Free trade agreements: A tool working both ways for Turkey

Following the failure of the Doha trade talks launched by the World Trade Organization (WTO) for trade liberalization, individual countries and groups of countries seem to be more eager to conclude free trade agreements (FTAs), as the recently launched negotiations for a free trade deal between the US and the European Union demonstrate.

Turkey has already signed FTAs with 19 countries and, so far, the FTAs seem to be working in Turkey’s favor. In the 2000-2012 period, Turkey’s overall exports increased by 446 percent, while the increase in exports to countries with which Turkey signed FTAs amounted to 551 percent. In 2000, Turkey’s exports to countries with which Turkey had an FTA stood at $2.2 billion, while in 2012, the figure reached $14.5 billion.

The picture also looks positive in the area of imports. In the same period, Turkey’s overall imports rose by 340 percent, whereas the rise in imports from FTA countries remained at 280 percent, with this figure increasing from $2.8 billion in 2000 to $10.7 billion in 2012.

But FTAs are also a “troubled” area for Turkey because of the customs union agreement the country signed with the EU. As per that agreement, which has been in effect since the beginning of 1996, Turkey needs to apply the same tariffs as the EU does to industrial products imported from third countries with which the EU has concluded an FTA. While the products of those third countries, such as Mexico and South Africa, can enter the Turkish market without tariffs, Turkey, not being a member of the EU, cannot enjoy the same benefits in those third markets.

It is for this reason that the announcement of negotiations for an FTA the US and the EU are expected to sign within the next two years has set off alarm bells in Turkey, which is afraid its trade gap with the economic giant will further widen if Turkey can’t convince the US to simultaneously conclude an FTA deal. Otherwise, Turkey would be very badly affected, Economy Minister Zafer Çağlayan has stated on a number of occasions.

Turkey is already in a disadvantageous position in its bilateral trade with the world’s number one economy. Turkey’s exports remained last year at $5.6 billion, while its imports stood at $14.1 billion from the US. Japan is another partner with which the EU is planning to conclude an FTA, making it necessary for Turkey to also convince Japan to simultaneously launch negotiations for a free trade deal in order not to be negatively affected.

Prime Minister Recep Tayyip Erdoğan, who will be visiting the US in May, has sent a letter to US President Barack Obama requesting the start of free trade negotiations between the countries. Çağlayan, who was in the US last week, is optimistic. Noting that Erdoğan would meet with Obama during the visit, he said: “I’m sure Obama won’t remain inactive. Obama will make [during Erdoğan’s visit] an announcement about an FTA with Turkey,” he said during a visit to Houston.

Analysts are also hopeful that the US will agree to sign an FTA with Turkey. Seyfettin Gürsel, head of the Bahçeşehir University Center for Economic and Social Research (BETAM), believes the US can be convinced. Noting that the US has always expressed support for Turkey’s EU bid, Gürsel told Sunday’s Zaman, “That would represent an inconsistency [on the part of the US] if it agrees to sign an FTA with the EU while leaving Turkey outside.”

Dilek Seymen from the department of economics at 9 Eylül University in İzmir also thinks the US can be expected to sign an FTA with Turkey, if political relations between the two countries continue running smoothly. Noting that the US has been a staunch supporter of talks for the liberalization of world trade, she told Sunday’s Zaman that “if it refuses to start negotiations with Turkey, then it would mean contradicting itself.”

Turkey accuses the EU of turning a deaf ear to its rightful demand that it should also be included as a party in the FTAs the EU concludes with third countries. Turkey’s criticism of the EU got stronger when the US came into the picture because it is an economic giant with a lot of potential to negatively or positively affect Turkey’s economy.

It’s estimated that the FTA to be concluded between the US and the EU may cause a loss of 2.5 percent, which amounts to $20 billion, of Turkey’s gross domestic product (GDP) in the long run. Seemingly exasperated by the EU ignoring Turkey as regards the FTA it is to conclude with the US, Çağlayan hinted last month that Turkey may think of dropping out of the customs union, but Ali Babacan, the deputy prime minister in charge of economy, toned down the government’s message, stating that it wouldn’t be as easy for Turkey to unilaterally cancel the agreement. “To unilaterally cancel the agreement amounts to having difficulty in selling your products to our most important export market,” he told the Turkish web edition of The Wall Street Journal last week.

US Secretary of State John Kerry is said to have given positive signals during his Turkey visit at the beginning of March that the US is willing to sign an FTA with Turkey, but nothing is guaranteed until such a deal is signed, as Turkey has previously had frustrating experiences in this domain. Three countries among those with which the EU had formerly signed an FTA, namely, Mexico, South Africa and Algeria, refrained from concluding a similar agreement with Turkey, as they already enjoy the benefits of zero customs duty for their products in the Turkish market.

The most recent bilateral FTA Turkey has concluded is one with South Korea, which had signed a similar deal with the EU in 2010. The FTA, which was signed in August of last year following intense negotiations between Turkey and Korea, is to enter into effect as of May 1 this year. As per the agreement, the two parties will, within 10 years, gradually bring in zero customs tariffs in 90 percent of all items. In the category of agriculture, for 52 percent of agricultural products mentioned in the deal, the customs tariffs will be totally eliminated in 10 years.

At the moment, Turkey is either in talks for an FTA or has come up with a proposal to start negotiations with 21 countries, and five country groups, such as the Gulf Cooperation Council, Mercosur (a union bringing together some South American countries in a common market) and the Association of Southeast Asian Nations (ASEAN).

todayszaman