Editorial: A New Honeymoon Is Possible in Turkish-American Relations

A lot has been argued after the July 15^th failed coup attempt in Turkey. It has been a traumatic experience for Turkey and for its allies all over the globe, especially in the West. Against this most explicit blow to democracy—whether you like its quality or not—the Turkish public—with every segment of its society—made clear that the use of force to overthrow a democratically elected government is not an option. The aftermath of the coup attempt has been marred by turbulence. As President Erdogan himself characterized the purge as the “horse track is mixed with hound track”—a Turkish proverb meaning the demarcation line between right and wrong is now blurred. A prominent, and maybe the most concerning, trend in Turkey nowadays is the abundance of conspiracy theories evolving around the role of the United States behind the coup attempt. The United States, on the other side, is renowned for its pragmatism—especially in foreign policy. However, that pragmatism does not always resonate well in somewhat sentimental regions of the globe. In Turkey, for example, the U.S. policy to work with Kurds on the Syria issue makes Turks feel “stabbed in the back” by their prime ally. Even the daily discussions in the U.S. on the importance of Turkey as the “gatekeeper” of NATO in its most eastern flank—rather than a “partner”, or the implicit interpretation of Turkey as the “good thug” in a neighborhood of “bad thugs” only adds up to the country’s further isolation. It seems like the political relationship between the two countries is at its lowest point and an anchor to start mending it is desperately needed. Despite the criticisms of its “illiberal” democracy, dimming economic performance and eroding institutions, Turkey is still a liberal market performing better than its peers, an open economy, and in dire need for international alliances in terms of economic cooperation. On the U.S. side, leaving aside the election campaign rhetoric against free trade, age-old American policy to build international economic alliances on the way toward stronger political relations is still alive and well. Enhancing economic and commercial cooperation between Turkey and the United States seems to be the most promising policy area to shift the focus from current political impasse and start rebuilding the common ground between the two countries. Although Turkey now seems to be leaning towards the Middle East in terms of its domestic politics and its reflections abroad, the country is still a solid member of the West in its economic orientation. As a matter of fact, Turkish economic performance should be read amid the downward revision of global economic and trade growth projections by institutions such as the IMF and the WTO. According to IMF, the global growth is projected to be at 3.1% in 2016 and 3.4% in 2017 and the WTO estimates that world trade will grow below the global GDP growth for the first time in 15 years at 1.7% in 2016. This also marks the slowest pace of trade and output growth since the 2009 financial crisis. Another reference to take into account vis-à-vis the health evaluation of Turkey’s economy is the performance of its peers such as Brazil, Russia, Mexico, South Africa and Indonesia. IMF growth projections for Turkey in 2016 and 2017 are 3.3% and 3%. Meanwhile, Russia (-0.3% and 1.4%), South Africa (0.1% and 0.8%), Brazil (-3.3% and 0.5%) and Mexico (2.1% and 2.3%) are projected to perform much poorer. Only, Indonesia is expected to continue an outstanding economic growth at 4.9% in 2016 and 5.3% in 2017. There are solid examples that make it imperative for both the U.S. government and its private sector to trust in the Turkish economy. For instance, U.S. State Department’s Bureau of Economic and Business Affairs’ Investment Climate Statement for Turkey in 2016 states that “The Turkish market is generally under-penetrated by U.S. businesses and presents many investment opportunities due to its solid economic fundamentals…”. Another survey carried out by the American Business Forum in Turkey states that besides a slight downward trend compared to 2014 and 2015, American companies doing business in Turkey are still planning to invest more in 2016 and beyond. On the trade side, the European Union has traditionally been the main trading partner of Turkey due to its Customs Union, vast amount of Turkish diaspora in the EU (especially Germany), as well as geographical proximity. However, given the relatively dire economic condition and projections on EU growth compared to the U.S. economy (the IMF projects the EU to grow 1.7% in 2017 whereas the U.S. is projected to grow at 2.2%), the U.S. market presents tremendous potential that Turkey needs to prioritize in the short term. In fact, the U.S. is Turkey’s 5^th biggest trading partner both in terms of imports and exports, whereas the EU is at the top of the list by far. Bearing in mind that the United States and the EU have similar economic scales, Turkey's engagement with both economic giants is worth special attention. For instance, the year 2015 marked a foreign trade volume of around 140 billion USD between Turkey and the EU. Turkish-American foreign trade volume in the same year however was only 17.5 billion USD. A similar figure is evident in bilateral investments as well. According to the statistics of the Turkish Central Bank, as of 2015, cumulative FDI inflows into Turkey from the EU is 112 billion USD whereas the same figure from the U.S. is mere 5 billion USD. A brief comparison of these figures with the Turkish-Russian commercial relations on the other hand, will reveal the true nature of current Turkey-Russia rapprochement and provide clues about whether it can be a real alternative to Turkey’s level of integration with the West. Even though Turkey’s annual trade with Russia was roughly 24 billion USD in 2015 (3.5 billion USD Turkish exports 20.5 USD Russian exports), the importance of Russia for Turkish exports lags way behind the U.S., as Russia is Turkey’s 11^th biggest export market. In terms of imports, Russia is Turkey’s 3^rd biggest importing partner, yet energy imports comprise the bulk of this figure at 63% (13 billion USD). Accordingly, excluding energy, Russia would stand at the 8^th rank among Turkey’s suppliers. The prospects of growing Turkey-Russia trade as an alternative looks similarly dull given the vast gap of purchasing power between Russia and the U.S. As a matter of fact, Turkish-Russian rapprochement should be examined within the framework of the November 2015 plane incident, which virtually stopped this relationship at not only at the political but also economic front. An interpretation of Russian sanctions on trade and tourism in this context—which have not been totally removed to date—would also suggest that they have indeed been a shot in Russia’s own leg in terms of its current geopolitical endeavors. Turkish-American trade on the contrary, sustains its importance even at perhaps the coolest season of the bilateral political climate. Within this trajectory, how to realize the untapped potential in Turkish-American relations and shift the focus on a positive future should be the major focus of both countries. However, at the government level, the priorities of the parties differ. While the U.S. is more focused on regulatory amendments in Turkey in line with the U.S. needs, such as modifying Turkish legislation on government procurement, cross-border data flows, intellectual property protection, and genetically modified organisms; Turkey’s focus mainly lies in plain market access in the sense of increasing exports of goods and potentially services to the U.S. Such differences lead both sides to get lost in translation. For instance, even though TTIP was expected to present an opportunity for Turkish-American economic partnership, it turned out to be a major hurdle in governmental relations. Negotiations started between Turkey and the U.S. in 2013 to look into the effects of TTIP on Turkish economy and potentially liberalize trade between the two countries did not go anywhere. A main reason behind this was the fact that neither the U.S. nor the EU wanted to complicate TTIP discussions by adding potential third countries into the already thorny negotiation process. Turkey, on the other hand, perceives TTIP as the single most important issue at hand that could sometimes stand as a prerequisite to discuss any other trade related topic with the U.S. Ironically enough, negative indications on the conclusion of TTIP in the near future may lead Turkey and the U.S. to find another way to focus on their bilateral commercial relations without the prospect of an FTA. A possible method out of this bottleneck could be found in Turkey shifting its focus on inward investment from the U.S. while assuring the Americans about the predictability and impartiality of its legal and institutional environment—not necessarily bringing them in line with U.S. commercial priorities—thereby concentrating on technology, know-how transfer and enhanced integration into global value chains. As a matter of fact, the amount of FDI in Turkey originating from the EU is a figure that can reassure Americans that the legal and institutional ecosystem in Turkey is not as hostile to investments as it is perceived. The U.S. could also invest more time in listening to Turkish priorities in terms of traditional market access and hopefully find ways to engage more with Turkish companies in their adventure in its market. This would subsequently increase the amount of Turkish investments in the U.S. as well. Despite the inbound FDI from Turkey standing at a mere 625 million USD according to American data, Turks’ way of doing business and hence contributing to job creation in the U.S. is mainly through establishing American companies rather than expanding the Turkish company in the U.S. as a foreign investment. Companies such as GODIVA, Chobani, Sierra Nevada, etc. present good examples of this trend. On the private sector side, collaboration between organizations such as the U.S. Chamber of Commerce and its Turkish counterparts such as TOBB and TUSIAD are already in place. Nevertheless, such collaboration should be more diverse and inclusive to include organizations such as Business Roundtable, CSI, NAM, ECAT, NFTC, etc. on the American side and TIM, MUSIAD, sector based exporter associations, as well as provincial chambers of trade and industry on the Turkish side. Furthermore, annual ATC-TAIK conference—the latest of which will take place from October 30^th to November 1^st in Washington DC—that now focus on broader economic cooperation between the Parties going beyond their traditional focus on defense industry seem to capture this potential. When it comes to the nuts and bolts of trade, Turkish-American trade should be diversified to include SMEs as its backbone rather than relying on the “usual suspects”. The recipe for success in doing business in the U.S. for Turkish SMEs lies in their quality, consistency and reliability; their focus on state-level divergence as well as their accuracy in compliance with regulatory requirements. All that is needed on the American side, on the other hand, is more interest, courage, and trust in Turkish entrepreneurship. A new honeymoon is possible in Turkish-American relations. Whether the parties are ready to embark on such a relationship remains to be seen.   About the author: Dr. Onur Bülbül is the Founder and President of InnoNative Advisors, a strategic advisory and business development firm specializing in Turkish-American business relations. During his former career in the public service in Turkey, he served as an FTA negotiator, advisor to Minister of Economy, and a commercial diplomat at the Turkish Embassy in Washington DC. You may reach him on Twitter @InnoNativeAdv. Editor’s Note: The Diplomatic Courier is a proud media partner for the forthcoming 35^thAnnual Conference on U.S.-Turkey Relations, (#USTurkeyConf) organized by the American-Turkish Council (ATC) and the Turkish US Business Council (TAIK). To learn more or RSVP, visit here.