The recent relationship between Turkey and the EU has been fraught with tension. Now, the Customs Union agreement is expected to be a new source of trouble. On the 21st December, the European Commission asked the Council for a mandate to launch talks with Turkey to modernize the existing 20-year-old EU-Turkey Customs Union. Turkey's integration into the European trade system began when the agreement went into effect on January 1, 1996. Thus began a new era of free circulation of Turkish manufactured products in Europe and import of European products to Turkey. It has increased EU-Turkish trading from 37 billion to 140 billion dollars in 20 years. With the modernization, trading is expected to increase to 300 billion dollars. 

The agreement meant that customs fees and taxes were removed from imports and exports with member countries. Also, Turkey accepted the joint customs tariff for trade with third party countries. Although Turkey has, at times, had serious objections to Customs Union applications, membership has had a very big effect on development of the Turkish industry and its world class manufacturing capability, such that, in the past 20 years, Turkish exports to the EU increased 423%, while imports increased 336%. Today Turkey exports from all manufacturing areas including automotive, textile, electronic and chemical products. The European market comprises nearly half of Turkey's total exports.

Continuing talks for 2 years

Now, a new chapter is opening in the trade between Turkey and the EU. After two years of talks between the European Commission and the Turkish Ministry of Economics, it is planned that the agreement will be updated to include not only manufactured products but agriculture and the service industry as well. This update may cause an important increase in Turkish exports to the EU. The Turkish Deputy Prime Minister and Minister of Finance, Mehmet Simsek, recently announced that work was being done towards updating the Customs Union agreement. Simsek stated that if an updated agreement is put into effect, then trade volume would be increased to 300 billion dollars. Simsek also stated that the update would be a win-win situation for Turkey and pointed out that adopting the necessary structural reforms as soon as possible is very important.

'Customs Union should be fairer'

The Turkish business world has been following the modernization process of the Customs Union very closely and has demanded that the problems Turkish companies are encountering when entering the EU market must be resolved.  The Turkish Enterprise and Business Confederation (TÜRKONFED) has 40 thousand member companies that comprise 83% of Turkey's international trade. TÜRKONFED president, Tarkan Kadooglu, has stated that, "To date, the Customs Union has been more beneficial to the EU than to Turkey. This modernization is a very important opportunity for us to assume a fairer place in the union. If we are careful and patient, we may have an opportunity to increase our current exports to the EU by 50% in a short period of time."

Kadooglu also stated that EU products entering the Turkish market have serious advantages, while Turkish products don't have nearly the same advantages when entering the EU market. "It's time that the Customs Union rules be equal and fair. We need to put aside our recent political crisis with the EU. For us, updating the Customs Union will be a roadmap for the future."

'Turkish transport vehicles must have free roaming rights'

The transport sector is also closely following developments with the Customs Union agreement due to the long-standing problems created by the quota restrictions enforced upon Turkish rigs by EU countries. The International Transport Association (UND) president, Cetin Nuhoglu, has said they have been fighting agreement violations since 2004 with the slogan "Quota Free Europe”. Nuhoglu has explained that Turkish products to the EU, and EU products to Turkey, are restricted by quotas which results in price increases, as well as being slowed down due to transportation. "The EU is being hypocritical. For example, when it is a question of accepting Greek Cypriot ships and airplanes to Turkish ports, the matter is declared to be a free circulation of Customs Union products. But when Turkish transport vehicles are trying to bring products into the EU by land, quotas are placed and free circulation is not even mentioned." UND President, Nuhoglu, also stated that 23 of the 28 EU member countries currently place non tariff fees on Turkish trucks. "Because of highway tariffs, Turkish businesses add costs to the market price of the product. But the Turkish-EU Customs Union agreement has banned quota restrictions, additional restrictions, customs taxes and other fees." If the highway quota restrictions are lifted, Nuhoglu believes that Turkish exports to the EU will increase by 1.9 billion euros and EU exports to Turkey will see an increase of 1.6 billion Euros.

 'We must be included in free trade agreements with third party countries'

Another demand from the Turkish business world concerns trading with third party countries. Turkey's largest, and the world's fifth largest, chamber of commerce is the Istanbul Chamber of Commerce. According to Deputy Chairman, Adnan Dalgakiran, the biggest expectation held by the Turkish business world from the talks, is that Turkey will be included in free trade agreements with third party countries. To date, because of the exclusion, products from the Far East, most notably China, enter Turkey with a 3% tax. But Turkish products are imported with a 30% tax. "This problem must be solved. Also, we're expecting an adjustment in incentive policies from Europe for Turkish companies. Flexibilities must be provided for Turkish company incentives according to the development level of their own companies."