Trade wars or trade facilitation?

Trade wars have been at the centre of economic discussions recently. It would be unreasonable not to mention them in the context of the customs agenda. First of all, from a customs perspective, it’s clear that emotions are rather volatile these days because, despite international agreements between countries ensuring the free-flow of goods, there appears to be accusations of protectionism flying back and forth.

Trade wars or protect on sm?

Some of the decisions made by the U.S. are as follows:

• Transatlantic Trade and Investment Partnership (TTIP) has been suspended.

• It has been announced that some of free trade agreements are to be reviewed.

• Tax reforms have been accelerated to foster investments

• Additional customs duty has been levied on steel and aluminium (25 percent and 10 percent respectively)

The goals are plain: to facilitate local production and employment in the U.S. In this context, additional customs duties have been levied on both steel and aluminium. Although national security has been used as a reason for such measures, it is understood that the real rationale behind them is protectionism. Indeed, imposing additional taxes on the same goods also took place in 2002. However, after a disappointing failure, they were abandoned. Taxes at that time had a huge impact on sectors such as automobiles, aviation, heavy industries and construction which depend heavily on steel and aluminium input and which employed 80 times more people than the steel and aluminium sectors themselves. Upon

realizing it brought more harm than benefit to the local U.S. economy, the measure was given up after a relatively short 20 months.

The imposition of additional taxes on steel and aluminium by the U.S. has the most profound effect on the EU and China. A significant portion of steel imports to the U.S. originate from EU nations and China and have an adverse effect on their economies. In order to counter those effects, and to exert pressure on the U.S. to undo such measures, countries that are targeted for duties will respond with their own duties on U.S. products. Thus a trade war begins.

Trade fac l tat on?

Last year, the Trade Facilitation Agreement entered into force.

Turkey, the U.S., the EU, China, Nigeria, Kenya, and South Korea are some of the members of this agreement. Its purpose can be summarized in four main points:

• To simplify the procedures of customs transactions

• To develop foreign trade infrastructure (logistics and port infrastructure)

• To increase the reliability of foreign trade

• To ensure transparency and uniformity in trade practices

First, member countries are expected to conduct a gap analysis in order to achieve these goals and then focus on possible improvements. Once these four objectives are met, trade costs are expected to decline by 14.3 percent, more so for developing countries.

Turkey is trying to meet the requirements of this agreement with the establishment of the “Trade Facilitation Board.” The Technical Committee held its third meeting at the beginning of March and decided to prepare the “Trade Facilitation Strategy and Action Plan” which will eventually provide information on a website.

What to do?

We can argue that while a potential trade war would not affect Turkey negatively, trade facilitation may result in substantially positive outcomes. This is because of our foreign trade structure.

First of all, Turkey is an import-dependent country. Turkey’s production, employment and export rates will increase depending on its import activities. The reason is that 90 percent of Turkey’s import items are comprised of raw materials, intermediate goods and production inputs. Each increase in Turkey’s import costs causes a negative effect on Turkey’s exports. For this reason, the Trade Facilitation Agreement has more relevance for Turkey. This is also the reason why the idea of putting an upper limit on its import costs has evolved recently. These are important developments for Turkey’s economy. We should stay the course.

Trade wars have a more profound effect on exports. Because a significant portion of our exports are to the EU and the customs union negates additional taxes, the burden of additional duties via trade wars is also negated.