Page 29 - bne magazine March 2017 issue

bne March 2017 Companies & Markets I 29
ing an increasing role in bilateral exchanges. But barriers to mar- ket entry are high here. The EU wants Turkey to do away with a 15% subsidy that the government gives to support local compa- nies bidding for public contracts (such as infrastructure and construction), while the Turks complain that their road hauliers still need a work permit to deliver goods in the EU and there are obstacles to the country becoming a hub for medical tour- ism from the EU. Agricultural trade is also not very liberalised: Turkey’s agricultural import tariffs average 42.7% according to WTO data, which is a high level of protectionism. EU agricultural exporters complain about Turkey’s high subsidies and import tariffs, whereas some corners of the EU continue to protect Medi- terranean produce from potential competition from Turkey.
“EU strategists believe that talking trade with Turkey – and not EU accession – could help improve relations and defuse the current political tensions”
Turkey is further deeply frustrated by not being able to shape EU trade policy. As a member of the customs union, Turkey is obliged to apply the EU’s decisions on tariff rates, notably when the EU signs free trade agreements with third countries. But Turkey doesn’t always get a parallel deal with the country that the EU has signed with. On the other side, Turkey has started signing free trade pacts that some in the EU believe hurt the customs union. When the EU launched Transatlantic Trade and Investment Part- nership talks with the US in 2013, matters came to a head.
Keeping channels open
EU strategists believe that talking trade – and not EU acces- sion – with Turkey could help improve relations and defuse the current political tensions. It is a good way of keeping commu- nication channels open at a time when the political dialogue between Ankara and EU capitals remains difficult. It is also, some believe, a way of containing what many think is a recent turn to protectionism by Turkey.
Launching customs union talks would be “first and foremost an economic and trade integration tool” that will have an impact on “governance, rule of law, democracy, and so on”, a senior official from the European Commission involved in the process told a recent private meeting in the European Parlia- ment, according to Borderlex sources.
“The plan is to have an improved and modernised customs union plus an FTA [free trade agreement] – an ambitious FTA in the area of services, agriculture and public procurement,” the EU negotiator said. But this would only happen under the condition that “we manage to succeed in keeping the ‘mission impossible’ to keep the politics as far as possible from these
discussions”, the official added.
Yet member states must be ready to make concessions to Turkey on two main issues if they want to get anywhere in
the upcoming discussions, the official said: they must accept including Turkey in some way in their decision-making pro- cesses on trade, and accept their lorry drivers on EU roads. “Closer association into the decision-shaping mechanisms of trade policy” is what the senior official termed a “bottom line”. “This implies Turkish participation in a number of working groups, committees, linked to the implementation of the cus- toms union and trade policy”, the official said. This would be “as observer” only, given that Turkey is not an EU member.
The official also insisted that the EU needs to go some way toward meeting Turkish requests over road transport. “We must get member states to make an effort there,” he said.
EU member states continue to require work permits for Turk- ish lorry drivers driving EU member state-registered lorries from companies located in Turkey, yet the European Court
of Justice has ruled that such moves are illegal. “If we do not manage to accommodate at least these two Turkish requests, it will be very hard to negotiate,” the official said.
The EU in return wants to see signs that Turkey is keeping a lid on any protectionist tendencies: “the bottom line for Turkey is structural reforms”, the official insisted.
Cyprus – a divided island of Greek and Turkish halves, with the former a member of the EU – is another potential stumbling block to the launch of customs union upgrade talks. Cyprus remains highly sceptical of the move, though is not expected to be in a position to block the launch of any customs union talks. “Tur- key refuses to implement the existing EU-Turkey Customs Union Agreement vis-à-vis the Republic of Cyprus and practically blocks trade with Cyprus,” a Cypriot government source complains.
“Trade restrictions imposed by Turkey – including restrictions for Cypriot vessels, vessels of any nationality related to the Republic of Cyprus in terms of ownership or ship management, and vessels having landed in Cypriot ports and airports – result in serious trade and economic losses for Cyprus and violate not only Turkey’s obligations towards the European Union, but relevant WTO principles as well,” the source argues.
The current thaw in relations with Turkey, as well as hopes for a deal to resolve the Cyprus issue this year, could help unblock the above situation.
The European Parliament’s trade committee is currently preparing a report on the customs union modernisation plans. The committee appears inclined to broadly endorse the move, but will insist on conditions in the area of socio-economic human rights. The Commission has already signalled a labour and environmental chapter – on ‘sustainable develoment’ – will have to be included in any planned new agreement.
Iana Dreyer is Founder and Editor of Borderlex
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