Istanbul- Israeli Finance Minister Bezalel Smotrich announced last Thursday that Israel will cancel the free trade agreement with Turkey and impose 100% duties on Turkish imports, provided that the plan is presented to the Council of Ministers for approval.
In a move that highlights the depth of the crisis between the two countries and portends a new phase of economic and political tensions, Smotrich said that the resumption of trade relations with Turkey is conditional on the Turks electing a balanced leader who is not hostile to Israel at the end of President Recep Tayyip Erdogan’s term.
These threats came in the wake of the Turkish Ministry of Commerce’s announcement, at the beginning of this month, of suspending all its commercial transactions with Israel, in light of what the ministry described as “the worsening human tragedy” in the Palestinian territories, stressing that Turkey would not back down from its decision except after ensuring an uninterrupted flow of Sufficient for humanitarian aid to Gaza.
Smotrich considered that Turkish President Recep Tayyip Erdogan’s announcement “to stop imports to Israel represents a declaration of an economic boycott and a serious violation of the international trade agreements to which Turkey has committed.”
What does the free trade agreement include?
- According to the official website of the Turkish Ministry of Trade, the free trade agreement between Turkey and Israel was signed on March 14, 1996 in Jerusalem, and entered into force on May 1, 1997.
The agreement includes the abolition of customs tariffs, in addition to regulating several areas such as sanitary and phytosanitary measures, internal taxes, balance of payments, public procurement, government aid, intellectual property rights, anti-dumping, and protection of origin measures.
- For industrial products, all customs duties and fees with similar effect were canceled as of January 1, 2000.
- In 2007, the agreement was expanded to include a wide range of agricultural products.
Legal context
In the context of the discussion about the legal possibility of canceling the free trade agreement between the two countries, international financial law expert Funda Yavaşlar explains to Al Jazeera Net:
- Disagreements can first be addressed by forming a joint committee.
- If a solution is not reached, each party has the right to take measures with the approval of this committee, provided that these measures are the least harmful to the agreement.
- According to the Free Trade Agreement, any of the parties can request the appointment of an arbitrator to decide the dispute. The decision is made unanimously by the rulers of the two countries and a joint arbitrator, and the parties must abide by this decision.
- The agreement also includes the option of cancellation, provided that the other party is notified of the cancellation decision 6 months before through diplomatic channels.
- Both Türkiye and Israel are members of the World Trade OrganizationIf they are unable to resolve the dispute through traditional methods, either party can resort to the organization’s dispute settlement mechanism.
The legal expert explains that if a decision is reached that one of the parties has not adhered to the agreement, the penalty is usually compensation, but this compensation is rarely applied, and she says that “countries are aware of this situation, and usually solve their problems on their own without the need to resort to These mechanisms.
Does it affect the Turkish economy?
For his part, Bilal Baghaish, an economic researcher at the SITA Research Center, explains that the greatest danger to Israel is that other countries may follow these trade sanctions against it, leading to a series of severe sanctions, as happened with Russia in 2022.
The researcher points out that Israel will be the biggest loser in this “chess game,” as it will face difficulties in the region without Turkey, which was a strong and old ally.
It is noteworthy that Turkey has a strategic location, a strong energy portfolio, and infrastructure-related products, which contribute to the sustainability of Israel’s global trade. He confirms that Israel greatly needs Turkey to obtain strategic commercial products.
Baghish expects that Tel Aviv will seek to pressure Ankara through the US Congress by imposing new trade sanctions, noting that Israel’s strong relations with the United States and Europe, and the support it receives from international financial markets, are considered its most important weapons.
In contrast, Turkey has enjoyed political and economic stability over decades, and the strategy of diversifying trade relations it has adopted over the past 20 years, coupled with its strategic location and strong economic infrastructure, makes it easy to predict that Turkey will emerge from these moves with minimal damage.
Turkish concerns
While the previous Turkish decision to sever trade relations with Israel was widely welcomed among Turkish business circles, the recent Israeli decision to increase taxes by 100% and cancel trade facilities between the two countries, even in the event of a ceasefire in Gaza, raised great concerns among Turkish merchants.
In this context, Karim Yilmaz, owner of Vive Furniture, told Al Jazeera Net that this decision will increase the crisis for Turkish merchants who rely heavily on exporting their products to Israel or the West Bank.
Yilmaz added that many Turkish companies will face great challenges under these circumstances, especially since a large part of their business is linked to the Israeli market.
He continued, that numbers and commercial facts are important to know the facts, but his support for the decisions of the Turkish government and his confidence in them will remain strong, and he stressed that “a loss like this is not more precious than the blood of the children of Palestine.”
For his part, Mustafa Gültepe, head of the Turkish Exporters Association, said at the beginning of this month that “there are companies that manufacture between 70% and 80% of their exports to Israel, and if the export ban continues for a long period, they will be in big trouble.” Gültepe added: “The state must protect them and cover their losses.”
Decline in trade
The volume of trade between Turkey and Israel amounted to $6.8 billion during the past year, with imports from Turkey accounting for 76%, equivalent to more than $5 billion, which represents 6% of total Israeli imports.
Trade exchange between them decreased to about $1.3 billion between October 7 and December 31, 2023, a decline of 45% compared to 2022.
Turkish exports to Israel also declined by 28%, reaching $1.9 billion during the first five months of the war on the Gaza Strip.
Israel ranked 13th on the list of countries that import Turkish products most in 2023, accounting for 2.1% of total Turkish exports.
