Turkey, UK safeguard $25 billion post-Brexit trade deal

Turkey and the United Kingdom have safeguarded a post-Brexit trade deal worth $25bn of business between the nations that find themselves two of the largest economies on the fringes of the European Union.

Turkish President Recep Tayyip Erdogan described it as “the most important trade deal” since Ankara signed a customs union with the EU in 1995, while the UK’s International Trade Secretary, Liz Truss said it would lead to a “new, more ambitious deal with Turkey in the near future”.

Ruhsar Pekcan, Turkey’s trade minister, said: “Without a deal, about 75 percent of Turkish exports to the UK would be subject to tariffs, causing the loss of about $2.4bn; this risk is now gone.”

The free trade agreement (FTA) that came into effect on New Year’s Day replicates ties that existed when the UK was still in the EU, which became void after December 31.

It ensures continued tariff-free trade on non-agricultural products between the UK and Turkey.

Because of Ankara’s customs union with the bloc, Britain first had to sign its own deal with Europe before sealing the Turkey treaty.

Gulcin Ozkan, vice dean and professor of finance at King’s College London, said although the deal was “business as usual” it was a “huge relief” for both countries relative to the scenario of a no-deal Brexit and the absence of an FTA between Turkey and the UK.

From the Turkish perspective, the Brexit deal, rather than the FTA, could have greater implications.

Turkey has been pressing for reform to its customs union with the EU to reflect the realities of 21st-century trade brought about by developments in information and communication technologies.

However, deteriorating relations between Ankara and the EU have slowed talks. The agreement with the UK, meanwhile, requires negotiations over the next two years to expand the deal to possibly include the agriculture and services sectors.

Both the UK and Turkey have had problematic relations with the EU in recent years.

The UK resisted greater political integration within the EU, while Ankara has been angered by criticism of its human rights record and foreign policy.

The deal is the fifth-biggest FTA the UK has recently negotiated after those with Japan, Canada, Switzerland and Norway.

Turkey, the world’s 19th largest economy, with a gross domestic product (GDP) of $761bn in 2019, is geographically the closest significant, non-EU economy to Britain.

Ankara enjoys a significant trade surplus with Britain, exporting goods worth more than double those it imports, according to the Turkey Statistical Institute.

The UK is Turkey’s second-biggest export market after Germany and also the fifth biggest foreign investor inside Turkey with more than 3,000 British companies operating in the country, including giants such as Unilever, Shell, BP, Vodafone and HSBC. Some 7,600 British firms export to Turkey.

British exports to Turkey are largely made up of motor vehicles and parts, industrial machinery, pharmaceuticals, mechanical appliances, iron and steel.

Turkey’s main exports are white goods, cars, electrical equipment, precious metals and textiles to the UK.

Vitally for London, many of its exports to Turkey are reimported in the form of finished goods.