Suspending Customs Union with EU

I will disclose details of a private meeting between Turkish and EU officials to shed some light on what has been a rather sour note between Ankara and Brussels for more than a decade now. The gathering took place amid a eurozone sovereign debt crisis and tumultuous Arab revolutions, both of which have put Turkey’s growing trade under considerable strain.

On Nov. 17, 2011, there was a tense quartet meeting held behind closed doors in İstanbul that covered many issues between the EU and Turkey. The meeting was attended by EU Minister Egemen Bağış and Economy Minister Zafer Çağlayan from the Turkish side, and Commissioner for Trade Karel De Gucht and Commissioner for Enlargement and Neighborhood Policy Stephan Füle from the EU side.

Turkey’s economy minister was furious at the meeting, lashing out at the EU commissioners for putting Turkey in a perilous position when it comes to the unilateral free trade agreements (FTAs) the EU signs with third countries without bothering to consult Turkey even though Turkey is obliged to comply with these FTAs indirectly through Turkey’s Customs Union (CU) agreement with the EU. Çağlayan accused the EU of being two-faced: being insincere and putting Turkey at a competitive disadvantage with regard to other countries. He listed a number of complaints, and then asked, “Do you have any objections to what I just said,” pointing a finger at the commissioners sitting across the table. In contrast, Bağış was calmer, trying to lighten the mood in the room to diffuse the tension.

In a private conversation with a handful of journalists recently, Çağlayan described this situation as a “ruptured hernia” caused by the EU’s indifference to lingering Turkish woes. He recalled that the CU was supposed to be a fast-track to full membership when it was first proposed. “Seventeen years have lapsed since we signed that agreement, and we are nowhere close to full membership,” he pointed out. “If we had the FTA with the EU, we would just need to adjust duties and tariffs spread out over time. But with the CU, we have to align all of our customs regulations with the EU acquis,” he lamented. With the CU, Turkey has become hostage to the EU’s common trade and customs policy without having any say in matters like FTA talks with third countries, he argued.

According to Article 16 of the CU agreement, Turkey has to adopt the common trade policy of the EU, which also includes FTAs with third countries. The bizarre point in the agreement is that an FTA the EU signs with a third country automatically kicks in with respect to the Turkish market but does not allow Turkey to gain access to the market of the EU’s FTA partner. In other words, Turkey has to open its market for any country the EU signs an FTA agreement with but would have to negotiate its own FTA with this country to benefit from similar preferential trade.

This represents unfair competition and puts Turkey in quite an awkward position because, as is often the case, third countries may not wish to conclude the same agreement with Turkey since they have already been given concessions by an agreement they signed with the EU. As a result, Turkey is not only in a position to breach the Article 16 but also has to suffer from what was called a “trade distortion.” This is also a violation of the consultation mechanism envisaged in the Ankara Agreement with the EU.

To alleviate these concerns, Turkey proposed two solutions to this problem, but unfortunately fell on deaf ears in Brussels. Ankara wanted the EU to require third parties to sign a similar agreement with Turkey during FTA negotiations or let the FTAs enter into force only after a third country concludes the same agreement with Turkey. The EU Commission bluntly said it only negotiates on behalf of 27 member states despite the fact that the FTA covers 27 + Turkey. With regard to its last request, Ankara said the Commission could and should consult Turkey prior to FTA talks the EU pursues with third countries. That was ignored as well.

Çağlayan says he spends an awful lot of time chasing after the tail of the EU’s FTA partners, hoping to strike the same or a similar deal with these. The problem, however, he says, is that some of these countries have simply no incentive to pursue FTAs with Turkey. “Algeria, Mexico and South Africa do not even want to start FTA talks with Turkey since they already have preferential access to the Turkish market through FTA agreements with the EU,” he explained.

While Çağlayan was lashing out at the EU commissioners in the meeting mentioned above, Füle handed out a three-page memo to him, explaining how the CU was beneficial for Turkey based on export and foreign direct investment (FDI) numbers originating from the EU. The note mentioned that Turkey attracted 80 percent of Europe’s investment, while close to 50 percent of Turkish exports went directly to European countries. “I turned the pages over to Füle, saying I know these numbers by heart,” he said.

He then added: “If you imply that these [FDI from and export to Europe] came with the CU, do not believe in a ‘self-fulfilling prophecy.’ Where do you think the FDI would go in Europe except to Turkey? You have no other choice if you look at the current situation in Europe. You are coming to a country where the market rules have been liberalized, banking regulations have been reformed and the legal rules have been overhauled. You have no young labor force to fuel the economy. Working hours in France are 35 hours on a weekly basis and 38 in Britain. In my country, it is 45 hours. I’m your closest logistic supplier.”

Çağlayan also added: “We have the CU, but Turkish businessmen have a hard time obtaining visas. Turkish goods are subject to trade barriers because the EU restricts the quotes on Turkish semitrailers entering the EU market.” There is in fact no freedom of movement of goods or free movement for professionals and business owners. Since Turkey’s grievances have not been addressed in Brussels for a long time, I would not be surprised if some people start questioning the Customs Union agreement with the EU. They might lobby for the suspension of the agreement and argue that for all intent and purposes it has worn out its usefulness and become detrimental to Turkish national interests in trade and economy.

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