Midnight on New Year’s Eve saw the end of the Brexit transition period for the UK. From the 1st of January, all new free trade agreements took effect, including the newest agreement with Turkey, signed on the 29th December.
The post-Brexit trade deal with Turkey protects the free flow of goods, worth an estimated £18.6 bn in 2019. We share which key industries will benefit most, how the agreement could affect UK business as a whole, and the impact on the value of your pound.
What does a post-Brexit trade deal with Turkey mean for UK businesses?
The UK’s post Brexit trade deal with Turkey is the 62nd deal signed and the fifth-biggest after Japan, Canada, Switzerland and Norway. Although it isn’t strictly a trade deal, the UK’s agreement with Turkey does secure existing preferential tariffs as part of a continuation agreement which replicates current trading terms.
The UK is the second biggest export market for Turkey — the deal prevented high import taxes and long border delays which might have been disastrous during the current economic climate. According to Turkey’s trade minister, the agreement has saved £1.78bn in tariffs on three quarters of Turkish exports to the UK.
The UK and Turkey free trade deal also includes a clause which stipulates that both parties must reconvene within the next two years to agree on a more comprehensive deal which includes services and agriculture.
Business opportunities created by a UK and Turkey trade deal
For UK businesses, continued free trade with Turkey is essential. According to the Department for International Trade, 3,000 UK businesses currently operate in Turkey and a further 7,600 enjoy Customs Union trade tariffs. There are three key industries which stand to benefit most from investment in Turkey:
When it comes to the automotive industry, the UK and Turkey are interdependent. The UK's car manufacturing industry made £174m by exporting to Turkey in 2019. The majority of this trade comes from Ford, who can now secure thousands of jobs thanks to the supply chain security provided by the UK-Turkey agreement.
Importing from Turkey is crucial for UK businesses that deal in white goods, electronics and raw manufacturing materials. Thanks to the new agreement, UK textile importers will save a potential £102m in annual duties and businesses importing washing machines and televisions will avoid fees of up to 4% on Turkish goods.
The new agreement grants tariff-free trade to the 7,600 UK businesses who export steel, iron and machinery to Turkey. This benefit extends to Turkish exports of precious metals, which are some of the most in-demand goods for the UK.
How does free trade with Turkey affect exchange rates?
The signing of a trade deal between two countries will inevitably impact foreign exchange rates, and the GBP to TRY rate. In the lead up to the agreement signing, the Turkish lira made gains for six consecutive days and became one of the strongest emerging markets with its 0.5% increase.
The value of sterling was briefly improved by the new deal, too — data showed the pound was up 0.02% against the euro after a series of post-Brexit highs. Unfortunately, this value diminished with the introduction of a third nation-wide lockdown.
The pound has enjoyed a longstanding history of strength against the lira (10.4852 Turkish lira to the pound), making Turkey a very attractive prospect for UK businesses looking for overseas suppliers.
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