PAKISTAN'S COTTON AND TEXTILES EXPORTS TO THE EUROPEAN UNION: COMPETITION, TRADE BARRIERS,

FUTURE PROSPECTS AND OUTLOOK

By

TAHIRA SADAF

DEPARTMENT OF AGRICULTURAL AND APPLIED ECONOMICS

FACULTY OF RURAL SOCIAL SCIENCES

THE UNIVERSITY OF AGRICULTURE

PESHAWAR PAKISTAN

DECEMBER 2012

Dedicated toDedicated toDedicated toDedicated to

My hubby “M. Shoaib Hassan”My hubby “M. Shoaib Hassan”My hubby “M. Shoaib Hassan”My hubby “M. Shoaib Hassan”

For his remarkable patience and unwavering love and support

My son “M. Zaryab Hassan”My son “M. Zaryab Hassan”My son “M. Zaryab Hassan”My son “M. Zaryab Hassan”

Who has grown into a wonderful 2 years and 7 months old in spite of his mother spending so much time away from

him working on this thesis

And And And And

My loving father “FazalMy loving father “FazalMy loving father “FazalMy loving father “Fazal----urururur----Rehman”Rehman”Rehman”Rehman”

Who has been my role-model for hard work, persistence and personal sacrifices, and who instilled in me the

inspiration to set high goals and the confidence to achieve them

A cknow ledgm ents It is very hard to express my feelings upon achieving such a biggest objective in my life. I owe my success to the divine help of that Great Being up above there, Lord of all the worlds, the most merciful and beneficial, for enabling me to complete this goal, and all respects are for the Holy Prophet, MUHAMMAD (PBUH), who is an everlasting model of guidance and knowledge for humanity.

The realization of this work was only possible due to the several people's collaboration, to which I desire to express my gratefulness.

First and foremost, I would like to thank the Higher Education Commission (HEC), Pakistan for providing financial support through its prestigious and generous Ph.D Indigenous Scholarship during the course of my study.

I wish to thank my Supervisory Committee Members who were more than generous with their expertise and support. A special thanks to Dr. Dawood Jan, being Chairman of the committee, my Ph.D supervisor and Chairman Department of Agricultural and Applied Economics, for his steadfast support, cooperation and greatly needed and deeply appreciated guidance. Thank you my Co-Supervisor Prof. Dr. Anwar Fazil Chishti (City University, Peshawar), Dr. Abbasullah, Dr. Yousaf Hayat, and Prof. Dr. Farhatullah (Director Advanced Studies and Research) for agreeing to serve on my committee. Prof. Dr. Farhatullah was the person, who initially convinced me to do Ph.D from my home institute instead of some foreign institute, I am thankful to him for his persuasion, guidance and cooperation. I am highly indebted to Dr. Yousaf Hayat for his insightful comments on my thesis when I first defended it in Board of Study meeting. His remarks helped us a lot to give final shape to this work.

My deepest gratitude goes to Prof. Dr. Anwar F. Chishti. His sage advice, insightful criticisms, painstaking guidance, critical evaluation and patient encouragement aided the writing of this thesis. When I started Ph.D in 2006, he was my supervisor. He got his retirement in December 2008. But he never discontinued working with me. He exhausted more than 7 years in supporting the accomplishment of this arduous work. He is not only my supervisor, he is also a fine academic mentor, whose encouragement and guidance from the beginning to the end enabled me to develop an understanding of the subject. My work also benefitted much from his consistent thought provoking probing and precious suggestions. His patience and considerate nature made him accessible whenever I needed his assistance. Intimately, his resourcefulness inspired my imagination now and again. One simply could not wish a better or friendlier supervisor.

I am thankful to all teachers, especially those at my department, Dr. Gaffar Ali, Dr. Shahid Ali, Dr. Abbasullah Jan, Mr. Muhammad Fayaz for their help and encouragement in so many ways. I

am also grateful to Baji Farida (Superintendent), kaka Jehanzaib (Naib Qasid) and kaka Aurangzeb (Naib Qasid) for their kindness and cooperation. Baji Farida always listen to us with patience and help us out in troubles.

Finally, I want to thank my family. My debt to my loving father Mr. Fazal-ur-Rehman is immeasurable, who encouraged me when I exhausted, trusted me when I felt unconfident, supported me both financially and morally throughout this work and my whole life. He taught me that the best kind of knowledge to have is that which is learned for its own sake. He has been a source of motivation and strength during moments of despair and discouragement. I am really grateful to all my siblings for their continuous love, support, wishes and prayers. They have never left my side and are very special. My sisters Sidrah Rehman, Madiha Rehman and Salma Rehman, and my aunt Rashida Bibi took care of my little angel M. Zaryab Hassan all the time with such love and affection that is immeasurable. Madiha used to travel with me to Islamabad and Peshwar for taking care of Zaryab and encouraging me when I felt down. In fact, my whole family has contributed a lot to this strenuous task by encouraged me in disappointment and shared my apprehension. My brother Usman Ali has even changed pampers of Zaryab when I was busy in my research work. Thanks to him, Obaid-ur-Rehman, Bilal Hassan, Awais Ali, Hamza, Usama, Ghania, Rimsha, Hasnain Raza and Ozaifa for being with me.

I should pay gratitude to my in-laws, as their love gave me forces to make this work. My mother-in-law Mrs. Rehana Khatoon has remained always cooperative and loving to me. Thank you mama. My hubby ‘M. Shoaib Hassan’ has been very kind, loving and cooperative. I do not want to devalue his infatuation by formal words of thanks. I would just say, I am highly indebted to you, and love you and my son the most.

I would also to express my appreciation to my friends, Sadia Aziz, Robina Karim, Noor Jehan, Beena, Hasina and Salma Khan for moral support, enthusiasm and encouragement.

If I did not mention someone’s name here, it does not mean that I do not acknowledge your support and help. Again, I would like to thank everyone who supported and helped me during my Ph.D. study.

TABLE OF CONTENTS

No. Title Page No.

List of tables i List of figure iv Acronyms v Abstract vii I INTRODUCTION 1

1.1 Pakistan’s cotton and textile products exports: major problem areas 5 1.2 Justification for the research 7 1.3 Objectives of the research 7 1.4 Hypotheses 8 1.5 Organization of the dissertation 8

II REVIEW OF LITERATURE 9 2.1 Comparative advantage in production of cotton and its consumption for

Pakistan 9

2.2 The EU’s regulations and policy initiatives and trade of textiles and clothing

11

2.3 Pakistan’s export trade of textiles and clothing 14 2.4 Phase out of Multi-Fiber Agreement and the Global textiles and clothing 19

III METHODOLOGY 26 3.1 Data, data sources and universe 26

3.1.1 Universe and study period 26 3.1.2 Data sources 26 3.1.3 Nature of data 27

3.2 Analytic tools 31 IV RESULTS AND DISCUSSION 37

4.1 Pakistan’s textiles and clothing imports in the European Union Market 37 4.1.1 Global textiles and clothing imports trade and the EU market 38 4.1.2 Pakistan’s textiles and clothing imports trade to the EU market 42 4.1.3 Pakistan’s textiles and clothing imports to the EU: by major categories 45

4.1.3.1 The case of textile fibres (26-category) textiles imports to EU 47 4.1.3.2 The case of textile yarn (65-category textiles) 48 4.1.3.3 The case of clothing (84-category textiles) 49

4.1.4 Pakistan’s textiles and clothing trade with the EU: Quantitative analysis 50 4.1.4.1 Trend analysis: The case of textile fibres (26-category textiles) 50 4.1.4.2 The case of textile yarn and fabrics (65-category textiles) 52 4.1.4.3 The case of clothing (84-category textiles) 53 4.1.4.4 Quantitative modeling: unit roots analysis 54 4.1.4.5 The case of the EU’s 26-category imports and her imports from

Pakistan 54

4.1.4.6 The case of the EU’s 65-category imports and her imports from Pakistan

56

4.1.4.7 The case of the EU’s 84-category imports and her imports from Pakistan

59

4.1.4.8 Quantitative modeling: Correlation and Co-integration between the EU’s total textiles imports and her imports from Pakistan

62

4.1.4.9 Correlation analysis: The case of 26-category textiles 62 4.1.4.10 The case of 65-category textiles 62 4.1.4.11 The case of 84-category textiles 63 4.1.4.12 Co-integration analysis and Error Correction Model: The case

of 26 category textiles 63

4.1.4.13 The case of 65-category textiles 65 4.1.4.14 The case of 84-category textiles 66

4.2 Major Competition to Pakistan’s Textiles and clothing Imports in the European Union Market

67

4.2.1 Competition in 26-category textiles 67 4.2.2 Competition in 65-category textiles 70 4.2.3 Competition in 84-category textiles 72 4.3 Identification of major 5-digit products in EU market 73 4.3.1 Identification major 5-digit products: the case of 26-category 74

4.3.1.1 The EU's 1st category preferred products 74 4.3.1.2 The EU's 2nd category preferred products 74

4.3.2 Identification major 5-digit products: the case of 65-category 75 4.3.2.1 The EU's 1st category preferred products 76

4.3.3 Identification major 5-digit products: the case of 84-category 83 4.3.3.1 The EU's 1st category preferred products 83

4.4 Effect of the EU’s tariff rates and her policies on textiles and clothing imports from Pakistan

87

4.4.1 Effect of tariff rates on Pakistan’s textiles and clothing imports to the EU

88

4.4.1.1 Effect of tariff on overall textiles and clothing 88 4.4.1.2 Effect of the EU’s tariff across various textiles and clothing

categories 89

4.4.2 The EU’s trade policies and Pakistan’s textiles and clothing imports 90 4.4.2.1 The EU’s trade policies: Generalised System of Preferences

(GSP) 91

4.4.2.2 The EU’s trade policies: Non-tariff-barriers (NTBs) 92 4.5 Future prospects and outlook 96

4.5.1 Future prospects based on research findings 96 4.5.2 Determinants of profitability of Pakistan’s textiles manufacturing

companies 97

V SUMMARY, CONCLUSIONS AND RECOMMENDATIONS 10 2 5.1 Summary of findings 102 5.2 Conclusions 111 5.3 Recommendations 113

LITERATURE CITED 116 ANNEXURE I 121 ANNEXURE II 129 ANNEXURE III 136

i

LIST OF TABLES

Table No. Table Title Page No.

Table 1.1 Share of textiles and clothing in Pakistan’s total exports (2000-01 to 2011-12)

1

Table 1.2 Pakistan’s trade with the EU: value and percentage share (2003-04 to 2011-12)

2

Table 1.3 The EU’s imports trade: share of Pakistan and her competitors (2006 to 2010)

3

Table 1.4 Pakistan’s export of textile manufactures (Share) 4

Table 1.5 The EU’s textiles and clothing imports market: shares of major partners (2011) (value in billion USD, percentage share in parenthesis)

5

Table 4.1 Share of the European Union in total world imports trade 38 Table 4.2 Share of textiles and clothing in total world imports trade 39

Table 4.3 Total world imports trade of textiles and clothing (billion USD) and the EU’s contribution (percentage)

39

Table 4.4(a) Global textiles and clothing imports trade by major categories (figures in billion US dollars; percent shares in parenthesis)

40

Table 4.4(b) The EU’s textiles and clothing imports trade by major categories (figures in billion USD; percentage shares in parenthesis)

41

Table 4.5 The EU’s total imports and her imports from Pakistan 43

Table 4.6 Pearson correlation between the EU’s total imports and her imports from Pakistan

44

Table 4.7 The EU’s total textiles and clothing imports and her imports from Pakistan

44

Table 4.8 Pearson correlation between the EU’s total textiles and clothing imports and her imports from Pakistan

45

Table 4.9 The EU’s textiles and clothing imports from Pakistan by major categories in billion US dollars

46

Table 4.10 The EU’s imports of textile fibres (code 26) from Pakistan and her competitors in billion US dollars

47

Table 4.11 The EU’s imports of textile yarn and fabrics (code 65) from Pakistan and her competitors in billion US dollars

48

Table 4.12 The EU’s imports of textile clothing (code 84) from Pakistan and her competitors in billion US dollars

49

Table 4.13 (a) The EU’s total textile fibres (26-category) imports and her imports from Pakistan in billion US dollars

50

Table 4.13 (b) Coefficients of equation 4.1 (a) 51 Table 4.13 (c) Coefficients of equation 4.1 (b) 51

Table 4.14 (a) The EU’s total textile yarn and fabrics (65-category) imports and her imports from Pakistan (in billion US dollars)

52

Table 4.14 (b) Coefficients of equation 4.2 (a) 52 Table 4.14 (c) Coefficients of equation 4.2 (b) 53

Table 4.15 (a) The EU’s total clothing (84-category) imports and her imports from Pakistan (in billion US dollars)

53

ii

Table 4.15 (b) Coefficients of equation 4.3 (a) 54 Table 4.15 (c) Coefficients of equation 4.3 (b) 54 Table 4.16 (a-1) The ADF test: the EU’s 26-category textile imports from Pakistan 55 Table 4.16 (a-2) The PP test: the EU’s 26-category textile imports from Pakistan 55 Table 4.16 (b-1) The ADF test: the EU’s total 26-category textile imports 55 Table 4.16 (b-2) The PP test: the EU’s total 26-category textile imports 55 Table 4.16(c-1) The ADF test: First differential of the EU’s total 26-category imports 56 Table 4.16 (c-2) The PP test: First differential of the EU’s total 26-category imports 56 Table 4.17 (a-1) The ADF test: the EU’s 65-category textile imports from Pakistan 56 Table 4.17 (a-2) The PP test: the EU’s 65-category textile imports from Pakistan 57

Table 4.17 (b-1) The ADF test: First Differential of the EU’s 65-category imports from Pakistan

57

Table 4.17 (b-2) The PP test: First Differential of the EU’s 65-category imports from Pakistan

57

Table 4.18 (a-1) The ADF test: the EU’s total 65-category textile imports 58 Table 4.18 (a-2) The PP test: the EU’s total 65-category textile imports 58 Table 4.18 (b-1) The ADF test: First differential of the EU’s total 65-category imports 58 Table 4.18 (b-2) The PP test: First differential of the EU’s total 65-category imports 58 Table 4.19 (a-1) The ADF test: the EU’s 84-category textile imports from Pakistan 59 Table 4.19 (a-2) The PP test: the EU’s 84-category textile imports from Pakistan 59

Table 4.19 (b-1) The ADF test: First differential of the EU’s 84-category imports from Pakistan

59

Table 4.19 (b-2) The PP test: First differential of the EU’s 84-category imports from Pakistan

59

Table 4.19 (c-1) The ADF test: Second differential of the EU’s 84-category imports from Pakistan

59

Table 4.19 (c-2) The PP test: Second differential of the EU’s 84-category textile imports from Pakistan

60

Table 4.20 (a-1) The ADF test: the EU’s total 84-category textile imports 60 Table 4.20 (a-2) The PP test: the EU’s total 84-category textile imports 60 Table 4.20 (b-1) The ADF test: First differential of the EU’s total 84-category imports 61 Table 4.20 (b-2) The PP test: First differential of the EU’s total 84-category imports 61

Table 4.20 (c) The ADF test: Second differential of the EU’s total 84-category imports

61

Table 4.21 Pearson correlation between the EU’s total 26-category textiles imports and her imports from Pakistan

62

Table 4.22 Pearson correlation between the EU’s total 65-category textiles imports and her imports from Pakistan

62

Table 4.23 Pearson correlation between the EU’s total textiles imports of 84-category and her imports from Pakistan

63

Table 4.24 The EU’s total imports of 26-category textiles and her average imports from major partners in billion USD

68

Table 4.25 Dummy variable analysis identifying Pakistan’s competitors: 26-category textiles

69

Table 4.26 The EU’s total imports of 65-category textiles and her average imports from major partners in billion USD

70

iii

Table 4.27 Dummy variable analysis identifying Pakistan’s competitors: 65-category textiles

71

Table 4.28 The EU’s total imports of 84-category textiles and her average imports from major partners in billion USD

72

Table 4.29 Dummy variable analysis identifying Pakistan’s competitors: 84-category textiles

73

Table 4.30 (a) The EU's 1st 20 5-digit preferred products and Pakistan’s positioning: 26-category (2007-11 average)

74

Table 4.30 (b) The EU's 2nd 5-digit preferred products and Pakistan’s positioning: 26-category (2007-11 average)

75

Table 4.31 (a) The EU's 1st 50 5-digit preferred products and Pakistan’s positioning: 65-category (2007-11 average)

76-77

Table 4.31 (b) The EU's 2nd 50 5-digit preferred products and Pakistan’s positioning: 65-category (2007-11 average)

78-79

Table 4.31 (c) The EU's 3rd 50 5-digit preferred products and Pakistan’s positioning: 65-category (2007-11 average)

79-81

Table 4.31 (d) The EU's 4th 50 5-digit preferred products and Pakistan’s positioning: 65-category (2007-11 average)

81-82

Table 4.31 (e) The EU's 5th 5-digit preferred products and Pakistan’s positioning: 65-category (2007-11 average)

82-83

Table 4.32 (a) The EU's 1st 20 5-digit preferred products and Pakistan’s positioning: 84-category (2007-11 average)

83-84

Table 4.32 (b) The EU's 2nd 20 5-digit preferred products and Pakistan’s positioning: 84-category (2007-11 average)

84-85

Table 4.32 (c) The EU's 3rd 20 5-digit preferred products and Pakistan’s positioning: 84-category (2007-11 average)

85

Table 4.32 (d) The EU's 4th 20 5-digit preferred products and Pakistan’s positioning (2007-11 average)

86

Table 4.32 (e) The EU's 5th 5-digit preferred products and Pakistan’s positioning (2007-11 average)

87

Table 4.33 Data on the EU's tariff policy regarding Pakistan’s textiles and clothing import

88

Table 4.34 The EU's tariff on Pakistan’s textiles and clothing imports across various categories

89

Table 4.35 Descriptive statistics: Variables on textiles manufacturing industries (million Rupees)

98

iv

LIST OF FIGURES

Figure No. Figure title Page No.

Figure 1.1 Trend of Pakistan’s cotton production since 2003 (000 bales) 6

Figure 4.1 Share of global textile and clothing categories in total T&C imports trade

41

Figure 4.2 Share of European Union’s T&C categories in total T&C imports trade

42

v

ACRONYMS

ADB Asian Development Bank ADD Anti-Dumping Duty ADF Augmented Dickey-Fuller test APTEA All Pakistan Textile Exporters Association APTMA All Pakistan Textile Mills Association ASEAN Association of South East Asian Nations ATC Agreement on Textiles and Clothing BEC Broad Economic Categories CARIS Centre for the Analysis of Regional Integration at Sussex CGE Computable General Equilibrium CESPRI Centro Study Sui Processi di Internazionalizzazione CIF Cost Insurance and Freight DRC Domestic Resource Cost EBA Everything But Arms EC European Commission ECM Error Correction Model ECU European Currency Unit EPCs Effective Protection Co-efficients ERS Economic Research Service EU The European Union FAO Food and Agricultural Organization FTA Free Trade Agreement FY Fiscal Year GATT General Agreement on Tariff and Trade GDP Grand Domestic Product GoB Government of Bangladesh GoP Government of Pakistan GSP Generalized System of Preferences GTAP Global Trade Analysis Project HRD Human Resource Development HS Harmonized Commodity Description and Coding System ICRIER Indian Council for Research on International Economic Relations ICTSD International Centre for Trade and Sustainable Development IDE-JETRO Institute of Developing Economies, Japan External Trade Organization IFPRI International Food Policy Research Institute IISD International Institute for Sustainable Development ITC International Trade Centre LDCs Least Development Countries MFA Multi-Fiber Agreement MFN Most Favored Nations NAMA Non-Agricultural Products Market Access NPOs Nominal Protection Coefficients NTBs Non Tariff Trade Barriers OECD Organization of Economic Cooperation and Development

vi

PARC Pakistan Agricultural Research Council PBS Pakistan Bureau of Statistics PCRs Private Cost Ratios PIHS Pakistan Integrated Household Survey PP Phillips-Perron test RMG Readymade Garments RoO Rules of Origin SITC Standard International Trade Classification T&C Textiles and clothing TBR Trade Barriers Regulation TDAP Trade Development Authority of Pakistan UK United Kingdom UN United Nations UNCTAD United Nations Conference on Trade and Development UNDP United Nations Development Program UNSD United Nations Statistics Division USA United State of America USD US Dollars USDA United States Department of Agriculture WB World Bank WITS World Integrated Trade Solution WTO World Trade Organization

vii

PAKISTAN'S COTTON AND TEXTILES EXPORTS TO EUROPEAN UNION: COMPETITION, TRADE BARRIERS, FUTURE PROSPECT S

AND OUTLOOK By

TAHIRA SADAF AND DAWOOD JAN

Department of Agricultural and Applied Economics Faculty of Rural Social Sciences The University of Agriculture

Peshawar-Pakistan December, 2012

ABSTRACT The study, which primarily aimed at analyzing the European Union’s imports from Pakistan, finds that there exists a strong correlation between the EU’s total textiles and clothing imports and her imports from Pakistan. Same is true as far as the various categories of 26, 65 and 84 in textiles and clothing imports are concerned. Pakistan’s performance seems satisfactory especially in case of 26-category textiles, while the imports of 65-category and 84-category textiles need improvement. It is good for Pakistan that her rates of growth in 65 and 84 categories of textiles imports by the EU are relatively higher than the EU’s own total imports. Pakistan needs to maintain not only its present growth rates but she should also make efforts to get more shares, especially in 65 and 84 category textiles in EU market, as these two category belong to value added textiles. The study identifies 45, 217 and 94 the EU’s preferred 5-digit textile and clothing products, and reveals that eight Pakistani 5-digit 26-category products (with SITC codes 26339, 26310, 26902, 26490, 26721, 26901, 26652 and 26711) have attained positions in the EU’s first 20 preferred products list, while remaining 12 the EU’s preferred products have fallen into Pakistan’s relatively less preferred products list. In case of 217 5-digit 65-category products, only 14 Pakistani products (65843, 65841, 65842, 65221, 65847, 65234, 65133, 65243, 65851, 65232, 65242, 65184, 65892, and 65859) have got positions in the EU’s first 50 preferred products list. In case of the EU’s preferred 5-digit 84-category textiles products, only three Pakistani products (84140, 84629 and 84371) have attained positions in the EU’s first 20 preferred products list. These facts warrant attention of Pakistan’s textiles and clothing manufacturer, exporters and policy makers for improving quality for meeting the EU’s standards. The study finds that the EU has imposed different levels of tariffs based on the primary commodities, semi-processed and processed products, and these rates are enhanced along with the levels of processing of the products, and Pakistan is adversely suffering because of the stated the EU’s policy. In addition, the EU has put various countries in three different schemes of Generalised System of Preferences (GSP) namely, standard GSP arrangements, GSP+ and EBA. Pakistan imports to the EU are presently facing general GSP arrangements, and is not benefiting from the other two relatively more beneficial schemes, presently available to a number of Pakistan’s competitors in textiles. Pakistan understands that her imports to the EU are subject to a number of non-tariff barriers (NTBs) including various standard procedures set under WTOs agreements in the disciplines of government procurement, services, investment, trade facilitation, trade defence, standards, intellectual property rights, competition policy, and rules of origin. From Pakistan’s point of view, if the EU goes for having FTAs with some of Pakistani

viii

competitors, then Pakistan would face serious adverse effects due especially to the WTO related standard procedures. Based on findings of the study and conclusions drawn, this study forwards certain recommendations. Study finds Pakistan’s performance especially in cases of 26 and 65-category textiles satisfactory, and recommends that the imports of 84-category textiles from Pakistan to the EU should also be given priority, being the value added products. In case of the individual major categories (26, 65 & 84), the following 5-digit products, being the EU’s most preferred products, should be given priority, in particular.

(a) The eight Pakistani 5-digit 26-category products (SITC codes: 26339, 26310, 26902, 26490, 26721, 26901, 26652 and 26711) have attained positions in EU’s first 20 preferred products list, while remaining 12 the EU’s preferred products (Table 4.30a) have fallen into Pakistan’s relatively less preferred products list; Pakistan should improve the quality of these products to attain better position in the EU’s 5-digit 26-category market.

(b) In case of 217 5-digit 65-category products, only 14 Pakistani products (65843, 65841, 65842, 65221, 65847, 65234, 65133, 65243, 65851, 65232, 65242, 65184, 65892, and 65859) have got positions in the EU’s first 50 preferred products list; the remaining 36 the EU’s first category preferred products (Table 4.31a) should now be having attention of Pakistani stakeholders.

(c) In case of the EU’s preferred 5-digit 84-category textiles products, only three Pakistani products (84140, 84629 and 84371) have attained positions in the EU’s first 20 preferred products list; the remaining 17 products (Table 4.32a) should be given attention for a greater value-added import of the EU from Pakistan.

(d) Policy makers of the EU and Pakistan should take note of the fact that the EU policy of tariff escalation is discouraging value-addition textile trade from Pakistan. They should also take care of the concern that the EU has put Pakistan at disadvantage, comparing to its competitors, by putting Pakistan in the Generalised System of Preferences (standard GSP arrangements), and some of her serious competitors in more advantageous GSP+ and EBA schemes. The EU’s officials and their Pakistani counterparts should also settle the problem of the existence of various non-tariff barriers (NTBs), and especially the affairs relating to the adoption of various standard procedures set under WTOs agreements in the disciplines of government procurement, trade in services, investment, trade facilitation, trade defence, products and processes quality standards, intellectual property rights, competition policy, and rules of origin. The EU should particularly be careful while going to have FTAs with some of Pakistan’s competitors as Pakistan would face serious adverse effects due especially to the non- or partial-adoption of the stated WTO related standard procedures. Pakistani stakeholders, especially the government, should take appropriate steps for an early and extensive adoption of WTO agreements and related standards and standard procedures.

(e) Pakistani stakeholders (manufacturers, exporters and policy makers) would have to adopt the required and up-to-date quality standards (relating to the product, process and packing) while keeping costs under control. Government of Pakistan in particular should take arrangements for having inflation in control and making availability of inputs and resources ensured.

1

I. INTRODUCTION

Cotton is main cash crop of Pakistan and contributes a significant amount of foreign

exchange earnings to the country. Livelihood of thousands of farmers and of those

associated with the entire cotton value chain is dependent on this single crop. Pakistan

ranks as fourth in production and third in consumption of cotton at world level. Cotton

and textiles is considered as ‘backbone’ of Pakistan’s economy. It makes up 7.8 percent

of the agriculture sector’s value addition and 1.6 percent of Gross Domestic Product

(GDP). Pakistan has made a creditable position in the world because of its large scale

textiles and clothing industry. Share of textiles and clothing in the manufacturing

sector’s employment is around 38 percent and in total export is 52.3 percent

(Government of Pakistan, 2012a). Textiles and clothing exports, on average, have been

around 60 percent of the total exports of Pakistan during the 2000-12 period (Table

1.1).

Table 1.1 Share of textiles and clothing in Pakistan’s total exports

(2000-01 to 2011-12)

Years Pakistan's total exports

(billion dollars) Percentage share of textiles and clothing

2000-01 9.202 64.800

2001-02 9.135 63.900 2002-03 11.160 68.400 2003-04 12.313 66.100 2004-05 14.391 59.500 2005-06 16.451 60.600 2006-07 17.011 66.000 2007-08 19.224 56.000 2008-09 17.782 55.000 2009-10 19.290 54.000 2010-11 24.827 56.000

2011-12 23.624 52.300

Average 16.200 60.210 Source: GoP (2012a).

Pakistan has strong trade ties with the European Union (EU), particularly in case of

textiles and clothing. The European Union is an economic giant consisting of 27

developed countries namely, Germany, France, United Kingdom, Austria, Denmark,

Estonia, Belgium, Greece, Finland, Hungary, Ireland, Cyprus, Italy, Latvia, Czech

Republic, Lithuania, Malta, Netherlands, Poland, Romania, Slovakia, Slovenia, Spain,

Portugal, Luxembourg, Sweden, and Bulgaria. The EU accounts for around one third of

the world trade and therefore provides a huge market to developing countries, including

Pakistan. She is also the largest importer of textiles and clothing products in the world.

2

Table 1.2 presents overview of trade between Pakistan and the EU, where the EU

appears as destination of 30 percent of total exports from Pakistan; in addition, the EU

accounts for 15 percent of total import of Pakistan.

Table 1.2 Pakistan’s trade with the EU: value and percentage share

(2003-04 to 2011-12)

Year

EU imports from Pakistan

in billion USD (Percentage share)

EU exports to Pakistan

in billion USD (Percentage share)

2003-04 3.626 (29) 2.307 (15) 2004-05 3.965 (28) 3.324 (16) 2005-06 4.262 (26) 5.017 (18) 2006-07 4.624 (27) 4.975 (16) 2007-08 5.184 (27) 5.637 (14) 2008-09 5.338 (30) 5.760 (16) 2009-10 4.622 (24) 5.038 (14)

2010-11 5.07 (20) 4.938 (12) 2011-12 6.363 (35) 4.723 (15) Average 4.784 (30) 4.635 (15)

Source: GoP (2012b) and comtrade database (http://comtrade.un.org/db/) (12/12/2012)

Apparently, Pak-EU trade looks sizeable but its detailed analysis reflects some major

problems. When it is analyzed from the EU market’s point of view, Pakistan seems to

have very tiny share as compared to her competitors (Table 1.3). Pakistani share in the

EU’s imports market remained around 0.3 percent during 2003 to 2005 and declined

further to 0.2 percent during 2006, 2007 and 2008; it remained at 0.25 percent, on

average from 2000 to 2010.

3

Table 1.3 The EU’s imports trade: share of Pakistan and her competitors (2006 to 2010)

Country Value in billion Euros (share in %) Rank

2000 2006 2007 2008 2009 2010 Average 2005 2010

China 74.600 194.900 233 248 214 283 207.760

2 1 (7.500) (14.400) (16.200) (15.800) (17.700) (18.700) (15.050)

USA 206.300 175.500 174 187 159 170 78.720

1 2 (20.800) (13) (12.100) (11.900) (13.200) (11.300) (13.720)

Russia 63.800 140.9 145 178 118 160 134.230

3 3 (6.400) (10.400) (10.100) (11.400) (9.800) (10.600) (9.780)

Switzerland 62.600 71.6 76.6 80.3 74 83.2 74.720

6 4 (6.300) (5.300) (5.300) (5.100) (6.100) (5.500) (5.600)

Norway 47.200 79.2 76.6 95.9 68.8 79.4 74.520

5 5 (4.800) (5.900) (5.300) (6.100) (5.700) (5.300) (5.520)

Japan 92.100 77.5 78.4 75.1 56.7 65.8 74.267

4 6 (9.300) (5.700) (5.500) (4.800) (4.700) (4.400) (5.733)

Turkey 18.700 41.7 47 46 36.2 42.3 38.650

7 7 (1.900) (3.100) (3.300) (2.900) (3) (2.800) (2.830)

South Korea

27 40.8 41.3 39.6 32.3 39.2 36.700 8 8

(2.700) (3) (2.900) (2.500) (2.700) (2.600) (2.730)

India 12.800 (1.9) 26.6 29.5 25.4 33.2 25.017

14 9 (1.300) (1.700) (1.900) (1.900) (2.100) (2.200) (1.850)

Pakistan 2.700 3.300 3.500 3.600 3.300 3.800 3.370

43 47 (0.3) (0.2) (0.2) (0.2) (0.3) (0.3) (0.25)

Source: EC (2011)

Compared to Pakistan’s average share of 0.25 percent in the EU market, Pakistan’s

trade competitors like China, USA, Russia, Switzerland, Norway, Japan, Turkey, South

Korea and India have sizeable market shares, estimating at, on average, 15 percent, 14

percent, 10 percent, 5.6 percent, 5.5 percent, 5.7 percent, 2.8 percent, 2.7 percent and

1.85 percent, respectively. China, Switzerland and India have improved their ranks

from 2 to1, 6 to 4 and 14 to 9, respectively, during 2005 to 2010. Other countries

maintained their status (except USA and Japan). Whereas, Pakistan has dropped from a

better position of 43 to 47 during 2005 to 2010.

Whatever market share Pakistan had in the EU’s imports, it is mainly consisted of

textile and clothing products, as textiles and clothing sector made bulk (52.3%) of

Pakistan’s total exports during 2000 - 2012 (Table 1.1). Review of literature presented

in the next chapter reinforces that Pakistan’s exports to the EU mainly (around two-

third) consists of textiles sector products. Virk (2008) states that, due to lack of

diversification, textiles and clothing still account for more than 65% of Pakistan’s

export to the EU; around a quarter of these exports are bed linen, table, toilet and the

4

kitchen linen. Baig (2004) reported that the textiles and clothing exports accounted for

67% of exports of Pakistan, of value 7.4 billion US dollars in fiscal year (FY) 2002,

consisting of 30% of clothing and 34 percent of yarn, cotton and MMF fabrics.

Table 1.4 given below shows the share of different textile products in export of

Pakistan. According to this table the highest share is that of cotton cloth, i.e., 19.85 %

on average.

Table 1.4 Pakistan’s export of textile manufactures (Share)

Item

FY

200

0

FY

200

1

FY

200

2

FY

200

3

FY

200

4

FY

200

5

FY

200

6

FY

200

7

FY

200

8

FY

200

9

FY

201

0

Average

cotton yarn

19.2

00

18.7

00

16.1

00

12.9

00

14.0

00

12.7

00

13.7

00

13.6

00

12.5

00

11.7

00

14.1

00

14.4

70

cotton cloth

19.6

00

17.9

00

19.6

00

18.6

00

21.3

00

23.3

00

21.6

00

19.3

00

19.4

00

20.5

00

17.2

00

19.8

50

Knitwear

16.0

00

16.0

00

15.0

00

16.0

00

18.0

00

19.0

00

18.0

00

18.7

00

18.0

00

18.2

00

17.0

00

17.1

50

bed wear

13.0

00

13.0

00

16.0

00

18.0

00

17.0

00

16.0

00

21.0

00

19.0

00

18.3

00

18.2

00

16.6

00

16.9

50

towels

3.5

00

4.2

00

4.6

00

5.2

00

5.00

0

5.9

00

5.8

00

5.7

00

5.9

00

6.7

00

6.5

00

5.3

60

tents, canvas and tarpaulin 0.

900

0.9

00

0.9

00

1.0

00

0.9

00

0.9

00

0.8

00

0.7

00

0.7

00

0.6

00

0.6

00

0.8

10

readymade garments 13

.800

14.4

00

15.1

00

15.1

00

12.4

00

12.9

00

13.9

00

13.2

00

14.0

00

12.9

00

12.6

00

13.6

60

synthetic textiles 8.

200

9.50

0

7.10

0

7.90

0

5.90

0

3.50

0

2.00

0

4.00

0

3.90

0

2.90

0

4.40

0

5.39

0

made up articles 5.

500

5.7

00

6.1

00

5.0

00

5.2

00

5.5

00

4.3

00

4.5

00

5.2

00

5.0

00

5.2

00

5.2

00

others

0.70

0

- - - -

0.10

0

0.10

0

1.30

0

2.10

0

3.30

0

5.80

0

1.91

0

Source: GoP 2012a

5

Table 1.5 provides data on values and shares of textile related products exports to the

EU by major suppliers including China, Bangladesh, Sri Lanka, Morocco, Tunisia,

Turkey, India, USA, Switzerland, Japan, Republic of Korea, Egypt, Vietnam, and

Pakistan. It appears that Pakistan has a share of 8.36 percent in the EU’s textile yarn,

fabrics and related product’s imports market compared to 31.93 percent, 16.71 percent,

11.18 percent, 4.09 percent, 3.75 percent, 2.84 percent, 2.25 percent and 1.97 percent

shares of China, Turkey, India, USA, Switzerland, Republic of Korea, Japan and Egypt

respectively, during 2011. While in case of clothing and clothing accessories the EU’s

imports of China accounts for 44 percent, the share of Turkey is 11.55 percent, that of

Bangladesh is 10.39 percent, and India, Tunisia, Morocco, Vietnam and Sri Lanka

account for, 7.08 percent, 3.36 percent, 2.30 percent, 2.44 percent, and 1.85 percent

market shares, respectively, with 2.11 percent shares for Pakistan during 2011.

Table 1.5 The EU’s textiles and clothing imports market: shares of major partners (2011)

(value in billion USD, percentage share in parenthesis) Textile yarn, fabrics and related productsn9

China Turkey India Pakistan USA Switzerland Rep of Korea Japan Egypt

9.956 (31.93)

5.210 (16.71)

3.485 (11.18)

2.607 (8.36)

1.275 (4.09)

1.146 (3.75)

0.885 (2.84)

0.701 (2.25)

0.613 (1.97)

Clothing and clothing accessories

China Turkey Bangladesh India Tunisia Morocco Vietnam Pakistan Sri

Lanka 4.4378 (44.01)

11.649 (11.55)

10.479 (10.39)

7.146 (7.08)

3.392 (3.36)

3.020 (2.30)

2.456 (2.44)

2.132 (2.11)

1.868 (1.85)

Source: Authors estimation based on Comtrade

1.1 Pakistan’s cotton and textile products exports: major problem areas

First, after China, USA and India, Pakistan is the fourth largest producer of cotton.

However, cotton production in Pakistan fluctuates a lot (Figure 1.1).

6

(Source: GoP, 2012a)

Townsend (1997) analyzes the overall situation of cotton in different regions of the

world and makes forecasts for cotton production and consumption till 2010. In case of

Pakistan, he mentions that difficulties in controlling diseases and insect pests have

remained major responsible factors for depressed yields and production of cotton in

Pakistan in 1990s. The fluctuations in cotton production, in turn, affect production and

exports of cotton and textile products.

Second, Pakistan’s exports are very narrow-based, and are mainly based on cotton and

textile products, as discussed on the preceding paragraphs. The EU is a major

destination for Pakistan’s exports, wherein textiles and clothing share more than half of

total exports.

Third, in case of imports of cotton and textile products in the EU, Pakistan has to

compete with some major exporters like China, Turkey, India, USA, Switzerland,

Republic of Korea, Japan, Egypt, Bangladesh, Tunisia, Morocco, Vietnam, Sri Lanka;

these countries currently enjoy good market shares in the EU.

Fourth, the literature reviewed in the next section reveals that the EU’s trade policies

have remained counterproductive to Pakistan’s cotton and textile products exports to

the EU on certain occasions. Bashar (2003) explains how flow of Pakistan textile

exports to the EU was disrupted due to an embargo on the imports of certain categories

of products; he specifically explains effect of the EU’s anti-dumping on imports of bed

linen imports from Pakistan. Siegmann (2006) reveals that the imposition of 12 percent

import duties on Pakistani bed linen together with anti-dumping imposed in 2004 let to

7

reduction in its sales’ growth and catalyzed the increase in China’s and Turkey’s

market share in the EU. ADB (2006) reports decline in Pakistan’s share in the EU

market despite increase in the textiles and clothing exports of Pakistan due to the

antidumping duty on bed linen imports and Pakistan ultimately faced her preferential

access to the market of the EU (under Generalized Special Preference scheme).

Fifth, even Pakistan domestic agricultural and industrial policies pose certain problems,

especially after the implementation of World Trade Organization’s (WTO) agreements

including phasing out of quota regime with effect from January 2005. Asian

Development Bank (ADB, 2006) expresses the removal of restrictions on textiles and

clothing exports under WTO agreements has brought significant implications for

economy of Pakistan, while Pakistan’s free trade policy in cotton and in imports of

textile machinery etc, and the deregulation of processes of investment approval resulted

in considerable modernization of the country’s textiles and clothing sector during the

past years. Hudson et al. (2000) express that exercising export taxes increases domestic

consumption and decreases exports of cotton, moving income from cotton producers to

yarn spinners and the state, in this way Pakistan’s cotton sector suffers a social loss.

1.2 Justification for the research

The aforementioned discussion necessitates carrying out a comprehensive study of

Pakistan’s textiles and clothing export to the EU, which include research on analyzing

the importance and value of Pakistan's textiles and clothing exports to the EU, besides

assessing the major competition to Pakistan in this regard. Such research also require

considering analysis of all kinds of barriers to Pakistan's cotton and textile exports

domestically and in the EU market. The study in hand was therefore intended to carry

out such an exploratory and analytic research on the basis of techniques as given in the

upcoming chapters.

1.3 Objectives of the research

This study was based on the following research objectives and the hypotheses in the

next section.

1. To analyze the importance and value of Pakistan’s textiles and clothing export

to the EU.

2. To identify and evaluate the major competitors to Pakistan's textiles and

clothing exports to the EU.

8

3. To study tariff and non tariff barriers to Pakistan’s textiles and clothing export

in markets of both Pakistan and the EU.

4. To review the EU’s policy, in general and its effects on Pakistan’s textiles and

clothing export, in particular.

5. To evaluate further prospects and future outlook of Pakistan’s textiles and

clothing export to the EU.

6. To recommend policy prescriptions based on the research findings.

1.4 Hypotheses

Based on the research objectives following corresponding hypotheses were formulate

to be tested.

1. The European Union has special value for its textiles and clothing imports

from Pakistan.

2. Pakistan faces competition in the EU’s textiles and clothing market and

enjoys competitive edge in certain products.

3. There are minimal tariff and non-tariff barriers to Pakistani textiles and

clothing import in the EU market.

4. The EU’s trade policies are fairly competitive and encouraging to Pakistan’s

textiles and clothing imports to the EU.

5. There are vast scope of expansion of Pakistan’s textiles and clothing imports

to the EU market in future

1.5 Organization of the dissertation

This thesis consists of five chapters. Following this chapter on introduction, the next

one provides review of relevant literature, which is further consisted of four sub-

sections, which provide information on (1) studies on comparative advantage in

production of cotton and its consumption in Pakistan, (2) the EU’s regulations and

policy initiatives and trade of textiles and clothing, (3) Pakistan’s export trade of

textiles and clothing, and (4) phasing-out of Multi-Fiber Agreement and the global

textiles and clothing trade. The third chapter provides methodology to address the

objectives and hypotheses set for the study. Following this, the fourth chapter presents

results and discussion. And the final chapter provides summary, conclusions and

recommendations.

9

II. REVIEW OF LITERATURE

This chapter provides review of relevant literature, which is arranged into different

sections based on the relevance of studies. The first section presents literature related to

comparative advantage in production of cotton and its consumption in Pakistan; the

second section deals with the EU’s regulations and policy initiatives and trade of

textiles and clothing; the third section provides studies reviewed on Pakistan’s exports

trade of textiles and clothing, and the last section covers studies relevant to the phase

out of Multi-Fiber Agreement (MFA) and the global textiles and clothing. In order to

extract crux of the studies, the summary of literature reviewed is presented at the end of

each section of this chapter.

2.1 Comparative advantage in production of cotton and its consumption for Pakistan

Townsend (1997) presents overall situation of cotton production, consumption in

different regions of the world. He forecasts cotton production and consumption till

2010. According to him cotton yields are not expected to rise in most of the cotton

growing countries. Pakistan had depressed yields and production during the 1990s, due

to difficulties in controlling disease and insects. On consumption side he forecasts 37

percent cotton share of fiber mill use of world in 2010. Mostly increase in consumption

at end use level in world is happening in the developed economies, while increases in

cotton mill use are taking place in developing countries.

Banuri (1999) has studied the cotton’s production and trade’s impact on environment.

He has discovered scenarios and methods for a conversion to sustainable development

in South Asia, particularly in Pakistan, and the impact on trade internationally. He

examined specifically cotton based products and raw cotton sector in Pakistan. He used

statistical publications, a survey and interviews with experts of Pakistan. He has made

the following conclusion out of his study. First, he evaluated the responsiveness of

stakeholders in production chain to dynamic incentive structures. Secondly, due to

commodity chain’s nature in upper end of the market, the costs of changeover are

imposed on the manufacturers, while the retailers benefited due to change in consumer

preferences. Thirdly, transition to sustainable system of production requires role of

governance to enable textile sector adapt changing market conditions. Finally, existing

governance system needs feasible programming based on efficient management

practices, which encourage sustainable cotton production.

10

Orden et al. (2006) assess the effect of world prices on poverty in rural cotton

producing districts of Sindh and Punjab in Pakistan. They calculate seed cotton prices

for Pakistan implied by cotton lint’s international prices (both export & import). They

find Pakistani domestic prices of seed tracking their export-parity-values. They

evaluate the importance of cotton to household incomes using PIHS 2001-02. They

show that a simulated increase of cotton prices in 2001-02 can bring cotton farmers out

of poverty. They report an increase in real price of cotton by 20 percent lowers the

poverty rates of cotton dependant households of Sindh and Punjab from 43 percent and

32 percent, respectively, to 22 percent and 25 percent. Among sharecropper households

producing cotton, a 20 percent increase in cotton prices lowers rates of poverty from

56-58 percent in Punjab and Sindh to 38 percent and 45 percent, respectively. At the

national level, a 20 percent increase in cotton prices causes poverty of all households

producing cotton to reduce to 28 percent.

Javed et al. (2007) highlight scope for producing crops including cotton to earn foreign

exchange for Pakistan. They evaluate the current policies bringing competitiveness or

not and crops which are required to produce preferably. So that agricultural

comparative advantage and competitiveness is enhanced. They use the price risk

analysis to forecast the future values of comparative advantage and competitiveness

measures. And design the Policy Analysis Matrix by incorporating revenues and costs

taken from private and social budgets for each crop. They determine the degree of

protection and policy distortions in major agricultural commodities including cotton.

They have found probability distribution of input and output prices by using price risk

analysis. The Nominal Protection Coefficients (NPCos) for cotton at export parity price

and the Effective Protection Coefficient (EPCs) found by authors show that domestic

cotton prices are lower than border prices, hence, its disincentive to cotton growers.

The Domestic Resource Cost (DRC) ratios express that Pakistan has comparative

advantage in cotton production as an export item. The Private Cost Ratios (PCRs)

reveal the competitiveness in its domestic production.

Summarizing the literature presented above reveals forecasts for production and

consumption of cotton (Townsend, 1997), ways to ensuring sustainable development

while producing and trading cotton (Banuri, 1999), effect of changes in prices of

commodities particularly cotton prices on poverty in rural districts of Pakistan (Orden

11

et al., 2006), and comparative advantage and competitiveness in producing and

exporting cotton crop (Javed et al., 2007).

2.2 The EU’s regulations and policy initiatives and trade of textiles and

clothing

Dowlah (1999) has studied the impact of policy initiatives related to trade initialized by

the EU in 1990s; the European Agreements, the Euro-Mediterranean Agreements and

the Customs Union with Turkey. He has used GTAP, a competitive computable general

equilibrium model of 10 regions and industries. According to him, on average,

manufacturing industries liberalization helps creating welfare but damages the world

economy. To bring improvement, agricultural markets of the EU are needed to open.

Francois and Glismann (2000) apply two types of quantitative economic models to

check the welfare impact of the EU's barriers on textiles and clothing imports trade

from LDCs. The first method they use is a partial equilibrium analysis to estimate

imports, consumption and production of products of textiles and clothing. The second

method is a general equilibrium analysis to explain indirect effects in the EU.

According to them, the EU consumers will require to pay about 12 billion euro. And

the consumers pay quite high price of 12.7 billion euro due to higher textiles and

clothing prices for domestic and imported goods. Timely implementation of the ATC

would bring gain of 25 billion euro per year for the EU consumers. They conclude that

consumer pays high costs due to protection on trade. They recommend fast and

complete liberalization of the ATC.

Stengg (2001) predicts deprivation for European industry of the cushioning effect of

the imports restrictions after their removal in 2005. Market shares of suppliers of the

EU are expected to be captured by big textile countries like Indonesia, India, and

Pakistan. He encourages the EU industry’s response of restructuring and modernizing

its performance. According to him, the EU needs to continue improving her cost

structure through labour-intensive operations’ outsourcing, and discarding those

components of the value chain in which Europe is less competitive.

Bashar (2003) explains the negative impact of decision by the EU Commission to put

an embargo on the imports of certain commodities on flow of textiles exports to the

EU. He reports that Pakistan textiles exports has an edge over her counterparts

12

especially over India because Pakistani goods are free from any anti-dumping or

regularity duties as compared to Indian goods on which the antidumping duty is being

already imposed. However, anti-dumping duty and embargo on certain textile

categories (e.g. bed linen) has come in mainly because of over programming of the

quota by the exporters. The Export Promotion Bureau, reacting over the situation, has

suspended licenses for the export of bed linen to the EU.

Dunford (2004) studies the changing structure of the EU textiles and clothing sector.

He sets the development of the textiles and clothing industry in the context of wider

textiles and clothing value added chains. He finds that the EU15 providing a huge share

in world employment and exports. Textiles and clothing firms fall into three categories:

the enterprises which concentrate on advertisement and marketing; manufacturing

subcontractors; and integrated firms. He reveals that the determinants of structure of

textiles and clothing industry are, slowly growing demand, the limited product range

and get rapid obsolescence, and the limited scope for economies of scale. The size

distribution of firms reveals some concentration.

Karagiannis (2004) simulates results of the EU cotton policy regime (2000 to 2003) in

welfare terms and states by using a partial equilibrium model for Greece and Spain. He

presents two main conclusions: first, cotton producer would have been comparatively

better off with the proposed policy regime, on average. The magnitude of change

according to him is dependent on the supply elasticity value. Second, the new policy

regime would help taxpayers increase their savings.

EC (2007) examines the impact of the WTO ATC phase out on the European producers

and consumers, focusing on price transmission at various transaction levels within the

EU. The report examines the pattern of price changes for importers, producers and

consumers; provides an econometric analysis of the effects of ATC liberalization. The

study finds that ATC phase out resulted in a significant drop in import prices and

producer prices, which ultimately meant substantial average drops in real consumer

prices. However, this was not true for consumers as pressure on prices is a function of

where products fall in the schedule graduated under the ATC. As a result, competitive

pressure on textiles and clothing industries of the EU member, from imports during the

ATC phase out differs by country.

13

Curran and Louise (2008) analyze situation of the liberalization of clothing and textiles

trade since January 2005 under the WTO ATC. They consider the impacts of

liberalization on the EU’s textiles and clothing imports in terms of import volume and

values. Their article also briefly addresses US market where broad trends are found

similar. It also compares the actual outcomes and highlights the predictions and

anomalies.

EC (2008) report discusses about Trade Barriers Regulation (TBR), its scope, target

and procedure. The TBR is defined as a tool that helps removing obstacles that the EU

exporters face in the third country markets so that the benefit of the EU exporters is

enhanced. The TBR applies to goods, services and intellectual property rights. The

EC’s TBR came into effect on 1 January 1995. It is an authorized tool that gives the

right to enterprises and members of the EU to register a complaint, or organizations

acting on their behalf, to inspect and control violation of international trade rules.

Complaints can be of two types: those lodged when a non-EU country puts a trade

barrier which harms exports from the EU member states; or those lodged against trade

barrier of a non-EU country which adversely affects the EU market. The TBR is the

single trade policy tool which gives the right to an individual company to lodge a

complaint to the EC.

Summing up the studies presented above: the structure of the EU textiles and clothing

industry adjusts in the context of textiles and clothing value added chains (Dunford,

2004). The trade policy initiatives employed by the EU in 1990s are found creating

welfare for the subscribers and harms the world economy (Dowlah, 1999). Cotton

producers of the EU reported to become better off after the EU cotton policy regime

(2000 to 2003) (Karagiannis, 2004). An internet consultation conducted in 2006

revealed that the Francois and Glismann (2000) consider the implementation of ATC

enhance welfare of the EU consumers and consider trade barriers on trade of textiles

and clothing as incurring cost to consumers. Curran and Louise (2008) also examine

the situation of textiles and clothing trade liberalization under ATC. The impact of the

WTO ATC phase out on European producers and consumers is also examined (EC,

2008).

14

2.3 Pakistan’s exports trade of textiles and clothing

Hudson et al. (2000) explore the impact of exercising export taxes as a price control in

a multi-market framework in case of Pakistan’s cotton and yarn sector. They have

shown that the export tax on cotton increases domestic consumption and decreases

exports of cotton, moving income from cotton producers to yarn spinners and the state.

Domestic yarn production, consumption and income and export of yarn spinner

increases but in this way Pakistan’s cotton sector suffers a social loss.

Joshi (2002) reveals competitiveness, job quality and productivity in the South Asian

garment industry (Pakistan, Nepal, India, Sri Lanka and Bangladesh) particularly after

the expiry of quota system (MFA). He reports reduction in employment (as well as

employment quality) and income and also increased competition from low-cost

countries as a result of phase out of MFA. Nepal has already faced a depression in its

garment industry’s employment due to increased competition. Similarly Bangladesh

would suffer due to its huge reliance on the developed countries like US and the EU for

its exports of garment and also due to productivity disadvantage. In case of Pakistan,

removal of quota system is reported to open opportunity in the segments of product at

the top end of the value chain of textile, simultaneously; it would hamper the Pakistan’s

exports growth. In Pakistan, the policy for quota is upsetting for exporters due to

obligations of high entrance barriers in the form of large investments in the

procurement of quota. He recommends a strategy based on HRD, export target areas

diversification, finding and exploring the regional marketplace, looking for favoured

treatment from developed countries as a regional community, inventive product

advancement through supporting design services and promoting trade liberalization for

imports of the inputs and equipment. For South Asia, he suggests ways to minimize

adverse consequences of abolition of quota. He also recommends each country

analyzing her strong points and weaknesses and preparing an approach to set up the

industry for trade liberalization regime.

Baig (2004) reports that the ability of Pakistan’s performance after quota regime

depends on the behaviour of USA and the EU to Pakistan’s exports. Author expresses

fear of a possible threat to the exporters of Pakistan before 2006 if the EU loses her

case in the WTO of the withdrawal of 0 percent duty normally granted as per the GSP

Scheme. He explains that in Pakistan’s import of Polyester faces 20 percent duty

15

imposed due to which 25 percent polyester fabrics is blended with synthetic fabrics,

while this percentage is 35 percent polyester fabrics in case of Bangladesh. This

scarceness has resulted in the poor performance of this sector by Pakistan. He suggests

Pakistan to improve textiles production in blending sector.

World Bank (2004) analyses the latent benefits and suffering Pakistan would be facing

from removal of the quota system post-MFA. Pakistan’s position depends on

comparative barriers on competitors’ exports, the competitiveness among suppliers, and

the production sharing’s complementarities at global level. According to the report,

overall, the short term effect abolition of MFA will be encouraging for the textile sector

but discouraging for clothing. The pressure of increased competition will be adjusted

using the strategy of diversification, particularly men’s knitted shirts, being

comparatively less important to the competitors. China gets export prices for textiles

more than double, as compared to Pakistan. To increase employment, output and export

of textiles and clothing sector, Pakistan needs to improve productivity, as wages are

low than the international standards. Investment environment is suggested to improve

in order to benefit textiles and clothing sector and the economy as a whole. To make

markets relatively more price responsive Pakistan is suggested to enhance her

productivity as well as the quality of products in post quotas regime.

European Business Review (2005) reveals that response of Pakistan’s textiles industry

is positive in the dynamic global environment after the MFA. According to this report,

Pakistan’s needs to improve the quality of bed linen, clothing and curtains so that these

products meet the international standards and those of western markets. The removal of

limitations on exports trade, particularly from India, China and Pakistan has resulted in

fast restructuring of trade. The author encourages Pakistan's ability to improve

technology and get comparative advantage in these products. However, the

performance of clothing sector is reported to be non satisfactory particularly when

compared to China.

ADB (2006) reveals significant implications for Pakistani economy due to expiry of

quota on textiles and clothing exports. The sector exports rose only over 20 percent.

Pakistan’s textiles and clothing exports to the EU are reported to suffer due to two

reasons. One is obligation of antidumping duty on bed linen imports, and other is the

loss of preferential access to the EU market previously Pakistan enjoyed under the

16

GSP. High costs of doing business, low productivity of labor, are also assumed to

depress Pakistan’s competitiveness in the global textiles and clothing export market.

Additionally, concession given to Bangladesh, Sri Lanka, and Viet Nam also hurts

Pakistan’s export.

Naeem (2006) analyzed impact of the EU enlargement from the EU15 to the EU25 on

Pakistan’s textiles and clothing export to the EU market. He reveals that the EU

external trade regime, particularly the GSP system and country-specific or region-

specific trade preferences, is regionalized and discriminatory. It does not necessarily

guarantee success in the export performance of the recipients. However, the beneficial

impact of the EU enlargement i.e. trade creation and trade expansion has swamped

away its negative effects i.e. trade diversion. New EU10 member countries did not

appear to be strong competitors of Pakistan in the exports of selected textile items. He

forecasts bright future where the EU enlargement will provide ample opportunities for

increased trade flows from its non member trading partners including Pakistan owing to

generation of its dynamic effects. The author suggests public authorities to support

Pakistani firms for competing domestically and in the EU25 market. Firms should be

encouraged to adopt the technological diversification of export matrix. In his view

point, Pakistan needs to liberalize her foreign investment policy making. He

recommends Pakistan to undertake immediate measures for creating exports of

enhanced at comparatively competitive prices in the EU market. He recommends the

textiles and clothing firms need to improve their products in terms of cost of production

and the quality to compete in the EU25 market as opposed to competitors using

advance R&D activities.

Siegmann (2006) analyses different aspects of trade of textiles and clothing between

Pakistan and the EU. She reports that the EU is Pakistan's largest trading partner;

however, The EU has imposed import duty on bed linen from Pakistan, because the

European market received huge amount of Pakistani bed-linen below cost prices of the

market. She focuses on the EU’s other policies related to trade from Pakistan and

analyses the structure of textiles and clothing industry of Pakistan. She provides

overview of exports in such context and suggests potential setting for the future trade

relationship between the EU and Pakistan for textiles and clothing development and

overall progress. According to her, in 2001 a surge in textiles and clothing export from

Pakistan to the EU market took place due to the EU’s provision of duty free access to

17

her market under the GSP. The imposition of 12 percent import duties on Pakistani

bed-linen together with the anti-dumping imposed in March 2004 led to reduction in its

sales' growth, though, and catalysed the increase in China and Turkey's market share in

the EU.

CARIS (2008) is a detailed study on “the impact of trade policies on Pakistan's

preferential access to the European Union”, the researchers of “the Centre for the

Analysis of Regional Integration at Sussex (CARIS)” carried out a detailed analysis of

the overall impact of trade policies, and particularly those of the EU in South Asia, on

Pakistan's preferential entrance to the EU and on Pakistan's overall performance in

trade. A quantitative simulation analysis based on a global CGE model was used. This

simulation analysis covers Pakistan's recent bilateral trade agreements with China,

Malaysia and Sri Lanka, her membership of the South Asian Free Trade Area and the

WTO Doha Round. The model is then used to measure the indirect effects of the EU's

envisaged preferential trade agreements Association of South East Asian Nations

(ASEAN) on Pakistan's economy. Authors also discuss the impact of the EU’s GSP

scheme(s) on Pakistan and her principal competitors in the context of sector of textiles

and clothing sector; and issues of regulatory reform and non tariff barriers within

Pakistan. They also analysed the effect of existing and probable the EU’s FTAs with its

partners on Pakistan, and developed a detailed database on NTBs, which reflects “the

nature of the non-tariff barrier, the coverage of the barrier in both bilateral trade and

total trade and the degree of revealed market access enjoyed by the interested parties in

the target market. Using these indicators, one can infer the restrictiveness of the barrier

in terms of revealed market access and coverage”.

Cororaton and Orden (2008) report that the textiles and clothing sector has to face

challenges like instability in world cotton price, need for adjustment for trade

liberalization, and changes in macroeconomic situation of Pakistan. They use PIHS and

the CGE model to measure the impact of economic changes (huge foreign capital

inflow, higher world textiles and clothing prices, government subsidies for textiles

sector, higher textiles and clothing productivity) on Pakistan's cotton, textiles and

clothing and on poverty levels and other possible developments. They analyze the

effects of real exchange rate appreciation on competitiveness of the textiles and

clothing industries. Their results indicate that real investment is increased as result of

surge in capital inflows, these circumstances help improve the household income and

18

reduce poverty in Pakistan, but the textiles and clothing sector and other trade sectors

contract, and farmers’ incomes fall. They report that an increase in cotton prices bring

positive response in exports and production in Pakistan, which benefits farmer

particularly those growing cotton. They also analyze the impact of subsidy granted to

the industry by government which is reported to decrease overall welfare. Pakistan can

best take advantage of liberalization textiles and clothing trade (phase out of quota) if it

improves her competitiveness through higher productivity.

Makino (2012) connects the poor performance of Pakistan’s knitwear exports in the

post MFA period with a particular characteristic of the garment industry, which is that

the majority of sewing operator has been males employed at piece rates. He encourages

the strategy to move from male piece rate operators to female salaried ones. However,

it requires effort and expertise on the management front; furthermore, there are

socioeconomic and cultural reasons at the household level which stop women from

working outside their homes.

Siddiqi et al. (2012) evaluates the independent variable of demand for export of textiles

and clothing sector of Pakistan. They estimate elasticity coefficients of the variables

and apply the cointegration analysis to test the long run relation between demand for

export and its exogenous determinants. According to them, world income is the core

variable which determines the demand for export as it reveals positive and high income

elasticity of export demand of textiles and clothing sector. Trade openness is the second

important determinant of export demand.

Recapitulating the literature presented in this section: Siddiqi et al. (2012) by using

methodology of Co-integration estimates relationship between export demand of

Pakistan’s textiles and clothing sector and determinants of export demand (World

income and trade openness). Authors in 2004 forecasted post quota scenario for

Pakistan’s textiles and clothing exports to be dependent on trade policies of the

developed countries like the EU and US (Baig, 2004) and its discouraging for South

Asian countries (including Pakistan) textiles and clothing exporter (Joshi, 2002); the

short term effect of quota removal will benefit textiles but harm clothing (WB, 2004 &

European Business Review, 2005). Anti-dumping duty on bed linen is discouraged by

ADB (2006) and Siegmann (2006). Export tax on cotton causes social loss due to

transfer of income from cotton producers to yarn spinners (Hudson et al., 2000). The

19

EU enlargement from EU15 to EU25 could be beneficial for Pakistan in terms of trade

creation and trade expansion (Naeem, 2005). CARIS (2008) studies the overall impact

of trade policies, and particularly those of the EU in South Asia, on preferential

entrance of Pakistan to the EU market and on overall performance of Pakistan. Pakistan

can best take advantage of liberalization textiles and clothing trade (phase out of quota)

if it improves her competitiveness through higher productivity (Cororaton and Orden,

2008), and by hiring fixed salaried female workers in textiles and clothing particularly

the knitwear industry (Makino, 2012).

2.4 Phase out of Multi-Fiber Agreement and the global textiles and clothing

MacDonald et al. (2001) analyze the impact of ATC and abolition of MFA on U.S

cotton. They use a dynamic CGE model and find that reforms related to trade help

enhancing welfare globally, and cause world production of textiles and clothing and

clothing to rise. According to them, cotton’s price in world market is reported to rise

and those of textiles and clothing prices to fall. They predict that U.S. production

declines for cotton as well as for textile and apparel, although U.S. cotton exports rise.

Baffes (2004) provides details on market settings, trade policies and issues related to

cotton. According to him, USA and the EU support cotton production and its trade.

According to the calculations of the author, prices received by cotton producers of USA

are 87 percent and those of EU are 160 percent above the world prices. Other countries

like China also support its cotton sector. According to him, rural poor households in

developing countries depending on this commodity suffer. He recommends some

alternatives to cope with this situation. He gives example of Sub-Saharan Africa’s

developing countries who have undertaken policy reforms during the 1990s to support

cotton growers. He also suggests using genetically modified cotton. He advises the

developed nations to stop discrimination on grounds of providing support to their

producer or at least reduced the magnitude of harms resulting from such initiatives.

Elbehri (2004) analyses the impact of post quota regime after MFA on textiles and

clothing industry, by using GTAP framework. He uses 2002 estimates of MFA trade

restrictions at product level and the data on price. He makes use of a multi regional

general equilibrium to provide a comparative static evaluation for dynamics in the trade

patterns worldwide. He also takes considers the implicit tax on cotton induced by MFA.

He reports significant transition in textiles and clothing trade from the exporters having

20

preferential access to the exporters of Asia. However, the benefits from the expanded

trade of clothing are not distributed evenly among MFA-exporters. USA imports of

apparel shows significant increase which substitutes the domestic products, resulting in

an increase in overall consumption and incurring substantial welfare.

Mayer (2004) analyzes the trade impact of WTO’s ATC on production and trade in the

textiles and clothing sector. He reports the CGE are proven weak to assess many

important aspects of global trade and this model reveals misleading results such as a

very increase in market share of China in global textiles and clothing. The models

neglect the fact that structure of the industry of China is important for consideration

and the buyer of China use effective sourcing strategies. These models ignore

regulations related to tariff, schemes of preferences, and RoO that allow administration

textiles and clothing trade after ATC-termination. To meet development objectives of

China, structural changes that involve skill intensive production and exports are

required, and CGE models overlook such factors. He concludes that benefits of

removal of quota may not be distributed evenly among all countries; however, global

welfare is expected to rise. He suggests the policy makers to deal with this adjustment

pressure which will be imposed on producers in the developed countries and on

exporters of the developing countries.

Nordas (2004) has assessed the impact of trade liberalization using GTAP model. He

analyzes the economy of the world in pre-ATC and post-ATC scenarios. He finds that

market share of India and China increases. And he predicts that local producers and

those countries which previously faced no or less restrictions loss their market share in

North America and the EU. He argues that for clothing, ‘time to market’ is an

important factor. He assesses determinants of bilateral trade flows in the clothing

industry by considering the trade barriers’ role and the importance of distance to the

supplier. He finds that less distance of source to destination for the importer and rate of

tariffs have a substantial impact on bilateral trade.

Landes et al. (2005) reveal that cotton’s demand and that of manmade fibers in India is

likely to increase as a result of increased consumer demand in India and increased

textiles and clothing exports after MFA. They review cotton’s supply and demand

situation in India by looking at trends in export demand, and trends in domestic

consumption. They consider factors affecting consumer demand and prices, and also

21

overview India's textiles industry structure and growth. They analyze the apparel

manufacturing sector and highlight India's cotton trade and production trends, as well

as quality concerns of India's textiles exporters. Authors report that rate of expansion in

demand of cotton is likely to pivot on implementation of reforms, including taxes that

affect the scale, use of technology, and export competitiveness of the textiles and

clothing sector. They recommend improve cotton yield and quality to meet increased

demand of cotton besides importing it.

Rafi (2005) forecasts the patterns of trade and identifies the determinants of textiles and

clothing’s exports. He selects leading textiles and clothing exporting countries and

quantifies the impacts of various factors on exports and imports using an econometric

model. He finds that export of textiles and clothing products is affected by liquidity,

endogenous cotton production and the imported raw material and intermediate goods.

According to him, GDP and textiles and clothing exports are the variables that predict

textiles and clothing imports. Using these estimations he reveals that Italy, Hong Kong

and China will lose and Canada and USA will get net gains in future.

Tewari (2005) reviews literature on the institutional framework within which textiles

and clothing trade took place during past forty years. She reviews the MFA and ATC

regimes by examining the competition in product within international markets and

frameworks. Her study focuses on flexible-production-network, outsourcing and

global-value-chain, retailing and specialization. She reports that after MFA textiles

clothing industry had to face competition that are not only price and cost

competitiveness. She also reports that China’s remarkable exports performance in

textiles and clothing is not only attributable to her low unit costs and/or large

production scales, but her access to the intermediaries/institutional resources consisting

of marketing and distribution and local manufacturers’ networks of supply management

and the ability to supply quality products on time makes China a successful exporter.

World Bank (2005) study focuses on threats and benefits for Bangladesh’s readymade

garment industry, as a result of MFA phase out at the end of 2004. It examines the

factors that have made Bangladesh a success story in terms of RMGs both as a

producer and as an exporter after removal of quota. The authors also highlights the

factors that can harm this success due to strong competition Bangladesh is going to face

in the post MFA trade regime. This report provides suggestions and options required to

22

minimize the vulnerability due to reliance of exports on RMG can create for

Bangladesh, and strengthening the competitiveness of this industry. It also outlines

policy reforms, institutional change and infrastructural investments required for

implementation of such strategies.

Abernathy et al. (2006) reveal that the location of production of apparel and textiles is

determined by two factors; public policy choices and the lean retailing model. The

public policy choices define policies for tariffs, regional collaboration and bilateral

links. And the lean retailing model defines the need of replenish products when trend or

fashion changes even on weekly basis. By using this retailing model they show that in

post quota regime nearness in location advantages for certain products will continue as

retailers consider the sensitivity and flexibility of their suppliers.

Ahmad (2007) considers Rules of Origin as vital to carry out of global trade and to be

used in commercial policy. Origin rules are also a tool for administering preferential

trade agreements. However, in case of textiles and clothing sector he finds these rules

serve as terms on entrance to markets or as tool to protect local textile firms. In the

context of preferential regulations, these rules protect textiles producers particularly in

preference giving developed country. As a result the developing countries that have to

receive preference cannot fully get benefit and trade distortion is result of such RoO.

Ahmad argues that RoO are often responsible for creating issues on sustainability of

exports of developing countries after removal of quota. He thus suggests making RoO

simple and in favour of developing countries.

Hayashi (2007) discusses developments in the textiles and clothing trade since the

expiry of the WTO ATC. He has reviewed the post ATC performances of developing

and least developed countries. He has also analyzed the post ATC developments in

international trade policy. He highlights challenges and opportunities in analyzing the

implications of the non agricultural products market access (NAMA) negotiations for

textiles and clothing sector in these countries. He has also addressed the issue of non-

preferred and preferred countries that divides them in the NAMA negotiations

pertaining to the non-reciprocal preference issue.

Adhikari and Yamamoto (2007) analyze the global textiles and clothing in the post

quota world. According to their findings, after quota removal countries suffer in many

ways, some are having problems because of their specializing in value added products,

23

some lack in competitiveness and others suffering because of their inability to adjust.

They recommend less competitive countries to get advantage of temporary measures

till 2008 and enhance their competitive advantage. According to their analysis,

international and/or regional cooperation can solve the issue of developing country’s

access to market. The developing countries are suggested to implement domestic

reforms and not only relying on international support. Besides achieving cost

competitiveness, it is vital to improve organizational skills.

Pan et al. (2007) uses a partial equilibrium model to assess the effects of removing

global domestic subsidies for cotton and border tariffs applied on export of cotton.

They reveal positive response of trade of cotton as a result of trade liberalization of

cotton in the world market. Cotton prises are also reported to increase. USA’s market

share in cotton exports, if decline will affect the trade flows in global markets. Higher

cotton prices are stated to offset imports of those countries that are net importers of

cotton and those countries that support domestic production with subsidy and that

impose tariff would increase their imports significantly.

Ahmed (2009) analyzes the situation of RMG in Bangladesh after abolition of MFA. It

provides evidence that both MFA quotas at local and cross border level benefited the

RMG firms of Bangladesh as this ensured her access to international markets. The

removal of quota was expected to harm Bangladeshi RMG. However, the volume of

export and shares in market of RMG kept increasing over the period of 2005-06.

Withdrawal of MFA did not hinder this growth. This happened because of the

safeguard measure imposed by USA and the EU on China. Nevertheless, the author

suggests the GoB and the private sector to upgrade themselves as a safeguard measure

for future.

Kelegama (2009) analyzes the strength and weak points of Sri Lankan ready-made

garments industry after removal of MFA. The author highlights the arrangement

followed to improve weaknesses in the RMG. It is suggested to improve and support

specific garment products in the light of past performance and global demand.

Kelegama also proposes a number of approaches for Sri Lankan RMG industry to meet

emerging global challenges.

Bosman (2012) reports that from 2011 the EU’s Rules of Origin (RoO) no more

requires textiles to be originate from the LDCs’ domestic economies if they want to

24

export their clothing and apparel under the 0 tariff and 0 quota preference scheme.

Apparel manufacturers are free to use textiles imports without restrictions. Using

Normative Power Europe theory, he recognizes two core motives of the EU decision

making: a development-friendly historical motivation and an import-friendly

motivation. He argues that results of the RoO relaxation can be explored by utilizing

the global value chain analysis, where the EU features as an external player regulating

the EU-Bangladesh apparel value chain. He found that the knit-sector of Bangladesh

remains unchanged by the relaxed RoO whereas the woven apparel sector gets real

benefits and the already disturbed woven textiles sector experiences negative

externalities. He concludes that since LDCs’ have minor EU market share and the EU’s

policies are regressive towards them, therefore, RoO adds only a little to bridge the gap

between the EU’s narrative and her policies.

The literature reviewed above is basically prediction and analysis of pre-MFA and

post-MFA scenarios. The global welfare as a result of abolition of MFA was forecasted

to increase, cotton prices predicted to increase and that of textiles and clothing to fall

(MacDonald et al, 2001). Textiles and clothing trade was expected to shift significantly

from exporters having preferential access to suppliers of Asia (Elbehri, 2004). The

chance for preference granted countries to get full advantage from preference schemes

(RoO) is reduced and it leads to trade distortions to textiles and clothing trade (Ahmad,

2007). LDCs’ have minor EU market share and the EU’s policies are regressive

towards developing countries, therefore, RoO adds only a little to bridge the gap

between EU’s narrative and her policies (Bosman, 2012). Cost competitiveness is not

only attribute to survive in the textiles and clothing market, organizational skills and

flexibility also matter a lot (Adhikari and Yamamoto, 2007). Abernathy et al. (2006)

reveal two factors, which affect the location of textiles and clothing textiles production,

i.e., public policy choices, and the requirement of following trend/fashion (lean

retailing model). Hayashi (2007) highlights challenges and opportunities in analyzing

the implications of the non agricultural products market access (NAMA) negotiations

for textiles and clothing sector in LDCs post ATC. A decline is US textiles and clothing

and clothing production, and increase in cotton exports was predicted (MacDonald et

al. (2001). Trade liberalization may result in increased cotton trade and cotton prices.

Share of USA in global cotton exports determines trade flows in international markets

(Pan et al., 2007). USA gets increased clothing imports which substitute domestic

25

products enhancing consumption and welfare gains (Elbehri, 2004). Post quota, a

substantial increase in shares in textiles and clothing markets for India and China, and a

decline in market share of previously unrestricted nations and local suppliers of the EU

and North America, are reported. The nations that loose market shares are mostly

located far from the major markets and/or face more trade barriers (Nordas, 2004).

Access to the intermediaries/institutional resources and the ability to supply quality

products on time makes China a success in apparel exports (Tewari, 2005). CGE

models overlook many facts related to China’s development in textiles and clothing

sector. Chinese production and exports of manufactures are more skill oriented than

clothing. He concludes that profit of quota elimination will be disproportionately

distributed among countries; however, global welfare will increase (Mayer, 2004). For

India, it was forecasted that the demand for cotton and manmade fibers will increase as

a result of increase in demand of consumer and rise in exports of textiles and clothing

after MFA abolition (Landes et al., 2005). Challenges and opportunities the RMG

sector are analyzed in post-quota regime. Bangladesh’s RMG industries enjoyed due to

quota-based regime. Post MFA trade regime was thought to be intensely competitive.

To face this competition policy reforms, institutional change and infrastructural

investment was suggested (World Bank, 2005 and Ahmed, 2009). Similarly, Sri

Lankan RMG is analyzed after phasing out of MFA. It is suggested to improve and

support specific garment products in the light of past performance and global demand

(Kelegama, 2009).

26

III. METHODOLOGY

The review of relevant literature on comparative advantage in production of cotton and

its consumption in Pakistan; the EU’s regulations and policy initiatives and trade of

textiles and clothing; Pakistan’s exports trade of textiles and clothing; and, global

textiles and clothing after phase out of Multi-Fiber Agreement (MFA), facilitated

developing the following methodological framework necessary to pursue the objectives

stated in the introductory chapter. Since a set of hypotheses was framed in connection

with the study objectives, the following methodological framework was therefore based

on those hypotheses and their empirical testing. Section 3.1 provides detail on data

used, sources of data, period and the universe of the study. Section 3.2 presents the

details of methods used in testing each hypothesis.

3.1 Data, data sources and universe

Universe and study period

3.1.1 Since this research deals with the EU’s textiles and clothing imports from

Pakistan, so the universe for this study comprises of the European Union, Pakistan and

Pakistan’s competitors in textiles and clothing imports in the EU market, for the period

of 1988-2011.

Data Sources

3.1.2 Data sources include:

• COMTRADE, a database on merchandize international trade maintained by the

United Nation Statistical Division (UNSD). Website: http://comtrade.un.org

• World Integrated Trade Solution (WITS), software developed by the World

Bank with the collaboration of UNCTAD, ITC, UNSD and WTO. Website:

wits.worldbank.org/wits

• TRAINS, a database maintained by UNCTAD for tariff and non-tariff barriers

analysis. Website: www.unctad-trains.org

• Eurostat, database and yearbooks, which provides data on intra and extra-EU

international trade. Website: epp.eurostat.ec.europa.eu/newxtweb.

• All Pakistan Textiles Mills Association (APTMA). Website: www.aptma.org

• All Pakistan Textiles Exporters Association (APTEA).

27

• Trade Development Authority of Pakistan (TDAP). Website: http://www.tdap.gov.pk/tdap-statistics.php

• Various editions of Economic Survey of Pakistan, Ministry of Finance, Government of Pakistan. Website: www.finance.gov.pk

• Pakistan Bureau of Statistics, Government of Pakistan. Website: www.pbs.gov.pk

• Ministry of Textiles, Government of Pakistan.

• European Commission, Website: http://ec.europa.eu/

• Karachi Stock Exchange Commission of Pakistan, Website:

http://www.kse.net.pk/

• The State Bank of Pakistan, Website: www.sbp.org.pk

• Official web pages of various textile manufacturing industries of Pakistan.

Nature of Data

3.1.3 Data required for this research pertain to the textile products, these fall into

section having code 2 (division code 26), code 6 section (division code 65) and code 8

section (division code 84) of the Standard International Trade Classification (SITC). A

detailed account of data and its different aspects is provided in the following

paragraphs.

As per the requirement of the title of the research (Pakistan’s cotton and textiles exports

to the EU: Competitiveness, trade barriers, future outlook and prospects), it was needed

to define textile and what products textile includes. According to United Nation

Statistical Division (UNSD)’s website on trade (UN comtrade), commodities and

products are categorized on the basis of three major classifications namely, HS

(Harmonized Commodity Description and Coding System), SITC (Standard

International Trade Classification) and BEC (Broad Economic Categories).

As far as Harmonized System (HS) coding is concerned, it defines products up to six

digits level and classifies all commodities and products into 99 main groups (provided

in Annexure Ia); while commodities and products related to textiles fall in group 50 to

63 (provided in Annexure Ib).

The Broad Economic Categories (BEC) classifies products in to five categories (food,

industrial supplies, capital equipment, consumer durables and consumer nondurables)

28

and 19 basic headings on the basis of the end use of the products, which helps in

analyzing broad headings. Each category of BEC is defined on the basis of SITC.

SITC categorizes all commodities and products into 10 sections, with code number 0 to

9 (Annexure II, Panel 1); each section is further divided into divisions.

This study used time series data of the EU’s total and textiles imports (all in Cost

Insurance Freight (CIF)) from Pakistan, world and Pakistan’s competitors for period of

1988 to 2011 and it follows Standard International Trade Classification, Revision 3

(SITC, Rev.3). SITC is preferred over other classifications because of the fact that it

classifies commodities according to their stage of production, it can provide historical

time series data and it is more suitable for economic analysis. There are four revisions

of SITC so far. This study used SITC, Revision 3 as it provides consistent data from

1988 to 2011. Before 1988, only SITC, Revision 2 data were available, as Revision 3

was adopted in 1988. The latest revision 4 of SITC could not be used as many countries

still do not report data in SITC, Revision 4 format. Previously, it was decided to use

SITC, Rev. 2 for the period of 1980 to 1988, and SITC, rev. 3 for 1988 onwards, but it

created problem of inconsistency and differences among products’ values when data

downloading reached at 5 digits level. It was then decided to confine to SITC Rev. 3

only.

SITC categorizes all commodities and products into 10 sections, with code number 0 to

9 (Annexure II, Panel 1); each section is further divided into divisions. As far as textile

related products are concerned, these fall into section having code 2 (division code 26),

code 6 section (division code 65) and code 8 section (division code 84). Section with

code 2 includes crude material, inedible, except fuels; which further includes division

code 26 (textile fibres (other than wool tops and other combed wool) and their wastes

(not manufactured into yarn or fabric)) including the following groups.

Code 261: Silk

Code 263: Cotton

Code 246: Jute and other textile bast fibres, n.e.s., raw or processed but not

spun; tow and waste of these fibres (including yarn waste and

garnetted stock)

Code 265: Vegetable textile fibres (other than cotton and jute), raw or

processed but not spun; waste of these fibres

Code 266: Synthetic fibres suitable for spinning

29

Code 267: Other man-made fibres suitable for spinning; waste of man-made

fibres

Code 268: Wool and other animal hair (including wool tops)

Code 269: Worn clothing and other worn textile articles; rags

Each of the above group further includes sub-groups and headings/products, for

instance, code 263 (cotton) (Annexure II, Panel 3) includes code 2631 (cotton (other

than linters), not carded/combed)), code 2632 (cotton linters), code 2633 (cotton waste,

including yarn waste and garnetted stock) and code 2634 (cotton, carded/combed).

Section with Code 6 specifies manufactured goods classified chiefly by material

(Annexure II, Panel 37); its division code 65 includes textile yarn, fabrics, made-up

articles, n.e.s., and related products.

Code 651: Textile yarn

Code 652: Cotton fabrics, woven (not including narrow or special fabrics)

Code 653: Fabrics, woven, of man-made textile materials (not including

narrow or special fabrics)

Code 654 Other textile fabrics, woven

Code 655 Knitted or crocheted fabrics (including tubular knit fabrics,

n.e.s., pile fabrics and openwork fabrics), n.e.s.

Code 656 Tulles, lace, embroidery, ribbons, trimmings and other

smallwares

Code 657 Special yarns, special textile fabrics and related products

Code 657 Made-up articles, wholly or chiefly of textile materials, n.e.s.

Code 659 Floor coverings, etc.

Each of the above groups further includes sub-groups and headings/products, for

instance, code 651 (textile yarn) includes code 6511 (Yarn of wool or animal hair

(excluding wool tops)), code 6512 (Cotton sewing thread, whether or not put up for

retail sale), code 6513 (cotton yarn, other than sewing thread), code 6514 (sewing

thread of man-made fibres, whether or not put up for retail sale), code 6515 (synthetic

filament yarn (other than sewing thread), textured, not put up for retail sale, including

monofilament of less than 67 decitex), code 6516 (other synthetic filament yarn (other

than sewing thread), including monofilament of less than 67 decitex), code 6517

30

(artificial and man-made filament yarn (other than sewing thread); artificial

monofilament, n.e.s.; strip and the like of artificial textile materials, n.e.s.), code 6518

(yarn (other than sewing thread) of staple fibres; synthetic monofilament, n.e.s.; strip

and the like of synthetic textile materials of an apparent width not exceeding 5 mm),

and code 6519 (yarn of textile fibres, n.e.s. (including paper yarn and yarn, slivers and

rovings of glass fibre)).

Code 8 section specifies miscellaneous articles (Annexure II, Panel 107); its division

code 84 includes articles of apparel and clothing accessories.

Code 841 Men's or boys' coats, capes, jackets, suits, blazers, trousers,

shorts, shirts, underwear, nightwear and similar articles of textile

fabrics, not knitted or crocheted (other than those of subgroup

845.2)

Code 842 Women's or girls' coats, capes, jackets, suits, trousers, shorts,

shirts, dresses and skirts, underwear, nightwear and similar

articles of textile fabrics, not knitted or crocheted (other than

those of subgroup 845.2)

Code 843 Men's or boys' coats, capes, jackets, suits, blazers, trousers,

shorts, shirts, underwear, nightwear and similar articles of textile

fabrics, knitted or crocheted (other than those of subgroup 845.2)

Code 844 Women's or girls' coats, capes, jackets, suits, trousers, shorts,

shirts, dresses and skirts, underwear, nightwear and similar

articles of textile fabrics, knitted or crocheted (other than those

of subgroup 845.2)

Code 845 Articles of apparel, of textile fabrics, whether or not knitted or

crocheted, n.e.s.

Code 846 Clothing accessories, of textile fabrics, whether or not knitted or

crocheted (other than those for babies)

Code 848 Articles of apparel and clothing accessories of other than textile

fabrics; headgear of all materials.

Each of the above groups further includes sub-groups and headings/products, for

instance, code 841 (men's or boys' coats, capes, jackets, suits, blazers, trousers, shorts,

31

shirts, underwear, nightwear and similar articles of textile fabrics, not knitted or

crocheted (other than those of subgroup 845.2)) includes code 8411 (overcoats, car

coats, capes, cloaks, anoraks (including ski jackets), windcheaters, wind jackets and

similar articles (other than those of subgroup 841.2 and heading 841.3), code 8412

(suits and ensembles), code 8413 (jackets & blazers, men's/boys', of textile materials,

not knitted/crocheted), code 8414 (trousers, bib & brace overalls, breeches & shorts,

men's/boys', of textile materials, not knitted/crocheted), code 8415 (shirts), and code

8416 (singlets and other vests, underpants, briefs, nightshirts, pyjamas, bathrobes,

dressing-gowns and similar articles).

Names of 5-digit products for each category have been given in Annexure III.

It is worth noting that the EU was importer and other countries including Pakistan were

partners to the EU instead of analyzing exports data of countries to the EU, the EU’s

imports data were used for the purpose of uniformity and consistency. The EU was 12

member countries’ union from 1988 to 1994, from 1995 to 2003; its membership

increased to 15, in 2004 to 2006 period, the EU was 25 countries union, and 2007

onwards the members increased to 27. Accordingly, imports data of 12 EU members

imports were added year wise from 1988 to 1994, and so on.

3.2 Analytic tools

This section provides a detailed account of analytical techniques to test each hypothesis

stated in chapter 1, as follows.

Hypothesis 1

The European Union has special value for its textiles and clothing imports from

Pakistan.

Analytic techniques to test the hypothesis 1

Descriptive statistics and correlation analysis

• To test hypothesis 1, data on the EU’s total imports and her imports from

Pakistan were provided in table; in addition, Pearson’s correlation between the

two variables was computed.

• Similarly, data on the EU’s total textiles and clothing imports and her imports

from Pakistan were given in table and tested for Pearson’s correlation between

the two variables. The formula of the Pearson’s correlation coefficient is given

as follows:

32

(3.1)

• Data on major textiles and clothing categories (26-category, 65-category and

84-category) imported in the EU from Pakistan were analyzed, giving the

break-up of Pakistan’s share and share of its competitors in each of the three

major textiles and clothing categories.

Trend analysis

• Trend analysis of the EU’s total world textiles and clothing imports and her

imports from Pakistan in each of the three major textiles and clothing

categories, was carried out for comparing the trends in the two types of imports

(the EU’s total import, and her import from Pakistan), using the following

formula:

lnY = β0 + β1TR + e (3.2)

where, ln is natural log, and TR is trend variable (or time) 1, 2, 3, ….., n stands

for years; so β1 will measure percentage change in Y per year over the period of

study (Gujarati 2007, p 183).

Unit roots analysis

• Since, initially it was main interest to regress the EU’s total textiles imports, on

her imports from Pakistan, to check the co-movement and/or long-run

relationship between the two variables, unit roots and co-integration analyses

were carried out (Gujarati, 2007; Vogelvang, 2005, p.295; Maddala, 2001). Unit

root analysis was carried out to check whether the two series (the EU’s total

textiles imports, and her imports from Pakistan) were stationary or non-

stationary. For running regression, it is required that both the series should be

having the same level of stationarity, non-stationary or stationary, one of the

two. To test stationarity or non-stationarity in the time series, two tests namely

Augmented Dickey-Fuller (ADF test) and Phillips-Perron (PP) test were used.

ADF test is the augmentation of the Dickey-Fuller (DF) test, which was

developed by D. A. Dickey and W. A. Fuller. DF test tests the presence of unit

roots in a time series model, like the following one.

33

(3.3a)

• The unit root test was then carried out under the null hypothesis against

the alternative hypothesis

(3.3b)

The above test statistic was computed and compared with the relevant critical

value for the Dickey–Fuller test. If the test statistic is less than (more negative)

a larger negative critical value, then the null hypothesis of is rejected,

and it is concluded that no unit root is present in the time series under

consideration.

Correlation analysis

• The unit roots analysis carried out in the fourth chapter revealed that there

existed different roots in the time series involved (the EU’s total textiles and

clothing imports, and her imports from Pakistan); resultantly it was decided to

conduct correlation and Co-integration analyses. Pearson’s correlation (equation

3.1) was used to find the strength of association between the two variables, in

cases of all the three categories of textiles (26, 65 and 84).

Co-integration analysis and Error Correction (ECM) modeling

• An alternative to regression is the carrying out of Co-integration analysis where

a co-movement or long-run relationship is to be established. The Error

Correction Model (ECM) is accompanied with the co-integration analysis to

establish the fact that the Co-integrating equation (Co-integration analysis)

portrays long-run relationship.

• The two analyses are carried out in following steps, like the following ones:

Step 1: Run regression of the following type:

Y = β0 + β1X + ut (3.4a)

And save residuals ut, for the use in step 2, as shown below.

Step 2: Regress the ‘differenced residuals’ on its lagged to test for stationarity,

like:

34

∆ut = α1ut-1 + et (3.4b)

Where ∆ut = ut - ut-1

If equation 3.4 (b) is tested for unit roots, and it turns out to be stationary, I(0),

it would mean regression like equation 3.4 (a) is Co-integrated, and would not

yield spurious results if OLS is used. Such a relationship (3.4) would prove that

Y and X have long-run relationship.

• Error Correction Model (ECM), popularized by Engle and Granger, states

that if a dependent variable and their determinants are Co-integrated, then their

short-run dynamic relationship can also be measured through Error Correction

Model (ECM), postulated, as follows.

�Yt = α0 + α1�X t + α2ut-1 + et (3.5)

The ECM measure postulated in model 3.5 states that α2 is always zero, and

residuals (ut-1) can be both negative and positive; so product term ‘α2ut-1’ can

make changes in dependent variable in both ways, positive and negative,

provided α2 turns out to be statistically significant.

Regression analysis

• Initially it was intended to do regression analysis for demand of the EU for

textiles and clothing for each of the three major textiles and clothing categories.

The unit roots analysis carried out in the fourth chapter revealed that there

existed different roots in the time series involved; so research resorted to

checking the co-movement between the two series (the EU’s total textiles

imports and her imports from Pakistan) using the correlation and co-integration

analyses along with ECM modeling.

Hypothesis 2

Pakistan faces competition in the EU’s textiles and clothing market and enjoys

competitive edge in certain products.

35

Analytic techniques to test the hypothesis 2

Dummy-variable approach

• In order to identify the major competitors of Pakistan in the EU’s market,

selection of major supplying countries of 26, 65 and 84-category textiles, with a

minimum share of 1 percent for a period of 2007-11 was made, separately for

each textiles category. Differential intercept dummies for various competing

countries were used to differentiate between various serious and non-serious

competitors of Pakistan in the EU market (Gujarati, 2007: pp 304-341).

Y i = α1 + α2D2i + α3D3i + α4D4i +.....+ αnDni +β2X i + ui (3.6)

Where, Yi represents EU’s total textiles import (for 26, 65 and 84 category) in

million USD, D stands for dummy (D2=competing country 2, D3=competing

country 3,…,Dn). Since we have omitted dummy for Pakistan, so intercept α1

would represent Pakistan’s position, while α2, α3,...,αn, carrying with D2, D3,…,

Dn stand for differential intercepts representing whether different countries

would statistically or otherwise differ from Pakistan’s status, and Xi is EU’s

textiles import from her partners (for 26, 65 and 84 category) in million USD.

This model was used to identify serious competitor countries in each case of

category-26, category-65 and category-84 textiles and clothing. A significant αn

would mean the respective country was significantly competing in the EU’s

market.

Identification of major 5-digit products in the EU market

• The EU’s preferred demand for various 5-digit 26-category, 65-category and

84-category textiles products, and Pakistan’ status was found and analyzed.

Hypothesis 3

There are minimal tariff and non-tariff barriers to Pakistani textiles and clothing

import in the EU market.

36

Analytic techniques to test the hypothesis 3

Descriptive statistics (maximum, minimum, standard deviation)

• Tariff on total textiles and clothing, and on 26-category, 65-category and 84-

category textiles was analyzed using a number of descriptive statistics

including, average, minimum and maximum ranges, and standard deviation etc.

Hypothesis 4

The EU’s trade policies are fairly competitive and encouraging to Pakistan’s textiles

and clothing imports to the EU.

Analytic techniques to test the hypothesis 4

• Review of literature and secondary data was used to test the hypothesis.

Hypothesis 5

There are vast scope of expansion of Pakistan’s textiles and clothing imports to the EU

market in future.

Analytic techniques to test the hypothesis 5

• Analysis of this hypothesis was based on literature reviewed, the findings of the

fourth chapter and the following econometric model.

• Data on profitability and its determinants of 105 textile manufacturing firms

operating in Pakistan and registered with Karachi Stock Exchange Commission

of Pakistan were collected for the period 2009 to 2011and were averaged for

each firm. The data were analyzed using the following analytical model.

NPTA= β0 +β1TLSTA +β2TESTA +β3TDBTA +β4TDTA +β5TRTA + e (3.7)

Where NPTA= ‘Net operating profit’ to ‘total assets’ ratio

TLSTA= ‘Total local sales’ to ‘total assets’ ratio

TESTA= ‘Total export sales’ to ‘total assets’ ratio

TDBTA= ‘Total debt’ to ‘total assets’ ratio

TDTA= ‘Total dividend’ to ‘total assets’ ratio

TRTA= ‘Total retained earnings’ to ‘total assets’ ratio

37

IV. RESULTS AND DISCUSSION

Using the methodological framework set in the previous chapter on methodology, this

chapter presents and discusses results of the research. The chapter is divided into five

sections based on various objectives set for this study and their corresponding

hypotheses formulated in previous chapters.

Section 4.1 is focused on the first objective of this study (to analyze the importance and

value of Pakistan’s textiles and clothing export to the EU). Its sub-sections analyze and

present the EU’s total imports, her textiles and clothing imports, and her imports from

Pakistan. The second objective of the research, “to identify and evaluate major

competition to Pakistan's textiles and clothing exports to the EU” is covered in the

section 4.2. The very next section (4.3) identifies major 5-digit products in the EU

market, which reveals the EU’s preferred demand for various 5-digit textile products,

and Pakistan’s status. In the section 4.4, effect of the EU’s tariff rates and her policies

on textiles and clothing imports from Pakistan is analyzed and discussed. This section

particularly addresses the third and fourth objectives of this study (to study tariff and

non tariff barriers to Pakistan’s textiles and clothing export in markets of both Pakistan

and the EU; and to review the EU’s policy, in general and its effects on Pakistan’s

textiles and clothing export, in particular). The last section (4.5) illustrates the fifth

objective (to evaluate further prospects and future outlook of Pakistan’s textiles and

clothing export to the EU) and tests its corresponding hypothesis (there are vast scope

of expansion of Pakistan’s textiles and clothing imports to the EU market in future).

4.1 Pakistan’s textiles and clothing imports in the European Union market

The first objective requires analyzing the importance and value of Pakistan's textiles

and clothing imports to the EU market, and the corresponding hypothesis asks to test

whether or not the EU has special value for Pakistan's textiles and clothing exports.

This section is therefore devoted to the EU market and its importance for Pakistan’s

textiles and clothing exports. It is further divided in to four major sub-sections.

The first sub-section covers importance of the European Union in world imports trade

in general and textiles and clothing trade in particular; the second, third and fourth sub-

sections elaborate Pakistan’s position in the EU’s textiles and clothing imports trade,

her position in textiles and clothing imports to the EU by major categories and

38

quantitative analysis of Pakistan’s textiles and clothing imports trade with the EU,

respectively.

4.1.1 Global textiles and clothing imports trade and the EU market

This section documents how much the European Union possesses value for global

imports trade, in general, and textiles and clothing imports trade, in particular.

4.1.1.1 The European Union acts as a major trading block responsible for about 30.76

percent of total world imports, on average, during the study period (Table 4.1).

Table 4.1 Share of the European Union in total world imports trade

Products

Year

Total world

imports EU’s total imports

Total/All

(SITC, rev.3, Code 0-9)1

Value (billion USD)

Value (billion USD)

Percentage of world imports

2000 6529.746 2247.239 34.415 2001 6301.839 2207.973 35.037 2002 6526.061 2304.195 35.308 2003 7621.561 2767.865 36.316 2004 9306.358 3624.379 38.945 2005 10607.919 3976.487 37.486 2006 12200.055 4594.768 37.662 2007 14033.425 3624.379 25.827 2008 16229.652 3976.487 24.501 2009 12478.530 4594.768 36.821 2010 15145.151 3624.379 23.931 2011 17997.966 3976.487 22.094

Average 11248.189 3459.951 30.760 Source: Adopted from World Table A (Year 2009, 2010 & 2011) of UN Comtrade Yearbooks; available on http://comtrade.un.org/pb and http://wits.worldbank.org

(Dated 12/22/2012).

As far as textiles and clothing imports are concerned, these accounted for 5.98 percent

of total global imports during year 2000, but gradually decreased to 3.44 percent during

2011 (Table 4.2). However, the share of the European Union in global textiles and

clothing imports increased from 32.15 percent during 2000 to 44.05 percent during

2011 (Table 4.3).

1 Note: SITC, Rev. 3, 0 - 9 includes all commodities and products as explained in sub-section 3.1 (data and data

sources) of Chapter 3.

39

Table 4.2 Share of textiles and clothing in total world imports trade

Year

Total world imports

Total textile and clothing (SITC, rev.3 code 26, 65 and 84) Imports

Value (billion USD)

Value (billion USD)

Percentage of world imports

2000 6529.746 390.226 5.976

2001 6301.839 379.055 6.015

2002 6526.061 400.174 6.132

2003 7621.561 454.265 5.960

2004 9306.358 499.950 5.372

2005 10607.919 528.807 4.985

2006 12200.055 573.118 4.698

2007 14033.425 592.703 4.224

2008 16229.652 617.401 3.804

2009 12478.530 529.532 4.244

2010 15145.151 604.827 3.994

2011 17997.966 619.543 3.442

Average 11248.189 515.800 4.586 Source: Adopted from Special Tables A and D of Comtrade Yearbook 2005 and 2007;

available on: http://comtrade.un.org/pb/ and Comtrade database http://comtrade.un.org/db/ (Dated 03/09/2012)

Table 4.3 Total world imports trade of textiles and clothing (billion USD)

and the EU’s contribution (percentage) Products

Year

World imports EU imports

Textiles and clothing

(SITC, rev. 3, code 26, 65

and 84)

Value Value Percentage of world imports

2000 390.226 125.465 32.152

2001 379.055 125.852 33.201

2002 400.174 130.629 32.643

2003 454.265 151.450 33.340

2004 499.950 187.065 37.417

2005 528.807 193.403 36.573

2006 573.118 208.634 36.403

2007 592.703 242.569 40.926

2008 617.401 257.682 41.737

2009 529.532 219.318 41.417

2010 604.827 233.708 38.640

2011 619.543 272.908 44.050

Average 515.800 195.724 37.946

Source: Adopted from Special Tables A and D of UN Comtrade Yearbook 2005 and 2007; available on http://comtrade.un.org/pb/,

Comtrade database (http://comtrade.un.org/db/) and WITS (http://wits.worldbank.org) (Dated 12/12/2012)

40

4.1.1.2 Table 4.4 (a) and figure 4.1 present the global textiles and clothing imports

trade by major categories, and share of these categories in overall textiles and clothing

imports trade. It is worth noting that there are three major categories of textiles and

clothing, namely textile fibres (code 26), textile yarn and fabrics (code 65) and clothing

(code 84).

Table 4.4 (a) Global textiles and clothing imports trade by major categories

(figures in billion USD; shares in percentage within parenthesis)

Year

Textiles and clothing categories Total textiles and clothing (code 26, 65

and 84)

Textile fibres (code 26)

Textile yarn and fabrics (code 65)

Clothing (code 84)

2000 21.828 (5.594)

166.565 (42.684)

201.833 (51.722)

390.226 (100)

2001* 22.131 (5.838)

146.254 (38.584)

210.670 (55.578)

379.055 (100)

2002 20.251 (5.061)

162.589 (40.630)

217.334 (54.310)

400.174 (100)

2003 23.907 (5.263)

182.968 (40.278)

247.390 (54.459)

454.265 (100)

2004 28.583 (5.717)

205.294 (41.063)

266.073 (53.220)

499.950 (100)

2005 28.080 (5.310)

213.663 (40.405)

287.064 (54.285)

528.807 (100)

2006 30.216 (5.272)

225.401 (39.329)

317.501 (55.399)

573.118 (100)

2007* 33.322 (5.622)

218.681 (36.896)

340.700 (57.482)

592.703 (100)

2008* 33.670 (5.454)

222.425 (36.026)

361.306 (58.521)

617.4007 (100)

2009* 25.991 (4.908)

182.748 (34.511)

320.793 (60.580)

529.532 (100)

2010* 37.850 (6.258)

215.539 (35.636)

351.438 (58.106)

604.827 (100)

2011* 46.974 (7.582)

210.786 (34.023)

361.783 (58.395)

619.543 (100)

Average 29.400 (5.700)

196.076 (38.014)

290.324 (56.286)

515.800 (100)

Source: Adopted from Special Tables A and D of UN Comtrade Yearbook 2005 and 2007; available on http://comtrade.un.org/pb/ *Comtrade database http://comtrade.un.org/db/ (Dated 09/03/2012)

41

Figure 4.2 is based on table 4.4 (b), it reflects trend in share of different categories of the EU’s textiles and clothing imports trade in the EU’s total imports trade of textiles and clothing over the period of 2000 to 2011.

Table 4.4 (b) presents the global textiles and clothing imports trade by major

categories, as follows.

Table 4.4 (b) The EU’s textiles and clothing imports trade by major categories

(figures in billion USD; percentage shares in parenthesis) Year Textiles and clothing categories Total textiles

and clothing (code 26, 65

and 84)

Textile fibres (code 26)

Textile yarn and fabrics (code 65)

Clothing (code 84)

2000 6.629

(5.284) 45.811

(36.513) 73.024

(58.203) 125.465 (100)

2001* 6.145

(4.883) 44.226

(35.141) 75.481

(59.976) 125.852 (100)

2002 5.849

(4.477) 44.408

(33.996) 80.372

(61.527) 130.629 (100)

2003 6.230

(4.113) 49.995

(33.011) 95.225

(62.876) 151.450 (100)

2004 7.850

(4.197) 64.840

(34.662) 114.375 (61.142)

187.065 (100)

2005 7.244

(3.746) 63.970

(33.076) 122.189 (63.179)

193.403 (100)

2006 7.220

(3.461) 67.808

(32.501) 133.606 (64.038)

208.634 (100)

2007* 8.472

(3.492) 80.336

(33.119) 153.762 (63.389)

242.569 (100)

2008* 8.384

(3.254) 80.105

(31.087) 169.192 (65.659)

257.682 (100)

2009* 5.886

(2.684) 61.913

(28.230) 151.518 (69.086)

219.318 (100)

2010* 7.547

(3.229) 68.113

(29.145) 158.047 (67.626)

233.708 (100)

2011* 10.107 (3.704)

79.223 (29.029)

183.578 (67.267)

272.908 (100)

Average 7.297

(3.728) 62.562

(31.965) 125.864 (64.307)

195.724 (100)

Source: Adopted from Special Tables A and D of Comtrade Yearbook 2005 and 2007 http://comtrade.un.org/pb/*Comtrade database http://comtrade.un.org/db/ (09/03/2012)

42

On average (2000-2011), the global imports of textiles and clothing consisted of 5.70

percent of textile fibres, 38.01 percent of textile yarn and fabrics and 56.29 percent of

clothing (Table 4.4a), while that of the EU comprised of 5.28 percent of textile fibres,

36.51 percent of textile yarn and fabrics and 58.20 percent of clothing (Table 4.4b).

The share of textile fibres and textile yarn and fabrics category in the total global

imports of textiles and clothing decreased, while that of clothing category increased

over the 2000-2011 period (Table 4.4a; Figure 4.1).

In case of imports of textiles and clothing to the EU, shares of textile yarn and fabrics

(65-category) textiles decreased while that of textile fibres (26-category) and clothing

(84-category) increased over the 2000-2011 period (Table 4.4b; Figure 4.2).

4.1.2 Pakistan’s textiles and clothing imports trade to the EU market

The preceding sub-section (4.1.1) reveals that the EU owns value for global imports

trade, in general, and textiles and clothing imports trade, in particular. This section

further elaborates whether the EU has special importance for Pakistan trade, including

textiles and clothing imports to her market. To do so, the first hypothesis of the study

(the European Union has special value for its textiles and clothing imports from

Pakistan) is analytically tested, which addresses the first objective of this research (to

analyze the importance and value of Pakistan’s textiles and clothing export to the EU).

43

Table 4.5 provides data on the European Union’s total imports and her imports from

Pakistan.

Table 4.5 The EU’s total imports and her imports from Pakistan

Products

Year

EU’s total imports

EU’s imports from Pakistan Total/All

(SITC, rev.3, code 0-9)2

Value (billion USD)

Value (billion USD)

Percentage of EU’s total imports

1988 1080.068 1.445 0.134 1989 1167.100 1.387 0.119 1990 1411.717 1.878 0.133 1991 1448.504 1.965 0.136 1992 1527.062 2.085 0.137 1993 1292.850 2.048 0.158 1994 1460.734 2.293 0.157 1995 1916.552 2.667 0.139 1996 1970.531 2.673 0.136 1997 1974.696 2.676 0.136 1998 2068.197 2.719 0.131 1999 1916.552 2.667 0.139 2000 2247.239 2.494 0.111 2001 2207.973 2.633 0.119 2002 2304.195 2.843 0.123 2003 2767.865 3.555 0.128 2004 3624.379 4.222 0.116 2005 3976.487 3.856 0.097 2006 4594.768 4.159 0.091 2007 3624.379 4.753 0.131 2008 3976.487 5.338 0.134 2009 4594.768 4.623 0.101 2010 3624.379 5.070 0.140 2011 3976.487 6.364 0.160

Average 2531.415 3.184 0.129 Source: Author’s calculations based on Comtrade database (http://comtrade.un.org/db/)

(12/21/2012)

4.1.2.1 Pakistan’s total imports in the EU account for 3.18 billion US dollars, and

Pakistan’s share in the EU import market remained at 0.13 percent, on average, during

1988 to 2011; it increased during the study period from 0.13 percent to 0.16 percent.

4.1.2.2 Table 4.6 given below works out Pearson correlation between the EU’s total

imports and her imports from Pakistan (refer to equation 3.1 of chapter 3). It appears

that there is strong degree of association between the EU’s total imports and her

imports from Pakistan.

2 Note: SITC, Rev. 3, 0 - 9 includes all commodities and products as explained in sub-section 3.2 (data and data sources) of Chapter 3 on Methodology.

44

Table 4.6 Pearson correlation between the EU’s total imports and her imports from Pakistan

Pearson Correlation (EUTI, EUTIP) Significance (2-tailed) r = 0.907 0.00

Source: Based on Table 4.5

Where, EUTI is value of the EU’s total imports from world, and EUTIP is value of the EU’s total imports from Pakistan (based on Table 4.5).

4.1.2.3 Table 4.7 provides data on EU’s total textiles and clothing imports and her

imports from Pakistan.

Table 4.7 The EU’s total textiles and clothing imports and her imports from Pakistan

Products

Year

Textile and clothing Textile and clothing (SITC rev. 3, code 26, 65 and 84)

EU’s total imports EU’s imports from Pakistan

Value (billion USD)

Value (billion USD)

Percentage of EU’s imports

1988 82.339 0.953 1.101 1989 85.317 0.939 1.255 1990 105.919 1.329 1.299 1991 112.095 1.456 1.288 1992 118.888 1.531 1.580 1993 98.919 1.563 1.549 1994 109.240 1.692 1.487 1995 132.518 1.970 1.507 1996 134.480 2.027 1.475 1997 137.447 2.027 1.472 1998 138.892 2.045 1.496 1999 131.143 1.962 1.597 2000 125.465 2.004 1.633 2001 125.852 2.055 1.699 2002 130.629 2.220 1.807 2003 151.450 2.737 1.813 2004 187.065 3.391 1.588 2005 193.403 3.072 1.663 2006 208.634 3.469 1.698 2007 242.569 4.118 1.718 2008 257.682 4.427 1.808 2009 219.318 3.966 1.915 2010 233.708 4.475 2.092 2011 272.908 5.710 1.571

Average 155.662 2.547 1.101 Source: Adopted from Special Tables A and D of UN Comtrade Yearbook 2005 and 2007

http://comtrade.un.org/pb/ *Comtrade database http://comtrade.un.org/db/ (Dated 03/09/2012)

Pakistan’s total textiles and clothing imports in the EU account for 2.55 billion US$,

and Pakistan’s share in the EU imports of textile and cotton remained at 1.1 percent, on

average, during 1988 to 2011.

4.1.2.4 The following table (no. 4.8) works out Pearson correlation between the EU’s

total textiles and clothing imports and her imports from Pakistan (refer to equation 3.1

45

of chapter 3). It appears that there has been strong degree of association between the

EU’s total textiles and clothing imports and her imports from Pakistan.

Table 4.8 Pearson correlation between the EU’s total textiles and clothing

imports and her imports from Pakistan Pearson correlation (EUTxI, EUT xIP) Significance (2-tailed)

r = 0.982 0.000 Source: Based on Table 4.7

where, EUTxI is value of the EU’s textiles and clothing imports from world, and

EUTxIP is the value of the EU’s textiles and clothing import from Pakistan (based on

Table 4.7).

4.1.3 Pakistan’s textiles and clothing imports to the EU: by major categories

This sub-section is devoted to analyse Pakistan’s textiles and clothing imports trade to

the EU market by major categories, that are 26-category, 65-category and 84-category

textiles.

Table 4.4 (a and b) has already elaborated the category-wise (SITC, Rev.3) breakup of

textiles and clothing trade at global level, as well as, at the level of the European Union.

This section is devoted to the discussion on the status of Pakistan, with special

reference to the EU.

Table 4.9 provides category-wise breakup of Pakistan’s textiles and clothing imports in

to the EU for the 1988-2011 period.

46

Table 4.9 The EU’s textiles and clothing imports from Pakistan by major categories

in billion USD (US dollars)

Year

Textiles and clothing categories Total textiles and clothing (code 26, 65

and 84)

Textile fibres (code 26)

Textile yarn and fabrics (code 65)

Clothing (code 84)

1988 0.192 0.462 0.299 0.953 1989 0.132 0.468 0.338 0.939 1990 0.148 0.648 0.532 1.329 1991 0.071 0.707 0.677 1.456 1992 0.080 0.736 0.714 1.531 1993 0.042 0.772 0.749 1.563 1994 0.053 0.841 0.798 1.692 1995 0.060 1.039 0.871 1.970 1996 0.084 1.048 0.894 2.027 1997 0.057 1.101 0.869 2.027 1998 0.050 1.128 0.867 2.045 1999 0.032 1.104 0.827 1.962 2000 0.065 1.077 0.862 2.004 2001 0.050 1.090 0.915 2.055 2002 0.041 1.197 0.982 2.220 2003 0.033 1.478 1.225 2.737 2004 0.043 1.830 1.518 3.391 2005 0.049 1.633 1.391 3.072 2006 0.043 1.861 1.565 3.469 2007 0.056 2.306 1.756 4.118 2008 0.064 2.382 1.980 4.427 2009 0.054 2.078 1.834 3.966 2010 0.064 2.374 2.037 4.475 2011 0.142 2.957 2.611 5.710

Average 0.071 1.347 1.130 2.547 Source: Author’s calculations based on Comtrade database (http://comtrade.un.org/db/)

(Dated 12/21/2012). The next paragraphs of this sub-section work out the status of Pakistan and her

competitors in textiles and clothing imports in the EU by major categories.

47

The case of textile fibres (26-category) textiles imports to the EU

4.1.3.1 Table 4.10 provides data on import of textile fibres (code 26) from Pakistan and her

major competitors.

Table 4.10 The EU’s imports of textile fibres (code 26) from Pakistan

and her competitors in billion USD

Year Pakistan Competitors

EU’s total imports Total

imports Percentage of EU imports

Total imports

Percentage of EU imports

1988 0.192 2.069 9.090 97.931 9.282 1989 0.132 1.377 9.452 98.623 9.584 1990 0.148 1.601 9.095 98.399 9.243 1991 0.071 0.852 8.267 99.148 8.338 1992 0.080 0.980 8.080 99.020 8.160 1993 0.042 0.688 6.063 99.312 6.105 1994 0.053 0.634 8.304 99.366 8.357 1995 0.060 0.619 9.632 99.381 9.692 1996 0.084 0.955 8.715 99.045 8.799 1997 0.057 0.646 8.762 99.354 8.819 1998 0.050 0.640 7.757 99.360 7.807 1999 0.032 0.493 6.463 99.507 6.495 2000 0.065 0.981 6.564 99.019 6.629 2001 0.050 0.814 6.095 99.186 6.145 2002 0.041 0.701 5.808 99.299 5.849 2003 0.033 0.530 6.197 99.470 6.230 2004 0.043 0.548 7.807 99.452 7.850 2005 0.049 0.676 7.195 99.324 7.244 2006 0.043 0.596 7.177 99.404 7.220 2007 0.056 0.661 8.416 99.339 8.472 2008 0.064 0.763 8.320 99.237 8.384 2009 0.054 0.917 5.832 99.083 5.886 2010 0.064 0.848 7.483 99.152 7.547 2011 0.142 1.405 9.965 98.595 10.107

Average 0.071 0.905 7.773 99.095 7.844 Source: Author’s calculations based on Comtrade database (http://comtrade.un.org/db/)

(Dated 12/21/2012).

48

The case of textile yarn (65-category textiles)

4.1.3.2 Table 4.11 provides data on imports of textile yarn and fabrics (code 65) from Pakistan

and her major competitors.

Table 4.11 The EU’s imports of textile yarn and fabrics (code 65) from Pakistan

and her competitors in billion USD

Year Pakistan Competitors

Total EU’s imports Total

imports Percentage

of EU Total

imports Percentage

of EU 1988 0.462 1.284 35.527 98.716 35.989 1989 0.468 1.284 36.876 98.716 37.344 1990 0.648 1.254 45.353 98.746 46.002 1991 0.707 1.410 44.735 98.590 45.443 1992 0.736 1.557 46.366 98.443 47.102 1993 0.772 1.564 36.562 98.436 37.334 1994 0.841 2.067 42.031 97.933 42.872 1995 1.039 1.962 51.795 98.038 52.835 1996 1.048 1.967 50.636 98.033 51.684 1997 1.101 2.028 50.992 97.972 52.092 1998 1.128 2.113 52.188 97.887 53.317 1999 1.104 2.116 47.741 97.884 48.844 2000 1.077 2.259 44.734 97.741 45.811 2001 1.090 2.351 43.136 97.649 44.226 2002 1.197 2.464 43.212 97.536 44.408 2003 1.478 2.694 48.517 97.306 49.995 2004 1.830 2.957 63.011 97.043 64.840 2005 1.633 2.822 62.337 97.178 63.970 2006 1.861 2.552 65.947 97.448 67.808 2007 2.306 2.744 78.030 97.256 80.336 2008 2.382 2.871 77.724 97.129 80.105 2009 2.078 2.973 59.836 97.027 61.913 2010 2.374 3.356 65.739 96.644 68.113 2011 2.957 3.486 76.265 96.514 79.223

Average 1.347 2.256 52.887 97.744 54.234 Source: Author’s calculations based on Comtrade database (http://comtrade.un.org/db/)

(Dated 12/21/2012).

49

The case of clothing (84-category textiles)

4.1.3.3 Table 4.12 on the next page provides data on imports of textile clothing (code

84) from Pakistan and her major competitors.

Table 4.12 The EU’s imports of textile clothing (code 84) from Pakistan

and her competitors in billion USD

Source: Author’s calculations based on Comtrade database (http://comtrade.un.org/db/) (Dated 12/21/2012).

Results presented in table 4.10, table 4.11 and table 4.12 reveal that Pakistan’s share in the EU

as compared to her competitors is very tiny, in case of all categories of textiles (that is 26, 65

and 84).

Year

Pakistan Competitors

Total EU’s imports Total

imports

Percentage

of EU imports

Total imports

Percentage

of EU imports

1988 0.299 0.807 36.768 99.193 37.067 1989 0.338 0.880 38.050 99.120 38.388 1990 0.532 1.050 50.142 98.950 50.674 1991 0.677 1.161 57.637 98.839 58.314 1992 0.714 1.122 62.912 98.878 63.626 1993 0.749 1.350 54.731 98.650 55.480 1994 0.798 1.376 57.213 98.624 58.011 1995 0.871 1.244 69.120 98.756 69.991 1996 0.894 1.208 73.103 98.792 73.997 1997 0.869 1.135 75.667 98.865 76.536 1998 0.867 1.115 76.902 98.885 77.769 1999 0.827 1.091 74.977 98.909 75.804 2000 0.862 1.180 72.162 98.820 73.024 2001 0.915 1.212 74.566 98.788 75.481 2002 0.982 1.222 79.390 98.778 80.372 2003 1.225 1.286 94.000 98.714 95.225 2004 1.518 1.327 112.857 98.673 114.375 2005 1.391 1.138 120.798 98.862 122.189 2006 1.565 1.171 132.041 98.829 133.606 2007 1.756 1.142 152.006 98.858 153.762 2008 1.980 1.170 167.212 98.830 169.192 2009 1.834 1.210 149.684 98.790 151.518 2010 2.037 1.289 156.010 98.711 158.047 2011 2.611 1.422 180.967 98.578 183.578

Average 1.130 1.207 92.454 98.793 93.584

50

4.1.4 Pakistan’s textiles and clothing imports to the EU: Quantitative analysis

This is the core part of this section (4.1) that is devoted to analyse Pakistan’s textiles

and clothing imports trade to the EU market following different analytical techniques

formulated in the methodology (Chapter 3).

Quantitative modeling: trend analysis

Trend analysis of the EU’s total world textiles and clothing imports and her imports

from Pakistan in each of the three major textiles and clothing categories, is carried out

for comparing the trends in the two types of imports (the EU’s total import, and her

import from Pakistan).

The case of textile fibres (26-category textiles)

4.1.4.1 The data on the EU’s total 26-category textiles (textile fibres) imports from the

world and her imports of the same category from Pakistan are provided in table 4.13.

Table 4.13 (a) The EU’s total textile fibres (26-category) imports

and her imports from Pakistan in billion USD

Year EU’s total imports

EU’s imports from Pakistan

1988 9.282 0.192

1989 9.584 0.132

1990 9.243 0.148

1991 8.338 0.071

1992 8.160 0.080

1993 6.105 0.042

1994 8.357 0.053

1995 9.692 0.060

1996 8.799 0.084

1997 8.819 0.057 1998 7.807 0.050 1999 6.495 0.032

2000 6.629 0.065

2001 6.145 0.050

2002 5.849 0.041

2003 6.230 0.033

2004 7.850 0.043

2005 7.244 0.049 2006 7.220 0.043 2007 8.472 0.056

2008 8.384 0.064

2009 5.886 0.054 2010 7.547 0.064 2011 10.107 0.142

Source: Authors calculations based on comtrade (http://comtrade.un.org/db/) (Dated 12/12/2012)

51

In order to compare the demand of the EU’s imports from the world and her demand

for imports from Pakistan, specifically in case of the 26-category textiles, the trend

analysis technique was used (Gujarati 2007, p 183). The trend analysis of the data,

using the following technique (refer to chapter 3), yields the results reproduced, as

follows.

ln EUTxI26 = β0 + β1TR + e (4.1a)

where ln EUTxI26 reflects value of the EU’s world imports of the 26-category textiles

in natural log and TR stands for trend or time (1, 2, 3, …….., 24), which would include

the time period for which the analysis was made. In equation 4.1 (a), β1 would measure

the percentage change in EU’s 26-category textiles demand per year during the study

period.

Results are:

Table 4.13 (b) Coefficients of equation 4.1 (a)

Variables B Std.

Error

Standardized-Coefficients

(Beta) t Sig.

Constant 9.048 0.070 129.701 0.000 Trend (TR) -0.008 0.005 -0.314 -1.552 0.135

Dependent Variable: lnEUTxI26

The results indicate that there has been negligible negative 0.8 percent change per year

in the EU’s total textile fibres imports during the 1988-2011 period; however this

change has been statistically insignificant at p > 0.10.

In case of Pakistan, the trend is analyzed as:

ln EUTxIP26 = β0 + β1TR + e (4.1b)

Results are:

Table 4.13 (c) Coefficients of equation 4.1 (b)

Variables B Std. Error Standardized-Coefficients

(Beta) T Sig.

Constant 4.466 0.187 23.882 0.000

Trend (TR) -0.026 0.013 -0.388 -1.975 0.061 Dependent Variable: lnEUTxIP26

However, the EU imports from Pakistan decreased by higher percentage value of 2.6

per year during the 1988-2011 period; in contrast to the EU’s total imports of textile

fibres (26-category textiles), this change has remained statistically significant at p <

0.10.

52

The case of textile yarn and fabrics (65-category textiles)

4.1.4.2 The data on category 65 (textile yarn and fabrics) total imports in the EU from

the world and her imports from Pakistan are provided in table 4.14.

Table 4.14 (a) The EU’s total textile yarn and fabrics (65-category) imports

and her imports from Pakistan (in billion USD)

Year EU’s total imports Imports from

Pakistan 1988 35.989 0.462

1989 37.344 0.468

1990 46.002 0.648

1991 45.443 0.707

1992 47.102 0.736

1993 37.334 0.772

1994 42.872 0.841

1995 52.835 1.040

1996 51.684 1.048

1997 52.092 1.101

1998 53.317 1.128

1999 48.844 1.104

2000 45.811 1.077

2001 44.226 1.090

2002 44.408 1.197

2003 49.995 1.478

2004 64.840 1.830

2005 63.970 1.633

2006 67.808 1.861

2007 80.336 2.306

2008 80.105 2.382

2009 61.913 2.078

2010 68.113 2.374

2011 79.223 2.957 Source: Authors calculations based on comtrade database

(Dated 12/12/2012)

Trend analysis is carried out, as follows.

ln EUTxI65= β0 + β1TR + e (4.2a)

Results are: Table 4.14 (b)

Coefficients of equation 4.2 (a)

Variables B Std. Error Standardized-Coefficients

(Beta) T Sig.

Constant 10.512 0.054 193.983 0.000 Trend (TR) 0.029 0.004 0.851 7.613 0.000

Dependent Variable: lnEUTxI65

53

There has been 2.9 percent significant increase per year in the EU’s total textile yarn

and fabrics (65-category textiles) imports from the world during the 1988-2011 period.

In case of Pakistan, the trend is analyzed as:

ln EUTxIP65= β0 + β1TR + e (4.2b)

Results are: Table 4.14 (c)

Coefficients of equation 4.2 (b)

Variables B Std. Error Standardized-Coefficients

(Beta) T Sig.

Constant 6.195 0.048 128.766 0.000

Trend (TR) 0.071 0.003 0.976 21.076 0.000 Dependent Variable: lnEUTxIP65

There has been 7.1 percent significant increase per year in the EU’s textile yarn and

fabrics (65-category textiles) imports from the Pakistan during the 1988-2011 period.

The case of clothing (84-category textiles)

4.1.4.3 The data on 84-category textiles (clothing) total imports in the EU from the

world and her imports from Pakistan are provided in table 4.15.

Table 4.15 (a) The EU’s total clothing (84-category) imports

and her imports from Pakistan (in billion USD)

Year EU’s total imports

Imports from Pakistan

1988 37.067 0.299 1989 38.388 0.338 1990 50.674 0.532 1991 58.314 0.677 1992 63.626 0.714 1993 55.480 0.749 1994 58.011 0.798 1995 69.991 0.871 1996 73.997 0.894 1997 76.536 0.869 1998 77.769 0.867 1999 75.804 0.827 2000 73.024 0.862 2001 75.481 0.915 2002 80.372 0.982 2003 95.225 1.225 2004 114.375 1.518 2005 122.189 1.391 2006 133.606 1.565 2007 153.762 1.756 2008 169.192 1.980 2009 151.518 1.834 2010 158.047 2.037 2011 183.578 2.611

Source: Authors calculations based on comtrade database http://comtrade.un.org/db/ (Dated 12/12/2012)

54

Trend analysis is carried out, as follows.

ln EUTxI84= β0 + β1TR + e (4.3a)

Results are:

Table 4.15 (b) Coefficients of equation 4.3 (a)

Variables B Std.

Error

Standardized-Coefficients

(Beta) T Sig.

Constant 10.560 0.049 214.645 0.000

Trend (TR) 0.063 0.003 0.969 18.259 0.000 Dependent Variable: lnEUTxI84

There has been 6.3 percent significant increase per year in the EU’s total import of

clothing (84-category textiles) from the world during the 1988-2011 period.

lnEUTxIP84= β0 + β1TR + e (4.3b)

Results are:

Table 4.15 (c) Coefficients of equation 4.3 (b)

Variables B Std.

Error

Standardized-Coefficients

(Beta) T Sig.

Constant 5.993 0.072 83.169 0.000 Trend (TR) 0.072 0.005 0.951 14.356 0.000

Dependent Variable: lnEUTxIP84

There has been 7.2 percent significant increase per year in the EU’s imports of clothing

(84-category textiles) from Pakistan during the 1988-2011 period. Quantitative modeling: unit roots analysis

4.1.4.4 In case it is desirable to regress the EU’s total imports on her imports from

Pakistan (just to capture the effect of the latter on the former), it is required first to

analyze the two time series (the EU’s total imports from world and her imports from

Pakistan) for unit roots. As per procedure already described in chapter 3 on

methodology, unit roots analysis (following model 3.3) is carried out; the results are

presented and discussed, as follows.

The case of the EU’s 26-category imports and her imports from Pakistan

4.1.4.5 The ADF test and Phillips-Perron (PP) test results of unit roots for the EU’s 26-

category textile imports from Pakistan are reproduced, as follows.

55

Table 4.16 (a-1) The ADF test: the EU’s 26-category textiles imports from Pakistan

Null Hypothesis: EUTxIP26 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-3.330 0.025

Test critical values

1% level -3.753

5% level -2.998

10% level -2.639

Table 4.16 (a-2) The PP test: the EU’s 26-category textiles imports from Pakistan

Null Hypothesis: EUTxIP26 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-3.330 0.025

Test critical values

1% level -3.753

5% level -2.998

10% level -2.638

The results of unit roots analysis provided in Table 4.16 (a1 and a2) indicate that the

ADF test as well as the PP test statistics are more negative than the 5 percent test

critical value, and found statistically significant at p = 0.025, suggesting that the series

on the EU’s imports from Pakistan are stationary; hence there was no need to carry out

test stationarity at first difference.

The ADF and PP tests results of unit roots analysis for the EU’s 26-category imports

from the world are reproduced, as follows.

Table 4.16 (b-1) The ADF test: the EU’s total 26-category textiles imports

Null Hypothesis: EUTxI26 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-2.452 0.140

Test critical values

1% level -3.753

5% level -2.998

10% level -2.638

Table 4.16 (b-2) The PP test: the EU’s total 26-category textiles imports

Null Hypothesis: EUTxI26 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-2.218 0.205

Test critical values

1% level -3.753

5% level -2.998

10% level -2.638

56

Table 4.16(c-1) The ADF test: First difference of the EU’s total 26-category textiles imports

Null Hypothesis: D(EUTxI26) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-4.404 0.003

Test critical values

1% level -3.7880

5% level -3.0124

10% level -2.646

Table 4.16 (c-2) The PP test: First difference of the EU’s total 26-category textiles imports

Null Hypothesis: D(EUTxI26) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-4.114 0.005

Test critical values

1% level -3.770

5% level -3.005

10% level -2.642

Panel (b) of table 4.16 indicates that ADF and PP tests statistics are less negative than

the critical value at all levels (1 percent, 5 percent and 10 percent), suggesting that the

time series on the EU’s total imports of 26-category textiles are having unit roots, and

are non-stationary. Panels (c) of table 4.16 indicates that ADF and PP tests statistics

become more negative than the critical value at all levels (1 percent, 5 percent and 10

percent), suggesting that the time series on the EU’s total imports of 26-category

textiles are having unit roots, and become stationary at first difference.

Since the two time series (the EU’s total imports from the world and her imports from

Pakistan) do not have the same level unit roots, hence one cannot be regressed on the

other.

The case of the EU’s 65-category imports and her imports from Pakistan

4.1.4.6 The ADF test and Phillips-Perron (PP) test results of unit roots for the EU’s 65-

category textiles imports from Pakistan are reproduced, as follows.

Table 4.17 (a-1) The ADF test: the EU’s 65-category textiles imports from Pakistan

Null Hypothesis: EUTxIP65 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

2.0498 0.999

Test critical values

1% level -3.7883

5% level -3.0124

10% level -2.646

57

Table 4.17 (a-2) The PP test: the EU’s 65-category textiles imports from Pakistan

Null Hypothesis: EUTxIP65 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

3.305 1.000

Test critical values

1% level -3.753

5% level -2.998

10% level -2.6388

Table 4.17 (b-1)

The ADF test: First Difference of the EU’s 65-category textiles imports from Pakistan Null Hypothesis: D(EUTxIP65) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-5.748 0.000

Test critical values

1% level -3.788

5% level -3.012

10% level -2.646

Table 4.17 (b-2) The PP test: First Difference of the EU’s 65-category textiles imports from Pakistan

Null Hypothesis: D(EUTxIP65) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-3.171 0.036

Test critical values

1% level -3.770

5% level -3.005

10% level -2.642

Panels (a) of table 4.17 indicate that the ADF test as well as the PP test statistics are

positive, hence less than the critical values, and statistically insignificant at p < 1,

suggesting that the series on the EU’s imports from Pakistan are non-stationary and

having unit roots; therefore these need to be checked for stationarity at first difference.

Panels (b) of table 4.17 indicate that ADF and PP tests statistics become more negative

than the critical value at all levels and at > 5 percent levels, respectively, suggesting

that the time series on the EU’s imports of 65-category textiles from Pakistan are

having unit roots, and become stationary at first difference.

The ADF and PP tests results of unit roots analysis for the EU’s 65-category imports

from the world are reproduced, as follows.

58

Table 4.18 (a-1) The ADF test: the EU’s total 65-category textiles imports

Null Hypothesis: EUTxI65 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-0.709 0.823

Test critical values 1% level -3.809

5% level -3.021 10% level -2.650

Table 4.18 (a-2)

The PP test: the EU’s total 65-category textiles imports Null Hypothesis: EUTxI65 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-0.654 0.839

Test critical values

1% level -3.753

5% level -2.998

10% level -2.639

Table 4.18 (b-1) The ADF test: First difference of the EU’s total 65-category textiles imports

Null Hypothesis: D(EUTxI65) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-4.850 0.001

Test critical values

1% level -3.7880

5% level -3.012

10% level -2.646

Table 4.18 (b-2) The PP test: First difference of the EU’s total 65-category textiles imports

Null Hypothesis: D(EUTxI65) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-5.772 0.000

Test critical values

1% level -3.770

5% level -3.005

10% level -2.642

Panels (a) of table 4.18 indicate that ADF and PP tests statistics are less negative than

the critical value at all levels (1 percent, 5 percent and 10 percent), suggesting that the

time series on the EU’s total imports of 65-category textiles are having unit roots, and

are non-stationary. Panels (b) of table 4.18 indicates that ADF and PP tests statistics

become more negative than the critical value at all levels (1 percent, 5 percent and 10

percent), suggesting that the time series on the EU’s total imports of 65-category

textiles are having unit roots, and become stationary at first difference.

59

It is concluded that the two time series (the EU’s total imports of 65-category textiles

from the world, and her imports from Pakistan) have the same level of unit roots.

The case of the EU’s 84-category imports and her imports from Pakistan

4.1.4.7 The ADF test results of unit roots for the EU’s 84-category textiles imports

from Pakistan and the world are reproduced, as follows.

Table 4.19 (a-1) The ADF test: the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: EUTxIP84 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

2.168 1.000

Test critical values

1% level -3.788

5% level -3.012

10% level -2.646

Table 4.19 (a-2) The PP test: the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: EUTxIP84 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.* 2.787 1.000

Test critical values 1% level -3.753

5% level -2.998 10% level -2.639

Table 4.19 (b-1) The ADF test: First difference of the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: D(EUTxIP84) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-2.969 0.055

Test critical values 1% level -3.770

5% level -3.005 10% level -2.642

Table 4.19 (b-2) The PP test: First difference of the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: D(EUTxIP84) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.* -2.927 0.0582

Test critical values

1% level -3.770

5% level -3.005

10% level -2.642

Table 4.19 (c-1) The ADF test: Second difference of the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: D(EUTxIP84,2) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-5.307 0.000

Test critical values

1% level -3.832

5% level -3.030

10% level -2.655

60

Table 4.19 (c-2) The PP test: Second difference of the EU’s 84-category textiles imports from Pakistan

Null Hypothesis: D(EUTxIP84,2) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-6.059 0.000

Test critical values

1% level -3.788

5% level -3.012

10% level -2.646

Panels (a) of table 4.19 indicate that ADF and PP tests statistics are less negative than

the critical value at all levels (1 percent, 5 percent and 10 percent), suggesting that the

time series on the EU’s imports of 84-category textiles from Pakistan are having unit

roots, and are non-stationary. Panels (b) of table 4.19 show that ADF and PP tests

statistics remain less negative than the critical value at 1 percent and 5 percent levels,

suggesting that the time series on the EU’s imports of 84-category textiles from

Pakistan are non-stationary even at first difference. Panels (c) of table 4.19 illustrate

that ADF and PP tests statistics become more negative than the critical value at all

levels (1 percent, 5 percent and 10 percent), suggesting that the time series on the EU’s

imports of 84-category textiles from Pakistan become stationary at second difference.

Table 4.20 (a-1)

The ADF test: the EU’s total 84-category textiles imports Null Hypothesis: EUTxI84 has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

0.860 0.993

Test critical values

1% level -3.753

5% level -2.998

10% level -2.639

Table 4.20 (a-2) The PP test: the EU’s total 84-category textiles imports

Null Hypothesis: EUTxI84 has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

1.631 0.999

Test critical values

1% level -3.753

5% level -2.998

10% level -2.639

61

Table 4.20 (b-1) The ADF test: First difference of the EU’s total 84-category textiles imports

Null Hypothesis: D(EUTxI84) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.* -1.914 0.3196

Test critical values

1% level -3.809

5% level -3.021

10% level -2.650

Table 4.20 (b-2) The PP test: First difference of the EU’s total 84-category textiles imports

Null Hypothesis: D(EUTxI84) has a unit root

Phillips-Perron test statistic Adj. t-Stat Prob.*

-3.092 0.042

Test critical values

1% level -3.770

5% level -3.005

10% level -2.642

Table 4.20 (c)

The ADF test: Second difference of the EU’s total 84-category textiles imports Null Hypothesis: D(EUTxI84,2) has a unit root

Augmented Dickey-Fuller test statistic t-Statistic Prob.*

-5.896 0.0001

Test critical values

1% level -3.809

5% level -3.0207

10% level -2.650

Panels (a) of table 4.20 indicate that ADF and PP tests statistics are less negative than

the critical value at all levels (1 percent, 5 percent and 10 percent), suggesting that the

time series on the EU’s total imports of 84-category textiles are having unit roots, and

are non-stationary. Panels (b) of table 4.20 show that ADF statistic remain less negative

than the critical value at all levels (1 percent, 5 percent and 10 percent), and the series

become stationary at second difference (Table 4.20 (c)).

However, results of PP test confirm stationarity of the series at first difference, where

the test statistics becomes more negative than the critical value at 5 percent level. Since

PP test provides better results when size of sample is comparatively small. Therefore, it

is concluded that the EU’s total import of 84-category textiles become significant at

second difference.

The two series under consideration, hence, do not have same level of unit roots.

62

Quantitative modeling: Correlation and Co-integration between the EU’s total textiles imports and her imports from Pakistan

4.1.4.8 After running unit root analysis, the relationship between two variables (the

EU’s total textiles and clothing imports and her imports from Pakistan) can now further

be analyzed using correlation and co-integration analyses.

Correlation analysis

The case of 26-category textiles

4.1.4.9 Pearson’s correlation between the EU’s total 26-category textiles imports and

her imports from Pakistan (applying equation 3.1 of chapter 3) is estimated, and results

are presented in the following table.

Table 4.21 Pearson correlation between the EU’s total 26-category textiles imports

and her imports from Pakistan

Pearson correlation (EUTxI26, EUTxIP26) Significance (2-tailed)

r = 0.684 0.000

Source: Table 4.13 (a)

The Pearson’s correlation between the EU’s total textiles import of 26-category and her

imports from Pakistan estimates at r = 0.684 and its statistically significant at p < 0.01,

suggesting that there is a strong association between the two variables.

The case of 65-category textiles

4.1.4.10 Pearson’s correlation between the EU’s total textiles imports of 65-category

and her imports from Pakistan (applying equation 3.1 of chapter 3) is measured and

results are presented in the following table:

Table 4.22 Pearson correlation between the EU’s total 65-category textiles imports

and her imports from Pakistan Pearson correlation (EUTxI65, EUTxIP65) Significance (2-tailed)

r = 0.937 0.000

Source: Table 4.14 (a)

The Pearson’s correlation between the EU’s total textiles import of 65-category and her

imports from Pakistan estimates at r = 0.937 and its statistically significant at p < 0.01,

suggesting that there is a strong association.

63

The case of 84-category textiles

4.1.4.11 Pearson’s correlation between the EU’s total textiles imports of 84-category

and her imports from Pakistan (applying equation 3.1 of chapter 3) is estimated and

results are presented in the following table:

Table 4.23 Pearson correlation between the EU’s total textiles imports of 84-category

and her imports from Pakistan

Pearson correlation (EUTxI84, EUTxIP84) Significance (2-tailed)

r = 0.984 0.000

Source: Table 4.15 (a)

The Pearson’s correlation between the EU’s total textiles imports of 84-category and

her import from Pakistan estimates at r = 0.984 and its statistically significant at p <

0.01, suggesting that there is a strong association.

Co-integration analysis and Error Correction Model

In the preceding two sections, unit roots analysis was carried out in the first one and the

correlation analysis in the second. In unit roots analysis of 26-category and 84-

category textiles, the data series were not found to have been in the same level of unit

roots; and there were the same level of unit roots in case of 65-category textiles. Hence,

the 26- category and 84-category textiles, time series could not qualify for regressing

one series over the other. Alternatively, we can and we should check co-integration

between the data series of the EU’s total textiles imports and her imports from Pakistan

in these entire three categories textile. Accordingly, co-integration analysis and ECM

modeling techniques (already described in Chapter 3) are applied and discussed, as

follows.

The case of 26 category textiles

4.1.4.12 Co-integration analysis (following model 3.4 of chapter 3) is carried out and

results are provided as follows.

Co-integration step 1: empirical results

Running the regression: EUTxI26= f(EUTxIP26) (4.4 a)

Results of the above regression are presented as follows:

EUTxI26 = 6.292 + 21.844 EUTxIP26 (15.557) (4.405)

(0.000) (0.000)

R2 = 0.469, F = 19.404 (p value = 0.000)

Figures in the first and second parenthesis respectively are, t-statistic and p-value.

64

Co-integration step 2: empirical results

Before providing an interpretation of the results of Co-integration step 1, it is necessary

that the second step of Co-integration analysis, already explained in the form of model

3.4 (Chapter 3), is carried out. The ‘differenced residuals’ was regressed on its lagged

to test for stationarity, like:

∆ut = α1ut-1 + et (4.4b)

The results are given as below:

∆ut 26 = -0.686ut-1 (-3.558) (0.002)

R2 = 0.355 F = 12.662 (p = 0.002)

Where ∆ut 26 is differenced residual in case of 26-category textiles and ut-126 is it’s

lagged.

The τ-computed = - 3.558, which is more negative than ADF critical values at 1 percent

(-2.66) and 5 percent (-1.95) provided in Gujarati (2007, Table D.7, p.995), suggests

that the first-differenced residuals regressed over residuals lagged one period are

stationary, and this fulfils the condition of the Co-integration of Model (4.4b),

suggesting that there exists long run relationship between the two variables (26-

category EU’s total textiles and clothing imports and her imports of 26-category

textiles and clothing from Pakistan) involved.

Applying Error Correction Model (ECM)

Error Correction Model (ECM), popularized by Engle and Granger, states that if a

dependent variable and their determinants are Co-integrated like they did in our above

case, then their short-run dynamic relationship can also be measured through Error

Correction Model (ECM), which is provided in the Chapter 3 of this research as

equation 3.5, is repeated as follows.

�Yt = α0 + α1�Xt + α2ut-1 + et (4.4c)

The ECM measure postulated states that α2 is always zero, and residuals (ut-1) can be

both negative and positive; so product term ‘α2ut-1’ can make changes in dependent

variable in both ways, positive and negative, provided α2 turns out to be statistically

significant. Please refer to the following for the estimated results of the ECM model.

65

� EUTxI26 = 0.067 + 24.435 � EUTxIP26 - 0.697 ut-126 (0.384) (3.890) (-3.433)

(0.719) (0.001) (0.002)

R2 = 0.527, F = 11.689 (p value = 0.000)

Where � EUTxI26 is first difference of EUTxI26, � EUTxIP26 is first difference of

EUTxIP26 and ut-126 is lagged residual, in case of 26-category textiles.

The coefficient carrying with the lagged residual variables (ut-126) happens to be

statistically significant at p < 0.01, suggesting that model exhibits short-run dynamic

effects. The results thus suggest that there exists a long term co-movement between the

EU 26-category textiles imports and her imports from Pakistan, with short term effects,

measuring at 0.697.

The case of 65-category textiles

4.1.4.14 Applying model 3.4 (Chapter 3), the results of co-integration analysis of 65-

category textiles are provided as follows:

Co-integration step 1: empirical results

Running the regression: EUTxI65= f (EUTxIP65) (4.5a)

The results of this regression are given as below:

EUTxI65 = 29.306 + 18.511 EUTxIP65 (13.237) (12.567)

(0.000) (0.000) R2 = 0.878, F = 157.925 (p value = 0.000)

Co-integration step 2: empirical results

Before providing an interpretation of the results of Co-integration step 1, it is necessary

that the second step of Co-integration analysis, already explained in the form of

equation 3.4 (b) (Chapter 3), is carried out. The ‘differenced residuals’ was regressed

on its lagged to test for stationarity, like:

∆ut = α1ut-1 + et (4.5b)

The results are given as below:

∆ut65 = -0.482 ut-165 (-2.629)

(0.015) R2 = 0.231, F = 6.912 (p value = 0.150)

Where ∆ut 65 is differenced residual in case of 65-category textiles and ut-165 is it’s

lagged.

66

The τ-computed = - 2.629 happens to be less negative than ADF critical values at 1

percent (-2.66) and more negative at 5 percent (-1.95) provided in Gujarati (2007,

Table D.7, p.995); the results thus are not very clear and remain somewhat inconclusive

regarding the long run relationship between the two variables (65-category EU’s total

textiles and clothing imports and her imports of 65-category textiles and clothing from

Pakistan).

Applying Error Correction Model (ECM)

Please refer to the following results of ECM model 4.5 (c) for 65-category textiles.

�Yt = α0 + α1�Xt + α2ut-1 + et (4.5c)

�EUTxI65 = - 1.0800 + 27.863 �EUTxIP65 - 0.302 ut-165 (-1.126) (5.846) (-1.518)

(0.273) (0.000) (0.144)

R2 = 0.730, F = 28.341 (p value = 0.000)

Where � EUTxI65 is first difference of EUTxI65, � EUTxIP65 is first difference of

EUTxIP65 and ut-165 is lagged residual, in case of 26-category textiles.

The coefficient carrying with the lagged residual variable (ut-165) happens to be

statistically insignificant at (p > 0.10), suggesting that model exhibits no short-run

effects. The results of model (4.5c) exhibit that this linear combination (4.5c) has not

yet become stationary or I(0), hence there exists no co-integration between 65-category

EU’s total textiles and clothing imports and her imports of 65-category textiles and

clothing from Pakistan.

The case of 84-category textiles

4.4.15 Applying model 3.4 (chapter 3), the results of Co-integration analysis of 84-

category textiles are provided as follows:

Co-integration step 1: empirical results

Running the regression: EUTxI84= f (EUTxIP84) (4.6a)

Results of the above regression are given below: EUTxI84 = 10.810 + 73.272 EUTxIP84

(3.053) (26.200) (0.006) (0.000)

R2 = 0.969, F = 686.428 (p value = 0.000)

67

Co-integration step 2: empirical results

As already explained in the form of equation 3.4 (Chapter 3), the second step of Co-

integration is carried out and the ‘differenced residuals’ was regressed on its lagged to

test for stationarity, as follows:

∆ut = α1ut-1 + et (4.6b)

The results are given as below:

∆ut 84 = -0.326 ut-184 (-1.676)

( 0.107) R2 = 0.109

F = 2.809 (p value = 0.107)

Where ∆ut 84 is differenced residual in case of 84-category textiles and ut-184 is it’s

lagged.

The τ-computed = -1.676, which is less negative than ADF critical values at both 1

percent (-2.66) and 5 percent (-1.95) provided in Gujarati (2007, Table D.7, p.995),

suggests that the first-differenced residuals regressed over residuals lagged one period

are non-stationary, and this does not fulfil the condition of the Co-integration of Model

(4.6a), suggesting that there exist no long-run relationship between the two variables

(84-category EU’s total textiles and clothing imports and her imports of 84-category

textiles and clothing from Pakistan). Since the estimated model (4.6a) does not measure

long-run relationship, the estimation of ECM for measuring of short-run effects become

invalid.

4.2 Major Competition to Pakistan’s Textiles and clothing Imports in the European Union Market

In first section of chapter 4 the European Union market and its importance for

Pakistan’s textiles and clothing exports was analyzed which addresses the first

objective. The second objective (to identify and evaluate major competition to

Pakistan's textiles and clothing exports to the EU) and the first part of its corresponding

hypothesis (Pakistan faces competition in EU’s textiles and clothing market and enjoys

competitive edge in certain products) are covered in this section. This section identifies

the major competition being faced to Pakistan’s textiles and clothing exports in the EU’

market; and the next section identifies major 5-digit product in the EU market.

68

4.2.1 Competition in 26-category textiles

4.2.1.1 In order to identify the major competitors of Pakistan in the EU’s market,

selection of all suppliers of 26-category textiles to the EU with a minimum share of 1

percent in each of the five years time was made; however, it was necessary to include

some additional suppliers even with some lesser shares if those were found with 1

percent in some of the years. While doing so 28 countries including Pakistan were

selected, with their total supply share in the EU market, averaged for each year of the

recent period of 2007-11, is given as follows.

Table 4.24

The EU’s total imports of 26-category textiles and her average imports from major partners in billion USD

Year EU’s total

textiles import of 26-category

Major partners

Average value Share in EU imports

2007 8.472 7.136 0.842 2008 8.384 0.262 0.843 2009 5.886 0.185 0.849 2010 7.547 0.237 0.848 2011 10.107 0.318 0.849

Average 8.079 1.628 0.846 Source: Authors own calculations based on Comtrade data

The selected countries include Germany, China, Belgium, Australia, Italy, UK, France,

Austria, Turkey, Spain, USA, Republic of Korea, Japan, South Africa, Ireland, New

Zealand, Argentina, India, Czech Republic, Netherlands, Denmark, Uruguay,

Kazakhstan, Indonesia, Switzerland, Romania, Poland and Pakistan. These counties

account for more than 84 percent share of the EU’s total import of 26-category textiles,

on average.

4.2.1.2 For further analysis, data of these 28 countries of a recent five years period

(2007-11) were taken. We used differential intercept dummies (Gujarati, 2007; pp.304-

341) to capture the effect of various Pakistan’s competitors in the listed countries, as

per model postulated in equation 3.6 of chapter 3. The results of the analysis are

provided in table 4.25.

69

Table 4.25 Dummy variable analysis identifying Pakistan’s competitors: 26-category textiles

Independent Variables

B Std. Error t p-value

Constant (Pak) 6072.596 456.831 13.293 0.000 X i (EU’s partners’ import) 14.150 1.528 9.263 0.000 DGermany -11871.376 1470.979 -8.070 0.000 DChina -7764.737 1093.909 -7.098 0.000 DBelgium -5615.339 920.406 -6.101 0.000 DAustralia -3024.763 723.379 -4.181 0.000 DItaly -2951.568 750.627 -3.932 0.000 DUK -3719.343 792.621 -4.692 0.000 DFrance -2149.957 714.449 -3.009 0.003 DAustria -2452.499 695.392 -3.527 0.001 DTurkey -1787.053 700.976 -2.549 0.012 DSpain -1000.523 678.654 -1.474 0.143 DUSA -1786.127 700.944 -2.548 0.012 DKorea -1303.668 686.100 -1.900 0.060 DJapan -632.807 671.655 -0.942 0.348 DSAfrica -339.920 667.718 -0.509 0.612 DIreland -619.081 671.438 -0.922 0.359 DNZland 334.111 664.310 0.503 0.616 DArgentina 185.048 664.379 0.279 0.781 DIndia -665.682 672.188 -0.990 0.324 DCzechR -348.580 667.813 -0.522 0.603 DNether 165.673 664.417 0.249 0.804 DDenmark 60.612 664.735 0.091 0.928 DUruguay 816.556 666.754 1.225 0.223 DKazakh 1312.927 673.476 1.949 0.054 DIndonesia 1340.074 714.867 1.875 0.063 DSwiss 982.221 668.527 1.469 0.145 DRomania 1114.587 670.284 1.663 0.099 DPoland 902.031 667.609 1.351 0.179

Dependent Variable: EUTxI26, R2 = 0.44, and F = 3.113 (p value = 0.000)

4.2.1.3 Table 4.25 reveals that EUTxI26 (EU’s total imports of 26-category textiles in

million USD) is statistically significantly determined by Xi (her imports in million USD

from other partners). This model includes Pakistan as the intercept and the other

countries as the differential intercept. The value of intercept is statistically significant

indicating that Pakistan is contributing significantly towards the EU’s total 26-category

imports. As far as the other countries are concerned, the differential intercept of

Germany, China, Belgium, Australia, Italy, UK, France, Austria, Turkey, USA,

Republic of Korea, Kazakhstan, Indonesia and Romania are significant while those of

Spain, Japan, South Africa, Ireland, New Zealand, Argentina, India, Czech Republic,

Netherland, Denmark, Uruguay, Poland and Switzerland are insignificant.

70

4.2.2 Competition in 65-category textiles

4.2.2.1 In order to identify the major competitors of Pakistan in the EU’s market,

selection of all suppliers of 65-category textiles to the EU with a minimum share of 1

percent in each of the five years time was made; however, two countries (Denmark and

Romania) were included even with some lesser shares because these were found with 1

percent in some of the years. While doing so 20 countries including Pakistan were

selected, with their total supply share in the EU market provided as follows:

Table 4.26 The EU’s total imports of 65-category textiles

and her average imports from major partners in billion USD

Year EU’s total

textiles import of 65-category

Major partner

Average value Average share

2007 80.336 3.444 0.857 2008 80.106 3.439 0.859 2009 61.913 2.657 0.858 2010 68.113 2.928 0.860 2011 79.223 3.393 0.857

Average 73.938 3.172 0.858 Source: Authors own calculations based on Comtrade data

The selected countries include Austria, Belgium, China, Czech Republic, Denmark,

France, Germany, India, Italy, Republic of Korea, Netherland, Pakistan, Poland,

Portugal, Romania, Spain, Switzerland, Turkey, UK and USA. These counties account

for more than 85 percent share of the EU’s total import of 65-category textiles, on

average.

4.2.2.2 For further analysis, data of these 20 countries of a recent five years period

(2007-11) were taken. We used differential intercept dummies to capture the effect of

various Pakistan’s competitors contribution of each of Pakistan’s competitors in the

listed countries, using model like the one given in equation 3.6 of chapter 3 as already

discussed in case of 26-category textiles. The results are provided in table 4.27.

71

Table 4.27 Dummy variable analysis identifying Pakistan’s competitors: 65-category textiles

Independent variable Coefficient Std. Error t-test p-value

Constant (Pak) 52609.625 4310.515 12.205 0.000 X i (EU’s partners’ import) 8.816 1.278 6.898 0.000 DAustria 9895.287 4482.979 2.207 0.030 DBelgium -18267.324 5005.253 -3.650 0.000 DChina -59304.922 9589.524 -6.184 0.000 DCzechR 7120.166 4370.888 1.629 0.107 DDenmark 14978.107 4770.144 3.140 0.002 DFrance -9617.478 4470.254 -2.151 0.034 DGermany -58874.485 9533.616 -6.175 0.000 DIndia -7584.219 4387.263 -1.729 0.088 DItaly -52221.971 8680.811 -6.016 0.000 DKorea 13966.048 4705.168 2.968 0.004 DNether -8748.588 4432.581 -1.974 0.052 DPoland 8921.946 4439.837 2.010 0.048 DPortugal 9447.469 4462.628 2.117 0.037 DRomania 15206.244 4785.290 3.178 0.002 DSpain 2765.662 4266.135 0.648 0.519 DSwiss 10662.236 4519.787 2.359 0.021 DTurkey -21332.545 5353.922 -4.060 0.000 DUK 939.832 4249.437 0.221 0.826 DUSA 9299.024 4456.070 2.087 0.040

Dependent Variable: : EUTxI65, R2 = 0.376, and F = 2.379 (p value = 0.003)

4.2.2.3 Table 4.27 reveals that EUTxI65 (EU’s total imports of 65-category textiles) is

statistically significantly determined by Xi (her imports from other partners). This

model includes Pakistan as the intercept and the other countries as the differential

intercept. The value of intercept is statistically significant indicating that Pakistan is

contributing significantly towards the EU’s total 65-category imports. As far as the

other countries are concerned, the differential intercept of Austria, Belgium, China,

Denmark, France, Germany, India, Italy, Republic of Korea, Netherland, Poland,

Portugal, Romania, Switzerland, Turkey, USA are significant while those of Czech

Republic, Spain and UK are insignificant.

72

4.2.3 Competition in 84-category textiles

4.2.3.1 In order to identify the major competitors of Pakistan in the EU’s market,

selection of all suppliers of 84-category textiles to the EU with a minimum share of 1

percent in each of the five years time was made; however, three countries (Denmark,

Hong Kong China and Cambodia) were included even with some lesser shares because

these were found with 1 percent in some of the years, hence were considered as

emerging competitors to Pakistan. While doing so 25 countries including Pakistan were

selected, with their total supply share in the EU market provided as follows:

Table 4.28 The EU’s total imports of 84-category textiles

and her average imports from major partners in billion USD

Year EU’s total

textiles import of 84-category

Major partner

Average value Average share

2007 153.762 5.393 0.877 2008 169.192 6.011 0.888 2009 151.518 5.441 0.898 2010 158.047 5.704 0.902 2011 183.578 6.618 0.901

Average 163.219 5.833 0.893 Source: Authors own calculations based on Comtrade data

The selected countries include Bangladesh, Belgium, Bulgaria, Cambodia, China,

Denmark, France, Germany, Hong Kong China, India, Indonesia, Italy, Morocco,

Netherland, Pakistan, Poland, Portugal, Romania, Spain, Sri Lanka, Thailand, Tunisia,

Turkey, UK and Vietnam. These counties account for more than 89 percent share of the

EU’s total import of 84-category textiles, on average.

4.2.3.2 For further analysis, data of these 25 countries of a recent five years period

(2007-11) were taken. We used differential intercept dummies to capture the effect of

various Pakistan’s competitors contribution of each of Pakistan’s competitors in the

listed countries, using model like the one given in equation 3.6 of chapter 3 as already

discussed in case of 26-category and 65-category textiles. The results are provided in

table 4.29.

4.2.3.3 Table 4.29 reveals that EUTxI84 (EU’s total imports of 84-category textiles) is

statistically significantly determined by Xi (her imports from other partners). This

model includes Pakistan as the intercept and the other countries as the differential

intercept. The value of intercept is statistically significant indicating that Pakistan

73

contributes significantly towards the EU’s total 84-category imports. As far as the other

countries are concerned, the differential intercept of Bangladesh, China, Germany,

India, Italy, and Turkey are significant, while those of Belgium, Bulgaria, Cambodia,

Denmark, France, Hong Kong, Indonesia, Italy, Morocco, Netherland, Poland,

Portugal, Romania, Spain, Sri Lanka, Thailand, Tunisia, UK and Vietnam are

insignificant.

Table 4.29 Dummy variable analysis identifying Pakistan’s competitors: 84-category textiles Independent variable Coefficient Standard Error t-test statistics p-value

Constant (Pak) 156126.765 5853.458 26.673 0.000 X i (EU’s partners’ import) 3.470 0.900 3.856 0.000 DBangladesh -25664.632 10298.080 -2.492 0.014 DBelgium -3806.564 7920.544 -0.481 0.632 DBulgaria 1258.761 7865.573 0.160 0.873 DCambodia 2977.460 7896.633 0.377 0.707 DChina -156023.523 41214.404 -3.786 0.000 DDenmark 1895.993 7874.162 0.241 0.810 DFrance -11516.766 8407.095 -1.370 0.174 DGermany -20193.517 9443.519 -2.138 0.035 DHongKong 1824.760 7873.030 0.232 0.817 DIndia -19222.707 9306.290 -2.066 0.041 DIndonesia -573.336 7860.204 -0.073 0.942 DItaly -27144.469 10550.130 -2.573 0.012 DMorocco -5459.861 7985.309 -0.684 0.496 DNetherland -6443.159 8034.436 -0.802 0.425 DPoland 1231.848 7865.287 0.157 0.876 DPortugal -3358.210 7906.897 -0.425 0.672 DRomania -4733.986 7954.094 -0.595 0.553 DSpain -6077.790 8015.270 -0.758 0.450 DSriLanka 66.786 7858.817 0.008 0.993 DThailand 1093.668 7863.913 0.139 0.890 DTunisia -5988.585 8010.753 -0.748 0.456 DTurkey -38855.700 12778.051 -3.041 0.003 DUK -2762.223 7891.371 -0.350 0.727 DVietnam -1317.232 7866.217 -0.167 0.867

Dependent Variable: EUTxI84, R2 = 0.131, and F = 0.595 (p value = 0.931)

4.3 Identification of major 5-digit products in the EU market

In connection with the preceding section (4.2), this section also addresses the second

objective (to identify and evaluate major competition to Pakistan's textiles and clothing

exports to the EU). It tests the second part of the hypothesis related to the said objective

(Pakistan faces competition in the EU’s textiles and clothing market and enjoys

competitive edge in certain products). This section identifies major 5-digit products in

EU market, and Annex III provides detailed analytical tables related to it.

74

Annexure III consists of three panels (a, b and c); panel (a) provides the EU’s preferred

demand for various 5-digit 26-category textiles products, and Pakistan’ status according

to her share in the EU’s market, there are total 45 26-category textiles products in all.

Panel (b) presents the EU’s preferred demand for various 5-digit 65-category textiles

products, and Pakistan’ status according to her share in the EU’s market, there are total

217 65-category textiles products in all.

Panel (c) shows the EU’s preferred demand for various 5-digit 84-category textiles

products, and Pakistan’ status according to her share in the EU’s market, there are total

94 84-category textiles products in all.

A detailed discussion on the stated textiles products category wise is made in the

following paragraphs.

4.3.1 Identification major 5-digit products: the case of 26-category

The EU's 1st category preferred products

4.3.1.1 The 45 5-digit 26-category textiles products have further been divided into two

groups of 20 and 25, and are provided in table 4.30 (a and b).

Table 4.30 (a) The EU's 1st 20 5-digit preferred products and Pakistan’s positioning: 26-category

(2007-11 average)

S. No. 5-digit

product code*

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking (in number)

The EU's 1st 20 5-digit preferred products

1 26652 1.380 0.0004786 17 2 26873 0.848 0.0000000 31 3 26659 0.589 0.0001194 21 4 26712 0.554 0.0000101 27 5 26310 0.549 0.0459829 03 6 26811 0.538 0.0000000 42 7 26901 0.516 0.0004803 16 8 26711 0.465 0.0004248 18 9 26830 0.343 0.0001126 22 10 26651 0.321 0.0000375 24 11 26829 0.233 0.0000000 43 12 26339 0.201 0.1854986 01 13 26663 0.151 0.0000023 30 14 26902 0.144 0.0297170 04 15 26653 0.135 0.0000058 29 16 26512 0.112 0.0000000 35 17 26721 0.107 0.0007535 11 18 26877 0.098 0.0000121 26

75

19 26490 0.095 0.0106426 08 20 26130 0.086 0.0000000 32

* Names of the products may be seen in Annexure III (a)

Table 4.30 (a) reveals that eight Pakistani products (26339, 26310, 26902, 26490,

26721, 26901, 26652 and 26711) attain positions in EU’s first 20 preferred products

list. While remaining 12 the EU’s preferred products fall into Pakistan’s relatively less

preferred products list. This warrants that Pakistan improve the quality of these

products to attain better position in the EU’s market.

The EU's 2nd category preferred products

4.3.1.2 Table 4.30 (b) provides the EU’s second 45 preferred products and Pakistan’s

status.

Table 4.30 (b) The EU's 2nd 5-digit preferred products and Pakistan’s positioning: 26-category

(2007-11 average)

S. No. 5-digit

product code

EU’s average imports

(billion US dollar)

Pakistan Average share

in EU’s imports

Pakistan’s ranking

(in number) 21 26863 0.057 0.0006994 13 22 26513 0.057 0.0000000 36 23 26662 0.047 0.0000144 25 24 26661 0.038 0.0000000 38

25 26149 0.033 0.0004949 15

26 26320 0.032 0.0000000 33

27 26713 0.026 0.0000000 41

28 26672 0.024 0.0000087 28

29 26332 0.022 0.0236432 05

30 26871 0.020 0.0007227 12

31 26869 0.019 0.0005782 14

32 26673 0.018 0.0000543 23

33 26671 0.018 0.0004084 19

34 26722 0.014 0.0002281 20

35 26669 0.010 0.0000000 39

36 26859 0.009 0.0168837 06

37 26851 0.009 0.0000000 44

38 26819 0.009 0.0013021 10

39 26679 0.008 0.0000000 40

40 26529 0.007 0.0000000 37

41 26511 0.007 0.0000000 34

42 26331 0.006 0.0507735 02

43 26862 0.002 0.000000 45

44 26521 0.002 0.0112837 07

76

45 26141 0.001 0.0056026 09

* Names of the products may be seen in Annexure III (a)

The table reflects that Pakistan’s highest important products with code 26331, 26332,

26859, 26521, 26141, 26819, 26871, 26863, 26869, 26149, 26671, and 26722 fall in

the EU’s least preferred products category. Such products have the potential to get

higher share in the EU market.

4.3.2 Identification major 5-digit products: the case of 65-category

The EU's 1st category preferred products

4.3.2.1 In this category there are a total of 217 5-digit 65-category textiles products,

which have further been divided into five groups of 50 each in the first four groups

(table 4.31 a-d) and the remaining 17 in the group 5 (table 4.31 e).

Table 4.31 (a) The EU's 1st 50 5-digit preferred products and Pakistan’s positioning: 65-category

(2007-11 average)

S. No.

EU’s 5-digit preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking (in number)

1 65720 4.741 0.000 146

2 65893 2.755 0.012 053

3 65842 2.457 0.241 005

4 65732 2.424 0.001 105

5 65847 1.968 0.105 017

6 65133 1.846 0.080 023

7 65162 1.705 0.000 199

8 65851 1.654 0.052 029

9 65773 1.513 0.000 172

10 65529 1.479 0.000 133

11 65195 1.473 0.000 182

12 65942 1.365 0.000 189

13 65163 1.26 0.000 155

14 65943 1.243 0.000 175

15 65793 1.111 0.000 196

16 65771 1.066 0.000 152

17 65522 1.033 0.000 174

18 65813 1.016 0.001 106

19 65460 1.015 0.000 197

20 65859 0.948 0.019 045

77

21 65221 0.872 0.216 007

22 65315 0.872 0.002 083

23 65843 0.854 0.281 003

24 65422 0.831 0.000 184

25 65152 0.828 0.000 151

26 65151 0.793 0.000 168

27 65182 0.772 0.001 119

28 65233 0.756 0.003 074

29 65523 0.703 0.001 117

30 65952 0.69 0.000 165

31 65113 0.669 0.000 204

32 65613 0.621 0.010 057

33 65311 0.607 0.000 138

34 65242 0.596 0.046 033

35 65892 0.593 0.034 038

36 65232 0.587 0.051 031

37 65393 0.575 0.000 185

38 65184 0.566 0.045 034

39 65822 0.557 0.002 090

40 65413 0.538 0.001 125

41 65733 0.538 0.000 161

42 65316 0.532 0.002 093

43 65188 0.526 0.000 179

44 65343 0.520 0.002 097

45 65751 0.513 0.003 075

46 65841 0.477 0.273 004

47 65833 0.473 0.001 109

48 65234 0.460 0.089 022

49 65969 0.450 0.002 084

50 65243 0.434 0.059 025

* Names of the products may be seen in Annexure III (b)

Table 4.41 (a) reveals that fourteen Pakistani products (65843, 65841, 65842, 65221,

65847, 65234, 65133, 65243, 65851, 65232, 65242, 65184, 65892, and 65859) attain

positions in the EU’s first 50 preferred products list. So Pakistan needs to retain her

position in these products in the EU’s import market.

4.3.2.2 However, the majority of the EU’s first category preferred products seem to

have less importance in Pakistan’s imports to the EU. For instance, products with code

65152, 65771, 65163, 65733, 65952, 65151, 65773, 65522, 65943, 65188, 65195,

65422, 65393, 65942, 65793, 65460, 65162 and 65113 belong to Pakistan’s lowest two

78

important (the fourth and fifth level) category products. These facts necessitates that

Pakistan bring improvement in these products to match them with the EU’s consumers

preferences.

The EU's 2nd category preferred products

Table 4.31 (b) provides the EU’s second 50 preferred products and Pakistan’s ranking.

Table 4.31 (b) The EU's 2nd 50 5-digit preferred products and Pakistan’s positioning: 65-category

(2007-11 average)

S. No. EU’s 5-digit

preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking

(in number)

51 65961 0.426 0.000 178

52 65321 0.420 0.002 089

53 65331 0.416 0.357 001

54 65921 0.410 0.194 008

55 65317 0.399 0.002 094

56 65186 0.396 0.002 096

57 65659 0.386 0.004 072

58 65333 0.383 0.102 018

59 65319 0.367 0.003 079

60 65845 0.364 0.041 036

61 65312 0.361 0.000 162

62 65711 0.353 0.000 183

63 65231 0.349 0.140 011

64 65141 0.349 0.000 153

65 65441 0.326 0.000 140

66 65821 0.316 0.000 145

67 65959 0.313 0.006 068

68 65941 0.307 0.001 114

69 65431 0.304 0.000 214

70 65734 0.290 0.006 067

71 65352 0.288 0.001 121

72 65314 0.282 0.003 077

73 65752 0.282 0.001 124

74 65169 0.274 0.000 147

75 65159 0.274 0.000 177

76 65631 0.264 0.000 186

77 65222 0.258 0.347 002

78 65829 0.258 0.000 134

79 65951 0.254 0.002 091

79

80 65342 0.245 0.001 110

81 65846 0.231 0.014 051

82 65318 0.229 0.110 016

83 65341 0.226 0.000 158

84 65519 0.224 0.001 120

85 65173 0.216 0.000 160

86 65912 0.216 0.000 201

87 65521 0.213 0.001 108

88 65852 0.208 0.033 039

89 65421 0.206 0.000 200

90 65252 0.205 0.018 047

91 65117 0.198 0.000 207

92 65196 0.197 0.000 181

93 65118 0.195 0.000 208

94 65262 0.194 0.015 049

95 65360 0.193 0.001 107

96 65432 0.185 0.000 195

97 65359 0.184 0.001 115

98 65621 0.183 0.001 101

99 65215 0.180 0.002 085

100 65612 0.168 0.000 171

* Names of the products may be seen in Annexure III (b)

It is evident from the table above that the EU’s second preferred products with code

65141, 65341, 65173, 65312, 65612, 65159, 65961, 65196, 65711, 65631, 65432,

65421, 65912, 65117, 65118 and 65431 belong to Pakistan’s the two lowest important

products lists; this discouraging scenario needs rectification.

The EU's 3rd category preferred products

The EU’s third 50 preferred products and Pakistan’s status are provided in Table 4.31 (c).

Table 4.31 (c) The EU's 3rd 50 5-digit preferred products and Pakistan’s positioning: 65-category

(2007-11 average)

S. No. EU 5-digit preferred

products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking

(in number)

101 65174 0.161 0.000 156

102 65245 0.161 0.059 024

103 65134 0.150 0.032 040

104 65383 0.149 0.000 135

105 65731 0.147 0.000 136

80

106 65329 0.147 0.001 113

107 65164 0.142 0.000 154

108 65792 0.137 0.000 167

109 65325 0.136 0.000 126

110 65253 0.136 0.002 095

111 65192 0.134 0.000 180

112 65241 0.132 0.127 013

113 65848 0.130 0.009 060

114 65949 0.128 0.002 088

115 65442 0.125 0.002 087

116 65389 0.125 0.000 143

117 65642 0.122 0.000 157

118 65187 0.122 0.015 048

119 65632 0.120 0.002 092

120 65264 0.114 0.003 076

121 65512 0.112 0.002 098

122 65112 0.110 0.000 188

123 65143 0.109 0.000 141

124 65759 0.099 0.005 070

125 65175 0.098 0.000 209

126 65244 0.098 0.009 058

127 65929 0.096 0.010 056

128 65419 0.096 0.000 142

129 65381 0.090 0.003 078

130 65511 0.088 0.000 148

131 65334 0.087 0.096 019

132 65181 0.079 0.001 123

133 65832 0.078 0.030 042

134 65114 0.078 0.000 205

135 65434 0.077 0.000 198

136 65265 0.077 0.008 061

137 65719 0.077 0.000 203

138 65119 0.076 0.000 176

139 65223 0.076 0.089 021

140 65224 0.075 0.190 009

141 65191 0.074 0.000 169

142 65332 0.074 0.144 010

143 65785 0.073 0.000 164

144 65791 0.069 0.000 217

145 65824 0.067 0.000 192

146 65131 0.064 0.002 082

147 65263 0.062 0.007 066

81

148 65831 0.061 0.000 131

149 65839 0.060 0.003 081

150 65641 0.060 0.000 170

* Names of the products may be seen in Annexure III (b)

The study of the table reveals that as far as the EU’s third preferred products list is

concerned, products with code 65164, 65174, 65642, 65785, 65792, 65191, 65641,

65119, 65192, 65112, 65824, 65434, 65719, 65114, 65175 and 65217 fall in Pakistan’s

fourth and fifth preferred products lists; such Pakistani products should be upgraded to

the EU’s standards. On contrary, some of Pakistan’s highest important-products

(65224, 65332, 65241, 65334, 65223, 65245, 65134, 65832 and 65187), which should

have a place in the EU’s highest important products lists, are placed in the EU’s third

preferred products list. Pakistan can improve the status of these products by quality

improvement.

The EU's 4th category preferred products

Table 4.31 (d) presents the EU’s fourth 50 preferred products and Pakistan’s position.

Table 4.31 (d) The EU's 4th 50 5-digit preferred products and Pakistan’s positioning: 65-category

(2007-11 average)

S. No. EU 5-digit

preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan Average share

in EU’s imports

Pakistan’s ranking

(in number) 151 65197 0.058 0.000 212 152 65614 0.057 0.001 112 153 65823 0.054 0.000 194 154 65450 0.053 0.001 116 155 65712 0.051 0.000 129 156 65930 0.050 0.038 037 157 65611 0.049 0.000 149 158 65116 0.046 0.000 187 159 65735 0.046 0.000 202 160 65629 0.046 0.004 071 161 65296 0.045 0.004 073 162 65213 0.043 0.059 026 163 65811 0.043 0.015 050 164 65254 0.043 0.122 014 165 65292 0.043 0.011 054 166 65651 0.042 0.008 064 167 65740 0.041 0.001 103 168 65183 0.039 0.002 086 169 65899 0.038 0.001 100 170 65176 0.037 0.001 118 171 65495 0.037 0.001 111 172 65351 0.036 0.000 128 173 65494 0.035 0.005 069 17 65781 0.035 0.000 163

82

175 65493 0.035 0.008 063 176 65382 0.033 0.000 173 177 65819 0.033 0.031 041 178 65121 0.033 0.009 059 179 65812 0.032 0.051 030 180 65193 0.031 0.000 211 181 65199 0.031 0.030 043 182 65435 0.031 0.000 193 183 65225 0.030 0.023 044 184 65251 0.029 0.117 015 185 65294 0.028 0.055 027 186 65142 0.026 0.000 139 187 65161 0.024 0.000 130 188 65132 0.024 0.003 080 189 65293 0.024 0.000 166 190 65297 0.024 0.008 062 191 65298 0.023 0.011 055 192 65844 0.021 0.013 052 193 65433 0.021 0.000 215 194 65291 0.020 0.043 035 195 65122 0.020 0.000 150 196 65772 0.019 0.001 122 197 65261 0.019 0.052 028 198 65391 0.014 0.000 213 199 65411 0.013 0.001 102 200 65313 0.013 0.001 104

* Names of the products may be seen in Annexure III (b)

The EU's 5th category preferred products

Table 4.31 (e) provides the EU’s last preferred products and Pakistan’s ranking.

Table 4.31 (e) The EU's 5th 5-digit preferred products and Pakistan’s positioning: 65-category

(2007-11 average)

S. No. EU’s 5-digit

preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking

(in number)

201 65491 0.012 0.002 099

202 65185 0.012 0.000 159

203 65214 0.011 0.137 012

204 65492 0.011 0.000 216

205 65761 0.010 0.000 144

206 65891 0.010 0.000 137

207 65226 0.009 0.091 020

208 65496 0.008 0.018 046

209 65762 0.007 0.000 191

210 65497 0.007 0.007 065

211 65212 0.006 0.228 006

212 65144 0.005 0.000 127

213 65194 0.005 0.000 190

83

214 65177 0.004 0.000 210

215 65295 0.003 0.049 032

216 65643 0.002 0.000 132

217 65115 0.002 0.000 206

* Names of the products may be seen in Annexure III (b)

Similar to the situation discussed earlier in case of the EU’s 3rd category preferred

products, around one and a half dozen Pakistan’s best products (65212, 65214, 65254,

65251, 65226, 65213, 65294, 65261, 65812, 65295, 65291, 65930, 65819, 65199,

65225, 65496 and 65811) could not get their due share in the EU’s top preferred

products and are lying in the EU’s last two preferred lists of products. All major

stakeholders (manufacturers, traders, and policy makers) must notice seriousness of the

situation.

4.3.3 Identification major 5-digit products: the case of 84-category The EU's 1st category preferred products

4.3.3.1 Annexure III (c) analyzes the EU’s preferred demand for various 5-digit 84-

category textiles products, and Pakistan’s products positioning according to her share in

the EU market. Key results of the annexure III (c) are reproduced and discussed in the

following paragraphs. Table 4.32 (a) reveals that only three Pakistani products (84140,

84629 and 84371) attain positions in the EU’s first 20 preferred products list. So

Pakistan needs to retain her position in these products in the EU’s import market.

Table 4.32 (a) The EU's 1st 20 5-digit preferred products and Pakistan’s positioning: 84-category

(2007-11 average)

S. No. EU 5-digit preferred

products (code*) EU’s average imports

(billion US dollar)

Pakistan Average share in

EU’s imports Pakistan’s ranking

(in number) 1 84530 19.961 0.006 39

2 84540 17.478 0.006 38

3 84140 13.506 0.040 07

4 84260 12.109 0.018 21

5 84270 5.725 0.001 80

6 84151 4.946 0.002 64

7 84240 4.884 0.001 66

8 84551 3.531 0.000 94

9 84219 3.498 0.002 61

10 84119 3.286 0.004 46

11 84211 3.043 0.001 82

12 84629 3.035 0.028 14

13 84426 3.013 0.014 25

14 84230 2.920 0.003 57

84

15 84470 2.877 0.004 45

16 84512 2.811 0.003 51

17 84424 2.740 0.001 67

18 84250 2.611 0.009 32

19 84482 2.587 0.001 74

20 84371 2.455 0.022 15

* Names of the products may be seen in Annexure III (c)

4.3.3.2 However, the majority of the EU’s first category preferred products seem to

have less importance in Pakistan’s imports to the EU. For instance, products with code

84211 and 84551 belong to Pakistan’s lowest important (fifth level category products);

and products with code 84219, 84151, 84240, 84424, 84482 and 84270 fall in

Pakistan’s second last important category product. These facts warrant attention of

Pakistan’s textiles and clothing manufacturer, exporters and policy makers for

improving quality for meeting the EU’s standards.

The EU's 2nd category preferred products

Table 4.32 (b) provides the EU’s second 20 preferred products and Pakistan’s status.

Table 4.32 (b) The EU's 2nd 20 5-digit preferred products and Pakistan’s positioning: 84-category

(2007-11 average)

S. No.

EU 5-digit preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking

(in number)

21 84130 2.267 0.005 43

22 84811 2.133 0.124 03

23 84599 1.834 0.004 48

24 84822 1.755 0.002 62

25 84381 1.626 0.005 42

26 84522 1.584 0.003 55

27 84589 1.559 0.015 22

28 84587 1.402 0.012 27

29 84621 1.387 0.000 86

30 84523 1.356 0.001 65

31 84843 1.340 0.001 68

32 84511 1.338 0.008 35

33 84612 1.263 0.001 71

34 84410 1.262 0.005 44

35 84483 1.249 0.011 28

36 84121 1.213 0.000 93

37 84564 1.176 0.000 89

85

38 84821 1.116 0.008 34

39 84112 1.001 0.004 47

40 84844 0.971 0.001 79

* Names of the products may be seen in Annexure III (c)

It is apparent from the table above that the EU’s second preferred products with code

84121, 84564, 84621, 84844, 84612, 84843, 84523, and 84822 belong to Pakistan’s the

two lowest important products lists; this fact needs attention of stakeholders.

The EU's 3rd category preferred products

The EU’s third 20 preferred products and Pakistan’s status are provided in Table 4.32

(c).

Table 4.32 (c) The EU's 3rd 20 5-digit preferred products and Pakistan’s positioning: 84-category

(2007-11 average)

S. No EU 5-digit preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan Average share

in EU’s imports

Pakistan’s ranking (in number)

41 84324 0.955 0.035 12

42 84813 0.775 0.003 54

43 84812 0.757 0.127 02

44 84619 0.707 0.007 37

45 84591 0.682 0.015 24

46 84159 0.665 0.003 56

47 84691 0.662 0.069 05

48 84310 0.651 0.018 19

49 84693 0.618 0.001 81

50 84423 0.608 0.006 40

51 84692 0.493 0.077 04

52 84521 0.492 0.000 87

53 84122 0.483 0.003 50

54 84289 0.469 0.028 13

55 84831 0.463 0.002 59

56 84382 0.455 0.013 26

57 84552 0.451 0.001 70

58 84425 0.433 0.003 52

59 84613 0.389 0.000 88

60 84489 0.389 0.009 31

* Names of the products may be seen in Annexure III (c)

86

The study of the table reveals that the EU’s third preferred products with code 84613,

84521 and 84693 belong to the Pakistan’s lowest important products list. Some of

Pakistan’s highest important-products (84812, 84692 and 84691) belong to the EU’s

third preferred products list, indicating that these products have good potential to be

worked on to take them to the EU’s highest important products list. The stakeholders

should give the highest priority to this proposition.

The EU's 4th category preferred products

Table 4.32 (d) presents the EU’s fourth 20 preferred products and Pakistan’s position.

Table 4.32 (d) The EU's 4th 20 5-digit preferred products and Pakistan’s positioning

(2007-11 average)

S. No. EU 5-digit preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking (in number)

61 84379 0.385 0.022 16

62 84111 0.355 0.001 78

63 84614 0.351 0.040 09

64 84282 0.351 0.015 23

65 84622 0.326 0.001 77

66 84699 0.321 0.002 58

67 84222 0.307 0.037 11

68 84221 0.298 0.010 30

69 84524 0.242 0.001 72

70 84323 0.242 0.051 06

71 84422 0.237 0.007 36

72 84562 0.218 0.001 83

73 84123 0.212 0.020 18

74 84161 0.201 0.008 33

75 84561 0.159 0.001 69

76 84322 0.151 0.018 20

77 84169 0.148 0.139 01

78 84162 0.137 0.021 17

79 84563 0.120 0.000 90

80 84829 0.092 0.006 41

* Names of the products may be seen in Annexure III (c)

The table reveals that the EU’s preferred products with code 84563, 84562, 84111,

84622, 84524 and 84561 fall in Pakistan’s the lowest two important products lists. A

87

number of Pakistan’s highest important-products (84169, 84323, 84614, 84222, 84379,

84162, 84123 and 84322) belong to the EU’s fourth preferred products category, which

have the potential, and can be improved to meet the EU’s higher quality products list.

The EU's 5th category preferred products

Table 4.32 (e) provides the EU’s last preferred products and Pakistan’s ranking.

Table 4.32 (e) The EU's 5th 5-digit preferred products and Pakistan’s positioning

(2007-11 average)

S. No EU 5-digit preferred products (code*)

EU’s average imports

(billion US dollar)

Pakistan

Average share in EU’s imports

Pakistan’s ranking

(in number)

81 84389 0.085 0.038 10

82 84581 0.085 0.001 73

83 84421 0.085 0.011 29

84 84481 0.085 0.001 75

85 84849 0.073 0.000 85

86 84848 0.069 0.000 91

87 84842 0.064 0.001 84

88 84819 0.061 0.040 08

89 84321 0.057 0.004 49

90 84281 0.043 0.000 92

91 84845 0.039 0.001 76

92 84611 0.038 0.003 53

93 84832 0.022 0.002 60

94 84592 0.016 0.002 63

* Names of the products may be seen in Annexure III (c)

The table reveals that Pakistan’s highest important products with code 84819, 84389,

and 84421 fall in the EU’s least preferred products category. Such products have the

potential to get higher share in the EU market.

4.4 Effect of the EU’s tariff rates and her policies on textiles and clothing imports from Pakistan

In the first three sections of this chapter the European Union market and its importance

for Pakistan’s textiles and clothing imports was analyzed; and major competition to

Pakistan’s textiles and clothing imports in the EU market and EU’s preferred demand

for various 5-digit textile products, and Pakistan’ status was identified and discussed.

88

In this section, effect of the EU’s tariff rates and her other trade policies on textiles and

clothing imports from Pakistan is analyzed and discussed, which addresses third and

fourth objectives (to study tariff and non tariff barriers to Pakistan’s textiles and

clothing export in markets of both Pakistan and the EU; and to review the EU’s policy,

in general and its effects on Pakistan’s textiles and clothing export, in particular) and

the corresponding hypotheses (there are minimal tariff and non-tariff barriers to

Pakistani textiles and clothing import in the EU market; and the EU’s trade policies are

fairly competitive and encouraging to Pakistan’s textiles and clothing imports to the

EU) of the research.

4.4.1 Effect of tariff rates on Pakistan’s textiles and clothing imports to the EU

Effect of tariff on overall textiles and clothing

4.4.1.1 Table 4.43 provides data on simple average tariff rates along with its minimum

and maximum ranges and number of total lines on which tariff were imposed during

the 1988-2011 period.

Table 4.33 Data on the EU's tariff policy regarding Pakistan’s textiles and clothing import

Year Simple average

Minimum rate

Maximum rate

No. of total lines

1988 0.00 0.00 0.00 766 1989 0.00 0.00 0.00 760 1990 6.02 0.00 58.00 769 1991 15.75 0.00 32.40 827 1992 0.53 0.00 25.50 863 1993 0.44 0.00 14.00 868 1994 16.13 0.00 29.00 865 1995 18.98 0.00 35.10 877 1996 18.91 0.00 28.90 1187 1997 21.24 2.70 32.80 1137 1998 18.66 0.20 28.83 1206 1999 20.13 0.00 31.30 1208 2000 17.70 0.00 26.10 1168 2001 16.99 0.00 25.90 1192 2002 0.05 0.00 4.00 1180 2003 0.00 0.00 0.00 1288 2004 0.33 0.00 14.80 1359 2005 18.27 0.00 29.30 1324 2006 15.42 0.00 23.40 1354 2007 15.68 0.00 23.40 1300 2008 15.33 0.00 23.40 1314 2009 15.33 0.00 23.40 1284 2010 15.15 1.60 23.40 1284 2011 15.52 0.00 23.40 1247

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The study of the table 4.33 reveals that the EU’s average tariff rates on overall textiles

and clothing, which values zero during 1988, increased to a maximum level of 21.24

percent during 1997, and then declined to 15.52 percent during 2011. Though the

average tariff during the study period (1988-2011) remained at 11.77 percent, these

have been varied a lot, ranging between minimum of zero percent to a maximum of

21.24 percent.

In addition, number of total lines, on which tariff were imposed, increased from

minimum of 760 during 1989 to 1247 during 2011; the average number of tariff lines

remained 1109, with standard deviation of 215.48.

Effect of the EU’s tariff across various textiles and clothing categories 4.4.1.2 Table 4.34 presents the EU’s tariff imposed on various categories of Pakistan’s

textiles and clothing, namely 26, 65 and 84. Table 4.34

The EU's tariff on Pakistan’s textiles and clothing imports across various categories

Year 26-category textiles 65-category textiles 84-category textiles Tariff rate

No. of total lines

Tariff rate

No. of total lines

Tariff rate

No. of total lines

1988 0.000 32 0.000 399 0.000 335 1989 0.000 34 0.000 406 0.000 320 1990 2.370 33 1.150 415 2.500 321 1991 0.070 32 7.850 457 7.830 338 1992 0.180 33 0.010 467 0.340 363 1993 0.000 26 0.000 485 0.440 357 1994 0.000 29 8.240 481 7.890 355 1995 0.670 29 8.150 490 10.160 358 1996 1.290 40 7.780 709 9.840 438 1997 0.940 32 8.680 671 11.620 434 1998 1.350 22 7.430 735 9.880 449 1999 0.880 21 8.150 743 11.100 444 2000 1.110 27 7.130 690 9.460 451 2001 0.590 22 7.000 713 9.400 457 2002 0.000 25 0.000 687 0.050 468 2003 0.000 25 0.000 787 0.000 476 2004 0.260 30 0.030 836 0.040 493 2005 1.370 34 6.220 828 10.68 462 2006 1.110 28 5.820 855 8.490 471 2007 1.310 31 5.820 816 8.550 453 2008 1.060 30 5.760 833 8.510 451 2009 1.060 27 5.760 807 8.510 450 2010 0.850 28 5.800 804 8.500 452 2011 1.170 28 5.830 768 8.520 451

Table 4.34 reflects that the mean value of the EU tariff imposed on 26-category textiles

has remained 0.74 percent, which ranged between a minimum of zero and a maximum

of 2.37 percent during the study period 1988-2011. This average tariff has remained

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effective on an average of 29.08 number of tariff lines, which ranged between a

minimum-maximum of 21-40 tariff lines.

Average value of the EU tariff imposed on 65-category textiles has remained 4.69

percent, which ranged between a minimum of zero and a maximum of 8.68 percent

during the study period. While the average tariff has been imposed on 661.75 number

of tariff lines, on average, which ranged between a minimum of 399 to a maximum of

855 tariff lines.

Whereas the EU tariff imposed on 84-category textiles has remained 6.35 percent, on

average, which ranged between a minimum of zero and a maximum of 11.62 percent

during 1988 to 2011. This average tariff has remained effective on an average of

418.63 number of tariff lines, which ranged between a minimum-maximum of 320 to

493 tariff lines.

It reflects that the average tariff imposed on 26-category textiles, which remains at 0.74

percent (maximum 2.37 percent), increases to an average of 4.69 percent (maximum

8.68 percent) on 65-category textiles and 6.35 percent (maximum 11.62 percent) on 84-

category textiles. This means that the EU’s tariff rates have increased as long as textiles

and clothing products value addition occurs from the primary/raw cotton stage to the

semi processed and processed products level. This type of tariff escalation has been

forbidden for encouraging free trade as per the WTO agreements.

4.4.2 The EU’s trade policies and Pakistan’s textiles and clothing imports

Although the effect of different rates of tariffs on overall textile, as well as its

component categories (26, 65 and 84) have already been analyzed and presented in the

preceding sub-section 4.3.1, there is still a need of discussing the EU’s various trade

policies, which differentiate among various the EU’s trade partners.

The EU’s trade policies: Generalised System of Preferences (GSP)

4.4.2.1 The enabling clause adopted in the Tokyo round and the Article XXIV of the

GATT provide an option of preferential treatment to developing countries otherwise all

WTO member countries are required to act under the Most Favoured Nation (MFN)

principle. The EU’s Generalised System of Preferences (GSP) operates under the two

said rules. The GSP allows market access to the developing nations with non-reciprocal

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tariff concessions either in the form of zero and/or reduced tariffs. In 1968 the United

Nations Conference on Trade and Development (UNCTAD) provided the idea of GSP

for the developed countries, so that these countries provide trade preference to the

developing partners. Following this, in 1971 the EU implemented its GSP scheme for

the first time for the period of in the 10-year’s framework. The second period of such

framework was 1981-1991. The previous 10-year cycle began in 1995 and it expired in

2005. The current (fourth) 10-year cycle covers the time of 2006 to 2015. 3 Each GSP

working within the framework of ten year expires every three years. The latest GSP

applied to 176 countries and it came into force on Jan 2009 and remained effective until

end of 2011 under the EU’s regulation no 732/2008. Regulation (EU) No 978/2012 of

the European Parliament and of the Council provides legal basis for the new GSP,

which will come into force on Jan 2014.

There are three key variants of the GSP, the general GSP scheme, the Everything But

Arms (EBA) initiative that allows preference to least developed countries (LDCs) on

other developing countries and the GSP plus initiative given to some countries for

labor, human, environmental and good governance rights.

According to the EU’s regulation no 732/2008, which regulates the EU’s imports for

the period 2009-2011, provides coverage for 7200 products. This regulation talks about

three schemes namely, general/standard arrangements, GSP+ arrangements and EBA

(LDCs) arrangements. The total of 6350 products, listed in annexure II attached with

the said EC’s regulation, are covered under general arrangements while 6400 products

are covered under GSP+ arrangements and all products in HS chapters 1-97 except

chapter 93 in arms are covered under EBA (LDCs) arrangements. The products have

been categorised as sensitive and non-sensitive products in all the three GSP

arrangements. Non-sensitive products are eligible for the duty-free entry into the EU’s

ports while sensitive products enjoy duty free entry under EBA (LDCs) arrangement as

well as GSP+ arrangements. These sensitive products under standard GSP enjoy certain

concessions; these concessions are:

• Flate rate reduction of 3.5 percent point in the Most Favoured Nation (MFN)

applicable to ad valorem duty only.

3 trade.ec.europa.eu/doclib/docs/2004/march/tradoc_116448.pdf (6/21/2013)

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• 30 percent reduction in the MFN duty, where only specific duties apply.

• 20 percent reduction for textile and textile articles.

As far as, Pakistan is concerned, it is presently treated under general arrangements

while the countries which a number of Pakistan’s competitor-countries in textiles and

clothing are enjoying GSP+ and EBA status. Pakistan has recently applied for granting

of GSP+ status for the upcoming GSP (2014-16).

The EU’s trade policies: Non-tariff-barriers (NTBs)

4.4.2.2 Non-tariff barriers can simply be defined as the restrictions on imports in the

form of different policy measures (other than tariff) which adversely affect the trade

flows. Non-tariff barriers can be imposed internationally or domestically. Some

common examples of NTB's are import quotas, unreasonable standards for the quality

of goods, special licenses, bureaucratic delays at customs, limiting the activities of state

trading, export restrictions, export subsidies, rules of origin, sanitary and phyto-

sanitary measures, technical barriers to trade etc. The European Union specifically

demands improvements preferably in the following disciplines because of the fact that

certain countries use these as NTBs.

• Government procurement

• Services

• Investment

• Trade facilitation

• Trade defence

• Standards

• Intellectual Property Rights

• Competition Policy

• Rules of Origin

4.4.2.3 Pakistan has repeatedly raised concerns regarding the imposition of NTBs by

the EU’s in the above disciplines (CARIS, 2008 and WTO, 2008). Pakistan is also

worried about the existing and probable bilateral FTAs between EU and her partners,

which would provide competitive edge to counterparts of Pakistan in the EU market by

minimizing NTBs, particularly in the textiles and clothing sector. If FTA status is

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granted to competitors of Pakistan, this may increase pressures on Pakistan in the EU

market, particularly when Pakistan’s competitors get a preferential status for semi-

processed or highly-processed textiles (65-category and 84-category). Pakistan would

then experience a decrease in textile processing imports to the EU. Same is the case

with preferential rules of origin, especially in case of 65-category and 84-category

textile (CARIS, 2008).

4.4.2.3 In a detailed study on “the impact of trade policies on Pakistan's preferential

access to the European Union”, the researchers of “the Centre for the Analysis of

Regional Integration at Sussex (CARIS)” carried out a detailed analysis of the effect of

existing and probable the EU’s FTAs with its partners on Pakistan, and they also

developed a detailed database on NTBs, which reflects “the nature of the non-tariff

barrier, the coverage of the barrier in both bilateral trade and total trade and the degree

of revealed market access enjoyed by the interested parties in the target market. Using

these indicators, one can infer the restrictiveness of the barrier in terms of revealed

market access and coverage” (CARIS, 2008).

The above referred CARIS (2008) report mentions that a barrier which has been

identified by any complainant would be valid for any other country trying to have

access to the EU market; thus all barriers identified by any complainant in the database

would also largely apply to Pakistani access in the market. The database indicates 199

cases where there has been some NTBs issue raised against or by Pakistan or India

since the year 2000, and are potentially adverse. The report has specifically raised the

following points.

i. There are 99 cases of NTBs relating to the industry sector; this figure

includes 87 industry related identified cases of NTBs in the Indian

market and 12 in the EU market which could affect Pakistani exports to

the EU. Of these, Pakistan has raised concerns about the existence of

NTBs in the EU market in the textile sector. Pakistan’s concern regards

the use of ADD (Anti-Dumping Duty) and the softening of rules of

origin for textile products for preferential partners in the EU market

which might benefit other LDCs at their expense.

ii. The database identifies 16 cases of NTBs in manufacturing industries in

the Pakistani market. These are predominantly in the textile, clothing

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and footwear sectors and relate to concerns on the possible existence of

subsidies and burdensome licence requirements.

iii. The database identifies 27 entries in which the EU is the respondent

country. These entries potentially affect 39.97 percent of Indian

merchandise exports to the EU and 79.87 percent of Pakistani

merchandise exports to the EU. The barriers in the industrial sector

appear to be concentrated in the textile sector with particular issues

being raised by Pakistan on bed linen, and textiles and clothing. Pakistan

is concerned with the simplification of rules of origin (RoO) procedures

for preferential partners which may divert trade from Pakistan to other

countries. The importance of this sector (broadly identified as H2: 50-

65) is marked by the high export shares to the EU, which for India stand

at over 28 percent but for Pakistan at a high 73.52 percent.

iv. If an EU-India FTA comes into existence, India will improve its

competitiveness in the EU by reducing NTBs. In that situation,

Pakistan’s main concerns would be in the textiles and clothing sector.

Trade data indicators suggest that, in this sector, there is a rather high

degree of overlap between Pakistan’s trade and India’s trade which

suggests increased competitive pressures from India in the EU market.

Pakistan could also experience a decrease in textile processing trade

from the EU should the EU-India agreement grant India a preferential

status for textile processing.

v. The other areas where Pakistan might be adversely affected by a

possible EU-India FTA include services, investment, standards, and

preferential rules of origin (especially in textiles and clothing).

vi. There are substantial differences across the EU’s preferential regimes,

which differ greatly in degrees of concessions.

vii. Pakistan’s main competitors in the EU market are, in order of overall

magnitude: China, Turkey, Bangladesh, India, Tunisia, USA, Morocco,

Indonesia, Vietnam and Sri-Lanka. Most of these (except China and the

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USA) benefit or might benefit, as a consequence of EU trade policy,

from more favourable preferences than those extended to Pakistan.

viii. The sectoral analysis reveals that export competition in the EU market is

strongest from China, Turkey, India and Bangladesh and is mainly

concentrated in the textiles and clothing sectors.

ix. An investigation into the possible trade diverting effects of the EU-India

agreement on Pakistan highlights that an upper bound of 78 percent of

Pakistani exports to the EU could face increased competition. As a

corollary the possible displacement effects in the Indian market as a

result of the EU-India agreement indicate that up to 99 percent of

Pakistani exports to India could be subject to increased competition.

x. In a more disaggregated analysis it is found that competitive pressure

on Pakistani exports are highest in the textiles and clothing sectors and

primarily come from China, Turkey, India and Bangladesh. Given that

the last three receive or might receive improved preferences relative to

Pakistan, it is apparent that this could have some negative impact on

Pakistan’s top 15 exports to the EU. The effects are likely to be

concentrated in these sectors which occupy over 45 percent of total

Pakistani exports to the EU.

xi. An analysis of Pakistan’s top 30 products exported to the EU (Table

4.11; CARIS (2008)) reveals that almost 63 percent of the total trade

that could be affected by trade diversion. The products potentially most

severely affected are likely to be textile, fabrics and different types of

garments, which are having substantial share in the EU market.

Pakistan will remain vulnerable to NTMs, for instance, 13 percent anti-dumping duty

imposed on import cotton-type bed linen in the past (2004), unless she is granted with a

GSP+ status or EU engages her in a FTA. The company which was exporting the said

product to EU put claim against the anti-dumping duty which was later on reduced to

5.6 percent.

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4.5 Future prospects and outlook

4.5.1 Future prospects based on research findings

The analysis carried out in the preceding sections provides a good background for

having an idea about the future prospects and outlook of the EU’s imports from

Pakistan. A bird’s eye view of the analysis of previous sections helps draw some

important conclusions, namely:

i. That, there exists a strong correlation between the EU’s total textiles and

clothing imports and her imports from Pakistan, and same is true for the three

major textiles and clothing categories (26, 65 and 84). Of the three categories of

textiles, only EU 26 category textiles and clothing imports and her imports from

Pakistan are co-integrated, suggesting long-run relationship, while in the other

two category textiles, 65 and 84, the EU total imports and her imports from

Pakistan do not exhibit long-run relationship. However, it is good for Pakistan

that her rates of growth in 65 and 84 categories of textiles imports by the EU are

relatively higher than the EU’s own total imports. Pakistan needs to maintain

not only its present growth rates but she should also make efforts to get more

shares, especially in 65 and 84 category textiles in EU market, as these two

category belong to value added textiles.

ii. That, the study identifies 45, 217 and 94 the EU’s preferred 5-digit products

belonging to 26, 65 and 84 categories of textiles, respectively, and reveals that

only eight Pakistani 5-digit 26-category products (with SITC codes 26339,

26310, 26902, 26490, 26721, 26901, 26652 and 26711) fall in the EU’s first 20

preferred products, while the remaining 12 the EU’s preferred products belong

to Pakistan’s relatively less preferred products list. In case of 217 5-digit 65-

category products, only 14 Pakistani products (65843, 65841, 65842, 65221,

65847, 65234, 65133, 65243, 65851, 65232, 65242, 65184, 65892, and 65859)

have got positions in the EU’s first 50 preferred products list. The majority of

the EU’s first category preferred products seem to have less importance in

Pakistan’s imports to the EU. In case of the EU’s preferred 5-digit 84-category

textiles products, only three Pakistani products (84140, 84629 and 84371) have

attained positions in the EU’s first 20 preferred products list. The majority of

the EU’s first category preferred products seem to have less importance in

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Pakistan’s imports to the EU. For instance, products with code 84211 and

84551 belong to Pakistan’s lowest important (fifth level category products); and

products with code 84219, 84151, 84240, 84424, 84482 and 84270 fall in

Pakistan’s second last important category product. These facts warrant attention

of Pakistan’s textiles and clothing manufacturer, exporters and policy makers

for improving quality for meeting the EU’s standards.

iii. That, the EU has imposed different levels of tariffs based on the primary

commodities, semi-processed and processed products, and these rates are

enhanced along with the levels of processing. In our case, such increasing level

of the EU’s tariff affects our 26-category, 65-category and 84-category textiles.

In addition to the discriminatory effects of the increasing level of the EU’s

tariff, the EU has put various countries in three different schemes of

Generalised System of Preferences (GSP) namely, standard GSP arrangements,

GSP+ and EBA. Pakistan imports to the EU are presently facing the general

GSP arrangements, and is not benefiting from the other two relatively more

beneficial schemes, presently available to a number of Pakistan’s competitors.

iv. That, Pakistan understands that her imports to the EU are subject to a number of

non-tariff barriers (NTBs) including especially various standard procedures set

under WTO’s agreements in disciplines like government procurement, services,

investment, trade facilitation, trade defence, standards, intellectual property

rights, competition policy, and rules of origin. From Pakistan’s point of view, if

the EU goes for having FTAs with some of Pakistan’s competitors, Pakistan

would face serious adverse effects due especially to the WTO related standard

procedures, as the EU would want that every partner of the EU in FTA adopt

the standard procedures set under various WTO agreements.

4.5.2 Determinants of profitability of Pakistan’s textiles manufacturing companies

4.5.2 The facts narrated in the preceding sub-section 4.5.1 suggest that the EU’s

imports from Pakistan have potential to improve Pakistan’s textiles and clothing

industry. To econometrically test this proposition, we collected data on profitability and

its determinants of 105 textiles manufacturing companies operating in Pakistan, and

analyzed using the following econometric model (refer to eq. 3.7, chapter 3).

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NPTA= β0 + β1TLSTA + β2TESTA + β3TDBTA + β4TDTA + β5TRTA + e (4.7)

Where NPTA represents net operating profit and is assumed to be determined

by total sales including local sales (TLSTA) and export sales (TESTA), total

debt (TDBTA) and, dividend payout and retained earnings policy variables

(TDTA and TRTA).

i. The descriptive statistics on variables contained in the above model (4.7) and

some other related variables are provided in table 4.35.

Table 4.35 Descriptive statistics: Variables on textiles manufacturing industries (million Rupees)

Variable Minimum Maximum Mean Std. Deviation

Total assets 104.820 537141.920 10018.5014 5.262E4

Total debt 55.255 339712.027 6293.661 3.329E4

Total equity 49.565 197429.893 3724.841 1.943E4

Total_sales 153.717 550067.122 10100.978 5.353E4

Local_sales 11.862 236164.834 4544.833 2.307E4

Export_sales 0.000 313902.288 5556.145 3.063E4

Net_profit_before_tax 0.243 24451.354 542.090 2420.355

Total_dividend 0.000 4111.749 79.142 410.417

Retained_earnings 0.000 15022.143 369.198 1501.091

ii. The data on the variables contained in model 4.7 have first been converted into

the ratios of total assets, and then used to estimate the model. The empirical

results of the estimated model are provided, as follows.

NPTA= 0.006+ 0.009TLSTA+0.009TESTA-0.011TDBTA+1.027TDTA+0.960TRTA+e (1.565) (7.164) (5.250) (-1.937) (16.706) (54.989)

(0.121) (0.000) (0.000) (0.056) (0.000) (0.000)

R2 = 0.984, R2-adj. = 0.983, F = 1182.359 (p value = 0.0000), Dw = 1.788

The model gives a good fit (F= 1182.359 with significance level = 0.00). R2 =

0.984 indicates that 98.40 percent variation in the dependant variable (NPTA)

has been explained by variations in the explanatory variables included. Dw =

1.788 is higher than Du= 1.780 which though shows no autocorrelation problem,

however, we here take this value to indicate that the model is not mis-specified

(Gujarati, 2007; p.486). VIF values of each of the explanatory variables fall

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below 2 indicating that the explanatory variables have no multicollinearity

problem.

All explanatory variables are statistically significant and carry expected signs.

Both local and export sales (TLSTA and TESTA) appear to contribute

positively. Debt to assets ratio (TDBTA) affects profitability negatively.

Dividend payout (TDTA) practices and retained earnings (TRTA) policies of

the companies positively contribute towards profitability of the firms.

It is worth mentioning that average total sale of Rs. 10100.98 million per year

per company consists of 45 percent of local and 55 percent of export sales

components. And export sales statistically significantly contribute towards

profitability of the textile manufacturing companies. These two facts support the

proposition that further advancement in textile exports sector would help in the

development and growth of textile industry of Pakistan.

4.5.3 In light of the facts narrated in the preceding sub-sections, it can be said that the

EU’s imports from Pakistan would be having good future prospects and outlook when

Pakistan fulfils certain prerequisites, including the following ones.

i. Average total sale of manufacturing countries is Rs. 10100.98 million per year

per company, which consists of 45 percent of local and 55 percent of export

sales components. And export sales statistically significantly contribute

towards profitability of the textile manufacturing companies. These two facts

support the proposition that further advancement in textile exports sector

would help in the development and growth of textile industry of Pakistan.

ii. Of the three major categories (26, 65 and 84) of textiles and clothing imports to

the EU, Pakistan’s performance seems relatively satisfactory especially in

cases of 26; while the imports of 65-category textiles and 84-category textiles

would need to be given priority from Pakistan’s stand point, being the value

added products. Pakistani stakeholders (manufacturers, exporters and

government policy makers) would have to take the required steps, preferably in

this area.

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iii. In case of the individual major categories of textiles (26, 65 & 84), the

following 5-digit products, being the EU most preferred products, would have

to be given priority, in particular.

a. The eight Pakistani 5-digit 26-category products (SITC codes: 26339,

26310, 26902, 26490, 26721, 26901, 26652 and 26711) have attained

positions in the EU’s first 20 preferred products list, while remaining

12 the EU’s preferred products (Table 4.30a) have fallen into

Pakistan’s relatively less preferred products list; Pakistan should

improve the quality of these products to attain better position in the

EU’s 5-digit 26-category market.

b. In case of 217 5-digit 65-category products, only 14 Pakistani products

(65843, 65841, 65842, 65221, 65847, 65234, 65133, 65243, 65851,

65232, 65242, 65184, 65892, and 65859) have got positions in the

EU’s first 50 preferred products list; the remaining 36 the EU’s first

category preferred products (Table 4.31a) should now be having

attention of Pakistani stakeholders.

c. In case of the EU’s preferred 5-digit 84-category textiles products, only

three Pakistani products (84140, 84629 and 84371) have attained

positions in the EU’s first 20 preferred products list; the remaining 17

products (Table 4.32a) should be given attention for a greater value-

added import of the EU from Pakistan.

iv. The EU policy makers would have to be persuaded by Pakistani policy makers

that the EU policy of imposing increasing rate of tariffs –escalation of tariff –

from raw commodities (26-category) to semi-processed and processed products

(65 and 84-categories textiles) is detrimental and discouraging to value-

addition textiles trade from Pakistan. The EU’s officials and their Pakistani

counterparts should also take note of the concern that the EU has put Pakistan

at disadvantage comparing to its competitors, by putting Pakistan in the

Generalised System of Preferences (standard GSP arrangements) and some of

Pakistan’s serious competitors in more advantageous GSP+ and EBA schemes.

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v. The EU’s officials and their Pakistani counterparts should also settle the

problem of the existence of various non-tariff barriers (NTBs), and especially

the affairs relating to the adoption of various standard procedures set under

WTOs agreements in the disciplines of government procurement, trade in

services, investment, trade facilitation, trade defence, products and processes

quality standards, intellectual property rights, competition policy, and rules of

origin.

vi. The EU should particularly be careful while she goes for having FTAs with

some of Pakistan’s competitors (particularly India, Bangladesh and Sri Lanka)

as Pakistan would, in that case, face serious adverse effects due especially to

the non- or partial-adoption of the stated WTO related standard procedures.

vii. Pakistani stakeholders, especially the government, would have to take

appropriate steps for an early and extensive adoption of WTO’s agreements,

and related standards and standard procedures. It is highly recommended to

bring improvement in the areas of labour rights, human rights, environment,

and good governance, on the basis of which Pakistan may become capable of

attaining the GSP plus status in the EU.

viii. Pakistani stakeholders (manufacturers, exporters and policy makers) would

have to adopt the required and up-to-date quality standards (relating to the

product, process and packaging) while keeping costs under control.

ix. Government of Pakistan, in particular, should take arrangements for having

inflation in control and making availability of inputs and resources ensured.

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V. SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary of findings

5.1.1 The European Union (EU) acts as a major trading block responsible for an

average of 30.76 percent of total world general imports trade (2000 – 2011). As far as

textiles and clothing imports are concerned, the EU accounts for 4.59 percent of total

global general imports and 37.95 percent of the world textile and clothing imports. The

EU’s share of textiles and clothing imports increased from 32.15 percent during 2000

to 44.05 percent during 2011.

5.1.2 The three major categories of textiles and clothing include: textile fibres (code:

26 category textile and clothing), textile yarn and fabrics (65-category), and clothing

(84-category). On average (2000-2011), the global imports of textiles and clothing

consisted of 5.70 percent of textile fibres, 38.01 percent of textile yarn and fabrics and

56.29 percent of clothing. The EU’s averages remained 5.28 percent of textile fibres,

36.51 percent of textile yarn and fabrics and 58.20 percent of clothing. In case of

imports of textiles and clothing to the EU, shares of textile yarn and fabrics (65-

category) textiles decreased while that of textile fibres (26-category) and clothing (84-

category) increased over the 2000-2011 period.

5.1.3 An analysis of the data for the period 1988 – 2011, it is found that Pakistan’s

share in the EU general import market increased from 0.13 percent to 0.16 percent.

There has remained a very strong correlation (Pearson correlation coefficient r = 0.907

at p < 0.01) between the EU’s total general world imports and her imports from

Pakistan. As far as the EU’s total textiles imports and her imports from Pakistan are

concerned, Pakistan’s total textiles and clothing imports in the EU accounted for, on

average, 2.55 billion US$ per year during 1988 – 2011 period; Pakistan’s share in the

EU imports of textile and cotton remained at 1.1 percent, on average, during 1988 to

2011. There remained a statistically significant correlation (r = 0.982 at p < 0.01)

between the EU’s total textiles imports and her imports from Pakistan.

5.1.4 The EU’s textile imports from Pakistan remained 0.953 billion US$ (consisting

of 0.192 billion US$ of 26-category textiles, 0.462 billion US$ of 65-category textiles

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and 0.299 billion US$ of 84-category textiles) during 1988, and increased to 5.710

billion US$ (consisting of 0.142 billion US$ of 26-category textiles, 2.957 billion US$

of 65-category textiles and 2.611 billion US$ of 84-category textiles) during 2011.

5.1.5 The trend analysis of the EU’s textiles global imports and her imports from

Pakistan for all the three major categories indicate that:

(a) Against the EU’s 0.8 percent negligible and insignificant decrease in 26-

category textiles imports per year during 1988 – 2011, Pakistan’s 26-

category textiles imports to the EU decreased at a higher and significant

rate of 2.6 percent per year.

(b) Against the EU’s 2.90 percent increase in 65-category textiles imports

per year during 1988 – 2011, Pakistan’s 65-category textiles imports to

the EU increased at a higher rate of 7.10 percent per year.

(c) Against the EU’s 6.30 percent increase in 84-category textiles imports

per year during 1988 – 2011, Pakistan’s 84-category textiles imports to

the EU increased at a higher rate of 7.2 percent per year.

5.1.6 The unit roots analysis (both ADF and PP tests) indicates that the data series on

the EU’s 26-caegory imports from Pakistan are stationary, while that of the EU’s world

imports are non-stationary. This rules out the possibility of regressing (use of OLS) one

26-category textile series over the other. In case of 65-category textiles, the data series

of EU’s imports from Pakistan as well as her total imports from the world are non-

stationary. In case of 84-category textiles, the EU’s imports from Pakistan have been

found having two-roots against her imports from the world, where the data series were

found having one unit root. Since, with the exception of 65-category textiles, the time

series relating to the other two cases of 26 and 84 categories were found different level

of unit roots, further analyses were resorted to checking through correlation and co-

integration analyses, instead of using OLS.

5.1.7 The Pearson correlation between the EU’s total textiles imports of 26-category

and her imports from Pakistan estimates at r = 0.684, with p < 0.01, suggesting that

there is a strong degree of association between the two variables. The Pearson’s

correlation between the EU’s total textiles imports of 65-category and her imports from

Pakistan estimates at r = 0.937, with p < 0.01, suggesting that there is a strong degree of

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association. The Pearson’s correlation between the EU’s total textiles imports of 84-

category and her import from Pakistan estimates at r = 0.984, with p < 0.01, suggesting

that there is a strong degree of association.

5.1.8 The co-integration analysis coupled with Error Correction Modeling (ECM)

suggests that there exists a long term co-movement between the EU’s 26-category

textiles imports and her imports from Pakistan, with short term effects.

In case of 65-category textiles, the EU’s total imports and her imports from Pakistan

were found non-stationary in the unit roots test, that is I(1). The co-integration analysis

has further proved that there exists no co-integration between 65-category EU’s total

textiles and clothing imports and her imports of 65-category textiles and clothing from

Pakistan.

In case of 84-category textiles, the EU’s total imports and her imports from Pakistan

were found having two different levels of unit roots. Hence, condition for carrying out

co-integration (same levels of unit roots) did not hold. The co-integration analysis

results also remained inconclusive. The two time series thus did not exhibit long-run

relationship, in pure statistical terms; though these were earlier found having strong

statistically significant Pearson correlation (r = 0.984, with p < 0.01).

5.1.9 Twenty countries (Germany, China, Belgium, Australia, Italy, UK, France,

Austria, Turkey, Spain, USA, Republic of Korea, Japan, South Africa, Ireland, New

Zealand, Argentina, India, Czech Republic, Netherlands, Denmark, Uruguay,

Kazakhstan, Indonesia, Switzerland, Romania, Poland and Pakistan) account for, on

average, 84 percent share of EU’s total import of 26-category textiles. A dummy

variable analysis of these 28 countries reveals that Germany, China, Belgium,

Australia, Italy, UK, France, Austria, Turkey, USA, Republic of Korea, Kazakhstan,

Indonesia and Romania pose significant competition and Spain, Japan, South Africa,

Ireland, New Zealand, Argentina, India, Czech Republic, Netherland, Denmark,

Uruguay, Poland and Switzerland pose insignificant competition to Pakistan in the

EU’s 26-ategory textiles imports market.

In case of 65-category textiles, 20 countries (Austria, Belgium, China, Czech Republic,

Denmark, France, Germany, India, Italy, Republic of Korea, Netherland, Pakistan,

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Poland, Portugal, Romania, Spain, Switzerland, Turkey, UK and USA) account for 85

percent share of EU’s total import. Of these, Austria, Belgium, China, Denmark,

France, Germany, India, Italy, Republic of Korea, Netherland, Poland, Portugal,

Romania, Switzerland, Turkey, USA have turned out significant competitors and Czech

Republic, Spain and UK insignificant competitors to Pakistan.

In case of 84-category textiles, 25 countries (Bangladesh, Belgium, Bulgaria,

Cambodia, China, Denmark, France, Germany, Hong Kong China, India, Indonesia,

Italy, Morocco, Netherland, Pakistan, Poland, Portugal, Romania, Spain, Sri Lanka,

Thailand, Tunisia, Turkey, UK and Vietnam) account for 89 percent share of EU’s total

import of 84-category textiles. Of these countries, Bangladesh, China, Germany, India,

Italy, and Turkey are significant and Belgium, Bulgaria, Cambodia, Denmark, France,

Hong Kong China, Indonesia, Italy, Morocco, Netherland, Pakistan, Poland, Portugal,

Romania, Spain, Sri Lanka, Thailand, Tunisia, UK and Vietnam insignificant

competitors to Pakistan.

5.1.10 The analysis of the 105 selected textile manufacturing companies’ sales reveals

that export sales account for 55 percent of their total annual sales. Analysis of the

profitability of textile manufacturing firms further reveal that export sales statistically

significantly contribute towards profitability of the firms. These two facts support the

proposition that further advancement in textile exports sector would help in the

development and growth of textile industry of Pakistan. This study has also identified a

number of textile products belonging to 26, 65 and 84 categories of textiles.

5.1.11 The analysis of textiles products identifies 45, 217 and 94 the EU’s preferred 5-

digit products belonging to 26, 65 and 84 categories of textiles, respectively. It is

revealed that eight Pakistani 5-digit 26-category products (with SITC codes 26339,

26310, 26902, 26490, 26721, 26901, 26652 and 26711) have attained positions in the

EU’s first 20 preferred products list, while remaining 12 the EU’s preferred products

have fallen into Pakistan’s relatively less preferred products list. This warrants that

Pakistan improve the quality of these products to attain better position in the EU’s 5-

digit 26-category market.

5.1.12 The 217 5-digit 65-category textiles products have further been divided into five

groups of 50 each in the first four groups and the remaining 17 in the group 5. Of these,

only 14 Pakistani products (65843, 65841, 65842, 65221, 65847, 65234, 65133, 65243,

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65851, 65232, 65242, 65184, 65892, and 65859) have got positions in the EU’s first 50

preferred products list. So Pakistan needs to retain her position in these products in the

EU’s import market. However, the majority of the EU’s first category preferred

products seem to have less importance in Pakistan’s imports to the EU. For instance,

products with code 65152, 65771, 65163, 65733, 65952, 65151, 65773, 65522, 65943,

65188, 65195, 65422, 65393, 65942, 65793, 65460, 65162 and 65113 belong to

Pakistan’s lowest two important (the fourth and fifth level) category products. These

facts necessitates that Pakistan brings improvement in these products to match them

with the EU’s consumers preferences. The EU’s second preferred list of 50 products

with code 65141, 65341, 65173, 65312, 65612, 65159, 65961, 65196, 65711, 65631,

65432, 65421, 65912, 65117, 65118 and 65431 belong to Pakistan’s the two lowest

important products lists; this discouraging scenario needs rectification. Similar to the

situation discussed earlier, around one and a half dozen Pakistan’s best products

(65212, 65214, 65254, 65251, 65226, 65213, 65294, 65261, 65812, 65295, 65291,

65930, 65819, 65199, 65225, 65496 and 65811) could not get their due share in EU’s

top preferred products and are lying in the EU’s last two preferred lists of products. All

major stakeholders (manufacturers, traders, and policy makers) must notice seriousness

of the situation.

5.1.14 In case of the EU’s preferred 5-digit 84-category textiles products, only three

Pakistani products (84140, 84629 and 84371) have attained positions in the EU’s first

20 preferred products list. So Pakistan needs to retain her position in these products in

the EU’s import market. However, the majority of the EU’s first category preferred

products seem to have less importance in Pakistan’s imports to the EU. For instance,

products with code 84211 and 84551 belong to Pakistan’s lowest important (fifth level

category products); and products with code 84219, 84151, 84240, 84424, 84482 and

84270 fall in Pakistan’s second last important category product. These facts warrant

attention of Pakistan’s textiles and clothing manufacturer, exporters and policy makers

for improving quality for meeting the EU’s standards. The EU’s second preferred

products list with code 84121, 84564, 84621, 84844, 84612, 84843, 84523, and 84822

belong to Pakistan’s the two lowest important products lists; this fact needs attention of

stakeholders. The EU’s third preferred products with code 84613, 84521 and 84693

belong to the Pakistan’s lowest important products list. Some of Pakistan’s highest

important-products (84812, 84692 and 84691) belong to the EU’s third preferred

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products list, indicating that these products have good potential to be worked on to take

them to the EU’s highest important products list. The stakeholders should give the

highest priority to this proposition.

5.1.15 On the basis of data on tariff rates imposed by the EU, it appears that, though

the average tariff during the study period (1988-2011) remained at 11.77 percent, these

have been varied a lot, ranging between minimum of zero percent to a maximum of

21.24 percent. In addition, number of total lines, on which tariff were imposed,

increased from minimum of 760 during 1989 to 1247 during 2011; the average number

of tariff lines remained 1109, with standard deviation of 215.48.

The mean value of the EU tariff imposed on 26-category textiles has remained 0.74

percent, which ranged between a minimum of zero and a maximum of 2.37 percent

during the study period 1988-2011. This average tariff has remained effective on an

average of 29.08 number of tariff lines, which ranged between a minimum-maximum

of 21-40 tariff lines.

Average value of the EU tariff imposed on 65-category textiles has remained 4.69

percent, which ranged between a minimum of zero and a maximum of 8.68 percent

during the study period. While the average tariff has been imposed on 661.75 number

of tariff lines, on average, which ranged between a minimum of 399 to a maximum of

855 tariff lines.

Whereas the EU tariff imposed on 84-category textiles has remained 6.35 percent, on

average, which ranged between a minimum of zero and a maximum of 11.62 percent

during 1988 to 2011. This average tariff has remained effective on an average of

418.63 number of tariff lines, which ranged between a minimum-maximum of 320 to

493 tariff lines.

1. 5.1.16 It reflects that the average tariff imposed on 26-category textiles, which

remains at 0.74 percent (maximum 2.37 percent), increases to an average of

4.69 percent (maximum 8.68 percent) on 65-category textiles, and 6.35 percent

(maximum 11.62 percent) on 84-category textiles. This means that the EU’s

tariff rates have increased as long as textiles products value addition occurs

from the primary/raw cotton stage to the semi processed and processed products

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levels. This type of tariff escalation has been forbidden for encouraging free

trade as per the WTO agreements.

5.1.17 The EU’s Generalised System of Preferences (GSP) has three key variants,

namely the general GSP scheme, the Everything But Arms (EBA) initiative that allows

preference to least developed countries (LDCs) and the GSP plus initiative given to

some countries on the basis of labour, human, environmental and good governance

rights conditions. According to the EU’s regulation no 732/2008, which regulates the

EU’s imports for the latest period 2009-2011, a total of 6350 products are covered

under general arrangements while 6400 products are covered under GSP+

arrangements, and all products in HS chapters 1-97 except chapter 93 in arms are

covered under EBA (LDCs) arrangements.

5.1.18 Various products have been categorised as sensitive and non-sensitive products

in all the three GSP arrangements. Non-sensitive products are eligible for the duty-free

entry into the EU’s ports while sensitive products enjoy duty free entry under EBA

(LDCs) arrangement as well as GSP+ arrangements. These sensitive products under

standard GSP enjoy certain concessions; these concessions include:

• Flat rate reduction of 3.5 percent point in the Most Favoured Nation (MFN)

applicable to ad valorem duty only.

• 30 percent reduction in the MFN duty, where only specific duties apply.

• 20 percent reduction for textile and textile articles.

As far as, Pakistan is concerned, it is presently treated under general arrangements

while a number of Pakistan’s competitor-countries in textiles and clothing are enjoying

GSP+ and EBA status. Pakistan has recently applied for granting of GSP+ status for the

upcoming GSP (2014-16).

5.1.19 Non-tariff barriers (NTBs) generally include import quotas, unreasonable

standards for the quality of goods, special licenses, bureaucratic delays at customs,

limiting the activities of state trading, export restrictions, export subsidies, rules of

origin, sanitary and phyto-sanitary measures, technical barriers to trade); and the EU

specifically demands improvements preferably in the following disciplines because of

the fact that these can be used as NTBs.

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• Government procurement

• Services

• Investment

• Trade facilitation

• Trade defence

• Standards

• Intellectual Property Rights

• Competition Policy

• Rules of Origin

5.1.20 Pakistan has repeatedly raised concerns regarding the imposition of NTBs by

the EU’s in the above disciplines (CARIS, 2008 and WTO, 2008). Pakistan is also

worried about the existing and probable bilateral FTAs between the EU and her

partners, especially India, which would provide competitive edge to counterparts of

Pakistan in the EU market by minimizing NTBs, particularly in the textiles and

clothing sector. If FTA status is granted to competitors of Pakistan, this may increase

pressures on Pakistan in the EU market, particularly when Pakistan’s competitors get a

preferential status for semi-processed or highly-processed textiles (65-category and 84-

category). Pakistan would then experience a decrease in textile processing imports to

the EU. Same is the case with preferential rules of origin, especially in case of 65-

category and 84-category textile (CARIS, 2008).

5.1.21 In a detailed study on “the impact of trade policies on Pakistan's preferential

access to the European Union”, the researchers (CARIS 2008) have developed a

database on NTBs, and the points discussed in sub-section 4.4.2.3 are summarised as

follows.

� Existing and probable bilateral FTAs between EU and Pakistan’s competitors

are threat for Pakistani textiles imports to the EU market. Particularly, if an EU-

India FTA comes into existence, India will improve its competitiveness in the

EU by reducing NTBs. In that situation, Pakistan’s main concerns would be in

the textiles and clothing sector. Trade data indicators suggest that, in this sector,

there is a rather high degree of overlap between Pakistan’s trade and India’s

trade

110

� Pakistan is concerned about NTBs on her textile sector, particularly use of ADD

(Anti-Dumping Duty) and the softening of rules of origin for textile products

for preferential partners in the EU market which might benefit other LDCs

� In Pakistani market, existence of subsidies and burdensome licence

requirements pose restrictions to textile and clothing imports to the EU market.

5.2 Conclusions

The aforementioned summary of the findings of this study helps draw the following

conclusions.

First, there exists a strong correlation between the EU’s total textiles and clothing

imports and her imports from Pakistan. Same is true as far as the various categories of

26, 65 and 84 in textiles and clothing imports are concerned. Of the three categories of

textiles, only 26 category textiles and clothing imports and her imports from Pakistan

are co-integrated, suggesting long-run relationship, while in the other two category

textiles, 65 and 84, the EU total imports and her imports from Pakistan do not exhibit

long-run relationship. However, it is good for Pakistan that her rates of growth in 65

and 84 categories of textiles imports by the EU are relatively higher than the EU’s own

total imports. Pakistan needs to maintain not only its present growth rates but she

should also make efforts to get more shares, especially in 65 and 84 category textiles in

EU market, as these two category belong to value added textiles.

Second, the exports sales are not only a major chunk of Pakistan’s textile

manufacturing companies’ total sales, but these also statistically significantly

contribute towards profitability of the firms. It is thus desirable to find preferred

exportable products.

Third, the study identifies 45, 217 and 94 the EU’s preferred 5-digit products belonging

to 26, 65 and 84 categories of textiles, respectively, and reveals that eight Pakistani 5-

digit 26-category products (with SITC codes 26339, 26310, 26902, 26490, 26721,

26901, 26652 and 26711) have attained positions in the EU’s first 20 preferred

products list, while remaining 12 the EU’s preferred products have fallen into

Pakistan’s relatively less preferred products list; Pakistan needs to improve the quality

of these products to attain better position in the EU’s 5-digit 26-category market. In

case of 217 5-digit 65-category products, only 14 Pakistani products (65843, 65841,

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65842, 65221, 65847, 65234, 65133, 65243, 65851, 65232, 65242, 65184, 65892, and

65859) have got positions in EU’s first 50 preferred products list. The majority of the

EU’s first category preferred products seem to have less importance in Pakistan’s

imports to the EU. These facts necessitates that Pakistan brings improvement in these

products to match them with the EU’s consumers preferences.

In case of the EU’s preferred 5-digit 84-category textiles products, only three Pakistani

products (84140, 84629 and 84371) have attained positions in the EU’s first 20

preferred products list. So Pakistan needs to retain her position in these products in the

EU’s import market. However, the majority of the EU’s first category preferred

products seem to have less importance in Pakistan’s imports to the EU. For instance,

products with code 84211 and 84551 belong to Pakistan’s lowest important (fifth level

category products); and products with code 84219, 84151, 84240, 84424, 84482 and

84270 fall in Pakistan’s second last important category product. These facts warrant

attention of Pakistan’s textiles and clothing manufacturer, exporters and policy makers

for improving quality for meeting the EU’s standards.

Fourth, the EU has imposed different levels of tariffs based on the primary

commodities, semi-processed and processed products, and these rates are enhanced

along with the levels of processing. In our case, such increasing level of the EU’s tariff

affects our 26-category, 65-category and 84-category textiles. In addition to the

discriminatory effects of the increasing level of the EU’s tariff, the EU has put various

countries in three different schemes of Generalised System of Preferences (GSP)

namely, standard GSP arrangements, GSP+, EBA. Pakistan imports to the EU are

presently facing the general GSP arrangements, and is not benefiting from the other

two relatively more beneficial schemes, presently available to a number of Pakistan’s

competitors.

Fifth, Pakistan understands that her imports to the EU are subject to a number of non-

tariff barriers (NTBs) including various standard procedures set under WTOs

agreements in the disciplines of government procurement, services, investment, trade

facilitation, trade defence, standards, intellectual property rights, competition policy,

and rules of origin. From Pakistan’s point of view, if the EU goes for having FTAs with

some of her competitors, she would face serious adverse effects due especially to the

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WTO related standard procedure. While the EU also wants that Pakistan adopt the

WTO related standard procedure on extensive basis.

5.3 Recommendations

Based on the findings of the study and conclusions drawn, the following

recommendations are in order.

5.3.1 Of the three major categories (26, 65 and 84) of textiles and clothing imports to

the EU, Pakistan’s performance seems relatively satisfactory especially in cases of 26;

while the imports of 65-category textiles and 84-category textiles should also be given

priority from Pakistan’s stand point, being the value added products. Pakistan should

not only maintain her present growth rates of her 65 and 84 category textiles and

clothing imports by the EU, she should also make efforts to get more shares in EU

market, as these two categories (65 and 84) belong to value added textile products. The

Stakeholders (manufacturers, exporters and government policy makers) should take

note of this fact.

5.3.2 In case of the individual major categories of textiles (26, 65 & 84), the

following 5-digit products, being the EU most preferred products, should be given

priority, in particular.

(a) The eight Pakistani 5-digit 26-category products (SITC codes: 26339, 26310,

26902, 26490, 26721, 26901, 26652 and 26711) have attained positions in EU’s

first 20 preferred products list, while remaining 12 the EU’s preferred products

(Table 4.30a) have fallen into Pakistan’s relatively less preferred products list;

Pakistan should improve the quality of these products to attain better position in

the EU’s 5-digit 26-category market.

(b) In case of 217 5-digit 65-category products, only 14 Pakistani products (65843,

65841, 65842, 65221, 65847, 65234, 65133, 65243, 65851, 65232, 65242,

65184, 65892, and 65859) have got positions in the EU’s first 50 preferred

products list; the remaining 36 the EU’s first category preferred products (Table

4.31a) should now be having attention of Pakistani stakeholders.

(c) In case of the EU’s preferred 5-digit 84-category textiles products, only three

Pakistani products (84140, 84629 and 84371) have attained positions in the

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EU’s first 20 preferred products list; the remaining 17 products (Table 4.32a)

should be given attention for a greater value-added import of the EU from

Pakistan.

5.3.3 The EU policy makers should take note of the fact, and Pakistani policy makers

should try to convince the EU officials, that the EU policy of imposing increasing rate

of tariffs –escalation of tariff – from raw commodities (26-category) to semi-processed

and processed products (65 and 84-categories textiles) is discouraging value-addition

textile trade from Pakistan.

5.3.4 The EU’s officials and their Pakistani counterparts should also take care of the

concern that the EU has put Pakistan at disadvantage comparing to its competitors, by

putting Pakistan in the Generalised System of Preferences (standard GSP

arrangements), and some of her serious competitors in more advantageous GSP+ and

EBA schemes.

5.3.5 The EU’s officials and their Pakistani counterparts should also settle the

problem of the existence of various non-tariff barriers (NTBs), and especially the

affairs relating to the adoption of various standard procedures set under WTOs

agreements in the disciplines of government procurement, trade in services, investment,

trade facilitation, trade defence, products and processes quality standards, intellectual

property rights, competition policy, and rules of origin.

5.3.6 The EU should particularly be careful while she goes for having FTAs with

some of Pakistan’s competitors (particularly India, Bangladesh and Sri Lanka) as

Pakistan would in that case face serious adverse effects due especially to the non- or

partial-adoption of the stated WTO related standard procedures.

5.3.7 Pakistani stakeholders, especially the government, should take appropriate steps

for an early and extensive adoption of WTO agreements and related standards and

standard procedures. It is highly recommended to bring improvement in the areas of

labour rights, human rights, environment, and good governance, on the basis of which

Pakistan would become capable of attaining the GSP plus status in the EU.

5.3.8 Pakistani stakeholders (manufacturers, exporters and policy makers) would

have to adopt the required and up-to-date quality standards (relating to the product,

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process and packing) while keeping costs under control. Government of Pakistan in

particular should take arrangements for having inflation in control and making

availability of inputs and resources ensured.

115

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ANNEXURE I (A) COTTON AND TEXTILE CLASSIFICATION CODES BASED ON

HARMONIZED SYSTEM (HS CLASSIFICATION) Code Description

TOTAL All Commodities

01 Live animals; animal products

02 Meat and edible meat offal

03 Fish and crustaceans, molluscs and other acquatic invertebrates

04 Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere specified or included

05 Products of animal origin, not elsewhere specified or included

06 Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage

07 Edible vegetables and certain roots and tubers

08 Edible fruit and nuts; peel of citrus fruit or melons

09 Coffee, tea, maté and spices

10 Cereals

11 Products of the milling industry; malt; starches; inulin; wheat gluten

12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal plants; straw and fodder

13 Lac; gums, resins and other vegetable saps and extracts

14 Vegetable plaiting materials; vegetable products not elsewhere specified or included

15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes

16 Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates

17 Sugars and sugar confectionery

18 Cocoa and cocoa preparations

19 Preparations of cereals, flour, starch or milk; pastrycooks' products

20 Preparations of vegetables, fruit, nuts or other parts of plants

21 Miscellaneous edible preparations

22 Beverages, spirits and vinegar

23 Residues and waste from the food industries; prepared animal fodder

24 Tobacco and manufactured tobacco substitutes

25 Salt; sulphur; earths and stone; plastering materials, lime and cement

26 Ores, slag and ash

27 Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes

28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth metals, of radioactive elements or of isotopes

29 Organic chemicals

30 Pharmaceutical products

31 Fertilisers

32 Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other colouring matter; paints and varnishes; putty and other mastics; inks

33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations

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34 Soap, organic surface-active agents, washing preparations, lubricating preparations, artificialwaxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modelling pastes, "dental waxes" and dental preparations with a basis of plaster

35 Albuminoidal substances; modified starches; glues; enzymes

36 Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations

37 Photographic or cinematographic goods

38 Miscellaneous chemical products

39 Plastics and articles thereof

40 Rubber and articles thereof

41 Raw hides and skins(other than furskins) and leather

42 Articles of leather; saddlery and harness; travel goods, handbags and similar containers; articles of animal gut (other than silk-worm gut)

43 Furskins and artificial fur; manufactures thereof

44 Wood and articles of wood; wood charcoal

45 Cork and articles of cork

46 Manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork

47 Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) of paper or paperboard

48 Paper and paperboard; articles of paper pulp, of paper or of paperboard

49 Printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans

50 Silk

51 Wool, fine or coarse animal hair; horsehair yarn and woven fabric

52 Cotton

53 Other vegetable textile fibres; paper yarn and woven fabrics of paper yarn

54 Man-made filaments; strip and the like of man-made textile materials

55 Man-made staple fibres

56 Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and articles thereof

57 Carpets and other textile floor coverings

58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery

59 Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind suitable for industrial use

60 Knitted or crocheted fabrics

61 Articles of apparel and clothing accessories, knitted or crocheted

62 Articles of apparel and clothing accessories, not knitted or crocheted

63 Other made up textile articles; sets; worn clothing and worn textile articles; rags

64 Footwear, gaiters and the like; parts of such articles

65 Headgear and parts thereof

66 Umbrella, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof

67 Prepared feathers and down and articles made of feathers or of down; artificial flowers; articles of human hair

68 Articles of stone, plaster, cement, asbestos, mica or similar materials

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69 Ceramic products

70 Glass and glassware

71 Natural or cultured pearls, precious or semi-precious stones, precious metals, metals cladwith precious metal, and articles thereof; imitation jewellery; coin

72 Iron and steel

73 Articles of iron or steel

74 Copper and articles thereof

75 Nickel and articles thereof

76 Aluminum and articles thereof

78 Lead and articles thereof

79 Zinc and articles thereof

80 Tin and articles thereof

81 Other base metals; cermets; articles thereof

82 Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal

83 Miscellaneous articles of base metal

84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof

85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

86 Railway or tramway locomotives, rolling-stock and parts thereof; railway or tramway track fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signalling equipment of all kinds

87 Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof

88 Aircraft, spacecraft, and parts thereof

89 Ships, boats and floating structures

90 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

91 Clocks and watches and parts thereof

92 Musical instruments; parts and accessories of such articles

93 Arms and ammunition; parts and accessories thereof

94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated signs, illuminated name-plates and the like; prefabricated buildings

95 Toys, games and sports requisites; parts and accessories thereof

96 Miscellaneous manufactured articles

97 Works of art, collectors' pieces and antiques

99 Commodities not specified according to kind Source: Adopted from UN Comtrade (http://comtrade.un.org/db/mr/rfCommoditiesList)

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ANNEXURE I (B) HS 2007

General Rules for the Interpretation of the Harmonized System.

SECTION I LIVE ANIMALS; ANIMAL PRODUCTS

Section Notes. 01 Live animals. 02 Meat and edible meat offal. 03 Fish and crustaceans, molluscs and other aquatic invertebrates. 04 Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere

specified or included. 05 Products of animal origin, not elsewhere specified or included.

SECTION II VEGETABLE PRODUCTS

Section Notes. 06 Live trees and other plants; bulbs, roots and the like; cut flowers and ornamental foliage. 07 Edible vegetables and certain roots and tubers. 08 Edible fruit and nuts; peel of citrus fruit or melons. 09 Coffee, tea, mate and spices. 10 Cereals. 11 Products of the milling industry; malt; starches; inulin; wheat gluten. 12 Oil seeds and oleaginous fruits; miscellaneous grains, seeds and fruit; industrial or medicinal

plants; straw and fodder. 13 Lac; gums, resins and other vegetable saps and extracts. 14 Vegetable plaiting materials; vegetable products not elsewhere specified or included.

SECTION III ANIMAL OR VEGETABLE FATS AND OILS AND THEIR CLEAVAG E

PRODUCTS; PREPARED EDIBLE FATS; ANIMAL OR VEGETABLE WAXES

15 Animal or vegetable fats and oils and their cleavage products; prepared edible fats; animal or vegetable waxes.

SECTION IV PREPARED FOODSTUFFS;

BEVERAGES, SPIRITS AND VINEGAR; TOBACCO AND MANUFACTURED TOBACCO SUBSTITUTES

Section Notes. 16 Preparations of meat, of fish or of crustaceans, molluscs or other aquatic invertebrates. 17 Sugars and sugar confectionery. 18 Cocoa and cocoa preparations. 19 Preparations of cereals, flour, starch or milk; pastrycooks' products. 20 Preparations of vegetables, fruit, nuts or other parts of plants. 21 Miscellaneous edible preparations. 22 Beverages, spirits and vinegar. 23 Residues and waste from the food industries; prepared animal fodder. 24 Tobacco and manufactured tobacco substitutes.

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SECTION V MINERAL PRODUCTS

25 Salt; sulphur; earths and stone; plastering materials, lime and cement. 26 Ores, slag and ash. 27 Mineral fuels, mineral oils and products of their distillation; bituminous substances; mineral waxes.

SECTION VI PRODUCTS OF THE CHEMICAL OR ALLIED INDUSTRIES

Section Notes. 28 Inorganic chemicals; organic or inorganic compounds of precious metals, of rare-earth

metals, of radioactive elements or of isotopes. 29 Organic chemicals. 30 Pharmaceutical products. 31 Fertilisers. 32 Tanning or dyeing extracts; tannins and their derivatives; dyes, pigments and other

colouring matter; paints and varnishes; putty and other mastics; inks. 33 Essential oils and resinoids; perfumery, cosmetic or toilet preparations. 34 Soap, organic surface-active agents, washing preparations, lubricating preparations, artificial

waxes, prepared waxes, polishing or scouring preparations, candles and similar articles, modelling pastes, "dental waxes" and dental preparations with a basis of plaster.

35 Albuminoidal substances; modified starches; glues; enzymes. 36 Explosives; pyrotechnic products; matches; pyrophoric alloys; certain combustible preparations. 37 Photographic or cinematographic goods. 38 Miscellaneous chemical products.

SECTION VII PLASTICS AND ARTICLES THEREOF; RUBBER AND ARTICLES THEREOF

Section Notes, 39 Plastics and articles thereof 40 Rubber and articles thereof

SECTION VIII RAW HIDES AND SKINS, LEATHER, FURSKINS AND ARTICLES

THEREOF; SADDLERY AND HARNESS; TRAVEL GOODS, HANDBAGS AND SIMILAR CONTAINERS; ARTICLES OF ANIMAL GUT

(OTHER THAN SILK-WORM GUT)

41 Raw hides and skins (other than furskins) and leather. 42 Articles of leather; saddlery and harness; travel goods, handbags and similar containers;

articles of animal gut (other than silk-worm gut).

43 Furskins and artificial fur; manufactures thereof.

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SECTION IX WOOD AND ARTICLES OF WOOD; WOOD CHARCOAL;

CORK AND ARTICLES OF CORK; MANUFACTURES OF STRAW, OF ESPARTO OR OF OTHER PLAITING MATERIALS;

BASKETWARE AND WICKERWORK

44 Wood and articles of wood; wood charcoal, 45 Cork and articles of cork. 46 Manufactures of straw, of esparto or of other plaiting materials; basketware and wickerwork.

SECTION X PULP OF WOOD OR OF OTHER FIBROUS CELLULOSIC MATERIA L;

RECOVERED (WASTE AND SCRAP) PAPER OR PAPERBOARD; PAPER AND PAPERBOARD AND ARTICLES THEREOF

47 Pulp of wood or of other fibrous cellulosic material; recovered (waste and scrap) paper or paperboard.

48 Paper and paperboard; articles of paper pulp, of paper or of paperboard. 49 Printed books, newspapers, pictures and other products of the printing industry;

manuscripts, typescripts and plans. SECTION XI

TEXTILES AND TEXTILE ARTICLES

Section Notes. 50 Silk. 51 Wool, fine or coarse animal hair; horsehair yarn and woven fabric. 52 Cotton, 53 Other vegetable textile fibres; paper yarn and woven fabrics of paper yarn. 54 Man-made filaments; strip and the like of man- made textile material. 55 Man-made staple fibres. 56 Wadding, felt and nonwovens; special yarns; twine, cordage, ropes and cables and

articles thereof 57 Carpets and other textile floor coverings. 58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery. 59 Impregnated, coated, covered or laminated textile fabrics; textile articles of a kind

suitable for industrial use. 60 Knitted or crocheted fabrics. 61 Articles of apparel and clothing accessories, knitted or crocheted. 62 Articles of apparel and clothing accessories, not knitted or crocheted. 63 Other made up textile articles; sets; worn clothing and worn textile articles; rags.

SECTION XII FOOTWEAR, HEADGEAR, UMBRELLAS, SUN UMBRELLAS,

WALKING-STICKS, SEAT-STICKS, WHIPS, RIDING-CROPS AN D PARTS THEREOF; PREPARED FEATHERS AND ARTICLES MADE

THEREWITH; ARTIFICIAL FLOWERS; ARTICLES OF HUMAN HA IR

64 Footwear, gaiters and the like; parts of such articles, 65 Headgear and parts thereof 66 Umbrellas, sun umbrellas, walking-sticks, seat-sticks, whips, riding-crops and parts thereof 67 Prepared feathers and down and articles made of feathers or of down; artificial flowers;

articles of human hair.

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SECTION XIII ARTICLES OF STONE, PLASTER, CEMENT, ASBESTOS, MICA

OR SIMILAR MATERIALS; CERAMIC PRODUCTS; GLASS AND GLASSWARE

68 Articles of stone, plaster, cement, asbestos, mica or similar materials. 69 Ceramic products. 70 Glass and glassware.

SECTION XIV NATURAL OR CULTURED PEARLS, PRECIOUS OR SEMI-PRECIO US

STONES, PRECIOUS METALS, METALS CLAD WITH PRECIOUS METAL AND ARTICLES THEREOF; IMITATION JEWELLERY; COIN

71 Natural or cultured pearls, precious or semi-precious stones,

SECTION XV BASE METALS AND ARTICLES OF BASE METAL

Section Notes. 72 Iron and steel. 73 Articles of iron or steel. 74 Copper and articles thereof 75 Nickel and articles thereof. 76 Aluminium and articles thereof 77 (Reserved for possible future use in the Harmonized System) 78 Lead and articles thereof 79 Zinc and articles thereof. 80 Tin and articles thereof. 81 Other base metals; cermets; articles thereof. 82 Tools, implements, cutlery, spoons and forks, of base metal; parts thereof of base metal. 83 Miscellaneous articles of base metal.

SECTION XVI MACHINERY AND MECHANICAL APPLIANCES;

ELECTRICAL EQUIPMENT; PARTS THEREOF; SOUND RECORDER S AND REPRODUCERS, TELEVISION IMAGE AND SOUND RECORDERS A ND REPRODUCERS, AND PARTS AND ACCESSORIES OF SUCH ARTICLES

Section Notes. 84 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers,

television image and sound recorders and reproducers, and parts and accessories of such articles,

SECTION XVII VEHICLES, AIRCRAFT, VESSELS AND ASSOCIATED

TRANSPORT EQUIPMENT

Section Notes. 86 Railway or tramway locomotives, rolling-stock and parts thereat railway or tramway track

fixtures and fittings and parts thereof; mechanical (including electro-mechanical) traffic signalling equipment of all kinds.

87 Vehicles other than railway or tramway rolling-stock, and parts and accessories thereof. 88 Aircraft, spacecraft, and parts thereof. 89 Ships, boats and floating structures.

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SECTION XVIII OPTICAL, PHOTOGRAPHIC, CINEMATOGRAPHIC, MEASURING,

CHECKING, PRECISION, MEDICAL OR SURGICAL INSTRUMENT S AND APPARATUS; CLOCKS AND WATCHES; MUSICAL INSTRUME NTS;

PARTS AND ACCESSORIES THEREOF

90 Optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof

91 Clocks and watches and parts thereof. 92 Musical instruments; parts and accessories of such articles.

SECTION XIX ARMS AND AMMUNITION; PARTS AND ACCESSORIES THEREOF

93 Arms and ammunition; parts and accessories thereof.

SECTION XX MISCELLANEOUS MANUFACTURED ARTICLES

94 Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not elsewhere specified or included; illuminated signs, illuminated nameplates and the like; prefabricated buildings.

95 Toys, games and sports requisites; parts and accessories thereof 96 Miscellaneous manufactured articles.

SECTION XXI WORKS OF ART, COLLECTORS' PIECES AND ANTIQUES

97 Works of art, collectors' pieces and antiques. 98 (Reserved for special uses by Contracting Parties) 99 (Reserved for special uses by Contracting Parties

Source: http://comtrade.un.org/kb/article.aspx?id=10253&cNode=4Y8M0A

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ANNEXURE II COTTON AND TEXTILE CLASSIFICATION CODES BASED ON

STANDARD INTERNATIONAL TRADE CLASSIFICATION (SITC 3 )

Code Description TOTAL All Commodities Panel 1

0 Food and live animals 1 Beverages and tobacco 2 Crude materials, inedible, except fuels 3 Mineral fuels, lubricants and related materials 4 Animal and vegetable oils, fats and waxes 5 Chemicals and related products, n.e.s. 6 Manufactured goods classified chiefly by material 7 Machinery and transport equipment 8 Miscellaneous manufactured articles 9 Commodities and transactions not classified elsewhere in the SITC

Panel 2

TOTAL All Commodities 2 Crude materials, inedible, except fuels 21 Hides, skins and furskins, raw 22 Oil-seeds and oleaginous fruits 23 Crude rubber (including synthetic and reclaimed) 24 Cork and wood 25 Pulp and waste paper 26 Textile fibres (other than wool tops and other combed wool) and their wastes

(not manufactured into yarn or fabric) 27 Crude fertilizers, other than those of Division 56, and crude minerals (excluding

coal, petroleum and precious stones) 28 Metalliferous ores and metal scrap 29 Crude animal and vegetable materials, n.e.s.

Panel 3 TOTAL All Commodities 2 Crude materials, inedible, except fuels 26 Textile fibres (other than wool tops and other combed wool) and their wastes

(not manufactured into yarn or fabric) 261 Silk 263 Cotton 264 Jute and other textile bast fibres, n.e.s., raw or processed but not spun; tow and

waste of these fibres (including yarn waste and garnetted stock) 265 Vegetable textile fibres (other than cotton and jute), raw or processed but not

spun; waste of these fibres 266 Synthetic fibres suitable for spinning 267 Other man-made fibres suitable for spinning; waste of man-made fibres 268 Wool and other animal hair (including wool tops) 269 orn clothing and other worn textile articles; rags

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Panel 4 TOTAL All Commodities

2 Crude materials, inedible, except fuels 26 Textile fibres (other than wool tops and other combed wool) and their wastes

(not manufactured into yarn or fabric) 263 Cotton 2631 Cotton (other than linters), not carded/combed 2632 Cotton linters 2633 Cotton waste (including yarn waste and garnetted stock) 2634 Cotton, carded/combed

Panel 5 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 61 Leather, leather manufactures, n.e.s., and dressed furskins 62 Rubber manufactures, n.e.s. 63 Cork and wood manufactures (excluding furniture) 64 Paper, paperboard and articles of paper pulp, of paper or of paperboard 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 66 Non-metallic mineral manufactures, n.e.s. 67 Iron and steel 68 Non-ferrous metals 69 Manufactures of metals, n.e.s.

Panel 6 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 651 Textile yarn 652 Cotton fabrics, woven (not including narrow or special fabrics) 653 Fabrics, woven, of man-made textile materials (not including narrow or special

fabrics) 654 Other textile fabrics, woven 655 Knitted or crocheted fabrics (including tubular knit fabrics, n.e.s., pile fabrics

and openwork fabrics), n.e.s. 656 Tulles, lace, embroidery, ribbons, trimmings and other smallwares 657 Special yarns, special textile fabrics and related products 658 Made-up articles, wholly or chiefly of textile materials, n.e.s. 659 Floor coverings, etc.

Panel 7 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 651 Textile yarn 6511 Yarn of wool or animal hair (excluding wool tops) 6512 Cotton sewing thread, whether or not put up for retail sale 6513 Cotton yarn, other than sewing thread 6514 Sewing thread of man-made fibres, whether or not put up for retail sale 6515 Synthetic filament yarn (other than sewing thread), textured, not put up for retail sale,

including monofilament of less than 67 decitex 6516 Other synthetic filament yarn (other than sewing thread), including monofilament of less

than 67 decitex 6517 Artificial and man-made filament yarn (other than sewing thread); artificial monofilament,

n.e.s.; strip and the like of artificial textile materials, n.e.s. 6518 Yarn (other than sewing thread) of staple fibres; synthetic monofilament, n.e.s.; strip and

the like of synthetic textile materials of an apparent width not exceeding 5 mm 6519 Yarn of textile fibres, n.e.s. (including paper yarn and yarn, slivers and rovings of glass

fibre)

130

Panel 8 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 652 Cotton fabrics, woven (not including narrow or special fabrics) 6521 Pile and chenille fabrics, woven 6522 Cotton fabrics, woven, unbleached (other than gauze and pile and chenille

fabrics) 6523 Other woven fabrics, containing 85% or more by weight of cotton, bleached,

dyed, printed or otherwise finished, weighing not more than 200 g/m2 6524 Other woven fabrics, containing 85% or more by weight of cotton, bleached,

dyed, printed or otherwise finished, weighing more than 200 g/m2 6525 Other woven cotton fabrics, containing less than 85% by weight of cotton,

mixed mainly or solely with man-made fibres, bleached, dyed, printed or otherwise finished, weighing not more than 200 g/m2

6526 Other woven cotton fabrics, containing less than 85% by weight of cotton, mixed mainly or solely with man-made fibres, bleached, dyed, printed or otherwise finished, weighing more than 200 g/m2

6529 Other woven fabrics of cotton

Panel 9 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 653 Fabrics, woven, of man-made textile materials (not including narrow or special

fabrics) 6531 Fabrics, woven, of synthetic filament yarn (including woven fabrics obtained

from materials of heading 651.88), other than pile and chenille fabrics 6532 Fabrics, woven, of synthetic staple fibres, containing 85% or more by weight of

such fibres (other than pile and chenille fabrics) 6533 Fabrics, woven, of synthetic staple fibres, containing less than 85% by weight of

such fibres, mixed mainly or solely with cotton (other than pile and chenille fabrics)

6534 Fabrics, woven, of synthetic staple fibres, containing less than 85% by weight of such fibres, mixed mainly or solely with fibres other than cotton (other than pile and chenille fabrics)

6535 Fabrics, woven, of artificial filament yarn (including woven fabrics obtained from materials of heading 651.77)

6536 Fabrics, woven, containing 85% or more by weight of artificial staple fibres 6538 Fabrics, woven, of artificial staple fibres, containing less than 85% by weight of

such fibres (other than pile and chenille fabrics) 6539 Pile fabrics and chenille fabrics, woven, of man-made fibres (other than fabrics

of group 652 or 656)

Panel 10 TOTAL All Commodities

6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products

654 Other textile fabrics, woven 6541 Fabrics, woven, of silk or of silk waste 6542 Fabrics, woven, containing 85% or more by weight of wool or of fine animal

hair (other than pile and chenille fabrics) 6543 Fabrics, woven, of wool or of fine animal hair, n.e.s. 6544 Fabrics, woven, of flax 6545 Fabrics, woven, of jute or of other textile bast fibres of group 264 6546 Fabrics, woven, of glass fibres (including narrow fabrics) 6549 Fabrics, woven, n.e.s.

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Panel 11 TOTAL All Commodities

6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products

656 Tulles, lace, embroidery, ribbons, trimmings and other smallwares 6561 Narrow woven fabrics (other than goods of subgroup 656.2); narrow fabrics

consisting of warp without weft assembled by means of an adhesive (bolducs) 6562 Labels, badges and similar articles of textile materials, in the piece, in strips or

cut to shape or size, not embroidered. 6563 Gimped yarn, and strip and the like of heading 651.77 or 651.88, gimped (other

than metallized yarn and gimped horsehair yarn); chenille yarn (including flock chenille yarn); loop-wale yarn; braids in the piece; ornamental trimmings in the piece, without embroidery, other than knitted or crocheted; tassels, pompons and similar articles

6564 Tulles and other net fabrics (not including woven, knitted or crocheted fabrics); lace in the piece, in strips or in motifs

6565 Embroidery in the piece, in strips or in motifs

Panel 12 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 657 Special yarns, special textile fabrics and related products 6571 Felt, whether or not impregnated, coated, covered or laminated, n.e.s. 6572 Non-wovens, whether or not impregnated, coated, covered or laminated, n.e.s. 6573 Coated or impregnated textile fabrics and products, n.e.s. 6574 Quilted textile products in the piece, composed of one or more layers of textile

materials assembled with padding by stitching or otherwise, n.e.s. 6575 Twine, cordage, ropes and cables and manufactures thereof (e.g., fishing nets,

ropemakers’ wares) 6576 Hat shapes, hat forms, hat bodies and hoods 6577 Wadding, wicks, and textile fabrics and articles for use in machinery or plant 6578 Rubber thread and cord, textile-covered; textile yarn, and strip and the like of

heading 651.77 or 651.88, impregnated, coated, covered or sheathed with rubber or plastics.

6579 Special products of textile materials

Panel 13 TOTAL All Commodities 6 Manufactured goods classified chiefly by material

65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 658 Made-up articles, wholly or chiefly of textile materials, n.e.s.

6581 Sacks and bags, of textile materials, of a kind used for the packing of goods. 6582 Tarpaulins, awnings and sun-blinds; tents; sails for boats, sailboards or

landcraft; camping goods 6583 Blankets and travelling-rugs (other than electric) 6584 Bed linen, table linen, toilet linen and kitchen linen 6585 Curtains and other furnishing articles, n.e.s., of textile materials 6589 Made-up articles of textile materials, n.e.s.

Panel 14 TOTAL All Commodities 6 Manufactured goods classified chiefly by material 65 Textile yarn, fabrics, made-up articles, n.e.s., and related products 659 Floor coverings, etc. 6591 Linoleum, whether or not cut to shape; floor coverings consisting of a coating

132

or covering applied on a textile backing, whether or not cut to shape 6592 Carpets and other textile floor coverings, knotted, whether or not made up. 6593 "Kelem", "Schumacks", "Karamanie" and similar hand-woven rugs 6594 Carpets and other textile floor coverings, tufted, whether or not made up. 6595 Carpets and other textile floor coverings, woven, not tufted or flocked, whether

or not made up 6596 Carpets and other textile floor coverings, n.e.s.

Panel 15 TOTAL All Commodities 8 Miscellaneous manufactured articles 81 Prefabricated buildings; sanitary, plumbing, heating and lighting fixtures and

fittings, n.e.s. 82 Furniture and parts thereof; bedding, mattresses, mattress supports, cushions

and similar stuffed furnishings 83 Travel goods, handbags and similar containers 84 Articles of apparel and clothing accessories 85 Footwear 87 Professional, scientific and controlling instruments and apparatus, n.e.s. 88 Photographic apparatus, equipment and supplies and optical goods, n.e.s.;

watches and clocks 89 Miscellaneous manufactured articles, n.e.s.

Panel 16 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 841 Men's or boys' coats, capes, jackets, suits, blazers, trousers, shorts, shirts,

underwear, nightwear and similar articles of textile fabrics, not knitted or crocheted (other than those of subgroup 845.2)

842 Women's or girls' coats, capes, jackets, suits, trousers, shorts, shirts, dresses and skirts, underwear, nightwear and similar articles of textile fabrics, not knitted or crocheted (other than those of subgroup 845.2)

843 Men's or boys' coats, capes, jackets, suits, blazers, trousers, shorts, shirts, underwear, nightwear and similar articles of textile fabrics, knitted or crocheted (other than those of subgroup 845.2)

844 Women's or girls' coats, capes, jackets, suits, trousers, shorts, shirts, dresses and skirts, underwear, nightwear and similar articles of textile fabrics, knitted or crocheted (other than those of subgroup 845.2)

845 Articles of apparel, of textile fabrics, whether or not knitted or crocheted, n.e.s. 846 Clothing accessories, of textile fabrics, whether or not knitted or crocheted

(other than those for babies) 848 Articles of apparel and clothing accessories of other than textile fabrics;

headgear of all materials

Panel 17 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 841 Men's or boys' coats, capes, jackets, suits, blazers, trousers, shorts, shirts, underwear,

nightwear and similar articles of textile fabrics, not knitted or crocheted (other than those of subgroup 845.2)

8411 Overcoats, car coats, capes, cloaks, anoraks (including ski jackets), windcheaters, wind jackets and similar articles (other than those of subgroup 841.2 and heading 841.3).

8412 Suits and ensembles 8413 Jackets and blazers 8414 Trousers, bib and brace overalls, breeches and shorts 8415 Shirts 8416 Singlets and other vests, underpants, briefs, nightshirts, pyjamas, bathrobes, dressing-

gowns and similar articles

133

Panel 18 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 842 Women's or girls' coats, capes, jackets, suits, trousers, shorts, shirts, dresses and

skirts, underwear, nightwear and similar articles of textile fabrics, not knitted or crocheted (other than those of subgroup 845.2)

8421 Overcoats, car coats, capes, cloaks, anoraks (including ski jackets), windcheaters, wind jackets and similar articles (other than those of heading 842.3)

8422 Suits and ensembles 8423 Jackets and blazers 8424 Dresses 8425 Skirts and divided skirts 8426 Trousers, bib and brace overalls, breeches and shorts 8427 Blouses, shirts and shirt blouses 8428 Singlets and other vests, slips, petticoats, briefs, panties, nightdresses, pyjamas,

negligées, bathrobes, dressing-gowns and similar articles

Panel 19 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 843 Men's or boys' coats, capes, jackets, suits, blazers, trousers, shorts, shirts,

underwear, nightwear and similar articles of textile fabrics, knitted or crocheted (other than those of subgroup 845.2)

8431 Overcoats, car coats, capes, cloaks, anoraks (including ski jackets), windcheaters, wind jackets and similar articles (other than those of heading 843.23)

8432 Suits, ensembles, jackets, blazers, trousers, bib and brace overalls, breeches and shorts

8437 Shirts 8438 Underpants, briefs, nightshirts, pyjamas, bathrobes, dressing-gowns and similar

articles

Panel 20 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 844 Women's or girls' coats, capes, jackets, suits, trousers, shorts, shirts, dresses

and skirts, underwear, nightwear and similar articles of textile fabrics, knitted or crocheted (other than those of subgroup 845.2)

8441 Overcoats, car coats, capes, cloaks, anoraks (including ski jackets), windcheaters, wind jackets and similar articles (other than those of heading 844.23)

8442 Suits, ensembles, jackets, blazers, dresses, skirts, divided skirts, trousers, bib and brace overalls, breeches and shorts

8447 Blouses, shirts and shirt blouses 8448 Slips, petticoats, briefs, panties, nightdresses, pyjamas, negligees, bathrobes,

dressing-gowns and similar articles

Panel 21 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 845 Articles of apparel, of textile fabrics, whether or not knitted or crocheted, n.e.s. 8451 Babies' garments and clothing accessories

134

8452 Garments made up of fabrics of subgroup 657.1 or headings 657.2, 657.32, 657.33 or 657.34

8453 Jerseys, pullovers, cardigans, waistcoats and similar articles, knitted or crocheted

8454 T-shirts, singlets and other vests, knitted or crocheted 8455 Brassières, girdles, corsets, braces, suspenders, garters and similar articles and

parts thereof, whether or not knitted or crocheted. 8456 Swimwear 8458 Other garments, not knitted or crocheted 8459 Other garments, knitted or crocheted

Panel 22 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 846 Clothing accessories, of textile fabrics, whether or not knitted or crocheted

(other than those for babies) 8461 Clothing accessories (other than those for babies), not knitted or crocheted 8462 Panty hose, tights, stockings, socks and other hosiery, including graduated

compression hosiery (for example, stockings for varicose veins) and footwear without applied soles, knitted or crocheted

8469 Gloves, mittens and mitts, knitted or crocheted; other made-up clothing accessories, knitted or crocheted; knitted or crocheted parts of garments or of clothing accessories

Source: Adopted from UN Comtrade (http://comtrade.un.org/db/mr/rfCommoditiesList)

Panel 23 TOTAL All Commodities 8 Miscellaneous manufactured articles 84 Articles of apparel and clothing accessories 848 Articles of apparel and clothing accessories of other than textile fabrics;

headgear of all materials 8481 Articles of apparel and clothing accessories, of leather or of composition

leather (not including gloves, mittens and mitts of heading 894.77) 8482 Articles of apparel and clothing accessories (including gloves), for all purposes,

of plastics or of vulcanized rubber (other than hard rubber) 8483 Articles of apparel, clothing accessories (not including headgear) and other

articles of furskin; artificial fur and articles thereof 8484 Headgear and fittings therefor, n.e.s.

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