What Is Next for Turkey-UK Trade After Brexit

In the United Kingdom, which consists of England, Wales, Northern Ireland, and Scotland, it was decided to exit the EU (Brexit) with 52 percent against 48 percent in the EU referendum held in June 2016.

According to 2019 data, the UK is the second country to which we export the most and the ninth country to which we import the most. Despite some decline since 2016, it continues to be our sixth largest trade partner with a share of 4.4%.

The Brexit process, which concerns not only the United Kingdom but also the whole world, which is a subject of discussion in the world, especially in Europe, is now coming to an end. The UK left the EU as of January 31, 2020, as a result of the 4-year-long secession negotiations. A broad process was defined until 31 December 2020 in order to prevent the UK and the EU, as well as the UK and third countries from experiencing a hard transition in terms of economic and commercial relations. In this process, while the UK continued to be included in the EU internal market and remain in the customs union, negotiations for a new free trade agreement between the parties would continue. The deadline is long before it expires, and it seems that there is still no agreed agreement. January 1, 2021, new life begins. There is heavy traffic of talks between the EU and the UK these days. This transition period, which is determined as 11 months after Brexit, can be extended for 1 or 2 years for once. It is unknown whether such a decision will be made at the last minute. It wouldn’t be a surprise if it happens. The next week will signal this.

Free Trade Agreement between the UK and Turkey has not yet signed. The trade cost of this is expected to be approximately 2.5 billion dollars. Turkey makes 51% of its total exports to the EU. It also makes 36% of its total imports from the EU. Britain is the second country that Turkey is the largest trading volume after Germany. Between Turkey and the United Kingdom, there is about $ 18 billion in trade volume. England, with 5 billion dollars, Turkey’s second-largest trading surplus country. 98.2 percent of bilateral trade is carried out with 0 percent customs duty under the customs union.

Our export items to the UK include electrical and non-electrical machinery, motor vehicles and parts, iron and steel products, clothing and textile products, electrical appliances, consumer products such as foodstuffs, paper products, cables, and wires, especially white goods. Our export items to the UK include electrical and non-electrical machinery, motor vehicles and parts, iron and steel products, clothing and textile products, electrical appliances, consumer products such as foodstuffs, paper products, cables, and wires, especially white goods.

If a new trade agreement is not signed between Turkey and the UK, direct or indirect loss of competitiveness may occur in 70% of bilateral trade. This direct or indirect competitiveness loss may arise in 83% of Turkey’s export and 51% of Uk export.

The Free Trade Agreement between Turkey and the UK is expected to be signed in mid-year 2021 with the most optimistic estimate.

This situation will directly affect the trade between countries, naturally, this will also affect the logistics sector. If there is no agreement, it will be possible that the shipment of goods to England will decrease to 25-30%.

The UK’s leaving the EU will make England a third country in the eyes of the European Union. In the past, thousands of foreign trade, customs, and logistics firms that have benefited from EU membership privileges will have to adapt to new rules when trading with the UK.

There may be new applications on issues such as customs procedures with Britain, customs duties, import/export declarations for Turkey and EU commercial partners. Because Turkey was fully a part of the customs union, although not an EU member. When we look at Turkey in this particular case, Turkey and the UK in the last five years has a trading volume of about $ 18 billion. It is the second country with a trade surplus after Iraq. We have a trade surplus of 5 billion dollars. Our white goods, confection, and automotive sectors mainly export. With Covid-19, basic hygiene products, health products such as masks and protective clothing also came to the fore. In the conservation and enhancement of this volume, closer monitoring of the Brexit process by the local foreign trade and logistics sector in Turkey is of paramount importance.

As long as the Brexit transition process continues, export shipments will remain the same for a while, will continue with the T1 transit document, but there will be a difference in return and a T2 transit regime declaration will be requested instead of T1.

If there is no agreement, the World Trade Organization (WTO) rules will prevail and countries will be able to increase their customs duties mutually. If a Free Trade Agreement (FTA) is signed, this may change within the framework of the agreement. With the signing of the expected free trade agreement between Turkey and England until the first half of 2021, the industry and we expect the mutual abolition of customs duties for agricultural products. Some items are likely to be added to this.

The first findings show that the customs duties that the UK will apply as of January 1, 2021, affect 68 percent of our total exports to the UK. It seems that there will be 10 percent tax in automotive, 12 percent in confection, and zero tax in white goods. On import products, on the other hand, higher taxes await our importers. These taxes will undoubtedly hurt trade with Britain. Import costs will increase.

England signed FTAs with 51 countries. Turkey needs to act quickly on this issue. If the initiative can not be taken, the United Kingdom’s imports from Turkey may shift to other countries. This is the real risk. While we are calculating to increase our trade volume with the UK to over $ 25 billion in the short term, we may encounter a contraction if we do not take some measures on time.

We have achieved our strong trade with England with our production power and logistics advantage. Turkish logistics companies have made significant investments in England. If the negotiations with the UK on the FTA can be concluded quickly, the relations may develop more rapidly in terms of creating an alternative to the EU’s cumbersome structure and producing practical solutions.

In terms of commercial relations between Turkey and the United Kingdom can be strengthened in the same tone, it is necessary to conduct a comprehensive trade agreement. As in the scope of the customs union, it is important to eliminate customs duties on industrial products and to liberalize agricultural products, even if partially.

It is important that we focus on how we can benefit ourselves, rather than looking at the Brexit process unilaterally as “negative”. If we can manage it well, the Brexit process can bring some advantages.

These advantages can be sorted as;

  • The development of bilateral cooperation between the United Kingdom and Turkey,
  • Establishing free trade infrastructures in areas other than the customs union,
  • Transforming geographical proximity into an opportunity,
  • Low transportation costs,
  • the alternative investment opportunities in Turkey after the pandemic,
  • Collaborations that can be created in storage, transportation, and supply,
  • Collaborations in technology-based production,
  • Production and marketing of with high value-added products in Turkey with joint ventures,
  • Making use of qualified Turkish labor,
  • Turkey’s geographical position as a logistics hub sitting between the West and the East, the region with the British-Turkish joint investment in Turkey can be converted into a production and storage base.