Recent developments in global trade discussed at the TUSIAD conference

Dunya Executive - - BUSINESS BY LAW - SERCAN BAHADIR, PARTNER, EY sercan.bahadir@tr.ey.com

An Istanbul-based conference, titled ‘Global Trade: From Politics to Policy,’ organized by the Turkish Industry & Business Association (TUSIAD) on Sept. 21, presented a comprehensive debate on the challenges and opportunities created by global trade and how they should be assessed in light of the Customs Union between Turkey and the EU.

Conference speakers presented many ideas on globalization: from the World Trade Organization’s (WTO) role in global trade, the effects of digitalization on commercial activities, the consequences of protectionist policies and the modernization of the Customs Union. The event began with an opening speech by Minister of Customs and Trade Bulent Tufenkci.

Rising protectionism

After Donald Trump became US president, the Transatlantic Trade and Investment Partnership (TTIP) negotiations were suspended and NAFTA talks were re-kindled. In addition, the UK’s decision to leave the European Union (through Brexit) and local governments’ decision to increase the customs and anti-dumping duty to protect local producers brought the concept of “protectionism” back onto the agenda across the world. In the face of these developments, the WTO’s Economic Research and Statistics Division presented a joint report by the IMF, World Bank and WTO called: ‘Making Trade an Engine of Growth for All: The Case for Trade and for Policies to Facilitate Adjustment’.

The report states that the benefits of free trade should be conveyed more accurately and the gains distributed more comprehensively. As a result of the increasing competition, innovation, technological developments and institutional reforms, productivity increases in the production processes and the low price offered on the variety of products for the lower income groups of society are presented as the benefits of the developments on trade. For example, the report indicates that when Argentina reduced its customs duty firms increased their investment in innovation by 20%.

On the other hand, the groups negatively affected by trade are also taken into account. As trade evolves – although, in general, there seems to be an increase in employment – income and employment decreases for non-qualified workers. This is known as “China Shock”. To prevent this, besides the arrangements for the development of trade, the report suggests the labor force should be strengthened by new regulations.

New approach in global trade: digitalization

One of the topics discussed at the conference was the ongoing work initiated by the OECD Trade and Agriculture Directorate, which analyzes the impact of the digital economy.

Digitalization will be the most discussed topic in the near future. As technology develops, the way of doing business develops apace. In today’s world, robots are able to perform many tasks. Typical examples can be seen in the automotive sector. As an impeccable result of this advanced level of specialization and digitalization, automobiles can be manufactured in one minute. Some predictions suggest that other production models are set to involve more technological processes and so will become much more digitalized.

In addition, digitalization has begun in the services sector. Robots are now capable of undertaking activates like recordkeeping and reporting, and that way of doing business may evolve in the services sector. With these approaches, we may be moving toward a future where digitalization will have more impact on subjects like tax payments and preparation of declarations, and in which, perhaps robots handle these processes.

Modern zed Customs Un on mportant for EU

In a session comprising authorized staff from the Ministry of Economy, it was emphasized that Turkey is actually aiming for not only an improved Customs Union but also full membership of the EU. It is significant for Turkey‘s economic situation that the Customs Union agreement, which has been valid since 1996, is being modernized. About half of our imports and exports are made with the EU, which is why the agreement should be designed along with the new necessities. The main issue at this point is that we are still party to the Free Trade Agreements (FTA) signed by the EU. We hope the discussions to modernize the Custom Union will solve this issue.

EU representatives point out that the Customs Union agreement with Turkey is one of the most successful of its kind. They also indicate that the modernization of the Customs Union is also important for the EU and the necessary studies have been prepared.

What can be done?

The global trade growth rate is at its lowest since the 2000 global economic crisis. There is an inverse ratio between this declining growth rate and increasing protectionism. This is why international organizations such as the WTO have a significant role in developing and promoting free trade to local governments. On the other hand, we should also take caution when it comes to protectionism because there is a strong relationship between employment, production, exports and imports. Any cost augmentation regarding imports can have a negative influence on these economic indicators. Therefore, a careful choice should be made as to which sector and product group is protected.

It is understood that digitalization is the prevailing new concept in global trade. To ensure faster, more reliable trade with lower costs, it is vital for firms to take advantage of technological developments. It has been noted that digitalization is the only topic to draw advantages from technology in advanced countries. In Turkey, public and private sectors should review their business models using this approach.

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