THESIS INTERNATIONAL AND EUROPEAN LAW:
INTERNATIONAL TRADE AND INVESTMENT LAW
2018 / 2019
EU-TURKEY CUSTOMS UNION:
What are the Main Problems of Customs Union and
Does It Have Direct Effect on the EU Law?
BURCIN TASPINAR
12268941
Abstract
European Union and Turkey entered into a formal Customs Union Agreement on December 31, 1995, in the form of Decision 1/95 of the EU- Turkey Association Council.1
The main concern of this research is to assess the legitimate ground between Turkey and the European Union considering Customs Union and the background of the related agreements. Finally the effects of Customs Union and legal interests of both parties will be determined in light of relevant research.
The gripping point of this topic is that Turkey having a unique legal status by being the only sovereign state (without having EU membership) ratifying an agreement with European Union in regard to the free movement of goods and services between the EU territory and Turkey. Inevitably, such legal intimacy without formal EU membership entails a complex decision-making and dispute settlement structure that is bound to fall short of that available to members.2
1 OJ (1996) L 35/1.
TABLE OF CONTENTS
Abstract………...2
Table of Contents……….………...3
List of Abbreviations………...5
1.Introduction………...6
2. A Unique Structure: CU Between the EU and Turkey………....7
2.1. Establishment of the CU Between Turkey and the EU……...8
2.2. The Preparatory Stage: Ankara Agreement………...9
2.3. The Transitional Stage: Additional Protocol……….…10
2.4. The Final Stage: Customs Union Decision (Decision No 1/95)……….………..10
2.4.1. Obligations related to Free Movement of Goods………..….12
2.4.2. Obligations Related to Legislation Alignment……….…..…12
3. What is the Benefit of Maintaining CU if the Accession is not on the Table?...14
4. The Main Problems of CU………...16
4.1. Decision Making Procedure………..…16
4.2. Trade Deflection ………...17
4.3. Visa Requirements………...18
4.3.1. CJEU Case C-228/06 Soysal and Savatli v. Bundesrepublik Deutschland…………..18
4.3.1.1. Background………..…...18
4.3.1.2. Judgment………...…20
4.4. Quotas Regarding Transportation………...21
4.5. Limited Scope of the CU ……….……...21
5. Direct Effect of the CU in EU Law………..….22
5.1. Istanbul Lojistik v. Nemzeti Ado-es Vamhivatal Fellebbviteli Igazgatosag……….…....23
5.1.1. Background………....23
5.1.2. Judgment of the Court………24
5.1.3. Analysis: Does CU Have Direct Effect on the EU Law?...25
5.2. Other Relevant Decisions………...….26
6. Customs Union: Out-of-Date? ………...…...27
6.1. Involvement in the EU Trade Policy………...……..28
7. A More Comprehensive Customs Union ……….31
7.1. Modernizing Customs Union………....32
7.2. Supplementing CU with a FTA………..……...32
7.3. Replacing CU with a Comprehensive FTA………...32
7.4. Accession to the EU………...………...33
Conclusion……….………...34
LIST OF ABBREVIATIONS
AA Ankara Agreement
CCT Common Customs Tariff
CJEU Court of Justice of the European Union
CU Customs Union
CUD Customs Union Decision
EC European Community
EEC European Economic Community
EU European Union
FTA Free Trade Agreement
GATT General Agreement on Tariffs and Trade
NATO North Atlantic Treaty Organization
TFEU Treaty on the Functioning of European Union TTIP Transatlantic Trade and Investment Partnership
UCC Union Customs Code
UN United Nations
1. Introduction
For more than a half century, accession to the European Economic Community or European Union has always been a trend topic in Turkey’s agenda. Despite this determination, Turkey is the only state who has been waiting at the entrance gate of the European Union since 1963. Turkey’s still being a candidate country for the European Union is due to both political and economic reasons. Thus, the roadmap for the full membership of Turkey has been drawn up in the Ankara Agreement (1963) within three main steps consisting of “preparatory”, “transition” and “final” phases. In this regard, the Customs Union founded by the Decision No: 1/95 of the European Union -Turkey Association Council, has been envisaged as the final phase of the accession process.
The Customs Union between Turkey and the European Union has a very limited scope, such as industrial and processed agricultural products. Although this limited scope, the Customs Union has provided undeniable improvements regarding the trade volume between Turkey and the European Union. On the other hands, it has many problematic aspects, such as Turkey not having any existence in the decision- making process in the European Union’s commercial policies, deflection of trade, visa requirements for the Turkish businessmen and also European Union entering into new generation free trade agreements with the third parties reducing the importance of the European Union -Turkey Customs Union structure.
In light of the foregoing, this study mainly aims to handle the problematic aspects of the Customs Union structure and the enforceability of the Customs Union provisions in the European Union jurisdiction.
Within this framework, the first part will deal with the Customs Union definition, chronological development of the European Union-Turkey Customs Union mechanism with also the scope of the union and significant provisions regarding the association agreements. The second part will tackle the benefits of maintaining the Customs Union whilst full membership appears unattainable in the near future. Additionally, the problematic and controversial aspects of the mechanism will be handled in the third part. The fourth part will deal with the enforceability of the Customs Union provisions in the European Union law by analysing a significant CJEU case, namely CJEU Case Istanbul Lojistik v. Nemzeti Adó- és Vámhivatal Fellebbviteli and f
van Justitie. Finally the fifth part will mention suggestions for a better operating Customs
Union and with whether a fundamental reform is needed in the current mechanism.
From now onward, the abbreviations listed above will be used in order to identify certain institutions and agreements.
2. A Unique Structure: Customs Union Between the European Union and Turkey
The EU CU is a unique example of a free trade area where a number of states –mostly EU member states- apply a uniform system for handling the import, export and transit of goods and implement a common set of rules called the Union Customs Code (UCC).3 In this regard,
the customs duties are applied only imports from outside the EU and goods can be traded freely within the borders of the EU. Even though the scope is much narrower than the EU CU, Turkey is the only state that has come to a CU agreement with the EU despite not having the EU membership.
A CU is usually described as a type of trade agreement under which certain countries preferentially grant tariff-free market access to each other’s imports and agree to apply a common set of rules on external tariffs to imports from outside the common customs area. Coverage of the CU, determination of the common customs tariff (CCT), collection of CCT revenue and allocation of CCT revenue are the main issues that need to be settled between the parties. Considering Turkey-EU CU scope, parties agreed that the CU is restricted to industrial goods, which Turkey should accept the external tariff of the EU, that the CCT revenue would be collected by each party at the initial port of entry and the CCT revenue would accrue as income to the party collecting that revenue.
The Turkey-EU Customs Union Decision (CUD) of 1995 required Turkey to eliminate all customs duties, quantitative restrictions, all charges having equivalent effect to customs duties and all measures having equivalent effect to quantitative restrictions in trade of industrial goods with the EU as of 1 January 1996. Thus, Article 4 of CUD states that, “Import or export
customs duties and charges having equivalent effect shall be wholly abolished between the Community and Turkey on the date of entry into force of this Decision. The Community and
3EU Customs Union, Taxation and Customs Union, European Commission, 2019,
Turkey shall refrain from introducing any new customs duties on imports or exports or any charges having equivalent effect from that date.”4
In addition, Turkey was required to adopt the CCT of the European Community (EC) against third-country imports by 1 January 1996 and also adopt all of the preferential agreements the EU has concluded and will conclude with third countries.5
Therefore, Turkey’s bilateral economic and trading relationships with the EU has been defined with the CU since 1995. Implementation of the CU was supposed to be the final phase in regards to accession to the EU, but the accession process has economically and politically come to a standstill. Thus, the full membership of Turkey appears unattainable at any point in the near future.
Despite the fact that CU is a win-win deal for both Turkey and the EU, both parties recognize that it needs to be modernized to improve its operational efficiency and to widen its scope and coverage. Over the last decade, the EU’s tendency to entering into new generation trade agreements has entailed to upgrade the CU beyond its narrow scope on the elimination of tariffs on industrial goods, to include provisions on services, investment, intellectual property rights, public procurement, digital innovation and sustainable development.6
2.1. Establishment of the Customs Union Between Turkey and the European Union As mentioned above, Turkey has a unique status by not being a member but also having a CU with EU. In fact, Turkey and Greece are the sole countries that had / have a CU with the EU with an accession perspective. As provided, Greece became a member state in 1981, and the CU fulfilled its duty as the final phase on the road to accession for Greece. The CU between Turkey and the EU has been envisaged for the same purpose in accordance with 1963 dated Ankara Agreement Article 28 by stating that “As soon as the operation of this Agreement has
4Decision No 1/95 of the EC-Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union, Official Journal L 035 , 13/02/1996 P. 0001 - 0047
5Togan, Subidey. "The EU-Turkey customs union: a model for future Euro-Med integration." Economic and social development of the Southern and Eastern Mediterranean countries. Springer, Cham, 2015. 37-48. 6 Hakura, Fadi, EU–Turkey Customs Union- Prospects for Modernization and Lessons for Brexit, December 2018
advanced far enough to justify envisaging full acceptance by Turkey of the obligations arising out of the Treaty establishing the Community, the Contracting Parties shall examine the possibility of the accession of Turkey to the Community.”7
Therefore, the CU is seen as a step that should be taken before joining the internal market, which will be possible by full membership of Turkey to the EU
.
8In this respect, Turkey applied to the newly established EEC in order to finalize its orientation to western world on July, 1959. Turkey and Greece applied simultaneously for the accession to EEC such as they did for the membership to the Council of Europe in 1949 and to NATO in 1952.
2.2. The Preparatory Stage: Ankara Agreement (Association Agreement)
EEC signed the association agreements with these two Southeast European Countries respectively: in 1961 with Greece and in 1963 with Turkey. The association agreement signed with Greece is known as the Athens Agreement and with Turkey is known as Ankara Agreement or Association Agreement, or with its original title: ‘The Agreement establishing an Association between the European Economic Community and Turkey’. The main purpose of the Ankara Agreement is to pave the road for the EU accession with respect to the process of economic cooperation.
As a gripping point, Article 237 of the Treaty of Rome9 envisages being a European State as a
prerequisite for membership to EU
.
In that sense, The Ankara Agreement, can be construed as a document demonstrating EU’s confirmation of Turkey’s character as a European state.10Also, it is obvious that the CU states the main basis behind the Ankara Agreement: the fractional integration of the Turkish economy in the EU market. The nature of the CU was
7EEC-Turkey Association Agreement (1963) Official Journal No 217 of 29.12.1964
8 The Need for a Modernized EU-Turkey Customs Union: The Problems and the Solution Suggestions
9 The Treaty of Rome, Article 237: “…Any European State may apply to become a member of the
Community…”
10Göral, Emirhan, and Muzaffer Dartan. "The Customs Union In The Context Of EU-Turkey Relations: An Evoluation Of Current Debates." Marmara Journal of European Studies 24.2 (2016)
explained in the Birkelbach Report,11 stating the primary conditions for membership:
“the advantage of an association based on a CU consists especially in a progressive rapprochement of the associated country to the Common Market preparing the ground for its future accession. This is why this formula is particularly recommended for countries which wish to adhere to the Community but which do not fill the necessary economic conditions for accession. If these countries are ready to get out from the political order that results from the narrow links of the association to respect the established principles and to submit themselves to the institutional control of the association, the CU will offer them more advantages than the other types of association.”
The main framework of the Ankara Agreement expresses the CU as a very important part of integration. Also, the Ankara Agreement envisages other ways to integrate Turkey in the EU. Therefore, the Ankara Agreement is mainly consists of the non- discrimination provision, together with the progressive implementation of free movement of workers, the abolishment of restrictions on free movement of establishment, and services. Whereas the last three economic provisions are already programmed, the implementation of the rest of this agreement has been trusted to the Association Council. Yet it is clear that all of these provisions point to the European Union Law as guiding principles. This is the reason why the Ankara Agreement is called as an ‘integration agreement.’12 The main aim is integrating Turkey in the internal EU market, on fractional levels, in order Turkey to be ready to finally join the EU as a whole. The Turkish government foresees the CU as a part of a sequence, which is also a pre-accession strategy, in order to the imminence of accession to the European Union, specifically as it ensured a deeper political dialogue and provided a more structured relationship.
2.3. The Transitional Stage: Additional Protocol
On 23 November 1970, an Additional Protocol was signed between Turkey and the EU as a
11Report by Willi Birkelbach on the Political and Institutional Aspects of Accessionto or Association with the Community, 19 December 1961, 26, available at
http://www.cvce.eu/en/obj/report_by_willi_birkelbach_on_the_political_and_institutional_aspects_of_accession _to_or_association_with_the_community_19_december_1961-en-2d53201e-09db-43ee-9f80-
552812d39c03.html
12M. MARESCEAU, “Les Accords d’Intégration dans des Relations de Proximité de l’Union européenne” in C. BLUMANN (ed.), Les Frontières de l’Union eoropéenne, Larcier, 2013, 174.
part of the Ankara Agreement. According to the Additional Protocol, a new path for establishing the Customs Union was envisaged with a step-by-step process. The process required responsibilities both for Turkey and the EU. In more concrete terms, a 12 years period was determined for the free movement of goods, with the exception of freedom in certain sensitive goods for a period of 22 years.
According to Article 9 of the Additional Protocol, the EU member states unilaterally annulled customs duties and other charges with equivalent effects as well as quota restrictions for Turkey’s products. On the other hand, Turkey’s responsibility which is removing all the barriers against free trade was aligned in a period of 22 years depending on the product type. Therefore, the final stage was begun with the formation of the Customs Union as of 1 January 1996.
As mentioned above, the “final phase” envisaged in the Ankara Agreement was to complete the establishment of the CU between the EC and Turkey. In this regard, EC Association Council adopted a “Customs Union Decision (Decision No 1/95)” on implementing the final phase of customs union between Turkey and the EC on 6 March 1995. Accordingly, 22 years of “transition phase” was finished as of 1 January 1996, and the final phase was initiated on the way to accession of Turkey to EC.
2.4. The Final Stage: Customs Union Decision (Decision No 1/95)
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 EC and Turkey shall be prohibited. Also, Turkey commits to adopt the CCT of the EC in its trade with third countries and approximate to the other EC rules on external trade.
CUD constitutes of 66 articles and 10 annexes. Besides provisions regarding the functioning of the customs union, dispute settlement (Articles 61-62) and decision- making procedures (Articles 54-60) are also stated by the Decision No 1/95. According to Article 3 of the Decision No 1/95, the Customs Union between Turkey and the EC covers free movement of goods
produced in the EC or Turkey and the ones coming from third countries in free circulation in the EC or in Turkey.13 However, the goods that can be in the scope of free movement are only
industrial and processed agricultural products.
According to Decision No 1/95 of the Association Council, the 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 envisages the abolition of all distortive mechanisms of both parties that results an unfair advantage over the other party. From this aspect, Turkey is required to align its laws with the EU law in intellectual property, competition, and common trade policy areas as well as free movement of goods area.
Decision No 1/95 of the Association Council is constituted of 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 arising from the Decision No 1/95 can be reviewed under two main subjects:
2.4.1. Obligations related to Free Movement of Goods
According to CUD 1/95, the scope of Turkey EU Customs Union is only industrial products and processed agricultural products.
13Decision No 1/95 of the EC-Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union Official Journal L 035 , 13/02/1996 P. 0001 – 0047
“Article 3: 1. This Chapter shall apply to goods:
- 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,
Regarding the free movement principle stated in Article 3 of the CUD 95/1, products produced in the EC or Turkey, including those wholly or partially obtained or produced from products coming from third countries that are in free circulation in the EC or in Turkey, products obtained from third countries shall be considered to be in free circulation in the EC and Turkish customs territories 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. Pursuant to free movement principle, Turkey should fulfil the following obligations in relation to the functioning of Customs Union:
• Import or export customs duties and charges having equivalent effect shall be completely annulled between the EU and Turkey on the date of 31 December 1995,
• As of the date of 31 December 1995, Turkey shall align itself on the CCT in relation to countries which are not members of the Community,
• Within five years from the date of entry into force of the Decision, Turkey shall incorporate the EU instruments relating to the removal of technical barriers to trade into its internal legal order.
• Quantitative restrictions on imports and exports and all measures having equivalent effect shall be prohibited between the Parties.
2.4.2. Obligations related to Legislation Alignment
According to Article 8 of CUD 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.
In respect of Article 54 of CUD 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 the article, legal areas that are directly relevant to the operation of the Customs Union are stated as community commercial policy and preferential trade agreements with third countries, legislation on the abolition of technical barriers to trade in industrial products, competition, industrial and intellectual property law and customs legislation.
In light of the foregoing, Turkey began to annul customs duties on industrial goods and adopted the Common Customs Tariff of the Community in its trade with third countries as of 1 January 1996.Turkey also eliminated certain exceptions envisaged in the CUD No: 1/95 and duties on industrial part of total protection have been abolished for the processed agricultural products. In addition, Turkey’s foreign trade regime is aligned with the EU Customs Code to a large extent due to the obligations arising from the CUD No: 1/95. In this context, EU law on technical legislation, intellectual and industrial property rights, competition regulations as well as EU legislation on free movement of goods and common commercial policy is adopted in Turkey’s trade regime. The framework of Turkey’s obligations arising from the CU can be summarized as follows:
Pursuant to Article 12 of CUD No: 1/95, adopting common rules for import as well as 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 CUD 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. The other areas that are obliged to be aligned with EU law are, abolition of technical barriers to trade in industrial products, competition policy and intellectual property law and customs legislation.
To sum up, in addition to the elimination of quantitative restrictions and measures having equivalent effects on import and export, which are established under Articles 5-6 of the CUD No: 1/95, the free movement of goods requires, in accordance with Article 4 of the CUD No:1/95, the abolishment of import or export customs duties and charges having equivalent effect to prevent unfair competition.
Other provisions set forth in the CUD No: 1/95 under Articles 13 and 16 are related to the adoption of Common Customs Tariffs and the harmonization of Turkey’s trade policy with the EC’s common commercial policy. In that respect, Turkey is obliged not only to act in line with the EC decisions regarding Common Commercial Policy, but also to align its legislation on customs with that of the EC.
3.What is the Benefit of Maintaining Customs Union if the Accession is not on the Table? The customs union stipulates Turkey and the Member States improved access to each other's markets by providing the free circulation of industrial and processed agricultural goods. Customs duties and charges having an equivalent effect on Turkish, European and third-country products are abolished as well as, quantitative restrictions to trade and measures of equivalent effect. Neither internal taxes can be used as indirect measures, nor can tax rebates be used as export subsidies. Furthermore, relevant Turkish legislation shall to be harmonized with that of the EU law.
A customs union differs from a free trade area on the fact that there is a common external tariff and a coordinated trade policy towards third countries. This enables the elimination of restrictions on trade for all goods, that is, including third-country goods brought into 'free circulation in the customs territory.14
Although there are many problems occurring from the CU, it has undeniable positive contribution to Turkish trade as well.
First, the CU has been a major instrument of integration of the Turkish economy into the EU and global markets.15 Hence, Turkey’s export volume has increased considerably both with
member states and other countries such as the US. In this regard, Turkey’s market share has increased in the global economy by transforming from agrarian to industrial.
Second, being a party to the CU has forced Turkey to improve its product quality in order to compete with its rivals in the EU market.
Third, apart from its positive effects to Turkey’s economy, since it is the final phase of the Turkey’s accession process to EU, the CU agreement triggered the developments about democratization and legislation in line with the EU regulations in order Turkey to fulfil the
14Neuwahl, Nanette AEM. "The EU-Turkey Customs Union: a Balance, but No Equilibrium." European Foreign Affairs Review 4.1 (1999): 37-62.
15 The EU-Turkey Customs Union: A Model for Future Euro-Med Integration Sübidey Togan MEDPRO Technical Report No. 9/March 2012
criterias to become a full member of EU.16
However, many problems arising from the CU itself has been ignored by Turkey since 1996, due to the belief that the accession process would not take very long. After all, Turkey has not become a full member yet, and it seems that there is no chance of becoming one in the near future.17Besides, the number of member states and also trade relations with non-EU states with
the opportunities for trade and investment with the rest of the world has increased on the EU side, but there had been no improvement on the CU structure which puts Turkey in a disadvantageous position in order to compete with the other trade actors in sense of trading equilibrium.
On the other hand, since the WTO Doha Round negotiations have deadlocked, bilateral agreements have begun to be preferred rather than multilateral trade agreements due to the difficulty of coming to a consensus with multiple parties.
In this regard, the EU has steered its trade policy towards finding new markets and has inclined to sign bilateral free trade agreements with developing countries. In return, Turkey has established trade relations with areas outside the EU as well. Consequently, the new trade strategies of the EU and Turkey have contradicted each other and lessened the worth of the Customs Union. For instance, while the EU’s share in Turkey’s foreign trade was approximately 55% at the beginning of the Customs Union, the ratio has decreased to 37.7% in 2012.18
Today, the relations between Turkey and the EU are still debatable and needs to be reconsidered.
16Bilgin, Azime Aslı. "The Need for a Modernized EU-Turkey Customs Union: The Problems and the Solution Suggestions."
17Bilgin, Azime Aslı. "The Need for a Modernized EU-Turkey Customs Union: The Problems and the Solution Suggestions."
18 Cihangir Cengiz-Ömer Kurtbağ, Türkiye-AB Gümrük Birliğinde Yaşanan Güncel Sorunlar ve Bunlara Olası
4.The Main Problems of the CU
There are four main principles that EU Customs Union was built which are, no customs duties inside the borders, common customs duties on imports outside the EU, common rules of origin for products from outside the EU, and a common definition of customs value.19 In regard to the
CU between Turkey and the EU, these principles are also valid for Turkey as well. Namely, on imports from a third country either to Turkey or the EU a common customs tariff needs to be implemented and no customs duties applied at borders between Turkey and the EU; common rules of origin for products from third countries are binding, and lastly a common definition of customs value would be accepted.
Especially from Turkey’s aspect there have been several problems regarding the operation and implementation of the EU CU since the CUD No: 1/95 entered into force. Although the EU has amended its foundational treaties and policies many times, no amendment has been made to the CUD No: 1/95. In this regard, new problems are added to existing ones.
Mainly, the problems of the CU can be listed under five topics, namely decision-making procedure, trade deflection, road transport quotas, visa requirement and limited CU coverage.
20
4.1. Decision- Making Procedure Regarding Customs Union
The main reason regarding the decision- making problem is arising from the condition that Turkey was not able to become a member state for more than 20 years. The decision- making procedure is stipulated under Articles 54-60 in CUD No: 1/95 which provides Turkey solely the right to consult on decisions in relation to the implementation of the CU, which does not operate effectively and efficiently. On the other hand, Turkey is obliged to act in line with the EU's Common Trade Policy under the CUD No:1/95, despite not taking place in the decision- making process. According to CU between Turkey and the EU, Turkey is required to
19Bilgin, Azime Aslı. "The Need for a Modernized EU-Turkey Customs Union: The Problems and the Solution Suggestions."
20Göral, Emirhan, and Muzaffer Dartan. "The Customs Union In The Context Of EU-Turkey Relations: An Evoluation Of Current Debates." Marmara Journal of European Studies 24.2 (2016)
implement the same customs policy towards third countries and to harmonize its customs legislation with that of the EU.
Therefore, a Customs Union Joint Committee has been established under Article 50/1 of CUD No:1/95 in order to discuss and exchange opinions in order to provide the proper operation of the CU. Thus, Turkey is enabled to reflect its pros and cons in relation to Common Trade Policy related issues with the Joint Committee. However, it does not serve its purpose since the Committee does not meet once a month in practice as it is envisaged in the CUD No:1/95. In this regard, the implementing EU Common Trade Policy decisions are taken irrespective of Turkey’s view because of the inadequate meeting frequency and improper functioning of the Joint Committee which puts Turkey in a disadvantageous position not only in the negotiations on a Free Trade Agreement (FTA) between the EU and third countries but also when determining the rules valid for Common Trade Policy.21
Consequently, Turkey would have participated in the EU decision making process regarding the common trade policy if Turkey could become a member state of the EU.
4.2. Trade Deflection
European Union has been developing economic relations with non- member states especially by entering into Free Trade Agreements. Therefore, a FTA signed by and between the EU and a third country has the potential to cause deflection of trade against Turkey. The reason is, since Turkey is obliged to adopt the EU Common Trade Policy, the FTA signed by the EU gives the third party accession right into the Turkish market even though Turkey not being a party of the FTA. The third countries that enter into a FTA with the EU, obtain the right of indirect entrance into the Turkish market without paying customs duty, since the CUD No:1/95 does not envisage an obligation for third countries to sign a separate FTA with Turkey. Therefore, Turkey has the burden to convince the third country to sign a separate FTA with itself, that enters into a FTA with the EU in order to avoid the possible damage in the Turkish economy. Besides, the EU’s ongoing negotiations to establish a Transatlantic Trade and Investment Partnership (TTIP) with the United States constitutes significant risk for deflection of trade against Turkey. In the case the TTIP is signed, the US products will have the chance to enter
21Göral, Emirhan, and Muzaffer Dartan. "The Customs Union In The Context Of EU-Turkey Relations: An Evoluation Of Current Debates." Marmara Journal of European Studies 24.2 (2016)
into Turkish market without paying customs duties. On the contrary, Turkish products will have to face with customs duties in order to enter the US market. Besides, Turkey is supposed to sign FTAs with third countries that not only the EU has FTAs with but also the US has FTAs with. Otherwise, Turkey’s external trade balance deficit might increase. Another possible negative effect would be on potential trade deficit between Turkey and the US, unless Turkey becomes a party of the TTIP or signs a separate FTA with the US.
4.3. Visa Requirements
Visa requirement is still an unsolved problem in EU-Turkey relations. Pursuant to CUD No: 1/95 visa-free travel shall be one of the basic and irrevocable foundations of the internal market based on free movement, including free movement of services. Free circulation of services which is one of the main benefits of the CU, embraces visa-free travel for businessmen that are working in the common customs territory.
Hence both the Ankara Agreement and the Additional Protocol signed on 23 November 1970 include provisions regarding free movement of services. Under Article 14 of the AA, both parties are obliged to abolish the restrictions on freedom to provide services between them with regard to the relevant precepts of the EU’s founding treaties. The Additional Protocol involves a standstill provision under Article 41/1, which aims to prevent the parties from adopting new stricter restrictions on freedom to provide services between them from the date of entry into force of the Additional Protocol. Not only Article 14 of the AA, but also the standstill clause enshrined under Article 41/1, have been interpreted by the CJEU in light of visa requirements.
The paperwork and the waste of money and time caused by the visa requirements put Turkish businessmen in a disadvantageous position against their European counterparties. While European businessmen travel without need of a visa, Turkish businessmen face difficulties, such as not joining an international exhibition or missing the opportunity for a trade in regard to a delay in visa procedure.
4.3.1. CJEU Case C-228/06 Soysal and Savatli v. Bundesrepublik Deutschland
4.3.1.1.Background of the Case
The case mainly concerned a visa requirement that was introduced to German law in 1980. The applicants Mehmet Soysal and Ibrahim Savatli were Turkish nationals residing in Turkey and
working for a Turkish international transport company. They were engaged in the international transport of certain goods as the lorry drivers that were owned by a German company. Under German law, they were required to apply for visas in order to carry out their business activities in German territory. The German visa requirement was in accordance with EU legislation since the same visa requirement was also stated in Article 1/1 of the Council Regulation 539/2001 as well22.
The applicants were obtaining their visas without any problem but after 2000, their visa applications in 2001 and 2002 were refused. Since the applicants were not able to carry out their activities in German territory, they brought action in German court and claimed that Germany violated the standstill clause in Article 41/1 of the Additional Protocol. However, the visa requirement in German law was entered into force in 1980 after the Additional Protocol which was signed in 1973.
Since the Verwaltungsgericht dismissed their claims, they appealed with the Oberverwaltungsgericht that proceeded to refer two preliminary questions to the ECJ regarding the interpretation of Article 41/1 of the Additional Protocol.
Firstly, the Oberverwaltungsgericht asked whether the visa requirement for Turkish citizens under German law 539/2001 constitutes a restriction on the freedom to provide services in the sense of Additional Protocol Article 41/1, provided that such requirement had not existed when the Additional Protocol entered into force. Meanwhile, the court’s second question was if the Article 41/1 of Additional Protocol shall be interpreted as meaning that Turkish citizens such as the applicants do not need a visa to enter Germany. With respect to the interpretation of Article 41/1 of Additional Protocol, it is stated that, although the Judgment in Savas supports the interpretation that Article 41/1 Additional Protocol imposes “a general prohibition on the
worsening of a situation even in respect of the right to enter and reside, […] an argument against such an interpretation is that Article 41/1 of the Additional Protocol cannot obstruct the general legislative power of the Member States that may affect the position of Turkish nationals in one way or another”.23 The suggestion was a Member State’s visa policy
22Council Regulation 539/2001 of 15 March 2001 listing the third countries whose nationals must be in possession of visas when crossing the external borders and those whose nationals are exempt from that requirement, OJ L 18/1.
23Case C-228/06, Mehmet Soysal and Ibrahim Savlati v Bundesrepublik Deutschland, [2009] ECR I-1031, Para 35.
constituting a fundamental part of its legislative power that the standstill clause cannot forbid a significant part of that policy. This also answers the German court’s second question, which asks whether the visa requirement violates the standstill clause in the Additional Protocol, which means that the requirement must consequently be annulled.
4.3.1.2. Judgment
In its judgment, the Court stated that Article 41/1 of Additional Protocol has direct effect and it can be invoked by the employees of a foundation established in Turkey on the basis that they are irreplaceable to enable that undertaking to provide its services. The court also stated that the standstill clause mainly prohibits the introduction of any new measures having the object of making the exercise by a Turkish national subject to stricter conditions than those which applied at the entering into force of the Additional Protocol. Besides, the Court mentioned that the visa requirement in Germany did not exist at the time of entering into force of the Additional Protocol but was entered into force in 1980. The Court approved that the German law regarding the visa requirement was in force at the time of the proceedings only implemented secondary EU legislation, namely Regulation 539/2001, which brought a requirement for non-EU citizens to apply for a Schengen visa to enter a Member State.24 On the other hand, the Court stated that
the introduction of a visa requirement “is liable to interfere with the actual exercise” of the free movement of services under the Ankara Agreement, “in particular because of the additional
and recurrent administrative and financial burdens involved in obtaining such a permit which is valid for a limited time”.25 In this respect, the Court determined that the German legislation
had at least the effect of making the freedom to provide services subject to conditions that are stricter than those that existed in 1973. On the basis of these considerations, the Court stated that the German visa requirement constituted a restriction in the sense of Article 41/1 Additional Protocol. In other words, the Court concluded that Article 41/1 prohibits the introduction of a visa requirement for the provision of services if such a requirement did not exist at the entering into force of the Additional Protocol.
24Case C-228/06, Mehmet Soysal and Ibrahim Savlati v Bundesrepublik Deutschland, [2009] ECR I-1031, Paras 49-54.
25 Case C-228/06, Mehmet Soysal and Ibrahim Savlati v Bundesrepublik Deutschland, [2009] ECR I-1031, Paras 55
In accordance with the CJEU jurisprudence, three member states, namely Germany, Denmark and the Netherlands transformed their visa requirements, instead of abolishing them, regarding Turkish service providers due to the standstill clause in Additional Protocol.
Consequently, visa requirements constitute significant obstacles for free movement and the proper functioning of the CU.
4.4. Road Transport Quotas
The CU covers the free movement of goods. Import or export customs duties and charges having equivalent effect and quantitative restrictions or measures having equivalent effect on imports and exports are restricted under Articles 4-6 of Decision No. 1/95 in order to prevent barriers against the free movement of goods and unfair competition between Turkey and the EU. Despite the provisions mentioned, Turkey is faced with a quota applied to goods that are transported via road transport.26
Hence several member states take transit fees on grounds of road transport quotas from Turkish transport companies, which create an obstacle to the free movement of goods and the proper functioning of the CU. It is also stated in World Bank report as follows:
“Road quotas and notable transit permits, create obstacles to the free movement of goods and
impede transit traffic thereby hindering the full operation of the CU. In total, Turkey has road transport agreements with 58 countries of which 25 have achieved various levels of liberalization. In the EU, bilateral road transport agreements including quota negotiation Turkish road transport operators remain a sovereign attribute of the individual EU member states. By limiting the number of Turkish-registered vehicles that can carry goods in their territory, EU member states set limits on Turkish goods that can be transported to the EU by Turkish road transport operators.”27
4.5. Limited Scope of the Customs Union
It is generally accepted that the CU needs to be modernized to improve its functional efficiency and especially for Turkey’s best interest, its scope and coverage needs to be widened. In
26Göral, Emirhan, and Muzaffer Dartan. "The Customs Union In The Context Of EU-Turkey Relations: An Evoluation Of Current Debates." Marmara Journal of European Studies 24.2 (2016)
particular, the determination of the EU to enter into new FTAs has caused the requirement to upgrade the CU beyond its narrow focus on the removal of tariffs on industrial goods, to include provisions on services, investment, intellectual property rights, public procurement, digital innovation and sustainable development.
The scope of the CU between Turkey and the EU is merely industrial and processed agricultural products, while the new generation free trade agreements signed by and between third countries and the EU have a wider scope. The CU also excludes services, right of establishment, public procurement and agriculture (except processed agricultural products). The increasing number of the new generation free trade agreements puts Turkey in a weaker position in terms of external trade by eliminating Turkish goods and products out of the market since more efficient terms are stipulated in the new agreements. For example, when the TTIP is taken into consideration, Turkey would probably lose its trading power in the US market, unless Turkey signs another FTA with the US or updates the CU with the EU because of the issues that the TTIP covers.
5. Direct Effect of the Customs Union in EU Law
In this section, it will be examined and discussed whether Customs Union law, namely Ankara Agreement, Additional Protocol and Customs Union Decision No:1/95 have direct effect on EU law, namely whether individuals can enforce their rights arising from CU law against Member States.
From this aspect, the Istanbul Lojistik decision is the first preliminary decision in regard to the CUD No 1/95. According to the judgment, it is stated that, under Article 66 of CUD 1/95, the prohibition on customs duties, charges and discriminatory or protective international taxation and the prohibition on quantitative restrictions and measures having equivalent effect under CUD 1/95, which means they have the same meaning with their equivalents under EU internal market law.28 On the other hand, the subject regarding the case may cause further questions
such as whether an applicant may rely on the principle of state liability with CUD 1/95, also
28Göçmen, İlke. "Revealing the Potential of the EU–Turkey Customs Union: Case C-65/16, Istanbul Lojistik, 19 October 2017, ECLI: EU: C: 2017: 770." Legal Issues of Economic Integration 45.3 (2018): 289-298.
whether the lack of agricultural products within the scope of EU – Turkey CU would cause a problem.
5.1. CJEU Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó-és Vámhivatal Fellebbviteli Igazgatóság
5.1.1. Background of the Case
Under Hungarian law, a motor vehicle tax shall be paid by whom operating heavy goods vehicles registered in non-EU countries whenever they transit through Hungary. Violating this rule is sanctioned with tax penalty and administrative fine. Meanwhile, a customs union is established between EU and Turkey on the basis of Ankara Agreement, Additional Protocol and Customs Union Decision No 1/95, in the scope of eliminating all customs duties, quantitative restrictions, all charges having equivalent effect to customs duties and all measures having equivalent effect to quantitative restrictions in trade of industrial goods with the EU as of 1 January 1996.
On 30 March 2015, the Hungarian National Tax and Customs Authority in Nagylak inspected a heavy goods vehicle transporting textiles from Turkey to Germany via Hungary, registered in Turkey and operated by Istanbul Lojistik, which is a Turkish company. The Hungarian National Tax and Customs Authority found the transit licence owned by the company in line with the Hungarian laws, on the other hand the revenue stamp showing that the required motor vehicle tax has been paid was lacking. At first, the tax authority found the transit licence invalid on the grounds that Istanbul Lojistik was not complying to the obligation regarding the tax payment, and secondly it also decided that Istanbul Lojistik should pay HUF 660.000 (approximately EUR 2.200) in total, including the tax itself (HUF 60.000), a tax penalty (HUF 300.000) and an administrative fine (HUF 300.000). After the administrative appeal procedure, Istanbul Lojistik brought an action against the decision, alleging that the relevant motor vehicle tax violated the EU – Turkey Customs Union provisions, especially to the prohibition on customs duties and charges having equivalent effect.
5.1.2. Judgment of the Court
The Court, decided that Article 4 of CUD 1/9529 prohibits the motor vehicle tax, that must be
paid by persons operating heavy goods vehicles registered in Turkey and in transit through Hungarian territory, since that tax constitutes a charge having equivalent effect, in its judgment dated 19 October 2017.30
The legal grounds reaching this judgment could be summarized in three aspects: First, the Court emphasized the key role played by Article 66 of CUD 1/95, according to which ‘the
provisions of CUD 1/95, in so far as they are identical in substance to the corresponding provisions of the Treaty on the Functioning of European Union (TFEU) shall be interpreted ... in conformity with the relevant decisions of the CJEU.31 Therefore, the Court stated that
provisions of the CUD NO: 1/95 must be interpreted in conformity with of the CJEU jurisprudence under Article 66 of CUD 1/95. In this concept, since Article 4 of the CUD No:1/95 is identical in substance concerning Article 30 TFEU, they must be interpreted in conformity.
Second, the Court emphasizes the relevant point of views of the jurisprudence regarding Article 30 TFEU. A charge having equivalent effect means “any pecuniary charge, however small and
whatever its designation and mode of application, which is imposed unilaterally on goods by reason of the fact that they cross a frontier, and which is not a customs duty in the strict
29 Article 4 of Customs Union Decision No: 1/95: “Import or export customs duties and charges having
equivalent effect shall be wholly abolished between the Community and Turkey on the date of entry into force of this Decision. The Community and Turkey shall refrain from introducing any new customs duties on imports or exports or any charges having equivalent effect from that date. These provisions shall also apply to customs duties of a fiscal nature.”
30 See Istanbul Lojistik, (Opinion of AG), Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság ECLI:EU:C:2017:770 (2017), para. 51 : “On those grounds, the Court (Second Chamber) hereby rules:
Article 4 of Decision No 1/95 of the EC-Turkey Association Council of 22 December 1995 on implementing the final phase of the Customs Union must be interpreted as meaning that a tax on motor vehicles such as that at issue in the main proceedings, which must be paid by persons operating heavy goods vehicles registered in Turkey and in transit through Hungarian territory, constitutes a charge having equivalent effect to a customs duty within the meaning of that article.”
31 See Istanbul Lojistik, (Opinion of AG), Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság ECLI:EU:C:2017:770 (2017), para. 38.
sense”.32 In this regard, their purpose or their revenue destination is not important, and there
can be no justification for them. In addition, the free movement of goods acknowledges “a
general principle of freedom of transit of goods”, which prohibits Member States from
impeding or interfering with the movement of goods in transit.33 Besides, such a charge is
imposed on products, even where it has been levied on the transport of goods or the use of roads and has first to be paid by the person operating the heavy goods vehicle, since carriage of goods is a necessary activity in connection with the product.
And third, the Court applied the jurisprudence concerning Article 30 TFEU to the Article 4 of CUD No: 1/95
.
Therefore, Hungarian law provides that the motor vehicle tax must be paid, with regard to heavy goods vehicles registered in third countries, at the time of entry into Hungarian territory, in respect of both the outward and the return journey. The amount of tax depends on criteria that are linked, inter alia, to the quantity of goods that can be carried and to their destination.34 In this context, contrary to the arguments of the Hungarian and Italiangovernments, the tax is levied on goods transported by vehicles registered in Turkey, not levied on the transport service. Besides, the amount of the tax and no reasons, such as the need to maintain the national road network, was relevant. Eventually, the tax at issue constituted a charge having equivalent effect under Article 4 of CUD No: 1/95, as ‘it amounts to a pecuniary
charge imposed unilaterally and levied on goods by reason of the fact that they cross a border’.35
5.1.3. Analysis: Does CU Have Direct Effect on the EU Law?
Even though there was no explanation or analysis in respect of the direct effect of EU- Turkey CU provisions, the judgment shows that Article 4 of CUD No:1/95 has direct effect against EU law.
32 See Istanbul Lojistik, (Opinion of AG), Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság ECLI:EU:C:2017:770 (2017), para. 39
33 See Istanbul Lojistik, (Opinion of AG), Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság ECLI:EU:C:2017:770 (2017), para. 42
34 See Istanbul Lojistik, (Opinion of AG), Case C-65/16, Istanbul Lojistik Ltd v. Nemzeti Adó- és Vámhivatal Fellebbviteli Igazgatóság ECLI:EU:C:2017:770 (2017), para. 45
35Göçmen, İlke, ‘Revealing the Potential of the EU – Turkey Customs Union: Case C-65/16, Istanbul Lojistik, 19 October 2017, ECLI:EU:C:2017:770’. Legal Issues of Economic Integration 45, no. 3 (2018): 289–298.
In respect of the result that Article 4 of CUD No: 1/95 is directly effective, the way used by the Court to reach this conclusion was central. Mainly, when determining whether a provision of an international agreement is directly effective, the Court applies a twofold test: (1) the wording, purpose and nature of that agreement should be capable of being directly effective, (2) that provision should contain a clear and precise obligation which is not subject, in its implementation or effects, to the adoption of any subsequent measure.36This test can also be applied for Customs Union Decisions as well. However, the twofold test is not applied in Istanbul Lojistik case for Article 4 of CUD No: 1/95. Instead, it seems that Article 66 of CUD No: 1/95 was used to avoid the application of this test. In other words, since Article 4 of CUD No: 1/95 is identical in substance to Article 30 TFEU, the former should be interpreted in conformity with the latter, including the already constituted direct effect of the latter.
Considering this approach established by the CJEU jurisprudence, it can also be interpreted that that Article 50/1 of CUD No:1/95 (prohibition on discriminatory or protective internal taxation)37 (which is equivalent to Article 110 of the TFEU)38 and Articles 5–7 of CUD No:1/95
(prohibition on quantitative restrictions and measures having equivalent effect)39 (which is
equivalent to Articles 34–36 of TFEU)40 both be found to have direct effect, also via Article
66 of CUD No:1/95.
5.2. Other Relevant Decisions
The Demirel Judgment of the CJEU41 accepted the existence of direct effect in certain
36Case 12/86, Meryem Demirel v. Stadt Schwäbisch Gmünd ECR-3719 (1987), para. 14.
37Cf. with Case 17/81, Pabst & Richarz KG v. Hauptzollamt Oldenburg ECR 1331 (1982), para. 27 and Case 104/81, Hauptzollamt Mainz v. C.A. Kupferberg & Cie KG a.A. ECR 3461 (1982), para. 27. 38See Istanbul Lojistik (Opinion of AG), above n. 1, at 64, fn. 39. For direct effect of Art. 110 TFEU see Case 57/65, Alfons Lütticke GmbH v. Hauptzollamt Sarrelouis ECR 205 (1966), at 210.
39For direct effect of Arts 5–6 of ACD 1/ 2014).
40See Istanbul Lojistik (Opinion of AG), above n. 1, at 51, 68, 70, 71, 76 and 85. For direct effect of Art. 34 TFEU see Case 74/76, Iannelli & Volpi SpA v. Ditta Paolo Meroni ECR 557 (1977), para. 13. For direct effect of Art. 35 TFEU see Case 83/78, Pigs Marketing Board v. 95 see Friedl Weiss & Clemens Kaupa, European Union Internal Market Law 28 (Cambridge: Cambridge University Press Raymond Redmond ECR 2347 (1978), para. 66.
international agreements. The Demirel Case is important since it affirms that “an agreement
concluded by the Council under Articles 228 and 238 of the Treaty is, as far as the Community is concerned, an act of one of the institutions of the Community within the meaning of Article 177 (1) (b), and, as from its entry into force, the provisions of such an agreement form an integral part of the Community legal system”. The Court also states that Article 238 of the
Rome Treaty obliges the EU to guarantee the commitments towards non-member states in all aspects covered by the Treaty.
Therefore, the Additional Protocol brought in the “standstill clause” with Article 41 which has direct effect in respect of EU law. The Soysal Judgment of CJEU42, thus mentions that visa
requirement for Turkish nationals is equal to a new restriction, that was not existing while the Additional Protocol entered into force. Namely, the CJEU has determined that for those member states that had accepted the right of establishment and freedom to provide services for Turkish nationals before 1973, Article 41/1 of the Additional Protocol envisages a total prohibition on the establishment of new measures and any kind of restrictions including the visa requirement.
The scope and legal position of Article 41/1 of the Additional Protocol has been identified by the Soysal Decision. After the Court’s decision, it was also important to ensure the implementation of these rights within the EU structure. In other words,without fully applying the CJEU decision within the member states, the Soysal Decision would not have any implication on Turkish nationals and Turkey.43
Another significant CJEU case is in S. Z. Sevince v Staatssecretaris van Justitie, in which the Court stated that the provisions of the Association Council Decisions No. 2 (76 of 1976 and No. 1/80 of 1980) concerning the conditions of employment were directly effective in EU law.
6. Customs Union: Out-of-Date?
Even though the CU provides both parties free movement of goods, the problems stated and discussed above hinder this free movement of goods and services, making it harder or even impossible for the goods to have unrestricted access to any state within the common customs
42 See CJEU Case C-228/06 Soysal and Savatli v. Bundesrepublik Deutschland
area. By applying quotas or subjecting the movement of people to restrictions, the CU provisions are violated, which has been discussed in the part 4 by analysing the direct effect of CU agreements on EU law. As planned in the roadmap, if Turkey would have become a member state such as Greece, all these problems would have been solved in first place
.
According to the CU and the harmonization obligations, Turkey’s accession process has already to been facilitated. On the other hand current relations between the EU and Turkey demonstrates accession as a vague possibility. Instead, Turkey is in a difficult position in regards to a associated state. Turkey’s position can be defined as being a “relation deprived of political, legal and economic equilibrium.”44Therefore, aforementioned problems are arising of partial integration. In other words, if there is no political integration during economic integration, this would cause a problematic separation of both, while both are inevitably engaged to each other
.
The lack of Turkish involvement in EU is felt even more fundamental, when it is taken into account that how dynamic the Turkey-EU relations are. Indeed, “the CU should not be considered as a mereeconomic relationship leading to a simple trade liberalization between two entities in a static environment. The CU process is not in isolation but evolves in a vigorous surrounding within which the actors’ perceptions, stakes and expectations change in conjunction with global circumstances.”45 Therefore, the functioning of the CU could be modernized by amending
CUD No:1/95, while maintaining its sectoral scope, in two significant topics; trade policy and dispute settlement.
6.1. Involvement in the EU Trade Policy
The update would begin with the decision-making area, in the first place. To clarify, Turkey would have no right to vote in any circumstances
.
This was further discussed with the theory of ‘Privileged Partnership,’ stated by the Robert Schumann Foundation.46It would be ideal that
44 Zeynep Ceren Pirim, The EU- Turkey Customs Union: From a Transitional to a Definitive Framework? , Issues of Integration 42, no:1 (2015), Kluwer Law International BV
45 M. S. AKMAN, ‘Dynamics of the European Union’s Trade Strategy and Its Imperatives on Turkish Trade Policy. Prospects for a Functioning Customs Union’ in B. AKÇCAY, B. YILMAZ, Turkey’s
Accession to the European Union, 131.
46 “Turkey would enjoy an observer status, in the Council, work groups... but the right to vote wasn’t even mentioned.” See C. ALTOMONTE, et al., Le Partenarait Privilégié, alternative á l’adhésion, Foundation
Turkey would sit as an observer in all relevant cases with regard to functioning of CU.47
Therefore, in case of a probable modernization of CU, the asymmetries in its design are needed to be addressed, which is obviously in trade policy area. In principle, letting Turkey participate in the negotiations with the third states, is similar to how South Africa maintains the South African CU in its trade agreements. This seems difficult to achieve since the EU or the third states usually are not willing to have Turkey in the negotiation processes. If the clause regarding Turkey would be strengthened, this would also safeguard the Turkish interests and will leave no incentive to keep stalling with the negotiations in order to enter into a FTA with Turkey. In case the EU would introduce this clause in its FTAs with third countries, Turkish economy will no longer damage. In order to minimize the detrimental effects, data exchange and consultation mechanisms shall be used. Hence, Turkey should obtain the observer status in key institutions, as the Trade Policy Committee or GSP Committee.48 In addition,
information sharing could be improved to a higher degree with Turkey: the EU could inform Turkey after all discussions the EU conducts with third states. Informal data instruments, for example, 'Friends of Turkey' could be considered, which goes about as an information sharing platform inside the European Parliament.49 Granting Turkey access to the key establishments,
is not a safeguard for an ideal future, yet it will reduce a Turkey’s worries and enable Turkey to act informed, while likewise being conceded the chance to share its perspectives to the EU MS.
6.2. Dispute Settlement
A subsequent significant change would require the setting up of a successful dispute settlement instrument. In this regard, while the Association Council ought to have the option to have the duty to resolve the disputes, the absence of political will of either party should not cause the process to deadlock. In the case that the Association Council is in deadlock, there might be the option to take the case to courts or arbitration.
Robert Schuman 38, 2006, 63.
47 Kabaalioglu, Haluk A., The Customs Union: A Final Step Before Turkey’s Accession to the European Union, Marmara Journal of European Studies, 1998
48 TÜSIAD, A New Era For The Customs Union & the Business World: Ecexutive Summary, Imak Ofset, 2015, 11. (‘TÜSIAD, Era’)
Caution is essential nonetheless. While appropriate jurisdiction to interpret and apply would be the favoured option, it appears that it will not be possible to make a court. While it is possible to create a court with the competence to settle the disputes between parties, this would not be adequate if the understanding ‘takes over an essential part of the rules – including the rules of
secondary legislation – which govern economic and trading relations with the Community, and constitutes for the most part, fundamental provisions of the Community legal order.’ Seeing
the numerous harmonization commitments Turkey has in the light of the CU and outside it, there is a risk that such a jurisdictional framework would not be good with the EU Treaties. However, from the 80's onwards, as opposed to the political settlement in the Ankara Agreement, the EU has decided on dispute settlement in courts or compulsory arbitration. In this regard, the DCFTA with Ukraine may be a possible solution. If the negotiations fall short, an arbitration panel board can be considered, which is designated by the two parties. It is known as a ‘quasi-judicial model of trade adjudication’, which depends on the WTO dispute settlement instrument, yet with faster procedures.50
The arbitration panel concludes a binding decision, and the parties will have the commitment to align themselves with that decision. In the event that this does not occur, the complainant can force proportionate sanctions. The arbitration procedure clearly should not be restricted to the term of safeguard measures. However, even with the arbitration, the prerequisite of homogeneity would be an issue. In this regard Article 66 of CUD No: 1/95 shows up. Another possible solution would be to acknowledge the CJEU's capability, even though that would not be easy to acknowledge for Turkey.
7. A More Comprehensive Customs Union
The bilateral trade system is outdated. As long as it is constrained to industrial products and legal alignment, it does not reflect the concept for entering into preferential trade agreements any more. While the CU is a more profound type of integration from a legitimate point of view, the newer FTAs have overtaken the CU with Turkey, by seeking after a more ambitious trade policy translated in broader sectoral scopes. The new FTAs consist of subjects that are not
50 I.G. BERCERO, ‘Dispute Settlement in European Union Free Trade Agreements: Lessons Learned?’ in L. BARTELS, F. ORTINO (eds.), Regional Trade Agreements and the WTO Legal System, Oxford University Press, 2006, 383.
addressed by the CU: services, public procurement and agricultural goods.
Widening the scope of the CU would achieve significant advantages to the two parties. For instance, in the area of agriculture, a decrease in food costs and a rise in salary is expected to expose more beneficial results in income distribution. Even though the circumstance differs for every item, the general assessment is a positive one. Also, the free circulation of services would pave the way for Turkey to boost its competitiveness, according to cost and quality. Moreover, Turkey would discover new markets for its competitive contractors and civil engineers by government procurement. However, the inquiry remains how precisely this should be done. Should these issues be incorporated into CUD No: 1/95, by expanding its scope? Or then again should alternative ways be pursued, by recoursing to a FTA?
It should be noticed that with the abandonment of the accession perspective the harmonization obligation and every other commitment lose their very reason of presence. Moreover, the institutional framework is as of now very inadequate. In addition, notwithstanding when improved, regardless it would be an inquiry whether it is ready to let Turkey to comply with its obligations. In this regard, without the accession process, it tends to be said that there is no legal method to force Turkey to meet its commitments emerging from the agreements.51 In
order to improve relations, the European Commission exhibited 5 conceivable outcomes in its roadmap, consolidated in the 'Initiation Impact Assessment.'52 The initial one will not be
addressed in here, and the second option, settling on CUD No: 1/95 progressively adjusted and more operational. The third alternative foresees to improve bilateral trade relations to the level of the new FTAs, while the fourth option envisages a combination of the second and third option. The last option is to replace the CU with a new generation FTA. Moreover, the accession to EEA may be viewed as an alternative.
7.1. Modernizing the Customs Union
The amendment of CUD No: 1/95 may be considered especially by upgrading the bilateral trade relations in the agriculture sector. From Turkey’s aspect, this would lead to increase in foreign direct investment and also expanding trade in diverse areas. The modernization of the
51 Zeynep Ceren Pirim, The EU- Turkey Customs Union: From a Transitional to a Definitive Framework? , Issues of Integration 42, no:1 (2015), Kluwer Law International BV
