Baku, Ankara for liberalisation of regional trade Analysis by Caliber.Az

Türkiye has traditionally occupied one of the first places among Azerbaijan's foreign trade partners for many years. Turkish business is the leader in terms of investments in the Azerbaijani non-oil sector, and almost all significant energy and transport projects are also carried out with the fraternal country's participation. Trade and economic cooperation between the two countries has increased even more since the entry into force of the bilateral agreement on preferential trade in March last year. According to World Bank (WB) experts, this experience has demonstrated the existence of a considerable potential for expanding bilateral trade relations, and soon Baku and Ankara may expand the framework of the preferential trade agreement.

Azerbaijani-Turkish fraternal relations, based on the two peoples' cultural, historical and spiritual community, are supported by the coincidence of views on all key issues of the political, defence and regional agenda. At the same time, the strategic alliance of the two states is based on a solid economic foundation - joint energy and transport projects, multi-billion dollar mutual investments in the petrochemical and mining industries, construction, food and weaving industries, hospitality, tourism and many other areas. Over the past two decades, Turkish contracting companies have implemented over 455 projects in Azerbaijan totalled $15.4 billion, and the total investments of Turkish business in our country amounted to $12 billion. Domestic business is trying to keep up - its investments in Türkiye exceed $19 billion and in terms of direct investments in the period from 2002 to 2020, Azerbaijan is among the top 10 countries in the world participating in the capitalisation of the Turkish economy.

The dynamically developing trade cooperation between the two countries can also serve as evidence of the mutual interest of business circles: if in 2002 the volume of mutual trade turnover was in the amount of a little more than $300 million, then by the end of 2021 it exceeded $4.5 billion, having increased 15 times in 19 years.

"The intensified geopolitical confrontation against the background of the war in Ukraine, energy, food, and logistics crises deeply affect all countries of the region. At the same time, these events create new opportunities for strengthening cooperation between the Turkic states in the energy and transport spheres, as well as for expanding trade instruments," Turkish Foreign Minister Mevlut Cavusoglu said recently. The foreign minister recalled that by late 2021, the volume of mutual Azerbaijani-Turkish trade has approached $5 billion, but in accordance with the task set by the leaders of the two countries, Türkiye plans to increase the level of trade turnover with Azerbaijan to $10 billion, and then to $15 billion a year.

Unfortunately, the negative processes observed in 2020-2021 caused by the coronavirus pandemic, instability of the energy and commodity markets, and the global economic recession did not allow multiple increases in the dynamics of bilateral trade. However, according to most experts, the general trend in the field of trade is moving in an upward line. In particular, this is confirmed by the statistics of the State Customs Committee (SCC), according to which in January-August 2022, the Azerbaijani-Turkish trade turnover exceeded $3.882 billion, which is $1 billion, or more than a quarter, higher than in the same period last year.

A significant gap in the indicators of trade turnover is largely due to the entry into force in March last year of the Azerbaijani-Turkish agreement on preferential trade, which involves the introduction of a zero rate of customs duty on mutual supplies of a number of goods between Türkiye and Azerbaijan. The 15-point agreement also provides for a free regime in the service sector and an investment component. It is noteworthy that Baku and Ankara have been consistently pursuing the implementation of this project for several years: Back in October 2017, Türkiye exempted goods supplied from the Nakhchivan Autonomous Republic (NAR) from duties, 43 product names were included in the list - 13 agricultural and 30 industrial goods. Thanks to the introduction of the free trade regime, the trade turnover of the NAR with neighbouring Türkiye has increased many times in three years.

The experience of trade liberalisation implemented since March last year has contributed to the growth of trade turnover by an additional billion dollars, given the broader scope of trade cooperation.

In the future, Azerbaijan and Türkiye may expand the framework of the preferential trade agreement in force since March 2021, World Bank experts believe. "Currently, within the framework of the agreement, Türkiye provides duty-free access for 15 items of goods produced in Azerbaijan: mainly agricultural products, including some varieties of cheese, grapes, plums, persimmons, black tea, tomatoes, cucumbers, fruit preparations, apple juice, wine, etc. In turn, Azerbaijan provides access to its market for almost 15 items of Turkish goods - including processed cheese, sunflower seeds, chewing gum, chocolate products, cookies and tomatoes. In some cases, annual quotas are applied to the listed export products," the World Bank report says. However, according to WB experts, the possible expansion of the provisions of the preferential trade agreement will cover a number of other areas, such as investment promotion, job creation, economic growth, intellectual property rights and trade in services. The expanded agreement may also apply to other goods that Azerbaijan produces and/or exports to other countries, including products of mechanical engineering, manufacturing, etc. On the other hand, the expansion of the preferential trade regime in Azerbaijan and Türkiye will improve the development indicators of joint ventures due to the unhindered cross-border movement of raw materials and semi-finished products used in the production process.

The probability of further liberalisation of Azerbaijani-Turkish trade relations is very high, and this was recently confirmed by Turkish Deputy Trade Minister Riza Tuna Turagay. "There are a number of proposals submitted to Azerbaijan to increase the names of products that are subject to preferential benefits. We hope to achieve positive results soon, contributing to the achievement of the key goal - to bring the annual volume of bilateral trade to $15 billion," the deputy minister believes.

The trends emerging today indicate that preferential trade agreements in the foreseeable future will become a driver for the development of commercial ties between Türkiye and all the regional Turkic states. "The Organisation of Turkic States is working on an agreement on preferential trade between the member states of the Organisation of Turkic States [OTS], which are preparing to sign a free trade agreement in the field of investment and service. It is also expected that on the eve of the November summit in Samarkand, the Turkic countries will sign an agreement on simplification of customs procedures, which will significantly facilitate and accelerate the work of our private companies," OTS Secretary-General Baghdad Amreyev said during a recent business forum in Shusha.

Azerbaijan is also moving in this direction, planning to expand the preferential zone with the main trading partner countries. Currently, our country has concluded preferential trade agreements with Russia, Georgia, Ukraine, Kazakhstan, Turkmenistan, and in general with 10 countries of the world. In the near future, a similar regime will work with Uzbekistan and Kyrgyzstan, and recently Baku sent a draft agreement on preferential trade to another friendly state – Pakistan.