Bringing the EU-Turkey Trade and Investment Relations Up to Date
European Parliament DG External Policies Workshop Report, 2016
Posted: 26 Oct 2016
Date Written: April 2, 2016
Doubts about the desirability or feasibility of the full accession of Turkey to the EU in the short run have increased substantially in recent years, due to both the internal direction of the Turkish government and the economic and security challenges facing the broader EU. Yet despite recent trends, there is little reason for either Turkey or the EU and its Member States to unilaterally break with Turkey’s accession process. In fact, as this paper will show, the various interdependencies of the two partners, as well as the high potentials of their partnership in terms of politics and security, economy, trade and energy, can offer economic benefits for both sides and help to overcome the issues currently seen in their relationship.
Nevertheless, the current framework of interaction between the two countries is over twenty years old; the EU-Turkey customs union (CU) was agreed upon in 1995 and is becoming increasingly out-dated. Both the EU and Turkey are aware that the pre-internet age EU-Turkey CU no longer meets the requirements of 21st century for trade relations. Consequently, the Turkish government is interested in up-dating the EU-Turkey trade and investment relations, but it is not sure how this updating should take place. Under these circumstances, the solution for confronting mutual economic challenges may not only be a substantial re-think of the existing CU but a move towards greater economic integration.
This paper assesses the case for modernising EU-Turkey trade and investment relations. It offers the point of view that any updating of the CU should seek to deepen economic ties between the EU and Turkey. The sum of our analysis is that the EU-Turkey CU of 1995 should be modernised and modified to take into account the various and growing criticisms of the CU. Furthermore, economic integration between the EU and Turkey should be strengthened by signing a complementary deep-integration regional trade agreement (RTA) between the EU and Turkey covering agriculture, SPS measures, services, government procurement, investment, and dispute settlement. Such an approach should increase competition and lead to better allocation of resources in both Turkey and the EU, as well as other benefits for both partners. From the point of view of Turkey, signing a deep integration regional trade agreement (RTA) with the EU should increase market access for agricultural commodities in the EU market through the elimination of tariff and non-tariff barriers while increasing market access in services and public procurement markets by aligning the regulatory framework between the parties in services and public procurement. Turkey is realising the importance of global value chains trade, and the advantages of concluding a deep and comprehensive FTA covering agriculture, SPS measures, services, government procurement, and investment and dispute settlement chapters will be economically significant.
Gains are possible from the EU side as well. Deepening the EU-Turkey integration would help to strengthen the global role of the EU, and lead to improved market access for EU firms in Turkish agricultural commodities and services markets. It would also provide enhanced access for EU firms to Turkish government procurement market. An expanded RTA should additionally cover the liberalization of investment, both in most of the services and non-service sectors, including performance requirements to ensure environmental, social and labour standards are met. Through such a modernisation, the RTA will be able to create substantial new trade opportunities for EU firms in goods and services as well as in increasing sustainable investment.
Moreover, such a move would bring EU-Turkey trade and investment relations into line with current EU RTAs, such as the KOREU, EU-Canada CETA, and the emerging Trans-Atlantic Trade and Investment Partnership (TTIP), which contain much stronger provisions than the EU-Turkey CU. The TTIP negotiations actually offer much instruction for the blue print of liberalisation of trade between the EU and Turkey, with its mix of a harmonisation approach in some areas and mutual recognition or mutual equivalence in others; such a mix may make it easier for Turkey to fulfil the requirements of any expanded RTA.
The rest of the paper proceeds as follows. The following section examines the structure of the CU and what it has meant for both Turkey and the EU, while the Section 2 performs an assessment of the EU-Turkey CU from the point of view of both parties. Section 3 considers the wider context of recent developments in the world economy, before focusing on the question of how to update EU-Turkey trade and investment relations to identify the various options facing Turkey and the EU. Finally, the Section 4 concludes with some recommendations related to this analysis.
Keywords: EU Turkey; Customs Union; trade; investment; regionalism
Suggested Citation: Suggested Citation