Jordan suspends free trade agreement with Turkey over unfair competition

Price increases are expected to hit Jordan's clothing sector, which is inundated by Turkish clothes.
Sunday 18/03/2018
Turkish Foreign Minister Mevlut Cavusoglu (L) and Jordanian Foreign Minister Ayman Safadi meet in Amman, last month. (AP)
Off keel. Turkish Foreign Minister Mevlut Cavusoglu (L) and Jordanian Foreign Minister Ayman Safadi meet in Amman, last month. (AP)

AMMAN -­ Jordan suspended its free trade agreement with Turkey, a pact that had been in force since 2011, because of severe challenges facing Jordan’s industrial sector and in support of its competitiveness locally and globally.

The decision, which was hailed by industrialists but condemned by traders, cited unfair competition and that the agreement favoured the Turkish side more than the Jordanian, which was shown in trade exchange volume between the two countries.

In 2016, trade exchange between the two countries reached its peak at $742 million, of which $664 million — 89% — was Turkish exports to Jordan.

The suspension of the agreement was based on a comprehensive study conducted by the Ministry of Industry and Trade.

The Jordanian government made its decision due to challenges facing the industrial sector, which was affected by the closure of several border crossings with neighbouring countries and the decline of traditional export markets.

“The announcement comes in an unsuitable political and economic period and does not reflect the kingdom’s effort and directions in attracting foreign investments,” said Omar Smadi, editor-in-chief of Investors Today magazine. “The bilateral relations between Jordan and Turkey have always been excellent in various fields especially in the import and export field.”

“There will be negative effects in which Jordanian consumers will be deprived from buying Turkish products, which are well-known for their good international quality and affordable prices compared to other products,” he added.

Smadi said Jordanian consumers would be forced to other sources to find products.

“Consumers will be forced to seek products they cannot afford if they are looking for quality or select low quality products that they can afford,” he said.

Smadi said the Turkish and Jordanian relationship is unique and will be better in the future and must stay strong.

“Turkish Airlines, one of the leading airlines in Europe, will open a direct route between Aqaba and Istanbul, which will lead to a positive effect for the tourism and business sectors, especially that Turkey was looking into using the port of Aqaba, the only coastal city in Jordan, as a regional hub for Turkish exports to various markets, including Africa,” he added.

Turkish President Recep Tayyip Erdogan, who visited Jordan in August 2017, is planning to visit again soon.

One of the main issues, Smadi said, was that local industrial sectors manufacturing similar lines of Turkish products were closed and laid off employees because they could not compete with the Turkish products.

“Jordan was seeking to benefit from the Turkish technical know-how but instead a huge flow of Turkish exports to Jordan and major imbalances in the trade exchange occurred,” he said.

The Amman Chamber of Industry said Turkey’s exports to Jordan, excluding fuel derivatives and products, rose from $528 million in 2014 to $650 million in 2016, textile exports to Jordan increased 125% in 2016 to $72.5 million, compared with $23.2 million in 2014, and furniture exports from Turkey to the Jordanian market rose from $10.6 million in 2014 to $16.9 million in 2016.

Jordan’s exports in 2016 to Turkey stood at about $86 million, of which $62 million was fertilizers.

The suspension of the free trade agreement has created a host of expectations that will only have a negative effect on the purchasing power of citizens.

“It is expected that with the cancellation of such an agreement every product of Turkish origin will have an increase in prices and Jordan is swamped with Turkish products. For example, we expect a 10% increase in the prices of Turkish gold and jewellery after it was exempted. Currently, the price of Turkish gold is around $36 per gram,” said George Khoury, who owns a jewellery shop in Amman.

“With the government’s special tax on gold, particularly, which taxes raw gold just as much as it taxes processed gold, which is 5%, the gold and jewellery market will be really slow and will suffer,” he added.

Jordan recently replaced sales tax on gold with a special fee based on its origin, at $1.06 per local gram and $2.47 per imported gram while diamond faces a 25% tax.

The price increases are expected to hit the clothing sector where the Jordanian market is inundated by Turkish clothes, which are known for their quality and affordable prices.

“We expect an increase in the clothing sector originated from Turkey and there are many shops that import clothes from Turkey. The government’s decision to increase customs from 0% to 20% in addition to the 5% for customs services fee will add around 25% on each Turkish piece of clothing which the customer will have to bear and this is unacceptable,” said Mohammed Abu Hasan, who owns a clothing shop in Amman.

The trade volume between the two countries in the field of clothing is more than $70 million annually.

The Chamber of Industry said it did not expect citizens to be negatively affected directly as most Jordanian imports are clothes, carpets and appliances that have Jordanian substitutes.