As we explore the economic, political and institutional foundations of "New Turkey," structural problems embedded in existing domestic and international frameworks keep attracting our attention. At the regional level, Turkey's ongoing customs union (CU) agreement with the EU is a clear case in point. Historically, the launch of a CU between Turkey and the EU in 1995 was a radical and unprecedented step whereby a non-member entered into a legal relationship with the EU concerning trade policy.
This arrangement, which carried the risk of seconding Turkey's trade policy to that of the EU was presented as Turkey's first step toward EU accession. The CU is now nearly 20 years old and Turkey's full EU membership is still not in sight. Given Turkey's economic momentum and increasing gravitas in international relations, it is inevitable that the asymmetrical nature of the CU is hotly contested.
To be fair, the CU has been instrumental in facilitating the integration of the Turkish economy into European global production and trade networks, as well as improving the quality and sophistication of Turkey's exports. However, profound transformations that occurred in the global economy as well as in the political and economic configuration of the EU created new pressures on the CU which became increasingly unable to deal with challenges of economic integration.
The relative importance of emerging economies increased substantially in the global system as these economies achieved high and sustained growth and improved their potential for competitiveness. Global supply chains became more interdependent at least in non-strategic sectors and countries now have fewer incentives to insulate their markets from global trade flows. There has been a proliferation of Free Trade Agreements (FTA) globally which cover areas of deep integration such as government procurement, services and environmental and labor standards.
Under the global trade regime led by World Trade Organization (WTO) quantitative quotas have been lifted and the use of tariffs to insulate local markets gave way to adoption of non-tariff measures.
In the last decade Turkey was also transformed into a high-growth economy with a vibrant and diversified private sector aggressively looking to expand into new markets.
Trade policy and legal arrangements including CUs and FTAs began to be seen from a more strategic perspective aimed at international competitiveness. Turkey's foreign policy acquired a proactive and strategic character in which the pursuit of new economic partners became one of the fundamental priorities. Hence serious concerns emerged since Turkey cannot participate in the EU's decision-making processes on the CU, while it has the obligation to align with EU policies and legislation. The asymmetric and one-sided nature of the CU Agreement, which stemmed from its perception as a temporary solution rather than a long-term deal, triggered strong criticisms from various circles including Turkish exporters.
Issues such as the EU's strict visa regime toward Turkish entrepreneurs, legal obstacles faced by logistics firms carrying intra-firm trade elements between Turkey and the EU, the exclusion of agriculture and services sectors by the CU and particularly the EU's unilateral privilege to negotiate FTAs with third countries seem to constitute the main sticking points. As the EU is negotiating FTAs with emerging economies that are natural competitors for Turkey in certain sectors, it is not realistic to expect that Turkey could receive comparable parallel agreements. Therefore, every new FTA concluded by the EU carries the potential of creating tension between Turkey and the EU authorities, which indicates a structural fault in the existing system. It would not be surprising in the medium term to see a radical renegotiation and recasting of the CU occupying center stage in the agenda of Turkey-EU relations.
