The Free Trade Agreement aiming to boost the trade volume between UK and Turkey

By the end of the transition period, on 29 December 2020, Turkey and the United Kingdom signed the Free Trade Agreement (“FTA”) that took effect on 1 January 2021 to ensure a quick transition period while avoiding any kind of disruption. The formal entry into force of the FTA is subject to ratification by the UK and Turkey pursuant to Article 13.3; it will, nonetheless, apply as of 1 January 2021 while pending entry into force on the basis that each Party notifies the other through diplomatic channels prior to that date.

The former UK-Turkey trade relationship was mainly regulated by the EU-Turkey Customs Union, alongside an agreement on agriculture and the coal and steel agreement. This arrangement has been transitioned into a traditional free trade agreement.  The trading relationship was worth 18.6 billion pounds in 2019 and the UK is Turkey’s second-largest trading partner after Germany. Turkey ranks as the UK’s 7th largest commercial partner, the destination for £7.8 billion of British goods and services, including in the technology, automotive, finance, energy, telecommunications, and consumer goods sectors.

The FTA covers trade in goods between the two countries to enable preferential or tariff free access covering both industrial and agricultural products, while the services and therefore businesses providing services from Turkey to the UK, or vice versa, are subject to the laws and regulations of the country into which they are providing services. Moreover, the FTA does not cover investment into Turkey or the UK, and in this respect, the existing Bilateral Investment Treaty would apply.

Preferential or tariff free rates for trades in goods will continue to apply while a zero-tariff rate will apply for industrial goods.  Annex 2-B of the FTA sets out either reduced or zero tariff rates depending on the classification of the agricultural product. For the detailed list including the tariff quota limits and the dates during which preferential rates apply, please refer to Annex 2-B-1 to the FTA.

It is specified in the FTA that Turkey will “accord tariff preferences to agricultural goods originating in the UK which are at least as favourable in every respect as the tariff preferences accorded to goods originating in the UK on the 31 October 2020.” Therefore, if Turkey applies higher tariffs to agricultural goods of the EU, it will then be able to apply the higher rate to the agricultural goods originating in the UK within the same particular tariff classification.

Article 10 of the FTA provides a supervision mechanism over the FTA through establishment of the UK-Turkey Joint Committee to oversee the operation and implementation of the Agreement while also empowered to amend Annexes and Protocols. Such amendments are binding on parties and not subject to domestic scrutiny, while amendments to the agreement itself are subject to domestic ratification and scrutiny procedures.

The scope of the dispute settlement is regulated under Article 12.1 stating that this mechanism will be applied to any dispute concerning the application and interpretation of the provisions of this Agreement FTA. In other words, the dispute settlement mechanism is limited to Turkey and the UK but does not cover the disputes of individual traders.

EXCEPT as provided in Article 11.4, nothing in the FTA applies to taxation measures and affects the rights and obligations of either Party, under any tax convention, including Tax Treaty for Avoidance of Double Taxation between two countries. However, FTA affects customs duties, antidumping or countervailing duties, and fees or other charges in connection with the importation commensurate with the cost of services rendered. In this respect, corporate income taxes, income taxes, and capital gains taxes are not affected by the FTA.

Today’s deal delivers vital certainty for business and supports thousands of jobs across the UK in the manufacturing, automotive and steel industries,” said the international trade secretary, Liz Truss adding “It paves the way for a new, more ambitious deal with Turkey in the near future.” Turkey’s trade minister called the deal a landmark in UK-Turkish relations. “Without a deal, about 75% of Turkish exports to the UK would be subject to tariffs, causing the loss of some $2.4bn (£1.78bn); this risk is now gone,” she said.