Updating Customs Union to offer key chance to revive Turkey-EU ties

Updating Customs Union to offer key chance to revive Turkey-EU ties

A long-awaited update to the Customs Union deal between Turkey and the European Union has the potential to restore strained ties between the two.

The European Commission took a key step in silence on Dec. 21 on the road to launching negotiations with Turkey to modernize the existing 20-year old Customs Union, in line with a key process that officially started in 2015. The commission asked the council for a mandate to launch talks with Turkey to modernize the deal.

 This step may not result in anything if the update talks fail. However, the move will mean a lot if the process ends with a win-win deal for both sides. 

It is quite obvious that the update to this key deal will bring many opportunities in economic terms for the both sides. Beyond these economic goodies, this process could bring significant opportunities for both sides to understand each other better and for Turkey to improve its key institutions during these difficult times, especially after the European Parliament’s vote to freeze negotiations with Turkey temporarily because of Ankara’s “disproportionate” reaction to the July 15 failed coup attempt. 

The commission noted that “respect for democracy and fundamental rights will be an essential element of the agreement,” in its statement to announce its move. Any progress in these fields will of course be good for Turkey.

Before proceeding into the details of the potential economic gains, it should be noted that there is still hope to boost social, political and economic ties between Turkey and the EU. 

What will the update bring economically?

Turkey is the EU’s fifth largest partner in trade in goods, and the value of bilateral trade in goods has increased more than fourfold since 1996, now hitting 140 billion euros a year. According to officials from both sides, with an updated Customs Union deal, this figure could double to $300 billion. 

Services and public procurement are not included in the current framework of EU-Turkey bilateral trade relations, and agriculture is only covered on the basis of preferential concessions. With a deepening of the Customs Union deal, these key sectors could be included as well as public procurement, thus incorporating all areas of the Turkish economy related to international trade.

Turkey is required to import goods from any countries with whom the EU has a free trade deal without trade restrictions under the existing deal, but this creates enormous asymmetries in Turkey’s trade with third parties with whom the EU has a free trade agreement. Now the country has the chance to revise this for the better. 

There is also always more than trade, as two thirds of foreign direct investment in Turkey currently originates in the EU. FDI inflows to Turkey peaked in 2007 at $19.1 billion and the EU, led by the Netherlands, Austria, the United Kingdom, Luxembourg, Germany and Spain, has been the largest foreign investor in Turkey in recent years. 

Besides, on the road to deepening its deal with the EU, Turkey will have many opportunities to liberalize its economy and make its economic activities more transparent and more productive. 

Additionally, Turkey will also be able to participate in a decision-making mechanism in the Customs Union agreement.

Beyond all of these economic and commercial benefits, the launch of the official talks to modernize the Customs Union deal soon will create a healthy dialogue mechanism between the two sides. 

With the Turkish side’s current rhetoric, the EU is a significant reference point for Turkey to strengthen its institutions. This process could, however, drag on forever. As such, both sides must take steps toward each other rather than endlessly disapprove of each other’s moves.