13.01.2021
Only days before the end of 2020, negotiations between the United Kingdom and the European Union finally ended with success, as covered extensively in Western and Turkish media.
There is one aspect of the agreement that concerned Turkey closely, but almost no one took notice of it. Only one expert pointed out that there were lessons to take from this agreement for Turkey, but stopped short of mentioning what specifically these were.
The agreement introduces a new trade regime between the EU and the U.K. EU member Britain was in the Customs Union (CU). In parallel to Brexit, the customs union too was terminated. Now instead a Free Trade Agreement will enter into force.
In the U.K., nobody ever thought of remaining in the CU while leaving the EU.
Turkey should also have signed a free trade agreement with the EU back in 1995, and now, however belatedly, can still draw a lesson from the U.K.-EU deal.
When Turkey signed the CU agreement with the EU in 1995, the public debate mainly centered around two opposing views. The first one supported the agreement, claiming that “Turkey is entering into the CU”, purporting an image as though the country was entering somewhere in Europe. This image was created deliberately to deceive public opinion. The second view objected to the CU, arguing that the Turkish economy could not bear the burden of free competition with Europe. Most supporters of this view were also against the EU.
The promoters of a third view, including myself, whose voice was quite weak at that time, believed that the Turkish economy was sound enough to handle competition with the EU and that would be beneficial for Turkish economy. We also supported the eventual EU membership. However, we proposed a Free Trade Agreement instead of a customs unions agreement, which would pose problems.
Over time, the precise drawbacks we mentioned emerged. Ali Babacan, while he was deputy prime minister responsible for the economy when several years had gone since the signing of the CU agreement, said:
“There is no country other than Turkey which is subject to such regulations… the EU’s free trade agreements with third parties began to damage us. It is reducing our customs duties for third parties while they keep them at the same level for Turkish exports. This is not sustainable.”
Around the same days, Zafer Çağlayan, then minister of economy in charge of foreign trade, spoke in harsher terms:
“The Turkish government of that time made a big mistake by signing the CU agreement…the EU doesn’t take into consideration Turkey in the free trade agreements they make with third parties … the EU should be prudent. We will speak in the language they understand… Let’s break the CU and make a Free Trade Agreement.”
All these complaints about the CU are justified. But we are not entitled to hold the EU responsible for that. Did we not sign the CU agreement, under the leadership of our center right and center left parties, with the enthusiastic support of our Foreign Ministry, with our own free will with insistence and with great joy and celebrations?
The EU is only correctly implementing an agreement, which Turkey happily and joyfully signed.
In my recent book, there are two articles explaining why a CU agreement without membership was wrong. I hope that the excerpts below will contribute to a better understanding of this problem, which even today is not sufficiently appreciated by the public.
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Customs Union with the EU is wrong – a Free Trade Agreement should be made
Customs walls are barriers that reduce the volume of trade between countries. This reduction in trade leads to a decrease in the well-being of consumers on both sides of the wall. The gain from trade liberalization is usually greater than the loss some producers would incur.
Countries make Free Trade Agreements in order to mutually drop customs walls. A CU emerges when countries gathering around a FTA begin to implement a common customs regime against third parties.
However, the only difference between a customs union and a FTA is not the common customs regime against third countries. More important than that, a CU always entails a political unity. Both the European Union and the customs unions before it emerged together with a political unity. Like the German Customs Union in the 19th century.
There are serious drawbacks if Turkey signs a customs unions agreement with the EU without being a part of the political union.
Turkey is not represented in the European Parliament. It is not represented in the Council of Ministers. Turkey is not in the political structures of the EU and does not take place in any of the decision processes. This will not change when a customs unions agreement is signed. However, Turkey will be bound by decisions taken in those boards in which it does not have the right to speak and vote. And its economic relations with third countries will be shaped by those decisions.
No country readily accepts to be bound by decisions taken in political structures in which it is not represented.
Therefore, no country has taken this approach until now. It is really hard to comprehend how our political and foreign policy elites so easily volunteered for such a humiliating position.
When and if the Customs Union Agreement enters in force, Turkey will have to conduct its foreign trade with Japan, Turkic countries in the Central Asia or any other country through rules and regulations decided in rooms where it is not represented.
Elimination of protectionism and an economic model that crushes consumers behind trade walls must be a goal. But the CU is not the right way to go. Turkey should seek the EU membership, but the CU is not the right way to go for that, either.
At first glance, one might think that there is no big difference between a FTA and a Customs Union. There is. Economic policy decisions in a political union are not always taken purely on the basis of economic considerations. Fields such as economic, political, military and cultural ones constitute a whole in foreign relations. Countries in a political union usually carry out their foreign economic relations based on such integrated assessments.
Decisions regarding the CU are taken by authorized boards of that association. It is essential that decisions taken are not contrary to the interests of even a single member state. Otherwise, the unity will not be sustainable. Therefore, unanimity is often required and a single member’s veto is sufficient to drop the decision in question.
For these reasons all customs unions in history have implied a political unity. No sovereign country has ever said “Even if you don’t let me into the decision boards, I promise to comply with all decisions these boards will take as long as you accept me in your customs union.” Except Turkey!
Yes, Turkey should have an open economy. It should integrate with world markets and not hide behind trade walls. A basic prerequisite for Turkish economy to get stronger is openness to international competition and foreign markets.
But these are not the same as the CU. There are healthier ways to achieve an open and competitive economy. A Free Trade Agreement should be made with the EU*.
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*The above excerpts are taken from two articles in my book titled ‘Turkey between Middle East and Europe’ (in Turkish). The articles were first published in Cumhuriyet on Aug. 27, 1994 and Social Demokrat Ufuk magazine’s October 1996 edition, some 25 years ago. Unfortunately, they are still actual and pertinent in the present day Turkey.