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FACTDROP: Turkey may seek revisions to customs union over EU-US deal
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3/25/2013

Turkey may seek revisions to customs union over EU-US deal


Turkey is in a disadvantageous position in its bilateral trade with the US. Last year, exports to the US remained at $5.6 billion, while imports stood at $14.1 billion

Πηγή: Todays Zaman
March 24 2013

The free trade agreement (FTA) the European Union and the US have agreed to conclude is expected to adversely affect the Turkish economy, raising concerns among Turkish businesspeople and top economy officials.

“This would have a huge negative effect on our trade with the US,” Rızanur Meral, president of the Turkish Confederation of Business-men and Industrialists (TUSKON), recently said.

The Turkish side is worried because as per the customs union agreement Turkey had signed with the EU, Turkey needs to apply the same tariffs as the EU does to industrial products imported from third countries. And the problem is that Turkey, while having to lower customs duties in accordance with a potential FTA the EU could sign with the US, can’t benefit from the lowering of the same by the US as it is not a member of the EU.

Turkey is already in a disadvantageous position in its bilateral trade with the US. Last year, Turkey’s exports to the US remained at $5.6 billion, while its imports, which stood at $14.1 billion, were nearly three times as much. The announcement of the FTA has set off alarm bells in the country because Turkey is afraid its imports from the economic giant would further soar, given that the US will have the right to export to Turkey without paying any customs tariff. So it’s crucial for Turkey to simultaneously sign an FTA with the US in order not to be adversely affected by the FTA. “[If that can’t be achieved] Turkey will be very badly affected,” Economy Minister Zafer Çağlayan recently stated.

On a Voice of America broadcast in mid-March, Meral said: “This is a great danger for Turkey. In the future, the trade imbalance between Turkey and the US would further increase.” In mid-February, the EU and the US issued a joint statement, announcing their decision to initiate the internal procedures necessary to launch negotiations on a Transatlantic Trade and Investment Partnership, that is, an FTA that the two sides hope to complete by the end of next year.

Although US Secretary of State John Kerry is said to have given positive signals during his Turkey visit at the beginning of the month that the US is willing to sign an FTA with Turkey, 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.

Given the disadvantageous position the customs union agreement forces Turkey into, Turkey now sees the agreement as a source of unfair competition for itself and accuses the EU of turning a deaf ear to its rightful demands that it should also be included as a party in the FTAs the EU concludes with third countries.

Seemingly exasperated by the EU’s neglect of Turkey as regards the FTA, Çağlayan told reporters in the middle of the month that “Turkey has been subject to all kinds of injustices because of the agreement. Let the EU know that we are in a position to revise some things should circumstances so impose.” He hinted that Turkey may demand major changes in the agreement. “Our discourse on the EU will, from now on, get sharper. We will fight fire with fire,” the minister added.

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. The comments that Ali Babacan, deputy prime minister for the economy, made on the issue at the beginning of the month reveal the importance Turkey attaches to the issue. “The US is not any other country. It’s a huge market, and a [major] manufacturer [of goods],” he said.

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. Babacan’s remarks also indicated that there may be political repercussions of the US-EU FTA process for Turkey. Although stating that if the process could be well conducted, the deal between the EU and the US may also greatly contribute to ties between Turkey and the parties to the deal. “But it may also turn out that Turkey’s political relations with both the EU and the US deteriorate compared to the present level,” Babacan added.

The US and the EU are expected to start negotiations by June on the deal, through which, the world’s two biggest economies will reduce or eliminate tariffs and other barriers to trade, while setting, as two partners accounting for half the world’s GDP, the standards for world trade. “These negotiations will set a standard, not only for our future bilateral trade and investment, including regulatory issues, but also for the development of global trade rules,” Jose Manuel Barroso, president of the European Commission, said.

The issue of standards is more important an item in foreign trade than it may seem at first. Bozkurt Aran, director of the Center for Trade Studies at the Ankara-based think tank Economic Policy Research Foundation of Turkey, describes the FTA that the EU and the US will conclude as a new generation trade agreement, which the world will also have to take into consideration, as the signatories are the world’s economic giants. “They will set the standards, rules for trade. And Turkey will also be adversely affected as it’s not a party to the deal,” he told Sunday’s Zaman.

Aran is not of the opinion that US customs duties, which are no more than 3-4 percent on average, would pose a major threat for Turkish exports. “The main effect will be on standards and services,” he said. One peculiarity of the current FTA is that it will probably also cover services, introducing regulations in that area as well. Karel De Gucht, EU trade commissioner, proposed last week that financial services should be among the sectors to be included in the negotiations.

Regulations on services may have hugely negative repercussions on the Turkish economy because the service sector is open to the world, but Turkey has no domestic regulation. “In services, Turkey would suffer from this weakness,” said Aran, a former ambassador who also served until recently as Turkey’s permanent representative to the World Trade Organization (WTO).

Turkish businesspeople have long expressed discomfort with the customs union agreement, maintaining that it doesn’t work in Turkey’s favor, especially because of the FTAs the EU has concluded with third countries. The textile industry may be one of the potential victims. “If Turkey is not allowed to be a party to the FTA, then Turkey should think about getting out of the customs union,” Hikmet Tanrıverdi, president of the İstanbul Textile and Apparel Exporters’ Associations (İTKİB), told Sunday’s Zaman, suggesting at the same time that Turkey may also think of replacing the customs union with an FTA with the EU.

The FTA is expected to contribute around 0.5 percent a year to both the US and the EU economies, which means more than $100 billion for Europe a year, and around $65 billion for the US. A large proportion of the growth is expected to result not from the elimination of tariffs but from the elimination of differences regarding standards for goods and services. A 10 percent decrease may be seen in production costs in both economies thanks to standardization in regulations.

Turkey seems to have officially set a deadline for being accepted as a full member of the EU -- 1923, the 100th anniversary of the foundation of the Republic of Turkey. But Cemil Ertem, a columnist for Sunday’s Zaman and a member of the academic advisory board of the Turkish Exporters Union, believes that waiting until 1923 would cause huge losses for Turkey in trade because Turkey is bound by the customs union agreement with the EU. Noting that the EU-US FTA would cause major losses for Turkey he told Sunday’s Zaman that “the articles in the customs union agreement that work against Turkey need to be revised.”

Like Aran, Ertem also believes standards the new FTA will bring are of major importance. “The standardization in regulations is highly important, and Turkey is not prepared for such a development,” he said. “Turkey has no economic simulation models to work out how such an eventuality would affect its economy.”

Switzerland and Norway, which are bound by customs union agreements with the EU but not members of the union as is the case with Turkey, will be facing similar problems. So, Tuskon’s Meral said he proposed to the American side that the US could deal with the three countries in a package deal and sign a single FTA with these countries. Last week, the executive commission of the EU approved a European negotiating mandate, the content of which is being kept secret. The mandate needs to be approved by all the EU member countries before negotiations start on the FTA.

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