Britain eyes Turkey’s manufacturing powerhouse in key trade talks

The UK relies on Turkey for a steady flow of white vans, washing machines and car parts, but EU rules could intervene

Johnson and Edrogan
Trade between the UK and Turkey was growing steadily before the pandemic and was valued at roughly £15bn per year Credit: Stefan Rousseau/PA

In Turkey’s corridors of power, Boris Johnson is known as their “Ottomon Grandson,” the descendent of a revered politician killed in the war of independence.  

Not even a bawdy poem penned by Mr Johnson for the Spectator, which deployed a word that rhymes with “Ankara” to describe the Turkish president Recep Tayyip Erdoğan, has soured the mood.

But the Prime Minister could soon find his relationship with Turkey tested to its limits, as the coronavirus pandemic and Ankara’s spiralling feud with Europe risk overshadowing his ambitions to strike a free trade deal after Brexit.

The outbreak of the virus, which has killed more than 2,000 people in Turkey, has already highlighted the United Kingdom’s dependency on the Middle Eastern country as a manufacturing powerhouse.

In recent weeks a package of 400,000 surgical gowns was airlifted from Istanbul to Britain, though the delivery was marred by delays and export restrictions.

“Turkey is probably the closest country that has the capacity to produce this sort of material, due to a massive textile centre. It shows how this is a first choice country to get supplies from,” says Chris Gaunt, chairman of the British Chamber of Commerce in Turkey.

Even before the outbreak, Britain relied on Turkey for a steady flow of white vans, washing machines, car parts and flat-screen TVs.

And when the virus is eventually under control, Turkey may become a more attractive manufacturing hub than China, where poor hygiene and animal welfare standards may have caused the first coronavirus case in Wuhan.

Trade between the UK and Turkey was growing steadily before the pandemic and was valued at roughly £15bn per year, of which 90pc stems from goods dispatched to Britain via Europe without tariffs or complicated rules of origin.

However, The Telegraph understands that some Turkish business chiefs are disappointed with the timeline of post-Brexit trade negotiations, as any deal with Ankara can only take place once a wider agreement with the EU is concluded.

“We want the relationship to progress even further, but it looks like we are going to have to wait,” says one senior Turkish industry source. “And whatever the agreement with the EU, that in turn will affect the future relationship with Turkey.”

Berna Gozbasi, the executive treasurer of Turkey’s Foreign Economic Relations Board, says it is crucial that a trade deal with the UK is treated as a top priority.

“We are sorry to lose a friend within the European Union, but we believe that Brexit also brings new opportunities to expand our bilateral economic relations,” she says.

“We should avoid the risk of backsliding in Turkey-UK economic relations due to Brexit.”

Boris Johnson previously held negotiations with Turkey while he was Foreign Secretary Credit: ADEM ALTAN/AFP

There are also concerns that any future talks will be severely restricted in scope due to Turkey being a member of the EU’s customs union, which means that many of its tariffs are decided by Brussels.

Meanwhile, Turkey’s deepening rift with Europe over refugees may put Johnson in an uncomfortable position, as he backed the EU in the dispute, which centred on the thousands of migrants encouraged by Ankara to attempt illegal crossings into Greece.

Industry sources say early trade talks between the British and Turkish governments are ongoing, but on a smaller scale than planned due to the pandemic.

The Turkish case reflects how the EU’s close relationship with non-member states could become a headache for British negotiators, who are likely to detect the influence of Brussels in trade talks long after the Brexit process is concluded.

“Turkey's ability to negotiate autonomous trade deals is extremely limited given its customs union with the European Union,” says Fadi Hakura, an expert on Turkish affairs at Chatham House, who previously worked at the European Commission.

“And, given the emotions attached over Brexit, that means it is unlikely to get the green light.”

Turkish officials protest that EU regulations do not hinder their ability to strike deals, pointing out that the country has to date concluded 37 free trade agreements (FTAs).

The British government says it hopes to secure an FTA with Turkey by January 2021, though any delay to the UK-EU negotiations would have a knock-on effect on the schedule.

When the formal talks finally begin, the first order of business will be protecting the complicated “just-in-time” supply chain that moves cars and so-called “white goods,” such as household appliances, across the continent.

Officials will then explore opportunities for deepening trade in sectors that are yet to be heavily regulated by Brussels, such as artificial intelligence and quantum computing.

But Dr Pinar Artiran, a professor of international law at Istanbul Bilgi University, warns that if the talks break down, then the cost of Turkish goods will increase, and there may be delivery delays.

“Nobody would like that scenario because we will all start trading on WTO [World Trade Organisation] terms, and it is not enough. If it were, countries would not be rushing to sign trade agreements,” she says.

“For example, currently, if a car engine comes to Turkey from Italy or Germany, and the car is assembled and then exported to the UK, there is no customs duty. But without a trade deal you would have to apply the customs duty and that would be reflected in the price, which would make products more expensive.”

She adds that a key component of Turkish trade, which would need to be negotiated before a deal with the UK, is an “upgrade” of its relationship with the EU.

For example, Turkey’s road haulage industry has complained that quota limits on their lorries imposed by Greece and Bulgaria are severely restricting trade flows.

Alper Özel, a spokesman for Turkey’s International Transporters Association, says it would be very difficult to unlock the potential of UK-Turkey trade unless red tape is peeled back from EU transit countries.

“We have no quota limitation with the UK, but we do with Austria, Hungary, Slovenia, and others, and this is the battle right now,” he said.

“If we exceed the transit quotas [in those countries], then we have to choose other routes to reach England, so going through Poland or Romania. It takes much longer and that means it’s more expensive. It’s not favourable to the Turkish economy, or the UK economy.”

Özel says he has raised the issue several times in meetings with the British government, and hopes that Johnson will push for the quotas to be lifted on their behalf.

But, crucially, that will be a decision for individual EU member states, as the quotas are not set in Brussels – yet another example of European Union rules continuing to influence UK negotiators after Brexit.

And on that theme, experts who are familiar with Turkey’s torturous dealings with the EU are pessimistic.  

“Generally speaking the relationship is tense and the Europeans are very worried about the behaviour by Mr Erdogan, so I think the trust is very low,” says Prof Ali Tekin, a UK-Turkey trade expert.

“Europe is in a shambles on coronavirus, refugees, economic problems... I don’t think it is ready to take on the Turkish question at this point.”

Additional reporting in Istanbul by Burhan Yuksekkas