An Assessment of Pre and Post Pak-China Free Trade Agreement: A Comparative Advantage Analysis of Textile Sector of Pakistan

Regional trade is a huge opportunity for economic growth in Pakistan and must be assigned priority in Pakistan's economic policy. The signing of the Free Trade Agreement (FTA) between Pakistan and China in 2006 brought an opportunity for Pakistan to improve its overall trade performance while steering its exports composition towards geographically viable and hence, more profitable locations. The textile sector of Pakistan is the largest manufacturing sector and China lies in the top 10 export partners of Pakistan. In order to investigate the trade relations between Pakistan and China in light of the Free Trade Agreement (FTA), this study examines pre and post Pak-China FTA effects for the textile sector of Pakistan using revealed comparative advantage technique, Balassa Index (1965) at Harmonized system HS-2, HS-4 and HS-6 digits level. A comparative analysis based on the two phases of Pak-China FTA, for phase I, the study considers 2004 as pre-FTA period and 2013 as post-FTA period. However, for phase II, 2013 is considered as pre-FTA and 2015 as post-FTA period. Additionally, the study further investigates the future prospects of textile sector by calculating an indicative potential of the top potential textile exports to identify that how Pakistan can further be benefited from trade with China in the future. The findings of the study revealed that the export potential of the textile sector has declined and showed greater focus on low value added products. Additionally, an indicative potential analysis also showed that the top potential textile exports showed higher value of indicative potential over and above US$ 100 million in 2013 but due to decline in China's demand, these were products removed from the list. This is because of the inefficiencies of the textile sector particularly due to the prolonged energy crises which have been imposing adverse effects on the industrial sector of the country.The government should take serious efforts to take the economy out of the energy crisis first and to ensure the growth of textile exports.