Leveraging on Malaysia – Turkey Free Trade Agreement for Strategic Market Access in the Region

Malaysia – Turkey Free Trade Agreement (MTFTA) was signed by YB. Dato’ Sri Mustapa Mohamed Minister of International Trade and Industry, Malaysia, and Hon. Nihat Zeybekci, Minister of Economy of The Republic of Turkey on 17 April 2014 in Ankara, Turkey, after nine rounds of negotiations. The agreement has come into effect on 1 August 2015. It was the second FTA signed by Turkey with an Asian country after South Korea and the first South-East Asian country.

Through MTFTA, Malaysia was able to lock-in tariff preferences that were either on par with or better than, those previously granted under Turkey’s Generalised System of Preferences (GSP), which were no longer available for Malaysia, beginning 1 January 2014.  As such, with the signing and subsequent entry into force of MTFTA, Malaysian exporters can continue to gain preferential market access into and also remain competitive in the Turkish market. The agreement has improved the trade between both countries where the value reached 3.4 billion in 2017, or a 48 percent increase from 2016, according to the Turkish Ministry of Trade.

Among major Malaysian exports to Turkey include palm oil and palm-based products, metal, textiles, apparels and footwear, chemicals and chemical products, electrical and electronic products. On the other hand, Malaysia imports textiles, clothing & footwear, machinery, equipment & parts, chemicals & chemical products, petroleum products, fruits, and other agriculture products.

MTFTA has to be one of the success stories of increased trade with strategic partnering countries, especially in the palm oil sector. Palm oil imports jumped from around 35 percent market share before MTFTA to a commanding 97 percent market share since the successful implementation of MTFTA. The import of Malaysian palm oil grew from just 181,959MT in 2014 to more than 1 million MT in 2019.

Malaysian Palm Oil Export to Turkey 2013-2014
  2014 2015 2016 2017 2018 2019
Palm Oil 77,586 398,729 657,001 679,667 631,887 709,862
Palm Kernel Oil 15,623 41,362 65,688 77,719 64,321 92,490
Oleochemicals 49,593 78,394 70,621 60,580 86,306 111,079
Finished Products 12,624 17,795 19,468 17,822 48,967 49,566
PKE 26,323   141,685 126,343
Other 210 29     71
  181,959 536,280 812,807 835,788 973,166 1,089,411

         Source: MPOB

Duty preferential extends to Malaysian palm oil through MTFTA provides Malaysian palm oil a competitive advantage over other vegetable oils coming into Turkey.  Under the agreement, Malaysian palm oil enjoys a lower import duty of 21.8% against other competing oils with an import duty of 31.2%.

Turkey – Indonesia FTA Negotiations

While Malaysia is currently enjoying duty advantage through MTFTA, Indonesia is in the process of signing a similar arrangement with Turkey.  Indonesia has initiated the Comprehensive Economic Partnership Agreement (CEPA) negotiation on 6 July 2017 and to date has undergone three rounds of negotiation.  The signing was scheduled at the beginning of the year 2020 but has yet to materialize.  However, it is expected to be sealed shortly.

The negotiation is aiming at increasing bilateral trade volume worth US$10 billion over the next three years.  The trade between the two nations is currently stood at US$1.79 Billion (2018).  Currently, Indonesian exported manmade fibers, rubber products, wood products, oils, and fats products, and many others. 

One of the areas that could benefit Indonesia through the signing of CEPA with Turkey is palm oil.  Before MTFTA, Indonesian palm oil export to Turkey was on the upward trend and at high, Indonesia accounted for 65% of the total Turkey palm oil market (2014).  However, the situation changed and at present Indonesian palm oil only has about 3% of the total palm oil import by Turkey.

Indonesia Palm Oil Market Share in Turkey








Import Volume (‘000 MT)







% Market Share







Source: Oilworld

Way Forwards

The preferential treatment received by Malaysia through MTFTA has given Malaysia a competitive advantage over Indonesia in terms of palm oil market access to Turkey.  We have enjoyed greater market share over the last five years but once Indonesia manages to secure similar treatment, we might lose our market share especially when Indonesia can offer palm oil products at a more competitive price.

One of the ways to sustain and strengthen the Malaysian palm oil position is to establish a Malaysian distribution network in the country as Turkey provided an excellent opportunity as a hub to the nearby countries as it is bordered by eight countries that are divided by seven geographical regions. Turkey also has access to 945 million consumers, of which 510 million from EU where Customs Union gives Turkey direct access to the EU market, 355 million from the 27 other countries where Turkey has already signed FTAs, and finally, demand from its 82 million population.

Turkey can be the hub for re-exporting to third markets such as the Balkans and North Africa which are a ready market for Malaysian palm oil.  The Balkans would be one of the regions that could be penetrated through Turkey as almost all countries in this region have FTAs with Turkey.  From the table below, it is clear that there are still significant opportunities for Malaysian palm oil to take the market.  The same goes for the North Africa market where there is a great opportunity for increased intake of Malaysian palm oil.

  Total (‘000 MT) Malaysia (‘000 MT) %
Bulgaria 30 12 40.00%
Bosnia Herz 6 0 0.80%
Serbia 31 1 3.23%
Montenegro 3 0 0.00%
Croatia 10 9 90.00%
North Macedonia 14 1 3.57%
Albania 1 1 100.00%
Greece 105 7 6.67%
Romania 18 12 66.67%
Slovenia 2 0 0.00%
Egypt 1,045 85 8.13%
Libya 55 1 1.82%
Algeria 185 35 18.92%
Morocco 74 3 4.05%
*Countries in bold has current FTA with Turkey
Source: Oilworld and MPOB

At present, Malaysian palm oil has lost its price competitiveness to Indonesia in most markets. Thus leveraging Turkey as a distribution hub to re-export to these countries, particularly to those with existing FTA with Turkey could help boost Malaysian palm oil export and close the gap through import duty advantage rendered by Turkey to Malaysian palm oil.

However, to enjoy this, Malaysian companies will have to set up a manufacturing facility to get a Turkey rule of origin per article 5 of the trade agreement. The raw materials (refined palm oil) from Malaysia could be further processed into industrial food ingredients or cooking fats and margarine in Turkey for redistributed to those markets.  Repackaging into branded products is also an alternative worth considering but it has to comply with the rule of origin. Further assessment on eligibility would require further investigation on an individual country basis as each could defer in terms of Tariff Shift, Regional Value Content, and De Minimis Threshold.

Prepared by Mohammed Hafezh and Fatimah Zaharah

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