Turkey and Britain have initiated discussions for a new free trade deal, aiming to expand their current agreement from goods to include services. Since its departure from the European Union in January 2020, the United Kingdom has been seeking closer ties with middle powers like India, Singapore, and Turkey to maximize the benefits of its separation from its largest trading partner.
On July 18, officials from both countries met in Ankara to review the existing free trade agreement and start the process of renegotiating it. The UK Investment Minister, Dominic Johnson, expressed his hopes for a new trade deal, highlighting the potential value that could be added to their economies by expanding the agreement into new areas such as services and digital.
Soner Cagaptay, the Beyer Family fellow and director of the Turkish research program at The Washington Institute, emphasized the mutual interest in an updated trade deal. He described the new Turkey under President Recep Tayyip Erdogan as a standalone middle power that is actively seeking trade ties and investment flows. Cagaptay believes that deepening trade ties with the UK aligns with Turkey’s goals of economic growth and trade benefits.
The current free trade deal between Turkey and the UK was rolled over after Brexit but is limited in scope as it was designed to reciprocate the Turkey-EU customs union deal. As a result, the agreement only covers manufactured goods and some agricultural products, excluding services. In contrast, services form a significant portion of both economies, accounting for 80% of the UK economy and over 75% of Turkey’s economy. A new trade deal between the two countries would lead to cheaper goods and increased consumer choice.
Defne Arslan, a senior director at the Atlantic Council in Turkey, highlighted that the trade ties between Turkey and the UK have historically been strong but have become outdated due to the UK’s EU membership and the regulation of trade under the Customs Union agreement. Despite bilateral trade reaching 23.5 billion pounds ($30.23 billion) in 2022, there is still untapped potential, with Turkey ranking as the UK’s 18th largest trading partner.
The services likely to be included in the new trade agreement encompass various sectors such as finance, telecoms, energy, transportation, and digital industries. However, negotiating the liberalization of services is more complex than trade in goods due to the different regulatory regimes involved. Harmonizing these regulations will be a critical consideration in the negotiations.
While Turkey has few trade agreements with ambitious service components, this new deal presents an opportunity for both countries given the magnitude of their trade relationship. Sinan Ulgen, a senior fellow at Carnegie Europe in Brussels, noted that the negotiation process could take three to four years before the agreement takes effect.
Ilke Toygur, a senior associate with the Center for Strategic and International Studies’ Europe, Russia, and Eurasia program, emphasized the need to update previous trade agreements designed for the 20th century. She acknowledged that negotiations for comprehensive trade agreements involve a lengthy process and various interest groups. Toygur also mentioned the challenge posed by Turkey’s deficits in the rule of law, making trade deals more complicated for its partners.
In conclusion, Turkey and Britain have embarked on discussions to expand their free trade agreement to include services. While negotiations are expected to be time-consuming, the ambition to modernize trade ties reflects the UK’s post-Brexit strategy and Turkey’s aim to benefit from inflows and economic growth. By broadening the scope of their trade agreement, both countries anticipate cheaper goods, increased consumer choice, and mutually beneficial economic outcomes.
