The India-EU trade agreement, the landmark free trade agreement hailed as the mother of all deals, gave the nation and Europe a lot to cheer about, but one country is already feeling the heat of the deal: Turkey.
The agreement, which is expected to double EU exports to India by 2032, includes tariff reductions offered by India to the EU at a level not provided to any other trading partner. The average tariff rate applied by the EU to Indian products will be reduced from 3.8% to 0.1%.
Turkey, whose support for Pakistan during Operation Sindhoor soured ties with India, has been extremely critical of the trade deal, with its media calling it something that will have “consequences for Turkey.”
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Reason: The EU Customs Union agreement that Turkey signed with the European Union in 1996. As per the pact, when the EU signs a Free Trade Agreement (FTA) with any third country, that country's goods can enter the Turkish market duty-free via the EU. However, Turkey faces customs duties when selling goods to the same country.
In this case, while Indian goods can enter Turkey via any other European country free of duty, Turkish goods cannot avail the tariff exemptions. Turkish goods cannot enter India under FTA terms, even if they are shipped from any other country.
According to the Turkish media, the deal could further complicate Turkey’s foreign trade and its industrial production. With the elimination of customs duties on industrial products, Indian goods - thanks to its cheap labour and large production capacity - could eliminate Turkey’s market advantage. Ankara fears that some of Turkey's market share in textiles, steel, and automotive sub-industries could shift to India.
While Turkey’s efforts to sign FTAs with third countries, including India, are not feasible at this point, Indian goods can easily access the Turkish market via the EU.
With the deal threatening them, Turkish media are now calling for the Customs Union pact to be updated, lest it make Turkey’s position in EU supply chains even more fragile. Citing the business community, they argue that the FTAs will negatively impact Turkey and that the modernisation of the Customs Union is urgently needed.
“The Customs Union agreement works against Turkey not only in terms of customs asymmetry but also in decision-making mechanisms. The EU does not consult Turkey when updating its trade legislation. However, Turkey is forced to implement new rules as required by the Customs Union; trucks carrying Turkish goods are subject to quotas, and business people face visa restrictions. This situation increases logistics costs and reduces the competitiveness of Turkish products,” according to a report that appeared in Turkish media Milliyet.