A BRIEF HISTORY OF CUSTOMS UNION:
WHAT FUTURE FOR IT?
*from an unusualist's view point
M. Haluk Nuray
İKV Brussels Representative
32nd Meeting of the EU-Turkey Joint Consultative Committee
Bruxelles, 7 Nov. 2013
Although CU is an old and long story with many ups and downs,
in the last couple of years, when the Turkish economy and
business' actors mention the CU,
it is usually in the form of “complaints” and with negative
intonations.
History of the Customs Union
Episode 1 : Great Expectations
(1969 - 1977)
The basic rules of CU were negotiated and decided at 1969; put
on paper at 1970 and implementation partially started at 1971.
For the Turkish side, at the beginning, the CU was accepted
without calculating its economic implications but because the
integration model emerging in Western Europe was based on it.
In other words the decision was “political”.
The philosophy was to extend to Turkey the same apparently
successful recipe of EEC.
History of the Customs Union
Episode 2 : Hesitation and Political Downturn
(1977 - 1986)
Turkey stopped tariff reductions. At that point I see that Turkey's
failing to fulfill the CU commitments were partially linked to
"economic" grounds.
The political ups and downs had been corrosive in the EC-Turkey
relationship and the relationship was “officially frozen” from
early 80s until 1986 and “practically cool” even until 1988
despite the membership application of April 1987.
History of the Customs Union
Episode 3 : Revitalization (1)
(1987 - 1995)
From 1987, the evaluations made by both sides after the new
membership application led to a conclusion that the progress in
the relationship should (and could only) be based on CU.
However, in 1988-1991 period there was disappointment and
hesitations. Dissapointments on the EU side were mainly due to
the unfullfiled CU obligations.
On the Turkish side there were mainly two areas of
dissapointment: failure to obtain free movement of workers and
failure to obtain new financial assistance since 1981.
But after 1992, the process accelerated.
As the Turkish economy of the day was predicated upon a speedy
liberalization, at that point, economic and political motives
overlapped. That, in turn, created a strong political will behind
the CU.
History of the Customs Union
Episode 3 : Revitalization (2)
(1987 - 1995)
Not without problems of course.
Easy one: The concept of CU changed....
Solution: Found
Difficult one: The EU did not stop and wait; it has completed its
internal market and headed towards the economic and political
union. So, the problem faced was not only to conclude a trade
agreement but also to determine Turkey’s place in this new EU
and the question was if CU would be enough to secure a good
place for Turkey in the new EU.
Solution: Not found !yet!
EU has viewed the CU in terms of strengthening its economic and
political relationship with Turkey. For Turkey, in contrast, the CU
is not considered a self-standing trade agreement but seen as a
tool that should ultimately lead to full membership.
SENTIMENTAL DIMENSION of the CU.
History of the Customs Union
Episode 4 : From Rejoice to Complaints (1)
(1996 - today)
Against all these difficulties and challenges the CU decision was
adopted at March 6, 1995 and the full implementation of the CU
started as of 1.1.1996.
The rules laid down by this very same decision, today, form the
foundation of the system that regulates the commerce between
Turkey and the EU. Even more important than this; the CU is one
of the key factors that helped shape the Turkish industry into
what it is today.
History of the Customs Union
Episode 4 : From Rejoice to Complaints (2)
(1996 - today)
It was only 18 years ago when we rejoiced the approval of the CU
decision by the European Parliament on March 6, 1995 by
fireworks. "I believe that in three to four years Turkey will not
only be in CU with the EU but will be a full member” said Prof. Dr.
Tansu Çiller, Prime Minister of Turkey on May 7, 1995.
“We are a full member of the EU
in 1998 latest”
History of the Customs Union
Positive Effects
CU has brought significant benefits to both Turkey and the EU.
Turkey’s trade deficit with the EU has increased (but it was a
calculated risk). As a whole, trade and investment linkages
between the EU and Turkey have deepened;
It opened and consolidated the Turkish market in a privileged
way for EU producers but at the same time, Turkey became an
export base for neighboring regions enabling Turkish companies
to penetrate and operate in those markets;
Turkey also became an important investment base for EU
companies leading to an increasing degree of integration of
Turkey affiliates in EU supply and production networks;
CU helped modernize a large part of Turkey’s economic
legislation giving rise to important micro and macro-economic
dynamics.
History of the Customs Union
Complaints
There are also a number of ‘trade irritants’, or complaints
regarding the implementation of the CU, many of which have
been unresolved for years
Most of the complaints refer to the adverse implications of the
Free Trade Agreements (FTAs) the EU signs with third countries.
The complaints concerning the FTAs are definitely well grounded
and right; with some other criticism like visas and transport
quotas one can also agree with; but there is also unjust criticism
with no scientific basis which categorically discredits and rejects
the CU; there is no possible way to agree with or even
acknowledge them.
History of the Customs Union
Why and how did we come from a national celebration to national grievance?
Reason 1: The CU, as negotiated, was imperfect
The asymmetric structure of the agreement stems from the
original perception that it was meant to be temporary in the lead
up to accession. And let us not forget, Turkey did negotiate only
with the “knowledge, understanding and means of forecast of
the day”.
History of the Customs Union
Why and how did we come from a national celebration to national grievance?
Reason 2: Time Factor
CU after its completion, greatly helped Turkish industry with its
two major needs; opening up to new markets and getting
prepared for the challenges of globalization.
But everything has changed gravely in the following years: not
only in Turkey and in the EU but in the rest of the world as well,
and these changes in turn changed and diversified the needs.
History of the Customs Union
THE CUSTOMS UNION THAT WAS AN
ANSWER TO SOME OF TURKEY’S ECONOMIC
PROBLEMS OF THE PAST AND THE STAR OF
THE ECONOMIC AGENDA OF 90S, FALLS
SHORT OF FULFILLING THE NEEDS OF
TODAY’S TURKEY.
History of the Customs Union
Bay
A
Bay C
Bay
B
History of the Customs Union
Bay
A
Bay
B
Bay
A
Bay
C
Bay
B
Bay
C
Connecting factory & doing business abroad: The
“trade-investment-services nexus”
Bay A
Bay C
1) Two-way flows of goods, ideas, technology,
capital, and technicians.
2) Investment and application of technical,
managerial and market know-how abroad.
Bay B
History of the Customs Union
Final Episode : What future for the EU?
*humble opinion of an unusualist
Conclusion 1 - Renegotiating the CU
It is imperative and necessary to negotiate and debate the parts of the CU subject
to complaints from Turkish industrialists like the daily operation of the CU or the
FTAs.
Is it possible to find a solution to "complaints" through renegotiating the CU?
My answer is NO.
BOTH SIDE HAVE COMPLAINTS BUT WHILE EU'S COMPLAINTS ARE MORE
OPERATIONAL AND EASIER TO SOLVE WITHIN THE PRESENT STRUCTURES, TURKEYS
COMPLAINTS ARE SYSTEMATIC AND REQUIRES STRUCTURAL CHANGES.
Although CU is one of the earliest attempts by the EU to share some its legal system
with another country, it has reached its limits. The only definitive solution is
MEMBERSHIP OF TURKEY.
If we will renegotiate the CU it could / should only cover this trade aspect of it. It is
not a good idea to add new areas onto an proven imperfect, old dated structure.
History of the Customs Union
Final Episode : What future for the EU?
*humble opinion of an unusualist
Conclusion 2 - Renegotiating the CU
Role of the CU in Carrying the Relationship / and Turkish Economy From Today to
Future
CU has changed the fabric of Turkish industry and fulfilled its task and made its
time as a tool to carry the relationship forward.
TODAY; THE CRITICAL QUESTİON THAT HAS TO BE ANSWERED IS WHAT SHOULD
REPLACE THOSE FEATURES OF THE CU THAT HAVE SO SUCCESSFULLY PREPARED
TURKEY FOR THE GLOBALISATION OF 2000S AND THAT HELPED TURKISH İNDUSTRY
BECAME WHAT IT IS TODAY.
The “Big economies” are trying to establihs a new international trade order through
economic partnership networks (TPP, T-TIP…) The aim is “making rules worthy of
21st Century”.
FROM A STRATEGIC AND GLOBAL PERSPECTIVE TURKEY CANNOT AND SHOULD NOT
STAY OUT OF IT.
Last Word
*of an unusualist
In any longstanding relationship, the economies and societies of the two parties are
likely to evolve at different paces at different times and even at different directions.
Therefore, if the development of the relationship is linked to programs and
timetables and the process takes too long it is not surprising if one or the other
party falls behind or even find itself backsliding.
This might be damaging the further harmonious development of the relationship.
Today, we are facing the exact same problem in the negotiation process.