Ukraine-Turkey FTAMarch 22, 2015
Friday saw Turkish President Erdogan in Kyiv.
The usual and expected reassuring words from Ukraine’s (and Odessa’s) Black Sea neighbour were uttered:
“We support territorial and political integrity and independence of Ukraine, including Crimea. We recognize the legitimate aspirations of Ukraine to be united with Europe and support them.
We are directly observing the situation of the Crimean Tatars who have been under constant pressure for a year.”
No unexpected deviations from the consistent diplomatic and political line Turkey has taken since Russia illegally annexed Crimea and began its war in eastern Ukraine.
Whilst in Kyiv, President Erdogan also announced $10 million in humanitarian aid, and a further $50 million to be used to reduce the Ukrainian budget deficit. To be blunt, every little counts – for all such donations add up.
However, the most interesting comments related to the long on-going, and glacial, negotiations of a Free Trade Agreement between Ukraine and Turkey.
Turkey is the second largest trade partner of Ukraine by way of individual nation (rather than collective entity like the EU). There are at least 600 Turkish companies operating in Ukraine – with Turkcell, the Turkish telecoms operator, having just paid UAH 3 billion for 3G licenses in Ukraine.
Odessa is certainly home to quite a few of the Turkish companies, as well as a vibrant Turkish community – which is unsurprising when Istanbul is but a 70 minute flight away, the (in)famous 7KM market is a Ukrainian open air Grand Bazaar and the Turkish Onur Airline is one of the few “cheap flights” operators currently flying from Odessa year-round.
According the the Ukrainian Embassy in Turkey, “as of 1st July 2014, direct Turkish investment was $ 202.9 million in Ukraine. Post-Maidan – (March to December 2014) – trade turnover amounted to $ 3.992 billion (- 12.3% compared with 2013). The positive balance for Ukraine was $ 1.986.6 billion.
Ukrainian export to Turkey amounted to $ 2.989.4 billion in January-October 2014 (- 4%). Turkish import to Ukraine amounted to $ 1.2 billion (-31.3%).
For the last three quarters of 2014, the trade volume between Ukraine and Turkey was $ 204.8 billion. (- 36.9%). Export amounted to $ 104.6 million. (- 29.6%), import – $ 100.2 million. (- 43.1%). The positive balance – $ 4.3 million.”
According to President Erdogan “At the end of 2014, the volume of bilateral trade increased to USD 6 billion.”
Whatever the correct official trade figure is, (and discounting the rampant smuggling and trading of counterfeit/fake goods in the black economies etc,) it could and should be a lot higher, considering the geographical entry points to different markets both nations present for each other on opposite sides of the Black Sea.
Thus the completion of a FTA between Turkey and Ukraine would make sense – and encourage greater (legitimate) trade.
President Erdogan went on to state “We agreed that in 2017 the figure would be 10 billion dollars, and in 2023 – 20 billion dollars.”
An enormous bilateral trade increase that is very unlikely to occur without the conclusion of a bilateral FTA in the nearest future. Even then, to almost double bilateral trade in 2 years, and to more than treble bilateral trade in a period of 8 years, would require some serious effort, and/or cooperation in some currently sensitive regional spheres of activity – for that’s where big money bilateral deals can accommodate such major trade expectations by way of US$ value.
Thus notable civilian, military and energy cooperation projects would seem to be the most likely avenues to achieve those aspirational bilateral trade figures in the timescale cited. The most obvious of these avenues being gas supply via Turkey from the Caspian Sea and/or Central Asia, possible participation in the TANAP pipeline, that has eventually started as of last Tuesday, the turning of existing Turkish interest in the Antonov and Motor Sich aviation abilities into tangible contracts, and utilising Ukrainian understanding of underground gas storage to benefit Turkey – to name but a few of the most obvious opportunities that present themselves.
Eventually, there is also the chance for Turkish companies to join the international throng of companies that hope to be a part of rebuilding The Donbas – when it’s safe to do so. Few things ever pay as well as government contracts after all.
Thus, having considered all the above, if political will and political energy remains consistent, perhaps the figures quoted are not quite as fanciful as they first appear.
The first marker to look out for is clearly the swift finalising of the Turkey-Ukraine bilateral Free Trade Agreement – which is likely to cause further ire within The Kremlin, with President Putin having made clear his dislike for a Turkey-Ukraine FTA back in October 2013 – “We hope that our Ukrainian colleagues make an agreement with Russia before taking a serious decision. In the case of an increase in volume between the EU and Ukraine, goods from Turkey and Europe will be re-exported to Russia. Then we will have to take strict measures on customs controls.”
Rightly, it appears Ukraine, having ratified the DCFTA with the EU, is no longer going to allow Kremlin sensibilities to prevent the conclusion of the Turkey-Ukraine bilateral FTA any longer. The whole FTA negotiation business between Ukraine and Turkey having dragged on since 24th January 2011, it’s time to finish it.
(A FTA with Israel that was also put on hold a few years ago, must surely now be rising up the Ukrainian trade “To do” list as well – together with several FTAs currently at various stages of negotiation.)