753The Causes and Consequences of the Hybrid EU – Turkey Trade Regime

Kutluhan Bozkurt

Associate Professor, Istanbul Gedik University/Turkey, Former Visiting Research Fellow, United Nations University (UNU-CRIS), Bruges/Belgium

Philippe De Lombaerde

Associate Professor, Neoma Business School, Rouen/France, Director a.i., United Nations University (UNU-CRIS), Bruges/Belgium

Abstract

EU – Turkey relations have various dimensions, including: (geo-)political, economic, and legal. Turkey’s long-standing, very bumpy and at times tense EU journey has experienced many break points. At this moment, the accession negotiations between the EU and Turkey, which is an EU candidate country towards full membership, are blocked. Turkey stands out as the only country that is a member of the Customs Union without being a full member of the EU. And although there are serious problems and disagreements between the parties, economic relations between the two partners are strong. From the Turkish perspective, trade with the EU counts for more than 50% of total trade.

The application of the Customs Union has already shown difficulties for Turkey, especially when EU is concluding more and more FTAs with third countries. Turkey’s benefit from these FTAs is quite limited. Turkey’s possibilities to benefit from the FTAs between the EU and third countries depend on the acceptance of a Turkey clause by third countries while third countries (and the EU) already reap the benefits of the favourable trade regime. This hybrid regime, de facto without a common external tariff as in textbook customs unions, leads to asymmetries between the access of Turkey’s exports to third markets and the access of third country exports to the Turkish market. Therefore, voices have been heard to update the customs union and solve issues related to the hybridity of the trade regime.

In this article, the hybrid EU – Turkey trade regime and economic integration will be historically reconstructed in order to understand its causes. Political, economic, and legal aspects will thereby be addressed. This analysis will be based on policy documents and secondary sources. In addition, empirical evidence will be collected on the cost of hybridity for Turkish businesses. The article will reflect on possible scenarios 754for future (trade) negotiations between the EU and Turkey. At the same time, our analysis of hybridity in trade regimes might inform debates on hybridity elsewhere, including in the context of the post-Brexit trade relationship between the UK and the EU.

1. Customs Union Relations Between the EU and Turkey

1.1. An Overall Assessment

The Customs Union (CU) is one of the important parameters of economic integration models and it constitutes one of the major topics in the relations between the EU and Turkey. The main purpose of a CU is to ensure the free movement of goods between the parties, while harmonizing external tariffs. Besides the full membership goal stated in the Ankara Treaty signed in 1963, the goals of the transition process included in the Additional Protocol signed in 1970 and provisions related to the free movement of services, persons and capital, which are the other three fundamental freedoms of the EU, were pursued as well (Karakeçeli, 2011: 3· Bozkurt, 2004: 102). However, for the realization of some of the goals outside of full membership, additional reconciliation and agreement between the parties was needed. It is necessary to emphasize that the CU is important as it includes a legal regulation in terms of providing some of the aforementioned fundamental freedoms. Therefore, the CU agreement concluded and the relation established by and between the parties has become a legal document not only from the point of view of the EU, but also of Turkey.

With the signing of the CU, two different views have emerged which should be evaluated both from the perspective of the EU and of Turkey. In the first perspective, it is alleged that the CU is disadvantageous to Turkey, as it will affect the Turkish economy (Gümrükçü, 2002: 151· Somuncuoğlu, 2002· Manisali, 2009). Also, certain authors asserted that this agreement would be in the interest of one party, the EU, as it aims to keep Turkey at its side in economic aspects rather than a full membership (Özen, 2002: 143· Özsoy ve Özsoy, 2006: 338· Cengiz & Kurtbağ, 2015: 2). On the other hand, some argue that the CU would favor Turkey as its economy would gain competitiveness by upgrading to the EU standards (Commission Staff Working Document Turkey 2012 Progress Report: 5-44, TÜSİAD, 2003: 121).

There is no doubt that the CU stands out as a significant topic in the commercial relations between the parties. Turkey’s EU accession has been on the agenda of both parties for over half a century. At this stage, it should be anticipated that the full membership process will not happen at once (Bozkurt, 2018: 177). Full membership to the EU has been a priority for Turkey until recently. It should be noted that during this long process, problems and tensions have frequently arisen between the parties, disrupting the relations. Eventually, the relations between the EU and Turkey which followed an undulant course, have come to a stagnation point due to the differences between the parties’ discourses, practices and expectations in the last 4 to 7555 years as well as due to Turkey’s recent explorations of energy sources in the East Mediterranean (Bozkurt, 2018: 177).

Before analyzing the mutually agreed regulation of the CU in detail, it is helpful to look at the process that led to it. The first official talks between Turkey and the EU were initiated in July 1959, with Turkey’s application related to the “acceptance to partnership negotiations” of Turkey shortly after the establishment of the European Economic Community (EEC) in 1958 (Brochardt, 2010: 17). The EEC’s reaction was to propose the establishment of a “partnership” relation between the parties until Turkey’s conditions would allow membership. Later on, on April 14, 1987, Turkey filed an application for full membership to the European Community (EC) under clause 237 of the Treaty of Rome. It should be noted that Turkey’s full membership request has been filed according to provisions of the Treaty of Rome, which regulates the membership practices and according to the related provisions of the Treaty of Ankara (ECAA-European Community Association Agreement) (Bozkurt, 2018: 178).

The goal of forming a CU had been clearly stated in the Treaty of Ankara, clauses 2 (2) and 10 (De Lombaerde/Ulyanov, 2020: 89). After the Treaty of Ankara, which was concluded in 1963, the parties acknowledged an additional protocol on November 9, 1970, and a new stage started in the relation between the parties. It should be emphasized that Turkey had been waiting for a long period for this goal of forming a CU, which was stipulated both in the Treaty of Ankara and the Additional Protocol. With the acknowledgment of the CU, the relations between the EU and Turkey reached a peak after the Treaty of Ankara (Gümrükçü, 2002: 2). Besides San Marino and Andorra, Turkey is the only State which is a member of the CU without being a member of the EU. The main reasons for Turkey’s acknowledgment of the CU, before achieving full membership, include the improvement of the relations with the EU and the creation of the possibility for Turkey, which was undergoing political and economic challenges, to join the EU and gain international reputation and trust. Along these lines, the vision of the politicians during that time was that the CU would be the final stage before full membership to the EU and that Turkey, by joining the EU within 4 to 5 years, would complete this integration. However, this vision did not materialize (Nas, 2020).

1.2. The CU Regulatory Framework

Turkey’s membership of the CU, without full membership of the EU, led to massive controversies in the country, but had a direct impact on the Turkish economy. The CU significantly increased the trade volume between the EU and Turkey. Besides, the CU forced Turkey to further liberalize its foreign trade (Akan/Balin, 2016: 155). Upon the acknowledgement of the CU by the parties, market areas of both parties expanded and their shares in world trade increased as well (Ertürk, 2018: 1).

It should be noted, in this context, that the CU enabled the EU to sign preferential trade agreements. These agreements became more important in the EU’s foreign 756and economic policies and eventually became one of the most significant instruments of the EU (Brenton/Manchin, 2002).

With the CU agreement with Turkey and the constituted association law which is founded upon the Treaty of Ankara, an important turn started to full membership. According to decree 1/95 of the Association Council established by the EU and Turkey in the framework of the association law, the mutual obligations have been determined and completed by the parties based on both the Treaty of Ankara and the Additional Protocol, which regulates the transition processes and periods (Ertürk, 2018: 2). The CU acknowledged between Turkey and the EU consisted of the following main topics based on the agreed consensus: (i) enabling free movement of goods and trade policy, (ii) revocation of customs duties and other taxes and charges of equivalent effect, and (iii) revocation of quantitative restrictions and other measures of equivalent effect. In the CU, trade policy, common customs tariffs and preferential tariff policies were treated as well (R. T. Ministry of Foreign Affairs, 2020). It should be noted that in the accepted and stipulated CU, free movement was allowed for industrial goods only, agricultural products were not included and processed agricultural products were subject to the regulations of the CU (R. T. Ministry of Foreign Affairs, 2020· European Commission, 2021· Ertürk, 2018: 2).

2. Positive Effects and Aspect of the CU Process

The CU between Turkey and the EU came into effect in 1995, upon decision 1/95 of the Association Council established by the parties of the European Commission (OJ L 35, 13.2.1996). With the CU, the relationship towards full membership has evolved to include the enablement of free movement of goods and the definition of trade policies, revocation of customs duties and quantitative restrictions. Without question, the CU has had effects both on Turkey and the EU.

2.1. Evaluation from the Point of View of Turkey and the EU

It can be said that at the beginning, Turkey and the country’s private sector faced difficulties in providing and fulfilling the standards defined by the EU and the conditions required for an essential customs accord. Because, without being a full member of the EU, integrating the EU’s system and rules established in legal, political and economic terms into a different structure in an instant and bringing the national system to the EU’s CU standards at short notice implied massive challenges. Both the government and administration and private companies which exported to and imported from EU countries realized rapidly that these challenges did not end with accepting the CU. Likewise, the EU underwent radical and essential changes upon the Maastricht and Amsterdam treaties and new regulations were accepted by the EU at the end of this period. In the late 1990s, the EU’s expansion era started, and this development as well as the inclusion of new members into the system shaped the CU.

757With the CU, Turkey opened its domestic market to the competition of the EU and third countries (R. T. Ministry of Trade, 2020). At the same time, the CU laid the foundations for a high-level agreement targeted for this period, as well as for the enhancement of commercial relations (R. T. Ministry of Trade, 2020). With the start of this new era, trade between the parties continuously increased. In 1995, the trade volume was 30.2 billion USD, whereas it reached 75 billion USD in 2005 and 165 billion USD in 2018 (Bilici, 2006: 39-45· R. T. Ministry of Trade, 2020). Figures 1-7 show the evolution and composition of EU trade (and FDI) with Turkey in USD and in Euro as well.

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In 2019, Turkey became the fifth-biggest trade partner of the EU. In turn, the EU became Turkey’s first partner in imports and exports (European Commission, 2020). The main export markets for Turkey include the EU (42,4%), the UK, Iraq, the USA and Israel. The EU represents also the biggest share of Turkish imports (32,3%).

759The data point to the importance of the trade relationship between the EU and Turkey, and to its essential character for Turkey. This trade relationship has expanded following the implementation of the CU regime.

Turkey’s increasing achievements in terms of reaching the EU’s customs standards and the EU’s consideration towards Turkey as an important market have been influential in this improvement. The enhanced economic relation between the parties and the increasing trade volume resulted in de facto economic integration, which facilitated Turkey’s agreement with the EU’s legal acquis (Ertürk, 2018: 3). However, this impact was limited in scope. The reason is that, as of 2005 when the membership 760negotiations were initiated, the opening of chapters was restricted and eight topics, related to the CU, have been prevented from opening upon the decision taken during the Summit of the European Council in December 2006 (Bozkurt, 2017c: 24· EU Council Decision, 2006).

As a result, only 16 out of 35 negotiation chapters could be opened; of which the “Science and Research” topic was closed temporarily. On the other hand, eight chapters, including the “Custom Union” one, have been suspended since Turkey has not fully executed the Additional Protocol which stipulated the full execution of the Customs Union in such a way to cover all member countries including Rep. Cyprus (R. T. Ministry of Foreign Affairs Directorate for EU Affairs, 2020· European Commission European Neighborhood Policy And Enlargement Negotiations, 2021). Furthermore, six topics which had been vetoed by Rep. Cyprus and five chapters which France declared to veto, if they would be submitted to the EU Council for negotiations, were not opened for negotiations.

2.2. Problematic Aspects

The contributions of the CU to the parties, especially to Turkey’s economy and trade, as well as the impact on increasing competition, are undeniable. Nevertheless, blocking the opening of certain negotiation topics according to the decision taken during the EU Council Leaders Summit in 2006 negatively affected Turkey. Whereas the CU chapter is probably the one where Turkey achieved the highest level of compliance, it was still included in the eight chapters.

The reason for this blockage is to be found in the political sphere. During this process towards full membership, the parties have experienced turbulences, stop-go dynamics, and changing views on full membership (Bozkurt, 2020: 33-34). The relation between the parties regarding political, legal and membership issues worsened in the last five years.

In 2019, the European Parliament decided to stop the membership negotiations between the EU and Turkey (EU Parliament, 2019). While this is not a binding decision, it is advisory for other EU institutions. Likewise, the EU Council, which is the crucial organ in terms of the definition of external EU policy, including towards candidate states, has taken an additional decision to impose sanctions against Turkey during the Leaders’ Summit in 2020 (European Council, 2020).

3. Update of the CU

As mentioned before, Turkey became thus part of the CU without gaining full EU membership according to decision 1/95 of the Association Council in 1995. As emphasized above, this is a limited membership where free movement is allowed for industrial goods only. Moreover, any regulations or goals related to the free movement of people and services are not part of the CU agreement. For these reasons, it is quite hard to talk about a full CU agreement between the parties. Major deficiencies of the agreement call for its revision or update. This follows also from the existing 761mechanisms for consultation and dispute settlement in the CU. Additionally, significant changes in world trade and EU trade policy have occurred within the last 25 years (Nas, 2020). One such development was the signature of several FTAs by the EU with third countries, with potential negative impacts on Turkey.

This points to a fundamental problem of the current CU construction. Whereas a common external tariff and trade policy is an inherent part of the logic of CUs, in the case of the EU – Turkey CU, Turkey does not participate in the decision-making mechanisms of EU’s trade policy because it is currently not a full member of the EU (Baydarol, 2008· Cengiz/Kurtbağ, 2015: 5). In other words, matters and strategies which directly determine Turkey’s foreign trade policies, relations and perspectives are defined by a committee in which Turkey is not taking place (Kabaalioğlu, 2010: 49). This reflects also the relative importance the EU is giving to the EU – Turkey CU, on the one hand, and its trade relations with third countries, on the other. As a consequence, common decision-making and dispute settlement mechanisms included in the association law but are not operational, and therefore, observers have pointed to the de facto unilateral application of the CU which functions to the disadvantage of Turkey (Karakeçeli, 2011: 3).

By looking at decision 1/95 of the CU agreement, there are certain regulations on decision-making and consultation procedures in the areas which are regulated by the agreement (Art. 55-60, GB Agreement). Article 55 of the CU agreement includes the provision that stipulates that, with respect to the preparation of new legislation for the CU by the EU Commission, if experts of member states will be consulted, experts from Turkey will be consulted as well. However, in practice, this provision is mostly not executed. Also, according to the same clause, it is stipulated that if the Commission would create and submit a new proposal, a copy of such proposal would be sent to Turkey and that consultation and notification procedures would be conducted based on goodwill within the CU Association Council (Art. 55, CU). Article 57 of decision 1/95 revealed that the CU agreement includes the provision that the CU Joint Committee would make all efforts to settle any problems or defects which may occur during the execution of this regime (Art. 57, CU).

Additionally, Articles 59 and 60 of the CU Agreement with Turkey stipulate that Turkish experts will be required to present their contributions to studies on the files related to the CU (Art. 59-60, Akçay, 2013: 113· Özen, 2002: 248-251· Cengiz/Kurtbağ, 2015: 6· Karakeçeli, 2011: 4). However, although Articles 59 and 60 constitute a legal ground for participation in technical committees, such participation in these committees is very limited. It has been observed that Turkey can participate in only 17 out of 450 technical committees within the Commission where Turkey participates in the capacity of observer only (İKV, 2012· Cengiz/Kurtbağ, 2015: 6). The execution of the aforementioned clauses of the CU agreement meets obstacles. While the Commission states that Turkey cannot participate in regulating committees (Trade Policy Committee) due to Turkey’s lacking full membership status, the Commission stipulates that, on the other hand, participation in the Generalized System of Preferences (GSP) Committee, which is also a regulatory committee, requires compliance with the 762GSP legislation, but not full membership. This would seem to be contradictory (Cengiz/Kurtbağ, 2015: 6· R. T. Prime Ministry, 2012). Therefore, differing attitudes and approaches by the parties in practice disable a fully functional CU relation between the parties and point to the need to update the current CU regulation.

Regarding the update of the CU, Turkey’s expectations and requests include arrangements and improvements for the free movement of other goods, agricultural products and workers. Independently from the updating process of the CU, on December 16, 2013, a dialog related to the Release of Visas has been initiated between the EU and Turkey, and the Readmission Agreement and Visa Liberation has been acknowledged (Ekşi, 2016: 40-41· Bozkurt, 2016: 396· Directorate for EU Affairs, 2020). Although this agreement arranged the conditions for visa liberalization, it still includes the aim of stopping mass asylum from Syria and preventing the entry of refugees into EU countries. Within the scope of this agreement, the EU requested Turkey to fulfill the arrangements consisting of 72 criteria, whereas Turkey fulfilled most of these (COM/2014/0646, European Parliament, 2019· Bozkurt, 2016: 398-399).

4. Trade agreements and FTAs within the framework of WTO and EU Policies

Especially since the 1990s, regional trade agreements (RTAs) have proliferated. Within the WTO framework, they can be qualified as: (i) free trade areas (GATT, Art. 24), (ii) CUs (GATT, Art. 24), (iii) economic integration agreements (GATS, Art. 5), (iv) partial scope agreements (enabling clause). In 1994, the number of regional trade agreements was 49, and boomed in the following years (Gürlesel/Alkin, 2019: 19). According to WTO notifications, around 350 RTAs are currently in force. Today, 90% of the 164 members of the WTO engaged in at least one FTA or CU. While more than 40% of international trade among WTO member countries was carried out within the scope of FTAs in the early 2000s, it is estimated that this rate is much higher today with the conclusion of new FTAs (Aydın, 2020). The EU has been very active in negotiating such new generation FTAs (Figure 9). A comprehensive evaluation report on the CU between the EU and Turkey was published by the IMF in 2014 and is considered as one of the most comprehensive studies on this topic (IMF Report No. 85830-TR, 2014).

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4.1. Third Country FTAs, Preferential Trade Regimes, and the EU – Turkey Customs Union

In recent years, and not unrelated to the complicated WTO negotiations, FTAs have become major trade policy instruments for the EU and other players in the global economy (De Lombaerde/Ulyanov, 2020: 88· Akman, 2010: 19· Cengiz/Kurtbağ, 2015: 7). The EU signed several FTAs with various countries and put these agreements into effect over the last years (see Figures 8 and 9).

This strategic shift of the EU contributed to the problematic commercial relationship between the EU and Turkey, as Article 16 of the Association Council Decision 1/95 emphasized Turkey’s obligation to comply with the Community’s Trade Policy. 764Within the scope of this regulation, Turkey entered the CU under the obligation to comply with the Community’s preferential customs regime. The mentioned compliance obligation covers not only autonomous regimes, but also preferential trade regimes with third countries. As a result, Turkey has been forced to comply with, or so to say, accept the FTAs signed by the EU with third countries. Therefore, this matter could be interpreted as Turkey not being allowed to sign, without the EU’s consent, any FTA with any country with which the EU has not concluded an FTA (Cengiz/Kurtbağ, 2015: 7· Karakaş, 2002· Mercan 2013). A possible revival of a Transatlantic Trade and Investment Partnership could further complicate Turkey’s situation.

As mentioned before, with the CU agreement concluded between Turkey and the EU, Turkey has been committed to undertake the FTAs signed by the EU until 2001, under Article 16 of the Association Council Decision 1/95 which came into effect on January 1st, 1996. This commitment emerged also by force of complying with the EU’s Common Foreign Trade Policies. Appendix 10 of clause 16 of the CU decisions includes provisions related to the preferential agreements which Turkey is obliged to assume. According to this clause, Turkey has undertaken the generalized system of preferences provided to less developed countries by the EU as well as the preferential trade regime between the EU and other countries. According to this obligation, Turkey has signed many FTAs with Middle and East European countries, North African countries and others (Kalaycı, 2017: 136· Aydın, 2020). It should be remembered that, by Turkey’s obligation under the CU, Turkey can conclude similar agreements only with third countries with which the EU has concluded a preferential trade agreement. Turkey is not allowed to sign FTAs or similar agreements aiming at preferential trade with third countries with which the EU has not signed such a trade agreement yet. Turkey has signed 38 FTAs up to now. 11 different FTAs signed with Central and East European countries have been terminated later on as these countries have become members of the EU (R. T. Ministry of Trade, 2020).

22 FTAs signed with EFTA, Israel, N. Macedonia, Bosnia and Herzegovina, Palestine, Tunisia, Morocco, Egypt, Albania, Georgia, Montenegro, Serbia, Chile, Mauritius, South Korea, Malaysia, Moldova, Faroe Islands, Singapore, Kosovo, Venezuela and recently with the UK are still in effect (R. T. Ministry of Trade, 2020). The Association Agreement for the Establishment of a Free Trade Area between Turkey and Syria has been suspended by Turkey by means of a cabinet decree dated December 06, 2011, due to the problems with the current Syrian administration. Furthermore, the FTA between Turkey and Jordan which had been signed on December 1st, 2009, and had come into effect on March 1st, 2011, has been repealed on November 22, 2018 (R. T. Ministry of Trade, 2021).

It has been observed that the FTAs, which the EU is a party of and has signed in recent years, have put forth consequences and effects which are not necessarily in the interest of Turkey. It has therefore been suggested that the CU text should be 765updated and better aligned with the current conditions, as it has become nonfunctional and not creating the sought benefits for both parties (Göçmen, 2016: 87).

As mentioned before, the CU agreement did not include regulations for all products and there were no provisions related to the free movement of people, services and capital, which are among the four main freedoms which constitute the economic foundation of the EU. It is obvious that, while the EU has created and conducted partnerships for goods other than agricultural and industrial products, services and public purchases by entering FTAs with many third countries, such possibilities were not provided for Turkey (Göçmen, 2016: 87). As the EU continues to take the current version of the CU practices of 1995 into respect, this amounts to unilateralism which is not necessarily aligned with Turkey’s interests.

This relationship resulted in a hybrid system, meaning that Turkey is included in the CU within its limited areas of trade with the EU, but cannot necessarily benefit from the FTAs which the EU has signed and put into effect with third countries; because an FTA which has been signed by a third country does not only imply the EU and its member states, but also the EU customs zone, which consists of the EU-member states post-Brexit, and Turkey (Kabalioğlu, 2007: 28). Third countries which have entered into trade agreements with the EU can enter the Turkish market without customs duties under the scope of the CU agreement. On the other hand, Turkey can enter the markets of third countries which have signed FTAs with the EU only upon paying the respective customs duties. This causes a disadvantageous situation for Turkey and leads to costs incurred by Turkey. As emphasized previously, Turkey has not gained full membership yet and therefore cannot be involved in Committee No. 133 which shapes and conducts the EU’s common foreign trade policies and defend its interests therein.

The negotiation practice consists of the EU negotiating and signing an FTA with a third country and then requesting Turkey to enter into an agreement of similar nature with that country (Karakeçeli, 2011: 6). The third country which is a party to this FTA is thereby bound to respect Article 24 of GATT. The initiation of negotiations for signing an agreement between Turkey and the third country –which already signed an FTA with the EU– is recommended by the EU as the Turkey Clause. Of course, this is a recommendation and the clause is not binding for the EU or the third country.

Within the scope of the Turkey Clause; before the enforcement of the FTA that has been signed between the EU and third countries, no obligation to prepare and sign another FTA with Turkey is stipulated for such third countries. As mentioned before, as these third countries have gained the right to enter the Turkish market without customs duties by the FTA and as they can protect their market because Turkey can enter their markets only upon payment of customs duties, there is no specific reason to force such third countries to sign a further FTA with Turkey. This also shows that these third countries who are a part of the FTA are reluctant and do not have sufficient motivation to sign a new FTA with Turkey.

766It has been observed that an FTA negotiation process established between third countries which are a party to an FTA with the EU and Turkey implies many challenges, takes a long time and for some of these countries such negotiations have not even started (Figure 10).

767For micro states such as San Marino and Andorra which established a CU like Turkey, the possibility to be a direct party has been provided by the EU through a provision included in the FTA text or a post charter to this agreement (TÜSİAD, 2008: 25). Although the situations of Turkey and San Marino and Andorra are somewhat difficult to compare, it nevertheless looks like an inconsistency from the side of the EU.

If the relations between the EU and Turkey will be normalized at some point in time, it is to be foreseen that the main topics to be discussed between the parties will be the update of the CU and Turkey’s inconformity with the FTAs signed by the EU. These issues have been mentioned many times directly in the Association Council meetings as well as by the EU – Turkey Delegation (Delegation of the European Union to Turkey, 2018). Finding solutions that would be of mutual economic interest for both parties could constitute a driving power for the recovery of the EU – Turkey relations.

4.2. Trade with FTA Countries and Effects of the Hybrid Trade Regime in the Light of Statistical Data

Upon examination of the period 2012 to 2016, it is observed that Turkey’s exports to FTA countries have been generally slightly increasing (Figure 11) (Kalayci, 2017: 138).

The imports from FTA countries presented fluctuations in the period 2012 to 2016 (Figure 12). While these were 17.3 billion USD in 2012, they increased to 24.5 billion USD in 2013. The imports continued to decrease in the following years and ended up at approximately 17 billion USD in 2016. The imports from FTA countries in 7682016 constituted 9% on average of Turkey’s total import volume. The countries from which Turkey imported most are South Korea, EFTA countries, Israel, Egypt and Malaysia. It should also be noted that over 80% of the import from EFTA countries has been realized from Switzerland (Figure 12) (Kalayci, 2017: 139).

When examining the foreign trade balance of Turkey with FTA countries (Figure 13), we see that Turkey had a foreign trade deficit in the years 2012, 2013 and 2014, whereas it achieved a surplus in the years 2015 and 2016 (Kalayci, 2017: 139).

769As seen in Figure 14, the main goods in Turkey’s foreign trade with FTA countries in 2016 included livestock and food products, chemical industry and associated industrial products not specified elsewhere, processed goods which have been classified in key classifications, machinery and transport vehicles and products defined as various manufactured commodities (Kalayci, 2017: 142).

In 2016, the highest foreign trade deficit recorded in bilateral trade with FTA countries was recorded with South Korea. It has been argued that this was an adverse effect of the FTA between the EU and South Korea. Based on bilateral trade data for the period 2012-2016 (Figures 14 and 15) it was found that while Turkey had a comparative advantage in livestock and food products (0), drinks and tobacco (1), processed products (6), and various manufactured commodities (8), Turkey faced comparative disadvantages in the trade of inedible raw materials excluding fuel oil (2), animal and vegetable solid fats and liquid oils (4), paraffin and chemical industry and associated industrial products not specified elsewhere (5) (Kalayci, 2017· Tekçe, 2015: 403-404).

770It can thus be said that the trade regime between the EU and Turkey has put forth a hybrid approach and practice. Turkey is included within the CU zone created with the EU and is subject to a different trade regime due to the FTAs signed by the EU with third countries. It is obvious that a dual-hybrid trade regime is not practical and will not necessarily lead to beneficial results for Turkey. These problems and inconveniences caused by this hybrid trade practice have led to rising awareness on the side of the EU that an update of the customs legislation is needed. However, it will not be easy to put this into reality, both because of Turkey’s incapacity to fulfill the conditions for full membership and because of –for the moment– unsurmountable political tensions and uncompromising attitudes of certain countries within the EU vis-à-vis Turkey.

To further underline the hybridity of the EU – Turkey trade regime, it has been observed that Turkey has, independently of its EU membership process, started to sign trade partnerships with different third countries. The suspended or badly progressing negotiations and economic losses caused by FTAs have led Turkey to embark on different quests. In the meantime, Turkey has also developed trade relations with mainly Russia, China and South Korea and has embarked on exploring energy sources in the East Mediterranean. An FTA has been concluded recently between Turkey and the UK. In fact, all these developments can be seen as Turkey distancing itself from its EU goals. At the moment of writing, it is unclear when the time will be ripe (again) for a stronger partnership between the EU and Turkey. Certainly, this would imply the need to review the trade regime based on the mutual interests of the parties.

4.3. Brexit and FTA between the UK and Turkey

The UK’s exit process from the EU has been quite painful for both parties. After long marathons of negotiations, the parties decided on separating by means of a consensual Brexit in the last weeks of 2020. A short time later, negotiations and debates for an FTA were initiated between the UK and Turkey in a very fast manner, and the UK and Turkey shortly announced that they agreed on an FTA. It should be noted that, although the preferential treatment in UK – Turkey trade was implemented as of January 1st, 2021, and at the same year it came into force (R.T. Ministry of Trade, 2021), it should be expected that an increasingly growing trade relationship between the UK and Turkey will develop in the forthcoming years and that Turkey might become a more attractive market for the UK.

5. Conclusion and Evaluation

In this paper we have shown how a hybrid trade regime that is essential part of economic integration has gradually been installed between the EU and Turkey, built on an imperfect CU. Whereas initially the CU was assessed rather positively in terms of rising trade volumes and Turkey’s integration in the European and global markets, more recently doubts have been raised as to the beneficial effects of the trade regime for Turkey (Ülgen/Dilek, TUSİAD, 2015: 13· IMF Report No. 85830-TR, 2014: 1). Especially the proliferation of third country FTAs signed by the EU has complicated the 771trade regime and is considered by Turkish observers to have led to negative effects for Turkey.

During the EU membership negotiations, Turkey could not prevent some major negotiation chapters including the CU to be kept closed due to political blockage. Even though in May 2015, following the political consensus between the EU and Turkey, the consolidation process of the CU started (Ülgen/Dilek, TUSİAD, 2015: 13· Larc and others, 2020: 1), the negotiation between the parties stopped and no progress was achieved in this respect as the relations came to a breaking point. If at some point of time in the future the bilateral relations would again move towards normalization, the updating of the CU agreement of 1995 should and will be high on the agenda (Adar and others, 2020: 1).

Due to the CU agreement, Turkey is obliged to acknowledge the FTAs and Preferential TAs signed and acknowledged by the EU and, thus, is obliged to sign FTAs with third countries having signed FTAs with the EU. It should be stated that Turkey does not have a voice in the EU’s FTAs and Preferential TAs as it is not a full member of the EU. At this point, the EU proposes third countries which are part of an FTA to sign a FTA with Turkey, but this proposal is not legally binding for such a third country. Because of these FTAs, the goods of third countries can enter the Turkish market without customs duties, whereas Turkish goods can enter the above-mentioned third countries’ markets only with customs duties. The entry of Turkish goods into the markets of those countries depends on Turkey signing an FTA with these countries. Countries such as Mexico, South Africa and Algeria, which are aware that they can export their goods to Turkey without customs duties when they agreed with the EU, tend not to sign an FTA with Turkey (Kalayci, 2017: 137). This asymmetric situation is likely to be disadvantageous for Turkey. Further research is needed to establish which products are directly affected on a sectoral basis and how the cost of the asymmetry for the Turkish economy could be estimated.

The renewal and update of this asymmetric or hybrid trade regime, which is caused by both FTAs and partial and inadequate execution of the CU, emerges as an important goal. The fast creation of a trade association between Turkey, which has been striving to enter the EU for many years, and the UK, which separated in a controversial way from the EU, should be noted as an interesting development. Brexit has certainly been a process that Turkey has observed closely, and beyond the FTA established between the UK and Turkey shortly after Brexit, there is room for creative thinking about the desired EU – Turkey trade regime for the future.

Sources

Books, book chapters and articles, law and others journal articles, congress, conference proceeding articles and reports

Adar, S./Bilotta, N./Denizeau, A./Ekim, S./Schmid, D./Seufert, G./Toygür, I./Wasilewski, K., (2020) Custom Union: Old Instrument, New Function in EU-Turkey Relations, SWP Comment, No. 48

772Akan, H. D. M./Balin, B. E., (2016) The European Union – Trade Relations under the Influence of Customs Union, Journal of Economics, Business and Management, Vol. 4, No. 2, 155-160

Akçay, B., (2013) Constraints Regarding Turkey’s Economic Integration into the European Union

Akçay, B./Yilmaz, B. (eds.), (2012) Turkey’s Accession to the European Union: Political and Economic Challenges, Lexington Books, Plymouth, 97-126

Akman, M. S., (2010) The European Union’s Trade Strategy and Its Reflections on Turkey: An Evaluation From the Perspective of Free Trade Agreements, Dokuz Eylül Üniversitesi Sosyal Bilimler Dergisi, C.12 S.2, 17-45

Aydin, A. K., (2020) Serbest Ticaret Anlaşmalarının Yeri ve Türkiye’nin Dış Ticaretinin Gelişmesindeki Önemi, available at: [http://www.mfa.gov.tr/serbest-ticaret-anlasmalarinin-yeri-ve-turkiye_nin-dis-ticaretinin-gelistirilmesindeki-onemi.tr.mfa]

Baydarol, C., (2008) Asimetri ya da Onlar Ortak Biz Pazar, available at: [https://www.lojistikkulubu.ist/turkiye-avrupa-birligi-iliskilerinin-yarinini-tartisirken-unutulan-bu-gun-gumruk-birligi-ve-tasima-kotalari/]

Bilici, N., (2006) AB’de Ekonomik Bütünleşme ve Türkiye’nin Entegrasyonu, Ankara Avrupa Çalışmaları Dergisi, C. 5 No. 2

Bozkurt, K., (2004) Die Beziehungen der Türkei zur EU, rechtliche Prozesse und rechtliche Einflüsse, Dissertation, Universität Wien

Bozkurt, K., (2016) Geri Kabul ve Vize Serbestisi Anlaşması, TBB Dergisi, 125

Bozkurt, K., (2017a) Turkey-EU Relations: A short Overview and Impact of the Refuges Crisis on the EU-Turkey Accession Negotiations, Revista Akademike, V:2, Issue: 2017/1

Bozkurt, K., (2017c) Fighting corruption in the EU and impact of the policy on the accession negotiations with Turkey, 5th Traditional Law Conference of the University of Ljubljana, Faculty of Law, Ed. Kralic, S., University of Maribor Press

Bozkurt, K., (2018) Avrupa Birliği Politikaları ve Düzenlemeleri Kapsamında Göç Hukuku, Mülteci Statüsü, Legal Yayınları

Bozkurt, K., (2020) Suriyeli Mülteciler Ekseninde Türkiye-AB ilişkilerine Dair Kısa Bir Değerlendirme, YHF Pencere Dergisi, available at: [https://www.penceredergi.net/dergi.htm]

Brenton P./Manchin M., (2002) Making EU Trade Agreements Work the Role of Origin, CEPS Working Document No. 183

Brochardt, K.-D., (2010) The ABC of European Union Law, European Union

Brochardt, K.-D., (2017) The ABC of European Union Law, European Union

Cengiz, C./Kurtbağ, Ö., (2015) Türkiye-AB Gümrük Birliğinde Yaşanan Güncel Sorunlar ve Bunlara Olasi Çözüm Önerileri, Akademik Yaklaşımlar Dergisi, Journal of Academic Approaches, Kış 2015 C: 6 S:2 Winter 2015 V: 6 I: 2

773De Lombaerde, P./Ulyanov, I., (2020) The Turkish FTA Puzzle, The Estey, Journal of International Law and Trade Policy, 21(2): 87-95

Ekşi, N., (2016) Türkiye Avrupa Birliği Geri Kabul Antlaşması, Beta Yayınevi

Ertürk, A. C., (2018) AB-Türkiye Arasında Gümrük Birliği’nın Güncellenmesi: Fırsatlar ve Sorunlar, Policy Brief No.59, Global Political Trends Center Istanbul Kultur University

Göçmen, I., (2016) Avrupa Birliği ile Türkiye Arasındaki Gümrük Birliğinin Güncellenmesinin Yöntemi ve Usulü: Avrupa Birliği açısından bir bakış. Ankara Avrupa Çalışmaları Dergisi, C.15, No:1, 85-115

Gümrükçü, H., (2002) Türkiye ve Avrupa Birliği: İlişkinin Unutulan Yönleri Dünü ve Bugünü, Avrupa-Türkiye Araştırmaları Enstitüsü

Gürlesel, C. F./Alkin, K., (2010) Avrupa Birliği’nin Serbest Ticaret Anlaşmalarına Türkiye’nin de Dahil Edilmesi, ITO

IMF Report No. 85830-TR (2014), Evaluation of the EU-Turkey Customs Union, World Bank

Kabaalioğlu, H., (revised version 2007) The Turkish Model of Association: Customs Union Before Accession, published in: Demaret, P./Bellis, J. F./Jimenez, G. G. (eds.), Regionalism and Multilateralism after the Uruguay Round: Convergence, Divergence and Interaction, European Interuniversity Press, 1997

Kabaalioğlu, H., (2010) Turkey-EU Customs Union: Problems and Prospects, Dokuz Eylül Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, Cilt 12, Sayı 2, 47-57

Kalayci, C., (2017) Serbest Ticaret Anlaşmalarının Türkiye’nin Dış Ticaretine Etkileri: Açıklanmış Karşılaştırmalı Üstünlükler Endeksi Uygulaması, International Journal of Economics and Innovation, 3, (2) 2017, 133-147

Karakaş, O., (2002) Türkiye ile ABD Arasında Olası Bir Serbest Ticaret Anlaşmasının, Dünya Ticaret Örgütü ve Avrupa Birliği Çerçevesindeki Yükümlülüklerimiz Açısından İncelenmesi, Uluslararası Ekonomik Sorunlar Dergisi, Sayı VII, available at: [http://www.mfa.gov.tr/turkiye-ile-abd-arasinda-olasi-bir-serbest-ticaretanlasmasinin_-dunya-ticaret-orgutu-ve-avrupa-birligi-cercevesindeki-yukumluluklerimiz-acisindanincelenmesi.tr.mfa]

Karakeçeli, F., (2011) 15’inci Yılında Türkiye-AB Gümrük Birliği ve Yaşanan Temel Sorunlar, IKV Değerlendirme Notu

Kinnman, S./Hagberg, T., (2012) Potential Effects from an EU-US Free Trade Agreement – Sweden in Focus, Kommerskollegium National Board of Trade, Sweden

Larch, M./Schmeisser, A. F./Wanner, J., (2020) A Tale of (almost) 1001 Coefficients: The Deep and Heterogeneous Effects of the EU-Turkey Customs Union, JCMS, Journal of Common Market Studies

Manisali, E., (2009) Türkiye’nin Askersiz İşgali: Gümrük Birliği, Cumhuriyet Kitapları, Istanbul

Mercan, S., (2013) Yeniden Gümrük Birliği Meselesi, 21. Yüzyil Türkiye Enstitüsü, available at: [https://21yyte.org/tr/merkezler/bolgesel-arastirma-merkezleri/avrupa-birligi-arastirmalari-merkezi/yeniden-gumruk-birligi-meselesi]

774Nas, Ç., (2020) Gümrük Birliği Neden Güncellenmeli?, Perspektif, available at: [https://www.perspektif.online/tr/jeopolitik/gumruk-birligi-neden-guncellenmeli.html]

Özen, Ç., (2002) Türkiye-Avrupa Topluluğu Gümrük Birliği ve Tam Üyelik Süreci Üzerine Etkileri, Ceylan Kitabevi

Özsoy, I./Özsoy, O., (2006) “1838 Balta Limanı Sözleşmesi’nden Gümrük Birliği’ne Türkiye-Avrupa Ticari İlişkileri”, Kalayci, I. (ed), Türkiye-AB İlişkileri Üzerine Ekonomik-Politik Tezler, Beta Yayınları., İstanbul, 323-348

Somuncuoğlu, S., (2002) Gümrükte Kuşatma, Ankara Ticaret Odası Yayınları

Tekçe, M., (2015) The Future of the Customs Union Between Turkey and the EU in the Context of the Trade Policy Agenda of the EU, Marmara Üniversitesi, İ.İ.B. Dergisi, C.XXXVII, N. II, 397-408

TÜSİAD, (2003) Avrupa Birliği’ne Uyum Sürecinde Gümrük Birliği’nin Dış Ticaretimize Etkileri, Yayın No: TÜSİAD-T/2003-10-364

TÜSİAD, (2008) Gümrük Birliği Çerçevesinde AB’nin Üçüncü Ülkeler ile yaptığı serbets Ticaret Anlaşmalarının Avrupa ve Türk İş Dünyasına Etkileri, Yayın No: TÜSİAD-T/2008-06-467, TÜSİAD Yayınları

Ülgen, S./Dilek, P. Y., (2015) Gümrük Birliği’nde Yeni Dönem ve İş Dünyası, TUSİAD, 7/2015, 10-568

Official Documents

Avrupa Birliği Türkiye Delegasyonu (2018), Gümrük Birliği’nin Modernleştirilmesi, available at: [https://www.avrupa.info.tr/tr/eeas-news/turkiye-2018-raporunun-temel-bulgulari-7577]

COM/2014/0646 Report from the Commission to the European Parliament and the Council on progress by Turkey in fulfilling the requirements of its visa liberalisation roadmap, available at: [https://secure.ipex.eu/IPEXL-WEB/dossier/document/COM20140646.do]

Commission Staff Working Document Turkey 2012 Progress Report, available at: [https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/pdf/key_documents/2012/package/tr_rapport_2012_en.pdf]

Commission Staff Working Document Turkey 2020 Report, Accompanying the Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions 2020 Communication on EU Enlargement Policy {COM(2020) 660 final} - {SWD(2020) 350 final} - {SWD(2020) 351 final} - {SWD(2020) 352 final} - {SWD(2020) 353 final} - {SWD(2020) 354 final} - {SWD(2020) 356 final}, [https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/turkey_report_2020.pdf]

Commission Staff Working Document Turkey 2021 Report, available at: [https://op.europa.eu/en/publication-detail/-/publication/f7862961-3197-11ec-bd8e-01aa75ed71a1/language-en]

775Commission Staff Working Document Turkey 2022 Report, available at: [https://neighbourhood-enlargement.ec.europa.eu/system/files/2022-10/T%C3%BCrkiye%20Report%202022.pdf]

European Commission (2020), Directorate General for Trade, Turkey

European Commission, European Neighborhood Policy And Enlargement Negotiations (2021), available at: [https://ec.europa.eu/neighbourhood-enlargement/countries/detailed-country-information/turkey_en]

European Commission (2021), Turkey: Customs Unions and preferential arrangements, available at: [https://ec.europa.eu/taxation_customs/business/calculation-customs-duties/rules-origin/customs-unions/turkey-customs-unions-preferential-arrangements_en]

European Council (2020), European Council, 10-11 December 2020, available at: [https://www.consilium.europa.eu/en/meetings/european-council/2020/12/10-11/]

European Parliament (2019), Parliament wants to suspend EU accession negotiations with Turkey, available at: [https://www.europarl.europa.eu/news/en/press-room/20190307IPR30746/parliament-wants-to-suspend-eu-accession-negotiations-with-turkey]

European Parliament (2019), Parliamentary questions, available at: [https://www.europarl.europa.eu/doceo/document/E-9-2019-002892_EN.html]

İktisadi Kalkınma Vakfı (İKV), “Gümrük Birliği”, available at: [http://www.ikv.org.tr/icerik.asp?konu=gumrukbirligi&baslik=G%C3%BCmr%C3%BCk%20Birli%C3%B0i]

Report from the Commission to the European Parliament and the Council, Third Report on progress by Turkey in fulfilling the requirements of its visa liberalisation roadmap {SWD(2016) 161 final}, EUROPEAN COMMISSION Brussels, 4.5.2016 COM(2016) 278 final, available at: [http://europa.eu/rapid/press-release_IP-16-1622_en.htm]

R. T. Ministry of Foreign Affairs, Directorate for EU Affairs (2020), available at: [https://www.ab.gov.tr/the-visa-liberation-dialogue_51819_en.html]

R. T. Ministry of Trade (2020), available at: [https://ticaret.gov.tr/dis-iliskiler/serbest-ticaret-anlasmalari/yururlukte-bulunan-stalar]

R. T. Ministry of Trade (2020), available at: [https://www.trade.gov/knowledge-product/turkey-trade-agreements]

T. C. Dışişleri Bakanlığı (2020), 1/95 Sayılı Ortaklık Konseyi Kararı (Gümrük Birliği Kararı), available at: [http://www.mfa.gov.tr/1-95-sayili-ortaklik-konseyi-karari-gumruk-birligi-karari.tr.mfa]

[https://data2.unhcr.org/en/situations/syria/location/113]

[http://ec.europa.eu/dgs/home-affairs/what-is-new/news/news/docs/20131216-roadmap_towards_the_visa-free_regime_with_turkey_en.pdf]