The importance of upgrading the customs union

It is no secret that Turkey’s EU membership negotiations are frozen and seem unlikely to thaw in the near future. However, at the same time, talks continue between the EU and Turkey. Indeed, hardly a week goes by when Turkey’s Minister for EU Affairs and chief negotiator Volkan Bozkir is not in Brussels. One of the key areas under discussion is upgrading Turkey’s customs union (CU) with the EU.

Turkey is the only EU candidate country that had a CU with the EU before it began accession negotiations. The agreement was signed in 1996. Back then it was viewed as a historic and important achievement, with many in Turkey believing it would help pave the way toward full membership. The CU helped to open Turkey’s economy to the global market, and made the country more competitive.

However, over the years, Turkey has raised problems regarding the agreement with increasing frequency. These problems are related to transport quotas and visa issues, which Ankara believes have made the agreement more beneficial to the EU than to Turkey. This has become more relevant recently, following the launch of the negotiations between the EU and the US in July 2014 for a Transatlantic Trade and Investment Partnership (TTIP). It is a hugely ambitious project and, if successful, the TTIP would become the world’s largest free trade agreement, leading to an estimated gross domestic product (GDP) increase of some $180 billion for the EU and the US in five years.

However, the TTIP’s potential effect on Turkey has not been viewed positively because of Ankara’s CU with the EU. Within the terms of the CU, Turkey has no say in negotiations that the EU carries out with third countries but is obliged to abide by the terms agreed upon, meaning that Turkey must open its markets, while not being allowed to enter these third country markets because it is not part of the EU. Consequently, third countries are left with little incentive to negotiate free trade agreements with Turkey. With the EU increasing its number of free trade agreements with third countries, there is good reason for Ankara to be uneasy. The TTIP is expected to adversely affect the Turkish economy, potentially costing Ankara billions.

Hence, with the dead negotiation process and Turkey’s distress over the TTIP, there was a real need to change the negative trend in EU-Turkey relations. Today Turkey and the EU are working to update the CU, which would bring about a fairer and more balanced implementation of the agreement.

According to a paper recently published by Turkey’s Economic Development Foundation (IKV), “Revising the [CU] is essential for Turkey to be prepared for such a major change in the global economic system.” The time frame for terminating the negotiations to this end is quite short.

Talks between Turkey’s development minister, Cevdet Yilmaz, and the EU commissioner for trade, Cecilia MalstrOm, are expected to be completed within 12 months. From the point of view of Ankara, one of the crucial elements in the new agreement will be that it will allow, one way or another, for Turkey to become part of the TTIP negotiations, or at least that Turkey’s interests will be taken into consideration in the final agreement, provided, of course, that a final agreement is ever reached.

Interestingly, on April 12, the EU opted to extend the CU to new sectors, including service, public procurement and agriculture. It would seem that this idea is aimed at giving the perception that relations are moving forward. While this should be welcomed and could reinvigorate Turkey-EU ties, it is clearly a short-term distraction from the blocked membership talks.

However, there is a window of opportunity on the horizon related to the new developments in Cyprus. Cyprus currently blocks some 13 negotiating chapters. With the new round of talks for a solution to the Cyprus problem having begun on Friday between the new Turkish Cypriot leader, Mustafa Akinci, and his Greek Cypriot counterpart, Nicos Anastasiades, there is new optimism that a solution can be quickly reached. This could open the way for Turkey and the EU to get back on track. While Turkey’s EU membership would still be far from guaranteed, it could help draw Turkey back to a reform agenda and help reverse the backtracking on democracy.

SOURCE: Today’s Zaman