The Turkey-UK Free Trade Agreement in Terms of Economic Diplomacy.

• Author: Yigenoglu, Kaan
• Position: ARTICLE

Introduction

Free Trade Agreements (FTAs) are one of the concepts associated with Preferential Trade Agreements (PTAs). PTAs emerged in the first globalization wave in the 19th century. The German Customs Union (Zollverein), established by Prussia in 1833, which had the goal of a common tariff and trade policy, is an example of early economic integration. (1) The Cobden-Chevalier trade agreement, signed between Britain and France in 1860, is another example of a PTA. (2) The best known are the German monetary union, Latin monetary union, and Scandinavian monetary union. (3) The post-war period in 1945 started the second globalization wave when significant developments in terms of economic integration took place. (4) One of the most important of these is the European Economic Community (EEC) established by six European countries through the Treaty of Rome, in 1957. (5) The third wave of globalization beginning in 1980 was the time when many developing countries liberalized their trade policy resulting in a further increase in the number of trade agreements. (6)

Turkey is among the countries that liberalized their foreign trade in the 1980s. However, its regional integration initiative began in 1963 under the Ankara Agreement with the EEC. Although Turkey still has not become a full member of the European Union, it has continued its efforts to integrate with the world economy through its FTAs signed with several countries since 1990, the most recent example being the FTA signed with the United Kingdom (UK) in 2021.

In this study, the FTA signed with the UK is examined in the context of economic diplomacy, and bearing in mind that bilateral trade agreements are a tool in economic diplomacy, the concept of economic diplomacy is firstly analyzed. The experience of Turkey's free trade agreement is then discussed. Bilateral economic relations between Turkey and the UK are addressed and details of the agreement are examined. Finally, in terms of economic diplomacy, suggestions for further co-operation between the two countries have been made.

The Concept of Economic Diplomacy

Economic diplomacy is mainly about foreign economic relations and achieving economic goals. In this context, economic diplomacy is defined as the trade in goods and services and as the influence of the state on foreign economic relations, with regard to the flow of production factors (labor, capital, technology, and natural resources) between the domestic and international. Generally speaking, in economic diplomacy, the aim is to improve private political relations with various countries, to ensure the security of the country through membership in various international organizations, and to shape the state's image in the world. (7)

These goals, namely securing the country and shaping the state's image in the world, are all about results-oriented approaches. In addition, there are also views that assess economic diplomacy in terms of the decision-making processes, rather than structural factors. In this context, analyzes are carried out on the basis of international economic issues. (8)

Economic diplomacy is a host of decisions and discussions on international economic issues. It has become an important working area, with the globalization process and the increase in international economic dependence. It includes the stability of the international financial system, the liberalization of trade, the direction of international investments, and, as a result, global economic problems that affect countries' achievement of internal political goals. (9)

Typically, economic diplomacy consists of three elements listed as follows:

(i) The first element of economic diplomacy is the use of political relations in order to increase economic profit and reduce damage. In this context, the search for political support is made to increase international trade and investments, fight market failures, and reduce the risks of cross-border trade.

(ii) Economic relations and assets can be used for the stability of political relations. This is an example of increasing economic security. For this, it is possible to implement structural policies, bilateral trade, and investment agreements.

(iii) To achieve these objectives, it must be ensured that the appropriate political and international economic environment is established. Multilateral negotiations and supranational organizations such as the World Trade Organization (WTO), Organization for Economic Co-operation and Development (OECD), and the EU contribute to the creation of this environment. (10)

The goals of economic diplomacy can be said to be related to the globalization process, because the development of international trade in goods and services, the acceleration of capital flows, and the spread of labor flows have allowed the bonds between the countries to be arbitrated. It can be stated that globalization provides significant welfare gains in this regard. On the other hand, there are some negative aspects to this process. The increase in the degree of openness of economies to the outside has also increased the likelihood of external factors affecting a country's economy. In other words, the globalization process has made the countries' economies open to external pressure which has led to increased problems related to economic security. In this context, economic diplomacy is committed to improving welfare gains and reducing the threats to economic security. (11)

There are some economic diplomacy tools used for the purpose of implementing the stated objectives. These tools are shown in Table 1; where economic diplomacy is divided into positive and negative instruments. Positive economic diplomacy instruments focus on exports and encourage bilateral investments. To this goal, government visits, diplomatic representations, and economic diplomats are used to promote trade. Negative economic diplomacy is the opposite of these practices, in other words, the aim is to be achieved by placing various obstacles in front of trade. These obstacles include various economic embargoes and sanctions, as well as the termination of membership in international organizations.

Proactive Economic Diplomacy Strategy of Turkey

In the literature, a very restricted number of studies deal with Turkey's economic diplomacy. Ogutcu and Saner discussed Turkey's economic diplomacy from the perspective of EU membership and examined the gains Turkey could achieve with membership through proactive economic diplomacy. (13) In another study, Ogutcu considered Turkey's novel economic diplomacy strategy as an essential part of Turkey's wide range of policy and institutional reform under the framework of 'more economics and less geopolitics.' (14) Paolo examined Turkey's increasing activity in Africa in the context of soft power instruments, development aid, and humanitarian assistance, establishing a relationship between economic diplomacy and religious factors. (15) In view of the changes in the structure of the international system, Unal examined Turkey's economic diplomacy in the context of developments related to Turkey's political economy by focusing on the activities of the Foreign Economic Relations Board (DEiK), which as the global horizon of the Turkish business world. (16) Unay assesses Turkish foreign policy in terms of international political economy in the context of neoliberal reforms in the 1980s and 2000s and examines the ascendancy of economic issues to the level of high-politics within the framework of economic globalization. (17) Vallee mentions that economic and financial matters have been an essential pillar of Turkey's diplomacy, he suggests that the opening of new markets for its goods and the protection of financing for its investments has become a central foreign policy input. (18) Yamak and Saygin suggest that the Turkey Wealth Fund (TWF) should not be seen as merely a tool of economic policy, but rather TWF should be considered as an economic diplomacy instrument. (19) Some studies explain Turkish foreign economic policy with the concept of 'trading state.' The nature of the trade state is described as follows: "...a broader range of players are invited to participate in foreign policy-making or diplomatic games, and their interests and goals differ significantly from those of Turkey's conventional foreign policy-makers." (20) Rosecrans used this term as "releasing the productive and commercial forces of people and businessmen looking for international marketplaces for their goods." (21) To understand both the Turkish economic diplomacy and the usage of the trading state in this issue, it is necessary to understand the history of Turkey's proactive economic diplomacy strategy concept.

Turkey's proactive economic diplomacy strategy has two main goals: (i) to promote free trade through new economic partnerships; (ii) to build a liberal investment climate to encourage inward Foreign Direct Investment (FDI). The content of each goal is evaluated in turn below.

Economic and Political Roots of Turkey's Economic Partnerships Initiatives

Between 1980 and 2001, Turkey had three FTAs in place with the European Free Trade Association (EFTA), Israel, and then FYR of Macedonia. The origins of these agreements have been in the economic transformation of Turkey since 1980. The Turkish economy was characterized by centralized planning and inward-looking policies until the Turkish Government declared a major stabilization and liberalization program on January...