Expanded UK-Turkey trade deal seen as win-win, could include services

LONDON — Since it left the European Union in January 2020, the United Kingdom has been trying to make the most of its divorce from its largest trading partner by forging deeper relationships with middle powers such as India, Singapore and Turkey.

On July 18, Turkey and Britain announced that they had started discussing a new free trade deal. Officials from both countries met in Ankara that day to review the current free trade agreement and move toward renegotiating it.

Asked about his hopes for a new trade deal, UK Investment Minister Dominic Johnson told Al-Monitor last week, “The UK’s current agreement, signed in December 2020, mostly covers goods, and a review of the agreement found that we could add considerable value to our economies by expanding the agreement to new areas such as services and digital.”

Soner Cagaptay, Beyer Family fellow and director of the Turkish research program at The Washington Institute, said that an updated trade deal is in the interest of both countries.

“The ‘new’ Turkey under [President Recep Tayyip] Erdogan is a standalone power, a middle power that punches above its weight, and as a resource for economy, still needs inflows to grow and trade to benefit from. Erdogan has been of course reaching out — building new trade ties, investment flows from the Gulf — and this into deepening trade ties with the UK,” he told Al-Monitor.

Cagaptay also believes the announcement is symbolic of a post-Brexit Britain. “The UK is no more in the EU, which doesn't act as a force multiplier for the UK, so now it’s looking for other areas to consolidate its global strength and looking for allies globally to multiply its power," he said.

Outdated agreement

Turkey’s free trade deal was rolled over after Brexit and is limited in scope because it was designed to reciprocate the Turkey-EU customs union deal and therefore only applies to manufactured goods and some agricultural products. The agreement does not cover services, which account for 80% of the UK economy and more than 75% of Turkey’s economy. The UK is the second-biggest services exporter in the world, behind the United States. A new agreement between Britain and Turkey would result in cheaper goods and more choice for consumers.

Defne Arslan, senior director at the Atlantic Council in Turkey, told Al-Monitor the two countries traditionally had strong trade ties but they have been outdated because the UK was part of the EU until recently and trade was regulated by the Customs Union agreement, which is also “outdated and limited.”

Trade between the two countries reached 23.5 billion pounds ($30.23 billion) in 2022 — up more than 30% from the previous year. Arslan pointed out, “The potential is not fully consumed and Turkey is ranked at being UK’s 18th biggest trading partner only.” 

Sinan Ulgen, senior fellow at Carnegie Europe in Brussels, said services that will be likely appear in the agreement include old service industries such as finance, telecoms, energy and transportation as well as more modern digital services.

“There will need to be a comprehensive assessment of which of these areas are of offensive interest to the negotiating parties, Digital industries, finance would certainly be of commercial and offensive interest to the UK side,” Ulgen told Al-Monitor. 

On the Turkish side these will be more tourism, contracting services, construction and transport, he added.

“It's not an easy negotiation given that it is more complicated to negotiate the liberalization of services compared to the liberalization of trade and goods, because on services you need to access the obstacles that are inherent in the different regulatory regimes and therefore decide on whether the harmonization of these regimes is to be agreed on,” Ulgen said.

He said that the new deal is likely to be ambitious and take three or four years to negotiate before it enters into force.

Ulgen said that Turkey has very few trade agreements that have an ambitious services component to them. “The only one I can think of is the one with Singapore, but obviously trade with Singapore is not the same order of magnitude as trade with the UK, so both the complications and the challenges but also the benefits are also likely to be much bigger both for Turkey and the UK,” he said. 

Ilke Toygur, senior associate with the Center for Strategic and International Studies' Europe, Russia and Eurasia program, said that Turkey has been pushing for the renegotiation of the free trade agreement for years.

“Now that the UK has exited the union, it is understandable that it would like to negotiate its own trade deal with an ally. I am also assuming that it is a strategic gesture that is coming after Turkey’s green light for Sweden’s NATO accession," she said, referring to Erdogan's surprise agreement to Sweden's membership of the alliance earlier this month.

“Services, digital and data are never easy to regulate, but the economies of the 21st century definitely need that. Turkey’s agreements with the UK and the EU were designed for the 20th century," Toygur added.

Long road ahead

But negotiating such an agreement will not be a quick process and Toygur anticipates hurdles along the way.

“These agreements take a really long time to negotiate,” she said. “There are many different interest groups involved in the deal. Governments try to keep an eye on all of them. Starting the negotiations demonstrates political will, but it is way easier to start than to conclude them.”

“What really complicates the issue is that Turkey has serious deficits when it comes to the rule of law, which makes trade deals even more complicated for its partners. The usual processes — like joint procurement, for example — become tricky.”

Arslan agreed it may take a while, but said there is optimism and most importantly intention on both sides.