The Turkey Option

The Turkey Option: ‘Back to 1975’ – the ‘Turkey option’ of joining the customs union is the worst ‘halfway’ alternative, leaving the UK with no influence over trade deals

Another possible alternative for the UK would be to develop a relationship with the EU similar to that of Turkey, a candidate to join the EU that has been a part of the EU’s customs union since 1995.[37]

The customs union, a core element of the European project since 1968, implies that no duties are imposed on goods and services within the union. For this to be possible, the members operate a number of common practical rules, including removing the need for complex rules of origin, establishing common procedures on warehousing and operating common rules on customs transit. The customs union also involves a common external trade policy and common external tariffs, although there are some limitations to the benefits of EU FTAs to companies that are in the customs union but outside the EU. Even if this was, as some have argued, what the UK voted to remain a member of in 1975, a return to this would be an inappropriate and insufficient economic stance in the modern global economy – the UK needs a deep Single Market to underpin its global future.

Advocates argue that this option would enable us to trade with the EU as part of the customs union without needing to sign up to standardised regulations across the EU. It would also enable the UK to negotiate external services trade agreements independently of the EU. As with the Swiss and Norwegian options, the customs union would exempt the UK from the CAP, CFP and EU-wide regional policy and budget contributions. The UK would also be free to regulate its labour market independently of EU social and employment law.

Some argue that a customs union is what the UK signed up to when deciding to remain in the European Economic Community in 1975. In fact, the UK joined after it had already become clear that the other member states were set on going beyond this towards creating a Single Market. Moreover, with non-tariff barriers now replacing tariffs as the major obstacle to trade, a customs union would not support the UK’s trading ambitions in the modern global economy with its complex supply chains.

Moreover, opting for the customs union option would not free the UK from having to comply with EU regulation. The UK might be exempt from the CAP and CFP, but access to the customs union would mean implementing a number of rules relating to the free movement of goods, including competition policy and state aid. Were the UK to seek a broader agreement than Turkey’s, further regulatory requirements would be likely, as with Switzerland and Norway.

It would not be in the UK’s interest to be a silent partner in the EU’s trade policy, allowing other countries to set the tone for Europe’s openness to the world and the details of its trade deals, which would define the daily framework for the UK’s global trade. The UK needs to be at the table setting the mandate and approving the final agreement.

Finally, an agreement has two parties and it is clear that the Turkish model was designed as a step towards full EU membership and not as an end itself. The EU is conceding certain benefits to a country that is intending to become a full member of the EU, including the Eurozone. It is not clear whether the EU would be interested in offering a similar deal to a country leaving the EU.

The customs union gives some access to the Single Market, but there would be substantial exemptions, including services

The customs union agreement gives market access for Turkish businesses, but a significant number of areas are missing. While it covers all industrial goods, the agreement does not cover the services sector or public procurement.[38] The Council has agreed on negotiating guidelines on the liberalisation of services and public procurement, but these negotiations were suspended in 2002 with no finalised deal.[39]

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Turkey has no influence over the rules of the customs union or the other rules it has to implement to comply with the customs union agreement.

Agriculture is another area not covered by the agreement, with the exception of processed agricultural products, although bilateral trade concessions apply to some agricultural products.[40] The agreement does not cover trade in steel and coal products, although in 1996 a free trade area was established between Turkey and the European Union for products covered by the European Coal and Steel Community.[41] Extending the coverage of the customs union is therefore a pressing issue for Turkey.

In addition, the agreement gives the parties the ability to initiate, investigate and impose anti-dumping and countervailing duties, and a 2004 study estimated that the continuation of EU anti-dumping duties has led to welfare losses of up to million for Turkey.[42]

Being part of the customs union would mean that a car produced in the UK can circulate as freely within the EU as a car produced in an EU member state. However, not all parts of UK business would be covered in an agreement; notably services would be excluded. The concept of a customs union for goods is somewhat outdated and not compatible with a modern economy like that of the UK, whose reliance on services trade with the EU and beyond is increasing. The UK could argue for a deal on services, in particular for financial services, but it is not certain that the EU would be willing to allow UK firms to access the customs union freely without requesting compliance with a number of key EU regulations in these areas in return.

While being exempt from social and employment laws, among others, the customs union option still involves regulatory compliance in return for market access 

There are areas where Turkey does not have to apply EU regulation, reducing the regulatory burden on Turkey compared to that of an EU member state. For instance, Turkey is exempted from the Common Agricultural Policy (CAP), the Common Fisheries Policy (CFP) and the EU’s Regional Policy.[43] It also does not have to apply EU social and employment law. [44]

Turkey has, however, had to adopt rules over which it has no influence.[45] The agreement with Turkey addresses regulatory areas of so-called ‘deep integration’ because the intention was to further both parties’ commercial association and pave the way for future full membership. For example, the agreement requires Turkey to adopt detailed provisions on technical barriers to trade and product regulation. Turkey had to harmonise commercial policy, which included adopting rules on competition and state aid in line with EU practice.[46] It also had to adopt Community legislation on the administration of border procedures including rules of origin, and to approximate other laws such as rules on intellectual property (mainly ensuring its laws are compatible with international agreements for the protection of intellectual property rights) as well as taxation.[47]

Although the UK would certainly lose some of the regulatory obligations by leaving the EU and joining the customs union, it is uncertain what a customs union agreement would entail in terms of regulatory compliance. Looking at the Turkish option, it is clear that access – as with the Norweigan and Swiss options - would not come without costs.

The benefits from EU Free Trade Agreements (FTAs) would depend on a separate voluntary agreement with the third country in question, while the UK would have to open up its own markets to all EU trade partners

In practice, the customs union relationship allows the EU to negotiate and sign FTAs with third countries which Turkish exporters do not necessarily benefit from. When the EU signs an FTA, Turkey is not involved in designing the mandate for the negotiations, nor is it around the table when the final agreement is approved. This means that Turkish priorities might be completely overlooked in the the EU’s FTAs.

Moreover, any EU FTA partner does not have to provide preferential access for Turkish exporters, despite its own exporters having full access to Turkish markets. Although the EU has started to use a ‘Turkish clause’ in its new bilateral trade agreements such as the one with South Korea, in which it asks its trading partners to negotiate a similar agreement with Turkey, this clause is not legally binding.[48] [49] There is thus no guarantee that the same level of concessions as those extracted by the EU can be negotiated for Turkey. In the case of the EU–US FTA, Turkey’s Prime Minister, Recep Tayyip Erdo

One benefit is Turkey’s ability to negotiate external agreements in areas not covered by the customs union agreement, such as agriculture. Turkey has signed a number of FTAs with countries such as Korea, Israel, Morocco, Georgia, Albania and EFTA.[51] This is a small advantage when compared to the disadvantage of being excluded from the EU FTA talks on all the areas that are covered by the customs union.

Turkey’s access to EU markets helps attract FDI but the customs union does not facilitate free movement of people

The customs union agreement, combined with the country being a candidate country and a large populous neighbour country, has supported a massive inflow of foreign direct investment into Turkey; the EU generates about 70–80 % of foreign direct investment and around 14,000 companies are based in Turkey. [52] While the customs union has been important for Turkey, the UK is already a substantial receiver of FDI and is not likely to receive additional investment by being in the customs union. The reulst is more likely to be a potential reduction due to the limitations of the customs union compared to full access to the Single Market.

The customs union itself does not provide for free movement of people although negotiations between the UK and the EU could include commitments around this. The Turkish agreement stated that the two parties should work towards progressively securing freedom of movement for workers between them, and European Court of Justice rulings have given Turkish nationals the right to remain or switch employment if they are legally employed in an EEC member state.[53] These limits on free movement would be an advantage for those who wished to withdraw from the EU in order to have more control over the UK’s borders but they would be a major impediment for British business.

The UK would have no influence over rules that it had to follow and particularly no influence over trade deals

Turkey has no influence over the rules of the customs union or the other rules it has to implement to comply with the customs union agreement. As with Norway and Switzerland, it has no votes in the Council, Commission or Parliament and, like Switzerland, it does not participate in the expert groups that can informally influence EU decision-making.

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Turkey has no influence over the rules of the customs union or the other rules it has to implement to comply with the customs union agreement.

Accesibility Info

This lack of influence would be negative for the UK. The development of the customs union rules itself is crucial to UK businesses, as issues such as achieving a centralised customs clearing can illustrate. The EU has recently modernised its rules to make them fit for the digital age, involving changes important for UK businesses. Were the UK to be outside the EU but inside the customs union, it would be faced with a situation where it could not influence the rules of the game to serve its interests. In addition, as described above, the UK would play no role in negotiating trade deals with third countries, opening up UK markets to foreign competition but not guaranteeing reciprocal access.


References

[37] The Ankara Agreement of 12 September1963 (OJ L 217, 29.12.1964) and its Additional Protocol of 23.11.1970 (OJ L 293, 29.12.1972) define the scope and content of the association relationship, while the final phase of the customs union is defined in Decision 1/95 of the Association Council of 22 December 1995 (OJ L 35, 13.02.1996).

[38] Felicitas Nowak-Lehmann et al., The Impact of a Customs Union between Turkey and the EU on Turkey’s Exports to the EU, Journal of Common Market Studies, 2007, Volume 45.

[39] European Commission, Countries and Regions Turkey, accessed 16 October 2013

[40] European Commission, Turkey: Customs Unions and preferential arrangements, accessed 16 October 2013

[41] Sinan Ulgen & Yiannis Zaharaiadis, ‘The future of Turkish-EU trade relations. Deepening vs widening’, 2004

[42] Ulgen, Sinan and Yiannis Zaharaiadis, The future of Turkish-EU trade relations. Deepening vs widening, Turkish Policy Quarterly, Vol 3, number 4, 2004

[43] Ulgen, Sinan and Yiannis Zaharaiadis, The future of Turkish-EU trade relations. Deepening vs widening, Turkish Policy Quarterly, Vol 3, number 4, 2004

[44] Open Europe, Trading Places: Is EU membership still the best option for UK trade?, June 2012

[45] Erkan Erdogdu, Turkey and Europe: Undivided but not united, MPRA Paper No. 26928, posted 23. November 2010

[46] Sübidey Togan, The EU-Turkey Customs Union: A Model for Future Euro-Med Integration, MEDPRO Technical Report No. 9, 9 March 2012; Ercan Atak, Harmonisation of Turkish Legislation and Practice with that of The European Union, Presentation, Turkey-EU Joint Parliamentary Committee

[47] Ilgaz, D., Turkey Aims at Full Harmonisation with the EU Acquis Communautaire in Intellectual Property as a requirement of Membership, in Peter G. Xuereb (ed.), Euro-Mediterranean Integration: The Mediterranean's European Challenge – Vol. III, 2002

[48] Murat Yapici, DG for EU Affairs, Turkish Ministry of Economy, Turkish perspective on FTAs under the Turkey-EU CU (with a Special Emphasis to TTIP), 18 June 2013

[49] Dr. Mahmut Tekçe, FTA between Korea and Turkey: Challenges, Opportunities and Economic Cooperation, 1 July 2010

[50] Financial Times, Europe: Customs union adds stress to economy’s life on the edge, 9 May 2013, available at:

[51] European Commission, Countries and Regions Turkey, accessed 16 October 2013

[52] Ibid

[53] European Commission, Case law - Turkish workers, accessed on 16 October 2013. Judgment of the European Court of Justice in Case C-1/97 Birden (1998) ECR I-7747