Baku, Ankara step up expanding preferential trade regime Caliber.Az review

For over three decades, Türkiye has been one of Azerbaijan's leading foreign trade partners, and economic cooperation between the two brotherly countries has further increased since the bilateral preferential trade agreement entered into force in March 2021. In April 2023, Baku and Ankara initialed a protocol on amending the preferential trade agreement, and on July 6, at a meeting of the Milli Majlis, a law “On approval of the protocol on amending the preferential trade agreement between the governments of the two countries” was adopted. Thus, the preferential trade regime between our countries has been expanded to 30 types of goods.

The Azerbaijani-Turkish strategic union formed in recent history is based on a solid economic foundation: joint energy and transport projects, multibillion-dollar mutual investments in the petrochemical and mining industries, the construction sector, the food and textile industries, tourism, restaurant business, and many other areas.

Currently, about 2,000 Azerbaijani companies operate in Türkiye, and over 4,100 Turkish companies in Azerbaijan. In particular, over the past two decades, Turkish contracting and construction companies have implemented in our country (including the Karabakh region) a little less than half a thousand projects totaling $16 billion, and the total direct investment of the Turkish business in Azerbaijan has exceeded $12 billion.

Domestic business is trying to keep up - its total investments in the economy of the brotherly country by the beginning of this year exceeded $19.5 billion, and in terms of direct investment over the past two decades, Azerbaijan is in the TOP-10 countries of the world participating in the capitalization of the Turkish economy.

Over recent years, there has been very high dynamics in the development of bilateral trade relations. According to the State Customs Committee, the Azerbaijani-Turkish trade turnover in 2022 amounted to $5.842 billion. Mutual trade has also developed dynamically this year, in particular, in January-May, Türkiye accounted for 16.17% of Azerbaijan's total exports.

In turn, the share of the Turkish imports in the total volume of deliveries to Azerbaijan for the reporting period amounted to 14.1%. A significant part of Azerbaijani deliveries to the Turkish market falls on the share of oil and gas raw materials, fuel, petrochemical products, electricity, and agricultural raw materials. At the same time, Azerbaijan is consistently increasing the export of non-oil products, and over the five months of this year, Azerbaijani non-primary goods worth $464.6 million were supplied to the Turkish market, with an increase of 19%.

At the same time, Turkish exports to our country are almost completely represented by non-oil products: clothing and footwear, food and medicine, electrical engineering, electronics, vehicles, furniture, household utensils, and other consumer goods.

Apparently, the import of Turkish consumer products will increase very dynamically in the subsequent period, given the depreciation of the Turkish national currency against the Azerbaijani manat, which reached 16.3 lira by July 6.

The exchange rate gap increases the demand for cheaper Turkish products, and given the rapidly developing e-commerce, Azerbaijani consumers have gained access to a wide range of goods, purchasing them on Turkish digital trading platforms much cheaper.

As already noted, an important factor supporting the high dynamics of bilateral trade was the preferential trade regime in force since March 2021, under which zero customs duty rates were introduced for mutual deliveries of a number of goods.

The 15-point agreement provides, in particular, for a free regime in the service sector and the investment component. Such a step was taken within the framework of the tasks set by the leaders of the two states, according to which Ankara and Baku in the next few years should bring the level of mutual trade to $10, and then to $15 billion a year.

It is noteworthy that Baku and Ankara have been consistently moving towards the implementation of this project for several years: back in October 2017, Türkiye exempted goods supplied from the Nakhchivan Autonomous Republic (NAR) from duties: in total, 43 items are 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 neighboring Türkiye has multiplied over the past three years.

Well, with the expansion of the preferential trade regime for the entire trade turnover between the countries, Türkiye provides duty-free access to 15 types 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 Turkish products, including processed cheese, sunflower seeds, chewing gum, chocolate products, biscuits, and tomatoes. In some cases, annual quotas are applied to the listed export products.

Taking into account the high efficiency of the decisions taken more than two years ago on the liberalization of Azerbaijani-Turkish trade, the prospects for further expansion of the provisions of the agreement on preferential trade have been repeatedly discussed at the level of governments and parliaments of the two countries. This would cover a number of other areas such as investment, job creation, economic growth, intellectual property rights, and services.

The next step in this direction was taken the day before: at a meeting of the extraordinary session of the Milli Majlis of Azerbaijan, a bill was discussed on the approval of the protocol "On Amendments to the Preferential Trade Agreement between the Governments of Azerbaijan and Türkiye", and following the results of the voting, the document was approved.

With the entry into force of the protocol under the preferential trade regime, Azerbaijan and Türkiye will import and export 15 new types of industrial and other goods among themselves, thereby bringing the total number of goods enjoying preferential treatment to 30. The annexes indicate the base tariff rate or additional customs duty to which the discount will apply for each item.

"The protocol on amending the preferential trade agreement was signed in April 2023 in Türkiyeəs Samsun, and our main goal is to bring the Azerbaijani-Turkish trade turnover to $15 billion a year, increasing the share of non-oil exports. As a result of the agreement on preferential trade, considerable experience will be gained, which will allow expanding the export range of non-oil sector goods in the future,” MP Ali Masimli said during the parliamentary session.

It is noteworthy that efforts towards customs integration and the formation of a preferential trade regime are also being implemented in a multilateral format - it is supported by the member countries of the Organization of Turkic States (OTG) and is reflected in the strategic document of the organization - "Turkic World-2040".

"We fully support the efforts of the OTS to sign a document on a simplified customs corridor and develop preferential trade,” Turkish Foreign Minister Mevlut Cavusoglu said last November in Samarkand, where the IX meeting of the OTS Council was held.

This position is shared by many states of Central Asia: OTS Secretary-General Baghdad Amreev said that an agreement on the simplification of customs procedures between the Turkic countries is already at the signing stage and work has begun on creating a free trade regime.

“This is not an easy process, but today we are already ready to sign an agreement on free trade in the field of investments and services,” Baghdad Amreev believes. In addition to Baku and Ankara, today Uzbekistan is the most active in this direction, intending to establish a free trade regime with Azerbaijan and Türkiye in a number of areas.