Turkey Pulse

Will US-EU trade deal dissolve EU-Turkey customs union?

Article Summary
Turkey is questioning its participation in the EU Customs Union because a free trade agreement being negotiated between the European Union and the United States would open its markets to tariff-free US products while levies on Turkish exports to the United States would remain.

Turkey has reached a critical point in its participation in the EU Customs Union, driven by anxiety over the implications of the Transatlantic Trade and Investment Partnership (TTIP), a free-trade deal being negotiated by the European Union and the United States to integrate their markets, a total population of 800 million.

TTIP talks, which began in July 2013 and convened for a fifth round in May, are expected to be completed in late 2016 or early 2017. Once the agreement takes effect, customs barriers between the United States and EU countries will fall. The agreement will be unilaterally binding for Turkey because of the customs union deal it struck with the EU in 1996. In accordance, US products would be allowed onto the Turkish market free of tariffs, while levies on Turkish products sold to the United States would remain in place. Thus, not only would Turkey lose revenues from customs tariffs, it would also struggle to protect its economy and industry against an influx of tariff-free goods.

The import of cheap goods will boom, while Turkish exports will suffer. Many enterprises in Turkey would be forced to close or reduce their capacity, which would of course stoke unemployment. The chain reaction promises to deal a blow to the country's economic indicators, including economic growth and the current account deficit.

That is the “nightmare scenario” behind the anxiety gripping Turkey, which is also angry about being shut out of the EU’s planned economic integration with the United States despite their 18-year-old customs union. Only EU member countries will benefit from the US deal, and Turkey is still in the stage of accession talks. Because Turkey's eventual EU membership is only a distant prospect, Ankara is left with two options: negotiating an independent free trade agreement with the United States or persuading the EU to have Turkey included in the TTIP.

The idea of a free trade agreement between the United States and Turkey has been under discussion for some time, but no tangible progress has ever been made; thus, its prospects are not particularly rosy. Turkey is therefore trying to deal with its impending trade problem from the EU side. This is why Turkish officials have begun speaking more frequently about pulling out of the EU customs union or suspending the agreement. If the EU fails to deepen the customs union in a way that the TTIP covers Turkey, suspension of the customs union is likely to emerge as a serious option.

The prospect of Turkey quitting the customs union was first raised on March 26, 2013, by Economy Minister Zafer Caglayan. Speaking in Germany, Caglayan slammed Turkey’s exclusion from the preparations for a US-EU agreement and signaled that Ankara might leave the customs union. More recently, EU Minister Volkan Bozkir, speaking Nov. 11 at a meeting of the EU-Turkey Joint Parliamentary Commission in Brussels, again warned that the signing of the TTIP could lead Turkey to suspend its customs union accord. He stressed that his statement was not blackmail, but an attempt to draw attention to a serious problem.

Impact on Turkey

The head of the Turkish Exporters’ Assembly, Mehmet Buyukeksi, has asserted that the prospective EU-US deal would involve a total trade volume of $650 billion on two continents and stressed that a simultaneous free trade agreement between Turkey and the United States would give a huge boost to Turkish exporters. In November 2013, Turkey’s Central Bank released a study on the likely impact of a US-EU free trade agreement on Turkey. The report outlined a number of implications:

  • Turkey’s exports will increase 7% if it is given the opportunity to sell tariff-free goods to the United States.
  • Turkey’s gross domestic product (GDP) will decrease by $4 billion if it is excluded from the US-EU free trade agreement.
  • If Turkey is allowed to join the pact, its GDP will increase by $31 billion. If including the $4 billion loss that would be avoided, the total benefit would reach $35 billion.
  • The US-EU agreement is expected to boost prosperity by 2.6%-9.7% in EU countries and by 13.4% in the United States. In Switzerland, Canada, Mexico and Turkey, if excluded from the agreement, prosperity will decrease by 3.75%, 9.48%, 7.24% and 2.5%, respectively.

While meeting with a German trade delegation Nov. 17 in Ankara, Economy Minister Nihat Zeybekci remarked, “The TTIP represents negotiations for a full-fledged economic and political integration. If materialized, it will mean the redrawing of the global economic map. We cannot tolerate that. We cannot bear the consequences. The customs union, too, will become unsustainable.”

Rising worries about unemployment

Turkey’s business community is equally anxious. In statements earlier this month, leading business people lent support to the EU minister’s warning. Kenan Yavuz, chief executive of SOCAR, the State Oil Co. of Azerbaijan, said the petrochemicals sector would suffer the heaviest blow if Turkey were left out of the TTIP agreement, stressing that the zero-tariff environment would lead the highly developed US chemicals industry to flock to Turkey.

Yavuz warned, “In its current form, the [prospective] agreement would result in increased Turkish imports of intermediate goods. Sectors of added-value manufacturing would take a severe blow. Many products would cease to be manufactured in Turkey because of competition disadvantages. Companies would be closed down and unemployment would increase. Moreover, Chinese and other Asian manufacturers would lose markets in the United States and the EU and would then turn to Turkey, posing a further threat to local manufacturers.”

The head of the Istanbul Ready-to-Wear and Apparel Exporters Union, Hikmet Tanriverdi, suggested, “We could freeze the customs union and transform our relationship with the EU into a free trade agreement, which would allow us to get rid of obligations to third parties.”

The annual trade volume between Turkey and the United States is about $18 billion, which Deputy Prime Minister Ali Babacan says is insufficient, even though it represents a threefold increase over the past decade. In the first nine months of 2014, Turkey’s exports to the United States were worth $4.59 billion, while its imports amounted to $9.7 billion. The disparity in the United States' favor was expected to greatly increase with the TTIP because Turkey’s imports would increase.

The TTIP is not only about trade, but also involves investment. It is a far-reaching project that would control about half of global trade, unite Europe and the United States and generate political power through their economy. The foundation is being laid for a new global structure based on high-quality output reminiscent of the EU’s creation decades ago. This structure will halt the Chinese commercial invasion, and economic activities outside it will likely have little chance of success.

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Found in: united states, turkey, trade, free trade, european union, economic agreements

Mehmet Cetingulec is a Turkish journalist with 34 years professional experience, including 23 years with the Sabah media group during which he held posts as a correspondent covering the prime minister’s and presidential offices, economy news chief and parliamentary bureau chief. For nine years, he headed the Ankara bureau of the daily Takvim, where he also wrote a regular column. He has published two books.

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