Effects of EU-Turkey Customs Union Agrement on Balance of Payments in Turkey From 2005 Through Today

Turkey’s journey to Europe has been gone through a tempestuous period until today after the Ankara Agrement signed in Ankara, in 1964 to establish an association between European Economic Community and Turkey. One of the major turning points in this journey of 54 years for Turkey as a candidate country was the linking to the Union with a Customs Union agreement. This linking made Turkey a unique country taking the Union’s policies into consideration without being an official EU member. Turkey’s economic model was closed till 1980. After this year, Turkey shifted its economy to an open economic model by the January 24 decisions. In this study, we assessed the effects of EU-Turkey Customs Union agreement on balance payments in Turkey from 2005 through today. Overall, Turkey’s import and export between 2005 and 2018 were increased by 10.9x and 11.4x respectively. On the other hand, foreign trade deficit was raised by 10.2x, followed by a deficit of accounts balance of 30.6x. Similarly, the part of EU in direct foreign investment to Turkey lowered from 78% down to 62%. In conclusion, we revealed that the Customs Union Agreement and accession negotiations after 2005 yielded no positive effects on Turkey’s balance payments. It seems that only way for Turkey to overcome these issues is to turn its legal rights accorded by the membership and Customs Union Agrement into advantages. To realize that, it has seen that Turkey needs to perform a new economic model based on the production.