Iran and Turkey plan to add 60 categories of goods each to their preferential trade agreement in December.
"Turkey’s Minister of Economic Affairs Nihat Zeybekçi and Iran’s Minister of Industries, Mines and Trade Mohammad Shariatmadari will sign a memorandum of understanding in Tehran," the head of Iran-Turkey Studies Center and Secretary-General of the two countries’ commercial council, Jalal Ebrahimi, told Financial Tribune.
“The two sides have 265 categories of goods under their PTA. Iran accounts for 140 and Turkey for 125 categories in the list. The lion’s share of what Iran is going to add to the agreement is petrochemical products.”
Ebrahimi added that Turkey has requested to add vehicle spare parts, electric and mechanical machinery and equipment, aluminum products, iron and cast iron products, steel, construction stones, apparel and textile and cellulose products like paper, cardboard and wooden products, among other things, to the list.
“Iran intends to add 30 categories of petrochemical products, polyester, copper products like cables, aluminum, ferromolybdenum and other iron alloys, direct reduced iron, pellets, cold-rolled coil, steel bars, zinc and its artifacts, floorings and synthetic fibers in return,” he said.
Ebrahimi explained that specialized commissions from the two countries affiliated with Iran’s Ministry of Industries and Turkey’s Ministry of Economic Affairs will regularly study the effect of PTA on their respective markets and add or omit goods to/from the list accordingly throughout the year.
So what the ministers sign in December is open to change.
The PTA between Iran and Turkey was first signed in January 2014 and took effect a year later.
Nat’l Currency Swap Agreement
Ebrahimi said trade between Iran and Turkey has been facilitated since economic players can use their national currencies to do business with each other.
According to an agreement signed between the governors of the two countries’ central banks on Oct. 19, the banks have allocated 5 billion lira ($1.4 billion) and its equivalent in rial to their respective agent banks to be used as letters of credit with a repayment period of one year for both countries’ traders, the Central Bank of Iran’s official website reported.
A few weeks earlier, as part of an Iranian mission to Ankara headed by CBI Governor Valiollah Seif, the central banks of Iran and Turkey had signed a draft of the rial-lira currency swap agreement with the goal of preparing the grounds for expanding economic and trade ties.
The final version was signed after a meeting between Iran’s First Vice President Es’haq Jahangiri and Turkish Prime Minister Binali Yildirim in Ankara. Jahangiri was accompanied by a high-ranking delegation of Iranian officials, including Minister of Industries Mohammad Shariatmadari.
The CBI chief and his Turkish counterpart Murat Cetinkaya announced that the agreement seeks to “facilitate trade using the national currencies of both countries to finance trade and boost direct investment”.
The agreement will considerably reduce the costs for both countries’ traders, as they will no longer need to use intermediate currencies since the specified agent banks are allowed to finance bilateral trading via international payment tools such as letters of credit and remittances in their local currency.
According to CBI’s report, Bank Melli Iran and Turkey’s Ziraat Bank have been determined as agent banks to manage the allocated funds and issue letters of credit.
Ebrahimi said the move can set a precedent for Muslim countries to gradually shift to conducting trade with their own national currencies.“This can prepare the ground for the formation of an Islamic Trade Union,” he said.
Bilateral Trade on the Rise
Iran-Turkey trade stood at $7.25 billion during the eight months to Aug. 31, registering a 14.9% increase compared with the corresponding period of 2016.
“Over the period, Iran exported $5.15 billion worth of products and imported $2.1 billion in return, indicating a 74% upsurge and a 37.5% fall respectively compared with the corresponding figures of last year,” Ebrahimi said.
Iran’s trade with Turkey peaked in the last fiscal year (March 2016-17) at $5.92 billion over the six years ending March 20, 2017.
Last year, Iran exported $3.19 billion worth of commodities to the neighbor, registering a staggering 143.19% increase compared to the year before. This is while Iran’s imports from Turkey stood at $2.72 billion, going down by 1.08% year-on-year.
Commercial exchanges between the two nations reached their lowest level during the six-year period in the fiscal 2015-16 at $4.07 billion, when Iran’s exports stood at $1.31 billion, down by 33.51% YOY, as imports from Turkey amounted to $2.75 billion, also down 21.81% YOY.