Summary:

On 12 December 2023, the Tunisian government outlined increases in tariffs on goods imported from Turkey, adjusting a free trade agreement put in place in 2005. 

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The amended tariffs are designed to protect Tunisian industries from an influx of Turkish goods. With Turkey maintaining a large and diverse manufacturing base, it holds the potential to overwhelm domestic markets in Tunisia with cheaper imported goods. 

Under the new agreement, which was signed in early December, if Tunisia manufactures certain goods locally, the Turkish equivalent will be taxed between 27% and 37.5%. In many cases, these goods were taxed at 0% upon import under the prior agreement. 

The agreement also includes annual quotas for the import to Turkey of Tunisian agricultural products. This measure is designed to help promote domestic Tunisian production.  

In early September, the Ministry of Trade and Commerce announced plans to revise the free trade agreement with Turkey that had been in place for nearly 20 years. At that time, the Tunisian government assessed that the free trade agreement with Turkey had evolved to heavily favor Turkey, with Tunisia missing out on nearly 2 billion euros in savings. 

Outlook: 

The updated trade agreement with Turkey looks focused on protecting Tunisian industries vulnerable to pressure from globalization. While Tunisia fights for a near-term foothold economically, raising tariffs seems attractive, but could do damage to the economy in the long-term. 

While tariffs provide short-term protection for domestic producers, they can create additional economic risk in the medium- and long term. Tariffs can reduce natural market pressures that would drive competition in innovation, quality, and cost management. What can begin as protective measures is usually felt most tangibly by consumers who historically see little benefit from tariffs in their costs and can see fewer options at a lower quality. 

A 2019 International Monetary Fund (IMF) study on the macroeconomic impacts of tariffs found “empirically that tariff increases lead to declines of output and productivity in the medium term, as well as increases in unemployment and inequality.” 

The long-term impacts of the new agreement with Turkey will only be fully understood with time and in the context of how the Tunisian economy evolves and adjusts to avoid a catastrophic failure in the coming months and years. 

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