Economy, Domestic Economy

Where Is PTA With Turkey Headed?

Where Is PTA With Turkey Headed?Where Is PTA With Turkey Headed?

Following a streak of objections from the weaving and clothing industries against the controversial preferential trade agreement with Turkey, the Trade Promotion Organization of Iran has finally succumbed and is reviewing the document’s content.

The review would see an increase in import tariffs related to the weaving industry. Valiollah Afkhami-Rad, deputy minister of industries, mines and trade, announced that “in the new list, we have increased the price of some items.”

The PTA was signed in January 2014 and allows each party to individually review tariff rates before going to a joint commission where these adjustments can be either accepted or rejected.

According to the PTA, both sides are open to review tariffs every three months.  

Afkhami-Rad told the press: “Last week it was the turn of the Turkish experts [to review]. Iran is now also assessing its position.”

Most importantly, the import rate of some products has shot up dramatically after the trade agreement was implemented.

The latest figures released by the Turkish Statistical Institute also highlight that the PTA is dramatically shifting the balance of trade between Iran and Turkey.

Imports from Turkey have increased at the significant rate of 32 percent on an annual basis, reaching $1.148 billion between January and April 2015. This figure is up from $871 million in the same period a year earlier (see Graph 1).

From Turkey’s point of view, Iran is Ankara’s 10th biggest export destination. In fact, only slightly over 1 percent of Ankara’s exports go to Iran. Turkish exports to Iran, while shooting up when western sanctions imposed against Iran over its nuclear energy program were tightened in 2012, have also fallen again.

In the Q1 period of this year, Turkey also imported 30 percent less compared to the same duration of last year. Turkey imported goods worth $2.385 billion from Iran, while in Q1 2014, this figure stood at $3.395.

The drop in Turkey’s imports from Iran with a concurrent rise in its exports to Iran may imply that the PTA works in favor of Turkey–a controversial issue already pointed out by economists before the agreement was signed in the first place. Turkey is also a particularly important export market for Iran. Graph 2 shows that about 3 percent of Ankara’s total imports come from Iran.

Nevertheless, the drop in Turkish imports from Iran and the increase in exports to Iran have not prevented the total volume of trade from falling. The value of Ankara-Tehran trade dropped to $3.534 billion between January and April. In comparison, during the same period in 2014, bilateral trade stood at $4.266 billion, implying a year-on-year drop of 17 percent.

Afkhami-Rad defended the PTA, telling Mehr News Agency: “It does not seem that the increase in imports caused by the PTA is worrying, primarily because customs data show Iran’s rate of exports has gone up more than imports from Turkey.”

Iran has since proposed higher tariff rates on weaving products, which will now be reviewed by Turkey.

Seeking to still fears that the PTA-induced growth in imports will dampen the profits of domestic industries, the deputy minister stressed that the agreement allows both countries to increase profits and expand exports.

The recent PTA with Turkey is one of Iran’s first full-blown bilateral trade agreements. In recent years, Iran has been experimenting with liberalizing trade, as the country aims to eventually enter World Trade Organization.

“The PTA between Iran and Turkey is an exercise in preferential trade agreements with other countries as well as a step toward entering WTO. We should not be intimidated by these steps,” said the president of Trade Promotion Organization of Iran.

Currently, Iran is one of the largest economies without WTO membership.  Negotiations between Iran and Turkey on preferential trade had been going on for over 10 years. While the formal PTA was signed last year, it was only implemented this January, which implies how difficult it has been for both countries to move forward on the issue.

Nevertheless, the recent review has not been without criticism. Masoud Daneshmand, president of Iran Economic House, told Taadol newspaper, “It would have been better if trade officials had reviewed some of the items in the PTA earlier.”

Stressing that weaving and clothing producers had from the start complained about this agreement, he said: “These producers always believed that low tariffs would result in imports from Turkey destroying domestic clothing production.”

Nevertheless, he welcomed the review, claiming that “when the review will be introduced to the PTA, the balance of interest will definitely shift in Iran’s favor.”