Türkiye-UK trade deal: Shaping economies beyond their borders

As Türkiye and the United Kingdom have started discussing a new free trade deal, analysts and experts see it as a major milestone that will deepen economic cooperation between the two countries and also benefit international trade.

L. Alan Winters, Professor of Economics at University of Sussex, tells TRT World that Britain is looking for avenues to compensate for the loss of leaving the EU’s Custom Union as “British trade has generally been rather depressed since Brexit.”

With Türkiye and the UK being the part of the same supply chain and largely shaped by European markets, Winters says the geographical closeness makes Türkiye “a natural partner for the UK”.

“The benefits of free trade agreement are stronger, the closer the partner country is,” Winters adds.

UK Business and Trade Secretary Kemi Badenoch and Turkish Minister for Trade Omer Bolat spoke on July 18, indicating their willingness to update the new free trade agreement.

The main catch in that conversation was that the two sides seemed keen on expanding the agreement’s horizon to key areas such as services and digital.

The free trade agreement (FTA) between Türkiye and the UK dates back to December 2020, around 10 months after Britain left the European Union. Since then, the UK has been making efforts to ensure the continuity of trade ties that are in line with the EU’s Customs Union agreement.

Leaving the EU’s single market, the UK negotiated trade agreements with 62 countries at the time. The country’s free trade agreement with Türkiye was the fifth-biggest one, following Japan, Canada, Switzerland and Norway.

Post-Brexit period

From the international relations perspective, experts emphasize that Brexit does not change Britain’s position towards Türkiye.

However, the post-Brexit period has opened a room for the UK to consider its trade policy outside the EU, and as a country needing to formulate its independent trade policy, which was missing before and during Brexit, according to Tony Heron, Professor of International Political Economy at the University of York.

After Brexit, Britain is carried into a position where it wants willing partners for new trade negotiations, Heron tells TRT World.

The transition period, from the commitments of the EU's Customs Union to an independent free market economy, led the UK to reconsider its trade policy, via roll over agreements and free trade agreements.

Free Trade Agreement of 2021

Even before Brexit, the importance of the trade relationship between Türkiye and the UK has been marked by $23.6b (£18.6 b) trade volume in 2019, which makes the UK second-biggest export market of Türkiye.

David Henig, director of the UK Trade Policy Project, at the European Centre for International Political Economy (ECIPE) tells TRT World that, “The UK leaving the EU has not made our relation.”

David Henig refers to the history of good relations between the two countries: “In general, UK and Türkiye relations have maintained quite well through various challenges, so I think we do have a basis of good political and trade relations.”

The post-Brexit trade agreement between the two countries has led to a positive outcome. The trade volume reached $29.9b (£23.5 b) in 2022, a 30 percent increase from 2021.

Henig says the agreement succeeds mainly in the continuity of relationship between the UK and Türkiye and making sure that UK leaving the EU did not have a big impact on UK-Türkiye trade.

Professor Winters echoes a similar view. “For the UK, the big achievement was that it renewed the trade agreement, so subject to rules of origin, such like trade could proceed in goods essentially tariff-free.”

“Wider Europe”

Although Brexit led to the formation of new trade policy in the UK in line with the EU's Customs Union, David Henig insists that Britain’s economic vision is part of wider Europe, which includes Türkiye.

There are many important issues, like climate change, to work together on, he says.

“As we are moving into a transition phase with regard to climate change and moving to electric vehicles, rebuilding industrial infrastructure, Türkiye and the UK will be an important part of that.”

Not only in the decision-making process, but also having important access to the European markets and being part of broad European industry, Türkiye has an important role to play, according to Henig.

In 2022, while 26 percent of Türkiye’s imports came from the EU, 41 percent of the country’s exports went to the EU. In the same year, total trade in goods amounted to $215.85 b (€198.1 b) which is 3.6 percent of the EU’s total trade with the world.

Trade complementarity between the two countries

Henig says there are several sectors where “Türkiye and the UK have got some sort of complementarity”.

The complementarity in trade relates to the extent of the trade relationship between the two countries which makes them natural trading partners in the sense that one country’s exports overlap with the other country’s imports.

“Türkiye is a large producer of manufacturers which the UK is not,” which lies at the center of the complementarity between the two countries, Winters adds.

On the other side of the relationship, exporting the services will be advantageous for the UK, since between April and June 2023, the service industries accounted for 79 percent of total UK economic output.

For this reason, he says that “what the UK would be looking for in the renewal of FTA would be more progress on services.”

He expects the UK will be very keen to get access to financial services and relaxing law and regulations about ownership of banks or branches and data exchange within financial services.

“There should be more trade in services than there is. But it is not easy in trade agreements to find ways to improve services trade to remove barriers,” he says.