Customs Union

CUSTOMS UNION

On 31st of January 1996, the Customs Union between the European Union and Turkey came into effect, thereby creating the closest economic relationship between the EU and a non-member country. The Customs Union implies fundamental changes in the Turkish trade and competition legislation and policies, and creates new opportunities and challenges for the Turkish economy. The decision of the Turkey-EU Association Council to establish a Customs Union between Turkey and the EU was one of the most important developments affecting Turkish economy as a whole, since the liberalisation measures in the 1980s.

The Customs Union is one of the cornerstones of Turkey´s relationship of association with the European Community, which dates back to 1960s. The framework of the Customs Union was drawn with the Ankara Agreement of 1963 and details were laid down by the Additional Protocol, which entered into force in 1973. With the decision signed during the Turkey-EC Association Council meeting on March 6, 1995, Turkey completed the transitional phase in its integration with the EC as foreseen in the Ankara Agreement and additional protocols, and entered into final phase. After a transitory stage of 22 years, during which essential measures were put into force towards trade liberalisation and greater reliance on market forces, parties decided that conditions had been fulfilled for the establishment of the Customs Union and it started to function as of December 31, 1995.
 
The Customs Union covers only the industrial and (industrial content of) the processed agricultural products. Traditional agricultural goods are outside the scope of the Customs Union.
 
With the entry into force of the Customs Union, Turkey has eliminated all customs duties and charges having equivalent effect, as well as quantitative restrictions applied on imports of industrial products from the Community. For products imported into Turkey from third countries, Turkey started to apply the Common Customs Tariff (CCT) of the Community.
 
The content and the provisions of the Decision No: 1/95 of the Association Council (DAC) in a number of areas goes beyond the minimum requirements of a customs union. Through this process, Turkey has had to adopt a number of legal and administrative measures which are part of the acquis communautaire similar to those applicable in the EU.
 
As far as the implementation procedures are concerned, the Customs Union Decision supplements the partnership´s existing “legal framework”. In addition to the classical components of a customs union, i.e. tariff reductions and harmonisation with the CCT, the decision also contains other principles and arrangements which aim at developing the partnership beyond the envisaged fields, parallel to the broad and dynamic evolution of the European itself. In this framework, the obligations of the Parties arising from the Customs Union Decision mainly cover the following areas.
 
Free Movement of Goods
 
Turkey has abolished all existing customs duties and measures having equivalent effect on the industrial products imported from the EU and brought the quantitative restrictions applied to third countries in line with the Community legislation. Additionally, except the sensitive products for which a 5 years transitory period was envisaged with the Decision 2/97, Turkey started to apply the CCT of the Community to third countries.
 
Furthermore, with regard to processed agricultural products which are laid down in the Annex 1 of the Decision No: 1/95, the industrial and agricultural components of those products was estimated and the industrial components have immediately abolished for some of those whereas it is envisaged to be abolished within a period of five years for some.
 
On the other hand, for the free movement of goods which is the basis of customs union to be realized effectively, the technical barriers (which are commonly referred to as procedures related to “standards”) must be eliminated as far as possible. For this purpose, the Decision at issue also embodies two essential elements.
  • Firstly, it is agreed that Turkey would adopt the Community mechanisms, more specifically the acquis communautaire related to standardisation, measuring, calibration, quality, accreditation, testing and certification within five years from the Decision´s entry into force. The list of the legislation that has to be adopted was specified by the Association Council Decision No: 2/95.
  • The second important element is that, during this process, if Turkey fulfils the required harmonisation measures with respect to a certain good or group of goods, the technical barriers to that particular good(s) have to be abolished without having to wait for the end of this transition period.
Common Trade Policy
 
Upon the entry into force of the Decision, Turkey has, inter alia measures that are compatible with the import, export legislation and the Common Customs Tariff (CCT) of the Community, agreed to adopt the preferential and autonomous trade regime applicable to third countries within a period of five years from the entry into force of the Decision (Art. 16). The latter also contains signing of the bilateral trade agreements (also known as Free Trade Agreements: FTAs) that the Community concludes with third countries.
In the field of import and export legislation and CCT, the legislative harmonisation has been achieved to a large extent except the sensitive products following the entry into force of the Decision No: 1/95. Furthermore by 2001, the relief on these products was concluded.
 
At present, the EU concluded FTAs with EFTA, Croatia, Macedonia, Albania, Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syria (the negotiations concluded, waiting for the signature), Tunisia, Republic of South Africa, Mexico and Chile. The negotiations with Bosnia and Herzegovina, Montenegro, Gulf Cooperation Council (GCC), African-Caribbean- Pacific (ACP) Countries, Mercosur, Andean Community, India and South Korea are continuing and the negotiations with Ukraine, Central America and ASEAN are about to start.
 
On the other hand, Turkey has done a lot through FTA process and signed FTAs with EFTA, Israel, Macedonia, Croatia, Bosnia-Herzegovina, Morocco, Palestine, Tunisia, Syria, Egypt and Albania. While the negotiations to sign an FTA with Lebanon, Faroe Islands, Jordan, GCC and Montenegro are continuing; the efforts to initiate the negotiations with Mexico, Chile, Mercosur, Algeria, Serbia, Kosovo, ACP Countries, Ukraine, ASEAN, South Korea, India, and Central American Common Market (CACM) have been unsuccessful so far. The FTAs with 10 Central and Eastern European Countries were abrogated mutually in 30th of April 2004, since these countries became EU members in 1st of May 2004 and since then, trade relations with these countries have been conducted on the basis of Customs Union.
 
It is manifest that concluding FTAs with third countries would be beneficial for Turkey´ foreign trade; however there are some problems. As mentioned above, according to Article 16 of the DAC No: 1/95, Turkey has to adopt the common trade common policy of the EU. This also includes signing FTAs with third country with which the EU signed an FTA. However, third countries do not sometimes wish to conclude the same agreement with Turkey since they do not wish to grant the same concessions that they grant to the EU. This leads Turkey not only to fail to fulfil its obligation stemming from Article 16 but also to suffer due to traffic distortions. At this point, Turkey wants the EU to insert a provision obliging third state to sign the similar agreement, into the FTAs or not to let the FTAs enter into force until that third state signs the same agreement with Turkey.
 
On the other hand, having regard that the Customs Union is comprised by 27 (the EU) + one (Turkey) members, and since Turkey is directly affected by the FTAs as well as the consultation mechanism envisaged in the Ankara Agreement could have never been carried out effectively and in the proper sense through the negotiation process of signing an FTA; Turkey should be on the table as an equal partner during all phases of the  negotiation process, i.e. starting from the beginning of negotiation position. 
 
Lastly, in terms of the autonomous trade regime, Turkey has been criticized to fail to fully adopt the Generalised System of Preferences (GSP) of the EU by the Commission in the progress reports 
 
Technical Legislation
 
For the free movement of goods which is the basis of customs union to be realized effectively and in the proper sense, the technical barriers (which are commonly referred to as procedures related to “standards”) must be eliminated as far as possible. For this purpose, the Decision at issue also embodies essential elements.
 
Firstly, it is agreed that Turkey would adopt the Community mechanisms, more specifically the acquis communautaire related to standardisation, measuring, calibration, quality, accreditation, testing and certification within five years from the Decision´s entry into force. The list of the legislation that has to be adopted was specified by the Association Council Decision No: 2/97. Taking the developing dynamic structure of the technical legislation of the EU into consideration, there has been efforts to update this decision.
 
The technical legislation basically includes new approach and old approach directives. In the old approach, the technical qualities of the products are defined in detail whereas the new approach directives define the "essential requirements", e.g., protection of health and safety, which goods must meet when they are placed on the market. The "New Approach", defined in a Council Resolution of May 1985, represents an innovative way of technical harmonisation. It introduces, among other things, a clear separation of responsibilities between the EC legislator and the European standards bodies CEN, CENELEC and ETSI in the legal framework allowing for the free movement of goods.
 
The European standards bodies have the task of drawing up the corresponding technical specifications meeting the essential requirements of the directives, compliance with which will provide a presumption of conformity with the essential requirements. Such specifications are referred to as "harmonised standards". "Harmonised standards" are European standards, adopted by CEN, CENELEC or ETSI, following a mandate issued by the European Commission after consultation of Member States. They are developed through an open and transparent process, built on consensus between all interested parties (1). 21 of 25 new approach directives require CE (Conformité Européenne) marking. CE is not a quality or standardisation symbol but a security symbol showing that the product satisfies the minimum security conditions and ensuring the product to freely circulate within the Union.  
 
With respect to harmonisation, the Communiqué on Standardisation Regime in Foreign Trade entered into force in 1996 following the Decision No: 1/95. In line with the existing international standards, this regime envisaged quality controls to be carried out only on grounds of personal security, environmental protection, national security requirements and consumer protection. Other aspects of quality were to be determined by market conditions. At present, The Communiqué on Standardisation in Foreign Trade, applicable in 2007, further reduced the list of items which are subject to mandatory standards or technical specifications upon import; 35 mandatory standards in the area of construction products were abolished. The remaining mandatory standards are in the area of foodstuffs and various other sectors, including old standards and purely national standards (2). The harmonisation process is carried out by several public institutions coordinated by the Undersecretariat for Foreign Trade.
 
In terms of harmonisation in administrative structure, in 1993, the Turkish Standards Institute (TSI), which has the sole authority and responsibility for preparing and publishing Turkish standards for all types of materials, products and services in Turkey, started to adopt and harmonise its standards with those of the EU. The aim is to harmonise Turkey´s legislation on a wide range of technical regulations under 32 main topics with those of the EU by the end of the year 2000. Since 1993, more than 90 percent of EU standards have been adopted as Turkish standards. To bring standardisation procedures in conformity with the EU norms and to prevent Turkish imports from possible technical barriers, Turkish Accreditation Council (TURKAK) which is in charge of accrediting the conformity assessment institutions was established in 1999. Until TURKAK signed the multilateral agreements (mutual recognition agreements) of the European Accreditation Cooperation (EAC) Programme, it had been necessary to apply to the European Bodies for conformity assessment. At present, TURKAK has signed the 4 of these 7 agreements. TURKAK has also become a member of International Accreditation Forum (IAF). 
 
Intellectual and Industrial Property Rights
 
Bearing in mind that the Customs Union could not function properly unless intellectual property are protected at an equal level by both parties, harmonisation of Turkish legislation to the acquis communautaire and to certain international agreements, as well as to the TRIP Agreement has been envisaged.
 
Legislation on copyright and related rights, patents, trademarks, counterfeit goods, protection of geographical indications and industrial designs should be implemented, without prejudice to Turkey´s status as a developing country in the WTO.
 
Turkey has introduced significant changes to its industrial property regime since 1994, before the customs union was concluded. Turkish Patent Institute (TPI) was established in 1994 and the sections of harmonisation of intellectual property rights that had to be completed before the Custom Union´s entry into force were fulfilled in 1995 by the co-ordinated efforts of the TPI. Hence the “Law on Intellectual and Artistic Rights” has been amended and brought into line with the acquis. Moreover, Turkey became a party to the related international conventions and adopted legislative amendments for trademarks, patent rights and protection of industrial designs and geographical indications. In addition to these, Turkey became a signatory to a number of important international conventions governing intellectual property rights. These reforms have given Turkey an extensive legal framework for the protection of intellectual and industrial property rights.
 
Competition
 
The DAC concerned obliges Turkey to harmonise its legislation on competition rules with that of the EU. Within one year from the Custom Union´s entry into force, all of the EU´s block exemption directives and the related principles in case law would be adopted.
Apart from these, all agreements, decisions and concerted practices between undertakings that may distort or limit competition, as well as any abuse of dominant position had to be prohibited, in so far as they would affect trade between the parties.
 
The first step in this field was the adoption of the Act on the Protection of Competition prior to the Customs Union decision. The key provisions of Turkey´s competition law are based on EU competition law. The Law on the Protection of the Consumer was put into force in 1995.
 
An independent Competition Board which is the major executive authority under the Act concerned was established in 1995 and became functioning in 1997.
 
Within the scope of harmonisation in this field, state aids are of vital importance as they distort or threaten to distort competition by favouring certain undertakings or the production of certain goods are incompatible with the proper functioning of the Customs Union. In accordance with this basic principle, Turkey has undertaken to carry out the necessary legislative amendments. It was stated in the Progress Report of 2007 delivered by the European Commission that Turkey has made no progress related to state aid and has not fulfilled its obligation to report state aid schemes to the Community. The Commission wants Turkey to set up an independent state aid monitoring authority. A draft law has been prepared laying down such a body to be set up under the authority of the State Planning Organization (DPT), but not yet enacted.
 
Public Procurement
 
In the field of monopolies, within one year of the entry into force of the Customs Union, Turkey was to ensure to uphold the principles embodied in the EU legislation and case laws concerning public undertakings or undertakings to which special or exclusive rights have been granted. Furthermore, within two years from the entry into force of the DAC No: 1/95, state monopolies of a commercial character had progressively to be adjusted, so as to ensure that no discrimination exists between nationals of the member states and of Turkey.
 
With respect to harmonisation, the Public Procurement Act entered into force in 1st of January 2003 and a legally and administratively independent Public Procurement Authority which is in charge of monitoring public procurements and deciding on complaints related to procurements started to function in 2002.
 
However, it has been stated in the progress reports by the Commission that the Act concerned has still some provisions laying down discriminatory price advantage for domestic bidders. Within this context, the preparations to amend the Act have been continued.
 
The EU-Turkey Association Council decided in its 39th meeting on 11th of April 2000 that the negotiations to mutually open the public procurement markets and to realize free movement of services would start and the negotiations started in October 2000. In spite of the progress in the field of public procurement, Turkey´s approach on the free movement of services has been that the negotiations would be carried out with a membership perspective upon the accession negotiations would start.
 
Customs
 
Within the framework of the Customs Union, among Turkey´s obligations are the modernisation and restructuring of customs administration. In this context, the project on modernisation of customs that started in 1998 can be deemed as not only an automation but also a modernisation project; which aims at reorganization of customs administration and developing and implementation of IT systems for customs procedures to ensure customs controls to be held more effectively as well as modification of customs legislation and procedures to bring the in line with the acquis.
 
Besides having some provisions regarding customs duties, the Decision No: 1/95 has also envisaged Turkey to adopt the customs legislation of the Community. In this context, by the Customs Code´s (No: 4458) entry into force in 5th of February 2000, Turkey fulfilled its obligations in this field and bring its legislation in line with the Community Customs Code regarding the issues such as origin of goods, customs value, entering to and leaving the customs territory of Turkey.
 
With regard to administrative structure, within the scope of this project, the Customs Administration Act was amended and as stated in the 2007 progress report, the rate of import and export declarations that were processed electronically by the 103 customs offices integrated into the electronic data interchange System (EDIS) reached 84% of all import and export declarations made during the first quarter of 2007. A pilot project allowing operators to make electronic payments has started in the Ankara office. The “Say2000i” system of the Directorate General for public accounts has been integrated into the Undersecretariat's BILGE system, which allows public accountants to query the collection of customs duties. The administration has started business and IT preparations for IT interconnectivity with the EU systems in the field of transit (NCTS) and tariff (TARIC, Quota and Surveillance) (3).
 
Institutional Cooperation
 
The Decision No: 1/95 has also brought three important arrangements related to institutional cooperation between the parties.
  • A Customs Union Joint Committee (CUJC) has been established with the purpose of carrying out exchange of views and information, formulating recommendations to the Association Council and ensuring the proper functioning of the Customs Union.
  • A mutual consultation procedure has been established for adopting new legislation or amending existing legislation, in areas of direct relevance to the operation of the Customs Union.
  • Turkish experts are given the opportunity to participate into the work of certain commissions and technical committees in areas of direct relevance to the functioning of the Customs Union. (See Association Institutions)
In addition, Customs Cooperation Committee and several subcommittees have also been set up to improve the institutional cooperation between the parties.
 
On the other hand, technical committees are of vital importance within the functioning of the Customs Union. However, Turkey could join only 17 (such as Nomenclature, Customs Code, External Trade Statistics and Textiles Committees) of the almost 450 technical committees working under the authority of the Commission, as an observer, i.e. without having the right to vote.  Furthermore, Turkish experts do not have the right to join the Committee 133 which has an important role on determining the trade policies of the Union, since it is not a member. Moreover, the envisaged mutual consultation mechanism has not functioned properly. This matter has always been uttered by the Turkish side at the meetings of CUJC.
 
Another structure facilitating the functioning of the Customs Union is the Customs Programme. Turkey had joined the replaced Customs 2007 Programme since 1996 and has a candidate status since 1999. This programme was replaced by Customs 2013 Programme and Turkey will continue to join this programme too.

(1) http://www.newapproach.org
(2) 2007 Progress Report
(3) 2007 Progress Report



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