EU-South Korea trade deal sparks no joy in TurkeyBy Toby Vogel
14.10.2010 / 04:20 CET
Turkish businesses fear losing out from an EU-South Korea free-trade deal.
There was no celebration in Istanbul when Kim Jong-Hoon, South Korea's trade minister, and Karel De Gucht, European commissioner for trade, signed a free trade agreement in Brussels last Wednesday (6 October). The deal will lift, or reduce, tariff lines on most goods and liberalise investment and trade in services between the EU and South Korea. One study has found that the deal, which takes effect on 1 July 2011, will unlock extra trade worth close to €20 billion, and Commission officials use superlatives to describe the deal: the most ambitious trade pact since the North American Free Trade Agreement; the most wide-ranging trade agreement ever negotiated by the EU; the most innovative in tackling non-tariff barriers.
But the agreement has negative implications for Turkey, which was not at the negotiating table. Because it is in a customs union with the EU (see box, right), Turkey expects to feel the effects of increased competition from Korean goods as acutely as many EU member states. The Korea-EU trade agreement “is a big deal for Turkey”, said Sinan Ülgen, the chair of the Centre for Economics and Foreign Policy Studies (EDAM), a think-tank in Istanbul.
Head-on competition
The most direct effect is on trade between the two countries: the deal “opens Turkey's market to Korean exports while Korea's market will remain closed to Turkish goods,” Ülgen said. Trade between Turkey and Korea is, however, negligible: Turkey exports very little to South Korea, while close to half of its exports go to the EU. That is where the real problem lies, according to Ülgen: by scrapping import tariffs on Korean goods, the EU chips away at Turkey's privileged position on the EU's internal market. Turkey and Korea manufacture many of the same goods – white goods, consumer electronics, automobiles, chemicals – and will now compete head-on.
A related Turkish fear is that Korean goods, once they circulate freely on the EU's internal market, will enter Turkey free of import restrictions or tariffs. There is nothing to prevent Turkey from maintaining import tariffs on Korean goods, but in practice they will be difficult to maintain, according to Bahadir Kaleagasi, the head of Brussels office of the Turkish Industry and Business Association (Tüsiad). It will be impracticable to trace Korean goods entering Turkey via an EU member state, he explains. “We are not against free trade with Korea, but we do not want trade distortions,” Kaleagasi said. Korea and Turkey have now begun free trade talks of their own, but Ülgen said that there was “no true economic incentive” for Korea to conclude such a deal.
Distant EU membership aspirations
The most profound effect, however, is on the very architecture of Turkey's trade relationship with the EU.
Turkey has benefited enormously from the customs union: by obliging Turkish exporters to comply with many of the EU's internal standards, the customs union has made Turkish exports more diversified and sophisticated than they were two decades ago. But the customs union was supposed to be the last stage of Turkey's association process with the EU and pave the wave for its full membership.
That prospect has now receded into the distant future, for political reasons. Without that end point, the relationship may now start drifting. “There will be a protracted period of soul-searching whether the customs union is sustainable,” said Ülgen, who was involved in negotiating the customs union in the 1990s.
An EU trade official said that it was “premature” to say whether there will be significant problems for Turkey
http://www.europeanvoice.com/article/imported/eu-south-korea-trade-deal-sparks-no-joy-in-turkey/69176.aspx