Let’s conserve Turkey’s EU Customs Union modernization deal

Turkey and the European Union are at a critical turning point in their decades-long relationship. The key question now is: Will they give each other one more chance to improve their strategically vital ties, despite deep-seated differences, or continue on the path to divorce after many decades of progressive integration? Updating the Customs Union could play a significant role in sustaining current links and keeping options open for future integration, despite the obstacles we face today.

After listening to German diplomats, think tankers and parliamentarians in Berlin last week I am now convinced that both Turkey’s accession to the EU (even in the distant future) and the overdue modernization of the Customs Union (signed back in 1996) are unlikely to happen unless drastic changes take place. Calls to end Turkey’s EU membership process are mounting on both sides.

Independent of Turkey’s much-debated membership credentials, the EU’s “driving duo,” France and Germany, do not want Turkey to join. It is an open secret that hardly anything happens in the EU without the agreement of these two founding members, and even in the “good old days,” when there were fewer justifications for excluding Turkey, they did not want it.

French President Emmanuel Macron told Turkish President Recep Tayyip Erdoğan in January 2018 that it is now “time to end the hypocrisy of pretending there is any prospect of an advance in Turkey’s membership talks with the EU.” In Germany, future coalition partners Angela Merkel and Martin Schulz have become increasingly critical of both Erdoğan’s person and his politics. Both Merkel and Schulz have bitterly objected to “Turkey’s blatant interference in Germany’s domestic affairs” and therefore called for a halting of Turkey’s EU integration.

Trade matters to both sides

Trade cannot be left only in the hands of politicians. There should be stronger voice from the business community to shape the trade agenda. This is seriously lacking. The EU is currently Turkey’s largest trading partner – accounting for 41 percent of its overall trade, as well as two-thirds of its foreign direct investment.

The annual bilateral value of the trade in goods between Turkey and the EU now stands at 140 billion euros. Turkey receives almost 5 percent of exports from the EU, ranking it as the fourth-largest importer from the EU — just after the U.S., China, and Switzerland but ahead of larger economies like Japan, South Korea and India.

Turkey has benefited from the Customs Union despite the fact that it contains no tariff-free trade deal on all goods. Services and public procurement excluded, agriculture covered on the basis of preferential concessions, customs checks continued on the border, and free trade agreements (FTAs) signed by the EU were not extended to Turkey.

The Turkey-EU trade relationship has been outpaced by the more ambitious trade policy of the enlarged EU and more comprehensive free trade agreements with key economic partners.

A unique trade deal

Turkey accepted this “straitjacket,” believing that it represented the final phase of relations between the then European Community and Turkey under the 1963 Ankara Association Agreement, which would ultimately lead to full membership. With no influence in decisions on free trade agreements with the rest of the world and no membership prospects, the Customs Union has effectively reduced Turkey to a semi-colonial status, as some politicians argue.

In fact, it was the proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the U.S. that moved Turkey to request a modernization of the Customs Union in order to avoid a situation where American goods entered Turkey tariff-free and Turkish goods continued to face American tariffs. Because of U.S. President Donald Trump’s sidelining of the TTIP, this is no longer the case and there is no real urgency to press for the modernization purely in trade terms.

However, there are still other important considerations to bear in mind such as looming trade wars, shifting alliances, a new global “Great Game” in the making, huge geopolitical instabilities and vulnerabilities in the region where Turkey is located.