Iana Dreyer in Brussels -

Turkey’s bid to join the EU is dead in all but name. Trade has been one aspect that the two sides have been successful in nurturing over the past two decades, though that too is now being thrown into doubt by a new EU-US trade pact and Turkey’s stronger focus on building ties with Washington.

Recent attempts by the EU and Turkey to move their economic partnership forward and modernise their 20-year-old customs union are off to a difficult start. These were initiated late last year after the new top leadership in the European Commission was installed, and the crisis in Syria and Iraq put the strategic nature of the Europe-Turkey relationship in the spotlight.

Last September, Ankara launched a new EU strategy. It commits Turkey to the long-stalled EU accession process, but knowing that the dream of joining the EU is as distant as ever, the Turkish government wants to concentrate on deepening relationships with the EU in other areas, such as the modernisation of their joint customs union, visa liberalisation, migration and finance. Turkey’s move echoes a 2012 EU initiative called the “Positive Agenda”, which aimed at engaging Turkey outside the EU accession process, without killing it off.

The issue of modernising the 1996 customs union, which ties Turkey – Europe’s sixth most important trading partner, to the EU’s internal market – has long been on the table. The customs union has enabled trade between the two sides to boom: the value of two-way trade, dominated by industrial products and components, increased from €58bn in 2003 to €128bn in 2013.

Yet the union does not cover agriculture, services or public procurement, meaning trade is still far below its potential.  Turkey joined the EU’s trading bloc as a first step in its membership process, but the enlargement process has now stalled. Under this current trade arrangement, Ankara has no say over the EU’s trade policy.

The EU’s launch of bilateral trade deals with major economies such as Japan in recent years has made the issue the more pressing for Turkey. The planned Transatlantic Trade and Investment Partnership (TTIP) with the US has mobilised Turkey’s diplomats, because the US-EU trade deal would open the Turkish market to US products without giving Turkish goods and services reciprocal access to the US market.

Turkish Minister for EU Affairs and Chief Negotiator Volkan Bozkir said at a meeting in Brussels on February 12 that, “TTIP is visionary. But if we look at the free trade side of the agreement, we will lose an important market. The Turkish market will be open to US products. The loss is equivalent to 0.2% of our national income, something like $5bn lost annually. We are very happy with the [EU] customs union – we don’t want to harm it, we want to continue extending it. But we cannot afford to have this kind of situation.”

Ankara wants to tie the issue of upgrading the customs union with the TTIP. “We might have to freeze the customs union, we might have to freeze the benefits the US will obtain from signing the TTIP. But as I said: don’t bring us to this point. There is an easy solution, which is to add an article to the TTIP, saying that this will apply to all customs union member countries,” Bozkir said. “I think our message has gone through.”

The minister said Turkey hopes to finalise the upgrade of the customs union before the TTIP is finalized, which is not expected before 2016.

Not so fast

But initial comments from the EU indicate it intends to proceed cautiously. On January 9, EU Trade Commissioner Cecilia Malmström and Neighbourhood Policy Commissioner Johannes Hahn, said that: “Both sides committed to resume initial contacts with a view to reach a common understanding of the key elements for an upgrading of the customs union.”

Turkish government sources said they hoped to see customs union talks start as soon as possible. But sources in the trade directorate of the European Commission, which would oversee the talks, told Borderlex: “It is premature to give any indication on the [customs union] upgrading and on the timetable” for trade talks with Turkey.

Politics has indeed quickly started to interfere with the budding process. In order to launch trade negotiations, the European Commission needs to request a mandate from the EU’s member states. This is not a done deal. Cyprus in particular can be expected to veto the move. Its long-simmering territorial dispute with Turkey was recently revived after natural gas deposits were discovered in the Eastern Mediterranean.

Turkey’s recent crackdown on media and internet freedoms has also raised significant criticism within the EU and roused the increasingly powerful European Parliament. A row over this issue and over Turkish recognition of the Armenian genocide has led Ankara to cancel a meeting of an EU-Turkey Joint Parliamentary Committee. “The EU has no leverage in Ankara anymore,” says Mehmet Muderrisoglu, Europe analyst at Eurasia Group in London. “The EU wants to keep the EU accession process at least on paper, and Turkey has something to show to international financial circles – on paper at least.”

Some argue the more important relationship for Ankara right now is with Washington. For Turkey, an alternative to becoming a full member of the TTIP is signing a parallel free trade deal with the US. Eurasia Group’s Muderrisoglu believes this is the most likely outcome. “Political capital seems to be more invested towards having a separate agreement with the US,” says Muderrisoglu.

Bozkir’s visit to Brussels was indeed preceded by a trip to Washington, where he met with US trade officials. The US is increasingly interested in the Turkish market too, with special interest in seeing Turkey open up its energy, public procurement and agricultural markets to US businesses. For political reasons related to the turmoil in the Middle East and the crisis in Ukraine, the US is also showing greater interest in engaging Turkey.