Negotiating an upgrade to the CU
Negotiating an upgrade to the CU presents a number of challenges. Seven areas are worth highlighting in particular: compliance and implementation, trade policy influence, FTA asymmetry, transportation, agriculture, dispute settlement and visa liberalization.
- Compliance and implementation: The EU will demand the introduction of mechanisms and procedures to improve the European Commission’s screening of Turkish legislative compliance with the EU acquis, and require Turkey to implement changes in the relevant EU rules and regulations. It will push for deadlines on the notification of Turkish legislative measures to the Commission, the requirement to translate from Turkish, and the creation of a committee composed of Turkish and Commission officials to check its compatibility with the acquis.
- Trade policy influence: The Commission has noted Turkey’s dissatisfaction with its lack of influence in EU trade policy formulation, although it has suggested only modest proposals to address this, including ‘better consideration [of Turkey] … in consultative mechanisms, and participation in the work of some of the committees/groups related to the CU functioning’. For its part, it firmly demands that a DSM ‘should’ as opposed to ‘could’ be established, a key EU objective.
- Rebalancing FTA asymmetry: The Commission understands the importance of ending the asymmetrical application of its FTAs to Turkey. A potential solution is for the EU to insist that the third country grant equivalent access to Turkish products until an FTA is negotiated with that country. Alternatively, the EU could calibrate implementation with the entry into force of a parallel FTA with Turkey.
Transportation and transit: The EU will not eliminate the bureaucratic procedures faced by Turkish hauliers at the border with Bulgaria and Greece, since this privilege is linked to the free movement of people. The EU is not ready to grant Turkish citizens the right to free movement, which means Turkish drivers will continue to face border delays. However, the EU may consider mechanisms and procedures to improve dialogue and coordination with the Commission and member states’ customs officials to facilitate the transportation of goods at the border and throughout the EU. Concerning internal restrictions in the form of motor vehicle taxes and transportation quotas/transit permits, the CJEU’s groundbreaking ruling in the 2017 ‘Istanbul Logisitk Limited vs. Hungarian Administrative Authorities’ case may lead to their eventual elimination.
In that case, the CJEU confirmed that:
[T]he interpretation of the provisions of the TFEU [i.e. Treaty on the Functioning of the European Union] in respect of the free movement of goods within the European Union may be transposed to the provisions concerning the free movement of goods within the Customs Union stemming from the EEC–Turkey Agreement.
Accordingly, it ruled that a tax or pecuniary charge on motor vehicles, which must be paid by operators of Turkish-registered heavy goods vehicles in transit through Hungarian territory, constitutes a charge having the equivalent effect of a customs duty. It rejected the argument that this tax concerned the cross-border road haulage services, which are under the jurisdiction of the member states, by observing that the service is linked to the product.
This judgment established that the principle of the free movement of goods laid out in the CU must be interpreted in accordance with the CJEU’s precedents and jurisprudence related to free movement of goods in the EU treaties, which prohibits measures that undermine the movement of goods in transit. It lays the foundation for a legal challenge against EU member states for imposing transit permits on Turkish hauliers for breaching the prohibition on quantitative restrictions and equivalent measures. While this judgment is supportive of the Turkish position, it also shows the difficulties and legal steps Turkey needs to take in order to prevent restrictive practices.
Agriculture: There is recognition in Turkey that agriculture will be the most challenging sector in the CU upgrade negotiations. Through the Common Agricultural Policy (CAP), the EU provides extensive agriculture subsidies to producers, and has been historically unwilling to open up domestic agriculture markets. Unsurprisingly, it imposes strict time limits and quotas on tariff-free access as well as tariff quotas on fruit, vegetables and dairy produce from Turkey.
However, the bigger obstacle is Turkey’s own protectionist stance on agricultural trade, which will limit the scope for liberalization. As the European Commission asserts, the extension of the CU:
to all goods including agricultural products … would mean that, in addition to abolition of tariffs in bilateral trade in agriculture, Turkey would also have to assume the EU’s common external tariffs in this sector. This would entail a significant fall in Turkey’s import protection: Turkey’s average customs tariff for agricultural products is 41.7%, while that of the EU is 13.9%. World Bank evaluation concluded that this could be hardly absorbed by Turkey’s agricultural sector without a reform of its agricultural policy.
Beyond agricultural tariffs lies the contentious matter of SPS measures to protect humans, animals and plants from diseases, pests or contaminants and ensure consumer safety. Agreeing the SPS measures will be difficult, particularly on the Turkish side, though it will also be critical to boosting the bilateral trade in agricultural products and to limiting health and plant inspections by customs authorities at borders and ports of entry.
Dispute settlement mechanism: It is reasonable to assume that the EU will also insist on a DSM modelled on the DCFTA with Ukraine, which is a streamlined version of the WTO’s ‘dispute settlement understanding’. If consultation between the parties does not end the dispute, a three-person expert arbitration panel selected by the parties or by lot from an agreed list will issue a ruling within four months. It will be binding on the party in breach and, in the event of partial or non-compliance, the complainant is allowed to impose proportionate sanctions.
This panel must refer an ambiguity pertaining to EU law to the CJEU in the field of trade in services and public procurement, SPS measures, technical barriers to trade, customs and trade facilitation, right of establishment, competition policy or any provision in the agreement that imposes upon a party an obligation defined by EU rules and regulations. The EU is also likely to propose that the CJEU preliminary reference procedure should include the EU acquis on the CU, competition law and state aid.
Visa liberalization for Turkish citizens: Turkey and the EU have isolated visa liberalization for Turkish citizens to the Schengen borderless zone into a separate track from the CU revamp. On 16 March 2016, as part of the deal to curb migration into mainland Europe, the EU and Turkey agreed that:
the fulfilment of the visa liberalization roadmap will be accelerated vis-à-vis all participating member states with a view to lifting the visa requirements for Turkish citizens at the latest by the end of June 2016, provided that all  benchmarks have been met.
Turkey has, according to the European Commission, fulfilled 65 out of the 72 criteria to qualify for visa-free travel to the EU. Seven still await fulfillment: anti-corruption measures, cooperation in criminal matters with EU member states, a cooperation agreement with the EU law enforcement agency Europol, further efforts on data protection and an overhaul of Turkish anti-terror laws. Turkey’s failure to meet the last condition is proving the most intractable. President Erdoğan is unwilling to fundamentally reform anti-terror laws, particularly after the 15 July 2016 botched coup attempt.
Yet the unresolved issue of visa-free travel does not preclude the EU agreeing to discuss streamlining visa procedures for Turkish businessmen and hauliers, and perhaps for academics and students, and easing the movement of Turkish citizens who supply a service within the EU or who work for a service supplier present in an EU member state.