Bursting the Bubble

The EU-Turkey Customs Union in the light of TTIP and beyond the economic relations

15 May 2014 | by

The Transatlantic Trade and Investment Partnership (TTIP), presently being negotiated between the European Union (EU) and the United States (US), has raised economic concerns for Turkey. This EU candidate country enjoys preferential access to the European market due to the Customs Union (CU) agreed in 1995. However, under the existing terms, countries that sign a Free Trade Agreement (FTA) with the EU have automatic access to the Turkish market, without opening their own markets for Turkish goods. According to the recently published World Bank evaluation of the CU, if the EU and the US remove all tariffs on bilateral trade, but with Turkey continuing to face restrictions in the US market and maintaining tariffs on US imports, the country will face a welfare loss of $130 million (World Bank, 2014).

Last year Prime Minister Recep Tayyip Erdogan opened up the debate on joining the Shanghai Cooperation Organization (SCO), expressing a readiness to re-consider Turkey’s EU membership perspectives. In fact, following the Eurozone debt crisis, Turkey’s foreign trade with the SCO members between 2010-2012 had risen from $49 to $63 billion, while the EU countries’ share in Turkey’s foreign trade declined during the same period (Erşen, 2013). The SCO is dominated by China and Russia, it thus represents quite a different direction for the country in terms of foreign and economic policy. Nevertheless, the SCO membership prospects cannot be competitive with the EU-Turkey CU because of the agreement’s existing benefits and potential advantages.

CU with the EU has been a major catalyst for the Turkish economy. Since its inception, the country has integrated into the European and global markets, resulting in a trade volume growth from $67 billion to $389 billion between 1996-2012 (World Bank, 2014). By 2012, trade between the EU and Turkey reached $147 billion, making the country the sixth largest trading partner of the Union, with the latter one, in turn, holding the biggest share in Turkey’s trade flows (World Bank, 2014). The European Union also stands as the largest foreign investor in Turkey. In the last 5 years, the EU has covered ¾ of total Foreign Direct Investment inflows in the country (World Bank, 2014).

Yet, there is room for improvement. The World Bank report shows that if the CU is extended to primary agriculture, positive welfare impacts for both Turkey and the EU are to be expected. The TTIP may also bring additional advantages to the country. If Turkey agrees on the FTA with the US and aligns its existing regulations to those prevailing in the EU and US in areas covered by the TTIP, Turkey would increase its efficiency in related sectors and increase market access to the US markets (World Bank, 2014). Overall, Turkey has an opportunity to become part of the largest FTA in history with a combined GDP of $32 trillion, compared to the SCO nations’ combined $10 trillion.

The SCO membership in place of the CU with the EU cannot be a rational economic choice for Turkey, especially when the EU has expressed readiness to re-negotiate the terms. However, there is a challenging political dimension to the EU-Turkish relationship that can negatively reflect on economic ties in future. In recent years the Turkish PM has shown autocratic tendencies. After his government responded to the Gezi park protesters by extremely abusive use of force, killing and injuring its people, the Turkish state banned internet sources Youtube and Twitter, clashes erupted between the Police and the demonstrators on the 1st of May in Istanbul. Not long ago, corruption in Erdogan’s government was also exposed. More than 50 people were detained, including close figures to the PM.

The undemocratic developments of Erdogan’s government have resulted in Turkey’s regress in  EU membership talks. The Turkish society though seems to be less critical than the EU. Despite Erdogan’s autocratic turn, his party gained an undeniable victory in the local elections. The election results once again showed that there is a big difference between the Taksim Square protesters and the vast majority of Turkish voters. Ordinary Turks have limited access to modern education and hardly any to free media. For them the current government is affiliated to local improvements and economic success of the country, contrary to the demonstrators which have more connections to the outside world.

Considering the aforementioned domestic environment, Erdogan is expected to win the first-ever direct presidential elections, scheduled for August 2014, extending his 11 year rule for at least a further 5 years. The PM’s presidency is likely to bring even more autocratic practices to the country. Erdogan has accused Fethullah Gulen, his former ally, of standing behind the corruption charges laid against the PM’s government, creating a power struggle within Turkey. Gulen is a founder of “Hizmet”, one of the biggest Islamist networks in Turkey. The followers of the movement are mostly described as “modern-minded” Muslims, many of them highly influential in the Turkish police and judiciary. Gulen lives in the US, has connections with influential businessmen, and finances public schools in the country known for their secular education. Following the corruption scandal, the Turkish parliament passed a bill to shut down private schools, most of them run by Erdogan’s rival. Hostility between the two powerful former allies is expected to intensify in the future, leading to more domestic unrest and promoting an increasing abuse of state power against the liberal Turks. This would further contribute to tensions in the EU-Turkey relations.

Despite democratic challenges, during the last decades, Turkey has turned from a regional into a global player. According to the Global Firepower Index, Turkey ranks as the 8th military power in the world. It is a part of the North Atlantic Organization (NATO), the biggest military coalition. Furthermore, Turkey stands as the 17th largest economy, possessing considerable energy resources. The country also plays a crucial role in the Middle East. Cutting political ties with Turkey due to its internal unfavourable developments would mean losing leverage on the one of the regions powerful international actors. Thus, only increasing the EU’s political engagement with Turkey can keep the country aligned with the West.

 

References:

World Bank. (2014, March 28). Evaluation of the EU-TURKEY Customs Union. You can access this PDF here.

Erşen, E. (2013, October 18).The Shanghai Cooperation Organization: A New Alternative for Turkish Foreign Policy? Middle East Institute. You can read it here.

 

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