The top diplomats of both Pakistan and Turkey describe the diplomatic relationship between Islamabad and Ankara as perfect. Prime Minister Imran Khan and Turkish President Recep Tayyip Erdogan want these close ties to pave the way for higher bilateral trade. And a steady stream of delegations has been making trips back and forth between the two countries, with the latest such visit taking place in November wherein a group of Turkish construction companies met with Pakistani counterparts in Islamabad. That meeting, just as dozens of other encounters before it, ended with pledges of mutual cooperation and shared opportunities.
Yet both governments are still looking for the key that will open the door to a meaningful increase in the flow of goods and services. Talks over a potential free trade agreement had been going on for years. But there has been no progress to report this year and the pushback on a blanket FTA is coming from the private sector. Meanwhile, far from spiraling higher, Pakistan’s exports to Turkey are trending lower over the past decade, and the trade surplus that Islamabad had enjoyed until 2014 has now turned into a deficit.
The Pakistan Business Council which represents 83 of the country’s largest companies claims its members account for 40 percent of the country’s exports. Its research highlights that the country’s top 25 exports to Turkey have an export potential of $2.3 billion. However, the total sum garnered by these sales last year, was a measly $137.4 million. The counter side of the trade is just as disappointing, with Turkey’s top 25 exports to Pakistan managing just $37.4 million against an estimated potential of $4.6 billion. One of the reasons for a precipitous decline in exports to Turkey, is the implementation of higher tariffs on some products by Ankara.
The question arises, why have the two countries not managed to ink deals that can boost trade between them despite so much apparent willingness between them? Based on interactions with influential private sector stakeholder from both countries who have been privy to government consultations, BR Research has learnt that inertia from businesses is a major impediment. In a research report published in June, the PBC urges Islamabad to “disassociate itself from the FTA negotiations and instead insist that Turkey allow Pakistan unilateral market access to which it is entitled under the GSP+ program.” The European Union granted GSP+ status to Pakistan in 2013. Although Turkey is not a part of the EU, it has had a Customs Union pact with the bloc since 1995. But this demand is a non-starter in Ankara.
The Turkish government is dissatisfied with the terms of its agreement with the EU and has for years been pressing for a renegotiated economic deal. Far from a positive response from Brussels, there is more sabre rattling. Tensions in the Eastern Mediterranean with Greece and with France over rising Islamophobia, are the latest road blocks. Until Ankara gets what it wants from its Customs Union with the EU, it’s unlikely to give what Brussels has mandated. Large Turkish manufacturers are just as wary of a FTA as their PBC counterparts. They fear it could open the flood gates for Chinese products.
So, where are we now? Officials on both sides have apparently, found a middle ground. Their consultations are now focused on identifying a finite number of products and services which can be granted freer market access by their respective governments. The idea is a reciprocal arrangement which can facilitate high-potential exports from each side with the hopes of quickly propelling bilateral trade volume.
Although this can help move the ball forward, it is by no means an exhaustive approach towards maximizing the benefits of greater economic ties. There is a broad array of economic linkages that can be forged or strengthened to mutual advantage. But discovering and exploiting them necessitates engaging a more diverse group of businesses, beyond the large corporations that have dominated this discourse till now.