1,194 (2,555)

10 42 Leather 992 219 4,765 1,433 3,773 1,215 (2,558)

11 13 Gums Lac 991 251 4,744 1,333 3,753 1,083 (2,670)

Fruits/Dry
12 8 Fruits 1,000 5 4,753 1,063 3,754 1,058 (2,696)
 Results Impact analysis – FTA All Sectors Phase -1- (monthly average exports-USD’000)

Pre-FTA Pre-FTA Post-FTA Post-FTA Pre-Post Pre-Post

Chapte Treatme Difference in
S.no Categories All Categ All Categ Treatment Control Treatment
rs nt Differences

13 Optics 997 83 4,759 892 3,762 809 (2,954)

Machinery &
14 84 appliances 990 301 4,757 952 3,768 652 (3,116)

15 95 Toys and Games 998 56 4,779 321 3,781 265 (3,516)

16 55 Stabple Fibres 997 96 4,779 325 3,782 229 (3,553)

17 2 Meat 1,000 5 4,782 227 3,782 222 (3,561)

Stone,
18 68 plaster,cement 997 80 4,780 282 3,783 202 (3,581)

19 7 Vegetables 998 54 4,782 236 3,784 182 (3,601)

Electrical &
20 85 equipments 999 33 4,784 165 3,786 132 (3,654)

21 71 Precious stones 1,000 7 4,788 67 3,788 61 (3,727)

 Results Impact analysis – FTA All Sectors Phase -1- (monthly average exports-USD’000)

Pre-FTA Pre-FTA Post-FTA Post-FTA Pre-Post Pre-Post

All Treatme Treatmen Difference in
S.no Chapters Categories All Categ Treatment Control
Categ nt t Differences

22 94 Furniture 1,000 4 4,789 40 3,789 36 (3,753)

articles of iron
23 73 and steel 998 56 4,787 91 3,789 35 (3,754)
Tanning and
24 32 Dying 1,000 11 4,789 32 3,789 21 (3,768)

25 57 Textile Flooring 999 18 4,789 33 3,790 15 (3,775)

Pharma
26 30 Products 999 17 4,789 18 3,790 1 (3,789)

27 60 Knitted Fabrics 999 35 4,789 34 3,790 (2) (3,792)

Special Woven
28 58 Fabrics 999 18 4,790 10 3,790 (8) (3,798)
 Recommendations

 CPFTA will be more beneficial for Pakistan, if we move towards value-added products

 Relocation of Chinese industries in Pakistan-cost of labor is increasing

 Pakistan should develop its Export Processing Zones (EPZs), and Special Economic
Zones infrastructure

 Should take aggressive measures to reduce cost of doing business in terms of

infrastructure, utilities, land acquisition, and by improving labor skills and productivity

 Need to initiate programs for capacity building and technology transfer

 Quarterly meetings with stakeholder should be made essential for better policy
formulation
 Sector-wise Recommendations

• Raw material-cotton: Need to attract Chinese investors for textiles and

value added products as Chinese textile industry is being relocated to other
destinations

• Seafood: Negotiate the non tariff measure of PCR testing per product.
Need more investment in cold storage and transportation

• Leather: Need to update the technical skills being provided in existing

training institutes. Should work in collaboration with Chinese institutes.
Need to develop industries for leather accessories. Pakistan should attract
investment in chemical industry to reduce cost of imported raw material
 Sector-wise Recommendations

Ores: Raw material export should be replaced with finished marble and
cement products
Cereals: Increase quota for non basmati rice in CPFTA -II
Opportunities for Pakistan: Valued added textile, Marble, Ores (Zinc,
Chromite, Lead and Iron)
Cement : Cement industries are closing down from China due to
environmental concerns- opportunity for Pakistan
 STAKEHOLDERS

Pakistan Readymade Garments Manufacturers and Exporters

Association (PRGMEA)-Karachi
Leathers Manufacturers Association- Sialkot
Trade and Investment Officer (TIO)- China
Fisheries- exporter
KK Mills- exporter
THANK YOU