Turkey’s Trade in Search of an External Anchor: The Neighbourhood, the Customs Union or TTIP?

Written by | Wednesday, June 24th, 2015

Kemal Kiri?ci and Sinan Ekim (Istituto Affari Internazionali)

Turkish economy was undergoing a dramatic rise during the last three decades. Turkish exports grew and large volumes of foreign direct investment flowed into the country. This can be, above all, mainly credited to liberal economic reforms and the engagement in global trade. Although the European Union remains Turkey’s biggest trade partner, over the last few years, the share of bilateral transactions has decreased while the intensity of Turkey’s trade with countries outside of Europe increased. Yet, against the backdrop of the continuing violence in the Middle East and the Ukrainian crisis, this picture is currently starting to change. It is happening right at a time when Turkey is trying to grapple with the so-called middle-income trap.

Nonetheless, instead of bilateral relations with Turkey, the EU is nowadays devoting a considerable effort to the TTIP negotiations with the United States. If the TTIP comes into force, an area covering 45 percent of the world’s GDP will be created, in which 27 percent of international trade takes place. Countries standing outside this area will either have to choose a less convenient and also beneficial access to the aforementioned market, redirect their commercial relations and thus risk the loss of national welfare, or introduce the regulation structures as stipulated in the TTIP deal, though without having a guaranteed admission into this ‘exclusive club’. Both the EU and the U.S. representatives also don’t look favorably at the possibility of the TTIP’s prospective enlargement.

Turkey should thus primarily seek to improve the functioning of the customs union and also intensify its commercial cooperation with Europe. This option has, however, to deal with several obstacles, whereby the most resonating one involves the question of Cyprus. On top of that, the relations between both entities have been damaged by the weakening of liberal democracy and the rise of authoritarianism in Turkey. Nevertheless, in a period when the whole region is afflicted by an increasing instability, the Turkish political elites are left but a few options other than to look for the solutions to these problems. The improvement of the customs union represents the most expedient and realistic path for the future of Turkish trade.

(The study can be downloaded here)

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