Modernized customs union to facilitate EU firms' access to new markets via Turkey

ALEN LEPAN - ELIF BINICI
ISTANBUL
Published 27.09.2017 19:08
Updated 28.09.2017 10:28
Bilateral trade between Turkey and EU currently stands at $160 billion.
Bilateral trade between Turkey and EU currently stands at $160 billion.

Amid ongoing negotiations to upgrade the Turkey-EU Customs Union, Turkish and EU representatives are working to ensure a framework that will generate maximum mutual benefits for both parties and are looking to ramp up the current $160 billion bilateral trade volume

Late Tuesday at an event held by the Turkish-German Chamber of Commerce and Industry, Economy Minister Nihat Zeybekci said: "You can find Turkish companies everywhere that EU countries don't even think of setting foot," stressing that Turkish companies can open up a horizon and big investment opportunities for EU member countries since they have the ability to trade anywhere in the world.

He further emphasized that Turkey's strong ties with the Middle East, Central Asia and Africa will also expand EU companies' access to these markets.

Speaking at the EU-Turkey Customs Union 2.0 event organized by the Turkish-German Chamber of Commerce and Industry on Tuesday, attended by Head of the EU delegation to Turkey and Ambassador Christian Berger, and Turkish-German Chamber of Commerce and Industry Chairman Markus C. Slevogt, Zeybekci said that an update to the customs union would result in a win-win opportunity for both Turkey and the EU.

Both sides conducted an evaluation study with two independent institutions, Zeybekci said, indicating that the outcomes of the studies were very similar to each other.

The European Commission's assessment said that trade relations between Turkey and the EU, including more than 20 years of implementation of the final phase of the customs union, has led to Turkey becoming the EU's fifth main trading partner globally, representing 4 percent of the EU's total foreign trade, with a value of bilateral trade in goods having increased more than fourfold since 1996, and currently amounting to 140 billion euros, with an EU positive balance of 17 billion euros in 2015. The EU is Turkey's most important trading partner, representing 41 percent of the country's global trade.

In its Dec. 21, 2016 assessment, the commission proposed modernizing the current deal, which covers a limited range of industrial products and excludes agriculture, public procurement and services. Highlighting that an upgrade to Turkey-EU trade relations forms an essential part of Turkey and the EU's efforts to deepen relations in key areas of common interest, the commission reiterated its resolution to continue delivering on the commitments it has made as part of the deal with Ankara. "Modernizing the customs union to reflect current EU-Turkey trade relations would bring substantial economic benefits for both partners," the commission said in its proposal.

"With the evolution of the economic environment and the significant growth of EU-Turkey trade, the customs union that entered into force in 1996 is becoming less and less equipped to deal with the modern day challenges of trade integration," the commission said, adding that the modernization and expansion of the customs union could unleash further opportunities for EU companies in the agri-food and services industries and the public procurement market in a bid to express the gains it could garner with more expansive trade with Turkey. The proposal also added that the respect of democracy and fundamental rights is an essential element of the agreement, showing the political conditions of the agreement.

The assessment also said: "In the context of an increasing number of ambitious and comprehensive FTAs [free trade agreement], certain deficiencies in the design of the customs union have become evident," as Turkey is excluded from decision making and the free trade agreement processes with the EU's trade partners. "This also limits Turkey's ability to negotiate and obtain access to the markets of certain EU FTA partners."

Moreover, a 2017 report prepared by the Brussels-based European Neighborhood Council think tank in association with the Independent Industrialists and Businessmen's Association (MÜSİAD) outlines that a reformed customs union would make a 1.44 percent contribution to Turkey's gross domestic product (GDP) while enabling the growth of the EU economy by 0.01 percent. Not taking the impacts of services and public procurement liberalization into account, this calculation is considered important for both sides. Yet, when services and public procurement are included, EU exports to Turkey would be predicted to increase by 27 billion euros, whereas Turkish exports to the bloc would be expected to increase by 5 billion euros.

Updating of the customs union with Turkey would increase the EU's total income, total growth and increase its foreign trade, Zeybekci said, indicating that it would increase Turkey's national income and exports, as well.

Emphasizing that there have been perceptions recently in some areas that an update to the customs union would be beneficial for Turkey, Zeybekci asserted that the EU would profit more in total terms.

"If the update to the customs union creates a benefit worth 100, 65 to 70 percent of this benefit would be taken by the EU and the remaining by Turkey. This is not a favor provided to Turkey, it is something that makes both sides win," Zeybekci said. He also said the European Council will discuss the customs union issues on Oct. 19. Explaining that the EU and Turkey are not competitors, Zeybekci said: "Turkey and the EU are two major complementary parts. Today, there are Turkish companies in every region where companies from EU member countries do not even dream of going and stepping in. Turkey is the number two in the contracting sector in the world."

Economy Minister Nihat Zeybekci (C) with Daily Sabah reporters Alen Lepan (L) and Elif Binici (R)

Turkish companies that have the ability to do trade all over the world are a great opportunity for the EU, Zeybekci said, calling Turkey a very important trading partner for the EU.

"This is a win-win journey. All relations are based on mutual benefit and relations in which mutual interests are maximized become solid and long. If the customs union was to be updated on those terms today, the foreign trade volume, which is $160 billion, would increase to $200 billion in one-and-a-half years, and to $300 billion in five years. This is a process in which both sides will win."

Zeybekci said it is also essential for all EU countries to upgrade the customs union. He said upgrading the customs union with Turkey would mostly be beneficial for Germany, which has a bilateral trade volume with Turkey of around $40 billion.

As the only non-EU member country that has had a customs union agreement with the EU since 1996, Turkey has been one of the EU's largest trade partners with an export value of 66.7 billion euros and an import value of 78 billion euros in 2016 in goods alone. As for services, Turkish exports to the EU totaled 16.4 billion euros and imports of services stood at 12.2 billion euros, according to data from the European Commission. Among EU member states, Germany has been the top destination for Turkish goods for a while. July export data shows Germany as the top market for Turkish exports in eight sectors, including automotive, ready-to-wear, iron, machinery, air conditioning, hazelnuts, fruits and vegetables and dried fruits.

German companies do not look for collateral, but market quality

When asked about last week's report claiming that the German government curbed export and investment guarantees, called Hermes cover, for German companies doing business with Turkey, Turkish-German Chamber of Commerce and Industry Chairman Markus C. Slevogt said that German companies do not make their business decisions based on collateral, but act upon an extensive survey of market quality and opportunities.

Zeybekci also confirmed that no such decision by the German government has been communicated to Turkish officials, so economic relations between Turkish and German business circles will continue as normal.

Last week, a report from the German dpa news agency claimed that the government capped the amount of the Hermes export guarantees it provides for trade with Turkey at 1.5 billion euros.

Approximately 6,900 German companies operate in Turkey, while the bilateral trade volume hovers around 37 billion euros.

According to the German Economy Affairs Ministry, foreign direct investment (FDI) from Germany to Turkey between 2002 and May 2017 exceeded $9 billion, placing it sixth among the top 20 countries investing in Turkey. FDI from Germany, which generally invests in the energy, insurance and manufacturing sectors, composes at least 6.3 percent of the total FDI in Turkey.

Moreover, the ministry's data showed that the number of German investors in Turkey from January to April this year increased more than 100 percent as German FDI was recorded at $123 million, compared to $58 million during the same period last year.

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