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Pakistan-Turkey Economic and Trade Relations | Impediments and the Way Forward

Pak-Turkey Relations

The people of Pakistan and Turkey enjoy brotherly relations that are not only deep rooted  in history but also are based  on shared values and common national interests. The history of this rewarding relationship can be traced back to even before the formation of   Republic of Turkey in 1923 and Islamic Republic of Pakistan in 1947. Since the establishment of Pakistan, both countries have been extending exemplary  exemplary  support to each other during the most difficult times. Notwithstanding Pakistan-Turkey relationship is at best in political and cultural spheres,  trade and economic relations do not reflect the depth of these brotherly ties and much is to be achieved in this area  by the both governments and private sector businessmen of the two countries.

To say that Pakistan and Turkey have cordial relations would be an understatement. The affinity amongst the people of the two countries, nurtured by decades-old cultural, religious and geopolitical links is an almost unparalleled phenomenon in the history of bilateral relations between states. Although, the political and military relations between both countries have been moving forward in a very positive atmosphere, bilateral economic ties are at a very low point considering their potential. Bilateral trade decreased from $1.082 billion in 2010-11 to $630.467 million in 2011-12, a 42 percent decrease from last year. Pakistan’s exports decreased from $906.58 million in 2010-11 to $455.83 million in 2011-12, which is a 50 percent decrease from last year. Pakistan’s imports from Turkey showed a small decrease from $176.26 million in 2010-11 to $174.63 million in 2011-12 which was only one percent decrease. Hence, the balance of payment has been in favour of Pakistan for the last 12 years as Pakistan exports to Turkey are textile raw materials i.e. cotton yarn, cotton cloth, denim cloth etc. and imports mostly raw material from the country.

Impediments

The major impediments relate to the governments of both countries who should facilitate and then leave business to the  business community of the two countries.

1. Countervailing Safeguard Import Duties

Turkish Government, in order to protect their textile industry, imposed “Countervailing Safeguard” import duties on textile products and textile raw material from all over the world including Pakistan in early 2011. Since then Pakistan’s textile exports to Turkey have nosedived, thus adversely affecting the bilateral trade volume.
Pakistan has taken up the issue with relevant Turkish authorities. Moreover, in the Joint Business Council meeting at Karachi in October 2011, the matter was discussed and some leading textile importers from Turkey pointed out that already low bilateral trade will further sharply fall as textile raw material from Pakistan is used for value addition in Turkey.

2. No Preferential Trading Agreement

In spite of very cordial relations between the two sides, no Preferential Trading Agreement (PTA) exists between the two countries despite many meetings/negotiations since 2011. This is an era of regional trade and FTAs and PTAs which bring WIN-WIN situation to concerned countries but unfortunately no such agreement exists even in ECO region of which both countries are members. However, it is encouraging that both countries are engaged in talks over Preferential Trade Agreement (PTA) and Pakistan is requesting inclusion of exemption clause in trade defence laws. Earlier, Turkey did not favour signing the Preferential Trade Agreement (PTA) with Pakistan because Ankara was worried that Turkey’s labour-intensive sectors – the textile sector in particular — would suffer. However, at this current juncture, Ankara and Islamabad both receive the idea of signing the agreement favourably, with the aim of lending impetus to bilateral relations.

3. No Rail or Road Infrastructure

Another major impediment to improving Pakistan-Turkey economic and trade ties is that there is no road or train transportation between the two countries. It results is delayed shipments of imports and exports. Presently, the only means of transportation is shipping which takes 25/30 days between Karachi and main Turkish ports. However, In June last year Turkish Ambassador to Pakistan, Sadik Babur Girgin, said that Pakistan and Turkey were taking steps to establish road and rail links between them in the framework of the Economic Cooperation for Development.

Unfortunately, the Islamabad-Tehran-Istanbul (ITI) freight train, which made test runs in 2010 reaching in 14 days, has not taken off mainly due to operational problems (lack of locomotives etc) from Pakistan side. The project, which was launched with the support of the ECO, was hailed as an important initiative by Pakistan, Iran and Turkey to foster trade through railway link among them.

The bright side is that now Pakistan Railways has successfully restarted its freight trains within the country and new locomotives are being inducted in the system. The Government of Pakistan should immediately take measures to start trains on this important route.

4. Lacking Institutional Cooperation

Despite the fact that almost every prime minister and president who has ever held office in either Turkey or Pakistan has paid the other a visit before the end of their term in office. the two countries have failed to build a comprehensive institutional framework that could coincide with the positive trajectory of their bilateral relations. To remedy this, relations between the two countries gained a structural form in 2009 with the establishment of the High Level Cooperation Council (HLCC) mechanism. The third meeting of the HLCC was convened on September 17, 2013, during which over 40 documents were signed jointly by Pakistan and Turkey.

5. Flawed Logistics Network

Another basic reason why bilateral commercial and economic relations have not developed to a substantial level is due to the lacuna of a well-functioning logistics network between Turkey and Pakistan. The shortest and fastest way to transport goods between Turkey and Pakistan is the route across Iran. While Turkey, Pakistan and Iran constantly underscore their trilateral economic cooperation in the Baghdad Pact, the Regional Cooperation for Development (RCD) and now the Economic Cooperation Organization (ECO), this trilateral economic cooperation and the logistical infrastructure have so far remained underdeveloped. At this point, the fundamental source of the problem is the substantial set of obstacles that Iran puts before the Turkish cargo vehicles carrying goods in transit to Central Asia, Afghanistan and Pakistan.

The Way forward

1. Government of Turkey should Reconsider its decision and exempt Pakistan from Countervailing Duty on Textiles Raw Materials and also allow Pakistan the GSP PLUS status as they are Members of EU Customs Union since 1996.

2.  Governments of Turkey and Pakistan should find ways and means to come to an agreement for earliest Conclusion of PTA for which discussions/negotiations are taking place since 2011 without success. For FTA (Free Trade Agreement), Pakistan may also start negotiations with European Union in order to conclude this Agreement with Turkey. While signing the PTA will mark an important step, it won’t be enough by itself. It should be reinforced with incentives targeting the private sector, and bolstered with people-to-people contact.

3. Efforts are required for early conclusion of ECO Trade Agreement (ECOTA), which covers ten countries including Turkey, for reduced import tariff. The ECOTA envisages lowering of tariffs up to a maximum of 15pc for all ECO members during the next 8 years. The Agreement highlights equitable distribution of trade benefits to all member states

4. Government of Pakistan should endeavour to facilitate Islamabad-Tehran-Istanbul (ITI) railway route at the earliest and ensure tight schedules to gain confidence of private sector. It is pertinent to mention that the fright rates should be competitive and schedules should be strictly adhered to in order to win the confidence of the business community. Pakistan Railways can target the trade volume of $1.6 billion with Turkey and Iran.

5. Earliest accession should be given by the government to the TIR Convention early for ECO region in order to have speedy and competitive road transportation by trucks and trailers. The private sectors of both countries also have an important role to introduce each other’s products and create awareness by way of participating in trade fairs.

Currently, Turkey is the 17th largest economy of the world. It literally produces everything from raw material to finished goods as well as high tech products. With reduced rate of duties (under PTA), there is a large scope of Turkish products to enter Pakistani market which will lead to more joint ventures between the two sides. The bilateral trade figures can go beyond $2.S billion if the respective governments remove hurdles.

All in all, Turkey and Pakistan are two countries that share a long-lasting and strong friendly relationship. It is necessary that these friendly relations promote a perspective for the future that is based on a shared vision, and if this is done, relations will continue to develop. However, if the mutual relationship is not turned into an economic partnership, the desire for better relations will not be met.

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