Iran proposed a Preferential Trade Agreement (PTA) with India when the head of Trade Promotion Organization (TPO), Valiollah Afkhamirad met with the Additional Secretary to India’s Ministry of Commerce and Industry, Rajani Ranjan Rashmi in March. The matter resurfaced during the recent visit of India’s Commerce Secretary, Rajeev Kher to Tehran to attend the first meeting of the joint working group (JWG) of the two countries, ISNA reported, citing Delhi-based Press Trust of India (PTI).
Although Iran currently has PTAs with nine countries, including Pakistan, Tunisia, Bosnia, Uzbekistan, Kyrgyzstan, Syria, Venezuela, Cuba, and most recently Turkey – with which Iran penned its first PTA in January 2014 – the country accounts for only about 2% of the world’s preferential trade agreements.
Expansion of International Trade
International commerce is the backbone of our modern, commercial world, as producers worldwide seek to maximize their profits from an expanded market, rather than limiting themselves to trading within their own borders. A report by ISNA suggests that international trade surpassed $42 trillion in 2013, which is about 56% of Gross World Product (GWP) in the same year ($75.5 trillion). The benefits of international trade can be reaped further when barriers to trade are somehow tackled, which is why countries seek to expand international trade via trade agreements.
A trade agreement (also known as trade pact) is a wide ranging tax, tariff and trade treaty that often includes investment guarantees. The most common trade agreements are of the preferential and free trade types which are concluded in order to reduce or eliminate tariffs, quotas and other trade restrictions on items traded between the signatories.
A PTA stipulates reduction or elimination of customs duties for a range of selected commodities among the PTA members. In general, a PTA can benefit both signatory countries by making the imported goods more affordable to their citizens as well as giving them a guaranteed market for export.
More Than 400 Global PTAs
More and more countries have been engaging in preferential trade agreements over the past years. It has been estimated that while only about 70 PTAs were signed between countries in 1990, the number grew in the next 20 years so that close to 300 PTAs were in force by 2010. The number of trade agreements is estimated to have surpassed 400 by now.
About two-thirds of these PTAs are signed between developing countries, while more than half of the PTAs have expanded from bilateral agreements to multilateral agreements between a group of countries in different geographical regions.
Iran-Turkey PTA
Iran and Turkey are considered strategic trade partners for each other, one of which enjoys adjacency to the Sea of Oman and international waters in the south as well as vast oil and gas resources, while the other is located between the Mediterranean Sea and the Black Sea, providing a major link between Asia and Europe.
Iranian authorities are hopeful that the PTA with Turkey will help increase the volume of two-way trade to $30 billion from the current $15 billion.
As officials point out, the PTA will also help improve the quality and competitiveness of Iranian products against their foreign rivals, regulate the import of foreign brands and curb the import of contraband goods.
However, the PTA with Turkey has come under criticism by some groups in Tehran who argue that it threatens domestic manufacturers who are unable to compete with Turkish products in terms of quality and price.
Based on the PTA 125 Iranian commodities and 140 Turkish products will be traded at preferential terms.
