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Why would a Third Country Root for Soft Brexit? Views and Lessons from Turkey

Article by Dr Yaprak Gürsoy

January 29, 2019

Why would a Third Country Root for Soft Brexit? Views and Lessons from Turkey

The British and the Europeans are not the only two publics, holding their breath and waiting for the outcome of Brexit. Turkey is also observing the situation, hoping for the approval of a Brexit deal by the UK Parliament. But why is Brexit significant to Turkey? Why would the UK’s ‘divorce’ from the European Union ( EU) be a concern for Turkey, a non-EU country?

There are two sides to the story, one political and the other economic. When the Brexit campaign started in 2016, the  economic consequences for bilateral relations between  the UK and Turkey was not the most important item on the agenda given that the VoteLeave campaign demonized Turkey [1]and its prospects of EU membership. This was worrisome especially because consecutive British governments had been supportive of Turkish aspirations for membership of the EU[2] and the two countries had, for the most part, enjoyed good relations since 1945. With Brexit, Turkey would lose a significant diplomatic  ally  inside the Union.

However, in the aftermath of the referendum, the VoteLeave campaign was quickly forgotten and there were hopes in Ankara and London that Brexit might, in fact, be an opportunity to reinforce bilateral ties. The then UK Foreign Secretary Boris Johnson’s visit to Turkey in September 2016, where he announced the desire to sign a “jumbo trade deal,”[3] strengthened these hopes. Positive sentiments continued and in May 2018 when President Erdoğan visited London, it was mutually agreed that steps would be taken to increase the volume of trade by over 30 %[4].

The reality, however, turned out to be more complicated than these high profile bilateral visits would suggest. As I was doing field research and interviews in the past three months for a project on Anglo-Turkish relations, funded by the British Institute at Ankara[5], I learned from Turkish officials and business community that a no-deal Brexit would be an undesirable outcome. As some of my interviewees stressed, Turkey could possibly incur significant economic losses in the event  of a no-deal Brexit because it is a Customs Union country, but not an EU member. In other words, if the United Kingdom leaves the EU without a deal, and hence no Customs Union, Turkey would lose its comparative advantage in the UK market with no immediate bilateral mechanism to replace it.

Among the 28 trade partners in the EU, the UK has been an important destination for Turkish exporters. The volume of trade between the two countries was over 16 billion USD[6] in 2017 and rising. While the UK exports high-value-added goods to Turkey, it imports basic goods resulting in a ‘traditional trade structure’[7] that seems to favour British businesses. However, in terms of trade balance, the UK is the only major European country with which Turkey has a surplus. Turkey exported 9.6 billion USD worth of goods to the UK in 2017 and imported 6.5 billion USD. Both figures were increased by 62 and 89 % respectively in the past eight years[8]. The UK is Turkey’s second biggest export destination after Germany and this, coupled with the trade surplus, explains the special place credited to the British market by Turkish businesses and government officials.

The success of Turkish exporters to the UK, especially in the textile and automotive sectors, is attributed to two factors. Firstly, Turkish products have comparative advantage over some other nations, such as China, due to geographical proximity, which results in faster and less costly shipments. And secondly, as a member of the Customs Union, there has been no tariffs and quotas that adversely affected trade relations in the exchange of goods between the countries.

The latter is now at risk due to Brexit. If Britain leaves the EU without a deal that would keep it in the Customs Union, then Turkish exports would lose their comparative advantage. Although London has declared its intentions to sign bilateral Free Trade Agreements (FTAs) after it leaves the EU, this does not seem to be a viable option in the case of its partnership with Ankara. Turkey’s Customs Union obligations make it difficult to sign FTAs independent of the EU. Indeed, Turkey’s relationship with the EU is ‘asymmetric and dependent’[9] because it is obligated to follow EU commercial policy without having a say in it. It is no surprise that, Ankara has not signed many meaningful FTAs since joining the Customs Union and has been requesting to modify its trade arrangement[10] with the EU.  Now Turkey faces the additional danger of losing its comparative advantage in the UK market vis-à-vis third countries, who would be able to sign FTAs.

If the UK Parliament approves a deal, this would help Turkey buy time. It is likely that the Customs Union will continue at least two more years, during which the EU and the UK will try to sign another deal to manage trade relations. However, Turkey will have to wait on the side-lines (as it has been mostly doing until now) since it has no decision-making powers in the EU. If in the end, the UK decides to leave the Customs Union, then Turkey would find itself in the situation that it dreads now: the possibility of losing its trade advantage in Britain, even if the EU and the UK sign a trade deal (because EU FTAs do not automatically cover Turkey).

The ambivalent position of Turkey during the Brexit negotiations should also serve as a valuable lesson to keep in mind for London. Despite the advantages Turkish businesses have gained in the European markets (exports to the UK being certainly the most successful example), Ankara’s hands have been tied with regards to FTAs with third countries. If the UK eventually stays in the Customs Union, it would certainly be a positive outcome for Turkey, but then the UK would be unable to sign FTAs in the goods with other countries as it wishes, a point which was alluded to by others, including Donald Trump[11].

The implications of Brexit are beyond Britain and the EU. While the negotiations have revealed once again how Ankara has been left out of the decision-making process in the EU, the gloomy long-term prospects of bilateral trade between Turkey and the UK is also a good reminder of how Brexit has consequences outside the EU borders.

[1] James Ker-Lindsay (2018) Turkey’s EU accession as a factor in the 2016 Brexit referendum, Turkish Studies,19:1, 1-22, https://www.tandfonline.com/doi/abs/10.1080/14683849.2017.1366860?journalCode=ftur20

[2] Britain: An ally of Turkey in Europe? Othon Anastasakis, Insight Turkey, Vol. 6, No. 4 (October – December 2004), pp. 38-48

[3] Boris Johnson wants ‘jumbo’ Turkish trade deal, BBC News, September 2016, https://www.bbc.co.uk/news/uk-politics-37483088

[4] Turkey, UK aim for $20 billion in trade volume, Erdoğan says, DailySabah, May 2018, https://www.dailysabah.com/diplomacy/2018/05/13/turkey-uk-aim-for-20-billion-in-trade-volume-erdogan-says

[5] The British Institute at Ankara website https://biaa.ac.uk/

[6] Commercial and Economic Relations between Turkey and the UK, Republic of Turkey Ministry of Foreign Affairs , 2018 http://www.mfa.gov.tr/commercial-and-economic-relations-between-turkey-and-england.en.mfa

[7] Britain’s relationship with Turkey in charts, Financial Times, https://www.ft.com/content/91c8a1ba-54fb-11e8-b3ee-41e0209208ec

[8] Türkiye, İngiltere ekonomik ilişkilerde altın çağını yaşıyor, May 2018, ‘Dunya’ Turkish news website, https://www.dunya.com/ekonomi/turkiye-ingiltere-ekonomik-iliskilerde-altin-cagini-yasiyor-haberi-415718

[9] Turkey is no model for Britain’s post-Brexit trade policy, Open Europe, October 2016, https://openeurope.org.uk/impact/turkey-no-model-britains-post-brexit-trade-policy/

[10] EU–Turkey Customs Union Prospects for Modernization and Lessons for Brexit, Chatham House, December 2018, https://www.chathamhouse.org/sites/default/files/publications/research/2018-12-12-eu-turkey-customs-union-hakura.pdf

[11] Yes, Donald Trump is talking perfect sense on May’s Brexit deal, The Guardian, November 2018, https://www.theguardian.com/commentisfree/2018/nov/27/donald-trump-theresa-may-brexit-deal-peter-mandelson

 

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