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The next decade scenario

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After more than twenty years, the CU continues to play a key role in modernizing the Turkish economy, by favouring – through a substantial increase in trade with European countries – the upgrade in efficiency of the private sector and Public Administration at the same time, as we have been demonstrating in our paper.

The CU has also transformed Turkey into what is called a “trading State”, contributing to Turkey’s full integration into the international system of exchanges: the country’s total foreign trade has in fact increased from 16.3 billion euros in 1985 to only 34.8 billion in 1994, up to a significant 310 billion euros in 2016.

The creation of a liberalized environment (reinforced by the CU) has strongly boosted the unprecedented transformation of the Turkish State driven society into a modern market economy, attracting FDIs (the 20th most popular destination of FDIs, according to 2016 UNCTAD World Investment Report) and more and more competitive, with an average age of the population of 29 years.

Still, some problems remain to be solved.

First of all, the CU “asymmetry”, which forces Turkey to adapt its trade policy to the EU’s trade agreements and, consequently, to its external tariff policy. Nevertheless, Turkey is not part of the decision-making bodies governing the mentioned policies: if EU decides to sign an FTA with a third country, Turkey must grant the same privileges to that country, without having taken part to the political decision. Secondly, it is time to modify the CU restrictive nature, since it is directed only to industrial goods.

Taking these considerations into account, in December 2016, the Commission proposed to update the existing CU with Turkey also to the excluded sectors that have benefited only in part, for now, of the agreement. According to a research carried out by the Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR), an update of the CU in this respect would bring substantial benefits to both parties: Turkish GDP would increase by 1.44%; the European GDP by 0.01%. The model adopted by the DG NEAR does not include the impact of liberalization of public services and public contracts, which are not computational but which would furtherly increase the positive effect on GDP.

Always on the basis of DG NEAR’s assessment, European exports to Turkey could grow by 27 billion euros, while Turkey’s exports to Europe by 5 billion euros. The Turkish economic well-being index would also increase by 12.5 billion euros, the European one by 5.4 billion euros.

The long term effects of the Customs Union are significantly impacting not only trade and FDIs but also the political and cultural environment for a relaunch of the overall accession process of Turkey to the EU.

If instead political tensions should worsen (due to the post attempted coup climate) or if the renegotiation of the EU-Turkey CU agreement should not develop as expected, the overall confidence would decrease and the negative rebound would spread even beyond the national borders, considering the strategic geopolitical importance of Turkey.

@manu_scogna10

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