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.

In contrast, Turkish Trade Minister Ömer Bolat downplayed the potential impact of the free trade agreement between the EU and India, reassuringly pointing out that Turkey was not expected to suffer any sig­nificant losses on the EU market.

Third, there is concern that Turkey may weaken its significance in Europe’s geo­strategic and security calculus. The state news agency Anadolu Ajansı reported on the conclusion of the free trade agreement under the headline: “EU and India sign secu­rity and defence cooperation agreement”. In doing so, it deliberately focused on the agreement’s security and defence policy dimension.

Geopolitical and geoeconomic rivalry between Ankara and New Delhi

Although the EU–India Free Trade Agree­ment is not directly linked to Turkey’s geo­political interests, it does have indirect geopolitical relevance. Failure to modernise the EU–Turkey Customs Union, resulting in declining trade and loss of growth, would weaken Turkey’s security and geo­political interests.

The conclusion of the EU–India Free Trade Agreement was facilitated by a geo­political constellation in which Europe is under pressure: on the one hand, in terms of security policy from Russia, and on the other from the rivalry between the major powers of the United States and China. The growing strategic conflict in the Indo-Pacific and the trade disputes between Beijing and Washington are placing a considerable strain on global trade and international security. China is building an increasingly dense network of regional dependencies, while the United States is forging new alli­ances and revitalising existing ones. In this context, Taiwan is considered a geostrategic “domino” whose destabilisation would have far-reaching implications for the regional and global security architecture.

Against this backdrop, India is gaining strategic importance as a regional counterweight to China, with which it has been embroiled in a long-standing conflict. The experience of the 1962 war and the border clashes of 2020 continue to shape India’s security doctrine. Although India is inten­sifying its cooperation with the United States, it is maintaining its traditional policy of neutrality and has no formal mili­tary ties with the West.

Whether India will enter into closer security cooperation with the EU remains to be seen. For the EU, however, the free trade agreement with India forms part of a broader strategic calculus, which is to position India as an economically and politically strengthening counterweight to China and to distance it from Russia. Ger­many and the EU therefore have a strong interest in a prosperous India that helps to constrain China’s power. From Turkey’s perspective, however, India is less impor­tant as a global counterweight to China than as a regional rival to Pakistan and an indirect but relevant competitor in the Middle East balance of power. Turkey main­tains security relations with Pakistan and Bangladesh.

Turkish experts view the EU–India agree­ment as a factor that strengthens India eco­nomically and enables it to expand its position of power in the region at Turkey’s expense. India could thus support countries with which Turkey has tense relations, such as Israel, the United Arab Emirates (UAE), Greece and Cyprus. India cooperates with these countries in the areas of defence, security technology, drones, missile systems and cybersecurity.

Turkey views the Indian Navy’s participation in joint manoeuvres with Greek and Greek Cypriot naval forces in the eastern Mediterranean as a challenge. India also maintains close ties with the Republic of Cyprus, reflecting its growing interest in gas reserves and energy projects in the region. Conversely, India is closely monitoring Tur­key’s growing maritime influence in the eastern Mediterranean, the Red Sea and the Indo-Pacific, particularly the Turkish Navy’s cooperation with Pakistan.

Another geoeconomic point of divergence between Turkey and India is the India–Middle East–Europe Economic Corridor (IMEC) project, unveiled at the G20 summit in New Delhi in September 2023. Its aim is to connect Indian markets to Europe via the Middle East. The project is supported by India, the United States and the EU, as well as Gulf and Mediterranean states. IMEC en­visages two main corridors: an eastern one from India via the UAE, Saudi Arabia and Jordan to Israel, and a northern one from Israel to Europe. Smart infrastructure, green energy and digital connectivity are intended to make the corridor a sustainable, multilateral and private-sector-oriented alternative to China’s Belt and Road Initia­tive. Turkey, on the other hand, is not part of IMEC. President Erdoğan has openly criti­cised the project and is instead promoting the Iraq Development Road Project, a com­peting corridor via Iraq and Turkey. This illustrates that the differences between the two projects are not only logistical in nature but also reflect deeper geopolitical divergences.

Given their geopolitical differences, rela­tions between Turkey and India remain largely confined to trade and multilateral diplomacy. Although economic contacts and diplomatic exchanges have increased since the 2000s, political trust has hardly deepened. The security policy positions from the Cold War era continue to have an impact today: Turkey is firmly integrated into NATO, while India, as a non-aligned state, was closer to the Soviet Union.

Formal diplomacy, multilateral contacts and occasional ministerial meetings charac­terise the relationship. A lack of strategic dialogue, irregular summit meetings and diverging regional visions prevent any eas­ing, let alone an intensification, of bilateral relations. This is particularly evident in the Kashmir conflict: Turkey’s support for Paki­stan and references to United Nations reso­lutions are perceived as political interference in India, and President Erdoğan’s state­ments on Kashmir have heightened ten­sions in New Delhi.

Turkish experts and decision-makers often tend to think in terms of a zero-sum game. As a result, potential overlaps with India in terms of broader global objectives are overlooked, including joint support for the reform of international institutions and recognition of the shift away from a uni­polar world order. Possible points of departure for security cooperation there­fore remain unexploited.

Implications for the EU and possible course of action

In the context of geopolitical and geoeconomic dynamics, the rivalry between the major powers of the United States, China and Russia, and growing neo-mercantilist isolationist tendencies, the EU–India Free Trade Agreement is a success. The agreement is expected to strengthen economic relations between Europe and India, help reduce both parties’ dependence on China and, at the same time, send a signal against protectionist tendencies.

The EU–India Free Trade Agreement is likely to have made it clear to Ankara that Turkey is not economically indispensable to the EU. Nevertheless, the Turkish market is likely to remain economically and stra­tegically relevant to the EU in the short to medium term, even if market shares of Euro­pean companies and the already declining investments could increasingly go to India. The agreement has not yet been ratified, many details still need to be clarified, and any tangible effects on trade and the wider economy are unlikely to be felt until 2030. Nevertheless, Ankara is already in a state of alarm – a moment that the EU could use to realign its relations with Turkey.

It is advisable for Brussels to strategically stabilise these relations and ensure reliable cooperation in the economic and security spheres so that any shifts in global eco­nomic and security policy do not come at Turkey’s expense. As part of the customs union and a key NATO partner, the country remains important to Europe’s economic and security architecture.

In view of domestic developments in Tur­key, resuming EU accession negotiations does not appear realistic or politically advis­able at present. The reasons for this are the continuing erosion of democracy, structural deficits in the rule of law and the persistent curtailment of civil liberties. Against this backdrop, modernising the EU–Turkey Cus­toms Union is the most appropriate instrument currently available. Modernisation could sustain Turkey’s economic inte­gration with the EU while at the same time consolidating its security and foreign policy orientation towards the Union.

Looking at the geopolitical and security challenges facing the EU, it is in Brussels’ strategic interest to prevent an economic decoupling from Turkey. An economically stable Turkey oriented towards Europe is important from both a trade and security perspective. Continued economic inter­dependence constitutes a key instrument through which the EU can anchor Turkey more firmly to itself.

If economic interdependence were to weaken, this would increase the risk of Tur­key becoming politically and economically destabilised, drifting away from Europe geo­politically and becoming a security risk on the EU’s external borders. Against this back­drop, the approach pursued by Chancellor Merz appears consistent: He has opened up a European prospect for Turkey, while clearly linking it to conditions, above all compliance with the Copenhagen criteria. In doing so, he combines the consolidation of European–Turkish relations with the safeguarding of European interests.

The EU should make targeted use of politically resolvable issues to deepen Tur­key’s economic and strategic integration. Such an approach would create incentives both to remove practical trade barriers and to facilitate Turkey’s participation in Euro­pean programmes and initiatives. Particularly relevant in this context would be the following:

• Concrete progress on visa liberalisation, which is of great symbolic and practical importance for the Turkish economy and civil society.

• Integration into the emerging European security infrastructure to deepen cooperation on crisis management, energy secu­rity and supply chain security.

• Turkey’s participation in the EU’s Secu­rity Action for Europe (SAFE) financial instrument, which is designed to strengthen the European defence industry. The aim of SAFE is to expand the in­dustrial and technological base of European defence, increase production capac­ity and close capability gaps through the joint procurement of priority capabilities. Turkey’s participation would help align the country’s defence industry with European security and compliance standards.

• An intensification of cooperation under Horizon Europe in order to link Turkish research and innovation more closely with European networks.

These measures would not only contribute to Turkey’s economic stabilisation but also strengthen political ties and create a solid foundation for modernising the EU–Turkey Customs Union. On this basis, the EU would retain its strategic room for manoeuvre vis-à-vis Ankara and could use it over the medium to long term to promote cooperative formats and support Turkey’s gradual alignment with European standards.