Evaluating the Effect of Tariff and Non-tariff Barriers on Exports in the Pre and Post China-Pak Free Trade Agreement (FTA) Period

Abstract

Low trading costs, more significant consumer markets, and favourable economic ties between China and Pakistan provide a strong rationale for bilateral trade. Both countries have signed several bilateral trade agreements to boost mutual trade since 1963. The agreement that marked the beginning of a new era of cooperation between two trading partners and paved the way for free trade agreements was the Early Harvest Program (EHP), implemented in 2006. The first China-Pakistan Free Trade Agreement (CPFTA) was signed in November 2006 and became operational in 2007. CPFTA aimed to remove tariff and non-tariff barriers, enhance the comparative value of exports, and increase exportable surplus mainly through technical and financial cooperation. The paper critically evaluates the impact of tariff and non-tariff barriers on Pakistan’s key exports in the pre- and post-CPFTA period. Further, the study quantifies the impact of non-tariff barriers using quantitative techniques of restrictiveness index, converge ratio, and frequency index with 4-digit H.S. code industry-level data. The analysis reveals that China imposed a relatively high tariff rate on Pakistan's top five exports compared to China's other FTA partner countries. The results about the effect of non-tariff barriers (NTBs) show that exports related to cereals, edible fruits, and textile sectors are highly covered under Sanitary and Phytosanitary (SPS) and technical barriers to trade (TBT) despite FTA. Our findings have substantial implications for sustained trade ties between China and Pakistan.