Turkey: Trading up

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The recent announcement of plans for the establishment of new free trade agreements (FTAs) with Malaysia and South Korea in the first half of 2012 will likely lead to a significant increase in trade between Turkey and East Asia.

During South Korean President Lee Myung-bak’s state visit to Turkey in the beginning of February, the two nations discussed the possibility of signing a free trade deal. The new plans for negotiation mark a strengthening of economic ties and bilateral relations for the two countries, which have been sitting on stalled plans for an FTA since 2010. “Turkey’s government and companies hope to strike an FTA with South Korea as soon as possible,” said Korean ambassador Sang-kyu Lee during an interview with Yonhap News Agency in Seoul in mid-February.

The two countries are hoping to sign an agreement in the first half of this year, with the Turkish ambassador to Korea, Naci Sarıbaş, saying the deal could be inked as early as this month. Sarıbaş said he hopes an FTA will lead to an increase in Turkish exports to South Korea. In 2010, South Korea was Turkey’s sixth-largest source of imports, sending more than €3.6bn worth of goods into the country – accounting for 2.6% of Turkey’s imports, according to data from the European Commission. However, South Korea ranked 34th in terms of Turkey’s export partners, with Turkey sending just €229.2m of goods – or .3% of its exports – to South Korea that year.

The respective relations of the two countries with the EU largely perpetuate the trade imbalance. The Turkish Customs union with the EU allows a variety of goods to flow freely between Turkey and the European bloc. South Korea, meanwhile, signed an FTA with the EU in 2007 – an agreement that has eliminated trade duties on nearly all products traded.

This means that South Korean products can flow into Turkey at reduced rates through Europe, but Turkish goods going to South Korea do not benefit from the same low tariffs. According to Sarıbaş, an FTA could help to remedy this imbalance, with exports of textiles, agricultural and food products, minerals and others expected to rise.

“When you sign an FTA, the volume of trade gets higher. We are expecting our exports to increase in Korean market sectors,” Sarıbaş said in early March. He added that the initial FTA will likely only cover goods; further stipulations on investment and services will be negotiated later.

In a further boost to its relations with East Asian countries, Turkey has announced that an FTA with Malaysia will likely be signed by June. Turkish embassy officials in Kuala Lumpur first proposed the possibility of an FTA between the two countries in 2009 and discussions officially began in 2010. To date, seven rounds of negotiations have been held. The trade deal is expected to eliminate tariffs on a number of goods, including machinery, mineral fuels, plastics, rubbers and textiles. Bilateral investments will also likely be covered.

Speaking at the third Exhibition of Turkish Products in Kuala Lumpur in early March, Murat Yalçıntaş, the president of the Istanbul Chamber of Commerce, said that once an FTA is signed, bilateral trade could reach €3.8bn, up from approximately €1.32bn in 2011. He reminded attendees that a partnership with Turkey could help Malaysian businesses spread their operations to its neighbours as well.

“Turkey will be the gateway to Europe, the Middle East and North Africa,” Yalçıntaş said. “A number of opportunities for cooperation are possible in industries such as iron and steel, ship construction, defence, building contracting and petrochemicals.”

According to Mustapa Bin Mohamed, Malaysia’s foreign trade minister, trade between the two countries increased by 42% in 2011. “Malaysian firms have been increasing their investments to Turkey in recent years,” he said at the exhibition. “But we are still not at the level we need to be. Turkey is one of the most successful countries in Europe, as well as in the Islamic world."

As with South Korea, the imbalance in trade between Turkey and Malaysia is significant. At the Exhibition of Turkish Products, Hayati Yazıcı, the Turkish customs and trade minister, said that Malaysia sent more than €1.13bn in goods to Turkey in 2011, while Turkey’s exports to Malaysia totalled just €138m. “The FTA will bring our trade volume to the necessary level,” Yazıcı said. “We need to secure a balance.”

The two FTAs could not only balance the trade relationship between Turkey and South Korea and Malaysia but could set the stage for future cooperation as well.

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