www.euractiv.com | February 14 2018

Mehmet Öğütçü is the chairman and Stephen Jones is a senior adviser at Global Resources Partnership, a boutique energy, geopolitical and investment platform.

Emmanuel Macron’s frank admission, in front of his Turkish counterpart Recep Tayyip Erdogan, that Turkey has no foreseeable chance of joining the EU simply confirms what Brussels has long known and accepted. The Franco-German motor of the EU, now apparently resurgent after Angela Merkel managed to persuade the SPD to join a coalition, will undoubtedly make this divergence permanent. Whenever the EU dares to talk about enlargement, it no longer mentions Turkey: the focus is exclusively on the Western Balkans.

President Erdogan has refused all along to accept the kind of special, bespoke relationship with the EU, first elaborated by Merkel, that many pro-European politicians in the UK now espouse for their country post-Brexit. For him, full membership is the only strategic goal. Anything less is not compatible with the integration level and acquis convergence that Turkey has achieved since 1963. Erdogan’s position is also political posturing, especially in the light of the recent presidential election in Cyprus, which may rekindle yet another possibility of a reunification deal. He keeps bashing the EU on its double standards and hypocrisy when it comes to Turkey. But as the political relationship appears to be at a nadir, it may be a good idea for EU-Turkey ties now to focus on economics, and specifically an upgrade of the EU-Turkey customs union, operational since the mid-1990s. Deeper integration is too important to be left to politicians alone, and business organisations on both sides need to be more vocal in seeking to strengthen the customs union: the power of the European business lobby to shape foreign policy is evident from the fraught EU-Russia relationship.

Statistics paint a vivid picture of why Turkey has maintained its customs union with the EU. The annual bilateral value of the trade in goods between Turkey and the EU now stands at €140 billion. Turkey receives almost five percent of exports from the EU, ranking it as the fourth-largest importer from the EU – just below the U.S., China, and Switzerland, but ahead of larger economies such as Japan, South Korea, and India. The EU is currently Turkey’s largest trading partner – accounting for 41 percent of its overall trade, as well as two-thirds of its foreign direct investment.

In the mid-1990s, when the customs union was forged, it was more a political tool than an economic one: a major step towards aligning the Turkish and EU economies ahead of candidate status and eventual accession. Turkey has persisted with it despite its one-sided terms, which allowed the EU to conclude third-country free trade agreements to which Turkey could not be a party. Ankara has also been subject to the rulings of the European Court of Justice, despite not having a judge on the court.

Until recently, Turkey’s argument for upgrading the customs union stemmed from the likelihood of the US-EU Transatlantic Trade and Investment Partnership. Ankara rightly wanted to avoid American goods entering Turkey tariff-free and Turkish goods continuing to face tariffs in the world’s largest economy. Under Donald Trump, however, the US has retreated from a free-trade agenda, leaving TTIP fatally crippled. Turkey, then, has no pressing commercial reason to demand the revision of the customs union.

However, there are once more important political reasons to look again at the customs union. The recovering global economy, shifting geopolitical alliances – especially in Turkey’s neighbourhood – and the likelihood of disruptions to established patterns of trade all make the customs union as relevant as ever. For all its faults, the EU remains the most important, stable and high-value partner for Turkey. Jolted by Brexit and Trump’s protectionism, Brussels is likely to be at the vanguard of new bilateral and multilateral free trade agreements in the coming decade. These are agreements that could be of transformational benefit to Turkey under an enhanced customs union.

Moreover, an upgraded customs union could catalyse the growth of Turkey’s competitive power, push the country above the “middle-income trap” and contribute to the betterment of Turkey’s governance practices and rule of law which are prerequisites for any functioning trade and investment regime.

Regardless of the EU membership debate, a comprehensive customs union encompassing services and agriculture will benefit both sides, which, despite recurrent tensions, need each other more than ever to deal with a host of complex issues, from trade and energy to counterterrorism and migration flows. The EU has a great stake in this too. EU companies would gain non-discriminatory access to the Turkish government’s procurement market, and EU service providers – comprising almost three-quarters of the EU economy – would benefit from a liberalised services market in Turkey.

Treating Turkey like a naughty child has proved to be a failed strategy for Brussels. It’s time to look anew at the elements of the relationship that could work, both now and in the long term. The customs union should now be the centerpiece of a fresh, frank renewal of EU-Turkey ties, based on realpolitik and shared interests. And if Macron and Merkel are so determined to revive the European economies to support their vision for the EU, and if they do not want Turkey to move away from the EU, they should surely see the value in an optimistic and pragmatic reset of EU-Turkey ties through an upgraded customs union.