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Dr. Faruk ŞEN
Deputy General Manager
EU–Australia FTA: A Silent Wave of Competition for Türkiye
The EU–Australia Free Trade Agreement is generally positive for both the EU and Australia, though its impact is limited at the macro level; conversely, this FTA generates more pronounced effects at the sectoral level. This new era, announced on March 24, 2026, in Canberra between the EU and Australia, encompasses a groundbreaking partnership in the fields of defense, trade, and innovation.
Established with the understanding that the security of the European and Indo-Pacific regions is interlinked, this partnership aims to provide an institutional framework for existing cooperation. With negotiations now concluded, this agreement opens the doors to one of the world’s fastest-growing advanced economies for EU exporters.
EU exports to Australia are expected to increase by 33% over the next decade, reaching 17.7 billion euros annually, while investments are projected to grow by 87%. With more than 99% of customs duties on EU goods eliminated, companies are expected to save approximately 1 billion euros annually. Significant growth potential is projected in sectors such as dairy products, motor vehicles, and chemicals. Additionally, financial services and telecommunications markets will open up to EU companies. A particular section has been added to help small and medium-sized enterprises increase their exports.
Access to critical raw materials such as lithium, aluminum, and manganese, which Australia possesses, will become easier, making the EU’s supply chains more resilient to geopolitical shocks. The agreement includes binding commitments on issues such as the Paris Climate Agreement, labor rights, and gender equality. Additionally, trade in “green goods” such as renewable energy will be more open.
Tariffs on EU agricultural and food products such as cheese, wine, and chocolate will be eliminated. Limited quotas and a “dual safeguard mechanism” to protect against sudden spikes in imports will be applied to sensitive sectors such as beef, sugar, and rice. 165 food products (e.g., Comté, Queso Manchego) and 231 alcoholic beverages, along with all EU wine geographical indications (1,650 titles), will be protected in the Australian market.
The agreement texts will enter into force following approval by the Council, consent by the European Parliament, and completion of Australia’s ratification process. In addition, formal negotiations have begun regarding Australia’s participation in Horizon Europe, the world’s largest research funding program.
From the EU’s perspective, it is projected that, compared to the baseline scenario, welfare will increase by 2.176 billion euros under the prudent scenario and by 4.086 billion euros under the optimistic scenario by 2030. Real GDP growth is estimated at 1.755 billion euros under the conservative scenario and 3.917 billion euros under the ambitious scenario. A significant increase is also expected in the EU’s bilateral exports to Australia; this increase is estimated at 16.1% under the conservative scenario and 32.5% under the ambitious scenario. These results indicate that the agreement will have a positive and meaningful, though not dramatic, impact on the EU’s overall economy, particularly by generating benefits through exports to the Australian market and gains from specialization.
The results are also positive for Australia. Analyses indicate that by 2030, welfare will increase by 875 million euros under the prudent scenario and by 1.371 billion euros under the optimistic scenario. Real GDP growth is estimated at 2.822 billion euros under the conservative scenario and 4.741 billion euros under the ambitious scenario. Australia’s bilateral exports to the EU are projected to increase by 5.5% under the prudent scenario and 10.4% under the optimistic scenario. While the EU stands to gain more in terms of trade volume, Australia stands to benefit relatively more in terms of real GDP. This stems from the smaller size of the Australian economy and leads to the growth impact of trade liberalization becoming more visible in this economy.
It is understood that economic benefits stem from three main factors. The first is specialization. As tariffs and certain non-tariff barriers are reduced, both sides are able to increase production and exports in areas where they hold a comparative advantage. This leads to a more efficient allocation of resources.
The second factor is the reduction in trade costs. The agreement’s impact is not limited to tariff reductions; the streamlining of technical regulations, market access, procedural burdens, investment restrictions, and similar areas also generates significant economic benefits.
The third factor is value chain integration. It is emphasized that EU–Australia economic relations should not be viewed solely as the exchange of goods, but that there is potential for deeper integration through intermediate inputs, services, and investment links. In particular, it is noted that stronger ties could be established in the areas of R&D, business services, and high-value-added manufacturing.
At the same time, it is clear why this agreement does not have a significant macroeconomic impact. The main reason is that there are already very low average tariffs between the EU and Australia. Consequently, the additional benefits the agreement will provide are not as dramatic as those of an FTA between economies with high levels of protectionism.
This outcome is explained by the fact that Australia’s tariffs on EU goods are generally low, markets in non-agricultural sectors are relatively open, and the main barriers often stem not from tariffs but from SPS (Sanitary and Phytosanitary)/TBT (Technical Barriers to Trade) measures, approval processes, investment screening, restrictions on trade in services, and access to public procurement. Therefore, the key economic message is that this agreement is less of a “tariff revolution” and more of an agreement on “market access, regulatory alignment, and competitive positioning.”
In terms of sectoral impacts, it is evident that total gains are not distributed equally among the parties, but more importantly, they are not shared symmetrically across sectors. On the EU side, the motor vehicle and machinery sectors stand out in particular. In other words, the EU has secured a stronger position in the Australian market for high-value-added manufactured goods. In contrast, on the Australian side, sectors such as ruminant meat, certain agricultural products, and raw material-related industries benefit the most.
This table is consistent with Australia’s competitive structure, which is heavily weighted toward natural resources and agriculture. The agreement generates benefits for both parties, but not all sectors benefit. Therefore, while the agreement is positive at the macro level, it has a redistributive nature at the sectoral level.
It appears that the overall impact of the agreement on third countries is limited. In other words, there is no evidence to suggest that the EU–Australia FTA will redistribute global trade in a way that significantly disadvantages third countries. However, this does not mean that there will be no impact on third countries at all. Even if the macro-level impact is small, shifts in trade flows and marginal shifts in markets are possible in certain sectors. This finding is particularly important for Türkiye, because for Türkiye, the risk lies not in overall economic aggregates, but rather in changes in competition and trade flows within specific sectors.
It is understood that, for SMEs, the primary benefit will stem not so much from tariffs as from the simplification of procedures, the increased predictability of rules, and the reduction of market entry costs. In the investment sector, it can be noted that investment screening mechanisms in Australia, in particular, create certain limitations for EU investors; therefore, it is important in the negotiations to make investment thresholds and review processes more predictable. Regarding public procurement, it is understood that preferential public procurement liberalization could significantly increase public imports and create new trade opportunities between the two sides.
The overall macroeconomic impact on Türkiye is extremely limited. By 2030, no change in Türkiye’s real GDP is expected in either scenario compared to the baseline scenario. The welfare effect is estimated at minus 1.9 million euros in the prudent scenario and plus 6.7 million euros in the optimistic scenario. Conversely, no significant changes are projected regarding the consumer price index, total imports, total exports, wages for skilled and unskilled labor, or CO2 emissions. This situation is attributed to the limited overall impact of the EU–Australia FTA on the EU and, consequently, the limited impact on Türkiye, which maintains a Customs Union relationship with the EU.
From Türkiye’s perspective, the most important point is that the fact that macroeconomic effects are small does not necessarily mean that sectoral and strategic effects are insignificant. For Türkiye, the real issue is not total growth or total trade volume, but rather a shift in competition within specific sectors. In the Turkish economy, only two very limited production effects stand out on a sector-by-sector basis: a 0.1% increase in the motor vehicle sector and a 0.1% decrease in the oilseeds sector under the optimistic scenario. While these changes are small in magnitude, they are of a nature that cannot be completely disregarded, given Türkiye’s industrial and foreign trade structure.
In addition, a limited decline in EU exports to Türkiye is expected in certain sectors. In particular, modest declines in EU exports to Türkiye have been projected for items such as natural gas, electrical goods, coal, textiles and apparel, machinery, and rice. The most pronounced decline is observed in natural gas, where a 5.1% decrease is projected under the worst-case scenario. In other sectors, the declines are more limited. This suggests that there may be a partial reorientation in the commercial focus of EU firms. However, it is also clear that these effects do not produce significant results at the aggregate economic level.
The second notable finding for Türkiye is the projection of significant increases in Australia’s exports to Türkiye across certain sectors. Significant proportional increases in Australia’s exports to Türkiye are projected in the sectors of non-metallic mineral products, motor vehicles, textiles and apparel, electrical equipment, chemicals, and machinery. Specifically, increases of approximately 21% for non-metallic products, 20.9% for motor vehicles, 18.2% for textiles and clothing, 12.9% for electrical equipment, and around 10.1% for chemicals and machinery are projected. Although these percentages appear high, the changes in absolute terms are modest. Therefore, what is at issue here is that the Turkish market has become marginally more accessible for Australia in certain product groups, and this cannot be said to signal a broad-scale market transformation.
The increase in Australia’s exports to Türkiye in the motor vehicles, chemicals, and machinery sectors does not appear to be a direct substitute for EU exports. In other words, Australia’s growth in these sectors in the Turkish market should not be interpreted as a process that eliminates or replaces the EU’s current position. This finding is significant for Türkiye, as it implies not a sudden and abrupt shift in suppliers, but rather an expansion of the competitive landscape and the emergence of some marginal new trade channels.
From a sectoral perspective, the automotive, machinery, textile, chemical, and electrical equipment sectors stand out as the areas that require the closest monitoring for Türkiye. Although a slight increase in Türkiye’s automotive production is projected, the rise in exports originating from Australia is noteworthy. In the machinery sector, no significant change is observed in Türkiye’s production; however, a slight decline in exports from the EU to Türkiye and an increase in exports from Australia to Türkiye are expected. Similarly, in the textile and apparel sectors, the increase in exports from Australia appears to be at a high proportional level. In the chemical and electrical equipment sectors, the impacts are gaining importance primarily in terms of intermediate goods and supply chain competition.
In conclusion, the overall economic impact of the EU–Australia FTA on Türkiye is very limited. No significant changes are expected in real GDP, total trade, prices, or wages. However, the key point for Türkiye is not so much the macroeconomic indicators but rather the shift in the competitive landscape at the sectoral level.
This suggests that the Turkish economy will not be significantly disrupted by this agreement overall, though there may be slight declines in EU exports to Türkiye and relative increases in Australian exports to Türkiye in certain sectors. However, it also clearly demonstrates that these increases have not yet translated into a direct substitution for the EU. Therefore, the most accurate interpretation from Türkiye’s perspective is that this agreement represents a development that quietly expands the competitive landscape in specific sectors—one that should be closely monitored in the long term—rather than causing an immediate economic loss.
