Turkey’s exporters are warning that the country’s position as Europe’s nearby industrial platform is no longer enough to secure investor confidence, as new EU trade deals with Mercosur and India threaten to dilute Turkey’s long-standing customs union advantage and force foreign investors to reassess cost, market access, compliance and supply-chain assumptions.
A Warning From Turkey’s Export Base
Jak Eskinazi, coordinator president of the Aegean Exporters’ Associations, told Ekonomi newspaper in February 2026 that modernization of the EU-Türkiye Customs Union is no longer a preference but a necessity. His central argument was that Turkey is being asked to comply with EU-linked standards, including the European Green Deal, while remaining outside the rooms where the EU negotiates next-generation trade agreements.
The remark matters because it comes from one of Turkey’s most export-oriented regional blocs. The Aegean economy is deeply tied to food, textiles, machinery, chemicals and industrial goods, sectors that rely on predictable access to Europe. Eskinazi’s phrase that Turkey is “not Europe’s backyard” captured a broader business concern: Turkey cannot remain competitive if it is treated mainly as a low-cost production buffer while rival exporters receive improved EU access through preferential trade agreements.
His warning is not theoretical. According to the European Commission, EU-Türkiye goods trade reached a record €217.6 billion in 2025. Turkey was the EU’s fifth-largest goods trading partner, while 42.7% of Turkey’s goods exports went to the EU and 35.3% of its goods imports came from the bloc. That concentration makes every change in EU trade policy a direct variable in Turkey’s investment case.
The EU’s New Trade Map Is Changing The Competitive Equation
The immediate pressure comes from Brussels’ accelerated trade agenda. The European Commission says the EU-Mercosur agreement has applied provisionally since 1 May 2026 and creates a trading zone of about 700 million people. The Commission expects the deal to add more than €77.6 billion to EU GDP by 2040 and increase EU annual exports by up to €50 billion, while cutting tariffs on cars, machinery, pharmaceuticals, textiles and agri-food products.
For Turkey, the Mercosur deal has two effects. It improves EU exporters’ access to Argentina, Brazil, Paraguay and Uruguay, markets where Turkish companies do not enjoy comparable EU-negotiated preferences. It also improves Mercosur suppliers’ access to Europe in selected sectors, including agriculture and raw materials. Even if quotas limit the most sensitive imports, the deal changes price discovery, sourcing options and investment incentives across European value chains.
India is the larger strategic concern. The European Commission says EU-India Free Trade Agreement negotiations concluded on 27 January 2026. The EU reports that goods trade with India was worth €120 billion in 2024, while services trade reached €59.7 billion in 2023, nearly double its 2020 level. The Commission says the agreement eliminates or reduces tariffs on more than 96% of EU goods exports and could save around €4 billion annually in duties on European products.
From Turkey’s perspective, the issue is not opposition to trade liberalization. It is asymmetry. Stiftung Wissenschaft und Politik, in a 2026 analysis of Ankara’s view of the EU-India agreement, wrote that Turkey risks complying with rules over which it has no say and that Indian industrial goods will gain low-tariff or duty-free EU access while Turkish exporters do not receive equivalent access to India. The overlap is material: automotive components, machinery, chemicals and textiles are all sectors where Turkey competes for European orders.
The Customs Union Is Valuable, But Outdated
The EU-Türkiye Customs Union has been one of Turkey’s most important economic assets since it entered into force in the mid-1990s. It removed tariffs and quantitative restrictions on most industrial goods and required Turkey to align with EU customs tariffs, commercial policy, competition rules, intellectual property standards and technical legislation within the customs union’s scope.
That framework helped integrate Turkish factories into European production networks. Automotive, white goods, machinery, textiles and electrical equipment all benefited from proximity, relatively competitive labor costs, accumulated industrial know-how and customs predictability. For foreign manufacturers, Turkey offered a practical proposition: produce close to Europe, use a skilled supplier base, and serve EU customers without many of the frictions attached to non-European locations.
But the same structure now creates constraints. The Commission notes that the customs union does not cover all agriculture, services or public procurement in the way a modern deep trade agreement would. Brussels proposed modernization in 2016, including broader coverage, but the Council has not adopted negotiating directives. A new EU-Türkiye High-Level Dialogue on Trade began in July 2024, according to the Commission, yet modernization remains politically unresolved.
That matters for investors because 2026 supply-chain decisions are being made in a different world from 1996. Trade policy is now tied to carbon accounting, subsidy screening, sanctions compliance, public procurement preferences, digital regulation and industrial security. A customs union focused mainly on industrial goods cannot fully address whether a foreign investor should place a regional service hub, a battery component facility, a textiles cluster, a logistics center or a government-contracting platform in Turkey.
Tariffs Are Only One Part Of The Competitiveness Test
Eskinazi’s argument also intersects with macroeconomic and regulatory pressures. The World Bank’s April 2026 Macro Poverty Outlook for Turkey projected 2.8% growth in 2026 and 3.7% in 2027, while warning that disinflation requires tight monetary and fiscal policy. It also noted that tighter and costlier lira credit, elevated inflation and short-term foreign exchange liabilities are straining firms’ investment capacity.
The Central Bank of the Republic of Türkiye, in remarks by Governor Fatih Karahan published by the Bank for International Settlements, forecast end-2026 inflation in a range of 15% to 21% and said a tight policy stance would be maintained until price stability is achieved. For foreign investors, this means project models must account for working-capital costs, wage indexation, exchange-rate risk, local financing conditions and supplier liquidity.
At the same time, the EU’s Carbon Border Adjustment Mechanism is turning environmental compliance into a market-access issue. The European Commission says CBAM entered its definitive regime on 1 January 2026. EU importers or indirect customs representatives bringing in more than 50 tonnes of covered goods must apply for authorized declarant status, buy CBAM certificates and declare embedded emissions. The sectors include cement, iron and steel, aluminium, fertilizers, electricity and hydrogen.
Turkey has responded. The International Carbon Action Partnership reported that Turkey’s first Climate Law was adopted by parliament on 2 July 2025 and entered into force after publication in the Official Gazette on 9 July, creating the legal basis for a national emissions trading system. The law established a Carbon Market Board and gave the Directorate of Climate Change responsibility for permitting, monitoring and verification.
This is an important alignment step, but it also increases the compliance burden. Investors in metals, cement, chemicals, machinery inputs, automotive components and energy-intensive manufacturing must now assess not only factory cost and customs treatment, but emissions data systems, supplier traceability, product-level carbon accounting and the possibility of future Turkish ETS costs.
FDI Momentum Exists, But It Is Not Guaranteed
Turkey still has a compelling FDI story. Anadolu Agency, citing the International Investors Association YASED, reported that Turkey attracted $12.4 billion in international direct investment inflows in January-November 2025, up 28% year on year. YASED said cumulative inflows since 2003 exceeded $286 billion. Those figures show that investors have not abandoned Turkey.
The government’s own investment policy also recognizes the need to move beyond low-cost production. Turkey’s Foreign Direct Investment Strategy 2024-2028 aims to raise the country’s global FDI share to 1.5% by 2028 and its regional share of FDI inflows in Central and Eastern Europe, the Middle East and North Africa to 12%. The strategy prioritizes climate FDI, digital FDI, global value chain-related FDI, knowledge-intensive projects, high-quality job creation, high-end services, financial investment and regional development.
The challenge is that these objectives depend on investor confidence in the rules of the game. If Turkey is viewed as a nearshoring base with uncertain EU positioning, high financing costs and rising compliance complexity, some projects may shift toward countries with clearer access to EU procurement, services, carbon rules or third-market agreements. If Turkey can secure customs union modernization, improve regulatory predictability and align green industrial policy with incentives, it can defend and possibly strengthen its role.
This is where FDI execution becomes more granular. A foreign investor considering Turkey must map the target sector’s EU exposure, customs classification, rules of origin, CBAM status, incentive eligibility, local incorporation model, tax position, licensing requirements, land and zone options, labor availability and government-stakeholder interface. The practical advisory needs cut across market entry strategy, company incorporation and corporate structuring, investment incentives, legal and tax compliance, government relations, import-export facilitation, expo representation and project management.
For example, an automotive supplier entering Turkey to serve Germany must evaluate whether its components face future competition from India under the EU-India agreement, whether its steel inputs create CBAM exposure, whether a free zone or organized industrial zone improves incentives, and whether Turkish incorporation should be structured for exports, local sales or regional distribution. A food exporter must assess Mercosur competition, EU sanitary standards, Turkish agriculture rules and logistics. A services investor must examine whether the customs union’s limited services coverage weakens the business case, even if Turkey remains attractive on talent and location.
What This Means For Foreign Investors
The message from Turkey’s exporters is not that Turkey has lost its investment case. It is that the case is becoming more conditional. Proximity to Europe, industrial depth and customs union access remain valuable, but they must now be tested against EU trade deals, carbon rules, financing costs and sector-specific competitive pressure.
Foreign investors should begin with a market entry assessment that separates Turkey’s domestic demand opportunity from its EU export-platform role. They should then model customs exposure, rules of origin, CBAM obligations, supplier emissions data and likely changes in EU competition from India and Mercosur. Incorporation and corporate structuring decisions should reflect whether the Turkish entity will manufacture, import, export, distribute, hold intellectual property or bid for public-linked contracts.
Investment incentives also require closer scrutiny. Incentive mapping should be tied to location, sector, technology level, employment, energy use and export intensity. Legal and tax compliance must cover not only standard corporate obligations, but customs documentation, transfer pricing, environmental reporting, labor rules and sector permits. Government relations matter because customs union modernization, Turkish ETS implementation and incentive programs will all evolve through public institutions.
For companies using Turkey as an operating base, import-export facilitation and project management are no longer back-office functions. They are central to competitiveness. The investors that perform best will be those that treat Turkey not simply as a lower-cost production site, but as a regulated, strategically positioned platform whose value depends on disciplined execution, policy monitoring and credible adaptation to Europe’s changing trade architecture.