Is Turkey the Trojan Horse of Chinese Companies to Enter Europe?

Turkey Balances Between NATO and SCO

On 11 August, Turkish Defence Minister Yasar Guler stated in an interview that Turkey’s membership of NATO does not preclude it from developing relations with the Shanghai Cooperation Organisation (commonly known by the acronym SCO). These statements come about a month after similar remarks were made publicly by Turkish President Recep Tayyip Erdogan, and after the Turkish ambassador in Beijing explained that Turkish membership in the SCO and BRICS is complementary and not in conflict with membership in Western organisations. In the West, this development may not please most.

The SCO is a political, economic and security alliance founded in 2001 by China and Russia, later expanded to include Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, India, Pakistan, Iran and Belarus. Its stated purpose is to strengthen cooperation and trust between member states, maintain regional security and stability, combat terrorism and extremism, and promote economic development. It is not a military organisation, so it is not a direct competitor to NATO, but it is nonetheless believed to legitimise illiberal norms and create exceptions to otherwise applicable international norms, providing a kind of refuge for nations wishing to avoid the control of Western-dominated organisations.

Growing Economic Ties Between Turkey and China

Turkey has historical ties with Russia, which one realises even today with the naked eye when visiting Turkish tourist resorts, which are literally taken by storm by Russian tourists. Recently, however, it is mainly relations with China that have become more intense. Bilateral trade has greatly increased over the past five years and official visits have intensified. This year alone, the Turkish ministers of foreign affairs, energy and natural resources, industry and technology visited Beijing.

Turkey’s interest in China is obvious: Ankara needs investment in key sectors to increase its energy security and support its technological development. It also needs foreign capital to tame inflation (which exceeds 60%), strengthen its currency, and finance the ongoing reconstruction after last year’s devastating earthquake. Moreover, the Turkish leadership knows that China in turn faces some of its own economic problems, which can be alleviated with new trade routes and markets.

On the agenda for some time now is the agreement between the Chinese car manufacturer BYD and Turkey to build a plant in the province of Manisa. The agreement came after a series of measures by the EU Commission to reduce imports of Chinese electric vehicles into Europe. After Brussels‘ intervention, Ankara imposed further duties (40 per cent) on vehicle imports from China, except to exempt Chinese companies investing in Turkey. The loophole was designed to suit BYD’s needs, but could attract other manufacturers.

The main thing to take into account is that Turkey and the EU have a customs union, so anything produced in Turkey is exempt from customs duties when sold to the EU. Furthermore, factories setting up in Turkey do not have to apply EU labour or production standards. As long as the final products meet European consumer standards, they can be sold on the EU market. This results in a significant reduction in production costs.

EU’s Foreign Subsidies Regulation and the Turkish Loophole

The European Union has recently adopted an ad hoc regulation, the Foreign Subsidies Regulation (FSR). It is an instrument that serves to neutralise subsidies of various kinds from which Chinese companies benefit: subsidies, unlimited guarantees, free money, or thereabouts. It is not yet clear, with the Chinese setting up just outside the EU and taking advantage of Turkey’s customs agreements with the EU, how the FSR will work in practice. The game promises to be intense to say the least, and Brussels certainly does not intend to allow Ankara to act as a Trojan horse for Chinese producers.