Türkiye-Japan FTA and Türkiye’s Changing Economic Relations with the East Asian Economies

Abstract

Türkiye has always run a large trade deficit against Japan due to the low value-added and technology contents of its export products and the very high technology content of Japanese export products. Japan was not viewed as a major trading partner considering that around six-tenths of Turkish exports were destined for Europe. However, some industrial products such as electronic machines and motor vehicles were essential not only for consumption but also for industries as inputs. In Türkiye’s trade with East Asia, Japan dominated its position as the major trading partner of Türkiye in the region. During the early 2000s, Japan lost its top position first to China and then second position to Korea, dropping to the third rank. The decreasing importance of Japan in Türkiye’s trade with East Asia reflects the demise of Japanese industries which have been losing competitiveness against Korean and Chinese industries. Recently, a free trade agreement (FTA) has been proposed between Türkiye and Japan. The negotiations started in 2014 but are yet to be completed due to disagreements about opening up the agricultural sector in Japan and other trade[1]related issues. The proposed FTA is expected to improve the ailing trade relations between Türkiye and Japan. In this paper, we evaluate the trade relations between the two countries, in conjunction with the rise of China and Korea in Türkiye’s trade, by a careful comparison of trade statistics and a simulation analysis using a computable general equilibrium model.