What should a free trade deal with the US look like? - LEVENT YILMAZ

What should a free trade deal with the US look like?

One of the hottest topics of last week was the that the U.S. offered to boost its trade volume with Turkey to $100 billion. This positive step in relations that took a nosedive during the F-35 and S-400 period had a positive impact on markets.

What is the current situation?

According to 2018 figures, the total volume in terms of reciprocal trade between the U.S. and Turkey stands at $20.6 billion. Turkey's deficit in this reciprocal trade is $4 billion. However, while the volume for the January-July 2019 period is calculated as $11.2 billion, Turkey's deficit was $2 billion. The most popular products Turkey sells to the U.S. consist of "automobiles, other aircraft and spacecraft, woven carpets and flooring, petroleum and oils produced from bituminous minerals, and iron/steel rods." In contrast, the products it imports the most are iron and steel, other aircraft and space vehicles, cotton, turbojets and coal.

The basis of trade with the US

There is currently no free trade agreement between the U.S. and Turkey or a multi-party trade agreement of which Turkey is a signatory. The "Reciprocal Promotion and Protection of Investments" protocol signed in 1985, the "Double Taxation Agreement" signed in 1996, and the "Trade and Investment Framework Agreement (TIFA)" signed in 1999 are not free trade agreements based on their nature and content. So, what was trade between the two countries based on for so many years?

The only regulation used for Turkish export products entering the U.S. market was the "Generalized System of Preferences (GSP)," which the U.S. uses for developing and underdeveloped countries. According to this system, customs taxes are not applied to some 5,000 products upon entering the U.S., within the pre-determined limits. However, Turkey is no longer in this system. Because on March 5, 2019, U.S. President Donald Trump wrote a letter to U.S. Congress and stated that Turkey needs to be removed from the GSP.

In the said letter, Trump's argument was as follows: "Considering Turkey's economic situation, I am taking this step because I believe Turkey should no longer be on the list of developing countries taking advantage of of the GSP. Thanks to its strong economy and the mutual agreements it has made, Turkey reached the level of developed countries and also passed the other countries' GSP programs."

Yet, much prior to this, Trump had bumped up taxes on iron-steel and aluminum imported from Turkey by 100 percent, and raised tax rates on iron and steel to 50 percent, and aluminum to 20 percent.

Also, as of May 17, 2019, Turkey was removed from the GSP, which it has been a part of since 1975. At the time the decision was announced, the customs tariffs on steel the U.S. purchased from Turkey was reduced to 25 percent again. In brief, there is currently no free trade agreement or other regulation with respect to trade between Turkey and the U.S.

Truman, Marshall, Trump

History books relate the kind of pressure Turkey was under following World War II, first after the Truman Doctrine, then the Marshall Plan. These aids that emerged with the aim of eliminating the Soviet threat and preventing a likely political Soviet rapprochement, are described as the foundation of Turkey's de-industrialization. These two subjects have led to such deep wounds in Turkey's industry that we were able to start discussing local technologies and the localization of the industry 60 years after this.

What should a deal be like?

Ongoing tensions between the U.S. and Turkey for some time now have had certain economic outcomes. On the economy side of these tensions, we experienced sanctions, speculative moves, and developments that halted bilateral relations from time to time. As a developing economy we were affected by this. In this sense, of course relations with the U.S. taking a positive turn is desired - as a matter of fact, it should be encouraged. However, the offer aimed at increasing the present volume of $20 billion fivefold must be examined extremely carefully. Because when we consider the industry productions and qualities of products of both countries, matters that may lead to a new de-industrialization process need to be examined very closely.

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