A Preferential Trade Agreement between Turkey and Azerbaijan was signed on February 25, 2020 in Baku, following the 8th meeting of the Azerbaijan – Turkey Cooperation Council on 31.05.2020. The legislative proposal for the Preferential Trade Agreement between Turkey and Azerbaijan was ratified on 22.12.2020 at the General Assembly of the Grand National Assembly in Turkey.
Following the presidential approval of the Agreement on 18.01.2021, the agreement was published in the Official Gazette in 19.01.2021. The Preferential Trade Agreement ("PTA") includes significant provisions that will eliminate all tariffs and duty quotas for 15 product lines between the two States. Turkey's Minister of Trade Ruhsar Pekcan stated that the PTA is going to be effective as of March 1st, 2021.
Pekcan further noted that the objective of this PTA is to arrive at a trading volume of 15 billion dollars and for this PTA to be converted into a Free Trade Agreement ("FTA"), by stating; "This is a beginning for us, a first step. We have already started working on expanding the scope of this PTA. Our objective is to broaden the scope of this agreement for it to evolve into a FTA and to reach the volume of trade of 15 billion dollars."1
Liberation of Azerbaijan after 30 Years of Occupancy:
During a period in which countries struggling in coping with the effects of the Covid-19 pandemic economically and socially; the liberation of the Nagorno-Karabakh region can be considered as a beginning of a new era in which the commercial and logistic structure of the region is going to change dramatically.
Pekcan stated that, following Azerbaijan's victory in Nagorno-Karabakh, a transit corridor connecting Azerbaijan with Nakhichevan is now open: "This corridor has significance for us. Our ultimate aim is for Baku to become a logistic center both through Baku-Tbilisi-Kars railway and through this route. We will continue to do whatever it takes technically, for this route to be preferable after Turkmenistan opens its borders. We received the draft agreement on prevention of double taxation drafted by Azerbaijan. The Ministry of Trade and Treasury is focused on this matter."2
On the other hand, Pekcan underlined the fact that Turkish contractor companies have undertaken 436 projects in Azerbaijan up until today which were worth 15 Billion Dollars in total and stated that Turkish contactor and consultation firms are ready to share the information and experience with the businesspeople from Azerbaijan, pursuant to restructuring Nagorno-Karabakh. "They are going to be using their successful works in infrastructure and superstructure projects that will take place there. It is not only Azerbaijan's, but all of our' duty to fulfill the needs of infrastructure and superstructure, and help the local community in the world, Susha being in the first place" she told the press.3
Pekcan also mentioned that a win-win principle should be adopted in trade and they will keep working hand in hand for Turkey-Azerbaijan relations to reach the desired level.
Significant Improvements Pursuant to the PTA:
Zero Tariff-Rates and Quotas for 15 Product Lines:
Basic customs tax rates and discount rates and annual quota amounts have been agreed under the PTA for 15 product categories originating from the Republic of Azerbaijan. Accordingly, the preferential trade regime that will be applied by Azerbaijan to the goods originating in Turkey; the basic customs duty rates and discount rates, have been agreed on for 15 categories of products with an annual tariff quota quantity.
Dumping, Subsidy:
Parties will be entitled to impose dumping and countervailing measures in accordance with their domestic legislations, for damages that arise due to dumping or subsidies. It should be stated that, obligations to notify and time limitations are regulated separately under the PTA.
Safeguard Measures:
Contracting parties shall be free to take bilateral safeguard measures, in case of imported goods subject to zero tariff rates and if quotas pose a threat or harm the domestic industry. It should be stated that this regulation provides important assurance for both States. Yet, in addition, an investigation will be necessary in order for bilateral safeguard measures to be taken.
Technical Regulation and Standards:
Contracting parties agree, guarantee, and acknowledge that they would avoid any approach that would hinder trade and/or constitute an obstacle to protect domestic production in terms of technical regulations and standards.
Most Favored Nation:
Pursuant to this agreement, the parties shall not treat each other on conditions less favorable than that it accords to like services and service suppliers of any other country regarding all rules, regulations and procedures and principles applicable to trade in goods.
Furthermore, it is stipulated that a contracting party cannot benefit from the tariff quotas or tariff concessions imposed on another country within the framework of an autonomous regime, free trade agreement, preferential trade agreement, regional trade agreement, customs union agreement or multilateral trade agreement, unless there is a specific mutual agreement between the contracting parties.
Financial Opportunities for Business in Turkey and Azerbaijan:
Reciprocal investments are of great importance at this juncture. While Turkish investment in Azerbaijan is worth 11 billion USD; Azerbaijani investment in Turkey totals to around 19,5 billion USD.
While great importance is attributed to SOCAR's investment in Turkey, Pekcan also marked that they provide critical finance opportunities through Eximbank for two companies SOCAR has incorporated in fields of petrol and oil.
Additionally, to emphasize the significance of financing for expanding businesses, Pekcan stated that the business people in Turkey and Azerbaijan should make the best of this opportunity, with the 26 million USD loan agreement between Turkish Eximbank and Ziraat Bank Azerbaijan Branch -while emphasizing the significance of financing.
Work is clearly underway in order to remove the obstacles to accomplishing the 15 million USD trade target between the two countries. During the press conference, it was further underlined that businesses in both countries should work actively, and that this point, mutual investments are of the utmost importance.
Call for Businesspeople
The importance of financing cannot be overstated since a 26 million dollars' loan agreement was entered into by Eximbank and Ziraat Bank Azerbaijan. Therefore, Pekcan prompted for businesspeople to take advantage of the opportunities this agreement opens up.
Stating the attention Azerbaijan attracts as a country through the young population, extensive agricultural and industrial production facilities, and enormous energy resources it holds, with political stability within its borders and effective influence in its region, Pekcan also noted that it is one of the most dynamic countries in the Caucasus region.
Minister Pekcan noted that, "the right address for investment is the one of our brothers/sisters'. I am calling for the Turkish businesspeople here. I am also inviting Azerbaijani businesspeople to invest in Turkey." 4
In addition to all above mentioned information, there is a further expectation about the liberalization of quotas following this process. With the closure of Turkmenistan borders, these quotas were not applied, and a crossings was made over this route. Negotiations are ongoing with Azerbaijan regarding other quotas and tolls.
The PTA has significant importance in the development of bilateral trade volume, and is expected to evolve into a Free Trade Agreement, as the two countries expect to reach the target trade volume.
TRADE BETWEEN ENGLAND AND AZERBAIJAN
England is among the countries top countries to invest in Azerbaijan and it is possible to foresee that British investments will increase in Azerbaijan day by day. Currently, more than 450,000 British companies operate in Azerbaijan in many sectors, including construction projects & design, retail, education, and waste management, in addition to natural gas.5
An increasing number of British companies operate in Azerbaijan. These investments benefit both nations, and they also create diversity in terms of strategy for UK companies. For the Azerbaijani market, it provides a serious power in a rapidly developing country and offers the opportunity access Europe and the Middle East due to its strategic location.6
IMPORTANCE OF THIS PTA IN REGARDS to AZERBAIJAN-TURKEY RELATIONS, and the UK's POSITION IN THIS EQUATION
Assessing this PTA in light of the positive reactions received following the official declarations, we are of the opinion that the agreement concluded between the two states in such a short time will have positive impacts both in the near future and in the long term with regard to bilateral relations.
We believe that the signed agreement will spark further investments and, beyond deepening and strengthening the relations between the two countries, will provide an atmosphere of trust, thus opening up new opportunities for investors and businesspeople.
The PTA signed between Turkey and Azerbaijan indicates the uncertainty caused by COVID-19 in the past year did not have a negative impact on the commercial and diplomatic relations between Turkey and Azerbaijan; and thus proves bilateral relations and investments will develop gradually. The fact that Turkey has always given support to Azerbaijan in terms of international relations can be represented as perhaps the most important indicator of the strength of this relationship.
It is important to note that Pekcan has also mentioned how starting today, the committees will start working to increase the trade volume and investments and to eliminate any and all barriers. Again, as the Turkish Minister of Trade has stated, it is important to take initiatives that will reveal the potential in countries during and after difficult times.
Turkey and Azerbaijan have turned a crisis into an opportunity. Considering that the instability in the region is temporary, Turkey has never refrained from supporting Azerbaijan; and always remained faithful that the trade between the two countries will continue to increase. This agreement can be seen as an indicator of goodwill to increase foreign investments between the two countries.
It is beyond doubt that beyond providing vast opportunities for Turkey and Azerbaijan, this agreement will supplement the present trade volume between Azerbaijan and England as well, since it was signed not long after the Free Trade Agreement between Turkey and the UK.
Footnotes
1. https://www.deik.org.tr/etkinlikler-turkiye-azerbaycan-is-forumunda-degeri-100-milyon-dolari-askin-11-anlasma-imzalandi
2. https://www.hurriyetdailynews.com/turkey-azerbaijan-aim-15-bln-trade-volume-by-2023-162521
3. https://www.hurriyetdailynews.com/turkey-azerbaijan-aim-15-bln-trade-volume-by-2023-162521
4. https://www.deik.org.tr/etkinlikler-turkiye-azerbaycan-is-forumunda-degeri-100-milyon-dolari-askin-11-anlasma-imzalandi.
5. https://www.gov.uk/government/publications/exporting-to-azerbaijan/exporting-to-azerbaijan
6. https://www.gov.uk/government/publications/exporting-to-azerbaijan/exporting-to-azerbaijan
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