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EU Turkey customs union upgrade conversation begins amidst CBAM concerns

Brussels and Ankara are sitting down for two days on Thursday and Friday (8 & 9 July) for the annual meeting of their 1995 EU Turkey customs union joint committee. Among others, they will re-start a conversation on modernising their trade arrangements.

Political and trade relations between the European Union and Turkey have been rocky in recent years – to say the least.  There was no joint committee meeting in 2020, presumably due to the prevailing pandemic circumstances. This year’s two-day agenda is accordingly packed with a very long list of discussion points.

“The Customs Union Modernisation Process” is one such agenda points. Earlier this spring, the Council gave the green light to re-igniting a conversation about an upgrade to the current EU-Turkey customs union. Discussions about this matter were launched in the wake of transatlantic trade talks under TTIP but ground to a halt, not least over issues related to Cyprus.

Reviving modernisation talks is seen in Brussels as a way of engaging in a constructive ‘positive agenda’ with Turkey that could help improve relations over time.

The European Commission is now drawing up a negotiation mandate for member states to greenlight. The update could, if successful, improve dispute settlement procedures, strengthen communication channels and involve Turkey more closely in some decision-making processes. It would also include new rules on a range of matters including agriculture trade, services, digital, customs procedures, intellectual property, public procurement and cross-border movement of professionals.

The EU is increasingly concerned about Turkish divergence from the EU’s tariff policies for industrial goods. Turkey for its part is increasingly uncomfortable with a trade arrangement that reduces trade friction at the border because a customs union does not require complying with origin rules but constrains the country’s sovereignty significantly at a time when membership of the EU is becoming increasingly unlikely.

Turkish dis-alignment

Brussels says Turkey is not aligning with the EU’s General System of Preferences and that it is applying “diverging additional customs duties by Turkey on imports of third country origin”.

Turkey has had a few items put on the agenda in response such as “Turkey’s difficulties stemming from the difference of the Customs Union parties’ FTAs” and “Turkey’s participation to the EU’s decision-making and consultation mechanisms”.

The two sides also need to follow up on the UK’s departure from the customs union and the Turkish-British switch to a free trade agreement arrangement in the early days of 2021.

Turkey is on the receiving end of the latest EU protectionist or protective moves – depending on the point of view. Ankara has sued the EU in the WTO over its import safeguards on steel introduced in 2018 and prolonged this month for another three years. Its steel exports have been frequent targets of the EU’s latest anti-dumping policies.

Ankara is also very concerned over the EU’s plans to tax imports of steel and cement as part of its carbon border adjustment plans to be unveiled next week. These products are a major export for the country. With Turkey strongly reliant on coal and gas for its energy needs and being the only G20 country not having ratified the Paris Agreement on climate change, EU border levies on Turkish firms to have them pay the same carbon price as EU firms in the sector appear inevitable.

The EU will want to entice Turkey to join the Paris agreement but has agreed to have a ‘dialogue’ with Turkey on CBAM. An exchange on the “European Green Deal, including EU Carbon Border Adjustment Mechanism” is on the meeting’s agenda.

The meeting will most likely not resolve any issue but rather be a first opportunity to sit at the table after two turbulent years for the relationship.

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