The failure of regulations of the World Trade Organisation (WTO) to match today’s conditions have brought some problems. Insufficient new market creation by multi-side trade forced the countries to sign free trade agreements. Free trade agreements have expanded the commercial and economic relationships between developed countries and north-south and south-south.
As the number of free trade agreements increases, the countries started to meet their goods need from other countries. Countries outside the agreement failed to benefit from various advantages. These similar occasions have caused free trade agreements to become widespread. Turkey is making similar agreements in line with the tendency to create trade agreements in line with the tendency to create networks in international commerce. Under Customs Unions, countries with a free trade agreement with the US have various agreements based on mutual benefit.
Free Trade Agreements and Customs Union
Customs Union is an economic integration model that eliminates all precautions such as current customs taxes in trade, equivalent effect taxes, amount and all equivalent effect precautions and that applies a common customs tariff to the countries outside this agreement. Products travel free in Customs Union. Therefore, countries in this agreement must follow the common trade and competition rules. In free trade agreements, the parties can benefit from the commercial goods selective regime based on origin. While there are no common competition and trade rules in free trade agreements, countries own customs rules are valid for countries outside the agreement.
Accordingly, economic agreements are extremely important to develop import and export in Turkey, to secure equal competition with EU-based entrepreneurs and to increase international competitive power with mutual investments and partner start-ups. Turkey does not have to accept the agreements prepared by the European Union as they are. But the meetings consider industrial and commercial policies.
Free Trade Agreements by Turkey
Until this day, the Republic of Turkey has signed 37 different free trade agreements. 11 of them were cancelled due to EU membership of the countries. 21 of 26 agreements are still active.
Some of the countries that Turkey signed a free trade agreement are as follows:
- EFTA (Europe Free Trade Association)
- Bosna Herzegovina
- South Korea
- Faroe Islands
The agreement between Turkey and Syria has been suspended in 2011 due to civil war. Additionally, countries such as Lebanon, Sudan, Venezuela and Qatar are waiting for internal approval processes to sign the agreement. To update the current agreements and expand the content, Serbian STA updating protocols came into force on 01 June 2019. Agreements with EFTA, Montenegro and Bosnia-Herzegovina will come into force after internal approvals. Additionally, the meetings with Georgia and Malesia are planned to be completed soon and meetings with Moldova are planned to start soon.
Countries With On-Going Free Trade Agreement Negotiations
Turkey continues free trade agreement negotiations with 16 countries. The active negotiation process is on-going with 5 countries. These countries are Ukraine, Japan, Thailand, Indonesia and Somali. Agreement negotiations are on-going with Peru, Colombia, MERCOSUR (South American Common Market), Ecuador, Mexico, Pakistan, Djibouti, the Democratic Republic of the Congo, Cameroon, Chad, Gulf Cooperation Council. The work to accelerate the agreement processes are on-going.
On the other hand, attempts to start negotiations with the United States of America (USA), Canada, India, Vietnam, Central American countries, Africa, Caribbean, Pacific countries, Libya, Seychelles, Algeria and Republic of South Africa have started. Additionally, negotiations for short-term trade advantages and medium- and long-term free trade agreement are on-going with the UK that left the European Union (EU).
Effects of Free Trade Agreements on Turkey
The active free trade agreement of Turkey with other countries show that these agreements facilitate trade flow by establishing common rules in tariff discount, rules of origin referred to as “deep integration” and intellectual property rights. Costs are decreased and efficiency is increased by facilitating scale economy. The economic and political competitive power of the country is increased by creating open, strong economic infrastructure. Thus, it is possible to see positive changes in domestic production and purchasing power.
From political and international relationships perspective, the political relationships, as well as financial and commercial relationships, are more sustainable with the countries that Turkey had trade agreements. Council of Association and Committee of Association created by the parties of the agreement after signing free trade agreement gathers top-level political and bureaucratic representatives and enabled reviewing new collaboration opportunities. With free trade agreement, countries have higher awareness regarding their economic and commercial potential and mutual understanding is developed among business people. As a result, it can be seen that the friendship connections between the countries are consolidated.
International Free Trade Agreements
Gulf Arabian Countries Cooperation Council (GCC) was signed and officially announced on 25 May 1981. This is known as the “Gulf Cooperation Council”. The council includes all Arabian states in the Basra Gulf except Iraq. Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates participate in this council and it is an intergovernmental regional, political and economic council.
GCC General Secretariate has been in Riad since the day of establishment. The main bodies of the GCC are the supreme council, the council of ministers and the general secretariat. Supreme council consists of the head of states of the member countries. This is the top structure of the council and the chairman is selected every year with alphabetic order. The council of ministers has the ministers of member states. They gather periodically once in every 3 months. General Secretary is appointed by the high council. An economic agreement is signed between GCC countries in November 1981. Under this agreement, GCC Free Trade Zone was established.
This agreement was replaced by a new economic agreement signed on 31 December 2001 in Muscat. This agreement includes customs union, common market, economic and financial union development integration, human resources development, cooperation in the field of scientific and technical research, transport, communication and infrastructure departments. With this agreement, the decision to form a customs union, common market and economic and financial unity was made among GCC countries.
The common market application among GCC members started on 01 January 2008 which was 1 year later than the estimated time. Under the gradual common market applications, the aim is to enable GCC state citizens to work in all public and private institutions in the Gulf region, purchase and sell real-estate, benefit from free transportation between the countries and benefit from education and health.
- Shanghai Five
Shanghai Cooperation Organisation (SCO) or commonly known as Shanghai Five was established by the People’s Republic of China, Russian Federation, Kazakhstan, Kyrgyzstan and Tajikistan. The organisation reached 8 members with the participation of Uzbekistan in 2001 and India and Pakistan in 2017 and it is an international organisation based on military, economic and cultural collaboration. SCO members signed an agreement in 2003 to do an economic collaboration. In the same meeting, the People’s Republic of China proposed to declare the region a free trade zone. 1 year later, the 100-article economic agreement was signed.
In 2005, members decided to move together for natural resource use and common use of natural gas, oil and water source was emphasised. The decision to form a bank for funding the common projects of the countries was made and in 2006, the first meeting to establish SCO Interbank was organised in Beijing. In 2006, Russia announced an “Energy Club” plan for SCO. Although the same plan was re-stated 1 year later, the other member states were not positive about this plan.
The main targets of SCO are as follows:
- To ensure mutual trust between member states and consolidate neighbourhood.
- To encourage effective collaboration in politics, trade, economy, research, technology and culture, education, energy, transport, tourism, environmental protection and other fields.
- To show common efforts to ensure peace, security and stability in the region.
- To move forward to establish a new, democratic, fair and rational international political and economic order.
The Presidents of the Council of State are the highest decision-making bodies in the Shanghai Five. The organisation meets once a year and accepts all important decisions and directives of the organisation. Heads of the Government Council (HGC) meet once a year to discuss multi-dimension cooperation strategy and priorities, to solve the current economic and other collaboration problems and to approve the annual budget of the organisation. The official languages of Shanghai Five are Russian and Chinese.
The Spanish name is “Mercado Del Sur” which means South Common Market. This is the free trade zone in South America formed after signing an agreement on 26 March 1991 with the participation of Brazil, Argentina, Paraguay and Uruguay. The structure has 5 members with the participation of Venezuela in 2012. Additionally, Chile, Bolivia, Colombia, Ecuador, Guyana, Peru and Suriname are included as mutual countries. Bolivia signed a full-membership agreement in 2015 and the country is in a transition period and waiting for approval from all member states.
The main purpose of MERCOSUR is to remove the tariffs between member states, expand the free trade across the region and ensure economic development by integrating the member states to the markets outside the region. In Asuncion Agreement that resulted in MERCOSUR, founding states have set various terms for this common market.
In the agreement region, all export taxes except sugar and automotive sectors were removed for commercial activities. 11 different taxation methods were determined for commercial activities with the countries outside the common market. Basically, the tax changes between 0% and 20% depending on the goods being raw material or more complex goods.
MERCOSUR is divided into 3 different councils to better manage the inner dynamics with The Ouro Preto Protocol signed in 1994. Thus, the decision-making process between the countries was based on international legal order and gained validity. These councils are as follows:
- Common Market Commission: This is the highest commission where the political decisions are made, new countries are accepted as members and integration is achieved.
- Common Market Group: This is the commission that makes administrative and managerial decisions.
- MERCOSUR Trade Commission: This is the commission that analysis technical subjects y considering general trade principles makes decisions for application.
MERCOSUR founding states dominate approximately 12 million km2 area and the operation region has 262.2 million people which is the 62.2% of the South American population. According to 2017 data, MERCOSUR, constituted 75% of the South American GNP with 2.78 million Euros GNP, leaving behind the country with many large economies as the country with the 5th highest GDP around the world.
While the trade volume was 4.5 billion dollars in 1991 among the founding states, it increased by 9 folds to 40.4 billion dollars in 2017. MERCOSUR managed to keep the trade volume in the region at 40.8 billion dollars level.
Dominican Republic-Central American Free Trade Agreement (CAFTA-DR) is a free trade agreement signed by 7 common states and came into force on the first day of 2006. The agreement was first called “CAFTA” with the United States, Costa Rica, Nicaragua, El Salvador, Guatemala and Honduras and in 2004, the Dominican Republic joined to the meetings and it is called “CAFTA-DR”. One of the reasons that make this agreement important is that a group of small-scale countries in economic terms signed an agreement with a leader country in economic terms.
The common purposes of the member states were as follows:
- Expand and diversity trade volume.
- Eliminate commercial barriers.
- Create a fair competitive environment and encourage this across the countries.
- Increase investment opportunities to develop the countries.
- Create a system to generate opportunities and unity for future multi-lateral agreements.
- Protect and consolidate intellectual properties.
CAFTA-DR is a gradually increasing agreement. Although the tariffs from various products have been removed in the last 15 years, there are still tariffs in certain sectors. 2015 data reveal that 53.3 billion dollar revenue was generated from mutual trade.
With this agreement, the US managed to increase the export to member states by 74% since the beginning of the agreement. In 2013, foreign trade volume with CAFTA-DR commercial block country was the third-largest market of the US following Mexico and Brazil.
Other member states also benefited from this agreement in addition to the US. When the growth rates were considered, Costa Rica and Guatemala showed approximately 100% growth. Dominican Republic managed to do 50% of the export with the US after signing the agreement.
“United States-Mexico-Canada Free Trade Agreement” also known as “USMCA” was signed in 2018. The agreement signed by the 3 countries that make up the name of the agreement is the continuation of the North American Free Trade Agreement (NAFTA). The agreement entered into force in July 2020. The new agreement negotiations were raised in 2017 when the US President Donald Trump stated that this agreement is against the US.
While the content of the previous agreement formed the basis of the new one, these three countries established a free trade zone again. In this agreement, a wider framework was determined compared to the previous one and commercial barriers were decreased and eliminated for more sectors. A commission consisting of the representatives of both countries was created to sustain this agreement. The new agreement will be terminated 16 years later if it is not renewed.
USMCA aims for free goods and service trade in the trade zone created by the countries in the former agreement. The countries aim the following with this agreement:
- Decrease commercial barriers
- Form a unity to improve operational activities in the North America region.
- Provide suitable conditions for the safer and larger market circulation of the produced goods and services.
- Make rules that will mutually benefit the countries.
- Cooperate to compete at international level.
While most of the provisions in NAFTA are valid here, new amendments were made as well. The US and Canada removed customs taxes in agriculture and dairy products and increased market reach levels. In the automotive sector, automobile and spare part production levels were increased to 75% in the trade zone. The termination is shaped as stated above. The duration of intellectual property was expanded. For employees, the desire is to improve the work conditions of the employees with new reforms.