The Impact of Malaysia-Turkey Bilateral Trade Agreement on Palm Oil Industry

Abstract

This study examined the revenue and welfare impacts of bilateral trade agreement between Malaysia and Turkey (MTBTA) on the palm oil sector using partial equilibrium approach. SMART model was employed to simulate 30 .0% reduction in tariff based on the MTBTA proposed, reduction in import tax on Malaysia palm oil by 50.0% and tariff elimination. The simulation result show ed that 30.0% tax reduction would bring forward a substantial positive growth in export revenues of 2.9 and 15.5 % of crude palm and refined palm oil, respectively, for Malaysia. Malaysia would generate a trade creation of 99 .0% for crude palm and 33.0% of refined palm products, while Turkish consumers’ welfare would improve by US$2.05 million. Duty elimination would make Malaysia dominate refined palm oil exports to Turkey, and export revenues of crude palm oil and processed palm oil from Malaysia would grow by about 10 .0% and 56.0% respectively. The welfare of Turkish consumers would improve by US$5.42 million. The study threw light on the impacts of the bilateral trade agreement (BTA) on the Malaysian palm oil industry. The reaction of competitors to the profits of BTA could dwarf the gains of past agreements. Further research needs to explore the active reaction of strong competitors in the market towards the gains of BTA.