Ten design flaws in the CU
The CU has seen the volume of bilateral trade grow sevenfold during the last two decades
The CU was created to support the frictionless flow of industrial goods between Turkey and the EU. This arrangement has seen the volume of bilateral trade grow sevenfold during the last two decades. However, it has significant shortcomings that have become increasingly apparent over time:
- Limited scope: The CU excludes services, right of establishment, public procurement and agriculture (except processed agricultural products). Its primary function is to remove tariffs on goods, but it does little to reduce or abolish non-tariff barriers (NTBs), which impede trade in services in particular.
- Limited influence: Turkey is not involved in determining the EU’s Common External Tariff or its Common Commercial Policy – the EU’s trade policy with non-member countries and territories. All these decisions are made by the EU with little or no consideration of Turkey’s concerns and strategic interests.
- External asymmetry: The EU’s FTAs with third countries do not automatically cover Turkey. Countries such as Algeria, Mexico and South Africa, which all have trade agreements with the EU, do not have the same incentive to negotiate an FTA with Turkey since the CU affords tariff-free access to the Turkish market via the EU. This asymmetrical relationship exposes Turkish manufacturers to external competition without the ability to compete on a reciprocal basis in third-country markets. In retaliation, Turkey has implemented origin controls on imports from the EU, particularly in sensitive sectors, to determine whether they originate from countries that have an FTA with the EU. Turkey has, for instance, introduced protection measures against Mexican cars.4
- Regulatory exclusion: Given that the CU is not a ‘regulatory union’, Turkey remains outside the EU’s single market and its regulatory, institutional and judicial framework. The CU does not therefore abolish all technical barriers to trade, and many indirect costs remain for Turkish exporters. For example, the EU refused to accept Turkish conformity assessments – certificates issued by the manufacturer or an authorized body confirming that a product placed on the market complies with all EU regulations. This meant that many goods from Turkey were subject to inspection as they crossed the border with Bulgaria and Greece. Over time, the EU has negotiated mutual recognition agreements with Turkey, enabling more Turkish goods to enter the EU market without inspection. However, the EU was empowered to reach such agreements only in areas where it has fully harmonized regulations across member states. Where rules are still set at the national level (covering 20 per cent of industrial products5), national customs authorities are still entitled to inspect Turkish goods.6 Turkey has responded by imposing customs and ‘rules of origin’ controls on woven fabrics and apparel that are ‘freely circulating in the EU contrary to the terms and spirit of the CU’.7
- Regulatory challenges: Particular challenges emerge for products for which there is an EU-wide regulatory body, such as the European Medicines Agency and the European Chemicals Agency. Turkey faces NTBs, while EU member states transpose EU regulations for these two sectors into domestic law according to differential rules applying to each party. In addition, Turkish legislation does not permit mutual recognition – the principle of EU law under which a product legally sold in one member state can be sold in another member state – in the field of pharmaceutical products. There is no reciprocal recognition of ‘good manufacturing practice’ (GMP) certificates for the registration of pharmaceuticals to be sold in their respective markets.8 GMP prescribes the minimum standards that a pharmaceuticals manufacturer must satisfy in the production process.
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Transport problems: While the free movement of goods is a cornerstone of the CU, the transport underpinning that movement is not. Consequently, the 60,000 Turkish-registered goods vehicles that enter the EU each year at the Greek and Bulgarian borders face administrative hurdles. They must submit a range of documents to relevant authorities, from product invoices and export declarations to insurance certificates and transport permits for each member state through which they transit.9 This means that truck queues can be up to 17 kilometres long at the Bulgarian–Turkish border, and crossing can take up to 30 hours.10
In many cases there are also quota limits on the number of transport permits that may be issued to Turkish trucks and lorries by an EU member state, with demand exceeding the number of permits available. Turkish exporters had to bear transportation costs of $10.6 billion between 2005 and 2012. It is estimated that liberalization of transportation could add €3.5 billion in bilateral trade volumes.11
However, thus far the EU has reserved open-access road transport deals exclusively for countries that accept free movement of people. Since the EU will not extend free movement to Turkish citizens, Turkish hauliers will continue to face restrictions on their entry into and mobility within the EU.
- Lingering disputes: Bilateral trade disputes between the EU and Turkey tend to fester, in large part owing to the absence of an effective dispute settlement mechanism (DSM) to resolve them. While the CU’s DSM is limited to ‘safeguard measures’ – a policy to restrict an import temporarily to protect a specific industry – the AA’s DSM is much wider in scope, but it can only be triggered by mutual consent.
- Partial implementation: Under the terms of the CU, Turkey is not required to transpose the relevant parts of the EU’s acquis communautaire (its body of rules and regulations) into domestic law. For example, it has not adopted all EU legislation pertaining to motor vehicles. In addition, the Turkish government does not cooperate fully with the European Commission in the monitoring of its compliance with the relevant part of the acquis. This is partly due to the ineffective notification obligations to inform Turkey on draft technical legislation.12
- Trading blows: Turkey and the EU have resorted frequently to ‘trade defence instruments’ (TDIs), such as anti-dumping measures, thereby threatening trade between them.13 Anti-dumping regulation is a protectionist tariff imposed on foreign imports that allegedly sell below the ‘normal’ value (usually the sales price) in their own domestic market. TDIs undermine the rules-based trading regime between the EU and Turkey even though the CU requires the latter’s alignment with the EU’s procedures for safeguard measures, countervailing duties and anti-dumping, surveillance, as well as for managing numerical quotas and officially supported export credits.14
- Visa barriers: The ability of Turkish businesses to promote commercial activities in the EU is hindered by restrictive visa policies. Turkish hauliers face the same challenge of acquiring the necessary visas before entering and crossing the EU.
4 Çigdem, N. and Özer, Y. (2017), Turkey and EU Integration: Achievements and Obstacles, New York and Oxford: Routledge, p. 42.
5 World Bank (2014), Evaluation of the EU-Turkey Customs Union, Report No. 85830-TR, Washington DC: World Bank, p. 37, http://documents.worldbank.org/curated/en/298151468308967367/pdf/858300ESW0P1440disclosed090260140TR.pdf (accessed 22 Mar. 2018).
6 House of Lords European Union Committee (2016), 5th Report of session 2016-17: Brexit: the options for trade, London: House of Lords, https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/72/72.pdf (accessed 14 Mar. 2018).
7 Ibid.
8 World Bank (2014), Evaluation of the EU-Turkey Customs Union, p. 36.
9 Bogdanor, V. (2018), ‘A customs union won’t help: there is no such thing as a “soft” Brexit’, Guardian, 27 February 2018, https://www.theguardian.com/commentisfree/2018/feb/27/customs-union-brexit-european-union-eu-turkey (accessed 22 Mar. 2018).
10 Srivastava, M. and Barker, A. (2017), ‘Turkey border gridlock hints at pain to come to Brexit Britain’, Financial Times, https://www.ft.com/content/b4458652-f42d-11e6-8758-6876151821a6, 16 February 2017 (accessed 22 Mar. 2018).
11 Karataş, I. (2016), The EU-Turkey Customs Union: Towards a Revision of the Legal and Institutional Framework?, Ghent University, p. 52, https://lib.ugent.be/en/catalog/rug01:002304294 (accessed 17 Jul. 2018).
12 World Bank (2014), Evaluation of the EU-Turkey Customs Union, pp. 36–37.
13 Directorate-General for External Policies (2016), ‘Bringing EU-Turkey trade and investment up to date?’, Workshop, Brussels: European Parliament, p. 18, http://www.europarl.europa.eu/committees/en/inta/events-workshops.html?id=20160317CHE00051 (accessed 23 Mar. 2018).
14 Ibid. p. 18.