This PBC Study on the feasibility of the proposed Pakistan-Turkey free trade agreement (FTA) updates the previous Study (2015) by reviewing the changes in the past one year which may have impacted the feasibility or otherwise of the proposed FTA. The PBC currently serves on a Taskforce formed by the Ministry of Commerce (MoC) to develop a framework for the negotiations of this FTA. The MoC has indicated that the FTA is expected to be signed before the end of the current year.
Pakistan and Turkey are not each other’s major trading partners, nevertheless, Pakistan’s trade with Turkey as a percentage of Pakistan’s global trade is higher than vice versa. Pakistan’s exports to Turkey are concentrated in cotton while its imports consist of machinery, electrical/electronic equipment, plastic, chemicals, synthetic staple fibers, and iron/steel. Pakistan benefits from a positive, though sharply declining, bilateral trade balance. The deterioration in the surplus was set off by the imposition of global safeguard measures by Turkey on its polyethylene terephthalate, and cotton fabric and readymade garment imports in 2011. In addition, Turkey imposed anti-dumping duties on Pakistani split air-conditioners (2011) and yarn of synthetic staple fibers (2014).
The Study concludes that the benefits of a bilateral FTA are skewed in favor of Turkey. Turkey’s export portfolio fits the import needs of Pakistan better than vice versa; hence, Turkey is more likely to experience increased exports post-FTA. Looking at the potential for both countries to increase their exports to each other, Turkey’s export potential is over 2.5 times larger than Pakistan’s export potential. While Pakistan has the potential to export $5 billion to Turkey, with the greatest potential ($329 million) in the product “Instruments and appliances used in medical/surgical/veterinary sciences”, Turkey has the potential to export $12.8 billion to Pakistan, with the greatest potential ($346 million) in the product “Motor cars and other motor vehicles… capacity <= 1.000 cmÂ³”. Tariff and trade simulation shows that had both countries signed an FTA that eliminated all tariffs in 2015, Turkey’s exports would rise by 32% while Pakistan’s exports would only rise by 22%.
Negotiations need to focus on tariff elimination across high potential exports, particularly those in which the exporter has a comparative advantage and the importer does not. It should be emphasized that Turkey’s FTA partners Egypt and Jordan enjoy tariffs significantly lower than those currently faced by Pakistan; while the tariffs on Turkish exports, though high, are at par with those on the exports of Pakistan’s FTA partners (China, Sri Lanka and Malaysia). Pakistan should also be wary of non-tariff barriers. Tariff elimination alone cannot increase Pakistan’s exports to their 2011 level; those exports can be partly recouped if trade remedy provisions are made part of the FTA.
The Pakistan Business Council (PBC) is a private sector not-for-profit advocacy platform set up in 2005 by 14 (now 55) of Pakistan’s largest businesses. The PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness. More information about the PBC, its members, objectives, activities and a soft-copy of this report can be found on our website: www.pbc.org.pk