Potential for a Pakistan – Turkey Free Trade Agreement

This report titled “Potential for a Pakistan-Turkey Free Trade Agreement” is part of the PBC’s Market Access Series 2020. Since 1995, Turkey has had a customs union with the EU. In December 2013, the EU granted Pakistan GSP+ status from January 1, 2014. Under the terms of the Turkish – EU customs union agreement, Pakistan was eligible for GSP+ status market access from Turkey as well. However, due to the latter’s reluctance, the two countries reached a compromise and agreed to negotiate a bilateral FTA.

Pakistan-Turkey Bilateral Trade

Accounting for a mere 0.79% of Pakistan’s bilateral trade, Turkey is not a significant trading partner for the country. The trade balance has mostly been in favor of Pakistan, except for in 2018 when the surplus changed into a deficit of $55 million. Pakistan’s imports from Turkey have grown at CAGR of 10.0% while its imports to Turkey have declined by 3.2%.

At HS-06 level, Pakistan has an indicative trade potential for the top 25 items amounting to $2.3 billion – for these top 25 items, of these, Pakistan exported a mere $137.4 million to Turkey in 2018. Majority of the products with high potential fall under textile goods. Similarly, the indicative trade potential for the top 25 Turkish exports to Pakistan amounted to $4.6 billion while Turkey exported a mere $37.4 million of those commodities to Pakistan. Most of these high potential products are high-value added and fall under the automobile sector.

All in all, the analysis indicates that Pakistan holds high potential in commodities which have low value addition. Most of these products already have 0.0% tariff applied by Turkey or fall under agricultural products where any sort of concession may be difficult to obtain. The other major class of high potential products fall under the textile category. These also have low value addition as they mainly consist of denim fabric, cotton yarn etc. On the other hand, Turkey holds the potential to export machinery or goods from the auto industry which involve high value addition.

Based on the findings of this study, PBC recommends that Pakistan 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 Pakistan Business Council is a research-based business advocacy body composed of the most significant local and foreign investors with long-term commitment to Pakistan. The PBC pursues advocacy free of sectoral and investor origin biases, “Make-in-Pakistan” is PBC’s primary thrust aimed at creating jobs, value-added exports and encouraging import substitution. More information on the PBC and its areas of research are available on our website: www.pbc.org.pk.