Pakistan Business Council (PBC), a non-profit advocacy forum, has observed that Free Trade Agreement (FTA) with Turkey would be more beneficial for Turkey as compared to Pakistan, urging the Commerce Ministry to focus on accuracy of data and tariff elimination across high potential exports particularly those in which the exporter has a comparative advantage.
Pakistan exported products worth $235 million to Turkey and imported products worth $205 million leading to a surplus of $30 million for Pakistan. Exports fell over 2014, while imports rose slightly, reducing Pakistan's surplus. According to second review of the feasibility of a FTA, the PBC said that Pakistan and Turkey are not each other's major trading partners, nevertheless, Pakistan trades more intensely with Turkey than vice versa. Turkey's share in Pakistan's exports and imports is 1% and 0.5% (respectively), while Pakistan's share in Turkey's exports and imports is 0.1% and 0.2% (respectively).
The magnitude of the discrepancy in figures reported by Pakistan and Turkey in 2015 was higher compared to that in the previous year. In 2015, the discrepancy in the figure of exports of Pakistan to Turkey was $72 million and of Turkey to Pakistan was $84 million. Over 50% of Pakistan's exports to Turkey (at the 2-digit level) comprised of cotton and faced a tariff of 3.6% from Turkey.
Pakistan's imports from Turkey were more diversified; six products accounted for the top 50% share. These products and the tariffs they faced from Pakistan include machinery, nuclear reactors and boilers (10.1%); electrical and electronic equipment (14.3%); plastic and articles of plastic (11.9%); organic chemicals (6.9%); man-made staple fibers (12%); and iron and steel (16.9%).
The scope of Turkey for increasing exports to Pakistan is greater than the other way around: (i) Turkey's export portfolio complements Pakistan's import products more strongly than Pakistan's export portfolio complements Turkey's import products. 52% of what Turkey exports matches Pakistan's imports while only 19% of what Pakistan exports matches Turkey's imports. This means that Turkey is more likely to experience increased exports from an FTA if trade between the two countries is liberalised; (ii) the potential of Turkey to export to Pakistan ($12.8 billion) is almost three times higher than the potential of Pakistan to export to Turkey ($5 billion); and (iii) Pakistan already faces low tariffs from Turkey on its top 10 high potential exports. However, Turkey's top 10 high potential exports face high tariffs from Pakistan. This means that Turkey has more room to press for reduction in tariffs.
However, there are a greater number of high potential exports of Pakistan which are facing higher tariffs than Turkey's FTA partners Egypt, Jordan and South Korea. While Pakistan's tariffs on high potential exports are lower than Turkey's PTA partners, Malaysia and Singapore, and closer to those of South Korea these tariffs do not really impact either Malaysia, Singapore or South Korea as these items are not of high export interest for these countries. Further, since the FTA with Singapore is yet to be enforced and the FTA with Malaysia was put into force only last year the tariffs may decrease in the future. Pakistan's tariffs for Turkey's high potential exports, though high, are closer to the tariffs Pakistan's FTA partners, China, Sri Lanka and Malaysia, are facing. Of the ten products of each country with the highest export potential, there are only two products in which Pakistan has a comparative advantage and Turkey has a comparative disadvantage, compared to six products in which Turkey has a comparative advantage and Pakistan has a comparative disadvantage.
The study further revealed that Pakistan has the highest export potential (at the 6-digit level) in "Instruments and appliances used in medical, surgical or veterinary sciences, n.e.s.", which is also the 14th major product exported by Pakistan to Turkey; and Turkey has the highest export potential (at the 6-digit level) in "Motor cars and other motor vehicles with engine of a cylinder capacity <= 1.000 cmA3", a product that is not currently exported by Turkey to Pakistan".
Tariff and trade simulation showed that a hypothetical FTA, which would have reduced the tariffs put by one country on the other to zero in 2015, would have increased exports of Turkey by 32% and of Pakistan by 22%. The greatest increase in export value of Pakistan was estimated to be in the product "Denim, containing >=85% cotton by weight and weighing >200 g/mA2, made of yarn of different" of $8 million (original duty rate 6.40%). The greatest increase in export value of Turkey was estimated to be in the product "Sanitary towels (pads) and tampons, napkins and napkin liners for babies, and similar articles, of any material" of $4 million (original duty rate 18.57%).
Pakistan is facing anti-dumping duties on yarn of man-made/synthetic/artificial staple fibers since 2014 and wall-type split air conditioners and their outdoor and indoor units since 2011. Moreover, Pakistan's polyethylene terephthalate exports and cotton fabric and readymade garment exports to Turkey suffer as a result of Turkey's global safeguard measures on them since 2011. Turkey had also placed safeguard measures on its imports of cotton yarn (other than sewing thread) in 2008 however these were repealed in 2012.
The PBC has submitted the following recommendations;(i) Pakistan should emphasise on pressing for tariff reductions on its high potential export products while the tariffs faced by the top 10 high potential items of Pakistan are low (9.6% or below), there is a significant difference between tariffs placed on Pakistan and Turkey's FTA partners, Egypt and Jordan;(ii) Pakistan should press for an FTA similar to Turkey's FTAs with Jordan and Egypt rather than with South Korea, Malaysia and Singapore. Pakistan must ensure that the concessions offered by Turkey for Pakistan's high potential items should ideally be better than those offered by Turkey to its other FTA partners, especially Jordan and Egypt. The terms offered by Turkey to South Korea, Malaysia and Singapore, mainly due to the nature of their exports, might not really help Pakistani companies benefit from an FTA with Turkey ;(iii) Pakistan's Ministry of Commerce must take the business community on-board while negotiating the FTA. It is important that the MoC work closely with Pakistani businesses who export to or who have experience of Turkey's domestic markets. This will help identify Non-Tariff Barriers which can potentially impact the viability of Pakistan's exports to Turkey under an FTA; (iv) Turkey's excessive use of Trade Defence tools must be addressed in the negotiations. Pakistan is still subjected to anti-dumping duties on yarn of man-made/synthetic/ artificial staple fibers; and wall-type split air conditioners and their outdoor and indoor units. Moreover, Pakistan's exports also suffer as a result of Turkey's global safeguard measures on polyethylene terephthalate, and on cotton fabric and readymade garments.
Therefore, Turkey's intensive use of trade defence tools needs to be addressed in the FTA and ;(v) Both countries must do away with the discrepancies in their reported data. Discrepancies in reported data weaken the foundation on which the bilateral trade policy is made. Conclusions drawn from incorrect data can seriously injure exporters of both countries. Therefore, it is imperative that an effort is made to increase accuracy at both ends and reconcile data.