The Unique Nature of Modernizing the Customs Union

Abstract

Facilitated by the current Customs Union, the economies of Turkey and the EU have become quite integrated. Turkey was the EU’s fifth largest trading partner in 2017,3 while the EU is Turkey’s largest. The EU remains Turkey’s most important economic partner in terms of trade, foreign investment, and tourism. The fragility of the economic situation in Turkey—namely a declining growth rate, a large and structural current account deficit, heavy reliance on short-term capital inflows, declining foreign direct investment, and a private sector with large foreign currency liabilities—makes the EU indispensable for Turkey. On the other hand, clearly, an essential part of Turkey’s appeal for the EU is its economic potential. According to a recent survey by the European Council on Foreign Relations (ECFR), economic relations are the most important aspect of Turkey-EU relations and trade provides an important reason for maintaining the alliance. Finally, the European Commission expressed its support for the modernization of the Customs Union since the inception of the idea.