Breathing life into intra-ECO trade through the Gül Train
By Saif Asif Khan
Wednesday, February 13, 2013
It is no hidden secret that the Economic Cooperation Organisation (ECO) has not been the resounding success story, which its founding fathers envisioned it to become; at least as far as the achievement of a respectable degree of intra-bloc trade is concerned. Originally meant to be an emboldened avatar of the erstwhile Regional Cooperation for Development, which was formed in 1967 by Iran, Turkey and Pakistan, ECO has struggled to incorporate the Central Asian Republics seamlessly within its fold. However, despite the passage of time, the latter still appear somewhat hesitant to shed the mantle of Russian influence in favour of greater integration with the RCD founder countries, which remains one of the main reasons why ECO has been unable to achieve its true potential as a viable trade bloc.
Consequently, intraregional trade between the ECO countries annually remains at no more than $40-50 billion, with the lion’s share comprising of trade between Afghanistan and the member countries. Turkey, the only Organisation for Economic Cooperation and Development (OECD) country within the bloc, which has had an average growth rate of 6-7 percent over the past ten years, contributes a mere 4.6 percent to intra-ECO trade, which indicates that there is great room for improvement.
Interestingly enough, while Pakistan’s trade with other ECO countries remains inadequate, trade with Turkey has been pursued vigorously over the past few years, and has emerged as an important part of the country’s trade policy. Our annual textile exports to Turkey are $300 million; which makes Turkey the third largest export market for Pakistani textiles after USA and the EU. Turkish companies have invested no less than $365 million in Pakistan. While the two countries are unable to sign a Free Trade Agreement at the moment due to EU considerations, they have agreed to sign a Preferential Trade Agreement, which is expected to improve the bilateral trade further. Pakistan’s trade with Turkey is currently worth $1 billion, while a goal of $2 billion has been set for the future.
On the other hand, one of the biggest problems in furthering trade with Turkey remains the lack of availability of adequate freight services linking the two countries. Progress on a road link via Iran remains lethargic due to Pakistan’s delay in acceding to the TIR Convention. Likewise, shipping services are also not direct, but also irregular.
It was, then, to traders’ sheer delight when the Gül Train was launched amid much fanfare in 2009, as a service linking the two capital cities of Istanbul and Islamabad via Tehran. Touted as one of the region’s most revolutionary East-West railway lines, the Gül Train’s route is part of the S1 Route of the Southern Corridor of the UNESCAP’s Trans-Asian Railway Network. The idea was initially floated in 2008, while the rail networks of the three countries were finally united after Iran completed the Kerman-Zahidan rail segment in 2009. The total length of the route is 6,476 kms of which 1,900 kms is in Pakistan, 2,570 kms in Iran and 2,006 kms in Turkey. Regular service was commenced in 2010, but the project has unfortunately encountered some problems, as a result of which it lies dormant as of 2012, notwithstanding its vast potential.
Recent regional developments relating to rail transport
However, it is necessary to point out here that the Gül Train cannot be seen in isolation from recent developments with regard to rail transport in the region. Indeed, these developments make it all the more apparent that in future, this trilateral train service can become an important means of furthering trade not just between Pakistan and Turkey, but also between all member states of the ECO bloc. No wonder then that UNESCAP has opined that while the route possesses good advantages for boosting sub-regional trade, it also holds promise for international transit transport across Asia and Europe. It would not be out of order to study some of the changes that have taken place in the region in this respect.
Over the past one or two years, Iran has been engaged in a serious process of upgrading its railways network, and building new connections (notably, a link from Kerman to Zahidan, and another, from Mashhad to Herat). These links will connect Iran with India, and also run through Afghanistan to Tajikistan. With India’s cooperation, Iran is building a railroad linking Chabahar port with Zaranj in Afghanistan. This route will enable transit trade between India and Afghanistan through Chabahar. Iran already has rail linkage with Azerbaijan, and thus with Russia. In 2008, Armenia announced its decision to link up its rail network with Iran, which Russia has agreed to support. The construction of a 1,350 kms railway linking Mashhad and Zahidan to Chabahar was started last year, with another segment joining Mashhad to Gorgan being commenced soon. The Mashhad-Zahidan-Chabahar project envisions a maximum speed of 160 km/hr for passenger trains and 120 km/hr for freight trains. The project is expected to shorten the distance between Central Asia and the Persian Gulf.
At the same time, China is also increasingly playing a vital role in the development of the rail network in the region. In February 2011, Iran and China signed a $13 billion contract, under which China will construct 8 new lines in Iran exceeding 5,000 km. Among these projects is the construction of a 566 km long line, which will eventually connect Iran, Iraq and Syria; thus opening a new route to the Mediterranean Sea. China also plans to build a 300 kms per hour train between Tehran, Qom and Isfahan. It appears that Iran plays a vital role in China’s future strategy of linking Asia and Europe with high-speed railways.
Within Turkey, the quality and technical facilities of Turkish Railways are being gradually improved through public investment. Despite Turkey’s traditional reliance on road transport as the principal carrier of freight, a commitment to invest $45 billion has been made in a project of expansion up until 2035, encompassing the addition of more than 10,000 kms of high-speed track and 5,000 kms of conventional track. The new high-speed lines will be double track and electrified. New freight hubs are also being planned around the country.
The takeaway from the discussion above is that the Gül Train can potentially link up with this web of new lines being laid across Iran and Turkey, thereby connecting all ECO states with Central Asia, and beyond, to Russia and Europe. The total length of railways in the ECO region is 52,067 km. At the same time, the ECO Region is located at the crossroads of the main international North-South and East-West corridors spanning the region, so interconnectivity between the rail networks would serve the entire region. This should be enough to convince an astute reader that the Gül Train is a promising project having implications for countries outside of the three existing partners: Iran, Pakistan and Turkey. In fact, making it viable will also serve to further develop trade opportunities between all the ECO member states, which necessitates an analysis of why the concept has not managed to takeoff.
So what ails the Gül Train?
The Gül Train enjoys some significant advantages over competing carriers of freight, which should make it an attractive mode of transportation. A major advantage of the existing route is that the number of border crossings is very limited (just two), thereby reducing the stoppage time. It can also be faster than both sea and road transport, provided that the existing inefficiencies are removed. It takes up to 37 days by sea and 17 days by road to transport a container to Istanbul from Islamabad. And with this train?
On the converse, the service suffers from certain drawbacks because of which it has failed to elicit an enthusiastic response from the business community of the member countries. For instance, the lack of adherence to a fixed schedule compromises reliability and ability to deliver consignments on time. Most businessmen contend that the train should have fixed timings and schedules. Although the inaugural train took 14 days to complete the journey from Islamabad and Istanbul, the travel time has oscillated between two to three weeks since then. In June 2012, at a meeting of the ECO Railway Authorities held in Ankara, it was found that the total time is now 18 days: 10 days in Pakistan, followed by 4 days each in Iran and Turkey. Traders’ apprehensions regarding the journey time was one of the main factors for financial losses that forced Pakistan Railways to suspend the train in January 2012.
Naturally, one of the reasons behind the volatility in schedule is the uneven state of rail infrastructure in the three member states. For instance, Pakistan is short on engines, especially on the Quetta-Taftan segment of the track. This section of the track also needs to be upgraded. Pakistan Railways is not technologically advanced enough to cut extra costs without seeking external assistance. On the other hand, other two countries also need to make certain improvements to their infrastructure. The track from Tehran to Razi (Turkish-Iranian border) and from Razi to Ankara is single. The average speed of the train is just 35 km/hr, with the lowest speed recorded along the Turkish segment. The train reaches 160 km/hr only on a section of the track between Samas and Razi in Iran.
High freight charges are another reason why businessmen are reluctant to show interest in the Gül Train. It costs $2,933 to ship a 20 ft container from Islamabad to Istanbul using this service, and $4,229 for a 40 ft container. In terms of capacity of the service, the inaugural train towed 20 containers (14 for Tehran, and 6 for Istanbul), which may also be a matter of debate. Finally, there is some resentment among the business community of Pakistan over lack of consultation regarding the route of the train. For instance, some leading businessmen have pointed out that the service should be from Karachi to Istanbul, rather than from Islamabad. The decision to choose Islamabad was apparently not taken with the unanimous consensus of the business community.
How can we fix these problems?
The Gül Train was supposed to resume service on July 15, 2012 as announced at the meeting in Ankara, but this could not materialise. However, unless the issues identified above are dealt with, the Train will not be able to become a success story.
According to the ECO secretariat’s findings, the travel time in Pakistan can be reduced to 3 days, and that in Turkey can be brought down from six to 3.5 days. So, the total time can be brought down to 10 days. With further infrastructure upgrading, the average speed may be increased and the duration of freight can be further reduced to one week. These refurbishments include upgrading the Quetta-Taftan route, electrification of the Tehran-Tabriz railway, and filling the missing link around Van Lake in Turkey. At the June meeting, the three countries agreed to reduce the scheduled time to nine days, after which it will be in a better position to attract exporters and importers. In particular, Pakistan was asked to cut down its time, which was the highest among the three countries. The Islamic Development Bank has agreed to fund the Quetta-Taftan section of the track, but Pakistan has been requested to provide some further technical information. More detailed studies may also be required to analyse the feasibility, as well as the operational and technical requirements of the route.
In terms of tariff rates, Turkey, Iran and Pakistan have agreed to reduce railway tariffs by more than 30 percent. Over the next seven years, the ECO member countries will reduce tariffs (to below 15 percent) on 80 percent of tradable commodities. However, despite the lag with which the tariff rate adjustment will occur, it cannot be denied that the Gül Train is still more cost effective than road travel, and only marginally more expensive than sea travel. Based on a study conducted by the ECO Secretariat’s team, shipping a 40 ft container from Islamabad to Istanbul by road is the most expensive, at $5,500 per container. By sea, it costs $2,500 for a 20 ft container and $3,250 for a 40 ft container. The price differential between sea and rail is not very significant, but the time saving by rail most certainly is. With some minor adjustment to rail tariff, it is possible that the rail option will become even more attractive.
The author is Director (R&D) at the Federation of Pakistan Chambers of Commerce and Industry (FPCCI). He possesses an MPhil in Economics from the London School of Economics and Political Science (LSE), and has an interest in writing on issues related to regional trade, trade facilitation and industrial development in Pakistan. He also teaches part-time at the Indus Valley School of Art and Architecture and has also taught earlier at both LSE (London) and IBA (Karachi).
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Dont believe that Turkic countries crap,there is no country closer to us then Pakistan.
Pakistan Zindabad!
While slogans are good, i want to see Pakistan and Turkey translating these slogans and goodwill into multibillion dollar trade, as our diplomatic relations are 'weather proof'. Turkey needs to help us build our economy, develop our infrastructure and stabilize Afghanistan.
We can turn ECO into a 'mini power block' for great long term prospects for not only our nations but our C.Asian friends and Iran. Another great prospect is an ECO project which will link 6 ports in Turkey, Iran and Pakistan to our landlocked C.Asian folk.
friendship zindabad.
maybe he meant Bursa.
