Turkey Does Not Want To Be Left Out From The U.S.-EU Trade Talks (10/11)     Print Email

By Selen Akses, Researcher at the Economic Development Foundation(IKV) in Istanbul    

The United States and the European Union are currently negotiating a trade agreement (Transatlantic Trade and Investment Partnership Agreement) that would create the largest integrated market in the world, yet a key emerging player, Turkey with the world’s 16th largest economy, could be left out of the agreement. Turkey could experience a major and potentially negative impact due to its previously established Customs Union with the European Union.

Turkey entered the EU Customs Union on December 31, 1995. The agreement abolished customs duties and prohibited the quantitative restriction on industrial goods and processed agricultural products. Free circulation of these goods is guaranteed between the two trading partners. A third party that has a free trade agreement with the EU is able to export goods duty free to Turkey thanks to the established Customs Union. However, whether Turkey is able to export goods to that third party is up to that country. Since it is not a member of the EU, Turkey cannot benefit from the advantages enjoyed by the EU in its commercial relations with third countries. Furthermore although Turkey has to align its commercial policy with EU’s common commercial policy including free trade agreements, countries which sign a preferential agreement with EU already benefit by being able to enter the Turkish market on favorable terms. 

This asymmetry became a burden for Turkey as the EU began moving toward a greater focus on bilateral and regional trading, especially among countries in Asia and Latin America. The European Union’s trade policy shifted after the World Trade Organization slowed down multilateral trade negotiations following the Doha Round. Turkey did not feel threatened by the countries entering the free trade agreement with the EU, however, the stakes soon changed when the EU sought deeper economic relations with stronger trading partners and newly emerging countries.[1] For instance, the free trade agreement concluded by the EU with Mexico and South Korea put a great pressure on Turkey’s competitiveness. 

Since the adoption of the Customs Union, Turkey has benefited greatly in terms of raising its competitiveness and in aligning its standards with the EU. The European Union constitutes for nearly 40% of Turkey’s export trading. Yet, frustrations are running high among Turkish leaders and businessmen, who are well-aware that the TTIP will be an important turning point for determining standards that could be used as a reference point in trade. Therefore they do not want Turkey to be isolated from this process. Turkey joined the Customs Union as a step towards its full membership to the EU. Although negotiating for the customs union area (28 Member States + Turkey), the EU is excluding Turkey from the TTIP negotiation process. The first round of negotiations between the US and the EU took place this summer, and at this stage in the game is seems unlikely that Turkey will be included in the process.  

Turkey has taken initiative to launch its own separate agreement with the United States. There have been talks between Ankara and Washington on the subject. Vice President Joe Biden announced in May that President Obama and Turkish Prime Minister Erdogan had agreed on working toward a separate free trade agreement between the US and Turkey.[2] Perhaps it is too late for a triangular agreement between Turkey, the US, and the EU, but another bilateral agreement could be an alternative solution to the problem.  

Earlier this year, South Korea entered into a free trade agreement with Turkey, marking an important turning point in Turkey’s trade policy. The agreement foresees the liberalization of services and improvement of the environment for business and investment, as well as the lifting tariffs and barriers. Seoul and Ankara met this past month to deepen the agreement. This agreement puts a band aid over the issue of South Korea’s free trade agreement with the EU that went into effect in July 2011. This is the first of the new generation of Free Trade Agreements launched by the EU and the first to be concluded with an Asian country.  

As negotiations continue between the U.S. and the EU, it is essential for Turkey to take part in this transatlantic initiative. If Turkey cannot join the ongoing negotiations between US and EU, it is in Turkey’s interest to speed up the pace to launch talks for a bilateral free trade agreement with the US. 

If negotiations do not start with the U.S., Turkey might expect trade diversion for some industrial goods such as transport equipment that are exported both by Turkey and EU to the American market.   Once the negotiations commenced, however, the service sector could become contentious. Although the U.S. is the world’s largest exporter, Turkey presents comparative advantages in sectors such as tourism and construction. In the past few years, Turkey’s health service sector has also experienced unprecedented growth which has become an important source of attraction for foreign investors including Americans. Both countries could also reinforce their cooperation to seek better market access in third countries and regions. They could explore the possibility by encouraging their companies to explore joint venture opportunities especially in the Middle East, Africa and Latin America.      

1 Prof. Dr. Kemal Kirisci, “Don’t forget free trade with Turkey”, Brookings, 15 April 2013, link: http://www.brookings.edu/research/opinions/2013/04/15-free-trade-turkey-kirisci 
2 Ata Akiner, “Now is the Time for a U.S.-Turkey Free Trade Agreement”, The Washington Institute, 23 July 2013, link: http://www.washingtoninstitute.org/policy-analysis/view/now-is-the-time-for-a-u.s.-turkey-free-trade-agreement