Overview

The existing EU-Turkey bilateral preferential trade framework (BPTF) dates from 1995 and has become outdated in view of the deep and comprehensive free trade agreements (DCFTAs) that the EU has since concluded or is negotiating with other economic partners, including the EU-Korea Free Trade Agreement (FTA), the EU-Canada Comprehensive Economic and Trade Agreement (CETA), and the Trans-Atlantic Trade and Investment Partnership (TTIP) with the United States.

The BPTF emerged in the context of Turkey’s bid for closer relations with Europe. Turkey applied for association with the European Economic Community in July 1959. This launched a process that led to the signature of the Association Agreement (“Ankara Agreement”) on 12 September 1963.

The Ankara Agreement established a three-stage process for developing closer economic cooperation:

  • A preparatory stage, governed by the Provisional Protocol  and Financial Protocol , which envisaged preliminary market opening by the Community through the establishment of new tariff quotas for key Turkish exports (unmanufactured tobacco, grapes, figs, and nuts);
  • financial assistance from the Community to Turkey; and
  • the establishment of an Additional Protocol that would trigger and govern the next, transitional, stage.

A transitional stage, governed by the Additional Protocol, which would progressively establish a CU and align the parties’ economic and social policies.  A final stage that would be “based on the customs union and shall entail closer economic coordination between the parties.”

Bilateral Trade Preference Agreeement

The BPTF is the outcome of the transitional stage. It is comprised of the provisions entailed in the set of agreements covering trade in goods between the EU and Turkey since the Ankara Agreement, namely:

  • the CU as established through the EU-Turkey Association Council Decision 1/95, which remains in force (“the Customs Union” or CU);
  • the Agreement between the European Coal and Steel Community and the Republic of Turkey on trade in products covered by the Treaty establishing the European Coal and Steel Community, since subsumed by the European Union (“the Coal and Steel Agreement” or CSA);
  • the Decision of the EU-Turkey Association Council No 1/98 (amended by Council Decision No 2/2006) relating to agricultural (also covering fishery) products (“the Agriculture and Fisheries Trade Regime” or AFTR);
  • the Decision of the EU-Turkey Association Council No 1/2007 amending the  trade concessions for processed agricultural products covered by Decision No 1/95 and by Decision No 1/97 on the arrangements applicable to certain processed agricultural products and repealing Decision No 1/97.

The Customs Union

The terms of the CU were spelled out in the Additional Protocol. This Protocol committed the EU to eliminate all tariffs on covered goods immediately: Article 9 stated that “On the entry into force of this Protocol, the Community shall abolish customs duties and charges having equivalent effect on imports from Turkey.”

For Turkey, the Additional Protocol committed it to eliminate duties on covered goods from the EU, to eliminate quantitative restrictions on EU-originating products, and to adopt the common external tariff (CET). Articles 10 and 11 of the Additional Protocol required that tariffs on all industrial products and the industrial components of processed agricultural products be completely removed.

Tariff removal was organized on the basis of two schedules: one, which applied to a list of products specified in Annex 3 of the Additional Protocol, allowed for a 22-year phase-out; all other covered products were to have tariffs removed in a series of steps over 12 years (the list for these products was not explicitly set out in the Additional Protocol).

Coal and Steel

The CSA, which entered into force on 25 July 1996 between Turkey and the then-still existing European Coal and Steel Community (ECSC),  liberalised trade between Turkey and the Community in steel products, a sector that had been explicitly excluded under the Ankara Agreement (Article 26), and addressed subsequently through the Agreement between the ECSC and the Republic of Turkey on products within the province of the ECSC, which came into force in 1973, with a commitment to establish a schedule for tariff elimination.

The CSA eliminated duties on most steel products immediately, while providing for a phase-out period for Turkish duties on certain sensitive products. As part of the Agreement, Turkey committed to take on board Community disciplines concerning state aids and competition in the steel sector,  with allowance for an adjustment period.

The agreement also established an ECSC/Turkey Joint Committee with a view to resolving any issues that might arise. The CSA remains a standalone agreement; its rules of origin (ROOs) were amended to align with the Pan-Euro-Mediterranean system, effective 1 March 2009.10 The AFTR derives from Chapter IV of the Additional Protocol, which addressed trade in agricultural products.

Agriculture

Article 33 of the Additional Protocol provided for a 22-year period for Turkey to “adjust its agricultural policy with a view to adopting, at the end of that period, those measures of the common agricultural policy which must be applied in Turkey if free movement of agricultural products between it and the Community is to be achieved.” Article 34 then provided for free movement of agricultural products if the stipulated conditions had been met.

Article 35, meanwhile, pending the fulfilment of the conditions for free movement to be triggered, provided for the Community and Turkey to grant each other preferential treatment in agricultural goods and fishery products, with the scope of such preferential treatment and the implementing arrangements to be decided by the Council of Association.

Annex 6 of the Additional Protocol set out a transitional preferential regime for agricultural products originating in Turkey; this included elimination of tariffs on some products, and reduction of tariffs and/or establishment of quotas for others. Decision 1/95 pertaining to the CU reaffirmed the common objective of the Parties to achieve free movement of agricultural products and noted that an additional period was required to put in place the necessary conditions (Article 24).

The same decision called for a progressive improvement of the relevant preferential arrangements (Article 26). Decision No 1/98 of the Association Council, as last amended by Decision No 2/2006 of the EC-Turkey Association Council (which amended Protocols 1 and 2 to take account of the 2004 enlargement of the EU), established the scope and terms for such preferential trade in covered agricultural and fishery products.

As the conditions for Article 34 to be invoked have not been fulfilled, the AFTR remains in this provisional state. Protocol 1 to Decision No 1/98 of the Association Council sets out the preferential regime applicable to the importation into the EU of agricultural products originating in Turkey; Protocol 2 sets out Turkey’s preferences; Protocol 3 sets out the applicable ROOs.

Development and Experience

The AFTR is asymmetric in favour of Turkey by providing Turkey with an exemption across the board of ad valorem duties for the products not covered by Protocol 2. The main interaction between the BPTF and other EU and Turkey trade agreements is through cross-cumulation for purposes of qualifying products under the ROOs (rules of origin) of the CSA and the AFTR.

The CU does not apply ROOs, which the World Bank (2014) assesses as reducing trade costs by between 2% and 6% ad valorem for bilateral industrial goods trade. However, a movement certificate (the A.TR movement certificate) is required for shipments moving between the EU and Turkey. Further, the CU requires that inputs from third parties be subject to the CET and provides for application of tariffs if that is not the case (consistent with the “no-drawback” rule in FTAs).

In some cases where the EU has an FTA in place with a third country and Turkey does not, Turkey has imposed protection measures based on origin controls on goods transhipped through the EU from those parties (e.g., on automobiles from Mexico). Turkey has also applied additional customs duties on some textiles products originating from some third parties that are not EU FTA partners, as well as on a number of other products. The additional duties vary for countries benefiting from the GSP scheme, LDCs and others, based on customs declarations

Comparison to Other Agreements

This section provides a perspective on the BPTF by comparing it to selected FTAs that have been entered into by the EU and Turkey. In terms of coverage of industrial goods trade, from the EU’s perspective, the BPTF is comparable to other EU agreements, which liberalize industrial goods trade entirely or almost entirely. Turkey agreed to eliminate all industrial goods tariffs in its agreement with Korea but retained protections for textiles and apparel in its FTA with Malaysia.

Accordingly, the BPTF ranks with the strongest of Turkey’s FTAs. In terms of coverage of agricultural and fishery products, the EU’s market access concessions under the AFTR are relatively generous for agricultural products and extremely generous for fishery products. The market access accorded to Turkey is much more generous than to developing countries under the GSP; for example, the EU provides Turkey tariff-free access for fishery products, which improves upon the GSP.

The AFTR is quite restrictive on Turkey’s side. This is consistent with restrictive market access terms that Turkey afforded Malaysia and Korea under its FTAs with those countries. The value of concessions varies of course according to the export capacity of the counterparties.

ROOs differ across EU agreements, reflecting special circumstances. However, for agreements that qualify for pan-Euro-Med cumulation, which includes the BPTF, they are almost identical.14 The cumulation regime of ROOs has evolved over time from the Pan-European Cumulation System (PECS) introduced in 1997 to the Pan-Euro-Med (PEM) system introduced in 2005 and formalized in its current structure in 2012.15 The BPTF ROOs regime thus has evolved over time.

Turkey has had varying success in negotiating cumulation provisions in the ROOs with third party FTAs: diagonal cumulation between Turkey, the EU, and Chile was included in the Turkey-Chile accord, but not in the Turkey-Korea FTA. Turkey’s FTA with Malaysia envisages crosscumulation with the EU if a future EU FTA with Malaysia were to include the same terms.

In customs administration, Turkey’s progress in alignment has allowed it to take on advanced commitments in the World Trade Organization (WTO) Trade Facilitation Agreement (TFA) and recent FTAs. provided a significant impetus for trade facilitation and customs reform in Turkey including through modernization of the Turkish Customs Administration (TCA).

These improvements are of great economic significance for Turkey and lie at the heart of Turkey’s strong export performance over the past decade.” The CU’s impetus for  alignment with the EU’s acquis has also resulted in improved quality infrastructure and reforms of technical regulations in Turkey, which has accelerated modernization of Turkey’s industry, to the benefit of Turkish consumers and exporters.

In the rules areas, the commitment to approximation of laws under the CU agreement worked in tandem with the more general alignment process in many areas covered by FTAs such as intellectual property (IP) and competition policy (including rules on state enterprises). In these areas, the internalization of the European acquis has had a stronger impact on Turkey’s internal regulatory reform and alignment with modern practice compared to the effect of the EU’s FTAs with other partners.

Notably, this has prepared Turkey to take on progressively stronger commitments with other partners. For example, the FTA with Singapore, signed on 15 November 2015, is Turkey’s first comprehensive agreement in a single undertaking and includes commitments in areas such as IP rights, e-commerce, competition, and transparency.

Nonetheless, the BPTF is out of date in a number of important respects as it lacks coverage of services, FDI, and public procurement; and does not include anti-fraud provisions, which have been included in EU trade agreements since 2001.

In services and FDI, the EU’s recent deep and comprehensive FTAs introduce disciplines that go beyond WTO commitments, including coverage of establishment in both services and non-services sectors, liberalization of capital flows and payments, and improved bindings under the WTO General Agreement on Trade in Services (GATS), which reduce uncertainty for services traders.

While traditional Turkish FTAs covered only trade in goods (including FTAs as recent as the one with Malaysia, which came into force on 1 August 2015), the FTA with Korea, which came into force in 2013 and was originally limited to goods only, has since been expanded to cover services and investment. Similarly, the Turkey-Singapore FTA covers services and investment.

On public procurement, the BPTF lags well behind the EU’s most ambitious procurement agreement, namely the CETA. Turkey’s agreement with Singapore also covers procurement.

To summarize, the BPTF provides deeper effective facilitation of industrial goods trade than the parties’ other FTAs, principally because of the greater alignment of rules in a wide range of areas bearing on goods trade, from customs administration to IP and competition policy. This has not only improved bilateral market access for both parties, but has worked to improve Turkey’s ability to make stronger undertakings in its recent FTAs with third parties and improve its global competitiveness, strengthening its growth prospects.

At the same time, the BPTF has been bypassed on a number of fronts, most importantly on services, FDI and public procurement, three key areas of interest for the EU in its recent FTAs; and it would benefit from updating of rules in other areas where there are remaining significant gaps in alignment with the EU acquis, including in particular anti-fraud provisions.

As a matter of principle, the EU no longer grants tariff preferences without an anti-fraud clause in its FTAs. This policy, which flows from a number of judgements of the European Court of Justice, was formalised by a number of EU policy documents, including:

The BPTF provides deeper effective facilitation of industrial goods tradethan the parties’ other FTAs, principally because of the greater alignment of rules in awide range of areas bearing on goods trade, from customs administration to IP andvcompetition policy. This has not only improved bilateral market access for bothvparties, but has worked to improve Turkey’s ability to make stronger undertakings in its recent FTAs with third parties and improve its global competitiveness, strengthening its growth prospects.

At the same time, the BPTF has been bypassed on a number of fronts, most importantly on services, FDI and public procurement, three key areas of interest for the EU in its recent FTAs; and it would benefit from updating of rules in other areas where there are remaining significant gaps in alignment with the EU acquis, including in particular anti-fraud provisions.

This is derived from the Study of the EU-Turkey Bilateral Preferential Trade Framework, Including the Customs Union, and an Assessment of Its Possible Enhancement Final Report. It is republished pursuant to Commission Decision of 12 December 2011 on the reuse of Commission documents (2011/833/EU) (the EU Decision)

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