Najam Ul Hassan Naqvi

Pakistan’s journey towards economic prosperity has, at times, seemed insurmountable. Calls evoking urgency for economic revival frequently make headlines, yet the follow-through on ambitious plans often falls short. For any economy, the policy precepts to flourishment are the same: relative ease of doing business domestically, coupled with the transnational flow of goods, labor, capital, and technology. Unfortunately, Pakistan’s intra-regional trade volume and integration have remained woefully low despite immense potential — a major obstacle to sustainable growth. However, a renewed commitment to the fundamentals of economic development has shown promise. In a positive move to redefine Pakistan’s economic trajectory, the country launched negotiations with the Republic of Korea on 9 January 2025 to finalize a comprehensive Economic Partnership Agreement (EPA).

Inching closer to the ideal of free trade, the EPA demonstrates a mutual commitment to enhance trade, investment and supply chain resilience. Both sides led the talks at the highest level, signaling a serious intent. Pointing to the modest bilateral trade, Pakistan’s Commerce Minister, Jam Kamal Khan noted the immense untapped potential for “cooperation across diverse sectors such as food, IT, minerals, textiles, and logistics,” hoping to double the trade volume. Korea’s Minister for Trade, Inkyo Cheong, equally enthusiastic about the prospects, emphasized that “Pakistan’s geographical location and its vast market of 250 million people make it a critical partner for Korea’s economic growth plans.” He also hinted at shifting some of the Korean industrial base to Pakistan, aimed at exploiting Pakistan’s potential as a low-cost manufacturing hub to target East African and Central Asian markets.

This burgeoning partnership, however, is not merely a product of modern economic interests; it is a relationship rooted in a rich history, long predating the establishment of formal diplomatic relations in 1983. Historical accounts point to the Maranatha, a historical Buddhist monk, born in Lahore, Pakistan, credited with first spreading Buddhism in the Korean Peninsula, in the 4th century. The famous 8th-century arduous journey of Hyecho from Korea’s Silla Kingdom to Pakistan’s Taxila also stands as a testament to centuries-old ties between the two nations. In modern history, during the Korean War (1950), Pakistan, despite its nascent stage, sent monetary aid to South Korea. South Korea has returned in kind during disasters like floods, earthquakes, and the management of Afghan refugees. The establishment of Pakistan’s first information technology park in Islamabad, with loans from Exim Bank South Korea, in 2017, serves as a tangible symbol of this enduring fraternal bond.

Building on this historical foundation, the contemporary economic relationship is characterized by growing trade, significant financial and technical assistance, and increasing private-sector engagement. South Korea’s commitment to Pakistan’s development is bolstered by Economic Development Cooperation Fund (EDCF) loans, which were raised to $1 billion for 2022-2026. Korean private sector including Hyundai, Kia, Samsung and hydroelectrical power giants, realizing massive market potential, have expanded its footprint. Likewise, more than 10,000 Pakistanis are currently employed in South Korea. The number has been steadily climbing since the annual quota for Pakistani workers was increased to 3,800 new employees per year in 2023. The presence of 1,627 Pakistani students in Korean universities further strengthens these economic and cultural ties.
Despite these positive developments the total bilateral trade between the two nations stands at a relatively unimpressive $1.3 billion, with a significant trade deficit for Pakistan. Pakistan mainly exports unprocessed goods or raw materials like cotton and minerals. Whereas South Korea earned about $300 million through exporting cars, the largest share of exports. While it highlights a lack of economic complexity in Pakistan’s export-base, it presents a rich opportunity for South Korean capital and technology investment.

With EPA on the horizon, Pakistan is in a unique place to capitalize on the economic opportunities. This opportune position is best represented by the 2024 emphasis of the Korean Ambassador Park Ki Jun that Pakistan and South Korea can undertake mega projects in diverse fields on the pattern of China-Pakistan Economic Corridor. To fully leverage this window of opportunity, strategic interventions in the key areas are crucial.

The most promising avenue— best suited to Pakistan’s need to provide employment to a bulging young population— is addressing the needs of the South Korean labor market. Pakistan with liquidity issues and underemployment can perfectly complement the aging problem of the South Korean economy with its large and trained workforce. However, such a step would require large-scale training programs tailored to Korean industry and streamlining of recruitment processes. Further expanding student exchange programs for Pakistani students in South Korean universities would contribute to this cause.

Besides workforce export, Pakistan with its large market as well as the pool of inexpensive labor presents an attractive opportunity for South Korean manufacturers and service industry to expand their operations. Its existing liberal investment policies, coupled with conducive conditions such as Special Economic Zones, can attract significant Foreign Direct Investment (FDI) from Korean businesses in joint ventures. Especially targeting car manufacturers to relocate to Pakistan under the EPA can help Pakistan in significant import substitution. Pakistan can become a forward manufacturing hub for Central Asian and African markets, earning handsome revenue for both joint venture partners.

While the EPA is a welcome development, it is not an exhaustive step. Pakistan’s neighbors, China and India, already enjoy Free Trade Agreements (FTA) with South Korea. The domestic production dynamics and ease of business factors aside, Pakistan currently trails behind these competitors who also produce largely similar goods as Pakistan, due to relatively less freer trade arrangements. Therefore, the EPA may be elevated to a full-fledged FTA in medium-term, as soon as possible.
Beyond the sphere of pure economics also lies an opportunity to strengthen people-to-people relations by building on the ancient Buddhist connections. To this end, two key steps are desirable. First, establishing a shared research facility in Pakistan specializing in Korean Buddhist history, which would facilitate cultural and academic exchange. Second, developing religious tourism programs for South Korean pilgrims, which would not only boost inter-cultural harmony but earn Pakistan tourism revenue.

In conclusion, the convergence of historical linkages and intensified diplomatic efforts coupled with compelling economic incentives has presented an unparalleled opportunity to Pakistan and Korea. The intended EPA gives Pakistan an instrument to deal with its economic challenges and provides South Korea with a path to realize its economic plans. By designing strategic interventions — from labor force mobility and attracting FDI to achieving an FTA — Pakistan can harness the full potential of this partnership. However, its success would depend on addressing structural issues including resistance by interest groups, bureaucratic roadblocks, infrastructure gaps, and security situation. As both nations step into the new phase ushered by the EPA, its effective realization will bank upon the sustained commitment to mutual growth, setting a precedent for integration in the Asia-Pacific region.

Najam Ul Hassan Naqvi is a researcher associated with the Consortium for Asia Pacific Studies (CAPS), Pakistan.