FOREIGN TRADE AGENDA IN THE WORLD AND IN TURKEY AS WE ENTER THE YEAR 2023

Rıza Mehmet KORKMAZ
UGM General Manager

Although the world economy has experienced contractions due to global crises from time to time, it has been growing by an average of 4-6% every year since 1995, especially with the liberalization trend in world trade after the establishment of the World Trade Organization (WTO). As seen from the table below, world trade follows a parallel course with the growth of the world economy, generally growing more than GDP and being more affected by declines. It is predicted that in 2023, when the footsteps of a painful period will be heard, world trade will be negatively affected by the global economic contraction and grow by 2.7%, according to IMF forecasts. In this article, we will examine the main agenda issues of foreign trade in the world and in Türkiye in this period when critical developments are taking place[1].

Basic Parameters Determining the Course of World Trade in the Coming Period

World trade, which shrank by a significant 5.2% due to the impact of the pandemic that has deeply shaken the world since 2020, quickly compensated for this loss with a remarkable 9.7% growth in 2021. As the effect of the pandemic gradually decreased, positive expectations for world trade increased; the World Trade Organization (WTO) announced in 2022 it predicted that world trade would grow by 5.5%.

However, with the Russia-Ukraine war that started in the first quarter of 2022 and the subsequent sudden rise in energy prices, the breaks in the world supply chain caused by the sanctions imposed on Russia and increasing food prices around the world, rising inflation in the EU and US economies, increasing interest rates and decreasing growth. These factors led to a deviation from the expected growth rate of world trade. With the new developments, the world trade volume is predicted to increase by less than 3.5% in 2022. It is estimated that world trade will grow much less in 2023 and will grow by 1%.

Although the violence of the Russia-Ukraine War seems to have decreased recently, The possibility of Russia opening a new front through Belarus in 2023, the possibility of using tactical nuclear weapons or new advanced missiles, the introduction of new sanctions against Russia, which has been subjected to the harshest sanctions in world history with over 10,000 sanctions so far[ 2], the EU's application of a ceiling price of 60 USD to Russian oil as of December 5, 2022 and the restriction of bringing Russian oil to the EU by tankers, Russia's statement that it will not sell oil to countries that impose a ceiling price in response, Western allies increasing their aid to Ukraine, the war It shows that the impact of the risks it creates for the world economy and trade will continue in 2023.

World global trade reached 32 trillion dollars in 2022, breaking a new record, including 7 trillion dollars in services trade and 25 trillion dollars in goods trade. Although there is a 10% increase (in value) in world goods trade compared to 2021, it should not be forgotten that the main factor here is energy prices, which increased with the Russia-Ukraine crisis. Trade in services also increased by 15% compared to last year. It is worth noting that increasing inflation figures around the world have an impact on this increase.

Unfortunately, the predictions made by international organizations for 2023 are not optimistic. UNCTAD Global Trade Report, updated on 13.12.2022, states that the desired growth figures cannot be achieved due to the global adverse effects of the Russia-Ukraine War and the ongoing high inflation, rising interest rates, and high energy prices in many economies of the world; It has been revealed that investments will be negatively affected, the fragility of their economies will increase, especially the expenditures of indebted states will be seriously suppressed, and international trade will also be negatively affected by these developments. Despite the slowdown in trade value, overall trade volumes continued to grow throughout 2022. It was stated in the report above that part of the decrease in international trade value in the second half of 2022 was due to the decline in the prices of primary products[3].

The supply chain is starting to return to normal.

On the other hand, according to the "Drewry World Composite Container Index" during the pandemic, container prices and increasing logistics costs, which exceeded $ 10,000, entered a severe downward trend during the year. The decrease in demand for imported products from the USA and Western countries significantly impacted this decline. Waiting times for ships at ports have shortened, and freight prices have decreased. According to the "Drewry Index" data dated 22.12.2022, the cost of a 40-foot container dropped to 2.12 dollars [4].

Rising Inflation in Developed Economies

In 2022, the world is struggling with seriously high inflation, especially led by developed economies. In 2022, the energy crisis in the Eurozone will have a clear stagflationary impact on the economy; We observed that the third quarter growth rate in Europe was 0.2% and inflation was 10.7%. When we remember that last year growth was around 5% and inflation was around 1-2%, the seriousness of the problem for the Eurozone becomes apparent. The US inflation returned from 9.1% in June to 7.1% as of November, the decline in inflation in the US economy was generally reflected in the world, but the inflation rate in the Euro Zone remained at 10.7% (October-2022) and It seems that it has not lost its momentum yet.

This is the reason why the EUR/USD parity returned from 0.95 to above 1; However, this may not be a long-term return; There are declines in commodity prices; commodity prices experienced very sharp increases and decreases, especially due to the events in 2022; Commodity prices have fallen compared to before the war, and supply times have recently shortened; supply-side inflationary shocks have decreased in the world, the world has completed the year with stagflation, and next year may be a year of recession and disinflation; disinflation cannot eliminate persistent inflation, it will only reduce it to some extent; Indicators indicate that borrowing costs will be high in 2023; The downward trend in commodity prices, especially base metal prices, will continue; Economists state that the USD maintains its strong course and will continue to do so in the near future.

Inflation in the world is well above the recent normal averages and core inflation is at an average level of 7.4% as of 2022; After a long time, the world's global producer Purchasing Managers' Index (PMI: Purchasing Manager Index) fell below the 50 threshold, reaching 48.8 in November, and new export orders PMIs reached 46.2 in the same period; UK and Eurozone PMI data fell more sharply and are lower; It can be seen in the chart below that, although US PMIs are in decline, they are not as bad as European countries and do not fall below 50 points. (Table. V). Atlanta Fed GDP/Now forecasts put US growth at 4%; It is understood that this estimate was around 3% last month, and that this disconnection with Stable Securities (Blue Chip Consensus) occurred due to the thought that FED interest rate increases would be slower. It can be seen from our export data, which decreased in the last quarter, that the negative indicators in European countries have a negative impact on Türkiye's exports.

Two crucial developments that will affect World Trade in 2023 are the evolution of the global supply chain and the trend toward a greener world economy.

Again, according to the UNCTAD Global Trade Report, high uncertainties remain for supply chain operations. To alleviate the impact of these uncertainties, some methods, such as supplier diversification, a more intensive return to own country resources in production/manufacturing processes, or trade with close and friendly countries, will be used more, and this will affect world trade.

On the other hand, reducing carbon emissions and green transformation efforts, which have become firmly on the world's agenda with the increasing global warming and drought problems, more investments in alternative and clean energy sources and their rapid introduction instead of classical energy sources will also be on the agenda in the new period. The EU's Border Carbon Tax Mechanism (CBAM) will be implemented on similar iron or steel products such as iron, steel, cement, aluminum, fertilizer, hydrogen, screws, and bolts, as of 1 October 2023; Regulations for the disclosure of corporate emissions in companies' supply chains and a mechanism to be established to equalize the carbon price paid for EU products and the carbon price paid for imported goods within the scope of the EU Emission Trading System (ETS); With the new steps taken by the WTO in this field, measures to limit carbon emissions will become more widespread in the coming period.

Global climate change and green economy investments have already reached 2 trillion dollars globally. However, according to McKinsey, four times more investment is needed. Although these investments have increased in recent years, the share of developing countries is only 5%. For the “net zero 2050” scenario, an average of 9.2 trillion dollars should be spent annually; Experts state that 3.1 trillion dollars of this amount is for Asia. Therefore, developing countries will be expected to focus more on this area in the coming years.[5].

Climate change will greatly affect the trade infrastructure. Efforts to build a greener global economy are increasing the demand for more environmentally sustainable and green products, which is expected to reduce the demand for high-carbon goods and fossil fuels.

China's new strategy and the US's counter attitude

The new strategies announced at the National Congress of the Communist Party of China (CCP) held between 16-22 October 2020 in China, the world's leading exporter, are of profound importance for the economic and political trends of the world in the coming period. At the Congress, where the top management of the CCP, which governs China, the world's second-largest economy, was determined and the policies to be followed by the party were announced to the world, China's road map in the coming period was also revealed.

In the first ten years of his rule, Chinese Leader Xi put forward the goal of the "Chinese Dream," which he defined as the revival of the Chinese nation, and in the first stage, he aimed to make China a moderately prosperous society by 2021, the centennial anniversary of the CCP. It was declared that this goal was achieved in 2020. In the second stage, the goal is to attain socialist modernization by 2035. The last stage aims for China to become a leading country in the world by building a "prosperous, strong, democratic, culturally developed, harmonious and beautiful, great, modern socialist" China in 2049. At this Congress, where Xi's leadership was strengthened, China showed more strongly its sensitivity to issues related to its security (especially Taiwan). In this case, the US-China tension will continue in a controlled manner.

US Technological Sanctions on China

A few days before China announced its new strategy document, the USA announced a new package of technological sanctions and restrictions against China that will come into force on October 21, 2022, stating that although it may be a little late, it will not silently follow China's dream of becoming a "leading country in the world." has shown. Restrictions that previously targeted only certain Chinese companies have made the whole of China a target with this new package. Accordingly, US companies will not be able to provide artificial intelligence and supercomputer systems more significant than a specific information processing power to any person or organization in China, the chips used in them, chips newer than a particular generation, and the devices and materials used in their production to China; US citizens and US residents will not be able to assist in their production in any way. In addition, Chinese companies determined by the US administration, even foreign companies, will not be able to supply any products using US technology in their production. Thus, the technology war between the USA and China has escalated even more in the new period.

The Increasing Importance of Regionalization

The slowdown in growth in China affects prices worldwide, especially commodity prices. After the last Congress of the Communist Party of China, although the rapid growth and development model implemented since the 1980s was not wholly abandoned, health and national security issues were given more priority; China's lower emphasis on growth is a significant development that will reduce growth expectations all over the world; These developments regarding China are considered to be a preliminary indicator of the transition from globalization to regionalization. Other states also put the concept of security ahead of the economy. It is seen that the concepts of digitalization, military investments, investment in national resources, and resource and workforce security will gain more importance in the coming period. In possible regionalization scenarios, it is evaluated that Turkey can stand out as a vital economic player and a regional power in the Middle East.

Establishment of commercial relations between Israel and the UAE

Another important development regarding world trade is the development of trade between Israel, the UAE, and Bahrain, with the signing of a free trade agreement between Israel and the United Arab Emirates (UAE) in May and the start of negotiations for a trade agreement with Bahrain; in this context, the Arab-Israeli tension is gradually giving way to normalization.

Digital technologies transforming cross-border trade

E-commerce, which has become more established and widespread in daily life with the pandemic, has further increased the impact of digitalization. In 2021, digital exports increased by 14% compared to the previous year. This growth in e-commerce, with the opportunities offered by communication and communication technology (ICT), also creates new job areas and improves innovation efforts. Approximately 90 member countries of the WTO have started negotiations within the WTO to regulate the e-commerce field, strengthen digital markets, remove obstacles, facilitate transactions, and link these goals to international rules.

According to the new report published by the World Customs Organization (WCO) in November, Disruptive/radically changing technologies such as blockchain, artificial intelligence, and the Internet of Things are also changing customs and border management. In the coming period, the WTO Trade Facilitation Agreement, which has devices such as more effective risk management, improved transparency, and cooperation between countries' institutions through "data mining," will play a key role.

Digital Economy Agreements (DEAs)

It is understood that the digital economy agreements to be signed between countries in the coming years will determine new international norms and common standards. These standards aim to ensure safe data flow and improve cross-border cooperation by harmonizing countries' digital policies on issues such as digital identities, cyber security, and consumer protection.

1. Agenda of Customs and Foreign Trade for Türkiye as we enter 2023

As we enter the 100th anniversary of the founding of the Republic of Turkey, unfortunately, many chronic problems in customs and foreign trade transactions continue. On the other hand, the fact that there will be general elections in 2023 and local elections in 2024 increases concerns that the election economy will govern the next two years.

We can list the challenges and risks that will be encountered in customs and foreign trade practices next year under the following headings:

• Risks created by the non-traditional economic policies implemented by Türkiye,
• Global investments and foreign capital inflow to our country are not at the desired levels,
• Difficulties in obtaining loans from EXIMBANK, state banks, and private banks,
• Increase in the prices of export products following the increase in personnel costs due to the minimum wage increase, the planned EYT regulation, and other possible regulations,
• The possibility of the sanctions imposed on Russia extending to Turkey's trade with Russia,
• Problems experienced due to the measures taken in foreign exchange practices and importers' tendency to work with the "safety stock" model instead of the "just in time" model,
• Our exporters begin to lose their comparative price advantages and competitiveness due to the suppression of foreign exchange. While USD and EUR exchange rates have become 60% more valuable against TL compared to last year, the 1-year PPI increase has exceeded 100%, and the rate of growth in costs for the exporter has become very high compared to the sales rate,
• According to the ISO export climate index, the decrease in demand for Turkish export products in the countries we export to, such as the UAE, Qatar, Singapore and Nigeria,
• Failure to update the Customs Union with the EU according to the requirements of the time,
• With the decrease in logistics costs, countries with which we compete, such as Indonesia and Vietnam, can enter the European market more efficiently,
• The recession in Europe, our largest export market, reduced the demand for Turkish products. With the decrease in PMI indices in our rival Eastern European countries, the export products of these countries have become cheaper,
• Almost zero profitability in exports due to adverse developments,
• The goal of turning Turkey into a natural gas base is achieved before the world's transition to renewable energy is completed,
• Ongoing additional customs duty and additional financial liability practices,
• Technical regulations and increased de facto controls implemented as non-tariff barriers,
• High physical control rates exceeding 15% in imports and 3% in exports,
• Intensities arising from the fact that approximately 60% of customs transactions are carried out in only ten customs directorates,
• Coordination problems between public authorities, disconnection between the center and the provinces, practitioners who do not take the initiative in exercising authority,
• High waiting costs arising from slow applications,
• Insufficient temporary storage areas and warehouses, especially in Istanbul,
• The fact that digitalization has not yet been fully achieved and paperless transactions in imports have not been implemented,
• The IT system of the Ministry of Commerce has not been renewed for many years and has become unable to meet the needs.

III. Conclusion

We are entering a year with special meaning for Türkiye under the shadow of the world economic crisis and the fear of the "Third World War". Very solid policies and strategies are needed to ensure that this process goes smoothly for our country and that many important ongoing projects are not interrupted. It is also important to establish regular communication mechanisms between foreign traders and public authorities in solving the current problems. Although the risks encountered bring with them some opportunities for our country, how these opportunities can be better evaluated can only be developed through common sense.

1] https://www.imf.org/external/datamapper/datasets/WEO

[2] https://www.eifec.org/eu-sanctions-on-russia-home

[3] https://unctad.org/webflyer/global-trade-update-december-2022

[4] https://www.drewry.co.uk/supply-chain-advisors/supply-chain-expertise/world-container-index-assessed-by-drewry

[5] https://www.mckinsey.com/featured-insights/future-of-asia/green-growth-capturing-asias-5-trillion-green-business-opportunity