The EU-Türkiye Interdependence Dilemma

The EU is evolving from a liberal market project into an assertive geoeconomic actor. Its shift toward economic security and strategic rebalancing is generating an underexplored structural tension with Türkiye, as it is reshaping the conditions of a deeply integrated economic relationship without a corresponding integration of decision-making structures. In this context, the EU’s reorganization of trade and industrial policies around resilience, security, and strategic capacity leads to increasing misalignment with the institutional logic of EU-Türkiye trade relations.  

Europe has entered a new geoeconomic era. Russia’s war against Ukraine, intensifying systemic rivalry with China, pandemic-era supply-chain disruptions, and shifting US policies have reshaped Brussels’ economic philosophy. Trade policy, industrial policy, competition policy, and security policy are increasingly intertwined.

The EU now speaks of strategic autonomy, economic security, de-risking, and resilient value chains. It has reactivated industrial policy instruments that had long been politically dormant and is diversifying trade partnerships. The union is also strengthening investment screening and export control coordination. At the same time, Türkiye is deeply embedded in Europe’s industrial ecosystem. Since 1996, it has been integrated into the EU Customs Union for industrial goods under Association Council Decision 1/95. Turkish manufacturers are integrated into European automotive, machinery, white goods, and textile value chains. The EU accounts for roughly 40 percent of Türkiye’s exports, and the country is the EU’s fifth-largest trading partner. 

The institutional logic of the EU-Türkiye Customs Union increasingly collides with Europe’s new strategic orientation. How can this tension be addressed without undermining the deep level of EU-Türkiye economic integration? And, how can integration between the two be sustained under conditions of increasing geoeconomic fragmentation and a more security-driven EU policy?

 

The EU’s Internal Industrial Turn 

The EU’s internal transformation is embedded in legislation and funding instruments adopted since 2022, many of which are generating structural asymmetries between the EU and Türkiye.

State Aid Flexibility and Strategic Subsidies

In response to geopolitical tensions and the US Inflation Reduction Act, the European Commission introduced more flexible state aid frameworks, including the Temporary Crisis and Transition Framework for State Aid. More permanent instruments also emerged under the Clean Industrial Deal, which allows member states to grant large-scale subsidies to strategic sectors. Important Projects of Common European Interest (IPCEIs) in batteries, hydrogen, microelectronics, and cloud infrastructure have expanded significantly.

Participation in IPCEIs is restricted to EU member states and closely associated partners such as EFTA/EEA countries (those in the European Free Trade Association). Türkiye is not included. While Turkish firms may participate indirectly via subsidiaries established inside the EU, they do not benefit structurally from EU-level industrial financing.

As subsidy volumes increase and green transition incentives expand, this situation creates competitive asymmetries. Turkish producers compete in European markets but lack access to comparable EU funding instruments.

The Net-Zero Industry Act and the Industrial Accelerator Act

The Net-Zero Industry Act seeks to ensure that at least 40% of the EU’s annual deployment needs for key net-zero technologies are manufactured within the union by 2030. The Act simplifies permitting procedures and prioritizes domestic manufacturing in strategic sectors such as solar panels, wind turbines, batteries, electrolyzers, and carbon-capture technologies.

While the regulation does not formally exclude Turkish firms, it structurally incentivizes production within EU territory. Companies operating manufacturing facilities in Türkiye fall outside the EU’s industrial perimeter and subsidy framework.

The Industrial Accelerator Act, presented recently by the Commission, is expected to deepen this territorial logic. By linking public procurement and state aid more explicitly to Union-origin and low-carbon criteria, it would strengthen demand for EU-based production and further operationalize “Made in EU” preferences in strategic sectors. The draft regulation includes countries with a free trade agreement (FTA) or a customs union with the EU—which, at this stage, would cover Türkiye, subject to specific conditions and ongoing negotiations. However, the legislative process remains open, and some member states may seek to narrow this definition during negotiations. Member states advocating stricter territorial conditionality, notably France, may push to narrow the definition of “EU-origin” during negotiations.

For Türkiye, which is deeply integrated into European industrial value chains, this evolution is structurally significant. EU preference mechanisms could disadvantage Türkiye-based production, including facilities owned by European firms, generating investment diversion risks and potential fragmentation of highly integrated supply chains under the customs union framework.

The Critical Raw Materials Act

The Critical Raw Materials Act establishes benchmarks for domestic extraction, processing, and recycling of strategic materials and aims to reduce excessive dependence on single suppliers—particularly China.

Türkiye possesses notable mineral resources, including boron and rare earth elements. Yet the EU’s strategic raw materials partnerships have primarily focused on countries such as Canada, Australia, Chile, and many other countries.There is currently no structured EU-Türkiye raw materials partnership integrated into the CRMA framework.

This signals diversification outward rather than structured inward integration with Türkiye.

Defense-Industrial Reinforcement and Emerging SAFE Discussions

The European Defense Industrial Strategy (EDIS), presented in 2024, aims to strengthen the EU’s defense-technological and industrial base and promote joint procurement among member states. Instruments such as the European Defense Fund largely prioritize EU-based entities.

In late 2025, discussions began within EU policy circles regarding a potential initiative tentatively referred to as the Strategic Allied Framework for Europe (SAFE). The objective under discussion is to deepen defense-industrial coordination and secure supply chains among trusted partners within a narrower strategic perimeter.

Although SAFE remains at the level of political discussion rather than formal legislation, its direction reflects a broader trend: Defense-industrial integration is increasingly being organized around institutional insiders.

Türkiye is a major NATO ally and defense producer. Yet its participation in EU defense-industrial instruments remains limited and conditional, falling short of full institutional integration. If defense coordination deepens within an EU-centered framework, Turkish defense firms risk structural marginalization.

CBAM: A Manageable Adjustment

The Carbon Border Adjustment Mechanism introduces carbon pricing on imports of certain carbon-intensive products. CBAM has raised concerns in Türkiye, particularly in the steel and cement sectors.

Even if CBAM reflects both environmental objectives and the protection of European industries—highlighting the growing integration of climate and trade policies—its impact can largely be mitigated through regulatory alignment and domestic carbon pricing. Strengthening Türkiye’s climate policy framework could significantly reduce its CBAM exposure.

CBAM therefore represents a policy adjustment challenge, but not a structural asymmetry comparable to industrial subsidies or defense procurement exclusion.

External Diversification and Trade Asymmetry

Parallel to its internal strengthening, the EU has also recently concluded major trade negotiations with key global partners. Agreements with India and the Mercosur bloc have been concluded, marking significant steps in the EU’s trade diversification strategy. The EU–India agreement now moves toward ratification, but the EU–Mercosur agreement continues to touch on political sensitivities within the union (particularly regarding environmental and agricultural concerns). This may affect the timeline and modalities of implementation. Talks with Australia and Indonesia continue.

These agreements aim to reduce dependency risks, secure critical inputs, and expand export markets.

However, under Association Council Decision 1/95, Türkiye aligns with the EU’s Common External Tariff for industrial goods. When the EU concludes an FTA, partner countries gain tariff-free access to both the EU and, indirectly, the Turkish market. Yet Türkiye does not automatically obtain reciprocal access.

Türkiye must negotiate parallel agreements, often while facing delays and asymmetric bargaining power. 

As the EU accelerates FTA diversification, this structural imbalance intensifies.

The Next Step in EU-Türkiye Relations: Is Customs Union Modernization Enough?

Accession negotiations between the EU and Türkiye are effectively frozen. The European Parliament’s 2023 resolutionconfirmed that, given current conditions, the accession process could not advance.

The customs union was designed as a transitional mechanism toward eventual membership for Türkiye. Its institutional incompleteness was acceptable because it was embedded in a longer-term accession trajectory. Today, that trajectory has stalled. The asymmetry embedded in the customs union is no longer transitional but structural.

At the same time, the EU is consolidating as a more interventionist and security-oriented industrial union. Türkiye remains economically integrated but politically external. The deeper the EU integrates internally, the more visible the governance gap becomes. Modernization proposals for the customs union, including extending coverage to services and agriculture, strengthening dispute settlement, and updating governance, are therefore necessary. But they are insufficient.

A customs union, even expanded, remains primarily a trade instrument. It does not:

– provide structured or institutionalized participation in EU trade negotiations;

– ensure access to EU industrial subsidy frameworks;

– integrate partners into defense-industrial initiatives;

– establish dynamic regulatory alignment mechanisms.

These limitations reflect a fundamental mismatch between the original design of the customs union and the EU’s evolving geoeconomic policy framework.

Full membership would resolve these asymmetries. But if membership is politically unrealistic, then a broader bilateral framework is required.

Table 1: Comparative Framework: Transitional Logic (1995) vs. Geoeconomic Reality (2026)

Feature	1995: Transitional Logic	2026: Geoeconomic Reality
Strategic Goal	Integration as a bridge to EU membership	Resilience, de-risking, and economic security, competitiveness
Trade Dynamics	Focus on tariff removal for industrial goods	Focus on "Strategic Autonomy" and secure supply chains
FTA Context	Limited EU FTA networks; gradual expansion	Aggressive diversification (for example, India and Mercosur deals)
Industrial Policy	Market-oriented model; strict state aid discipline	Interventionist; massive subsidies (NZIA, IPCEIs, IAA)
Regulatory Model	Static alignment with internal market rules	Dynamic alignment with climate/security (CBAM, ETS)
Security Link	Defense was a strictly national/ NATO matter	Defense is an EU industrial priority (SAFE, EDIS)

 

Table 1 highlights why the current transitional logic has become a structural liability for both parties.

A Realistic Reform Agenda

For all the above reasons, a mere modernization of the customs union would create unsustainable asymmetries. Instead, a more comprehensive, realistic reform agenda will be required—one that includes the following elements.

• Structured trade policy consultation must be institutionalized. Türkiye cannot remain bound to the Common External Tariff while excluded from meaningful coordination in FTA negotiations.
• Dynamic regulatory alignment mechanisms similar to those used in EU association agreements should be strengthened.
• Selective industrial cooperation, particularly in green-transition sectors and defense, could be institutionalized under clearly defined conditions including regulatory alignment, state aid compatibility, and security screening.
• Reciprocal public procurement access outside clearly defined security sectors should be expanded.
• Dispute settlement must be modernized through binding arbitration mechanisms.

Multilateral engagement offers an additional, though limited, avenue for stabilizing Türkiye’s economic position. Accession to the World Trade Organization (WTO) Government Procurement Agreement (GPA) would formalize Türkiye’s procurement commitments and secure reciprocal access to covered EU public procurement markets. While accession would be politically and administratively demanding, GPA membership would provide legally enforceable nondiscrimination guarantees in civilian procurement sectors, subject to established security exceptions. It would not eliminate exclusion from defense procurement or EU industrial subsidy instruments, but it would strengthen Türkiye’s legal position against discriminatory treatment in covered areas.

Beyond procurement, Türkiye can use multilateral platforms such as the G20, the OECD, and relevant WTO committees to advocate against excessive localization measures and to promote principles of balanced resilience in global trade. These forums cannot substitute for bilateral reform with the EU, but they can complement it by providing norm-setting opportunities and diplomatic leverage in an international environment increasingly shaped by industrial policy activism.

These reforms do not require accession to the EU. They require political clarity and a redefinition of the relationship as permanent rather than transitional.

A credible reform framework must also include a binding timeline with clearly defined interim objectives. One of the central weaknesses of the current relationship is its exposure to politicization. Technical updates are often delayed for political reasons because there are no pre-agreed sequencing rules or enforcement triggers. A renewed agreement should therefore establish a staged roadmap with measurable milestones, fixed implementation deadlines, and automatic review clauses. Regulatory alignment, trade consultation mechanisms, and procurement commitments should be time-bound and monitored by a joint technical body with reporting obligations. Time-limited dispute settlement procedures would prevent indefinite blockage. Predictability, in a geoeconomic environment, is itself a strategic asset.

Resilience and Strategic Coherence

The EU’s turn toward economic security and strategic rebalancing is strategically justified, as industrial strengthening, diversification, and economic security policies try to respond to real vulnerabilities. 

Ensuring that the EU’s internal transformation coheres with its external economic relations is therefore critical. This applies in particular to highly integrated partners such as Türkiye.

Türkiye is too important, economically, geographically, and militarily, for the relationship to remain governed by a transitional framework indefinitely. If left unaddressed, the structural gap between deep economic integration and limited institutional integration risks undermining the EU’s own objectives, as a strategy centered on resilience and diversification cannot remain compatible with persistent institutional asymmetry.

The political feasibility of the reforms proposed here remains uncertain. Within the EU, member states differ in their willingness to extend institutional participation to nonmember states, particularly in areas linked to industrial policy, public procurement, and security. Concerns about regulatory control, budgetary implications, and political signaling may also limit the scope of such a comprehensive framework. On the Turkish side, alignment with EU regulatory and policy frameworks may entail domestic adjustment costs and political trade-offs.

At the same time, the costs of inaction are increasing. If the EU continues to deepen its geoeconomic integration without adapting its framework with Türkiye, existing asymmetries are likely to widen. This could lead to investment diversion, gradual fragmentation of integrated value chains, and a weakening of the economic interdependence that has characterized EU-Türkiye relations over recent decades.

Such a framework does not replace the accession perspective, but it recognizes current political constraints and provides a functional basis for cooperation under new geoeconomic conditions.

 

The views expressed herein are those solely of the author(s). GMF as an institution does not take positions.

 

Dr. Erdal Yalçın is a professor of international economics at the University of Applied Sciences in Konstanz, Germany. His research focuses on global trade policy, sanction policies, economic integration, and geoeconomic transformations. His expertise is in EU trade relations, global value chains, and the political economy of trade.

This policy paper is part of a series of events and analyses organized by the GMF–Union of Chambers and Commodity Exchanges of Türkiye (TOBB) Fellowship on Türkiye, Europe, and Global Issues. The fellowship was launched in 2017

The authors thank Sinan Ülgen, Bahadır Kaleağası, Kristina Kausch, and Özgür Ünlühisarcıklı for their helpful feedback on drafts of this piece.