The Impact on Bilateral Trade of Potential Pakistan - Japan Free Trade Agreement

The Pakistan Business Council (PBC) recommends that Pakistan seek preferential tariff access for its textile products or at least the same tariffs that Japan applies on these products when imported from ASEAN or Bangladesh. Once Pakistan has built sufficient presence in these textile categories, negotiations can begin for a deeper and more inclusive free trade agreement

This report titled The Impact on Bilateral Trade of a Potential Pakistan – Japan Free Trade Agreement is part of the PBC’s Market Access Series – 2019.

Globally, Japan ranks third in terms of the size of its economy with a nominal GDP in 20I8 of $5.2 trillion. Recently, the 11th round of bilateral negotiations at the government level were held in Tokyo, with both governments highlighting the need for strengthening cooperation in the areas of trade and investments. One of the options considered for increasing bilateral trade was the signing of a Free Trade Agreement (FTA) or a Preferential Trade Agreement (PTA) between the two countries.

In the recent past, Pakistan has had a consistent trade deficit with Japan. In 2018, Pakistan’s trade deficit with Japan was worth nearly $2.1 billion.

Bilateral Trade of Potential Pakistan - Japan Free Trade Agreement

Pakistan’s top exports to Japan are classified in the categories of textiles; ‘Cotton’ (HS-52) and ‘Apparel and Home Textiles’ (HS 61-63); fish and crustaceans (HS-03); articles of iron and steel (HS-73); articles of leather (HS-42); oil seeds and oleaginous fruits (HS-12); surgical instruments (HS-90) and copper articles (HS-74). Textiles are Pakistan’s major exports to Japan having a 56.3 percent share in total exports.

Pakistan’s top imports from Japan are classified in the categories of vehicles (HS-87), iron and steel (HS-72), machinery (HS-84), surgical instruments (HS-90), electrical machinery (HS-85), man-made staple fibers (HS-55), floating structures (HS-89), paper and paperboard (HS-48) and household tools (HS-82). Pakistan’s imports from Japan are mostly concentrated in the transportation sector and which contributed 50.5 percent to total imports from Japan in 2018.



Whereas, Pakistan’s actual exports to Japan in 2018 amounted to $216.1 million, the total trade potential within just the top 100 high potential products exported by Pakistan to Japan at HS-06-digit level was $6.6 billion. The exports of these top 100 products in 2018 to Japan were only $132.7 million. However, Pakistan’s exports of these top 100 items to the world in 2018 amounted to $12.3 billion. The products with significant potential include ‘Toilet linen and kitchen linen’ [HS-630260], ‘Semi-milled or wholly milled rice’ [HS-100630], ‘Undenatured ethyl alcohol’ [HS-220710], ‘Instruments and appliances used in medical…’ [HS-901890] and ‘Men or boys trousers…’ [HS-620342].

Pakistan’s highest export potential of $540.0 million is for ‘Toilet linen and kitchen linen’ [HS-630260] where the tariff faced by Pakistan is significantly higher than that faced by other trading partners. As much as 50.8 percent of Pakistan’s total trade potential is covered by items under the textile category.

The calculations of bilateral revealed comparative advantage (BRCA) shows that 26 of the 100 high potential export items have BRCA > 1 indicting that these items weigh heavier in Pakistan’s export basket to Japan then they do in its export basket to the world. These 26 items with a BRCA > 1, represent total trade potential of $1.7 billion.

This report analysis Japan’s textile imports patterns and Pakistan’s position in the Japanese textile markets. Japan’s textile imports are concentrated in terms of sourcing countries. China is the dominant supplier with 62.0 percent in knitted and 58.0 percent in the woven apparel sector. For Pakistan’s high potential exports to Japan, Japan imposes the MFN tariff on Pakistani exports as compared to zero tariffs on these same products when they are imported from ASEAN or from India. Bangladesh benefits from duty-exemptions as it is classified as an LDC.

In Japan’s case, actual exports to Pakistan in 2018 amounted to $2.1 billion, however, the total trade potential within the top 50 high potential products exported by Japan to Pakistan at HS-06-digit level was $9.9 billion. The products with significant trade potential include; ‘Waste and scrap of iron or steel’ [HS-720449], ‘Medicaments consisting of mixed or unmixed products for therapeutic …’ [HS-300490] and ‘Motor cars and other motor vehicles principally designed for the transport of persons’ [HS-870321].

Japan’s highest export potential of $947.4 million is in ‘Waste and scrap of iron or steel’ [HS-720449] and here the MFN tariff applied by Pakistan on Japan is comparatively higher than the rates applied by Pakistan on its FTA/PTA partners. In Japan’s case, 29.8 percent, 22.7 percent and 14.1 percent of the total trade potential for the top 100 high potential items are covered under machinery, base metals and vehicles respectively. No concession is offered by Pakistan on any of the high potential Japanese exports to Pakistan

A simulation was run to evaluate the impact of a hypothetical FTA on bilateral trade, the simulation showed that Pakistan’s exports to Japan would grow by 15.2 percent, while Japan’s exports to Pakistan would grow by approximately 58.0 percent. Pakistan is also a beneficiary of Japan’s GSP program under which Pakistan exported goods worth 17.3 million to Japan in 2018.

The PBC is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 82) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about PBC, its members, objectives and activities can be found on its website: