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Turkey and EU to Discuss Enhancement of Bilateral Trade Relations and Modernisation of the Customs Union

Hong Kong traders with export interests in Turkey may like to know that European and Turkish trade negotiators are to start talks in 2016 on improving bilateral trade relations and upgrading the existing EU-Turkey Customs Union, which is 20 years old.

Cecilia Malmström, EU Trade Commissioner, and Nihat Zeybekci, the Turkish Minister for the Economy, announced in May that both parties had agreed to more liberal trade relations and an enhanced market access within the framework of the EU-Turkey Customs Union. As the goods exported to any country within the Customs Union benefit from free circulation, an upgraded Customs Union might have implications on the goods exported to the common customs area by Hong Kong traders.

The parties, having expressed their willingness to start talks on the modernisation, will now engage in a study on impact assessment, in order to determine the potential effects of the changes to the existing trade rules. The Commission is expected to authorise the assessment in September this year, and the impact assessment process is anticipated to be finalised in a year from now.

Turkey is the EU’s sixth-largest trading partner, with a bilateral trade volume of € 120 billion. The current Customs Union between Turkey and the EU can be traced back to a long history of international agreements and subsequent protocols. An Association Agreement was first of all signed in 1963, in order to establish a customs union, which was followed by an Additional Protocol in 1970, setting down a timetable for the abolition of tariffs and quotas on the goods circulating between Turkey and the EU. Finally, the last phase of the Customs Union was kicked off in 1 January 1996 by means of the EU-Turkey Association Council Decision 1/95, which is still in force.

The current Customs Union covers industrial and certain processed agricultural products. Agricultural products are governed by the EU-Turkey Association Council Decision 1/98 (based on mostly ad hoc preferential concessions on certain agricultural products), whereas coal and steel products are governed by a separate Free Trade Agreement between Turkey and the EU. 

The expected modernisation of the EU-Turkey Customs Union stems from a twofold problem: poor implementation of the current Customs Union and its limited scope. The poor functioning of the Customs Union has itself created problems regarding market access, compliance with the common external tariff, non-tariff barriers, and export and import restrictions, which as a whole prevent the proper integration of the Customs Union.

Furthermore, the limited scope of the current Customs Union does not allow for trade relations between the parties in other economic areas, such as agriculture, services and public procurement. Inclusion of agricultural products in the Customs Union would fill an important gap in the bilateral trade relations of the parties.

Hong Kong traders should also know that the modernisation of the Customs Union could put into place additional legislative requirements which must be complied with when exporting to Turkey. Turkey is already under the obligation of aligning its technical legislation with that of the EU’s regarding the goods currently covered by the Customs Union. An enhanced scope of the Customs Union covering agricultural products might mean that the products entering Turkey would have to comply with the relevant EU legislation in that area also. However, the exact scope of the modernisation and the exact obligations of the parties under any updated trade relations would be shaped during the negotiations which are expected to start in late 2016.

After the conclusion of a Memorandum of Understanding for an update, between the parties, the EU was the first to draw up an inception impact assessment. The study’s results are expected to be finalised next summer. The inception impact assessment sets as the main objective the bringing of economic relations between Turkey and the EU to a new ambitious level, by addressing the deficiencies arising from the implementation of the current Customs Union rules.

The roadmap further underlines the importance of updating the Customs Union by stating that maintaining the actual situation with no change to the rules would pose a risk of a possible deterioration in bilateral trade relations. Failure to modernise the EU-Turkey Customs Union may lead to a weaker implementation and therefore substantial costs.

Within the framework of the impact assessment process, a steering group, to be formed by the relevant Directorates-General of the European Commission, is planned to hold regular meetings. A study which would feed into the impact assessment is planned to be contracted with an external contractor in September 2015, which is then expected to be finalised by summer 2016.

The EU will also adopt the consultation approach whereby interested stakeholders will be requested to submit their views on the modernisation of the EU-Turkey Customs Union. Hong Kong traders should keep a look out for the launch of a public consultation among stakeholders, which should occur in the spring of 2016 for a period of 12 weeks.

The EU considers that potentially interested stakeholders are likely to be companies and small and medium sized enterprises (SMEs), chambers of commerce, investor associations, think-tanks, universities, research institutes, academia, law firms, NGOs, profit and non-profit organisations, governmental agencies, ministries, and regional authorities, all of whom are directly or indirectly concerned by the upcoming modernisation of the EU-Turkey Customs Union. 

Hong Kong traders may further be relieved to learn that the enhancement of bilateral trade relations and modernisation of the Customs Union is expected to reduce the administrative burden on traders. It is also hoped that cross-border operations would likewise increase, between the parties, pursuant to the establishment of a more integrated Customs Union.

Hong Kong traders may refer to the table below showing a planned roadmap for the modernisation of the Customs Union:

Table: Modernisation of the Customs Union
Table: Modernisation of the Customs Union

For more information on bilateral trade relations between Turkey and the EU, including the rules and requirements for importing into the EU from Turkey, please click on the following link: EU-Turkey bilateral trade.

Content provided by Picture: HKTDC Research
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