1

A Journey from the Ankara Agreement 1963 to the Customs

Union 1995; where does the relationship stands today?

An Analysis of the EU-Turkey Free Trade Agreement

By

Bushra Malik

Supervisor: Dr. Richard Lang

January 2015

A thesis submitted for the degree of Masters of Laws in the

International Commercial Law at the University of Bedfordshire

2

Declaration:

I hereby certify that the work embodied in this thesis is the result of my

own investigations except where reference has been made to publish

literature.

I declare that this work has not already been accepted in substance, nor

is it currently being published in candidature for any other degree.

Signature: BUSHRAMALIK DATE: 30.01.2015

3

Acknowledgments:

I would like to thank the United Kingdom for providing me the opportunity to pursue

advanced education at the University Of Bedfordshire Postgraduate School Of Law.

I would like to thank my Supervisor, Dr. Richard Lang for his invaluable guidance during

the writing of this thesis. This study could never have been completed without his precious

contributions and reviews. I would also like to thank my supervisor for his kind understanding and

comments.

I am also highly obliged to all the members of “the library gang” for their support and

friendship.

Finally, my special thanks go to my family for their outstanding support during my

education at the Postgraduate School, as in every stage of my life.

4

Table of Contents

TREATIES………………………………………………………………………………………..…...…6

REGULATIONS………………………………………………………………………………………...6

DIRECTIVES……………………………………………………………………………………………6

DECISIONS……………………………………………………………………………………………..6

PROTOCOLS…………………………………………………………………………………6

1. INTRODUCTION…………………………………………………………………………...9

1.1. LITERATURE REVIEW ………………………………………………………………...…10

1.2. RESEARCH QUESTION………………………….………………...……...………………12

1.3. METHODOLOGY……………………………………………………………………….…13

2. INTERNATIONAL TRADE THEORIES…………………………….…………………14

2.1. INTERNATIONAL TRADE THEORIES…………………………………………………14

2.1.1. NEOCLASSICAL THEORIES…………………………..……………………………….14

2.1.2 THE FACTOR PROPORTIONS, HECKSCHER-OHLIN THEORY OF TRADE…..….14

2.2. CONTEMPORAY TRADE THEORIES………………………………………..………..15

2.2.1. DISTINGUISHING BETWEEN VERTICAL AND HORIZONTAL INTRA-

INDUSTRY TRADE: ………………………………………………………………………….16

a. HORIZONTALY DIFFERENCIATED GOODS………………………………………….....17

b. VERTICALLY DIFFERENTIATED GOODS……………………………………………….17

3. THE ESTABLISHMENT OF A FREE TRADE AGREEMENT BETWEEN THE

EUROPEON UNION AND TURKEY………………………….……………………………..19

3.1. THE ANKARA AGREEMENT……………….……………………………………………19

3.2. AN ANALYSIS OF THE ANKARA AGREEMENT………….………………………….20

4. THE FIRST ACHIEVMENT; CUSTOMS UNION AGREEMENT 1995………………24

4.1 THE CUSTOMS UNION 1995…………………………..……………………………….24

4.2. TURKEY’S LEGISLATIVE REFORMS RELATED TO THE CUSTOMS UNION…….25

4.3. IMPACTS OF THE CUSTOMS UNION ON THE TURKISH ECONOMY………….....26

4.3.1. TRADE CREATION EFFECTS………………………………………………………….27

4.3.2. DYNAMIC EFFECTS OF TURKISH ECONOMY…………………….………………..29

5. THE CONTROVERSIAL ASPECTS OF THE EU-TURKEY FREE TRADE

AGREEMENT………………………………………………………………………………31

5.1. THE NEGATIVE IMPACT OF EU’s NEW FREE TRADE AGREEMENTS TURKISH

EXTERNALITIES……………………………………………………………………………….31

5.2. VISA CONCERNS………………………………………………………………………….34

5

6 THE JUDICIAL RESPONSE OF THE ECJ TO THE EU-TURKEY FREE TRADE

AGREEMENT…………………………………………………………………………………36

6.1. AN ANALYSIS OF THE ECJ CASE LAW ON TURKISH IMMIGRANTS:……………36

6.2. LEGAL INTEGRATION FOR THE EMPLOYMENT PURPOSES:…………….……….38

6.3. LEGAL EMPLOYMENT…………………………………………………………………..39

6.4. STANDSTILL CLAUSES……………………………………………………………….…42

7 ANALYSIS; IS THERE A FUTURE FOR THE EU-TURKEY FREE TRADE

AGREEMENT?..........................................................................................................................44

7.1. DEEPENING THE CUSTOMS UNION (External trade policy):…………………………44

7.2. TRADE POLICY LOOPHOLES UNDER THE CUSTOMS UNION……………………..45

8. CONCLUSION AND KEY RECOMMENDATIONS:…………………………………...49

BIBLIOGRAPHY…………………………………………………………………..………….54

6

List of Treaties, Regulations, Directives, Decisions and Protocols:

Treaties:

The European Commission Treaty

The Treaty of Rome

Treaty of Ankara1963

Customs Union 1995

Regulations:

Regulation 1612/68

Regulation 1251/70

CLP Regulation

Directives:

Directive 75/363

Directives 68/360/EC

Directive 73/148/EC

Directive 75/34

Decisions:

Decision 2/76 of the Association Council

Decision 1/80 of the Association Council

Decision 3/80 of the Association Council

Decision 1/95 of the Association Council

Protocols:

The Additional Protocol 1970

7

List of Tables, Graphs and Boxes:

Table 1 EU Share of Turkish Imports and Exports (USD Million)…………………………..26

Graph 1 Turkey Imports/Exports (USD Million)……………………………………………..28

Graph 2 GDP Growth Rate of Turkey (%)……………………………………………………30

Box 1 Important Dates in the History of EU-Turkey Free Trade Agreement …....................26

8

List of Frequently Used Acronyms and Abbreviations

AFT Andean Free Trade Agreement

CU Customs Union

C/L Capital and Labour

CJEC Court of Justice of the European Communities

CCT Common Customs Tariff

CCC Community Customs Code

CLP Classification, Labelling and Packaging

CET Common External Tariff

DSM Dispute Settlement Mechanism

ECJ European Court of Justice

EU European Union

EC European Commission

EFTA European Free Trade Association

EEC European Economic Community

FDI Foreign Direct Investment

FTA Free Trade Agreement

GDP Gross Domestic Products

GSP Generalised System of Preferences

GATT General Agreement on Tariffs and Trade

HIIT Horizontal Intra Industry Trade

MFTA Mercosur Free Trade Agreement

OLS Ordinary Least Squares

ROOs Rules of Origin

SPS Sanitary and Phytosanitary

TTIP Transatlantic Trade and Investment Partnership

TCA Turkish Customs Administration

TDI Trade Defence Instruments

UV Unit Values

USD United States Dollars

VIIT Vertical Intra Industry Trade

WTO World Trade Organization

ESI European Stability Initiative

9

I. INTRODUCTION

Following the end of World War II, the global economy entered a phase of rapid growth and

international output increased dramatically. This phenomenon is generally attributed to an increase in

global trade1. However, the dramatic rise in world trade was actually caused by global specialisation

between international nations. This trend has had an influence on many global economies, most

notably in the manufacturing industry. The dramatic rise in world trade was facilitated by the

elimination of trade barriers following the implementation of the GATT (General Agreement on

Tariffs and Trade) and the establishment of regional trading agreements, namely the Mercosur and

Andean Free Trade Agreement (MFTA, AFTA), the European Union (EU) Agreement and the North

America Free Trade Agreement2. In the EU, this agreement has called for greater cooperation in terms

of production systems between member states and the foundation of a single market in 1993 means

that all trade barriers in the region have been abolished. As a result, people and commodities can now

travel easily between nations as the EU plays a more dominant role on the global market.

During the 1980s, Turkey began to implement a liberalisation strategy based on exportation policies

as they adopted an export-led development approach. The relationship between Turkey and the EU

was further developed from 1996 as the foundation of the Customs Union (CU) had a significant

effect on the Turkish economy. This agreement was implemented in January of that year and

facilitated Turkey’s integration into the EU market, a monumental event in terms of Turkish foreign

trade as they were assimilated into a market with a purchasing power that was considerably higher

than their own. This also marked a significant step toward trade liberalisation in Turkey. On account

of the CU between the EU and Turkey, the level of trade exchanged between Turkey and member

states has increased dramatically. According to Doganer Gonel3 , the CU agreement led Turkey to

become the only non-member state that had been strongly assimilated into the economic framework

of the EU. In terms of exportation industries, the country has experienced a decline in the exportation

of agricultural commodities. However, in contrast, the manufacturing industry has experienced a

considerable increase in exports based on data between 1990 and 2010 as the industry acquired an

84.7% share of total exports, an increase on the 67.7% share that was recorded in 2004. Thus, the

1 Gulcin Elif Yucel and Serkan DegirMenci, “Does Integration with EU Customs Union Matter for Intra-Industry Trade of

Turkey?” Istambul Technical University, p.2

http://www.etsg.org/ETSG2011/Papers/Yucel.pdf (Accessed 30/10/2014) 2 Janisch, Vildan. “An Assessment of Trade Policy in the European Union: The Case of Steel” PhD diss.,

North eastern University, 1997 Boston, MA

http://iris.lib.neu.edu/econ_theses/1/ (Accessed 31/10/2014) 3 Ibid

10

manufacturing industry has entered a phase of rapid growth in Turkey based on export data from the

past seven years.4

Nonetheless, it must be acknowledged that the long-term feasibility of the CU has been called into

question as well as its benefits on trade between Turkey and EU member states. Generally speaking,

the longevity of the CU is subject to doubt on account of dramatic changes to the global landscape

with many theorists claiming that the CU is no longer capable of responding to new challenges in

trade integration. In addition, a revision of the CU would be difficult to achieve as Turkey and the EU

have different perspectives on its purpose and there have also been several complaints and unresolved

issues in regards to the CU since it was implemented.

Aside from these issues, there are also legal considerations to take into account, particularly in terms

of the Ankara Agreement that was implemented in 1963. For example, the free movement of people

and services permitted by the agreement has been subject to debate. Furthermore, it is also necessary

to consider the implications of the CU, an agreement that eliminated trade tariffs and trade barriers, in

terms of its legal implications as there has been extensive debate regarding its legal effects.

As the future of the CU is in doubt, it is necessary to analyse the long-term implications of the

agreement on both parties and recommend ways in which the CU could be improved. In addition, it is

important to formulate new strategies that will increase the level of free trade between Turkey and EU

member states in order to encourage other Middle Eastern nations to establish similar trade

agreements with the European Union.

Literature Review

In terms of the prevailing academic attitude toward the significance of FTAs, the majority agree that

they are necessary to increase export and production levels, now and in the medium-term future.5

Nonetheless, an increase in exports may not necessarily prompt a similar rise in production levels;

thus, the implementation of further policies may circumvent some of the adverse implications of

FTAs, particularly in terms of competitive sectors that are exposed to a higher degree of international

market competition.6 In the immediate future, the factor used to determine the advantages of FTA is

4 Seymen and Bilici, 2009. 5 Ali AYBEY, “Turkey and The European Union Relations: A Historical Assessment” (Cilt: 4, No: 1 (Güz: 2004), s. 19-38)

http://dergiler.ankara.edu.tr/dergiler/16/1121/13201.pdf (Accessed 01/11/2014) 6 Amanda Akçakoca, “EU-Turkey relations 43 years on: train crash or temporary derailment? EPC Issue Paper No.50”

(November 2006)

http://www.epc.eu/documents/uploads/230573719_EPC%20Issue%20Paper%2050%20-%20EU-Turkey%20relations.pdf

(Accessed 03/11/2014)

11

welfare, namely the level of production specialisation practiced by the country, fluctuations in trade

terms and prices and fluctuations in tax revenues and tax policies.7

Aside from welfare considerations, there are also a range of dynamic benefits for countries that enter

into trade agreements. For instance, countries can attract a higher level of foreign direct investment,

can increase access to high-tech capital products and can improve the level of competition on the

domestic market on account of unlimited trade policies.8

From this perspective, there has been a wealth of literature composed on the subject of the EU-Turkey

Free Trade Agreement and some believe that the implementation of the Ankara Agreement (1963)

was the first step toward Turkey securing full membership status in the EEC. In effect, the CU was

originally viewed as an intermediate strategy that would facilitate complete integration into the EEC

over time.9 Furthermore, as posited by the Diplomacy and Foreign Affairs Blog, the parameters of the

CU were set in light of the Ankara Agreement (1963) with the Additional Protocol, which was

implemented in 1973, delineating the specifications.

Many theorists10 believe that Turkey intended to establish a closer relationship with the EU when they

accepted the CU agreement as Turkey has been keen to acquire EU membership since the European

Economic Community was first established. In other words, by entering into the CU agreement,

Turkey sought to increase trade and economic integration with the EEC in order to further their

accession into the EU and become accepted as a full-time member. However, although this was

Turkey’s intention from the beginning, the Turkish government could not have known that they would

still not have been accepted into the EU by 2013.

Based on statistical data and economic records11, the implementation of the CU has stimulated a rise

in trade between Turkey and members of the EU. In the following five years, Turkish exports to the

EU rose by 24.6% and based on figures derived from 2012; Turkish exports to EU member states

were valued at 46 million or 29.3% of all products exported from Turkey. In terms of import levels,

Turkey imported 68.1 million worth of products from the EU, a figure that accounts for 33.7% of total

7 Presidency Conclusions of the Brussels European Council (16/17 December, 2004). http://ec.europa.eu/enlargement/pdf/turkey/presidency_conclusions16_17_12_04_en.pdf (Accessed 04/11/2014) 8 Vincent Morelli, “European Union Enlargement: A Status Report on Turkey’s Accession Negotiations”, (September 9,

2011)

http://fpc.state.gov/documents/organization/174199.pdf (Accessed 04/11/2014) 9 Issues arising from Turkish membership perspective, SEC (2004) 1202, October 2004

http://ec.europa.eu/enlargement/archives/pdf/key_documents/2004/issues_paper_en.pdf (Accessed 04/11/2014) 10 Euractiv, ‘The EU-25's view of Turkey's membership bid’, 17 December 2004.

http://www.euractiv.com/enlargement/eu-25s-view-turkeys-membership-b-linksdossier-188320 (Accessed 05/11/2014) 11 World Bank, “Evaluation of the EU-TURKEY Customs Union” Report No. 85830-TR, March 28, 2014

http://www.worldbank.org/content/dam/Worldbank/document/eca/turkey/tr-eu-customs-union-eng.pdf (Accessed

08/11/2014)

12

imports into the country. Nonetheless, others claim12 that the benefits of the CU for both Turkey and

the EU are outweighed by the negative effects of the agreement, namely the increase in FTAs being

established between the EU and third countries. As difficulties were encountered during trade

liberalisation at a multilateral level, the EU has instead begun to prioritise bilateral and regional FTAs.

Based on these dissenting views on the CU agreement, many academics13 have proposed ways to

enhance the trade agreement between the EU and Turkey with many believing that a higher level of

integration is required for the benefit of both parties. However, it is unclear whether this should be

achieved through the revision of the existing policy or through complete accession of Turkey into the

EU. Conversely, others believe that it is necessary to stabilise the common commercial policy by

formulating regimented frameworks for negotiation and dialogue between the EU and Turkey.14 In

addition, it has also been suggested that Turkey be permitted to enter the EU single market under

similar conditions to other EU member states.15

Research Questions

This study seeks a solution to the following research questions:

1. Did the Free Trade Agreement (1963) and the Customs Union Agreement (1995) have a

positive impact on both parties during the first few years following its implementation?

2. What trade barriers remain between both parties and are there any ways in which the current

trade agreement could be revised or improved?

To address these research questions, this study will be divided into eight chapters, the first of which

presents an introduction to the research topic and the second of which offers an overview of

theoretical knowledge on the topic including references to classical and contemporary hypotheses on

FTAs. These theoretical insights will be considered in light of trade activities between Turkey and the

EU.

The third chapter presents an analysis of the existing free trade agreement between Turkey and the EU

and will investigate the origins of a trade agreement between these nations throughout history and the

eventual implementation of the Ankara Agreement (1663). In addition, this chapter outlines the

primary objectives of the agreement and explores problems that have arisen on account of its

implementation and the subsequent need for the Additional Protocol (1980). In particular, however,

12 K. Dervis, D. Gros, F. Oztrak and Y. Isik, Turkey and the European Budget. Prospects and Issues EU-Turkey CEPS

Working Paper No. 6, 2004 http://aei.pitt.edu/6760/1/1148_06.pdf (Accessed 08/11/2014) 13 Issues arising from Turkish membership perspective, SEC (2004) 1202, October 2004

http://ec.europa.eu/enlargement/archives/pdf/key_documents/2004/issues_paper_en.pdf (Accessed 08/11/2014) 14 K. Dervis, D. Gros, F. Oztrak and Y. Isik, “Turkey and the European Budget; Prospects and Issues” EU-Turkey CEPS

Working Paper No. 6, 2004.

http://aei.pitt.edu/6760/1/1148_06.pdf (Accessed 08/11/2014) 15 Ibid.

13

this chapter analyses the beneficial aspects of the free trade agreement that was established between

Turkey and the EU.

The fourth chapter explores events that took place following the Ankara Agreement, namely the

establishment of the Customs Union. In particular, this section analyses the implications of the CU in

terms of its effect on free trade now and when it was first implemented. This section also places

particular emphasis on the economic advantages of the CU for both parties.

The fifth chapter considers the arguments for and against the Ankara Agreement and the Customs

Union and investigates legal ambiguities in the agreements and how they may be misinterpreted as

having a negative effect on trade activities between the EU and Turkey.

The sixth chapter considers the influence of the FTAs from a general perspective and critically

analyses the current free trade relationship between both parties. In addition, this chapter investigates

the feasibility of these agreements from a legal perspective.

The seventh chapter considers the future of free trade between both states and makes a series of

predictions based on the factors that have been addressed in the previous chapters. In particular, this

chapter will argue whether or not the CU will continue to have a beneficial effect on free trade levels

or whether flaws in the agreement will have an adverse effect on EU and Turkish trade levels in the

coming years.

The final chapter, chapter 8, provides a summary of the research findings and provides a number of

recommendations on how trade relations between the EU and Turkey could be strengthened.

Methodology

This study is performed using secondary and primary research data with the majority of research

information being derived from literary or online sources. In addition, this study consults research

reports, case studies, legal documents and conventions.

14

II. OVERVIEW OF THE INTERNATIONAL

TRADE THEORIES

1. International Trade Theories

There have been many international trade theories proposed over the past centuries, including those

promulgated by Adam Smith16 and David Ricardo17, and the majority of these are designed to explore

the factors that prompt nations to enter into trade agreements with other states. The aforementioned

authors, Smith and Ricardo, perceived international trade in a primarily positive light in terms of its

financial and welfare benefits.

2. Neoclassical Trade Theories

There was no consensus established by classical trade theorists as they failed to rationalise why

relative efficiencies and comparative costs must fluctuate from country to country. Thus, neoclassical

theorists were required to address the shortcomings of classical hypotheses.

a. The Factor Proportions – The Heckscher-Ohlin Theory of

Trade

There were two Swedish economists, Heckscher and Ohlin, that attempted to explain the necessity of

trade agreements during the early 20th century and the factor proportion theory was proposed as a

revision and expansion of the hypotheses promulgated by Ricardo.18 These authors considered

variations between countries based on labour and capital resources and the proportion of these

resources that were required in each country to manufacture different products. The outcome of this

study asserted that variations in different factors caused variations in production costs. Thus, for the

purposes of this study, the two most fundamental factors are capital and labour (C/L) as the size of

nations has little impact on the level of trade activity. The authors used this model to explain how

different nations would excel in the trade of their most copious resources and would export a high

16 H. Myint, “Adam Smith's Theory of International Trade in the Perspective of Economic Development”, Economica New

Series, Vol. 44, No. 175 (Aug., 1977)

http://www.jstor.org/discover/10.2307/2553648?sid=21105717309343&uid=3739256&uid=4&uid=2 (Accessed

15/11/2014) 17 David Ricardo, Theory of Free International Trade, Economic Insights, Federal Reserve Bank of Dallas Volume 9,

Number 2

https://www.dallasfed.org/assets/documents/research/ei/ei0402.pdf (Accessed 16/11/14) 18 . W. Jones, “Factor Proportions and the Heckscher-Ohlin Theorem”, The Review of Economic Studies Vol. 24, No. 1

(1956 - 1957)

http://www.jstor.org/stable/2296232 (Accessed 16/11/14)

15

level of products manufactured using these resources. Conversely, countries are more likely to import

products, which they lack the resources to produce.19

Based on the situation between Turkey and the EU, it is assumed that the labour-capital ratio is

considerably lower in Turkey, which means that Turkey can take advantage by manufacturing

products that need an abundance of labour resources. However, as the EU has a higher capital-labour

ratio, they can manufacture a much higher level of capital-intensive products. In effect, this theoretical

approach posits that Turkey must import capital-intensive products and export labour intensive

products.

However, the Heckscher-Ohlin theory is subject to limitations in that it fails to address trade activity

between two first world countries that have similar capital-labour ratios. Nonetheless, it is an effective

theory for explaining the nature of trade practiced between Turkey and the EU as Turkey is a

developing country.

3. Contemporary Trade Theories

During the 1980s, emerging trade theories proposed two forms of trade practiced between different

nations, namely inter-industry trade and intra-industry trade.20 The nature of inter-industry trade had

already been addressed by neoclassical theorists as it was referred to as the exchange of commodities

from different industries between two nations on the basis of each nation’s competitive advantage. In

effect, this represents trade specialisation, which is generally referred to as inter-industry

specialisation.21

Nonetheless, a high proportion of global trade is in products that are manufactured by both countries

in the same industry, which implies that specialisation can occur on a more advanced level where

certain countries specialise in the production of particular products from a particular industry and

import other products from the same industry that they do not specialise in. This practice is referred to

as intra-industry specialisation.22

Classical theorists assumed that competition between different nations was perfect. Thus, they failed

to acknowledge the existence of intra-industry specialisation. Perfect competition is defined as a

situation where there are multitudes of sellers of a particular product, all of whom are price-takers and

19 Ibid. 20 John Dudovskiy, “Inter-industry and intra-industry trade Heckscher-Ohlin Model”, (2012)

http://research-methodology.net/inter-industry-intra-industry-trade-heckscher-ohlin-model/ (Accessed 16/11/14) 21 Bernardina Algieri, Salla Ankkuriniemi, Laura Zampieri, Institut für Weltwirtschaft, “Inter-Industry Specialization Vs.

Intra-industry Trade: A Regional Approach; Volume 353 of Kiel Advanced Studies working papers”, Inst. of World

Economics, (2000) https://www.econbiz.de/Record/inter-industry-specialisation-vs-intra-industry-trade-a-regional-approach-

algieri-bernardina/10001456532 (Accessed 17/11/2014)

22 Ibid

16

all products of which are exactly the same from the perspective of the consumer. However, more

recent theories highlight the existence of imperfect competition and economies of scale as data over

the past twenty years indicates that countries with similar capital-labour ratios engage in trade more

often than those with different capital-labour ratios.23

a. Differences between Vertical and Horizontal Intra-Industry

Trade

The trade of commodities from the same industry can represent Vertical Intra-Industry Trade (VIIT)

or Horizontal Intra-Industry Trade (HIIT). However, the G-L Index fails to differentiate between

them. Horizontal Intra-Industry Trade (HIIT) can be positively correlated with diversity in product

attributes while vertical intra-industry is characterised by different varieties of product providing

varying levels of service.24

It is necessary to differentiate between them as varying national and industry-based attributes are

often connected to both types of products. For instance, horizontal IIT is determined by industry-

based variables, including economies of scale, product distinction and oligopolistic market structures.

However, HIIT and VIIT can be characterised by country-specific variables by comparing per capita

income levels, market size, transportation costs, development grade, economic activity and the level

of foreign direct investment (FDI).25

A study was performed by Greenaway, Hine and Milner26 to determine how to differentiate between

HIIIT and VIIT. The authors discovered that differences in quality level of imports and exports can be

used, attributes that are calculated using export and import unit values (UV) per tonne. This technique

operates on the assumption that the difference between the UV of imports and exports for all products

will explain the qualitative differences between the commodities imported and exported between two

economic states. The authors justify the use of UV as a measure of quality as products sold at a higher

cost are assumed to be of greater quality than similar products sold at a more cost-effective price. This

theory operates on the assumption that all information is perfect but Stiglitz27 argues that even without

perfect information, the price of products can generally be considered indicative of their level of

quality. Thus, the use of UV as a measure of quality is a rational approach.

23 Ibid. 24 Lionel Fontagne, Michael Freudenberg & Guillaume Gaulier, “Disentangling Horizontal and Vertical Intra-Industry

Trade”, (2005)

http://www.cepii.fr/pdf_pub/wp/2005/wp2005-10.pdf (Accessed 17/11/2014) 25 Ibid 26 David Greenaway and Chris Milner, “What Have We Learned from a Generation’s Research on Intra-Industry Trade?”,

Research Paper 2003/44

http://www.nottingham.ac.uk/gep/documents/papers/2003/03-44.pdf (Accessed 18/11/2014) 27 Ibid. P.6-7

17

Horizontally Differentiated Goods

According to Dixit Stiglitz and Lancaster28

, there are other theoretical approaches to horizontal

differentiation including the ‘love variety approach’ and the ‘favourite variety’ method. The IIT

models promulgated by Krugman and Lancaster29 integrated both of these methods.

Lancaster30 believes that every customer has a predetermined product preference. Thus, intra-industry

trade in differentiated commodities is advantageous as it provides a more diverse range of products on

the market and allows consumers to choose the product that best suits their requirements. Dixit and

Stiglitz31 advocate the love variety approach and this is based on the assumption that consumers desire

access to a diverse range of different products as opposed to a diverse range of similar products; thus,

there should be a similar number of producers and product varieties.

These two approaches illustrate how horizontal IIT is strongly influenced by variations in preference

and price differentials. Thus, countries with very similar factor endowments are likely to have a

higher level of HIIT.

Similarly, Helpman and Krugman32 explore the interaction of intra-industry and inter-industry trade

by taking variations in factor endowments into consideration. This approach assumes that countries

with a high level of capital resources are more likely to export capital-intensive horizontally

differentiated products while countries with a high degree of labour resources are likely to export

labour-intensive goods with minimal differentiation as well as a small amount of differentiated

products. In effect, inter-industry trade is influenced by relative factor endowments and IIT is

influenced by variations in relative factor endowments. Thus, as the differences between factor

endowments increase, the level of differentiated commodities exported decreases.

Vertically Differentiated Goods

The most prominent VIIT theory is the one promulgated by Falvey33, a theory which explains vertical

differentiation in terms of quality variations between similar goods.

28 Claudiu Tunea, Trade with Horizontally and Vertically Differentiated Goods, (December 17th 2007)

http://economics.ca/2008/papers/0283.pdf (Accessed 18/11/14) 29 Ibid. 30 John Beath, Yannis Katsoulaco, ‘The Economic Theory of Product Differentiation’ (CUP1991). 31 Ibid. 32 Carsten Ecke, “Market Integration and Market Concentration in Horizontally Differentiated Industries”, (2001),

http://www.researchgate.net/publication/4886414_Market_Integration_and_Market_Concentration_in_Horizontally_Differe

ntiated_Industries (Accessed 18/11/2014) 33 Bruno Henrey De Frahan and Joe Tharakan, “Horizontal and Vertical Intra Industry trade in the Processed Food Sector”,

(1998), p2-13

http://ageconsearch.umn.edu/bitstream/20903/1/spfrah01.pdf (Accessed 19/11/2014)

18

Falvey discovered that vertical IIT could be understood using a basic 2x2x2 system. Vertical IIT can

be understood in a similar way to the conventional endowment-based approach.34 To justify this,

Falvey presents a case whereby two nations have varying capital-labour ratios with a greater level of

product differentiation being achieved using capital-intensive methods. Thus, more affluent countries

generally specialise in the production of higher quality commodities while less affluent countries

generally specialise in the manufacture of goods of lesser quality.

This hypothesis was substantiated by Falvey and Kierzkowski35 who analysed the theory of VIIT

based on the level of product demand. In other words, although consumers may have similar

requirements, their income levels vary widely. Thus, income level is an influencing factor of demand

as those in a lower income bracket will be satisfied by lower quality products while those in a higher

income bracket will demand goods of a higher quality. Based on this approach, VIIT occurs as

differentiated products are manufactured in a single country while being distributed and consumed in

many countries.

Therefore, based on the hypotheses of Falvey and Kierzkowski, VIIT could feasibly be established

between Turkey and the EU as Turkey could manufacture labour-intensive commodities for the

foreign market while importing similar capital-intensive commodities that are of greater quality from

more affluent nations in the EU.

34 Keereman, Filip, Szekely, Istvan (Eds.), “Five Years of an Enlarged EU; A Positive Sum Game, (2010) Spriger

file:///Users/admin/Downloads/KC3008702ENC_002%20(1).pdf (Accessed 19/11/2014) 35 Imre Ferto, L J Hubbard, “Intra-Industry Trade in Horizontally and Vertically Differentiated Agri-Food Products between

Hungary and the EU”, (2002)

http://ageconsearch.umn.edu/bitstream/24884/1/cp02im16.pdf (Accessed 19/11/14)

19

III. THE ESTABLISHMENT OF A FREE

TRADE AGREEMENT BETWEEN THE

EUROPEAN UNION AND TURKEY

1. The Ankara Agreement

Turkey is a part of Europe…one day the final step is to be taken: Turkey is to be full

member of the Community. This wish, and the fact that it is shared by us and our Turkish

friends alike, is the strongest expression of our community of interest.36

On September 1st 1963, Turkey entered into an association agreement with the EU with the intention

of securing membership through the implementation of a customs union that would eventually lead to

the complete assimilation of Turkey into the European Union. Between 1959 and 1963, issues were

encountered when Turkey was taken over by the military on May 27th 1960. As a result, the country

had no government structure for a year and a half. Nonetheless, the agreement was implemented by

both parties in 1963 as the relationship between Turkey and the EU was recognised on an official

level.

The Ankara Agreement, as a sui generis treaty, reflects the formal legalisation of the relationship

between both parties and represents a trade agreement between Turkey and the EU as opposed to an

admission treaty.37 The agreement’s motive is enlisted at its second article as;

“The aim of this Agreement is to promote the continuous and balanced strengthening of

trade and economic relations between the Parties, while taking full account of the need to

ensure and accelerated development of the Turkish economy and to improve the level of

employment and the living conditions of Turkish people”38

Furthermore, it is also important to note that it was a mixed agreement in that three different

organisations were formed as a result, namely the Association Council, the Association Committee

and the Joint Parliamentary Assembly. The council was formed to oversee the implementation of the

36 Walter Hallstein quoted in Christopher Brewin, “Association Status and the Path to Membership,” in Turkey and the

European Union: 2004 and Beyond, ed. Armand Clesse and Seyfi Taşhan, (Amsterdam: Dutch University Press, 2004), 157 37 For the full text of the Ankara Agreement please visit http://www.mfa.gov.tr/grupa/ad/ adc/mfa303.htm (Accessed

19/22/2014) 38 Ankara Agreement [1963] OJ C113/1

20

FTA while the other two bodies were formed to satisfy the necessary provisions of the agreement. In a

sense, the committee and the assembly are consultative bodies while the council is regulatory. 39

The Association Council is responsible for all decision-making activities in relation to the goals of the

Ankara Agreement and is also responsible for the resolution of any issues that arise between both

parties. If a resolution cannot be reached, the case is sent to the Court of Justice of the European

Communities (CJEC). This council holds meetings alongside Ministers of Foreign Affairs and all

decisions made must be unanimous.

1.2 Analysis of the Ankara Agreement

As stated in Article 2 (3), this agreement is comprised of three stages, including an initial introductory

stage, a phase of transition and a final stage where the assimilation of Turkey and the EU would be

complete. The aim of the agreement is to gradually establish more integrated links between Turkey

and the EC so that Turkey can finally acquire membership status. This is clearly delineated in Article

28 of the Ankara Agreement, which states that:

“As soon as the operation of this Agreement has 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".40

Furthermore, this agreement prompted the foundation of the Council of Association, a group that is

obligated to ensure that the agreement is implemented effectively and ensure that sufficient progress

is being made based on the requirements delineated in Article 641. In addition, the council oversees all

procedures used to implement and operate the agreement.42 All parties involved are also obliged to

adhere to the operational guidelines contained in Articles 48, 49 and 50 of the EC Treaty for the

purposes of eliminating barriers between Turkey and the EU in terms of both trade and the movement

of people.43 This is reiterated in Article 13, which concerns the elimination of restrictions, and again

in Article 14, which concerns the elimination of restrictions prohibiting the exchange of services

between Turkey and EU member states.

39 Dominik Lasok, "The Ankara Agreement: Principles and Interpretation" in Marmara Journal of European Studies, vol. 1,

No. 1-2, 1991, p.39.

http://dosya.marmara.edu.tr/avrupa/mjes%20arsiv/vol1/3-lasok.pdf (19/11/2014)

40 Art. 28 of the Ankara Agreement 1963 41 Art. 6 of the Ankara Agreement 1963

42 Art. 27 of the Ankara Agreement 1963

43 Art. 12 of the Ankara Agreement 1963

21

The requirements set out in Articles 12-14 have had a strong impact on the ways in which the ECJ

considers the scope of Association Law, particularly in cases where there are no definitions or

clarifications on important aspects of the text.

An Additional Protocol44 was implemented in 1970 and addressed the gradual liberalisation of

barriers preventing the movement of people across borders and the abolishment of customs duties

from 1973 onwards. This protocol also aimed to integrate the Turkish customs tariff with the

Common Customs Tariff (CCT). This protocol was implemented on January 1st 1973 and Article 36

decrees that the freedom of labour movement will come into effect gradually in line with the

requirements of Article 12 of the Ankara Agreement and will be overseen by the Council of

Association.45

Thus, free movement was to be achieved progressively between December 1st 1976 and November

30th 1986. However, the exact meaning of freedom of movement had not yet been defined as Turkey

and the EU were following the specifications of Articles 48, 49 and 50 of the Treaty of Rome.

Nonetheless, as this aspect of the agreement was not considered automatic, the Council of Association

was in control of how it would be pursued and implemented.46 In in the case of Demirel47, which will

be discussed in more depth later on in this study, the ECJ believe that Article 12 of the Agreement and

Article 36 of the Additional Protocol simply outline the process and lack the definition and

cohesiveness to directly regulate and implement the granting of freedom of movement to Turkish

labourers.

At the same time, EC nations had taken measures to prevent the employment of immigrant workers as

unemployment numbers continued to rise on account of the energy crisis that took place during the

1970s. Thus, the EU began to perceive the freedom of movement provision as increasingly

unattainable given developments in the EEC. Instead, the EU improved the rights of Turkish

immigrant labourers as part of the Association Agreement of 1976 and 1980 in order to facilitate their

assimilation into their new countries of residence.

By 1985, Turkey had the grounds to pursue worker’s freedom of movement based on Article 36 of the

Additional Protocol and Article 12 of the Ankara Agreement.48 In addition, Turkey included freedom

of movement for labourers as part of their EU application as opposed to seeking this through the

Association Agreement.49 However, this had a negative impact on the fulfilment of the freedom of

movement provisions and Turkey’s accession into the EU as many became worried about the rising

44 Additional Protocol, signed at Brussels, 23 November 1970, (OJ 1973 C 113/1). 45 Art. 36 of the Additional Protocol 1970, (OJ 1973 C 113/1) 46 See CEC 1986 for the interpretation of the European Commission. 47 See Demirel, Para 23 of judgement. 48 See Ansay 1987. 49 CFTS 1993: 85.

22

level of Turkish immigrants entering EU countries, Germany in particular. As a result, Article 36 of

the Additional Protocol and Article 12 of the Agreement have not been realised as the EU did not

perceive these provisions as automatic entitlements.

In January 1996, the Full Customs Union was implemented and this will be analysed in more depth

later in this study. As a result of the CU, trade barriers were eliminated but restrictions remained on

the free movement of labourers. However, this was disadvantageous for Turkish people and business

owners as there were still strict admission regulations for those hoping to enter the EU and this

inevitably hindered the full realisation and operation of the Customs Union.

In addition, many claim that a lack of progress in the accession of Turkey into the EU and the delays

in granting freedom of movement indicates that several EU member states are reluctant to offer

Turkey full membership status, possibly in fear of a significant influx of Turkish migrants. However,

although the legal status of Turkish immigrants has not been improved, it has not deteriorated either.

Finally, it is important to acknowledge that the Agreement, the Protocol and Decisions of the

Association Council (2/76, 1/80 and 3/80)50 undertaken as part of the agreement established a legal

framework upon which problems in relation to Turkish immigrants could be addressed. In addition,

we must also note that the Ankara Agreement (1963) was a mixed agreement in that it was signed

conjointly by EC members and the Turkish government. As a result, the legal control of this

agreement is distributed equally between EC nations and Turkey.51

Thus, the ECJ has been instrumental in securing individual rights for Turkish immigrants based on the

Agreement and its subsequent provisions and has accordingly evaluated the realisation of these

provisions in many independent situations. Examples of these cases will be outlined in a later section

of this study.

Before concluding this chapter, following is an image that illustrates the most noteworthy dates in the

progression of the relationship between Turkey and the EU.

50 These instruments are reiterated in the EEC-Turkey Association Agreement and Protocols and Other Basic Texts, (1992,

OOPEC); also see Cicekli 1998: appendices for the provisions of these documents. 51 See Hedemann-Robinson, 2001, p. 534.

23

Important dates in the development of Turkey-EU Relations:

Source: Created by author.

September 1959:

Ankara Applies for the Accosiate Membership of

the EEC

Aril 1987:

Application for full EEC Membership

Since January 1996:

CU Between Turkey and the EU

March 2001:

Turkish Goverment Adopts the

National Program of Turkey for the

EU Laws

December 1964:

Ankara Agreement (Association Agreement)

January 1973:

Additional Protocol

December 1999:

Helskinki Summit gives Turkey official Status an Accession

Candidate.

October 2005:

Accession Talks Symbolically Opened With

Turkey

24

IV. THE FIRST ACHIEVEMENT; CUSTOMS

UNION 1995

1. Customs Union Agreement 1995

“The Customs Union is a sacrifice on the way to the full membership. I even don’t want

to think about the consequences of being unable to be a full member of the EU.”52

“Nobody within the EU had considered the Customs Union as a step for full

membership… the latter was either Turkey’s own perception or a way of distorting the

public opinion.”53

Negotiations between Turkey and the EU first took place in 1994 in advance of the implementation of

the Customs Union that was established the following year. Negotiations took place at the Turkey-EU

Association Council, which was comprised of Foreign Ministers from EU countries and Turkey. The

outcome of these talks saw the full realisation of the CU between both parties in terms of agricultural

and industrial products on December 31st 1995.54

The CU was in full effect by January 01st 1996 and the export of agricultural products was facilitated

by revisions of the trade regime implemented two years later. Following this, Turkey deducted all

duties imposed on products imported from EU countries and integrated their custom tariff systems to

complement the EU system in importing products from third countries. Consequently, the importation

of industrial products from EU and European Free Trade Association (EFTA) nations dropped to 0%

from 5.9% and the importation of comparable products from third countries dropped to 6% from

10.8%. It is believed that the import rate for third country products will decrease to 3.5% if World

Trade Organization (WTO) negotiations successfully enforce EU obligations.55 These developments

are the direct cause of the Customs Union that was implemented between Turkey and the EU on the

31st of December 1995.

The Agreement also prompted the foundation of the Association Council (as mentioned in the

previous chapter), an organisation that aims to reinforce integration and cooperation in regards to

energy, agriculture, science, technology, telecommunications, legal affairs, consumer law and cultural

integration. It is clear that these objectives did not form part of the official Customs Union agreement

52 Feyyaz Berker, President of TUSIAD’s High Advisory Board, 1995 53Martin Schulz, member of Social Democratic Party of Germany, 1996 54 Abgs (2007) 55 Ibid.

25

but were incorporated into the plan to facilitate the level of collaboration and cooperation between

both parties. In effect, the implementation of the CU represents a move toward the complete

assimilation of Turkey into the European Union.56

2. Legislative Changes in Turkey in Response to the Customs Union

As discussed previously, the realisation of the CU in 1996 prompted the development of the Turkish

Customs Administration in terms of structure, service quality, legislation and the adoption of a more

consumer-oriented focus. From this perspective, there are several key issues that must be taken into

consideration.

The Association Council Decision (1/95) ordered the integration of regulations and directives in

regards to customs duties and the realisation of Law 445857 meant that Turkey was legally required to

adhere to these demands by assimilating their legislative framework in regards to product origins,

customs value and customs operation into the Community Customs Code (CCC). As a result, Turkey

revised their customs legislation so that it was complementary to EU law as the country was legally

obliged to adopt similar tariff schemes and rates as EU member states.58

Furthermore, the outcome of negotiations with the Decision (1/95) of the Association Council

required Turkey to revise its foreign trade policies so that they more closely resembled those of the

EU. As a result, Turkey has complied with current free trade agreements with the EU as well as third

countries and this had a positive impact on trade opportunities between Turkey and other European

states. In addition, measures have been taken to ensure that the Turkish administrative framework is

aligned with that of the EU, measures that have included the training of human resource personnel in

the application of new legislative policies.59

56 Decision 1/95 of the Association Council, (96/142/EC) 57 For Full text on Law No. 4458 of October 27, 1999 on Customs (as amended up to August 8, 2011), Please visit

http://www.wipo.int/wipolex/en/text.jsp?file_id=314871 (Accessed 20/11/2014) 58 Sübidey Togan, “The EU-Turkey Customs Union: A Model for Future Euro-Med Integration”, MEDPRO Technical

Report No. 9/(March 2012) file:///Users/admin/Downloads/No%209%20Togan%20on%20EU-

Turkey%20Customs%20Union.pdf (Accessed 25/11/14) 59 Hayati Yazıcı, “TURKEY-EU RELATIONS AND THE CUSTOMS UNION: EXPECTATIONS VERSUS THE

REALITY”, VOLUME 11 NUMBER 1

http://www.turkishpolicy.com/dosyalar/files/2012-1-HayatiYazici.pdf (Accessed 26/11/2014)

26

3. Effect of the Customs Union on the Turkish Economy

As the relationship between Turkey and the EU has been explored, it is now necessary to analyse the

effect of the Customs Union on the Turkish economy based on secondary research and data analysis.

a. Impact on Trade Creation

The exchange of high-cost domestically produced products for more cost-effective imported versions

is referred to as trade creation.60 This study will now investigate the impact of the CU on trade

creation in Turkey through analysis of Turkish import and export data delineated in Table 1. The

European Economic Community (EEC) uses information dating back to (1970) as this was when the

Additional Protocol came into effect and countries were forced to eliminate the customs duty imposed

on certain products.

Table 1 EU Share of Turkish Imports and Exports (USD Million)

Years Total

Import

EU

Import

EU%

Share

Years Total

Export

EU

Export

EU %

Share

1970 974 520 53,39 1970 588 353 60,03

1971 1170 661 56,60 1971 676 386 57,10

1972 1562 926 59,28 1972 884 488 55,20

1973 2086 1255 60,16 1973 1317 722 54,82

1974 3777 1997 52,87 1974 1532 872 56,92

1975 4738 2645 55,83 1975 1401 744 53,10

1976 5128 2741 53,45 1976 1960 1139 58,11

1977 5796 2951 50,91 1977 1753 1034 58,98

1978 4599 2376 51,66 1978 2288 1393 60,88

1979 5069 2621 51,71 1979 2261 1341 59,31

1980 7909 3145 39,76 1980 2910 1668 57,32

1981 8933 3424 38,33 1981 47,02 1807 38,43

1982 8842 3088 34,92 1982 5745 2088 36,34

60 Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, 2001. 328-329

27

1983 9235 3534 38,27 1983 5727 2326 40,61

1984 10757 4161 38,68 1984 7133 3070 43,04

1985 11343 4535 39,98 1985 7958 3509 44,09

1986 11104 5292 47,66 1986 7456 3559 47,73

1987 14157 6482 45,79 1987 10190 5269 51,71

1988 14335 6730 46,95 1988 11662 5618 48,17

1989 15792 6965 44,10 1989 11624 5887 50,65

1990 22302 10597 47,52 1990 12959 7485 57,76

1991 21047 10675 50,72 1991 13593 7783 57,26

1992 22871 11514 50,34 1992 14714 8476 57,61

1993 29428 14913 50,68 1993 15345 8272 53,91

1994 23270 11643 50,03 1994 18105 9389 51,86

1995 35709 18024 50,47 1995 21637 12206 56,41

1996 43626 24320 55,75 1996 23224 12563 54,09

1997 48558 26118 53,79 1997 26261 13434 51,16

1998 45921 25282 55,06 1998 26973 14809 54,90

1999 40671 22529 55,39 1999 26587 15424 58,01

2000 54502 28526 52,34 2000 27774 15664 56,40

2001 41399 19823 49,83 2001 31334 17545 55,99

2002 51553 25688 49,83 2002 36059 20415 56,62

2003 69339 35140 50,68 2003 47252 27393 57,97

2004 97539 48102 49,32 2004 63167 36580 57,91

2005 116774 52695 45,13 2005 73476 41364 56,30

2006 139579 59400 42,56 2006 85534 47934 56,04

2007 170062 68611 40,34 2007 107271 60398 56,30

2008 201963 74802 37,04 2008 132027 63390 48,01

2009 140928 56587 40,15 2009 102142 47013 46,03

2010 185535 72239 38,94 2010 113975 52729 46,26

2011 240842 96627 40,12 2011 134907 63791 47,29

2012 236546 92585 39,14 2012 152462 61358 40,24

Source: www.tuik.gov.tr61

61 Please visit Turkish Statistical Institute http://www.turkstat.gov.tr/PreTabloArama.do Accessed (26/11/2014)

28

Based on the data listed in the table above, the total import value of products into Turkey totalled

301,933 million USD and the total value of EU products totalled 143,415 million USD between 1970

and 1996, before the CU had taken effect. In effect, the proportion of products imported from EU

member states was 47.48% during this period. Between 1996 and 2012, when the CU had been

implemented, the total value of products imported reached 1,925,336 million USD with 829,074

million USD being imported from EU states. This illustrates that there was a decrease of 4.42% in the

proportion of products imported from the EU as the average share reached 43.06%. In terms of

exports, before the implementation of the CU, total exports amounted to 186,120 million USD with

96,884 million USD being exported to EU states. Thus, 52.05% of goods were exported to EU

countries between 1970 and 1996. Between 1996 and 2012, Turkey exported 1,210,425 million USD

with 611,804 being exported into EU countries. As a result, the average share exported to the EU

decreased by 1.51% to 50.54%. Thus, following the realisation of the CU, total Turkish exports

dropped by 13.85% while total Turkish imports dropped by 11.33%. Based on these figures, there is

no evidence to suggest that the CU had a positive effect on trade creation as the level of trade

decreased in terms of import and export volumes between the EU and Turkey.

It is also worth investigating overall economic trends during this period in regards to trade volume

and Graph 1 illustrates import and export volumes from 1980 to 2012. Records begin at 1980 in this

instance as this was the year that customs tariffs were reduced. In addition, it is important to consider

economic trends from a long-term perspective in order to fully comprehend the level of economic

assimilation that has been achieved.

Graph 1: Turkey Imports/Exports (USD Million)

29

Source: www.tuik.gov.tr62

Based on this graph, it is clear that trade volumes remained low between 1980 and 1994 but began to

increase steadily upon realisation of the CU in 1996. However, as noted earlier, the increase in trade

was not caused directly by the CU as this agreement had no effect on the level of trade creation

experienced by the Turkish economy. Thus, it can be assumed that Turkey began to trade more

actively with non-EU states following implementation of the CU. Nonetheless, the graph shows that

the difference between import and export volumes continued to grow as the economy suffered from a

higher trade deficit. In particular, from 2002 onwards, there was a significant rise in trade volume as

the Justice and Development Party gained control over the Turkish government and focused on

establishing stronger trade relationships with third countries. This led the government to enter into

agreements with Muslim states and with neighbouring regions as they sought to increase trade volume

with non-EU countries. Thus, although trade activities between the EU and Turkey declined over this

period, Turkey increased trade volumes through increased interaction with non-EU states.

Nonetheless, the Turkish economy still experienced issues on account of the trade deficit as the

country became overly reliant on the importation of products.

Similar conclusions were reached by Neyapti63 who conducted a study in order to determine how

much Turkish trade volumes had been impacted by the CU. To achieve this, the authors gathered

unbalanced panel data and used the Ordinary Least Squares (OLS) method to analyse at least 2,000

country-year data observations from at least 150 different countries between 1980 and 2001. The

findings imply that Turkey increased their trade volume upon implementation of the CU and upon the

increasing regulation of exchange rates and income effects. Nonetheless, the authors also suggest that

there were other influencing factors on this increase in trade volume based on the outcome of

regression analysis as they posited that several additional variables must also be taken into account.

The regression analysis performed by Neyapti incorporated the OLS method to illustrate how

governmental efficiency, political stability and positive governance structures along with the

foundation of mutually beneficial trade partnerships contributed toward an increase in trade volume.

62 Please visit Turkish Statistical Institute http://www.turkstat.gov.tr/PreTabloArama.do Accessed (26/11/2014) 63 Bilin Neyapti, Fatma Taskin and Murat Ungor, “Has European Customs Union Agreement Really Affected Turkey's

Trade?” (2007)

http://ecomod.net/sites/default/files/document-conference/ecomod2003/Neyapti.pdf (Accessed 28/11/2014)

30

b. Dynamic Impacts on the Turkish Economy

Although the static impact has been investigated to a great extent, a limited number of studies have

addressed the dynamic impacts as it is difficult to interpret these effects from a short-term perspective.

There are many different factors that can have an impact on the dynamic effects, including economic

status, economies of scale, FDI and the effective use of available resources64. According to Schiff and

Winters65, these factors can include any phenomenon that has an effect on the national economy from

a medium-term perspective. In addition, dynamic impacts refer to the development of the economic

structure66. Based on this perspective, the economic development of Turkey can be analysed in terms

of fluctuations in Gross Domestic Product (GDP) levels.

Graph 2: GDP Growth Rate of Turkey (%)

Source: http://www.invest.gov.tr/en-us/turkey/factsandfigures/pages/economy.aspx.67

As illustrated in Graph 2, based on GDP rates between 2002 and 2012, Turkey experienced positive

growth every year with the exception of 2009 when the world suffered from a period of economic

crisis. On average, a growth rate of 5.15% was achieved as the Turkish economy maintained stable

growth.

64 Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, (2001). 65Maurice Schiff and L. Alan Winters, “Regional Integration and Development”, (1998)

http://siteresources.worldbank.org/BRAZILINPOREXTN/Resources/3817166-1185895645304/4044168-

1186324101142/12RegionalIntegrationFull.pdf (Accessed 29/11/2014) 66 Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, 2001. 67 Please Visit http://www.invest.gov.tr/en-us/turkey/factsandfigures/pages/economy.aspx Accessed (30/11/2014)

31

Nonetheless, before concluding this chapter, it is well intentioned to comment that this positive

growth cannot be attributed solely to the implementation of the CU as there are many other factors

that have contributed to the economic development of the country.

32

V. THE CONTROVERSIAL ASPECTS OF THE

EU-TURKEY FREE TRADE AGREEMENT

Although there were many advantages to the Free Trade Agreement as covered in Chapter 4, there are

many who question the feasibility of the CU for a number of key reasons what will be delineated in

this section.

1. The Negative Impact of the EU’s New Free Trade Agreements on

Turkish Externalities

Although the Ankara Agreement, and most notably the implementation of the Customs Union, had a

positive effect on Turkish FDI and international trade, several new economic policies have been

implemented by the EU that may adversely affect the Turkish economy. Following the global

downturn of 2008, the EU entered into several new free trade agreement talks with third countries,

namely the US and Japan68. This decision has been attributed to the fact that EU states do not have the

available financial resources to launch national stimulus strategies to revive their economies after a

period of prolonged stagnation. Thus, as free trade agreements generate profits through a rise in

international trade despite the cost implications on the public budget, the EU are keen to establish new

trade agreements with third countries. In many countries69, governments endorse this approach as they

believe that economies can be revived and jobs created through increased liberalisation of trade

barriers in Europe and across the world. The most notable agreement that has been reached is known

as the Transatlantic Trade and Investment Partnership (TTIP)70 which aims to abolish tariff

restrictions between nations as well as ‘non-tariff’ restrictions like technical or sanitary policies that

differ from country to country.

In particular however, aside from the removal of trade barriers, participation in the Customs Union

means that Turkey must impose the same custom tariffs as the EU to products imported from third

countries and must also adhere to all trade agreements agreed upon by the European Union. In effect,

Turkey must accept trade from any nation that has entered into an EU trade agreement71. However, as

per the provisions of the Ankara Agreement, Turkey is not obliged to take part in trade talks between

68 Mehmet Babacan, “Whither an Axis Shift: A Perspective from Turkey’s Foreign Trade”, Insight Turkey Vol. 13 / No. 1

(2011)

http://ww3.ticaret.edu.tr/mbabacan/files/2013/02/M-Babacan-Insight-Turkey-Vol-13-No-1-2011.pdf (Accessed 30/11/2014) 69 Ibid 70 Marc Pierini, Sinan Ulgen, “ A Moment of Opportunity in the EU-Turkey” Paper, (2014)

http://carnegieeurope.eu/2014/12/10/moment-of-opportunity-in-eu-turkey-relationship (Accessed 30/11/14) 71 Ibid

33

the EU and third countries as the existing policy states that Turkey must establish an independent

trade agreement with other countries that have entered into trade agreements with the EU. On the

other hand, the provisions of both agreements must be the same as delineated in Article 16 of the

Association Council Decision (1/95).

On account of the legal provisions established earlier in this study, Turkey is obliged to allow trade

with any third country that establishes a trade agreement with the EU. However, the same rule does

not apply in the reverse situation, as Turkey has not yet been accepted into the EU.

In practice, the operation of this provision is questionable, as Turkey does not enjoy the same benefits

in relation to European customs union access when they engage in trade talks with third countries.

Furthermore, the position of the Turkish government is undermined by the fact that third parties can

seek access to the Turkish market through trade agreements with the EU. In effect, Turkey does not

generally have a great deal of bargaining power when entering into trade negotiations. On account of

the bilateral trade agreement between the EU and Turkey, Turkey has focused on trade diplomacy

over the past decade in an attempt to align their trade policies with frequently modified EU policies

and maintain a dominant market edge over additional third countries that have established free trade

agreements with the EU72.

In other words, when the EU enters into trade talks with a third country, Turkey simultaneously

proposes a similar bilateral agreement. Using this approach, Turkey has established free trade

agreements at the same time as the EU with Israel, the EFTA, Macedonia, Croatia, Bosnia-

Herzegovina, Serbia, Montenegro, Palestine, Tunisia, Egypt and Syria, along with several others.

Though, other countries have been more problematic by entering into new trade agreements once they

have secured a deal with the EU73.

On account of the provisions contained in the Ankara Agreement, Turkey has an unfavourable

position in trade negotiations with non-EU countries and they typically fail to secure beneficial

agreements. For example, when negotiating with the TTIP, it would be extremely difficult for Turkey

to acquire a similarly advantageous agreement as the EU in terms of export barrier eliminations with

the US. In other words, as an agreement with the EU already guarantees the US entry into Asian

Minor markets, they are unlikely to offer additional concessions to Turkey in subsequent trade

negotiations74.

72 Kemal Kirisci, ‘Don't Forget Free Trade with Turkey’, The National Interest (2013)

http://nationalinterest.org/commentary/dont-forget-free-trade-turkey-8345 (Accessed 06/12/2014) 73 Today’s Zaman, ‘Minister says Turkey to ’reconsider’ EU Customs Union’, (2013)

http://www.todayszaman.com/business_minister-says-turkey-to-reconsider-eu-customs-union_310708.html (Accessed

06/12/2014) 74 Borderlex, ‘Transatlantic trade talks cast doubt on EU-Turkey customs union future’ (2014)

http://www.borderlex.eu/transatlantic-trade-talks-cast-doubt-eu-turkey-customs-union-future/ (Accessed 06/12/2014)

34

Generally speaking, countries that are not active participants in the foundation of liberalisation

policies are likely to suffer economically, a trend that has been highlighted by Jacob Viner in his

treatise on the impact of the CU published in 195075.

In terms of the TTIP trade agreement, many studies have claimed that bilateral trade between the US

and the European Union could rise by upwards of 80% on account of the reduction or complete

elimination of tariff and non-tariff-based restrictions. It stands to reason that this would have a

positive effect on Turkey as unfinished products exported from Turkey to the EU would subsequently

be exported to the US. However, as US businesses will now be able to readily access the single EU

market, they will increase productivity and become a market rival for Turkish businesses operating

within the same industry. As the types of manufacturing products imported from the US and Turkey

by the EU are quite similar, Turkey will be forced to compete more effectively on the market in order

to maintain their current position. Nevertheless, this will be difficult to achieve as they are unable to

increase sales through entry into the US market. As a result, Turkish industries are likely to witness a

decrease in export volume in comparison to industries based in the US and the European Union and

they will be obliged to focus on increasing trade volume by entering into independent trade

agreements with countries others than those that have already established FTAs with the EU76.

As the proportion of Turkish trade accounted for by the EU is 39%, the impact of EU-based activity in

terms of new free trade agreements must be acknowledged. For instance, Germany, one of Turkey’s

most important trade partners, could import approximately 93% more goods from the US if complete

trade liberalisation was achieved. This alone would lead to a 1.14% increase in the productivity of US

enterprises. As a result, Germany may choose to import products from the US instead of Turkey.

Additional studies on the topic believe that the implementation of the TTIP would lead to a 2.5%

decrease in the Turkish GDP in the coming years, a decrease that would represent a loss of

approximately 20 billion USD77.

Furthermore, Turkey is adversely affected by each EU trade agreement enforced, especially in regards

to the manufacturing industry as international competition increases with each new country that enters

into a FTA with the EU78. In addition, if Turkey is unsuccessful or delayed in establishing similar

FTAs with each of these countries, their existing trade deficit will continue to deteriorate.

75 Paul Oslington, “Contextual History, Practitioner History and Classic Status: Reading Jacob Viner’s The Customs Union

Issue” (2012) 76 http://www.al-monitor.com/pulse/originals/2014/11/turkey-us-eu-trade-deal-hit-turkeys-customs-union.html (Accessed

10/12/2014) 77 Berlin, “Deepening Turkey’s Customs Union with TTIP Perspectives” (2014)

http://www.gmfus.org/archives/deepening-turkeys-customs-union-with-ttip-perspectives/#sthash.OqKCMezF.dpuf Accessed

10/12/2014) 78 Ibid

35

Of the free trade agreements established by Turkey in recent years, the majority have taken place as

an obligatory follow-on process to EU negotiations and have not been motivated by the desire to

integrate the economic environment. For instance, the EU entered talks with South Korea in regards to

trade liberalisation in May 2007 and a deal was reached in 2011. However, Turkey began negotiating

with South Korea in June 2008 and these talks only concluded in 2013 as Turkey imports a significant

amount of products from South Korea (6.3 billion USD) but exports comparatively little (0.5 billion

USD)79.

Thus, it is likely that Turkey will soon enter trade talks with Canada and Japan following the

foundation of a comprehensive free trade agreement between Canada and the EU. In terms of EU-

Japanese negotiations, talks are ongoing and expected to reach a conclusion soon due to the tight

deadline imposed on the process.

Upon first glance, from a Turkish point of view, the Ankara Association Agreement seems

unfavourable on account of the superior position of the EU when entering into trade negotiations with

other countries. Nonetheless, the implementation of the CU should be interpreted in light of Turkey’s

desire to be accepted into the EU. In effect, the CU was devised to facilitate the accession process and

should Turkey be assimilated into the EU on a full-time basis, they will enjoy the same economic

benefits as the EU in terms of trade activities.

Furthermore, many Turkish businesses are adversely affected by all FTAs established by the EU as

many industries, most notably the manufacturing industry, are faced with increased market

competition following the implementation of each FTA80. At the same time, if Turkey is unsuccessful

in establishing a similar agreement with all countries that have reached an agreement with the EU,

they will experience an increase in their trade deficit, which is currently at a critical level.

79 ErdAl Yalcin, “The 50th Anniversary of the Ankara Agreement; Economic Achievement of the EU-Turkey Relationship to

date and Future Perspectives”, CESifo Forum 4/2013file:///Users/admin/Downloads/forum4-13-special4.pdf (Accessed

11/12/2014)

80 Ibid.

36

2. Visa Concerns

"The time when Turkish people feel least European is when they wait in line for a visa"81

The issue of Turkish visas is a key area of concern in regards to the CU and according to Abdullah

Gul, it is unfortunate that Turkish people cannot travel freely across EU states in the same way as

Turkish products.82

In fact, Turkey is the only nation out of all EU candidates that has not been

incorporated into the Schengen agreement, a policy that permits freedom of movement between

countries. In addition, many non-EU countries, such as Brazil, Honduras, Paraguay and Venezuela,

are not required to obtain visas before entering an EU state. Similar provisions are also being

negotiated to facilitate the free movement of people from Russia, Moldova and Georgia. However,

many posit that Turkish freedom of movement was granted by the signing of the Ankara Agreement

and the Additional Protocol and was only revoked when the military seized power on 1980.83

As part of its commitment to establishing a trading state, Turkey has agreed to visa waiver policies

with at least 70 different nations in an attempt to establish positive trade relationships with

international regions. However, although Turkey imports a significant proportion of EU goods, a

similar agreement has not been offered by the EU. This is unfortunate as the advantages of the CU

form the perspective of the EU will increase if Turkish people are granted freedom of movement in

the EU as Turkish businessmen will invest and consume in EU states. However, if they are required to

secure a visa before entering an EU state, they are more likely to take their business elsewhere to

regions with no visa requirements.84

As a result, it can be claimed that the rising dissatisfaction of the Turkish government and the

recently-implemented laws on the entry of foreign travellers has prompted the EU to engage in visa

negotiations with Turkey. This is also prompted by the fact that a prominent land route from the EU to

Greece passes through Turkey, necessitating the need for greater ease of movement of both people

and products. However, Turkey perceives the initiation of visa talks as the beginning of accession

negotiations and believes that signing the admission agreement will fast track their integration into the

81 Turkey's former Minister for EU Affairs Egemen Bagis quoted this statement in ESI Report 2013.

82 The president made this comment during his tour of the Baltics when we met with Dalia Grybauskaite in Vilnius in 2013.

http://www.hurriyetdailynews.com/turkish-president-gul-slams-eu-visa-policy-for-turkey.aspx?

PageID=238&nID=44296&NewsCatID=338 83Bozkurt, Abdullah, “EU won't ask Turkey to suspend visa-free travel with third countries; Today's Zaman” (2013)

http://www.todayszaman.com/diplomacy_eu-wont-ask-turkey-to-suspend-visa-free-travel-with-third-countries_315540.html

(Accessed 11/12/2014)

84 Abbas, Mohammed, “Frustrated Turkey still wants EU entry, but maybe not euro”, (2013)

http://www.topix.com/forum/world/turkey/TDH42B624N198FN2H (Accessed 12/12/2014)

37

European Union. However, the European Stability Initiative (ESI), a report published in 201385,

advise Turkey to stand their ground during negotiations and not to accept all provisions proposed by

the EU. Instead, the ESI state that Turkey should offer the EU voluntary provisions, perhaps by

committing to the reduction of illegal immigrants in the EU, in order to establish a rapport.

85 European Stability Initiative, “Cutting the Visa Knot. How Turks can travel freely to Europe.”

http:// www.esiweb.org/pdf , (Accessed 15/12/2014)

38

VI. THE JUDICIAL RESPONSE TO THE EU-

TURKEY FREE TRADE AGREEMENT

The court has started addressing the provisions outlined in the Ankara Agreement, the Additional

Protocol and the Decisions in an attempt to demonstrate the integration of national legislation with

that imposed by the EU. In addition, the courts aim to distinguish between rights that are accurate and

conditional and those that are not directly relevant. However, the courts do not perceive the mixed

nature of the Association Agreement and the fact that it may need to be integrated on a national level

as a hindrance to establishing jurisdiction in terms of Article 234 (ex 177) EC.86 According to the

ECJ, the Agreement and all subsequent decisions represent the Community legal order and all

provisions contained within them that are clear, concise and unconditional must be directly applied.87

This chapter will investigate the reaction of the ECJ to the Association Agreement in an attempt to

determine the judicial perspective on the issue. However, it must be acknowledged that word limit

restrictions require the author to focus only on evaluating the legal perspective on the Ankara

Agreement.

1. The ECJ Case Law on Turkish Immigrants

According to the ECJ, the rights of non-EU citizens to enter an EU country to work, attend college,

receive benefits or tax advantages depends on the relationship between the EU and the relevant

country, referred to as derivative rights, or the existence of an international agreement with the EEC,

referred to as direct rights.88 In many cases, the response of the ECJ differs based on which form of

rights are invoked as derivative rights are based on freedom of movement while direct rights are based

on the external relationships of the EEC.89 As a result, it is important to note that we are not assessing

the rights of Turkish citizens based on their connections to an EU citizen or unemployment with an

EU company as there are a multitude of policies and directives offering specific rights to those related

to EU citizens regardless of their own place of birth. For instance, the ECJ have proclaimed that ‘the

spouse of a worker who is a national of a member-state to whom Article 11 of Regulation 1612/68

applied is entitled to be treated in the same way as a national of the host member-state’90; this allows

86 See Demirel, para 9; Sevince, para 9 among others. 87 See Demirel, para 9; Sevince, para 9 among others. 88 See Weiler 1992: 71-72 89 Alexander 1992: 63 90 Emir Gül v. Regierungspräsident Düsseldorf (case 131/85) [1986] ECR 1573; [1987] 1 CMLR 501 para 30 of the

judgement; this case concerned a Turkish national married to an EC citizen.

39

equal access to the spouse of an EU national to employment, medical treatment and social services

based on the specifications of Directive 75/363.

The legal framework of the EU is distinct from other international legal frameworks as decisions;

agreements and acts established by the EEC are relevant and directly applicable to EU states.

Conversely, international legal provisions cannot all be directly implemented in a similar way.91 Thus,

if a legal provision of the EU is applied, domestic courts are forced to adhere to the provisions as EU

law supersedes national law.92 In other words, EU law takes precedence over national law in

circumstances in which they are applicable. Based on EU law, if a right derived from an agreement

must be implemented by the ECJ, this right is considered to form part of the “acquis

communautaire”93 and must be enforced by national courts of the EEC. In addition, if a national court

believes that a national provision conflicts with EEC law, the courts are required to implement

Community law until further advice has been sought from the ECJ.94

Although the ECJ largely determines the treatment of non-EU nationals that have connections to those

from EU states, a regimented framework has yet to be established. Over time, EU member states have

established conflicting opinions in regards to migration policies. In effect, while many member states

acknowledge the need for greater cooperation on an EEC level in terms of formulating migration

policies for citizens of third countries95, many also assert that issues in relation to the entry, residence

and employment of immigrants should be controlled by national courts and that each state has the

right to implement independent strategies aimed at regulating immigration levels from third

countries.96

At this stage, there is no cohesive framework of EU law, which delineates the rights of non-EU

nationals residing in member states in comparison to the detailed legal framework delineating the

rights of EU members. Although a significant percentage of member state populations are accounted

for by third country immigrants, including Turks, the issue of immigration has generally been

regarded as lying outside of EU jurisdiction and the goals of the EU in advocating a greater level of

European assimilation.97

91 See Steiner 1992: 24-41; Craig and Burca 1995: 151-199. 92 Steiner 1992: 42-53; Craig and Burca 1995: 240-282. 93 The Community acquis is the body of common rights and obligations, which bind all the Member States together within

the European Union.

http://europa.eu/legislation_summaries/glossary/community_acquis_en.htm (Accessed 13/12/2014) 94 Marleasing SA v. La Commercial Internacional de Alimentación SA (case C-106/89) [1990] ECR I-4135, [1992] 1

CMLR 305; Factortame v. Secretary of State for Transport [1989] 2 All ER 692, 3 CMLR 1; on this see Craig and Burca

1995: 395-397. 95 Ketelsen 1992: 44 96 Ibid. 97 See Hedemann-Robinson, 2001, ss. 525-526.

40

Thus, immigration issues have generally been seen as the responsibility of the host country as the

majority of member states believe that matters of immigration and the status of migrants from third

countries should be dealt with on a national basis. As a result, there has been little reference to the

European perspective on the residence of third country immigrants in EU member states. This issue

has formed part of political talks based on the impact of immigration policies on the EU’s external

relationships with third countries.

Although suggestions were made to include immigrants in freedom of movement agreements between

European states, the overall position of the EU on the subject has not changed to any great extent.

Thus, any inclusion of third country residence policies has been based on the outcome or prerequisites

of EU trade agreements. Based on a study of progress in integrating the EU with the EC Treaty and

the subsequent first pillar legislation on immigration policies, it is clear that third country migrants

may not be offered the same intra-European rights as migrants from member states in terms of

mobility rights as well as other community rights.98 Thus, the existing system sees third country

migrants being accepted on a national level before being naturalised and recognized by the European

Union.

2. Employment-based Legal Integration

Based on the specifications of Association Law, the right of Turkish immigrants to enter the labour

market of foreign countries is a serious issue that warrants discussion. Presently, there is no freedom

of movement policy in place like the one offered to member states to grant Turkish workers admission

into EU countries. According to the ECJ, it is up to each individual state to determine whether third

country immigrants should be allowed enter and work in their country.99 Thus, until a Turkish citizen

acquires a legal permit to enter a member state and secures a job, there will be no discussion of long-

term employment or residential rights. In effect, each member state decides independently what

restrictions they impose on the movement and migration of non-EU citizens.100

In addition, it is also apparent that any Turkish citizen or family that acquires a residential permit in

an EU member state is not given the right to move freely between other EU member states other than

the state in which they reside.101 In other words, the legal actions of one member state have no impact

on the legal obligations of another. In fact, Article 1(1) of Regulation 1612/68 states that only EU

nationals should be permitted to acquire paid employment in a different member state. Nonetheless, it

has long been proclaimed that the Treaty should grant freedom of movement to all workers of all

98 See Hedemann-Robinson, 2001, ss. 528-529. 99 See Günaydın, para 23 of judgement; Birden, paras 37-38 of judgement 100 The entry and residence of nationals of member states and their families are regulated by two separate Directives

68/360/EC (for workers) and 73/148/EC (for the self-employed). 101 See Günaydın, para 22 of judgement.

41

nationalities in the interests of progress. Moreover, the European Commission has stated several times

that it aims to expand the single market of the European Union to offer all legal citizens the right to

seek employment in any EU country.102 Furthermore, it has recently been suggested that EU

citizenship be defined by a person’s place of birth as well as their current place of residence.103 In

other words, this would allow any non-EU national legally residing in an EU member state the right to

apply for full EU citizenship and the right to enjoy all the benefits associated with membership of the

European Union.

Article 6(1) of the Association Council Decision 1/80 asserts the current status of Turkish workers in

terms of movement and employment rights and states that, based on the free access to employment for

members of his family provision, a Turkish worker legally registered on the labour market of an EU

state will be entitled to renew his work permit after one year has passed provided the employer is

willing to employ him in the same role for another year. In addition, this worker is entitled to accept a

different employment position in the same profession after three years of employment in a member

state and is entitled to accept any work in any field following four years of employment in a member

state.

It is important to note that Article 6(1) of Decision 1/80 does not offer Turkish migrants the right to

reside in a member state long-term following a prolonged period of employment. In fact, the

provisions outlined in Regulation 1251/70104 and Directive 75/34105 in terms of residence policies for

migrant workers has not been directly incorporated into the Association Council Decisions. Thus, the

ECJ has endorsed the claims of national courts who believe that member states have the right to

decide independently what rights are offered to immigrant workers in terms of long-term employment

and permanent residency.106 This indicates the significance of employment and the key role it plays in

the provisions outlined by the Association Council and the Agreement.

3. Legal Employment

The importance of legal employment is mentioned numerous times throughout Article 6(1) of

Decision 1/80 as it is a prerequisite of the attainment of employment rights for Turkish workers. Thus,

it is necessary to investigate the meaning of legal employment. There is no strict delineation of how

102 See The Guardian, 26 July 1994 103 See ESCAPE, Refugee Across Europe, Number 1, 2003. 104 See Commission Regulation on the right of workers to remain in the territory of a Member State after having been

employed in that State (O.J. Sp. Ed. 1970 (II) 402).

105 See Directive 75/34 concerning the right of nationals of a Member State to remain in the territory of another Member

State after having pursued therein a self-employed activity (O.J. 1975, L 14/10).

106 See Bozkurt, para 35 of judgement

42

migrant workers can acquire legal entry into the workforce of a member state in the Agreement of

Article 6 and the reason a Turkish worker initially sought access to a member state should have no

impact on those that have acquired a legal right to live and work in an EU country. Thus, in legal

terms, the employment status of migrant workers must be established based on the legislative

framework implemented by the host country in which the migrant resides and works.107

Based on Bozkurt proceedings, in order to determine the employment status of a migrant working as

an international lorry driver, the ECJ ruled that the court must decide whether or not a migrant

workers ‘employment relationship retained a sufficiently close link with the territory of the Member

State’ based on the place of employment, the territory in which the job was performed and the

relevant legal framework in terms of employment and social security.108

Based on the case of Sevince, Mr Sevince was not considered to be in legal employment during his

time in the Netherlands on account of the delays caused by his legal appeal and his failure to renew

his employment permit. Based on the definition offered in Article 2(1) (b) of Decision No 2/76 and

Article 6(1), third indent, of Decision 1/80, a Turkish worker cannot be defined as legally employed

during his appeal against the refusal for right of residence.109

Based on the case of Kuş, the ECJ ruled that Mr Kus’s divorce did not affect his right to apply for a

permit renewal following one year of employment even though he first received admission into

Germany based on his marriage status, a marriage that had ended prior to the renewal application

being made.110 As a result, the migrant’s divorce in this case had no bearing on his pursuit of a

renewed employment permit (Nachbaur, 1995). Based on the provisions contained within the third

indent of Article 6(1) of Decision 1/80, legal employment is offered on the assumption that the labour

force is stable and secure.111 In fact, the Advocate General states that any form of employment that is

legally permitted is acceptable on a stable labour market.112 Thus, based on these assertions, any

employment that is regarded as temporary or short-term is included in the context of a stable labour

market, a provision that also refers to the legal status of trainees. According to the courts, if a migrant

worker has a valid work permit in a stable labour force, measures cannot be taken by the host country

to revoke this permit or his/her right to residency in the event of an economic crisis.113 However, a

worker’s personal status is not stable if, for example, they make an appeal against a deportation ruling

based on their attainment of residential status by deceiving the authorities as to the true nature of their

107 See Bozkurt, para 27 of judgement. 108 See Bozkurt, para 22-23. For the purposes of the application of Council Regulation (EEC) No 1612/68: see Lopes da

Veiga v. Staatsecretaris van Justitie, (case 9/88) [1989] ECR 2989, para 17. The same argument is upheld by the ECJ in

relation to subsequent cases: see Günaydın, para 29, Ertanır para 39, Birden para 33. 109 Sevince, paras 30-33 of the judgement 110 Kuş, the second paragraph of the ruling of the ECJ 111 Sevince, para 30; Kuş, paras 12 and 22; Bozkurt, para 26, Birden, para 55 112 Eroğlu, point 40 113 See Sevince, Kuş, Eroğlu, Kol, Günaydın.

43

marital relationship or if they make an appeal objecting to having an extension to their residence

permit refused in cases where the worker failed to be granted a work permit before registering an

appeal.114

Based on these examples, it appears that the standard duration of legal employment is at the discretion

of the courts.115 It has also been claimed that the one-year provisional period can begin before the

worker has acquired legal status as long as they have been accepted as a legal part of a stable

workforce before the final day of this one-year period. However, any employment activities

undertaken during an appeal will not be included as part of the legal employment period if the

outcome of the appeal is unsuccessful.116

The ECJ is also focused on the formulation of official guidelines on the impact of short-term breaks in

employment. For example, based on the Nazlı proceedings, the court decided that the one-year

detainment of a Turkish migrant worker on account of drug trafficking charges would not disqualify

him as a legal member of the labour market based on Article 6(1). The court justified this decision by

claiming that his incarceration prior to a trial should have no impact on his employment rights based

on the provisions contained in Article 6(1). However, this judgement was conditional in that it was

based on the assumption that the lapse in employment was short-term and that the party in question

would secure employment within a reasonable amount of time following his release from custody.117

In the case of Tetik118, the third indent of Article 6(1) of Decision 1/80 required that workers be

offered the right to leave a place of employment and secure a new job within a specified period of

time. This approach has also been endorsed by the ECJ, who delineate the employment rights of

family members under Article 7, as it was ruled that the absence of a worker for longer than one year

would have no impact on the viability of said worker’s son who had been a German resident for 15

years.119

Further examples of ECJ case law indicate that the provision of migrant rights derive from the

association instruments and are not based on any previous formal administrative treatises

implemented by host countries in regards to employment or residential permits. In the case of Ertanir,

for example, the court ruled that when member states offered backdated work or residency permits for

workers who had not applied for legal status within the specified timeframe delineated by the host

country, this time would be considered a period of legal employment.

114 See Kol. 115 See Wornham 1994: 12-13, Kemper 1995: 116-117 116 Kuş, para 16 of judgement 117 See Nazlı, Para 40-45 of judgement 118 See Para 30 of judgement. 119 See Ergat.

44

4. Standstill Clauses

The Association Agreement contains three fundamental standstill clauses which prevent new

restrictions in host countries being applied to migrant workers originating from Turkey. One of the

most crucial standstill clauses refers to new limitations on the right of establishment and the ability to

offer services that have been made accessible on account of the implementation of the Additional

Protocol (Article 41(1)).

The additional two standstill clauses are believed to be of direct effect and are contained in Article 7

of Decision No 2/76 and Article 13 of Decision No 1/80.120 These clauses prevent the application of

new restrictions on employment eligibility to those who have work and residency permits for the

member states in which they reside. According to Article 7 or Decision 2/76, EU member states are

not allowed to implement new restrictions on employment requirements that would affect migrant

workers that are legally permitted to work in the country.

In effect, the implementation of Decision 2/76 on the 20th October 1976 in line with the provisions of

Article 7 states that Members are prohibited from altering the requirement conditions of Turkish

migrant workers and are prohibited from making it more difficult for workers to secure a work permit.

Thus, the implementation of these regulations in 1976 applied to all Turkish workers legally-entitled

to seek employment in EU member states and was not influenced by the fact that the Association did

not anticipate the formulation of implementation strategies, the failure to publish the decisions or the

application of specific safeguard clauses.121

This provision was expanded to apply to all family members of workers who were legally entitled to

work and live in an EU member state in Article 13 of Decision 1/80. This provision states that EU

member states cannot “introduce new restrictions on the conditions of access to employment

applicable to workers and members of their family legally resident and employed in their respective

territories”.

This meant that the standstill clause integrated into Article 13 also applied to the family members of

migrant workers, which in turn meant that the case law contained in Article 13 became more relevant.

As indicated by the case law of the ECJ, the provisions of Article 13 of Decision 1/80 and Article

41(1) of the Additional Protocol had a direct effect. As asserted by the ECJ, these provisions are

120 See Sevince, para 26. 121 See Sevince, paras 16-26 of judgement.

45

concise and unconditional in enforcing standstill clauses that must be adhered to by all contracting

parties by law.122

As a result, Turkish migrants can depend on Article 13 of Decision 1/80 to prevent host countries

from imposing new rules and regulations that affect the free movement of non-EU workers.123

Generally speaking, this clause, which took effect upon the implementation of Decision 1/80,

disallows member states from imposing different rules on Turkish immigrants and offering

preferential treatment to EU citizens in terms of employment.124 However, the courts believe that

although Turkish drivers are legally employed in Germany, they do not spend enough time in the

country to acquire citizenship status. As a result, Article 13 is only relevant in cases where Turkish

nationals are legally employed in a member state and spend enough time in that territory to be

justifiably integrated.

Thus, as we reach the conclusion of this chapter, it can be claimed that the existing immigration

policies in the EU perceive third country immigrants as a separate category of people who cannot and

should not be afforded the same rights as EU citizens residing in member states. As a result, many

countries have been reluctant to integrate legal instruments and their provisions in regards to rights

and safeguards into national policy on EU immigration requirements. Furthermore, the ECJ’s

realisation of the Decisions of the Association Council in the past indicate that EU-based

developments have been and will continue to be the primary instigators of change in terms of the legal

rights of Turkish immigrants as there has been a distinct lack of reform on a national level in recent

years. However, this progression may have a negative impact on Turkish immigrants if member states

are reluctant to expand the range of rights offered to Turkish workers based on the aforementioned

legal provisions. In this case, the case law of the ECJ will most likely govern the implementation of

relevant Agreement provisions that do not require the application of any additional measures.

122 See Savas, paras 46-47; Abatay, para 58. 123 See Abatay, para 59. 124 See Abatay, paras 74, 80.

46

VII. Analysis; Is There A Future for the EU-

Turkey Free Trade Agreement?

1. Expanding the Scope of the Customs Union

As mentioned several times throughout this study, the customs union was the main driving force

behind increased Turkish integration in the EU and the international economy. Generally speaking,

the impact of the CU on both contracting parties has been largely beneficial, as trade integration has

stimulated trade creation. However, it is important to consider the dynamic impacts of the agreement

as opposed to the static effects. For instance, the CU has encouraged Turkey to develop their core

competencies in becoming more effective competitors on the ever-increasing competitive market. In

effect, the CU and its implications for the Turkish economy have had a positive effect on Turkish

output and overall productivity. In addition, it has also prompted the reform of the industrial structure

as Turkish companies strive to establish international chains of manufacturing and distribution.

Furthermore, the CU represents a driving force behind the reform of economic legislation in Turkey

and their ability to operate in a contemporary business environment. Based on these events, it is clear

that the CU has had many positive effects on the Turkish economy and the EU market.

In terms of downsides to the CU, there are two primary issues that have been subject to debate since

the agreement came into effect. Firstly, there are divergences in the trade policies implemented by

Turkey and the EU. Upon signing the CU, Turkey continued to reform their commercial policies so

that they became more aligned with those of the EU. They achieved this by entering into independent

free trade agreements with any nation that had already reached a satisfactory agreement with the

European Union.125

This aspect of the agreement was non-negotiable and there was little Turkey could do to resolve the

situation as they were never automatically included as one of the contracting parties of an EU trade

agreement as they were not an official member of the European Union. As a result, they were forced

to enter into talks independently once the third country in question had reached an agreement with the

EU. However, the EU could encourage third countries to enter into talks with Turkey and to induce

them to behave honourably when reaching an agreement. In fact, the EU began to incorporate a clause

in their bilateral trade agreements, which required that countries establish a similar FTA with Turkey

125 Hoekman, B. and M. Leidy (1993), “Holes and Loopholes in Integration Agreements”, in K. Anderson and R. Blackhurst

(eds), Regional Integration and the Global Trading System, Hemel Hempstead: Harvester.

47

once negotiations with the EU had reached a conclusion. Thus, to improve the effectiveness of this

measure, a condition could be set in that the official ratification of the FTA would depend on the

successful implementation of a similar deal with the Turkish government. Alternatively, the

negotiation process could be scheduled so that talks between a third country and the EU are

immediately followed by talks between the third country and Turkey. In effect, many have faith that

these issues can be resolved and that any conflict that has arisen between Turkey and the EU in

regards to trade diversion or threats to Turkish trade volumes can be avoided in the future.126

Furthermore, it must be acknowledged that such an asymmetric agreement is a complex pact to

maintain long-term in regards to formulating a cohesive commercial policy that will be practiced by

both contracting parties. In terms of EU-Turkey trade negotiations, it was decided that a customs

union would be established as opposed to a free trade agreement like the one that was reached

between the EEC and nations in Central and Eastern Europe. This is attributable to the fact that the

customs union was the eventual outcome of the original Ankara Agreement and the provisions of this

agreement were based on the foundation of a customs union between contracting parties. In fact,

during talks between the EU and Turkey, few people questioned whether a free trade agreement

should be established instead of a customs union as any modifications to the style of integration

proposed would have knock-on effects on the political environment.127

Turkey also perceives the customs union as a move toward complete integration into the EU. Thus,

Turkey’s motivation in maintaining the agreement long-term can only be assured if there appears to

be progress in initiating Turkey’s accession into the European Union. In a sense, there is a political

condition attached to the operation of the CU as there is an assumption that it precludes Turkey’s

accession into the EU and the eventual establishment of a free trade agreement.

2. Trade Policy Loopholes in the Customs Union

Although a high level of future integration formed the basis of the CU, trade activities have been

hindered by several different loopholes and limitations since the agreement came into effect in 1995.

As discussed earlier, there are two fundamental issues with the agreement, namely the maintenance of

contingent protection and the application of safeguards. In terms of contingent protection, the CU

states that contacting parties are allowed to take measures if they believe that the trade contract has

been breached in any way, including anti-dumping and countervailing duties128.

126 Ibid. 127 Sinan Ulgen and Yiannis Zahariadis, “The Future of Turkish-EU Trade Relations Deepening vs. Widening”, EU-Turkey

Working Papers, (2004) 128 See B. Hoekman and M. Leidy, “Holes and Loopholes in Integration Agreements: History and Prospects”, (1993)

48

However, this is only justified in cases where Turkey cannot prove to the EEC that they have adhered

to and implemented all competition and anti-subsidy policies as well as the trade requirements of the

acquis communautaire.129 Nonetheless, as there is no strict schedule imposed on their elimination, the

future viability of relations from a long-term perspective has been called into question.

In the past ten years, the EU has imposed several trade defence strategies against Turkey and has

launched 19 anti-dumping cases over the past 24 years. Six of these cases were resolved without

penalty while two required Turkey to increase prices as their price levels had dropped below the

minimum. The final 11 cases imposed fines on several Turkish companies. The majority of these

cases were taken against manufacturing sectors, namely the textile industry, with the remainder

targeting the metal production industry, the electronics industry and, most recently, the

pharmaceutical industry.130

Thus, as such a high number of anti-dumping measures have been taken, it is natural to doubt the

impact of the customs union on trade relations between Turkey and the EU. In effect, we must

investigate whether the removal of border restrictions has placed more pressure on the EU to monitor

Turkish trade activities and impose measures where necessary to ensure contingent protection. In

terms of case numbers, it is difficult to correlate quantity with the effects of the customs union as

trade-defence measures have been taken on a regular basis throughout the past ten years. In particular,

there is no discernible change in case patterns following the implementation of the CU in 1996. Thus,

it cannot be ascertained whether or not the CU increased protectionist pressures on the EEC.

In Turkey, the government implemented a legal framework to protect against inequitable competition

in 1989 and have frequently taken anti-dumping measures since this date. Over the past decade,

Turkey has launched 29 cases, 27 of which resulted in fines. These cases were primarily targeted at

the textiles, chemicals and low-skill manufacturing industries and were taken against several countries

in Central and Eastern Europe as well as some Asian nations. In particular, four anti-dumping cases

have been taken by Turkey against EU countries.131

This case history illustrates that anti-dumping measures are still a prominent part of trade relations

between Turkey and the EU. Following the signing of the customs union, Turkey and the EU have

launched many cases against one another with the EU imposing the majority of trade defence

measures. Although it cannot be determined whether or not the CU has had any impact on the

frequency of these measures, their proliferation has limited the effectiveness of the EU-Turkey

129 Supra note 93 130 Hoekman, B. and M. Leidy (1993), “Holes and Loopholes in Integration Agreements”, in K. Anderson and R. Blackhurst

(eds), Regional Integration and the Global Trading System, Hemel Hempstead: Harvester. 131 Ismen, T. (2003), “A critical assessment of competition policy in Turkey”, Turkish Policy Quarterly, Fall, Istanbul.

49

agreement. Although it is assumed that these restrictions have had the most adverse effect on Turkish

export volumes, exporters based in the EU have also suffered as a result.132

Based on these assertions, it is necessary to question whether remedial measures could be taken to

reduce or prevent future cases between Turkey and the EU. The application of contingent protection

measures takes place for several different reasons, including the misappropriation of a dominant

market position, perhaps by engaging in predatory pricing, or the disregard for foreign-industrial

policy. In theory, these situations could be prevented through application of a competition policy. For

instance, competition policies could be devised to prevent predatory pricing strategies. In addition,

similarly negative spillovers of national industrial policy, generally resolved through application of

countervailing measures, could also be tackled through formulation of strict regulations on

governmental aid. In other words, anti-dumping cases could be resolved if Turkey can assure the EEC

that they have adhered to and implemented all relevant competition and anti-subsidy policies.

Nonetheless, the issue of contingent protection is a little more complex and there is a situation in

which the competition policy may in fact be ineffective. This is particularly true in regards to the

protectionist side of anti-dumping measures as it has been claimed that governments apply these

measures to safeguard domestic cartels from external competition as opposed to safeguarding

domestic industries from illegitimate trade activity by international companies. From the point of

view of the European Union, many also state that the Commission has often applied such measures to

safeguard national monopolists against the threat of international competition.133 Although there have

been no allegations of such practices between the EU and Turkey, a case was taken against a Turkish

company that has a minimal share of the EU market (5%).134 This implies that the EU country was

trying to safeguard a domestic company’s market position as opposed to taking action against

predation. Thus, from this perspective, although the alignment of competitive policies could resolve

some issues associated with contingent protection, it is unlikely to completely eradicate these issues.

In effect, the eradication of these issues is a political concern and may be addressed in more depth

once the association has matured or once Turkey is fully assimilated into the EU.

The second loophole of the trade agreement between the EU and Turkey involves the role played by

safeguards. The 1995 agreement states that the CU will maintain the provisions of the Additional

Protocol 1970, provisions which decree that any contracting party that experiences unforeseen

economic issues in any sector or has its financial stability called into question is permitted to take

whatever protective measures are necessary in the given situation.135

132 Ibid. 133 P. Messerlin (1995) 134 Ismen, T. (2003), “A critical assessment of competition policy in Turkey”, Turkish Policy Quarterly, Fall, Istanbul. 135 See B. Hoekman and M. Leidy, “Holes and Loopholes in Integration Agreements: History and Prospects”, (1993)

50

In terms of what measures should be taken, it is necessary to choose those that will have the least

impact on the operation of the CU. In addition, it is important to avoid taking unnecessary or

unsuitable measures given the parameters of specific situations. If one contracting party believes that

protective measures taken by the other have had an inequitable effect on their status in the agreement,

they are also invited to take counter-protective measures to maintain equilibrium.136 Thus, it is clear

that safeguards can have an adverse, and perhaps irreversible, effect on the viability of the CU and

long-term integration. In effect, the inclusion of safeguard provisions may prompt rent-seeking

behaviour from competitive parties. However, manufacturers in Turkey and the EU could modify

their behavioural actions in an attempt to ensure that all conditions required to guarantee protection

are met.

In conclusion, it can be argued that there are several limitations of the CU that threaten its long-term

viability, namely the strengthening and the expansion of the existing agreement. Due to word count

limitations, this study focuses only on the strengthening of the CU agreement, which is perhaps the

more crucial of the two issues. This study posits that the EU must take measures to assure the Turkish

government in regards to the policy dependency framework in order to reinforce the strength of the

existing agreement and ensure its longevity in the future. This is of particular importance in terms of

establishing a common commercial policy. Turkey must also take measures to strengthen relations

with the EU and could perhaps begin by abolishing all indirect forms of protectionism, particularly

those that impose restrictions on trade. Lastly, both Turkey and the EU should strive to abolish the

application of all trade defence mechanisms against one another and should redefine the provisions of

the agreement in regards to the use of such measures.

136 Hoekman, B. and M. Leidy (1993), “Holes and Loopholes in Integration Agreements”, in K. Anderson and R. Blackhurst

(eds), Regional Integration and the Global Trading System, Hemel Hempstead: Harvester.

51

VIII. CONCLUSIONS AND

RECOMMENDATIONS

1. Conclusions

The level of integration between Turkey and the EU has risen significantly in recent years and this

trend has increased further on account of the provisions contained in trade agreements established in

1996. A high level of Foreign Direct Investment (FDI) provided by EU countries to Turkey has also

reinforced the integration of trade and production networks between companies operating in Turkey

and those operating in the EU. The establishment of the customs union has also formalised this

progress and has had a positive impact on productivity in Turkey by decreasing import tariffs on the

vast majority of industrial commodities. The customs union has also facilitated Turkey in aligning

their policies with those of the EU, increasing the quality of their infrastructure and improving the

scope of technical requirements in a way that is advantageous to the Turkish consumer. In addition,

the CU has played a significant role in prompting Turkey to reform their trade and customs system,

most notably through the complete overhaul of the Turkish Customs Administration (TCA).

Turkey’s trade relationships are evolving along with those established by the EU and Turkey is

expanding the scope of its export system to include Middle Eastern and North African destinations.

Similar trends have been identified in other emerging economies and Turkey is following the same

pattern as many developing markets in looking toward the east. Nonetheless, the scale and affluence

of the EU also provides a wealth of trade-based advantages to Turkey. Based on events discussed in

this study, EU exports have the most significant impact on employment, wage levels and overall

productivity. Similarly, the growing Turkish middle class will represent a valuable consumer market

that can be capitalised on by EU producers over the long-term future. Finally, the increasing level of

trade between Turkey and other emerging economies will allow EU foreign affiliates the opportunity

to take advantage of new trade possibilities on these markets.

Thus, the objectives of Turkey and the EU should be to increase integration as opposed to reforming

the customs union and this study has discovered that stronger integration would be beneficial for both

contracting parties and can be achieved through expansion of the existing CU framework or through

the formulation of a new trade agreement. The latter option in this case may be preferable if Turkey is

fully assimilated into the European Union. This study has also emphasized that increased integration

of trade within the agriculture and services industry would be beneficial for both parties and these two

industries are not adequately covered by the current CU agreement. Nonetheless, this study has

52

demonstrated the positive effects of the customs union in contrast to an FTA, as it does not require

Rules of Origin (ROOs) and the Common External Tariff (CET) controls Turkish import tariffs and

commodities traded under this category. However, that being said, this study is not suggesting that

one approach must be chosen in furthering the integration between both parties, as the method used is

inconsequential in comparison to the economic advantages that will be experienced by Turkey and

EU member states. Thus, from this perspective, this study will now provide several recommendations

on how trade relations between both parties can be improved, some of which refer to revisions to the

existing customs union agreement.

2. Key Recommendations

Current imbalances in the existing commercial policies practiced by the EU and Turkey

should be resolved through negotiations with Turkey and simultaneous negotiations with other

relevant parties. The inclusion of Turkish representatives in EU Committees or the formulation of

working groups similar to the (GSP), and Trade Policy Committee could also help to increase the

efficiency and effectiveness of the customs union agreement. Furthermore, the effective management

of parallel track bilateral trade negotiations in establishing a common commercial policy would assist

Turkey in founding FTAs following those made by the European Union. This can also be achieved by

holding talks simultaneously so that Turkish and EU negotiations with third countries finish at a

similar time. In addition, the inclusion of the Turkey Clause, requiring third countries to establish

trade deals with Turkey before the EU deal can be ratified, could be reinforced by requiring that all

parties enter talks at the same time. It would also be recommended that both parties refer to products

exported from Turkey through the customs union as originating from the European Union in order to

accumulate bilateral provisions of EU free trade agreements.

Road transport permits should also be made freely available for the transportation of all

products sold as part of the customs union.137 This is important as the autonomous granting of road

transport permits by member states can hinder the free transport of goods across borders and thus

prevent the full realisation of the CU despite the fact that bilateral road transport agreements are the

responsibility of independent member states, including quota negotiation. If the EC could acquire the

cooperation of all member states by negotiating terms on their behalf, the road transport network

could be readily liberalised provided all member states supported the removal of road transport

restrictions between Turkey and the EU for the benefit of global integration and the diversification of

European trade structures. Alternatively, a road transport agreement could be reached by following a

137 Hayati Yazıcı, “TURKEY-EU RELATIONS AND THE CUSTOMS UNION: EXPECTATIONS VERSUS THE

REALITY”, VOLUME 11 NUMBER 1

http://www.turkishpolicy.com/dosyalar/files/2012-1-HayatiYazici.pdf (Accessed 20/12/2014)

53

similar process to that used during negotiations by the European Commission between Hungary and

Romania. Furthermore, an agreement could also be established between Turkey and the EU by

entering into talks regarding the liberalisation of products being transported under the provisions of

the customs union. There are also additional strategies that could be applied on an independent level,

either in isolation or in conjunction with more formal procedures. For instance, during Turkish

accession talks, the Transport Policy Chapter of the acquis could be taken into consideration.

A special business-related visa category could also be offered to qualified Turkish workers

who need to enter EU countries for the purposes of conducting business. These visas could also have

long-term validity and require a minimal number of supporting documents. Presently, Turkey is the

only EU candidate country that has yet to establish a visa-free agreement with the European Union

and the excessive costs and complications that are associated with securing visas is a deterrent to

Turkish business people hoping to conduct business in EU countries. In particular, many Turkish

people are dissatisfied with the excessive amount of paperwork required to secure a visa and are also

dissatisfied with the duration of the visa, the lack of a multi-use option and the extortionate costs. The

Turkish Chambers of Industry and Commerce could accelerate visa processes by issuing a letter to

members who would contact appropriate consulates if they required a visa at short notice. This

approach would also distinguish business travellers from recreational travellers who aim to take up

residence in EU countries.

A more effective Dispute Settlement Mechanism (DSM) could also be established to resolve

any conflict that arises on account of bilateral trade between Turkey and the EU based on the

provisions of the customs union.138 The system currently used to deal with such issues is inadequate

as it only applies to conflict arising in relation to the length of safeguard measures that have been

taken. By adopting a more effective DSM, each party can be given the opportunity to initiate

proceedings on a more diverse range of complaints. This system would undoubtedly be more effective

in resolving a wider range of trade irritants.

The notification deficit could be reduced by the formulation of a dialogue dividend. A

notification deficit is required to guarantee that the technical requirements of industries covered by the

CU are adhered to in order to ensure the stable equilibrium of the agreement.139 An ideal way to

achieve this would be to bring forward accession talks as this would remove many of the existing

limitations and would decrease the likelihood of new ones emerging. Until then, there are measures

138 United Nation Conference on Trade and Development, “ World Trade Organization; 3.5 GATT 1994”, United Nations

New York and Geneva, (2003)

http://unctad.org/en/docs/edmmisc232add33_en.pdf (Accessed 20/12/2014) 139 Ian Gilsson, Miles Mckenna, “EU-Turkey Customs Union: Unique, Pioneering, and Still Beneficial”, IBRD-IDA, (2014)

http://blogs.worldbank.org/trade/eu-turkey-customs-union-unique-pioneering-and-still-beneficial (20/12/2014)

54

that can be taken to increase the efficacy of the present system, in particular, the improvement of

consultation and decision-making mechanisms in order to assist Turkey in aligning their legislative

framework with that of the EU. The customs union does not permit Turkey to be included on any

other committees without prior approval of the Association Council who are responsible for all

decisions made in relation to the customs union and the provisions contained within. The European

Commission could also encourage EU member states to invite Turkish representatives to participate in

various committees, perhaps on an observational basis, based on the provisions of Article 59 of

Decision 1/95140. Furthermore, measures could be taken to allow Turkish companies to apply directly

to the ECHA and send their own documentation on relevant issues, like Classification, Labelling and

Packaging (CLP) regulation141 for instance.

The services industry is also in urgent need of EU integration and this could be achieved by

letting Turkey enter the single EU market in the sale of services under the same conditions imposed

on member states. Alternatively, the formulation of a free trade agreement with a GATS+142 provision

would see each party make market access and treatment commitments, commitments that would not

be monitored to ensure compliance or alignment.

The Turkish agriculture industry should also be more integrated with the EU as it could

provide many benefits to both parties. Although there has been debate regarding the operation of

agricultural industries in the EU and in Turkey, namely in terms of a decrease in farm-based

employment, a higher level of bilateral trade through the implementation of a revised FTA may be

effective in providing benefits to Turkey and the EU in the event of (SPS) measures143 being satisfied.

The negotiation of market access based on different product types could also be feasible but this

would lead to the overall liberalisation of the sector-taking place at a very gradual pace.

Finally, there are a number of recommendations that could be implemented collectively. The

CU as it currently stands has a great deal of untapped potential. Although the agreement had a

positive effect in prompting greater integration when implemented in 1995, a revised version of the

trade agreement that is broader in scope has the potential to stimulate the Turkish economy once

more. Although this study does not cover the full range of issues affecting negotiations between

Turkey and the EU, it is clear that taking remedial measures based on each issue that arises is an

unfeasible approach. Thus, priority should be given to the issues outlined in this study and to

140 For Article 59 of the Decision 1/95 of the Association Council,

Please visit, http://trade.ec.europa.eu/doclib/docs/2003/december/tradoc_115267.pdf 141 See, http://echa.europa.eu/web/guest/regulations/clp/legislation 142 See, http://unctad.org/en/docs/edmmisc232add33_en.pdf 143 European Commission Trade, Market Access Database, “TURKEY - SPS - Ban on EU exports of bovine meat and live

bovines (BSE)”, (2014)

http://madb.europa.eu/madb/barriers_details.htm?barrier_id=105340&version=3 (Accessed 25/12/2014)

55

measures that would have a positive effect on the international economic community. A number of

measures could be implemented as a package deal in alleviating the one-sidedness of the existing

system, particularly in terms of decisions relating to common commercial policy-setting, transport

restrictions, the provision of a business-based visa category for Turkish workers, a more effective

dispute resolution mechanism, greater cooperation on (TDIs) and the opening of the EU market to

different sectors of the Turkish market. A collective package of this nature could be formulated to

further Turkey’s accession proceedings and accelerate the complete assimilation of Turkey into the

European Union. Based on the findings generated by this study, it is clear that a collective approach to

resolving these issues could be advantageous to both contracting parties, as the current status of the

agreement grows increasingly inadequate.

56

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