A New Boost to Transatlantic Ties: The Transatlantic Trade and Investment Partnership and the EU-Turkey Customs Union

By: Eray Akdag / The German Marshall Fund

Eray Akday is the TUSIAD Permanent Ankara Representative. The below article was published by The German Marshall Fund in their “On Turkey” series. You can find the original here. 

During Turkish Prime Minister Recep Tayyip Erdoğan’s recent visit to the United States, the White House declared that “the United States and Turkey decided today to establish a bilateral High Level Committee led by the Ministry of Economy of Turkey and the Office of the U.S. Trade Representative, associated with the Framework for Strategic Economic and Commercial Cooperation, with the ultimate objective of continuing to deepen our economic relations and liberalize trade.”[1]This is obviously an important step, however, it is equally certain that it’s not enough. Quickly, establishing a formal mechanism that would work parallel to Transatlantic Trade and Investment Partnership (T-TIP) negotiations is critical. It can also be alleged that, as stated by Kaleağasi and Ornarlı earlier[2] Transatlantic Trade and Investment Partnership “is of crucial significance for Turkey” and “Turkey can play a significant role in that structure.” 

In the Beginning

The European Union and Turkey have been enjoying the benefits of the Customs Union (CU) for almost two decades now. In addition to revitalizing their economies, this union was foreseen as an important and concrete step toward Turkey’s full membership in the EU. However, the once expected outcome of membership seems to be in the still distant future. Even though the CU has been highly beneficial for both parties, being a member of the CU, but not of the EU generates undesirable outcomes for Turkey. Every commodity and service that legally enters in to the CU is treated “nationally.” Therefore, whenever EU signs a free trade agreement (FTA) with a third party, Turkey experiences a new risk of trade diversion: Third partyoriginated commodities and services can travel to Turkey without tax, but Turkey cannot benefit the same favorable method until it also signs a similar agreement with the third party. This asymmetry is hard to refrain from until the EU membership is acquired, and the famous “wishful Turkey Clauses” in the FTAs haven’t been very effective. As a result, Turkey has been using and will deploy all its diplomatic resources to escapeany major risks that could be caused by the EU’s SouthKorea, Canada, Mexico, and Japan FTAs. This situationchanges the balances and brings non-economic matters tothe discussion table, which can create shifts in the internationalrelations arena.

The Game Changes

Many in Europe believed that the “austerity first” approachwould fix problems resulting from the recent global financialcrisis. But recent assessments seem to conclude that thisapproach has backfired and exacerbated Europe’s economicdownturn. The talk on the need to promote economicgrowth as the cure for Europe and the world’s debt problemscontinues, yet expecting the status quo to changerapidly would be unrealistic. There is need to create a newand more effective tool, a new and wider base on whichinternational trade and economy can thrive. The collapseof World Trade Organization’s (WTO) Doha Rounds is anundisputed fact, and a leap forward in upcoming talks inBali seems equally impossible.[3]The latest rapprochement onthe importance of G20 is attractive, but the “shifting geometries”approach between the biggest economies seems to bemuch more viable in the short run. This structure has beenquickly leading to a world of regional integrations, namelythe FTAs. However, the rules of the old world seem to bereaching its limits and there is a great need to adapt the newrules.This brings us to an atmosphere in which the new “tradeconomic”borders of the world are being redrawn. Since thedemocratic governments are comprised of politicians whoare extremely sensitive to public opinion, creating enoughjobs and reasonable income levels will be of utmost importancein the short run. Almost with an end-game strategy(as Keynes rightfully put it: “In the long run, we’re alldead!”) econopolitic giants of the world will be focusingon the next two to ten years in their immediate blueprints.This simply is why the T-TIP and Trans-Pacific Partnership(TPP) can be the most critical instruments at hand. T-TIPaims to redefine and ease the rules for half of the globalGDP and one-third of the global trade, which is calculated by static effects only.[4]The ease in bureaucracy, standards,and tax regimes will obviously create significant dynamiceffects as well and the results will elevate these numberseven further. Similarly, TPP aims at half of the globalGDP in an area that is home to 40 percent of the world’spopulation.[5]

And Turkey?

As a member of the European Council since 1949, partner of the EU Association Agreement for half a century,member of the CU for 17 years, and EU candidate for almost 14 years, Turkey is now a vital part of the EU economy and politics. A founding member of the United Nations, the Organization of Islamic Cooperation, the Organization of Co-operation and Development (OECD),and Organization for Security and Co-operation in Europe (OSCE) and member of NATO since 1952, Turkey has also been actively involved in global diplomacy and defense.Apart from this backgrounds, Turkey has been catching up faster and faster with the global economic leaders, especially during the last two decades. A member of World Trade Organization (WTO) since 1995 and an active member of the G20 structure and B20 Coalition, Turkey was just recently promoted to being a financer of the IMF, rather than a borrower. Even still, Turkey, as a transatlantic strategic partner of the United States, still has much to offer to the world economically and diplomatically. With already established close ties not only to Europe but also to the Middle East and Africa regions, Turkey is improving its connections with the Pacific region as well. Turkey is more than just a fast-emerging economy, and is assuming more and more important roles at the decision-making tables. It is safe to say that in the recent history of critical global developments, Turkey hasn’t been a key player. However, itis at least fair to say that it has the potential of medium to high influence on some of the most important parts of the world, and this potential seems to grow day by day. Once defined as a “loose cannon” by some EU observers, Turkey should not be left out. As the Presidency Conclusions of the Council of the European Union stated, “it must be ensured that Turkey is fully anchored in the European structures through the strongest possible bond.” While the potential gains are usually defined by zero-sum games in the world of economics, there is still plenty of room for win-win games.The T-TIP process might be a good example. The world is not simply a chess board with only two sides. The Cooperative Multi Player Game Theory suggests that there are always new avenues to explore.

On the Verge of a Critical Term

T-TIP, TPP, and Euro-Mediterranean partnership(EuroMed) are highly important developments, but theyare not the only developments around the world. ASEANregion improvements have almost as much importance forthe future, and Africa, Latin America, and the Middle Eastare trying to find new ways to improve. A recent EuropeanCommission memo clearly puts forward a seeminglyinevitable assertion: “Over the next two years, 90 percentof world demand will be generated outside the EU. That iswhy it is a key priority for the EU to open up more marketopportunities for European business by negotiating newFree Trade Agreements with key countries. If we were tocomplete all our current free trade talks tomorrow, wewould add 2.2 percent to the EU’s GDP, or €275 billion.This is equivalent to adding a country as big as Austria orDenmark to the EU economy.” Future econopolitics seems to be relying more and more on unconventional economicareas and ties.Winds of change are blowing not only for the internationaltrade and economic borders, but for countries aswell. Democratic cycles define the economic, political, andtherefore diplomatic approaches of every single country.Reinforcing the correct mindset and strongly motivatingpoliticians, bureaucrats, and ordinary people in Turkey is asimportant as doing the same in the United States, the EU,and other related parts of the world. As the famous quote ofrenowned U.S. Congressman Tip O’Neil says, “All politicsare local.”Turkey is rapidly closing in on a critical season of deepdebates, which has the power to change the country andnation forever. The country is putting all its efforts intorectifying internal and regional problems including theKurdish Peace Process, the creation of a new and moderncivil constitution, and transposing the parliamentariansystem into a kind of presidential system. Looking at thestill boiling Middle East region, Turkey is transformingits relations with Israel, Iraq, Iran, Egypt, and Syria, whiledeepening relations with African nations and even Far Eastgiants like Japan, South Korea, and China. On top of allthis, Turkey will face important elections on three levels(local, national, presidential) and a possible constitutionalreferendum in the next two years. Additionally, this presidentialelection will be held by public vote for the first timeever, unlike earlier elections by the parliament. This publicvote will give the new president much more authority, evenwithout any constitutional amendment, and give this positionincreased executive powers, which are provided under the current constitution, but have almost never been usedbefore.

To Sum It Up

Surprisingly, the global crisis made it clear that Turkey isone of the healthiest economies in the world, with a robustbanking system and readjusting growth and employmentstructures. As a member of the EuroMed partnership,Turkey is working to conclude free trade agreements withall other Mediterranean partners. These 16 neighborsin North Africa and the Middle East already represent 8.6 percent of total EU external trade and also promote economic integration and democratic reform. At this stage, the world is going through strikingly fast and comprehensive transformation. This is not only the approximately 3 percent customs tax, which is to be cut down during T-TIP negotiations. It is also the harmonization of the bilateral or multilateral regulations and standards all over the world, which will make market penetrations much easier, or harder. This is also a critical turn for the overall Turkish economic and political atmosphere, which will likely create intriguing influences and spillover effects for the Middle East and North Africa region, at least. As a strategic ally of the United States and a formal partner of the EU, Turkey is going through a storm, just like rest of the world. We are all sailing toward better weather, however, with a multi-aligned compass, finding the correct route can be tricky at times. As Winston Churchill once said, “If you’re going through hell, keep going.”