PTA With Turkey Revised

Islamic Republic of Iran Customs Administration has published a new list of goods that will be eligible for reduced import tariffs as part of a Preferential Trade Agreement with Turkey.

The new list comprises 23 commodities, including steel products, home appliances and furniture, among other items, whose current import tariffs will be lowered by 30%, according to the IRICA statement published on its website.

The items that mostly include products with high tariffs of up to 55%, were entitled to 20% discount based on the previous PTA list.

The new tariff cuts were approved by the Trade Promotion Organization of Iran on January 15, and are currently in effect, the statement says.

Iran-Turkey preferential trade agreement was signed in January 2014, when former Turkish Prime Minister Recep Tayyip Erdogan (now president) paid an official visit to Tehran. But it took a year for the deal to take effect.

Based on the initial agreement, Turkey lowered tariffs for 125 Iranian goods, in return for Iran reducing rates for 140 Turkish items.

Minister of Industries Mohammadreza Nematzadeh discussed the review of the PTA list with the Turkish Minister of Economy Nihat Zeybekci in a visit to Turkey earlier this month.

Both sides sought to update and upgrade the list. Though, the IRICA statement did not mention the changes Turkey might have made to the list of Iranian goods it imports.

This is not the first time the PTA is revised. Both sides have reviewed the list in the past on several occasions.

The preferential tariff system, which requires both countries to levy lower rates of duty on imports from each other than they do on imports from other countries, is expected to ease two-way trade in goods and services.

As Iran is not a member of the World Trade Organization, pursuing preferential agreements with other countries seems to be the only way to enhance its commercial ties.

Meanwhile, Iran and Turkey are looking at the prospects of upgrading the agreement to a full-blown free trade deal in the future, in line with their goal to increase mutual trade to $30 billion per annum.

According to IRICA data, Iran imported $2.02 billion worth of non-oil goods to Turkey during the nine months of the current fiscal year that ends in March, registering a 10% decline compared to the year before. Gas, copper, aluminum, steel, zinc, petrochemicals, watermelon, pistachio and raisin were among the main exports.

Iran's exports to Turkey stood at $2.71 billion during the same period, which indicates a 10% drop year over year. The imports mainly included bananas, grain, cigarette, tobacco, machinery, timber, cotton, beans, steel, pharmaceuticals, paper, shampoo and apparel.

> Controversy

Experts believe PTAs will lead to improved quality of domestic products by increasing competition in the local market. Another advantage, they argue, is that these agreements help regulate imports and help fight smuggling.

Nonetheless, the government has come under fire by domestic producers for its policy to periodically review and decrease import tariffs. Ever since the PTA with Turkey went into effect, critics have complained that the reduced tariffs is in Turkey’s favor.

The recent tariff cuts on home appliances, including dishwashers, washing machines, refrigerators and air conditioners, which are regularly subject to 40% tariff rates, have not been welcomed by domestic industries.

Meanwhile, PTA advocates believe the tariffs on goods imported to Iran are among the highest in the world and that the discounts still keep them higher than the international average. The latest Iran-Turkey PTA revision will only reduce the existing tariff on home appliances to 28%.

PTA supporters refer to control of smuggling as the main benefit of these agreements. Some say reducing tariff rates or even removing them altogether is the best way to combat smuggling, which experts believe is the main hurdle to growth in the domestic manufacturing sector.

Iran has the largest share of contraband apparel imports from Turkey, for instance. This was expected to change for the better following tariff discounts implemented in the initial version of the PTA list, though textile industry players opposed it.

In May last year, Iran excluded textile from the PTA list, meaning clothing imports from the neighboring country no longer enjoyed lower import tariffs. Iran Textile Association welcomed the move, saying it would bring positive change to the domestic textile industry.

Around $2.6 billion worth of clothing is imported to Iran every year, according to members of apparel unions. However, twice this amount is smuggled into the country.