Free trade agreement with Turkey

By Fahed Fanek

Jordan’s free trade agreement with Turkey will come into effect as of next month. The agreement recognized the fact that the two countries are not on the same footing, therefore the Jordanian products will be allowed to enter the Turkish market tax exempt, while the Turkish products imported by Jordan will enjoy the tax exemption on gradual basis and will not reach full exemption until 2018.

As a matter of principle, trade between any two countries is beneficial to both. It encourages industrial specialization and large-scale production. Producers in both countries will not confine themselves to their local market. They will look further and try to reach external market as well.

The absence of equality between the two countries when it comes to labor wages, industries’ subsidies, exports incentives and difference on exchange render the graduation stipulated in the agreement hardly enough to secure balanced and fair exchange of products between the two countries.

Yes, Turkey will grant full exemption to the Jordanian products entering Turkey.

This is good. The problem is that there are no Jordanian products which are ready to take advantage of this. If such products exist, they will not be able to compete with the Turkish products’ prices and/or quality.

Under the circumstances, it is very likely that trade between Jordan and Turkey will be in one direction. Jordan will play the role of importer and Turkey will be the exporter.

It is only fair to say that this state of affairs does not apply only to Turkey; Jordan did not hesitate to enter into sweeping free trade agreements with Gulf countries, which either do not impose taxes on imports or charge a symbolic tax, but there is almost nothing to exempt.

On the contrary, customs taxes in Jordan form a major source of revenue for the budget. Tax exemption in this case is very costly indeed, and not reciprocal.

In this respect, one should take into account that the Saudi or Emiratie producer enjoys cheap fuel, electricity and water, while the Jordanian producer has to pay more than the world prices for such industrial inputs.

How can competition between the two sides be fair under such situation?

One of the results of this state of affairs is the establishment in Jordan of a Saudi cement company with no factories, which imports clinker from Saudi Arabia at less than 50 per cent of the cost of producing this commodity in Jordan.

No wonder the Saudi local company was able in no time to expel Jordan’s cement factories from the market that produce their own clinker using fuel and energy at high prices.

The government hesitated and finally failed to act to protect local cement companies from unfair competition.

The share price of the Jordan Cement Factories Company, for example, dropped from JD12 to JD4. This is only one example, but it applies, at various degrees, to most local industries.

Jordan dared enter into free trade agreements with some advanced and industrialized countries like the United States and the European Union, but the results were extremely bad. The value of European Union’s exports to Jordan is 15 times the value of Jordanian exports to the EU.

Had it not been for the Qualifying Industrial Zones, trade with America would have been similar to that with the EU, perhaps even worse.

I am a supporter of opening up the Jordanian market to the world, provided, of course, that the exchange of goods and services is fair. Trade between two countries should be balanced or near balanced. Subsidized products, on the other hand, should not be allowed to enter the Jordanian market unless they pay a big enough tax to absorb the subsidy.

20 December 2010

Source: The Jordan Times.
Link: http://www.jordantimes.com/?news=32763.