19 November 2018

The realities of Turkey’s customs union with the EU

by IFT

With Theresa May’s proposed backstop leaving the UK in a customs union with the EU, now is a good time to consider Turkey’s experience of being in an analogous (although inevitably not identical) arrangement.

Customs unions provide tariff free trade between members; remove the need for proving rules of origin between members; and apply a common external tariff for all goods covered by the agreement (“covered goods”). The covered goods in the Turkey-EU customs union include all industrial goods; but not agriculture (besides some processed agricultural products), some coal and steel products, services, or public procurement.

These limitations mean that the few trade agreements which Turkey has been able to negotiate with third countries (e.g. Malaysia, Chile) have been limited in scope, covering only certain sectors, since it is not free to lower tariffs on goods.

Turkey does not enjoy a vote on the EU’s trade agreements - over TTIP, for example, Turkish Ministers even threatened to suspend the CU, should it not be granted a role.

Crucially: in its trade negotiations the EU is able to grant FTA partners access to Turkey’s market, with no guarantee of reciprocal access for Turkey’s exporters. Turkey must negotiate its own access once the EU’s deal has already been agreed (and its market has already been opened); at which point FTA partners have little incentive to reciprocate.

This means that EU FTA partners have often dragged their feet in reciprocating access for Turkey (for example South Africa, Algeria and Mexico). There is even a significant risk of EU FTA partners refusing to enter into reciprocal agreements.

There are also implications for regulatory alignment. As Prof. Catherine Barnard and Emilija Leinarte have succinctly explained:

Turkey is also under an obligation to harmonize as far as possible its laws with the EU’s legal framework in areas of direct relevance to the operation of the CU (Article 47 of the CU Decision)... Areas of direct relevance are listed in Article 54(2) of the CU Decision and include commercial (ie trade) policy and agreements with third countries in relation to industrial products, legislation on the abolition of technical barriers to trade and industrial products, competition policy, intellectual property rights and rules… while the provision stops short of establishing direct jurisdiction of the ECJ in Turkey (which would be the case if it was in the CU), the ECJ’s interpretative jurisdiction, while limited, is nevertheless established.”

In short: Turkey’s customs union with the EU contains such limitations on its trade with third countries, that one must ask whether it enjoys a meaningfully independent trade policy at all.