MTFTA will come into effect on Aug 1 this year with 70% tariff elimination

The government’s four years of efforts to unlock economic potentials with Turkey finally has paid off with the free trade agreement between the two nations will come into effect on Aug 1 this year. Trade and Industry Ministry Secretary-General Datuk Dr Rebecca Fatima Sta Maria said that both Malaysia and Turkey will commence the respective ratification procedures after the signing yesterday.

The ratification process for Turkey may take more than 12 months, as Turkey has to obtain congressional approval for the agreement. Malaysia will be able to complete its ratification process upon notification to the Cabinet of the signed agreement. The Cabinet had on March 28, 2014 approved the MTFTA. FTA will only enter into force after both sides have completed this process.

Malaysian exports that will benefit from immediate duty-free treatment in Turkey when the Malaysia-Turkey Free Trade Agreement (MTFTA) comes into force after the government’s four years of efforts to unlock economic potentials with Turkey. The Free trade agreement between the two nations will be effective from Aug 1 this year.

Under the Malaysia-Turkey Free Trade Agreement (MTFTA), both Malaysia and Turkey will eliminate and bind duties on 70% of tariff lines and after a period of eight years, duties will be reduced or eliminated for almost 86% of tariff lines.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said that MTFTA will allow exporters from both countries to enjoy preferential access for their products in each other’s countries.

Mustapa urged the Malaysian business community to take full advantage of the opportunities offered under this free trade agreement ( FTA), which can also help strengthen bilateral trade and economic linkages on a long-term basis. The minister noted that in 2014, the total trade between Malaysia and Turkey amounted to US$969 million. Malaysia’s exports to Turkey totaled US$752 million, while imports amounted to US$217 million.

Key exports to Turkey comprise textiles and clothing, chemicals and chemical products, palm oil, manufactures of metal, rubber products, electrical and electronic products, while imports from Turkey include textiles and clothing, machinery appliances and parts, iron and steel products, chemicals and chemical products, other agriculture produce, electrical and electronic products.

The Malaysian exports that will benefit from immediate duty-free treatment in Turkey include selected textiles and apparel, electrical and electronic products, chemicals, iron and steel products, machineries, wood products, leather products and all rubber products. Therefore, the minister urged
Malaysian businesses to ramp up their exports to Turkey.

Under MTFTA, Turkey will eliminate duties for 68.7% of tariff lines immediately upon entry into force of the agreement, while Malaysia offered to eliminate duties for 70% of tariff lines.

The FTA with Turkey is the 13th such FTA entered into by Malaysia of which currently, Malaysia has implemented six regional FTAs and six bilateral FTAs that cover other ASEAN member states, China, Japan, India, Australia, New Zealand, Pakistan and Chile.

During the signing of MTFTA in April 2014, the Prime Ministers of Malaysia and Turkey set a target of USD 5 billion in total trade by 2020. They are expecting the implementation of the MTFTA will facilitate towards achieving the target.

As the FTA will be realized over an eight year period, more and more products will benefit from reduced or eliminated duties, where Turkey will reduce or eliminate 87% of total tariff lines while Malaysia will reduce or eliminate 98.86% of total tariff lines.

MTFTA enables Malaysia to lock-in tariff preferences that were either on par with, or better than those previously granted under Turkey’s Generalised System of Preferences, which has been no longer available for Malaysia since Jan 1, 2014.

Another significant gain for Malaysia is in the textiles and apparel sector, which make up Malaysia’s largest export items to Turkey. Under the FTA, Turkey will eliminate duties on all textiles and apparel products, with much of the elimination exercise taking place immediately upon entry into force of the FTA.

Turkey will eliminate all existing additional duties on textiles, apparel and footwear products. These duties affect more than a thousand lines, and range from 20% to 30%.

The first round of the MTFTA will focus on negotiations covering trade in goods, while the negotiations on trade in services and investments are expected to commence one year upon the signing of MTFTA.

Turkey’s investments in Malaysia are not as big as Malaysia but they see potential going forward. Total Turkey investment in Malaysia stands at US$220 million while up to 2013, 37 Malaysian investments were approved by the Turkish government valued at US$527 million. Top Malaysian investments in Turkey include those by Khazanah Nasional Bhd and Felda Global Ventures Holdings Bhd.