The Turkish leader has led calls for a boycott of French goods as tensions between Ankara and Paris escalate over cartoons of the Prophet Muhammad. DW examines what’s at stake for the two economies.

Turkish President Recep Tayyip Erdogan has urged Turks to stop buying French goods in response to what he described as French leader Emmanuel Macron’s “anti-Islam” agenda.

The Turkish leader has repeatedly rebuked the French president, saying he needed a mental health check after Macron vigorously defended the right of the French people to draw cartoons of Prophet Muhammad, which many Muslims consider offensive.

The boycott call is likely to test relations between the two countries, which count each other as major trade partners with a total trade volume of about €14 billion ($16.6 billion) per year. France has said it’s not planning to hit back with a reciprocal boycott against Turkish products.

Erdogan has made similar boycott calls in the past, including one against US electronics goods. Many analysts have pointed out the futility of such moves, stressing their negative impact on local employment. Many of the products being shunned may be owned by foreign brands, but are made locally.

French cars in high demand
Turkey is France’s 13th-largest global supplier and the 12th-largest customer, while France is Turkey’s sixth-largest customer, receiving 4.3% of its exports, according to the French Ministry for Europe and Foreign Affairs.

Planes, helicopters and automobile spare parts are among the main imports from France to Turkey, while Turkey mainly sells cars and other vehicles to France.

French autos are among the highest selling cars in Turkey, which is the eighth-biggest market for Renault.

The French carmaker has one of its largest production centers in Bursa, Turkey with an annual production capacity of nearly 400,000 cars and more than 900,000 engines. The plant employs more than 6,000 people.

Renault sold nearly 50,000 vehicles in the first six months of this year. PSA, which owns the Citroen and Peugeot brands, recently described Turkey as a bright spot in a market battered by the pandemic.

Boycotts target French firms in other Muslim countries
The Turkish leader’s boycott call followed social media campaigns in other Muslim countries calling on consumers and stores to reject French goods and brands. Several supermarkets in Qatar and Kuwait are already reported to have pulled French goods like yogurts and bottles of sparkling water from their shelves.

French supermarket chain Carrefour has been one of the main targets of boycott calls in Saudi Arabia and the United Arab Emirates, prompting the owner of Carrefour stores in the Middle East to issue a statement stressing the brand is a wholly-owned and operated unit of Majid Al Futtaim, a UAE-based firm. A Carrefour representative in Paris told Reuters news agency that the firm had felt no impact so far from the boycott calls.

Several French companies, including energy giant Total and defense electronics group Thales, do major business with some of the Muslim-majority countries where the backlash against President Macron’s support for the cartoons has been the most vehement.

Thales, which sells weapons, aeronautics technology and public transport systems, counts Saudi Arabia, the UAE, Turkey and Qatar among its customers. Qatar has also ordered French Rafale military jets. Total has major investments in exploration and production in the Gulf states.

French cosmetic and fashion labels and luxury brands like LVMH-owned Louis Vuitton and Chanel have stores across the Middle East, but the region is not a big moneymaker for them.

France-Turkey tensions weigh on lira
The Turkish currency plunged past 8 lira per dollar for the first time on Monday amid concerns over Turkey’s economic woes emanating from the pandemic and geopolitical tensions between Ankara and the West. The lira has been among the worst-performing currencies this year, having fallen about 25% against the dollar.

The latest drop was mainly driven by the Turkish central bank’s surprise decision to keep key interest rates on hold. Analysts had expected a rate hike to arrest the weekslong fall in the lira. The Turkish currency, however, fell further after Erdogan called for a boycott of French goods.

A weak lira could make it easier for many Turks to shun some of the French goods, especially luxury items, given a surge in their prices.

When Turkey boycotted the iPhone
It’s not the first time that the Turkish leader has used economic levers to settle political scores. In 2018, he called for a boycott of US electronics products, with a special mention reserved for Apple’s iPhone, amid heightened tensions between Washington and Ankara. The boycott call followed a sharp drop in the Turkish lira that Erdogan blamed on foreigners.

“Every product that we buy in foreign currency from outside, we will produce them here and sell abroad,” Erdogan said. “We will boycott the electronics products of the US.”

It’s not clear how much impact the clarion call had on iPhone sales in the country. Sales drop in the following months were mainly blamed on a weak lira which had caused iPhone prices to go up. Apple continues to be one of the popular smartphone makers in Turkey. Erdogan himself was known to be an avid Apple user; it’s not clear if that still remains the case.

https://www.dw.com/en/boycott-call-tests-france-turkey-trade-relations/a-55411445

Turkey expects its gross domestic product (GDP) to grow more than 5% this year, helped along by export growth of between 16% to 20% after a pandemic-hit 2020, the country’s treasury and finance minister said.

The economy would log double-digit GDP growth in the second quarter due to the so-called base effect, Treasury and Finance Minister Lütfi Elvan said in a televised interview on CNN Türk late Thursday.

The growth in the first quarter could come at a 5.5%-6% rate, Elvan said, stressing the strong performance of exports as well as industry.

He noted that the economic activity rebounded in the first quarter of 2021, especially in the industrial sector, and that production and trade are now in a better state than during the pre-pandemic period.

A Reuters poll of 34 economists, surveyed between April 6-13, generally shares Elvan’s optimism, with respondents expecting Turkey’s economy to expand by 4.8% on average in 2021, bolstered by 14.9% expansion in the second quarter due to a so-called base effect after a pandemic-hit 2020.

Turkey was one of only a few countries to avoid an economic contraction in last year’s coronavirus fallout. GDP grew 5.9% in the fourth quarter and 1.8% in 2020 as a whole. It contracted around 10% in the second quarter but recovered thanks to a burst of state bank lending in the second half of the year.

Defense and auto exports will help balance the large current account deficit, Elvan noted.

The deficit, the gap between what Turkey buys from abroad and what it sells to other countries, widened to $2.61 billion (TL 21.56 billion) in February, official data shows.

The 12-month rolling gap totaled nearly $37.8 billion. The current account recorded a deficit of $36.72 billion last year due mostly to a sharp rise in the trade deficit and declining tourism revenues, prompted by the pandemic.

An uptick in tourism revenue and exports are expected to narrow the gap in 2021 as a whole.

It is expected to stand at 3.2% of GDP in 2021 and 2.5% the following year.

Industrial and agricultural sectors are performing well in terms of production, Elvan said, noting that Turkey entered 2021 strongly thanks to the measures taken during the past year.

Strong foreign trade
He also pointed out that strong growth is expected on a global scale starting this year and that nearly half of the Turkish economy’s growth could come from foreign trade.

Stating that the export performance in the first quarter was also very good, Elvan cited a study that he said highlighted that “when the eurozone grows by 1 unit, our exports increase by 4 to 4.5 units.”

“There is a growth forecast of 4.4% for the growth of the euro area,” the minister said.

The EU is Turkey’s top market, accounting for almost half of the country’s exports. Sales to EU countries in April alone more than doubled, surging 128.4% year-on-year to $7.18 billion in a rebound from the pandemic low, official data shows. Overall exports surged by 109% in the month to $18.8 billion.

Exports from January through April were up by 33.1% to $68.75 billion, up from $51.64 billion in the same period last year.

Elvan said the growth in exports is expected to increase by 16%-20%, noting the country is likely to reach $200 billion worth of exports for the first time in history.

The outbreak led to a 6.26% drop in 2020 exports as Turkey closed the year with $169.5 billion in foreign sales. Imports were up 4.3% to reach $219.4 billion. The trade deficit widened by 69.12% to $49.9 billion.

The country aims to achieve a year-end target of $184 billion.

Elvan pointed out that countries will now turn to regional supply chains due to the difficulties they are experiencing amid the coronavirus pandemic.“Turkey’s strategic location, qualified human infrastructure, young dynamic population, as well as having a customs union agreement with the EU offers a very serious advantage.”

Inflation top priority
He stressed that the year 2021 will be a year of growth in which price stability is especially observed, nominal demand is managed successfully, and “our structural reforms are supported.”

Pointing out the importance of the fight against inflation in terms of achieving macroeconomic stability, Elvan said it is the number one priority in terms of managing the economy.

“You cannot solve this problem only with monetary policy. In the field of public finance, we have been giving the necessary support to our central bank, especially in price stability, since the day I took office.”

Elvan said that the Central Bank of the Republic of Turkey (CBRT) has maintained its tight monetary policy stance “at the moment,” after the bank held its key interest rate steady at 19% earlier in the day as expected.

He added that his ministry was closely monitoring loan growth and that macro-prudential measures may be taken.

The central bank Thursday repeated a pledge to keep the benchmark policy rate – the one-week repo rate – above inflation, which the bank expects to cool after having risen beyond 17% in April, its highest level in nearly two years.

The bank said it will maintain its current stance until inflation falls according to a forecast published last week, in which it predicted price pressure would ease beginning this month.

Last week, the monetary authority raised its year-end inflation expectations to 12.2% from 9.4%.

The central bank also said that past rate hikes – including as recently as in March – have begun to cool demand in the economy. It also dropped a reference made in April’s policy statement to “maintain the tight monetary stance.”

https://www.dailysabah.com/business/economy/strong-exports-to-push-turkey-over-5-economic-growth-in-2021

The Customs Union Agreement between Turkey and the European Union was enacted into law on December 31, 1995. The EU-Turkey Customs Union Agreement covers products such as industrial goods and processed agricultural products. According to the ageement, parties’goods can move freely within the customs area, provided that they are exempt from tariffs and equivalent taxes.

United Kingdom plays a critical role in Turkey’s economy. According to 2019 data, the UK ranks second among the list of countries which Turkey exports the most goods to, and ninth in the list of countries from which Turkey imports the most from. The United Kingdom, in addition to being among the leading markets, is a higly valued trade partner in Turkey in many sectors, but especially in automotive, television, household appliances, retail and textiles industries.

This being the case, with Brexit –which has been the UK’s long time political goal – the UK has left the European Union and concluded one of the most expansive trade agreements to date within the EU. Accordingly, the Customs Union between Turkey and the UK terminated, effective January 1st, 2021. Considering the fact that the bilateral volume of trade between the two States is more than $16 million, the termination of such an ageement could lead to approximately 75% of theTurkish exports to the UK to become subject to a tax burden and potentially resulting in a loss of up to $2.4 billion.

This past week, the UK signed it’s first trade agreement with Turkey. The free trade agreement signed between the two nations is a historic FTA, set to go into effect on January 1st, 2021, which covers industrial and agricultural goods. As a result of this agreement, the aforementioned risk of loss will be eliminated and Turkey’s trade relations with the UK will be maintained. Considering the previous Customs Union relationship that will automatically terminate due to the United Kingdom’s leave from the European Union.

EXPORT and IMPORT RELATIONS BETWEEN TURKEY and the UK
The main products which Turkey exports to UK are gold, textiles, garments, electrical and non-electrical machinery, motor vehicles and parts, iron and steel products, insulated wires, cables and other electric conductors.
The main imports from the UK are diesel and semi-diesel engines, automobiles, tramp iron/steel and their ignors, medicinal and pharmaceutical products to be used in treatements and protection.
The total amount of direct invesments from UK to Turkey in the period between 2002-2019 was $11,120,000 and 2,969,000 USD for invesments from Turkey into the UK during the same period.
WHAT DOES THIS FTA PROVIDE FOR TURKEY:
The parties agreed that as of January 1, 2021, the imports and exports of specified products will not face any additional taxes. Therefore, Turkish exporters will not be financially burdened by Brexit and free trade between the two countries will be protected against all odds.
It covers all industrial goods and processed agricultural products.
Ensuring the inclusion of services and investments, and some of the products covered by the mutual recognition and mutual improvements made in agricultural products will play an important role in Turkey’s commercial position and trade relations between the two countries.
DISPUTES BETWEEN CONTRACTING STATES: The Procedure for Dispute Settlement Mechanism
In case of a legal dispute that may arise between Turkey and the United Kingdom, for the settlement of disputes the “Procedure for Dispute Settlement Mechanism” will be implemented. If an ageement cannot be achieved though this route, the World Trade Organization (WTO) procedures will be applicable.
This mechanism of Dispute Settlement Procedure aims to resolve the commercial disputes between the WTO member countries within the shortest possible time frame. The mechanism has achieved singificant success dispute resolutions so far.
Before taking any other action, the first step in resolving a legal dispute between the member countries would be through a consultation phase where they have to communicate directly and settle without the involvement of other instutions. If the parties come up with an agreed upon solution, the legal process will not formally begin; however if the parties fail to reach an agreement, the parties will have the option to consult the WTO director-general to mediate for them. If the consultations fail, the plaintiff will have the option to ask for a panel to be appointed. The Dispute Settlement Body to be established for the resolution of legal disputes within the framework of the principle of ultra petita prohibition, will convene to discuss and manage the dispute resolution procedure.
Keeping in mind that WTO aims to remove the barriers to free international trade and implement transparent rules in order to facilitate global trade volume, it is very important that the WTO solutions will be applicable if disputes cannot be resolved using the initial mechanism.
The FTA between Turkey and the UK constructs a milestone achievement especcially because of its’ “tariff-free” nature. The existing commercial and economic relations will be maintained under the agreement. It is no doubt a very solid and significant step towards strengthening our commercial and bilateral trade relations.

THE IMPORTANCE OF THE FREE TRADE AGREEMENT BETWEEN TURKEY and the UK IN TERMS OF ECONOMIC RELATIONS BETWEEN THE TWO COUNTRIES
Considering the official declarations made by the trade ministers of both countries and and the fact that the markets in Turkey have already reacted positively to the agreement, I believe that the agreement between the two countries will have positive reflections in the foreseeable future.

Turkey currently has free trade agreements with 21 different states in force. Yet, the importance of adding the United Kingdom to the list cannot be overstated considering the message this delivers to the global market.

United Kingdom announced that this agreement comes right after the agreements reached with Japan, Canada, Switzerland and Norway. For Turkey’s name to appear with 4 of the worlds leading ccountries constitutes a great source of prestige giventhat thisagreement will further the country’s potential to attract foreign investors.

I believe that what is much more important than the positive impact this FTA will have on strengthening the trade relationship between the two states, is how it will signal a more stable and investor-friendly environment for foreign investors and the businesses and accordingly pave the way for new opportunities in Turkey.

The free trade agreement signed between Turkey and the UK demonstrates that the Brexit process which led to a certain level of uncertainty within 2020 will not lead to any disadvantages in the long term trade relationship between Turkey and the UK, nor will it have any negative impacts on the diplomatic relations between the two countries. To the contrary, this agreement being the first FTA after the trade agreement UK signed with the EU following Brexit reveals that the alliance between the two countries remain intact.

The recent FTA provides a critical message for the foreign investors that closely follow the Turkish market and indicates that Turkey is to maintain prestige notwithstanding the economic distress it went through in 2020. As emphasized in the statements made by the Turkish Trade Minister, perhaps the most important outcome of this FTA will be the possibility of providing an atmosphere of steadiness for potential investmentsTurkey may receive.

Therefore, in a period in which the whole world struggles with uncertainty and risk allocation issues, to conclude an agreement this fast, bulky and effective with the UK should be seen as an accomplishment for Turkey.

There is no doubt that trade will further developed if the parties consequently sign a more detailed additional agreement, yet we may still expect an acceleration in trade volume, continuation of investments, and the emergence of new partnerships between Turkey and the UK throughout 2021.

https://www.mondaq.com/turkey/international-trade-investment/1023440/turkey-and-the-uk-s305gn-post-brex305t-free-trade-agreement-