Turkey fears being left out in the cold by EU trade

Frustrated with the slow progress of its bid to join the EU, the rash of free trade pacts Brussels is negotiating that leave Turkey out in the cold has Ankara threatening to tear up its customs union agreement.

Analysts warn that such free trade deals that exclude Turkey are getting to be a big headache and pose a serious obstacle to Ankara's ambition to jump from the world's 17th to 10th largest economy in a decade.

Economy Minister Zafer Caglayan readily admits the nearly two-decade old customs union has helped the country's economy grow, but fears the new free trade deals will be a burden.

The EU has been negotiating comprehensive free trade agreements, or FTAs, with third countries around the world, opening up the exchange of goods and services in a bid to boost economic growth and job creation.

The problem for Turkey, is that under the terms of its 1995 customs union agreement, a third country which concludes a trade pact with Brussels automatically gains access to Turkish markets, while Turkey cannot utilise the same advantages the EU secured for its exports.

"Let's dump the customs union in a thrash bin and instead conclude a free trade agreement" with the European Union, Caglayan fumed in a televised interview Thursday.

He argued it was no longer in Turkey's interest to sustain the agreement.

"In its current form, the customs union is far from a free market and free trade," the minister fumed.

A lot is at stake for Ankara as trade with the 27-member EU absorbed nearly 40 percent of Turkey's $152.5 billion in exports last year, according to national statistics.

Turkish frustration is also driven by the sharp slow down in the economy, which grew by 2.2 percent in 2012, from over 8 percent the two previous years.

The customs union was initially viewed here as an instrument to accomplish Turkey's decades-old ambition to join the EU.

However as membership talks have dragged on for a number reasons, including over the issue of divided Cyprus and stiff opposition from some member states to a predominantly Muslim country joining the bloc, Turkey has felt "left out in the cold," said Mustafa Kutlay, an analyst at Ankara-based USAK think tank.

The EU has negotiated FTAs with Mexico and South Korea, and to the dismay of Ankara, the EU and United States are on the cusp on launching talks on what would become the world's largest free trade deal.

"The EU's free trade deals, especially with Mexico and South Korea, have turned out to be very disadvantageous for Turkey," said Sarp Kalkan, economic policy analyst at the Ankara-based TEPAV think tank.

"Both are Turkey's rivals producing similar goods," he told AFP.

Kutlay warned that "the EU's free trade deals are going to bring more risks for the Turkish economy in the future."

A frustrated Turkey is pressing for involvement in the trade negotiations between Europe and the United States.

It was one of the top issues discussed in Washington during a meeting between Prime Minister Recep Tayyip Erdogan and President Barack Obama on May 16.

"We have been working on trade regulations with the United States before the European Union reached an agreement with them" on opening FTA talks, a Turkish diplomat told AFP on condition of anonymity.

Despite the concerns, analysts agree that the customs union has benefited Turkey in the long run and transformed it into an industrial power.

"It has played a very positive role in Turkey's industrialisation. Before 1995, Turkey's trade was quite limited," Kalkan said.

Turkey's exports have risen seven-fold since 1995, and now account for nearly a third of economic output.

European Union Council President Herman Van Rompuy tried this past week to reassure Turkey on a EU-US FTA deal.

"For Turkey, since you are part of the customs union with the EU, this trade deal will have important consequences too," he said Thursday during an official visit to Ankara.

"That's why the European Union is looking into the best way to keep Turkey involved in the process. In the end it will benefit all," he said.