Business

Pakistan’s free trade agreement talks with Turkey nearing collapse

The commerce ministry has asked the government for clearance to take a long simmering dispute with Turkey to the World Trade Organisation (WTO) after prolonged discussions on a Free Trade Agreement (FTA) between the two countries have hit an impasse.
At issue is grant of GSP+ status by Turkey that Pakistan argues is an obligation given that Turkey and the European Union are part of a customs union. The ministry is arguing that out of the countries that enjoy GSP+ status with the EU, Turkey has extended the same status to all except Armenia and Pakistan.
Also, Pakistan has asked for a reversal of a set of additional duties that the Turkish government imposed on Pakistani products having high export potential in the Turkish market back in 2011.
In the seven rounds of FTA talks held since February 2015, Pakistan has repeatedly raised the matter of additional duties but no breakthrough has been achieved.
The products in question are cotton fabrics, apparel and home textiles, carpets, manmade fibres, plastics and footwear. The additional duties range from 20 to 50 per cent, bringing the total duties on these critical products to between 28 and 67pc when combined with other duties also applicable on them.
As a result, Pakistan’s exports to Turkey plummeted from $906 million in 2011 to $282m in 2017, a decline of 69pc.
The commerce ministry believes that the Turkish government is under an obligation to extend GSP+ status to Pakistan because the former is a member of the EU customs union, a demand that was first presented to the Turkish authorities in 2014. It was in response to this demand that the Turkish government proposed an FTA instead, talks for which were launched the following year.
In the seventh round of FTA talks in June 2017, Pakistan asked either for an extension of GSP+ status by Turkey or for the two countries to grant tariff concessions to each other, extending the lowest tariff that they may have granted to any other country under any FTA. For its part, the Turkish side, according to a source from the Pakistani team present at the meeting, proposed a 25pc reduction in the additional duties imposed in 2011, with the reductions spread over a five-year period and some of the duties possibly phasing out over 11 years.
Pakistan rejected that proposal, and the commerce ministry asked the top political leadership to intervene and press the Turkish side to show greater flexibility.
It suggested that if the intervention failed retaliatory tariffs could be imposed on Turkish products. None of the two recommendations were, however, adopted.
In December last year, the matter was again discussed at the meeting of the Pakistan-Turkey Joint Working Group, which is different from the FTA talks.
The Turkish side, according to the source present at the meeting, said it is not offering GSP+ status to other countries beyond those that already enjoy it.
Another attempt was made to achieve a breakthrough on the sidelines of the WTO ministerial meeting later that month in Buenos Aires, Argentina, again without any success. In fact at that event no meeting between the Pakistani and Turkish trade delegations could take place.
The FTA talks between Pakistan and Turkey have been extended twice. Originally they were supposed to conclude in 2016, but the date was extended to May 2017.
At present, no further meetings are scheduled, and the commerce ministry has formally asked the cabinet for permission to take up the Turkish refusal to either reduce its additional duties or extend GSP+ status in line with the EU, with the WTO, thereby elevating the issue to a trade dispute between the two countries.