ANKARA: These days it is a rare incident that a move made by Brussels is received with genuine enthusiasm in Ankara, yet this is precisely what happened last week when the European Commission asked the European Council for a mandate to launch negotiations with Turkey to upgrade the twenty-year old European Union (EU)-Turkey Customs Union.
Turkey is in the awkward position of being bound by a Customs Union agreement despite not being a full member of the EU. In fact, when the customs deal was signed back in 1995, it was deemed a temporary, preliminary step towards Turkey’s full membership. Two decades have passed since, and while the deal has done much to boost bilateral trade and investment, with Turkey’s prospects for being a full member of the European community being bleaker than ever, and the dynamics of global trade having radically changed since the time when the deal was inked, the time is ripe for revising the agreement. As the European Commission stated in its press release, the revision needs to “reflect current EU-Turkey trade relations” as it “would bring substantial economic benefits for both partners.”
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Both sides realize that they have robustly benefited from the Customs Union so far. According to data by the Turkish Statistic Institute, 44.5 percent of Turkey’s exports last year were destined to European markets, whereas the share of the EU countries in Turkey’s imports was 38.0 percent. In other words, Europe is the major export marker for Turkey, whereas the Turkish market is vital for European producers, too. Moreover, two thirds of the foreign direct investment (FDI) stock in Turkey has originated from European countries. The Customs Union helped trade and investment relations by not only reducing tariff barriers, but also harmonizing rules, norms and standards, and establishing a culture of doing business with each other. The EU-Turkey Customs Union has been a driver of non-European FDI into Turkey as well, since many companies have invested in production facilities there, such as Japanese and Korean car makers, in order to benefit from the opportunity of tariff-free exports to Europe.
