Where does Turkey stand in the EU’s new trade and investment strategy?

Where does Turkey stand in the EU’s new trade and investment strategy?

Selen Akses
In October 2015, the European Commission revealed its new priorities for the upcoming year in terms of its trade and investment policy. The commission aims to conduct a more responsible trade policy based on efficiency, transparency and the diffusion of European values. Although trade liberalization within the multilateral trading system is its main priority, in parallel, the EU is also pursuing its bilateral and regional trade agreement negotiations which will subsequently serve the basis of the progress in multilateral talks. 

In this strategy, the commission describes Turkey as the EU’s close partner and a key regional player but also highlights that the trade and investment relations remains at a “sub-optimal” level despite the high economic and trade potential. With the revision of the Customs Union, the EU expects to explore these economic opportunities in areas such as service, agriculture and public procurement. It did not come as a surprise that the modernization of the Customs Union was mentioned as one of the priorities in the EU’s new trade strategy since the Turkish and European authorities had already announced in May their decision to revise the framework and scope of the Customs Union. However, there is still a certain blur concerning the agenda of the negotiations. Items like services, agriculture and government procurement and dispute settlement mechanism are certainly high on the agenda, but it is very doubtful that the negotiations will be limited to these areas only. 

Investment protection has become an important priority in the EU’s trade and investment policies as the bloc will gain the exclusive competence on foreign direct investments. In this respect, considering that more than 70 percent of foreign direct investments in Turkey come from the EU, the commission would undoubtedly seek to remove the barriers encountered by EU investors in the Turkish market. In addition to investment protection, the improvement and enforcement of intellectual property rights will likely be brought up during the negotiations of the modernization of the Customs Union. 

Another subject of negotiation could be trade defense instruments, since Turkey and the EU have made an extensive use of these measures since they constitute an important barrier in the free movement of goods.

In its strategy, the commission has revealed its intention to increase transparency on trade defense, mostly by enabling interested parties to better access information on trade defense cases. The modernization of the Customs Union might require Turkey to enhance transparency not only in trade defense cases, but also in areas such as dispute settlement mechanisms and procurement procedures.  

The modernization of the Customs Union should also be an opportunity for Turkey to bring to the table the issue of free movement of service providers which has long been an endless and controversial issue between the parties. In other words, the revision of the Customs Union could serve as an opportunity to clarify this issue of the standstill clause of the Additional Protocol. Since the EU expects to tackle the issue of the mobility of service providers when revising the scope of its free trade agreement in force with Mexico, Turkey should also exert pressure to include this on the list of subjects to be discussed during the negotiations.  

Last, in its new strategy, the EU also emphasized that the modernization of the Customs Union could enable Turkey afterwards to associate with future free trade agreements concluded by the EU with third countries.

This strategy reveals that the EU foresees the inclusion in its free trade agreements appropriate mechanisms that would allow other countries to join the agreement with the condition that these countries are able to meet the conditions negotiated with the initial parties. The need to establish this mechanism arose with the request of countries, including Turkey, to take part in the Transatlantic Trade and Investment Partnership (TTIP). 

This mechanism enabling a third party to take part in the agreement at a later stage is of great importance for Turkey. With the establishment of the Customs Union, Turkey committed to align its trade policy with the EU’s preferential trade agreements. However, some countries who have signed a trade agreement with the EU have shown a reluctance at signing a separate agreement with Turkey since they already benefit from entering the Turkish market duty-free. This mechanism would help Turkey overcome this asymmetric situation. Although the modernization of the Customs Union and the inclusion of Turkey in the TTIP process should be considered as two distinct processes, the revision of the Custom Union will no doubt facilitate Turkey’s integration into the TTIP process, whether through this mechanism foreseen by the EU or by negotiating a separate free trade agreement with the United States. 

*Selen Akses is senior researcher at the Economic Development Foundation (İKV).