Explained: Historic Turkey-UK free trade deal

As the global economy faces significant challenges amid the coronavirus pandemic and the Brexit talks sour prospects for a stable market within the EU, a free trade deal between Ankara and London provided a much-needed relief for business people in both countries, strengthening the natural partnership between the two nations.

The trade ministers met on a video call on Tuesday and representatives signed the deal. It will come into force on January 1, which coincides with Britain’s departure from the single EU market. 

London secured a trade agreement with the bloc last week.

Here we look at the details of the deal and the bilateral trade among Turkey and the United Kingdom.

“The most important deal in decades”

The deal is one of the free trade deals it has over twenty countries, including Israel, Serbia, Bosnia-Herzegovina and Singapore. Turkey negotiates and concludes free trade agreements with third countries in parallel with the 1995 EU Customs Union agreement. 

Turkey’s President Recep Tayyip Erdogan yesterday described the deal between Ankara and London as the "most important trade deal" since the customs agreement.

What makes the deal unique is the volume of bilateral trade among the countries and the vital role of the products traded. The UK's international trade secretary Liz Truss said in a statement on Tuesday that the deal covers trade worth £18.6 billion ($25 billion). 

 “The deal will secure existing preferential tariffs for the 7,600 UK businesses that exported goods to Turkey in 2019, ensuring the continued tariff-free flow of goods and protecting vital UK-Turkey supply chains in the automotive and manufacturing sectors,” the statement said. 

About a third of the engines built in the UK go to Turkey as one in five new vans sold in Britain come from Turkey.

“A historic day for Turkish-UK relations”

There are more than 3000 British companies operating in Turkey. Main Turkish exports to the UK are mainly gold, made-up textile articles, garments, electrical and non-electrical machinery, motor vehicles and parts, iron and steel products, insulated wires, cables and other electric conductors. 

Main imports from the UK are diesel and semi-diesel engines, automobiles, tramp iron, steel and their ingots, medicinal and pharmaceutical products to be used in treatments and protection.

The deal is basically a continuity agreement that replicates the existing trading terms between Ankara and London with tariff-free trade on all non-agricultural goods.

“Today’s agreement will ensure preferential trading terms for UK businesses that exported more than £1bn worth of machinery, and iron and steel exports worth £575m, to Turkey in 2019. It also ensures UK businesses can continue to import under preferential tariffs, compared with no agreement,” Russ said.

“Tariffs applied to UK imports of washing machines and televisions will remain at 0%, compared to up to 2% and 14% respectively under WTO terms. Vital UK-Turkey supply chains will also be protected for automotive manufacturers.”

Turkish Minister Ruhsar Pekcan said it was a historic day for Turkish-UK relations.

"This is a historic day for Turkish-UK relations. We are taking the first step towards further deepening our ties... We reached a tariff-free agreement, as planned, which includes all industrial and agricultural goods," she said.

How the business community reacted 

The agreement also contains a review clause that requires the two nations to meet within the next two years to expand the content to include services like digital services, and regulations on trade and agriculture.

The UK is Turkey’s second-biggest export market and Turkey’s fifth-largest investor. 

There were fears among business people of the two countries recently because of Turkey’s customs union agreement, which in theory would have brought hefty tariffs. But, following the deal, the worries leave their place to relief.

“Without the deal about 75 percent of Turkish exports to the UK would be subject to tariffs, causing loss of some $2.4 billion, but the deal eliminates this risk,” Pekcan said on Tuesday.

"It (deal) paves the way for a new, more ambitious deal with Turkey in the near future," her counterpart Russ added in the video call.