Thirty years after establishing a customs union with the European Union (EU), Ankara sees growing economic risks in the EU’s free trade agreements with third countries, most recently India. While negotiations on the EU–India Free Trade Agreement were concluded at the end of January, and security cooperation between the EU and India is now also to be expanded, Ankara remains on the sidelines. From Turkey’s perspective, the agreement could also weaken its significance in the EU’s strategic calculus. Ankara is therefore making a strong case for the modernisation of the customs union.
It cannot be ruled out that the structural asymmetries of the customs union will become even more entrenched to Turkey’s detriment: Market integration without political participation may place Turkey at a lasting disadvantage and strain its relations with the EU. Once the free trade agreement enters into force, Indian products will gain easier access to the Turkish market, whereas Turkish products will not gain corresponding access to India. Due to geopolitical differences with India, Turkey also sees risks to its own regional interests. Brussels and Berlin could use this constellation to put cooperation with Ankara on a viable institutional footing.
European Commission President Ursula von der Leyen regards the free trade agreement with India as a milestone in bilateral economic relations between the world’s “largest democracies”, while India’s Prime Minister Narendra Modi has even described it as the “mother of all agreements”. European Council President António Costa sees the agreement as potentially opening a new phase in relations that would extend beyond trade to include security cooperation.
At the World Economic Forum in Davos in January this year, German Chancellor Friedrich Merz described the free trade agreement as an opportunity to take joint action against growing protectionist tendencies and political isolationism. He emphasised that countries committed to “rules-based order” – such as Germany, the EU member states and India – benefit from open markets and should therefore stand together.
Whereas the free trade agreement is seen as both an economic and a geopolitical gain in Germany and other EU countries, scepticism predominates in Turkey. From a Turkish perspective, the agreement is a warning sign: Europe’s economic and political geography is being reshaped, while Turkey – as a member of the customs union with the EU – risks having to comply with rules over which it has had no say.
The free trade agreement and its relevance for the EU–Turkey Customs Union
The free trade agreement between the EU and India provides for the reduction of 90 per cent of customs duties. This will give both sides extensive market access in the trade of goods and services as well as investments. Annual EU goods exports to India are expected to increase by 107.6 per cent by 2032. Key industrial sectors such as mechanical engineering, chemicals, pharmaceuticals and automotive components, as well as selected services sectors including IT, financial and professional services, are expected to benefit in particular.
The market opening is accompanied by provisions on investment protection, regulatory cooperation and intellectual property protection, as well as by mechanisms designed to simplify customs and trade procedures. At the same time, the agreement embeds commitments on labour, environmental and sustainability standards. Transition periods and exemptions ensure that parts of the agricultural sector remain protected. Overall, the agreement aims at a long-term, rules-based deepening of economic relations, and at strengthening India’s strategic integration into the European market.
The EU–India Free Trade Agreement must be seen in the context of global geopolitical and economic shifts as well as increasing neo-mercantilist protectionism, as exemplified by disputes over tariffs. With this agreement, the EU aims to intensify economic cooperation with India, open up new export markets, expand its economic presence in the Indo-Pacific and reduce its dependence on China. India, for its part, will use cooperation with the EU to accelerate its economic and technological modernisation. This is considered a key prerequisite for the country’s desired stronger role on the international stage.
For Turkey, the relevance of the EU–India Free Trade Agreement is derived primarily from the EU–Turkey Customs Union and is chiefly economic in nature. Established in 1996, the customs union covers almost all industrial goods; excluded are basic agricultural products and coal and steel products, for which separate preferential agreements are in place. These agreements grant tariff preferences only to so-called originating goods, that is, products wholly obtained in one of the contracting parties or sufficiently processed there using non-originating materials. The specific rules of origin are set out in the relevant origin protocol.
This situation creates economic risks for Turkey: Products from a country with which the EU has concluded a free trade agreement can circulate duty-free on the EU market and, due to the customs union, also in Turkey. Therefore, Turkish business stakeholders and experts believe that the EU–India Free Trade Agreement poses economic policy challenges. The debate on the agreement therefore focuses on the customs union rather than on India, especially in relation to three issues.
First, the debate led by political decision-makers and business stakeholders – and followed closely in the media – points to the institutional asymmetry between Brussels and Ankara. As part of the customs union with the EU, Turkey is bound by the trade regulations and tariff rates resulting from new free trade agreements concluded by the EU with third countries; however, it is not involved in shaping them, which leads to structural disadvantages. Against this backdrop, Turkey’s concerns focus on the impact of such EU free trade agreements on its trade relations with the EU: As a member of the customs union, Turkey must adopt the tariffs agreed by the EU with third countries.
Among experts and decision-makers in Turkey, the EU–India Free Trade Agreement is widely perceived as a clear distortion of competition. The reason is that Indian industrial goods will in future be able to enter the EU internal market, and thus also the Turkish market, duty-free or at low tariff rates, while Turkish exporters will not have comparable access to the Indian market. Accordingly, calls for the customs union to be modernised are growing louder, especially as a growing number of EU free trade agreements – including those with Mercosur, Vietnam and the United Kingdom – now open the Turkish market to third countries.
A modernisation of the EU–Turkey Customs Union would likely include the following: expansion to new sectors such as services, agriculture and public procurement; the elimination of structural asymmetries through better integration of Turkey into EU free trade agreements with third countries; and the introduction of a binding dispute-settlement mechanism. In 2016, the European Commission recommended revising the customs union along these lines in a report.
Leading Turkish business representatives recently emphasised in a letter to senior EU figures that modernising the customs union is crucial to Europe’s stability and competitiveness. Nail Olpak, President of the Foreign Economic Relations Board of Turkey (Dış Ekonomik İlişkiler Kurulu, DEİK), and the chairpersons of the bilateral Turkey–Europe Economic Councils (Türkiye-Avrupa İş Konseyleri) are calling for a “paradigm shift” in EU–Turkey relations. In their view, the Copenhagen criteria of 1993 – compliance with which is a precondition for EU accession – must be redefined as they consider them “inefficient”. In the letter, they present the modernisation of the customs union as a means of strengthening European competitiveness. Given the close institutional links between the Economic Councils, DEİK and the government, the statement appears to have been coordinated with President Recep Tayyip Erdoğan.
On 4 December 2025, President Erdoğan appealed to EU decision-makers, urging them to take Turkey into account should public authorities in future give preference to “Made in Europe” cars in procurement – in an attempt to limit Turkey’s economic disadvantage and loss of influence in the European market. However, the customs union does not entitle Turkey to have its goods automatically included in the EU’s preference policy. The “Made in Europe” initiative, part of the broader “European preference” agenda, is intended in future to favour products manufactured predominantly in the EU in order to strengthen industry, value creation and employment; the relevant regulations have not yet entered into force.
Second, from an economic perspective, the EU–India Free Trade Agreement is seen as a potential challenge for Turkish exports to the EU, for Turkey’s integration into EU supply chains and for foreign direct investment. Another relevant factor is the expected increase in Indian exports to Turkey, which could further increase its trade deficit with India. (See the following two sections.)
Industry representatives have expressed similar concerns. Mustafa Paşahan, Vice-President of the Istanbul Apparel Exporters’ Association (İstanbul Hazır Giyim ve Konfeksiyon İhracatçıları Birliği, İHKİB), points out that tariff-free imports from India could place further pressure on the Turkish textile industry, distort competition and lead to further job losses. The sector is already facing considerable challenges: The value of exports in the apparel sector, which has traditionally played a central role in the Turkish economy, fell from US$21.2 billion in 2022 to US$16.8 billion in 2025. At the same time, employment in this sector declined over the past three years, from 1.2 million to around 860,000.
Erdal Bahçıvan, President of the Istanbul Chamber of Industry (İstanbul Sanayi Odası, İSO), emphasises that the customs union has increasingly become a brake on industrial growth and urgently needs to be modernised. If this does not happen, Turkey risks losing important market share in its largest export market, the EU.
About the Author:
Dr Yaşar Aydın is a researcher at the German Institute for International and Security Affairs with a focus on Germany-Turkey and EU-Turkey relations, Turkish migration and diaspora in Germany, Turkey’s economy and customs union, and international politics and geopolitics.