The Customs Union Agreement between Turkey and the European Union was enacted into law on December 31, 1995. The EU-Turkey Customs Union Agreement covers products such as industrial goods and processed agricultural products. According to the ageement, parties'goods can move freely within the customs area, provided that they are exempt from tariffs and equivalent taxes.
United Kingdom plays a critical role in Turkey's economy. According to 2019 data, the UK ranks second among the list of countries which Turkey exports the most goods to, and ninth in the list of countries from which Turkey imports the most from. The United Kingdom, in addition to being among the leading markets, is a higly valued trade partner in Turkey in many sectors, but especially in automotive, television, household appliances, retail and textiles industries.
This being the case, with Brexit –which has been the UK's long time political goal - the UK has left the European Union and concluded one of the most expansive trade agreements to date within the EU. Accordingly, the Customs Union between Turkey and the UK terminated, effective January 1st, 2021. Considering the fact that the bilateral volume of trade between the two States is more than $16 million, the termination of such an ageement could lead to approximately 75% of theTurkish exports to the UK to become subject to a tax burden and potentially resulting in a loss of up to $2.4 billion.
This past week, the UK signed it's first trade agreement with Turkey. The free trade agreement signed between the two nations is a historic FTA, set to go into effect on January 1st, 2021, which covers industrial and agricultural goods. As a result of this agreement, the aforementioned risk of loss will be eliminated and Turkey's trade relations with the UK will be maintained. Considering the previous Customs Union relationship that will automatically terminate due to the United Kingdom's leave from the European Union.
EXPORT and IMPORT RELATIONS BETWEEN TURKEY and the UK
- The main products which Turkey exports to UK are gold, textiles, garments, electrical and non-electrical machinery, motor vehicles and parts, iron and steel products, insulated wires, cables and other electric conductors.
- The main imports from the UK are diesel and semi-diesel engines, automobiles, tramp iron/steel and their ignors, medicinal and pharmaceutical products to be used in treatements and protection.
- The total amount of direct invesments from UK to Turkey in the period between 2002-2019 was $11,120,000 and 2,969,000 USD for invesments from Turkey into the UK during the same period.
WHAT DOES THIS FTA PROVIDE FOR TURKEY:
- The parties agreed that as of January 1, 2021, the imports and exports of specified products will not face any additional taxes. Therefore, Turkish exporters will not be financially burdened by Brexit and free trade between the two countries will be protected against all odds.
- It covers all industrial goods and processed agricultural products.
- Ensuring the inclusion of services and investments, and some of the products covered by the mutual recognition and mutual improvements made in agricultural products will play an important role in Turkey's commercial position and trade relations between the two countries.
DISPUTES BETWEEN CONTRACTING STATES: The Procedure for Dispute Settlement Mechanism
- In case of a legal dispute that may arise between Turkey and the United Kingdom, for the settlement of disputes the "Procedure for Dispute Settlement Mechanism" will be implemented. If an ageement cannot be achieved though this route, the World Trade Organization (WTO) procedures will be applicable.
- This mechanism of Dispute Settlement Procedure aims to resolve the commercial disputes between the WTO member countries within the shortest possible time frame. The mechanism has achieved singificant success dispute resolutions so far.
- Before taking any other action, the first step in resolving a legal dispute between the member countries would be through a consultation phase where they have to communicate directly and settle without the involvement of other instutions. If the parties come up with an agreed upon solution, the legal process will not formally begin; however if the parties fail to reach an agreement, the parties will have the option to consult the WTO director-general to mediate for them. If the consultations fail, the plaintiff will have the option to ask for a panel to be appointed. The Dispute Settlement Body to be established for the resolution of legal disputes within the framework of the principle of ultra petita prohibition, will convene to discuss and manage the dispute resolution procedure.
- Keeping in mind that WTO aims to remove the barriers to free international trade and implement transparent rules in order to facilitate global trade volume, it is very important that the WTO solutions will be applicable if disputes cannot be resolved using the initial mechanism.
The FTA between Turkey and the UK constructs a milestone achievement especcially because of its' "tariff-free" nature. The existing commercial and economic relations will be maintained under the agreement. It is no doubt a very solid and significant step towards strengthening our commercial and bilateral trade relations.
THE IMPORTANCE OF THE FREE TRADE AGREEMENT BETWEEN TURKEY and the UK IN TERMS OF ECONOMIC RELATIONS BETWEEN THE TWO COUNTRIES
Considering the official declarations made by the trade ministers of both countries and and the fact that the markets in Turkey have already reacted positively to the agreement, I believe that the agreement between the two countries will have positive reflections in the foreseeable future.
Turkey currently has free trade agreements with 21 different states in force. Yet, the importance of adding the United Kingdom to the list cannot be overstated considering the message this delivers to the global market.
United Kingdom announced that this agreement comes right after the agreements reached with Japan, Canada, Switzerland and Norway. For Turkey's name to appear with 4 of the worlds leading ccountries constitutes a great source of prestige giventhat thisagreement will further the country's potential to attract foreign investors.
I believe that what is much more important than the positive impact this FTA will have on strengthening the trade relationship between the two states, is how it will signal a more stable and investor-friendly environment for foreign investors and the businesses and accordingly pave the way for new opportunities in Turkey.
The free trade agreement signed between Turkey and the UK demonstrates that the Brexit process which led to a certain level of uncertainty within 2020 will not lead to any disadvantages in the long term trade relationship between Turkey and the UK, nor will it have any negative impacts on the diplomatic relations between the two countries. To the contrary, this agreement being the first FTA after the trade agreement UK signed with the EU following Brexit reveals that the alliance between the two countries remain intact.
The recent FTA provides a critical message for the foreign investors that closely follow the Turkish market and indicates that Turkey is to maintain prestige notwithstanding the economic distress it went through in 2020. As emphasized in the statements made by the Turkish Trade Minister, perhaps the most important outcome of this FTA will be the possibility of providing an atmosphere of steadiness for potential investmentsTurkey may receive.
Therefore, in a period in which the whole world struggles with uncertainty and risk allocation issues, to conclude an agreement this fast, bulky and effective with the UK should be seen as an accomplishment for Turkey.
There is no doubt that trade will further developed if the parties consequently sign a more detailed additional agreement, yet we may still expect an acceleration in trade volume, continuation of investments, and the emergence of new partnerships between Turkey and the UK throughout 2021.
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