The “final phase” envisaged in the Ankara Agreement was to complete the establishment of a customs union between the EC and Turkey. On 6 March 1995, Association Council adopted a “Customs Union Decision (Decision No 1/95)” on implementing the final phase of customs union between Turkey and the EC. In this way, 22 years of “transition phase” envisaged in the Additional Protocol was finished as of 1 January 1996 and the final phase was initiated on the way to accession of Turkey to EU.
Decision No 1/95 of the Association Council imposed stronger obligations than the obligations stated in the definition of customs union in the Ankara Agreement. According to the Article 10 of the Agreement, customs duties on imports and exports and all charges having equivalent effect, quantitative restrictions and all other measures having equivalent effect which are designed to protect national production in a manner contrary to the objectives of this Agreement between the member States of the Community and Turkey shall be prohibited. Also, Turkey commits to adopt the Common Customs Tariff of the Community in its trade with third countries and approximate to the other Community rules on external trade.
According to Decision No 1/95 of the Association Council, customs union not only covers abolition of customs duties and all other measures having equivalent effect and adoption of Common Customs Tariff of the Community, but also stipulates the abolition of all distortive mechanisms that results unfair advantage over the other party. In line with this approach, Turkey is obliged to approximate its laws to the EU acquis in competition, intellectual property and common trade policy areas as well as free movement of goods area.
Decision No 1/95 of the Association Council comprises the following Chapters:
• Free movement of goods and commercial policy
• Agricultural products
• Customs provisions
• Approximation of laws
• Institutional provisions
• General and final provisions
Turkey’s obligations stemming from the Decision No 1/95 can be classified under two headings:
1-Obligations related to Free Movement of Goods
Turkey EU Customs Union covers only industrial products and processed agricultural products. Certain association council decisions are applied to agricultural products and for coal and steel products a preferential agreement is applied. According to free movement principle, products produced in the Community or Turkey, including those wholly or partially obtained or produced from products coming from third countries which are in free circulation in the Community or in Turkey, products from third countries shall be considered to be in free circulation in the customs area of customs union (Community + Turkey) if the import formalities have been complied with and any customs duties or charges having equivalent effect which are payable have been levied in the Community or in Turkey, and if they have not benefited from a total or partial reimbursement of such duties or charges. Based on free movement principle, obligations that Turkey should fulfill for the functioning of Customs Union are as follows:
• Import or export customs duties and charges having equivalent effect shall be wholly abolished between the Community and Turkey on the date of 31 December 1995
• On the date of 31 December 1995, Turkey shall, in relation to countries which are not members of the Community, align itself on the Common Customs Tariff.
• In relation to trade in processed agricultural products, by determining industry and agriculture proportion of products in Annex 1 of the Decision, duties on industrial part of total protection has been abolished.
• Within five years from the date of entry into force of the Decision, Turkey shall incorporate into its internal legal order the Community instruments relating to the removal of technical barriers to trade.
• Quantitative restrictions on imports and exports and all measures having equivalent effect shall be prohibited between the Parties.
2-Obligations related to Legislation Alignment
According to article 8 of Association Council Decision No 1/95, within five years from the date of entry into force of this Decision, Turkey shall incorporate into its internal legal order the Community instruments relating to the removal of technical barriers to trade. List regarding Community instruments was determined by Association Council Decision No 2/97 and thereby technical legislation adoption efforts started.
According to article 54 of Association Council Decision No 1/95, in areas of direct relevance to the operations of the Customs Union, Turkish legislation shall be harmonized as far as possible with Community legislation. In the second paragraph of that article areas of direct relevance to the operation of the Customs Union are stated as follows:
• community commercial policy and preferential trade agreements with third countries
• legislation on the abolition of technical barriers to trade in industrial products
• industrial and intellectual property law
• customs legislation.
As of 1 January 1996, Turkey started to abolish customs duties on industrial goods and adopted the Common Customs Tariff of the Community in its trade with third countries. Certain exceptions foreseen in the Decision are eliminated eventually and for the processed agricultural products, duties on industrial part of total protection have been abolished. Besides, due to the obligations stemming from the Association Council Decision No 1/95, Turkey’s foreign trade regime is aligned with the EU Customs Code to a large extent. In this context, EU acquis on technical legislation, intellectual and industrial property rights, competition policy as well as EU legislation on free movement of goods and common commercial policy is taken into consideration and reflected in our foreign trade regime. Studies carried out within the framework of the obligations stemming from the customs union can be summarized as follows:
• Alignment to trade policy and preferential trade agreements with third countries
According to article 12 of Association Council Decision No 1/95, Turkey has aligned to common rules for import, common rules for import from certain countries, rules for administration of quantitative restrictions, rules for measures against unfair commercial practices, common rules for export, determination and administration of quota and tariff quota on export, quantitative restrictions imposed to third countries in textile sector, inward and outward processing regime rules since 1 January 1996. According to article 16 of Association Council Decision No 1/95, in order to align Common Trade Policy, Turkey started to sign Free Trade Agreements (FTA) with the countries that EU concluded FTA.
• Abolition of technical barriers to trade in industrial products
Important steps have been taken related to EU technical legislation alignment, so far a significant part of technical legislation has been aligned. Number of Turkish Notified Bodies that make certification of products in the scope of legislation required CE marking is gradually increasing.
• Alignment to competition policy and intellectual property law
Approximation of laws in the competition and intellectual property rights area started before the establishment of customs union, in this context Turkish Competition Authority and Turkish Patent Institute were established.
As regards competition policy, level of alignment with the acquis is advanced in the anti-trust and mergers area. Regarding the state aids which is the other element of the competition policy, alignment process accelerated during the talks to open the Competition Policy chapter to the negotiations. In this context, Law No: 6015 on “Monitoring and Supervision of State Aids” was adopted. The Law No 6015 also established a competent authority and a unit within the Undersecretariat of Treasury for the monitoring and supervision of state aids.
Concerning intellectual property rights, Turkey acceded to certain multilateral conventions on literary and artistic works, performers, broadcasting organizations etc. in order to align with the international norms. Also, a variety of regulations were enacted for the approximation of laws to the EU acquis in this area. Besides, in order to ensure effective protection for industrial property rights in compliance with the EU acquis, international norms and especially with the TRIPS (The Agreement on Trade-Related Aspects of Intellectual Property Rights), various regulations on trademarks, designs and patents were entered into force.
• Alignment to customs legislation
Turkey aligned to EU customs legislation to a large extent. Thus alignment has been achieved in the following areas that require common implementation for the proper functioning of customs union: origin, customs value, entrance of goods into customs area, customs declaration, free movement right, customs regimes with economic impact, movement of goods, customs debt/obligation, and right of objection. Since 1996 when customs union was put into effect, as a result of alignment efforts Turkey has reached to an advanced level on legislation alignment in this field.
UPDATE OF THE CUSTOMS UNION
Customs Union’s dynamic effects positively contributed to competiveness and productivity of Turkish manufacturing industry and were influential on the foreign direct investments in Turkey. Moreover, the structural changes and the competitiveness approach diversified production patterns and also ensured safe and high quality products. The infrastructure for technical legislation established in conformity with the EU system and adoption of EU’s intellectual property and competition rules increased Turkey’s competitiveness in global markets, thus enhanced its integration with the world economy.
However, there are also some problems stemming from the implementation of the Customs Union. The main difficulties could be summarized as; risks of trade diversion and unfair competition due to the reluctance of some of EU’s free trade agreement (FTA) partner countries to conclude similar agreements with Turkey by taking into account the advantage of entering into Turkish market through the EU, lack of adequate participation in decision making mechanisms of the EU in areas relevant to the Customs Union, and also technical barriers due to road quotas imposed by some EU Member States and visas applied for Turkish businessmen and truck drivers.
At the request of the European Commission, the World Bank conducted a study concerning the problems encountered during the implementation of the Customs Union. The report of this study was officially announced to the public in April 2014. In the report, the negative and positive effects of the Customs Union were evaluated, resolution of the problems stemming from asymmetric structure of the Customs Union was underlined and as a result it was proposed that facilitating the integration of trade between Turkey and the EU would be beneficial for both sides.
On the other hand, economic developments and changes both in Turkey and the global trade since its introduction also necessitated the revision of the current status of the Customs Union. In this context, upon the mutual understanding between the parties, Turkey and the EU held a series of technical meetings and a report determining the framework of negotiations was adopted. Accordingly, the update package includes subject areas for better implementation of the Customs Union and also foresees extending Customs Union’s scope to services, public procurement together with furthering agricultural concessions bilaterally.
Turkey’s main approach for this process is that the revision of the Customs Union should proceed without creating an alternative path to Turkey’s EU membership.
The European Commission asked the Council for a mandate to launch talks with Turkey to modernise the Customs Union. Soon after the mandate, actual negotiation process is expected to start by second half of 2017. Currently, internal preparations involving relevant Turkish Ministries and institutions are carried out. The process is conducted by the Ministry of Economy, together with the Ministry for EU Affairs and the Ministry of Foreign Affairs.