Türkiye-Ukraine Free Trade Agreement: Gains and Expectations
The Free Trade Agreement (FTA) signed between Türkiye and Ukraine and approved on October 4, 2024, stands out as a significant step towards strengthening trade and deepening economic relations between the two countries.
The agreement has not yet been implemented, as the publication of the Import Regime Decision and the Origin Regulation is awaited.
This agreement is structured to provide various economic benefits for both Türkiye and Ukraine. The main objective of the agreement is to eliminate mutual trade barriers and offer competitive advantages by increasing the export volume of both countries.
Türkiye's Gains
- Market Access and Export Advantage
Türkiye will significantly reduce the customs duty burden on its exporters in the Ukrainian market. This will enable Türkiye to compete more effectively with EU exporters, especially in products such as textiles, automotive, white goods, and fruits and vegetables. With this agreement, Türkiye will prevent potential market losses resulting from the existing Deep and Comprehensive Free Trade Agreement between the EU and Ukraine. This will offer new opportunities to Turkish exporters in the Ukrainian market while also increasing product diversity and trade volume.
- Balanced Trade in Agricultural and Industrial Products
While Türkiye will reduce customs duties on many agricultural and industrial products imported from Ukraine, it will impose quotas on sensitive sectors such as agriculture and steel. This strategy will protect Türkiye’s domestic market while allowing balanced trade relations with Ukraine to develop. Sensitive sectors like agricultural products and steel will be protected through these quotas and tax reductions.
- Service Trade and Transportation
The agreement also offers significant advantages in terms of service trade. The regulations introduced for the transportation and logistics sectors will allow bilateral and transit transport without quotas. Exempting all transport, except third-country transportation, from quotas will reduce logistics costs, enabling trade to be conducted faster and at lower costs. Additionally, keeping port and transit fees at reasonable levels will contribute to strengthening international competition in the transport sector.
- Investment Facilitation
Under the agreement, the administrative processes related to investments for Turkish businesses operating in Ukraine will become more transparent and predictable. Particularly, promoting investments in sectors such as construction, tourism, manufacturing, textiles, energy, and transportation will provide significant opportunities for Turkish investors in the Ukrainian market. A working group has been established to address issues faced by investors, ensuring technical-level cooperation.
Ukraine's Gains
- Low Customs Duties and Industrial Exports
Türkiye will not impose customs duties on 93.4% of industrial products and 7.6% of agricultural products coming from Ukraine. This will significantly increase Ukraine’s industrial exports and provide easier access to the Turkish market. In particular, Ukraine's iron, steel, and metal sectors will benefit greatly from this liberalization. Türkiye's reduction of customs duties on 130 metal products, while imposing quotas on some, will create a major advantage for Ukraine's metal exports.
- Gradual Tax Reduction and Quotas
Ukraine will apply gradual tax reductions on certain industrial products. Additionally, quotas have been established for specific products in the metal sector. This gradual liberalization will give Ukraine a competitive edge, especially in steel and metal exports to Türkiye, and support sectoral growth.
- Used Vehicles and Transition Periods
The agreement allows Ukraine to maintain its taxes on used vehicle imports. Moreover, transition periods of 3 to 5 years have been established for some light industrial products. While this supports Ukraine's strategy of protecting its domestic market, the agreement also aims to gradually increase commercial activities.
- Tax on Scrap Metal Exports
Ukraine will retain its right to impose taxes on scrap metal exports. This regulation is seen as part of Ukraine’s strategy to protect its local industrial sector and maintain sustainable industrial policies.
Conclusion
The Turkey-Ukraine Free Trade Agreement holds strategic importance for both countries in terms of liberalizing trade and strengthening economic relations. While Turkey will achieve a more competitive position in the Ukrainian market, Ukraine will gain access to Türkiye’s large and dynamic market, boosting its economic growth.