DExEU No Deal Brexit Readiness Report October 2019
LLM Dissertation
1. 1
A Journey from the Ankara Agreement 1963 to the Customs
Union 1995; where does the relationship stands today?
An Analysis of the EU-Turkey Free Trade Agreement
By
Bushra Malik
Supervisor: Dr. Richard Lang
January 2015
A thesis submitted for the degree of Masters of Laws in the
International Commercial Law at the University of Bedfordshire
2. 2
Declaration:
I hereby certify that the work embodied in this thesis is the result of my
own investigations except where reference has been made to publish
literature.
I declare that this work has not already been accepted in substance, nor
is it currently being published in candidature for any other degree.
Signature: BUSHRAMALIK DATE: 30.01.2015
3. 3
Acknowledgments:
I would like to thank the United Kingdom for providing me the opportunity to pursue
advanced education at the University Of Bedfordshire Postgraduate School Of Law.
I would like to thank my Supervisor, Dr. Richard Lang for his invaluable guidance during
the writing of this thesis. This study could never have been completed without his precious
contributions and reviews. I would also like to thank my supervisor for his kind understanding and
comments.
I am also highly obliged to all the members of “the library gang” for their support and
friendship.
Finally, my special thanks go to my family for their outstanding support during my
education at the Postgraduate School, as in every stage of my life.
4. 4
Table of Contents
TREATIES………………………………………………………………………………………..…...…6
REGULATIONS………………………………………………………………………………………...6
DIRECTIVES……………………………………………………………………………………………6
DECISIONS……………………………………………………………………………………………..6
PROTOCOLS…………………………………………………………………………………6
1. INTRODUCTION…………………………………………………………………………...9
1.1.LITERATURE REVIEW ………………………………………………………………...…10
1.2.RESEARCH QUESTION………………………….………………...……...………………12
1.3. METHODOLOGY……………………………………………………………………….…13
2. INTERNATIONAL TRADE THEORIES…………………………….…………………14
2.1. INTERNATIONAL TRADE THEORIES…………………………………………………14
2.1.1. NEOCLASSICAL THEORIES…………………………..……………………………….14
2.1.2 THE FACTOR PROPORTIONS, HECKSCHER-OHLIN THEORY OF TRADE…..….14
2.2. CONTEMPORAY TRADE THEORIES………………………………………..………..15
2.2.1. DISTINGUISHING BETWEEN VERTICAL AND HORIZONTAL INTRA-
INDUSTRY TRADE: ………………………………………………………………………….16
a. HORIZONTALY DIFFERENCIATED GOODS………………………………………….....17
b. VERTICALLY DIFFERENTIATED GOODS……………………………………………….17
3. THE ESTABLISHMENT OF A FREE TRADE AGREEMENT BETWEEN THE
EUROPEON UNION AND TURKEY………………………….……………………………..19
3.1. THE ANKARA AGREEMENT……………….……………………………………………19
3.2. AN ANALYSIS OF THE ANKARA AGREEMENT………….………………………….20
4. THE FIRST ACHIEVMENT; CUSTOMS UNION AGREEMENT 1995………………24
4.1 THE CUSTOMS UNION 1995…………………………..……………………………….24
4.2. TURKEY’S LEGISLATIVE REFORMS RELATED TO THE CUSTOMS UNION…….25
4.3. IMPACTS OF THE CUSTOMS UNION ON THE TURKISH ECONOMY………….....26
4.3.1. TRADE CREATION EFFECTS………………………………………………………….27
4.3.2. DYNAMIC EFFECTS OF TURKISH ECONOMY…………………….………………..29
5. THE CONTROVERSIAL ASPECTS OF THE EU-TURKEY FREE TRADE
AGREEMENT………………………………………………………………………………31
5.1. THE NEGATIVE IMPACT OF EU’s NEW FREE TRADE AGREEMENTS TURKISH
EXTERNALITIES……………………………………………………………………………….31
5.2. VISA CONCERNS………………………………………………………………………….34
5. 5
6 THE JUDICIAL RESPONSE OF THE ECJ TO THE EU-TURKEY FREE TRADE
AGREEMENT…………………………………………………………………………………36
6.1. AN ANALYSIS OF THE ECJ CASE LAW ON TURKISH IMMIGRANTS:……………36
6.2. LEGAL INTEGRATION FOR THE EMPLOYMENT PURPOSES:…………….……….38
6.3. LEGAL EMPLOYMENT…………………………………………………………………..39
6.4. STANDSTILL CLAUSES……………………………………………………………….…42
7 ANALYSIS; IS THERE A FUTURE FOR THE EU-TURKEY FREE TRADE
AGREEMENT?..........................................................................................................................44
7.1. DEEPENING THE CUSTOMS UNION (External trade policy):…………………………44
7.2. TRADE POLICY LOOPHOLES UNDER THE CUSTOMS UNION……………………..45
8. CONCLUSION AND KEY RECOMMENDATIONS:…………………………………...49
BIBLIOGRAPHY…………………………………………………………………..………….54
6. 6
List of Treaties, Regulations, Directives, Decisions and Protocols:
Treaties:
The European Commission Treaty
The Treaty of Rome
Treaty of Ankara1963
Customs Union 1995
Regulations:
Regulation 1612/68
Regulation 1251/70
CLP Regulation
Directives:
Directive 75/363
Directives 68/360/EC
Directive 73/148/EC
Directive 75/34
Decisions:
Decision 2/76 of the Association Council
Decision 1/80 of the Association Council
Decision 3/80 of the Association Council
Decision 1/95 of the Association Council
Protocols:
The Additional Protocol 1970
7. 7
List of Tables, Graphs and Boxes:
Table 1 EU Share of Turkish Imports and Exports (USD Million)…………………………..26
Graph 1 Turkey Imports/Exports (USD Million)……………………………………………..28
Graph 2 GDP Growth Rate of Turkey (%)……………………………………………………30
Box 1 Important Dates in the History of EU-Turkey Free Trade Agreement …....................26
8. 8
List of Frequently Used Acronyms and Abbreviations
AFT Andean Free Trade Agreement
CU Customs Union
C/L Capital and Labour
CJEC Court of Justice of the European Communities
CCT Common Customs Tariff
CCC Community Customs Code
CLP Classification, Labelling and Packaging
CET Common External Tariff
DSM Dispute Settlement Mechanism
ECJ European Court of Justice
EU European Union
EC European Commission
EFTA European Free Trade Association
EEC European Economic Community
FDI Foreign Direct Investment
FTA Free Trade Agreement
GDP Gross Domestic Products
GSP Generalised System of Preferences
GATT General Agreement on Tariffs and Trade
HIIT Horizontal Intra Industry Trade
MFTA Mercosur Free Trade Agreement
OLS Ordinary Least Squares
ROOs Rules of Origin
SPS Sanitary and Phytosanitary
TTIP Transatlantic Trade and Investment Partnership
TCA Turkish Customs Administration
TDI Trade Defence Instruments
UV Unit Values
USD United States Dollars
VIIT Vertical Intra Industry Trade
WTO World Trade Organization
ESI European Stability Initiative
9. 9
I. INTRODUCTION
Following the end of World War II, the global economy entered a phase of rapid growth and
international output increased dramatically. This phenomenon is generally attributed to an increase in
global trade1
. However, the dramatic rise in world trade was actually caused by global specialisation
between international nations. This trend has had an influence on many global economies, most
notably in the manufacturing industry. The dramatic rise in world trade was facilitated by the
elimination of trade barriers following the implementation of the GATT (General Agreement on
Tariffs and Trade) and the establishment of regional trading agreements, namely the Mercosur and
Andean Free Trade Agreement (MFTA, AFTA), the European Union (EU) Agreement and the North
America Free Trade Agreement2
. In the EU, this agreement has called for greater cooperation in terms
of production systems between member states and the foundation of a single market in 1993 means
that all trade barriers in the region have been abolished. As a result, people and commodities can now
travel easily between nations as the EU plays a more dominant role on the global market.
During the 1980s, Turkey began to implement a liberalisation strategy based on exportation policies
as they adopted an export-led development approach. The relationship between Turkey and the EU
was further developed from 1996 as the foundation of the Customs Union (CU) had a significant
effect on the Turkish economy. This agreement was implemented in January of that year and
facilitated Turkey’s integration into the EU market, a monumental event in terms of Turkish foreign
trade as they were assimilated into a market with a purchasing power that was considerably higher
than their own. This also marked a significant step toward trade liberalisation in Turkey. On account
of the CU between the EU and Turkey, the level of trade exchanged between Turkey and member
states has increased dramatically. According to Doganer Gonel3
, the CU agreement led Turkey to
become the only non-member state that had been strongly assimilated into the economic framework
of the EU. In terms of exportation industries, the country has experienced a decline in the exportation
of agricultural commodities. However, in contrast, the manufacturing industry has experienced a
considerable increase in exports based on data between 1990 and 2010 as the industry acquired an
84.7% share of total exports, an increase on the 67.7% share that was recorded in 2004. Thus, the
1
Gulcin Elif Yucel and Serkan DegirMenci, “Does Integration with EU Customs Union Matter for Intra-Industry Trade of
Turkey?” Istambul Technical University, p.2
http://www.etsg.org/ETSG2011/Papers/Yucel.pdf (Accessed 30/10/2014)
2
Janisch, Vildan. “An Assessment of Trade Policy in the European Union: The Case of Steel” PhD diss.,
North eastern University, 1997 Boston, MA
http://iris.lib.neu.edu/econ_theses/1/ (Accessed 31/10/2014)
3
Ibid
10. 10
manufacturing industry has entered a phase of rapid growth in Turkey based on export data from the
past seven years.4
Nonetheless, it must be acknowledged that the long-term feasibility of the CU has been called into
question as well as its benefits on trade between Turkey and EU member states. Generally speaking,
the longevity of the CU is subject to doubt on account of dramatic changes to the global landscape
with many theorists claiming that the CU is no longer capable of responding to new challenges in
trade integration. In addition, a revision of the CU would be difficult to achieve as Turkey and the EU
have different perspectives on its purpose and there have also been several complaints and unresolved
issues in regards to the CU since it was implemented.
Aside from these issues, there are also legal considerations to take into account, particularly in terms
of the Ankara Agreement that was implemented in 1963. For example, the free movement of people
and services permitted by the agreement has been subject to debate. Furthermore, it is also necessary
to consider the implications of the CU, an agreement that eliminated trade tariffs and trade barriers, in
terms of its legal implications as there has been extensive debate regarding its legal effects.
As the future of the CU is in doubt, it is necessary to analyse the long-term implications of the
agreement on both parties and recommend ways in which the CU could be improved. In addition, it is
important to formulate new strategies that will increase the level of free trade between Turkey and EU
member states in order to encourage other Middle Eastern nations to establish similar trade
agreements with the European Union.
Literature Review
In terms of the prevailing academic attitude toward the significance of FTAs, the majority agree that
they are necessary to increase export and production levels, now and in the medium-term future.5
Nonetheless, an increase in exports may not necessarily prompt a similar rise in production levels;
thus, the implementation of further policies may circumvent some of the adverse implications of
FTAs, particularly in terms of competitive sectors that are exposed to a higher degree of international
market competition.6
In the immediate future, the factor used to determine the advantages of FTA is
4
Seymen and Bilici, 2009.
5
Ali AYBEY, “Turkey and The European Union Relations: A Historical Assessment” (Cilt: 4, No: 1 (Güz: 2004), s. 19-38)
http://dergiler.ankara.edu.tr/dergiler/16/1121/13201.pdf (Accessed 01/11/2014)
6
Amanda Akçakoca, “EU-Turkey relations 43 years on: train crash or temporary derailment? EPC Issue Paper No.50”
(November 2006)
http://www.epc.eu/documents/uploads/230573719_EPC%20Issue%20Paper%2050%20-%20EU-Turkey%20relations.pdf
(Accessed 03/11/2014)
11. 11
welfare, namely the level of production specialisation practiced by the country, fluctuations in trade
terms and prices and fluctuations in tax revenues and tax policies.7
Aside from welfare considerations, there are also a range of dynamic benefits for countries that enter
into trade agreements. For instance, countries can attract a higher level of foreign direct investment,
can increase access to high-tech capital products and can improve the level of competition on the
domestic market on account of unlimited trade policies.8
From this perspective, there has been a wealth of literature composed on the subject of the EU-Turkey
Free Trade Agreement and some believe that the implementation of the Ankara Agreement (1963)
was the first step toward Turkey securing full membership status in the EEC. In effect, the CU was
originally viewed as an intermediate strategy that would facilitate complete integration into the EEC
over time.9
Furthermore, as posited by the Diplomacy and Foreign Affairs Blog, the parameters of the
CU were set in light of the Ankara Agreement (1963) with the Additional Protocol, which was
implemented in 1973, delineating the specifications.
Many theorists10
believe that Turkey intended to establish a closer relationship with the EU when they
accepted the CU agreement as Turkey has been keen to acquire EU membership since the European
Economic Community was first established. In other words, by entering into the CU agreement,
Turkey sought to increase trade and economic integration with the EEC in order to further their
accession into the EU and become accepted as a full-time member. However, although this was
Turkey’s intention from the beginning, the Turkish government could not have known that they would
still not have been accepted into the EU by 2013.
Based on statistical data and economic records11
, the implementation of the CU has stimulated a rise
in trade between Turkey and members of the EU. In the following five years, Turkish exports to the
EU rose by 24.6% and based on figures derived from 2012; Turkish exports to EU member states
were valued at 46 million or 29.3% of all products exported from Turkey. In terms of import levels,
Turkey imported 68.1 million worth of products from the EU, a figure that accounts for 33.7% of total
7
Presidency Conclusions of the Brussels European Council (16/17 December, 2004).
http://ec.europa.eu/enlargement/pdf/turkey/presidency_conclusions16_17_12_04_en.pdf (Accessed 04/11/2014)
8
Vincent Morelli, “European Union Enlargement: A Status Report on Turkey’s Accession Negotiations”, (September 9,
2011)
http://fpc.state.gov/documents/organization/174199.pdf (Accessed 04/11/2014)
9
Issues arising from Turkish membership perspective, SEC (2004) 1202, October 2004
http://ec.europa.eu/enlargement/archives/pdf/key_documents/2004/issues_paper_en.pdf (Accessed 04/11/2014)
10
Euractiv, ‘The EU-25's view of Turkey's membership bid’, 17 December 2004.
http://www.euractiv.com/enlargement/eu-25s-view-turkeys-membership-b-linksdossier-188320 (Accessed 05/11/2014)
11
World Bank, “Evaluation of the EU-TURKEY Customs Union” Report No. 85830-TR, March 28, 2014
http://www.worldbank.org/content/dam/Worldbank/document/eca/turkey/tr-eu-customs-union-eng.pdf (Accessed
08/11/2014)
12. 12
imports into the country. Nonetheless, others claim12
that the benefits of the CU for both Turkey and
the EU are outweighed by the negative effects of the agreement, namely the increase in FTAs being
established between the EU and third countries. As difficulties were encountered during trade
liberalisation at a multilateral level, the EU has instead begun to prioritise bilateral and regional FTAs.
Based on these dissenting views on the CU agreement, many academics13
have proposed ways to
enhance the trade agreement between the EU and Turkey with many believing that a higher level of
integration is required for the benefit of both parties. However, it is unclear whether this should be
achieved through the revision of the existing policy or through complete accession of Turkey into the
EU. Conversely, others believe that it is necessary to stabilise the common commercial policy by
formulating regimented frameworks for negotiation and dialogue between the EU and Turkey.14
In
addition, it has also been suggested that Turkey be permitted to enter the EU single market under
similar conditions to other EU member states.15
Research Questions
This study seeks a solution to the following research questions:
1. Did the Free Trade Agreement (1963) and the Customs Union Agreement (1995) have a
positive impact on both parties during the first few years following its implementation?
2. What trade barriers remain between both parties and are there any ways in which the current
trade agreement could be revised or improved?
To address these research questions, this study will be divided into eight chapters, the first of which
presents an introduction to the research topic and the second of which offers an overview of
theoretical knowledge on the topic including references to classical and contemporary hypotheses on
FTAs. These theoretical insights will be considered in light of trade activities between Turkey and the
EU.
The third chapter presents an analysis of the existing free trade agreement between Turkey and the EU
and will investigate the origins of a trade agreement between these nations throughout history and the
eventual implementation of the Ankara Agreement (1663). In addition, this chapter outlines the
primary objectives of the agreement and explores problems that have arisen on account of its
implementation and the subsequent need for the Additional Protocol (1980). In particular, however,
12
K. Dervis, D. Gros, F. Oztrak and Y. Isik, Turkey and the European Budget. Prospects and Issues EU-Turkey CEPS
Working Paper No. 6, 2004 http://aei.pitt.edu/6760/1/1148_06.pdf (Accessed 08/11/2014)
13
Issues arising from Turkish membership perspective, SEC (2004) 1202, October 2004
http://ec.europa.eu/enlargement/archives/pdf/key_documents/2004/issues_paper_en.pdf (Accessed 08/11/2014)
14
K. Dervis, D. Gros, F. Oztrak and Y. Isik, “Turkey and the European Budget; Prospects and Issues” EU-Turkey CEPS
Working Paper No. 6, 2004.
http://aei.pitt.edu/6760/1/1148_06.pdf (Accessed 08/11/2014)
15
Ibid.
13. 13
this chapter analyses the beneficial aspects of the free trade agreement that was established between
Turkey and the EU.
The fourth chapter explores events that took place following the Ankara Agreement, namely the
establishment of the Customs Union. In particular, this section analyses the implications of the CU in
terms of its effect on free trade now and when it was first implemented. This section also places
particular emphasis on the economic advantages of the CU for both parties.
The fifth chapter considers the arguments for and against the Ankara Agreement and the Customs
Union and investigates legal ambiguities in the agreements and how they may be misinterpreted as
having a negative effect on trade activities between the EU and Turkey.
The sixth chapter considers the influence of the FTAs from a general perspective and critically
analyses the current free trade relationship between both parties. In addition, this chapter investigates
the feasibility of these agreements from a legal perspective.
The seventh chapter considers the future of free trade between both states and makes a series of
predictions based on the factors that have been addressed in the previous chapters. In particular, this
chapter will argue whether or not the CU will continue to have a beneficial effect on free trade levels
or whether flaws in the agreement will have an adverse effect on EU and Turkish trade levels in the
coming years.
The final chapter, chapter 8, provides a summary of the research findings and provides a number of
recommendations on how trade relations between the EU and Turkey could be strengthened.
Methodology
This study is performed using secondary and primary research data with the majority of research
information being derived from literary or online sources. In addition, this study consults research
reports, case studies, legal documents and conventions.
14. 14
II. OVERVIEW OF THE INTERNATIONAL
TRADE THEORIES
1. International Trade Theories
There have been many international trade theories proposed over the past centuries, including those
promulgated by Adam Smith16
and David Ricardo17
, and the majority of these are designed to explore
the factors that prompt nations to enter into trade agreements with other states. The aforementioned
authors, Smith and Ricardo, perceived international trade in a primarily positive light in terms of its
financial and welfare benefits.
2. Neoclassical Trade Theories
There was no consensus established by classical trade theorists as they failed to rationalise why
relative efficiencies and comparative costs must fluctuate from country to country. Thus, neoclassical
theorists were required to address the shortcomings of classical hypotheses.
a. The Factor Proportions – The Heckscher-Ohlin Theory of
Trade
There were two Swedish economists, Heckscher and Ohlin, that attempted to explain the necessity of
trade agreements during the early 20th
century and the factor proportion theory was proposed as a
revision and expansion of the hypotheses promulgated by Ricardo.18
These authors considered
variations between countries based on labour and capital resources and the proportion of these
resources that were required in each country to manufacture different products. The outcome of this
study asserted that variations in different factors caused variations in production costs. Thus, for the
purposes of this study, the two most fundamental factors are capital and labour (C/L) as the size of
nations has little impact on the level of trade activity. The authors used this model to explain how
different nations would excel in the trade of their most copious resources and would export a high
16
H. Myint, “Adam Smith's Theory of International Trade in the Perspective of Economic Development”, Economica New
Series, Vol. 44, No. 175 (Aug., 1977)
http://www.jstor.org/discover/10.2307/2553648?sid=21105717309343&uid=3739256&uid=4&uid=2 (Accessed
15/11/2014)
17
David Ricardo, Theory of Free International Trade, Economic Insights, Federal Reserve Bank of Dallas Volume 9,
Number 2
https://www.dallasfed.org/assets/documents/research/ei/ei0402.pdf (Accessed 16/11/14)
18
. W. Jones, “Factor Proportions and the Heckscher-Ohlin Theorem”, The Review of Economic Studies Vol. 24, No. 1
(1956 - 1957)
http://www.jstor.org/stable/2296232 (Accessed 16/11/14)
15. 15
level of products manufactured using these resources. Conversely, countries are more likely to import
products, which they lack the resources to produce.19
Based on the situation between Turkey and the EU, it is assumed that the labour-capital ratio is
considerably lower in Turkey, which means that Turkey can take advantage by manufacturing
products that need an abundance of labour resources. However, as the EU has a higher capital-labour
ratio, they can manufacture a much higher level of capital-intensive products. In effect, this theoretical
approach posits that Turkey must import capital-intensive products and export labour intensive
products.
However, the Heckscher-Ohlin theory is subject to limitations in that it fails to address trade activity
between two first world countries that have similar capital-labour ratios. Nonetheless, it is an effective
theory for explaining the nature of trade practiced between Turkey and the EU as Turkey is a
developing country.
3. Contemporary Trade Theories
During the 1980s, emerging trade theories proposed two forms of trade practiced between different
nations, namely inter-industry trade and intra-industry trade.20
The nature of inter-industry trade had
already been addressed by neoclassical theorists as it was referred to as the exchange of commodities
from different industries between two nations on the basis of each nation’s competitive advantage. In
effect, this represents trade specialisation, which is generally referred to as inter-industry
specialisation.21
Nonetheless, a high proportion of global trade is in products that are manufactured by both countries
in the same industry, which implies that specialisation can occur on a more advanced level where
certain countries specialise in the production of particular products from a particular industry and
import other products from the same industry that they do not specialise in. This practice is referred to
as intra-industry specialisation.22
Classical theorists assumed that competition between different nations was perfect. Thus, they failed
to acknowledge the existence of intra-industry specialisation. Perfect competition is defined as a
situation where there are multitudes of sellers of a particular product, all of whom are price-takers and
19
Ibid.
20
John Dudovskiy, “Inter-industry and intra-industry trade Heckscher-Ohlin Model”, (2012)
http://research-methodology.net/inter-industry-intra-industry-trade-heckscher-ohlin-model/ (Accessed 16/11/14)
21
Bernardina Algieri, Salla Ankkuriniemi, Laura Zampieri, Institut für Weltwirtschaft, “Inter-Industry Specialization Vs.
Intra-industry Trade: A Regional Approach; Volume 353 of Kiel Advanced Studies working papers”, Inst. of World
Economics, (2000) https://www.econbiz.de/Record/inter-industry-specialisation-vs-intra-industry-trade-a-regional-approach-
algieri-bernardina/10001456532 (Accessed 17/11/2014)
22
Ibid
16. 16
all products of which are exactly the same from the perspective of the consumer. However, more
recent theories highlight the existence of imperfect competition and economies of scale as data over
the past twenty years indicates that countries with similar capital-labour ratios engage in trade more
often than those with different capital-labour ratios.23
a. Differences between Vertical and Horizontal Intra-Industry
Trade
The trade of commodities from the same industry can represent Vertical Intra-Industry Trade (VIIT)
or Horizontal Intra-Industry Trade (HIIT). However, the G-L Index fails to differentiate between
them. Horizontal Intra-Industry Trade (HIIT) can be positively correlated with diversity in product
attributes while vertical intra-industry is characterised by different varieties of product providing
varying levels of service.24
It is necessary to differentiate between them as varying national and industry-based attributes are
often connected to both types of products. For instance, horizontal IIT is determined by industry-
based variables, including economies of scale, product distinction and oligopolistic market structures.
However, HIIT and VIIT can be characterised by country-specific variables by comparing per capita
income levels, market size, transportation costs, development grade, economic activity and the level
of foreign direct investment (FDI).25
A study was performed by Greenaway, Hine and Milner26
to determine how to differentiate between
HIIIT and VIIT. The authors discovered that differences in quality level of imports and exports can be
used, attributes that are calculated using export and import unit values (UV) per tonne. This technique
operates on the assumption that the difference between the UV of imports and exports for all products
will explain the qualitative differences between the commodities imported and exported between two
economic states. The authors justify the use of UV as a measure of quality as products sold at a higher
cost are assumed to be of greater quality than similar products sold at a more cost-effective price. This
theory operates on the assumption that all information is perfect but Stiglitz27
argues that even without
perfect information, the price of products can generally be considered indicative of their level of
quality. Thus, the use of UV as a measure of quality is a rational approach.
23
Ibid.
24
Lionel Fontagne, Michael Freudenberg & Guillaume Gaulier, “Disentangling Horizontal and Vertical Intra-Industry
Trade”, (2005)
http://www.cepii.fr/pdf_pub/wp/2005/wp2005-10.pdf (Accessed 17/11/2014)
25
Ibid
26
David Greenaway and Chris Milner, “What Have We Learned from a Generation’s Research on Intra-Industry Trade?”,
Research Paper 2003/44
http://www.nottingham.ac.uk/gep/documents/papers/2003/03-44.pdf (Accessed 18/11/2014)
27
Ibid. P.6-7
17. 17
Horizontally Differentiated Goods
According to Dixit Stiglitz and Lancaster28
, there are other theoretical approaches to horizontal
differentiation including the ‘love variety approach’ and the ‘favourite variety’ method. The IIT
models promulgated by Krugman and Lancaster29
integrated both of these methods.
Lancaster30
believes that every customer has a predetermined product preference. Thus, intra-industry
trade in differentiated commodities is advantageous as it provides a more diverse range of products on
the market and allows consumers to choose the product that best suits their requirements. Dixit and
Stiglitz31
advocate the love variety approach and this is based on the assumption that consumers desire
access to a diverse range of different products as opposed to a diverse range of similar products; thus,
there should be a similar number of producers and product varieties.
These two approaches illustrate how horizontal IIT is strongly influenced by variations in preference
and price differentials. Thus, countries with very similar factor endowments are likely to have a
higher level of HIIT.
Similarly, Helpman and Krugman32
explore the interaction of intra-industry and inter-industry trade
by taking variations in factor endowments into consideration. This approach assumes that countries
with a high level of capital resources are more likely to export capital-intensive horizontally
differentiated products while countries with a high degree of labour resources are likely to export
labour-intensive goods with minimal differentiation as well as a small amount of differentiated
products. In effect, inter-industry trade is influenced by relative factor endowments and IIT is
influenced by variations in relative factor endowments. Thus, as the differences between factor
endowments increase, the level of differentiated commodities exported decreases.
Vertically Differentiated Goods
The most prominent VIIT theory is the one promulgated by Falvey33
, a theory which explains vertical
differentiation in terms of quality variations between similar goods.
28
Claudiu Tunea, Trade with Horizontally and Vertically Differentiated Goods, (December 17th 2007)
http://economics.ca/2008/papers/0283.pdf (Accessed 18/11/14)
29
Ibid.
30
John Beath, Yannis Katsoulaco, ‘The Economic Theory of Product Differentiation’ (CUP1991).
31
Ibid.
32
Carsten Ecke, “Market Integration and Market Concentration in Horizontally Differentiated Industries”, (2001),
http://www.researchgate.net/publication/4886414_Market_Integration_and_Market_Concentration_in_Horizontally_Differe
ntiated_Industries (Accessed 18/11/2014)
33
Bruno Henrey De Frahan and Joe Tharakan, “Horizontal and Vertical Intra Industry trade in the Processed Food Sector”,
(1998), p2-13
http://ageconsearch.umn.edu/bitstream/20903/1/spfrah01.pdf (Accessed 19/11/2014)
18. 18
Falvey discovered that vertical IIT could be understood using a basic 2x2x2 system. Vertical IIT can
be understood in a similar way to the conventional endowment-based approach.34
To justify this,
Falvey presents a case whereby two nations have varying capital-labour ratios with a greater level of
product differentiation being achieved using capital-intensive methods. Thus, more affluent countries
generally specialise in the production of higher quality commodities while less affluent countries
generally specialise in the manufacture of goods of lesser quality.
This hypothesis was substantiated by Falvey and Kierzkowski35
who analysed the theory of VIIT
based on the level of product demand. In other words, although consumers may have similar
requirements, their income levels vary widely. Thus, income level is an influencing factor of demand
as those in a lower income bracket will be satisfied by lower quality products while those in a higher
income bracket will demand goods of a higher quality. Based on this approach, VIIT occurs as
differentiated products are manufactured in a single country while being distributed and consumed in
many countries.
Therefore, based on the hypotheses of Falvey and Kierzkowski, VIIT could feasibly be established
between Turkey and the EU as Turkey could manufacture labour-intensive commodities for the
foreign market while importing similar capital-intensive commodities that are of greater quality from
more affluent nations in the EU.
34
Keereman, Filip, Szekely, Istvan (Eds.), “Five Years of an Enlarged EU; A Positive Sum Game, (2010) Spriger
file:///Users/admin/Downloads/KC3008702ENC_002%20(1).pdf (Accessed 19/11/2014)
35
Imre Ferto, L J Hubbard, “Intra-Industry Trade in Horizontally and Vertically Differentiated Agri-Food Products between
Hungary and the EU”, (2002)
http://ageconsearch.umn.edu/bitstream/24884/1/cp02im16.pdf (Accessed 19/11/14)
19. 19
III. THE ESTABLISHMENT OF A FREE
TRADE AGREEMENT BETWEEN THE
EUROPEAN UNION AND TURKEY
1. The Ankara Agreement
Turkey is a part of Europe…one day the final step is to be taken: Turkey is to be full
member of the Community. This wish, and the fact that it is shared by us and our Turkish
friends alike, is the strongest expression of our community of interest.36
On September 1st
1963, Turkey entered into an association agreement with the EU with the intention
of securing membership through the implementation of a customs union that would eventually lead to
the complete assimilation of Turkey into the European Union. Between 1959 and 1963, issues were
encountered when Turkey was taken over by the military on May 27th
1960. As a result, the country
had no government structure for a year and a half. Nonetheless, the agreement was implemented by
both parties in 1963 as the relationship between Turkey and the EU was recognised on an official
level.
The Ankara Agreement, as a sui generis treaty, reflects the formal legalisation of the relationship
between both parties and represents a trade agreement between Turkey and the EU as opposed to an
admission treaty.37
The agreement’s motive is enlisted at its second article as;
“The aim of this Agreement is to promote the continuous and balanced strengthening of
trade and economic relations between the Parties, while taking full account of the need to
ensure and accelerated development of the Turkish economy and to improve the level of
employment and the living conditions of Turkish people”38
Furthermore, it is also important to note that it was a mixed agreement in that three different
organisations were formed as a result, namely the Association Council, the Association Committee
and the Joint Parliamentary Assembly. The council was formed to oversee the implementation of the
36
Walter Hallstein quoted in Christopher Brewin, “Association Status and the Path to Membership,” in Turkey and the
European Union: 2004 and Beyond, ed. Armand Clesse and Seyfi Taşhan, (Amsterdam: Dutch University Press, 2004), 157
37
For the full text of the Ankara Agreement please visit http://www.mfa.gov.tr/grupa/ad/ adc/mfa303.htm (Accessed
19/22/2014)
38
Ankara Agreement [1963] OJ C113/1
20. 20
FTA while the other two bodies were formed to satisfy the necessary provisions of the agreement. In a
sense, the committee and the assembly are consultative bodies while the council is regulatory. 39
The Association Council is responsible for all decision-making activities in relation to the goals of the
Ankara Agreement and is also responsible for the resolution of any issues that arise between both
parties. If a resolution cannot be reached, the case is sent to the Court of Justice of the European
Communities (CJEC). This council holds meetings alongside Ministers of Foreign Affairs and all
decisions made must be unanimous.
1.2 Analysis of the Ankara Agreement
As stated in Article 2 (3), this agreement is comprised of three stages, including an initial introductory
stage, a phase of transition and a final stage where the assimilation of Turkey and the EU would be
complete. The aim of the agreement is to gradually establish more integrated links between Turkey
and the EC so that Turkey can finally acquire membership status. This is clearly delineated in Article
28 of the Ankara Agreement, which states that:
“As soon as the operation of this Agreement has advanced far enough to justify
envisaging full acceptance by Turkey of the obligations arising out of the Treaty
establishing the Community, the Contracting Parties shall examine the possibility of the
accession of Turkey to the Community".40
Furthermore, this agreement prompted the foundation of the Council of Association, a group that is
obligated to ensure that the agreement is implemented effectively and ensure that sufficient progress
is being made based on the requirements delineated in Article 641
. In addition, the council oversees all
procedures used to implement and operate the agreement.42
All parties involved are also obliged to
adhere to the operational guidelines contained in Articles 48, 49 and 50 of the EC Treaty for the
purposes of eliminating barriers between Turkey and the EU in terms of both trade and the movement
of people.43
This is reiterated in Article 13, which concerns the elimination of restrictions, and again
in Article 14, which concerns the elimination of restrictions prohibiting the exchange of services
between Turkey and EU member states.
39
Dominik Lasok, "The Ankara Agreement: Principles and Interpretation" in Marmara Journal of European Studies, vol. 1,
No. 1-2, 1991, p.39.
http://dosya.marmara.edu.tr/avrupa/mjes%20arsiv/vol1/3-lasok.pdf (19/11/2014)
40 Art. 28 of the Ankara Agreement 1963
41
Art. 6 of the Ankara Agreement 1963
42 Art. 27 of the Ankara Agreement 1963
43 Art. 12 of the Ankara Agreement 1963
21. 21
The requirements set out in Articles 12-14 have had a strong impact on the ways in which the ECJ
considers the scope of Association Law, particularly in cases where there are no definitions or
clarifications on important aspects of the text.
An Additional Protocol44
was implemented in 1970 and addressed the gradual liberalisation of
barriers preventing the movement of people across borders and the abolishment of customs duties
from 1973 onwards. This protocol also aimed to integrate the Turkish customs tariff with the
Common Customs Tariff (CCT). This protocol was implemented on January 1st
1973 and Article 36
decrees that the freedom of labour movement will come into effect gradually in line with the
requirements of Article 12 of the Ankara Agreement and will be overseen by the Council of
Association.45
Thus, free movement was to be achieved progressively between December 1st
1976 and November
30th
1986. However, the exact meaning of freedom of movement had not yet been defined as Turkey
and the EU were following the specifications of Articles 48, 49 and 50 of the Treaty of Rome.
Nonetheless, as this aspect of the agreement was not considered automatic, the Council of Association
was in control of how it would be pursued and implemented.46
In in the case of Demirel47
, which will
be discussed in more depth later on in this study, the ECJ believe that Article 12 of the Agreement and
Article 36 of the Additional Protocol simply outline the process and lack the definition and
cohesiveness to directly regulate and implement the granting of freedom of movement to Turkish
labourers.
At the same time, EC nations had taken measures to prevent the employment of immigrant workers as
unemployment numbers continued to rise on account of the energy crisis that took place during the
1970s. Thus, the EU began to perceive the freedom of movement provision as increasingly
unattainable given developments in the EEC. Instead, the EU improved the rights of Turkish
immigrant labourers as part of the Association Agreement of 1976 and 1980 in order to facilitate their
assimilation into their new countries of residence.
By 1985, Turkey had the grounds to pursue worker’s freedom of movement based on Article 36 of the
Additional Protocol and Article 12 of the Ankara Agreement.48
In addition, Turkey included freedom
of movement for labourers as part of their EU application as opposed to seeking this through the
Association Agreement.49
However, this had a negative impact on the fulfilment of the freedom of
movement provisions and Turkey’s accession into the EU as many became worried about the rising
44 Additional Protocol, signed at Brussels, 23 November 1970, (OJ 1973 C 113/1).
45
Art. 36 of the Additional Protocol 1970, (OJ 1973 C 113/1)
46
See CEC 1986 for the interpretation of the European Commission.
47
See Demirel, Para 23 of judgement.
48
See Ansay 1987.
49
CFTS 1993: 85.
22. 22
level of Turkish immigrants entering EU countries, Germany in particular. As a result, Article 36 of
the Additional Protocol and Article 12 of the Agreement have not been realised as the EU did not
perceive these provisions as automatic entitlements.
In January 1996, the Full Customs Union was implemented and this will be analysed in more depth
later in this study. As a result of the CU, trade barriers were eliminated but restrictions remained on
the free movement of labourers. However, this was disadvantageous for Turkish people and business
owners as there were still strict admission regulations for those hoping to enter the EU and this
inevitably hindered the full realisation and operation of the Customs Union.
In addition, many claim that a lack of progress in the accession of Turkey into the EU and the delays
in granting freedom of movement indicates that several EU member states are reluctant to offer
Turkey full membership status, possibly in fear of a significant influx of Turkish migrants. However,
although the legal status of Turkish immigrants has not been improved, it has not deteriorated either.
Finally, it is important to acknowledge that the Agreement, the Protocol and Decisions of the
Association Council (2/76, 1/80 and 3/80)50
undertaken as part of the agreement established a legal
framework upon which problems in relation to Turkish immigrants could be addressed. In addition,
we must also note that the Ankara Agreement (1963) was a mixed agreement in that it was signed
conjointly by EC members and the Turkish government. As a result, the legal control of this
agreement is distributed equally between EC nations and Turkey.51
Thus, the ECJ has been instrumental in securing individual rights for Turkish immigrants based on the
Agreement and its subsequent provisions and has accordingly evaluated the realisation of these
provisions in many independent situations. Examples of these cases will be outlined in a later section
of this study.
Before concluding this chapter, following is an image that illustrates the most noteworthy dates in the
progression of the relationship between Turkey and the EU.
50
These instruments are reiterated in the EEC-Turkey Association Agreement and Protocols and Other Basic Texts, (1992,
OOPEC); also see Cicekli 1998: appendices for the provisions of these documents.
51
See Hedemann-Robinson, 2001, p. 534.
23. 23
Important dates in the development of Turkey-EU Relations:
Source: Created by author.
September 1959:
Ankara Applies
for the Accosiate
Membership of
the EEC
Aril 1987:
Application for full
EEC Membership
Since January 1996:
CU Between Turkey
and the EU
March 2001:
Turkish Goverment
Adopts the
National Program
of Turkey for the
EU Laws
December 1964:
Ankara Agreement
(Association
Agreement)
January 1973:
Additional Protocol
December 1999:
Helskinki Summit
gives Turkey official
Status an Accession
Candidate.
October 2005:
Accession Talks
Symbolically
Opened With
Turkey
24. 24
IV. THE FIRST ACHIEVEMENT; CUSTOMS
UNION 1995
1. Customs Union Agreement 1995
“The Customs Union is a sacrifice on the way to the full membership. I even don’t want
to think about the consequences of being unable to be a full member of the EU.”52
“Nobody within the EU had considered the Customs Union as a step for full
membership… the latter was either Turkey’s own perception or a way of distorting the
public opinion.”53
Negotiations between Turkey and the EU first took place in 1994 in advance of the implementation of
the Customs Union that was established the following year. Negotiations took place at the Turkey-EU
Association Council, which was comprised of Foreign Ministers from EU countries and Turkey. The
outcome of these talks saw the full realisation of the CU between both parties in terms of agricultural
and industrial products on December 31st
1995.54
The CU was in full effect by January 01st
1996 and the export of agricultural products was facilitated
by revisions of the trade regime implemented two years later. Following this, Turkey deducted all
duties imposed on products imported from EU countries and integrated their custom tariff systems to
complement the EU system in importing products from third countries. Consequently, the importation
of industrial products from EU and European Free Trade Association (EFTA) nations dropped to 0%
from 5.9% and the importation of comparable products from third countries dropped to 6% from
10.8%. It is believed that the import rate for third country products will decrease to 3.5% if World
Trade Organization (WTO) negotiations successfully enforce EU obligations.55
These developments
are the direct cause of the Customs Union that was implemented between Turkey and the EU on the
31st
of December 1995.
The Agreement also prompted the foundation of the Association Council (as mentioned in the
previous chapter), an organisation that aims to reinforce integration and cooperation in regards to
energy, agriculture, science, technology, telecommunications, legal affairs, consumer law and cultural
integration. It is clear that these objectives did not form part of the official Customs Union agreement
52
Feyyaz Berker, President of TUSIAD’s High Advisory Board, 1995
53
Martin Schulz, member of Social Democratic Party of Germany, 1996
54
Abgs (2007)
55
Ibid.
25. 25
but were incorporated into the plan to facilitate the level of collaboration and cooperation between
both parties. In effect, the implementation of the CU represents a move toward the complete
assimilation of Turkey into the European Union.56
2. Legislative Changes in Turkey in Response to the Customs Union
As discussed previously, the realisation of the CU in 1996 prompted the development of the Turkish
Customs Administration in terms of structure, service quality, legislation and the adoption of a more
consumer-oriented focus. From this perspective, there are several key issues that must be taken into
consideration.
The Association Council Decision (1/95) ordered the integration of regulations and directives in
regards to customs duties and the realisation of Law 445857
meant that Turkey was legally required to
adhere to these demands by assimilating their legislative framework in regards to product origins,
customs value and customs operation into the Community Customs Code (CCC). As a result, Turkey
revised their customs legislation so that it was complementary to EU law as the country was legally
obliged to adopt similar tariff schemes and rates as EU member states.58
Furthermore, the outcome of negotiations with the Decision (1/95) of the Association Council
required Turkey to revise its foreign trade policies so that they more closely resembled those of the
EU. As a result, Turkey has complied with current free trade agreements with the EU as well as third
countries and this had a positive impact on trade opportunities between Turkey and other European
states. In addition, measures have been taken to ensure that the Turkish administrative framework is
aligned with that of the EU, measures that have included the training of human resource personnel in
the application of new legislative policies.59
56
Decision 1/95 of the Association Council, (96/142/EC)
57
For Full text on Law No. 4458 of October 27, 1999 on Customs (as amended up to August 8, 2011), Please visit
http://www.wipo.int/wipolex/en/text.jsp?file_id=314871 (Accessed 20/11/2014)
58
Sübidey Togan, “The EU-Turkey Customs Union: A Model for Future Euro-Med Integration”, MEDPRO Technical
Report No. 9/(March 2012) file:///Users/admin/Downloads/No%209%20Togan%20on%20EU-
Turkey%20Customs%20Union.pdf (Accessed 25/11/14)
59
Hayati Yazıcı, “TURKEY-EU RELATIONS AND THE CUSTOMS UNION: EXPECTATIONS VERSUS THE
REALITY”, VOLUME 11 NUMBER 1
http://www.turkishpolicy.com/dosyalar/files/2012-1-HayatiYazici.pdf (Accessed 26/11/2014)
26. 26
3. Effect of the Customs Union on the Turkish Economy
As the relationship between Turkey and the EU has been explored, it is now necessary to analyse the
effect of the Customs Union on the Turkish economy based on secondary research and data analysis.
a. Impact on Trade Creation
The exchange of high-cost domestically produced products for more cost-effective imported versions
is referred to as trade creation.60
This study will now investigate the impact of the CU on trade
creation in Turkey through analysis of Turkish import and export data delineated in Table 1. The
European Economic Community (EEC) uses information dating back to (1970) as this was when the
Additional Protocol came into effect and countries were forced to eliminate the customs duty imposed
on certain products.
Table 1 EU Share of Turkish Imports and Exports (USD Million)
Years Total
Import
EU
Import
EU%
Share
Years Total
Export
EU
Export
EU %
Share
1970 974 520 53,39 1970 588 353 60,03
1971 1170 661 56,60 1971 676 386 57,10
1972 1562 926 59,28 1972 884 488 55,20
1973 2086 1255 60,16 1973 1317 722 54,82
1974 3777 1997 52,87 1974 1532 872 56,92
1975 4738 2645 55,83 1975 1401 744 53,10
1976 5128 2741 53,45 1976 1960 1139 58,11
1977 5796 2951 50,91 1977 1753 1034 58,98
1978 4599 2376 51,66 1978 2288 1393 60,88
1979 5069 2621 51,71 1979 2261 1341 59,31
1980 7909 3145 39,76 1980 2910 1668 57,32
1981 8933 3424 38,33 1981 47,02 1807 38,43
1982 8842 3088 34,92 1982 5745 2088 36,34
60
Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, 2001. 328-329
28. 28
Based on the data listed in the table above, the total import value of products into Turkey totalled
301,933 million USD and the total value of EU products totalled 143,415 million USD between 1970
and 1996, before the CU had taken effect. In effect, the proportion of products imported from EU
member states was 47.48% during this period. Between 1996 and 2012, when the CU had been
implemented, the total value of products imported reached 1,925,336 million USD with 829,074
million USD being imported from EU states. This illustrates that there was a decrease of 4.42% in the
proportion of products imported from the EU as the average share reached 43.06%. In terms of
exports, before the implementation of the CU, total exports amounted to 186,120 million USD with
96,884 million USD being exported to EU states. Thus, 52.05% of goods were exported to EU
countries between 1970 and 1996. Between 1996 and 2012, Turkey exported 1,210,425 million USD
with 611,804 being exported into EU countries. As a result, the average share exported to the EU
decreased by 1.51% to 50.54%. Thus, following the realisation of the CU, total Turkish exports
dropped by 13.85% while total Turkish imports dropped by 11.33%. Based on these figures, there is
no evidence to suggest that the CU had a positive effect on trade creation as the level of trade
decreased in terms of import and export volumes between the EU and Turkey.
It is also worth investigating overall economic trends during this period in regards to trade volume
and Graph 1 illustrates import and export volumes from 1980 to 2012. Records begin at 1980 in this
instance as this was the year that customs tariffs were reduced. In addition, it is important to consider
economic trends from a long-term perspective in order to fully comprehend the level of economic
assimilation that has been achieved.
Graph 1: Turkey Imports/Exports (USD Million)
29. 29
Source: www.tuik.gov.tr62
Based on this graph, it is clear that trade volumes remained low between 1980 and 1994 but began to
increase steadily upon realisation of the CU in 1996. However, as noted earlier, the increase in trade
was not caused directly by the CU as this agreement had no effect on the level of trade creation
experienced by the Turkish economy. Thus, it can be assumed that Turkey began to trade more
actively with non-EU states following implementation of the CU. Nonetheless, the graph shows that
the difference between import and export volumes continued to grow as the economy suffered from a
higher trade deficit. In particular, from 2002 onwards, there was a significant rise in trade volume as
the Justice and Development Party gained control over the Turkish government and focused on
establishing stronger trade relationships with third countries. This led the government to enter into
agreements with Muslim states and with neighbouring regions as they sought to increase trade volume
with non-EU countries. Thus, although trade activities between the EU and Turkey declined over this
period, Turkey increased trade volumes through increased interaction with non-EU states.
Nonetheless, the Turkish economy still experienced issues on account of the trade deficit as the
country became overly reliant on the importation of products.
Similar conclusions were reached by Neyapti63
who conducted a study in order to determine how
much Turkish trade volumes had been impacted by the CU. To achieve this, the authors gathered
unbalanced panel data and used the Ordinary Least Squares (OLS) method to analyse at least 2,000
country-year data observations from at least 150 different countries between 1980 and 2001. The
findings imply that Turkey increased their trade volume upon implementation of the CU and upon the
increasing regulation of exchange rates and income effects. Nonetheless, the authors also suggest that
there were other influencing factors on this increase in trade volume based on the outcome of
regression analysis as they posited that several additional variables must also be taken into account.
The regression analysis performed by Neyapti incorporated the OLS method to illustrate how
governmental efficiency, political stability and positive governance structures along with the
foundation of mutually beneficial trade partnerships contributed toward an increase in trade volume.
62
Please visit Turkish Statistical Institute http://www.turkstat.gov.tr/PreTabloArama.do Accessed (26/11/2014)
63
Bilin Neyapti, Fatma Taskin and Murat Ungor, “Has European Customs Union Agreement Really Affected Turkey's
Trade?” (2007)
http://ecomod.net/sites/default/files/document-conference/ecomod2003/Neyapti.pdf (Accessed 28/11/2014)
30. 30
b. Dynamic Impacts on the Turkish Economy
Although the static impact has been investigated to a great extent, a limited number of studies have
addressed the dynamic impacts as it is difficult to interpret these effects from a short-term perspective.
There are many different factors that can have an impact on the dynamic effects, including economic
status, economies of scale, FDI and the effective use of available resources64
. According to Schiff and
Winters65
, these factors can include any phenomenon that has an effect on the national economy from
a medium-term perspective. In addition, dynamic impacts refer to the development of the economic
structure66
. Based on this perspective, the economic development of Turkey can be analysed in terms
of fluctuations in Gross Domestic Product (GDP) levels.
Graph 2: GDP Growth Rate of Turkey (%)
Source: http://www.invest.gov.tr/en-us/turkey/factsandfigures/pages/economy.aspx.67
As illustrated in Graph 2, based on GDP rates between 2002 and 2012, Turkey experienced positive
growth every year with the exception of 2009 when the world suffered from a period of economic
crisis. On average, a growth rate of 5.15% was achieved as the Turkish economy maintained stable
growth.
64
Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, (2001).
65
Maurice Schiff and L. Alan Winters, “Regional Integration and Development”, (1998)
http://siteresources.worldbank.org/BRAZILINPOREXTN/Resources/3817166-1185895645304/4044168-
1186324101142/12RegionalIntegrationFull.pdf (Accessed 29/11/2014)
66
Salvatore, Dominick, “International Economics”, New York: John Wiley & Sons, 2001.
67
Please Visit http://www.invest.gov.tr/en-us/turkey/factsandfigures/pages/economy.aspx Accessed (30/11/2014)
31. 31
Nonetheless, before concluding this chapter, it is well intentioned to comment that this positive
growth cannot be attributed solely to the implementation of the CU as there are many other factors
that have contributed to the economic development of the country.
32. 32
V. THE CONTROVERSIAL ASPECTS OF THE
EU-TURKEY FREE TRADE AGREEMENT
Although there were many advantages to the Free Trade Agreement as covered in Chapter 4, there are
many who question the feasibility of the CU for a number of key reasons what will be delineated in
this section.
1. The Negative Impact of the EU’s New Free Trade Agreements on
Turkish Externalities
Although the Ankara Agreement, and most notably the implementation of the Customs Union, had a
positive effect on Turkish FDI and international trade, several new economic policies have been
implemented by the EU that may adversely affect the Turkish economy. Following the global
downturn of 2008, the EU entered into several new free trade agreement talks with third countries,
namely the US and Japan68
. This decision has been attributed to the fact that EU states do not have the
available financial resources to launch national stimulus strategies to revive their economies after a
period of prolonged stagnation. Thus, as free trade agreements generate profits through a rise in
international trade despite the cost implications on the public budget, the EU are keen to establish new
trade agreements with third countries. In many countries69
, governments endorse this approach as they
believe that economies can be revived and jobs created through increased liberalisation of trade
barriers in Europe and across the world. The most notable agreement that has been reached is known
as the Transatlantic Trade and Investment Partnership (TTIP)70
which aims to abolish tariff
restrictions between nations as well as ‘non-tariff’ restrictions like technical or sanitary policies that
differ from country to country.
In particular however, aside from the removal of trade barriers, participation in the Customs Union
means that Turkey must impose the same custom tariffs as the EU to products imported from third
countries and must also adhere to all trade agreements agreed upon by the European Union. In effect,
Turkey must accept trade from any nation that has entered into an EU trade agreement71
. However, as
per the provisions of the Ankara Agreement, Turkey is not obliged to take part in trade talks between
68
Mehmet Babacan, “Whither an Axis Shift: A Perspective from Turkey’s Foreign Trade”, Insight Turkey Vol. 13 / No. 1
(2011)
http://ww3.ticaret.edu.tr/mbabacan/files/2013/02/M-Babacan-Insight-Turkey-Vol-13-No-1-2011.pdf (Accessed 30/11/2014)
69
Ibid
70
Marc Pierini, Sinan Ulgen, “ A Moment of Opportunity in the EU-Turkey” Paper, (2014)
http://carnegieeurope.eu/2014/12/10/moment-of-opportunity-in-eu-turkey-relationship (Accessed 30/11/14)
71
Ibid
33. 33
the EU and third countries as the existing policy states that Turkey must establish an independent
trade agreement with other countries that have entered into trade agreements with the EU. On the
other hand, the provisions of both agreements must be the same as delineated in Article 16 of the
Association Council Decision (1/95).
On account of the legal provisions established earlier in this study, Turkey is obliged to allow trade
with any third country that establishes a trade agreement with the EU. However, the same rule does
not apply in the reverse situation, as Turkey has not yet been accepted into the EU.
In practice, the operation of this provision is questionable, as Turkey does not enjoy the same benefits
in relation to European customs union access when they engage in trade talks with third countries.
Furthermore, the position of the Turkish government is undermined by the fact that third parties can
seek access to the Turkish market through trade agreements with the EU. In effect, Turkey does not
generally have a great deal of bargaining power when entering into trade negotiations. On account of
the bilateral trade agreement between the EU and Turkey, Turkey has focused on trade diplomacy
over the past decade in an attempt to align their trade policies with frequently modified EU policies
and maintain a dominant market edge over additional third countries that have established free trade
agreements with the EU72
.
In other words, when the EU enters into trade talks with a third country, Turkey simultaneously
proposes a similar bilateral agreement. Using this approach, Turkey has established free trade
agreements at the same time as the EU with Israel, the EFTA, Macedonia, Croatia, Bosnia-
Herzegovina, Serbia, Montenegro, Palestine, Tunisia, Egypt and Syria, along with several others.
Though, other countries have been more problematic by entering into new trade agreements once they
have secured a deal with the EU73
.
On account of the provisions contained in the Ankara Agreement, Turkey has an unfavourable
position in trade negotiations with non-EU countries and they typically fail to secure beneficial
agreements. For example, when negotiating with the TTIP, it would be extremely difficult for Turkey
to acquire a similarly advantageous agreement as the EU in terms of export barrier eliminations with
the US. In other words, as an agreement with the EU already guarantees the US entry into Asian
Minor markets, they are unlikely to offer additional concessions to Turkey in subsequent trade
negotiations74
.
72
Kemal Kirisci, ‘Don't Forget Free Trade with Turkey’, The National Interest (2013)
http://nationalinterest.org/commentary/dont-forget-free-trade-turkey-8345 (Accessed 06/12/2014)
73
Today’s Zaman, ‘Minister says Turkey to ’reconsider’ EU Customs Union’, (2013)
http://www.todayszaman.com/business_minister-says-turkey-to-reconsider-eu-customs-union_310708.html (Accessed
06/12/2014)
74
Borderlex, ‘Transatlantic trade talks cast doubt on EU-Turkey customs union future’ (2014)
http://www.borderlex.eu/transatlantic-trade-talks-cast-doubt-eu-turkey-customs-union-future/ (Accessed 06/12/2014)
34. 34
Generally speaking, countries that are not active participants in the foundation of liberalisation
policies are likely to suffer economically, a trend that has been highlighted by Jacob Viner in his
treatise on the impact of the CU published in 195075
.
In terms of the TTIP trade agreement, many studies have claimed that bilateral trade between the US
and the European Union could rise by upwards of 80% on account of the reduction or complete
elimination of tariff and non-tariff-based restrictions. It stands to reason that this would have a
positive effect on Turkey as unfinished products exported from Turkey to the EU would subsequently
be exported to the US. However, as US businesses will now be able to readily access the single EU
market, they will increase productivity and become a market rival for Turkish businesses operating
within the same industry. As the types of manufacturing products imported from the US and Turkey
by the EU are quite similar, Turkey will be forced to compete more effectively on the market in order
to maintain their current position. Nevertheless, this will be difficult to achieve as they are unable to
increase sales through entry into the US market. As a result, Turkish industries are likely to witness a
decrease in export volume in comparison to industries based in the US and the European Union and
they will be obliged to focus on increasing trade volume by entering into independent trade
agreements with countries others than those that have already established FTAs with the EU76
.
As the proportion of Turkish trade accounted for by the EU is 39%, the impact of EU-based activity in
terms of new free trade agreements must be acknowledged. For instance, Germany, one of Turkey’s
most important trade partners, could import approximately 93% more goods from the US if complete
trade liberalisation was achieved. This alone would lead to a 1.14% increase in the productivity of US
enterprises. As a result, Germany may choose to import products from the US instead of Turkey.
Additional studies on the topic believe that the implementation of the TTIP would lead to a 2.5%
decrease in the Turkish GDP in the coming years, a decrease that would represent a loss of
approximately 20 billion USD77
.
Furthermore, Turkey is adversely affected by each EU trade agreement enforced, especially in regards
to the manufacturing industry as international competition increases with each new country that enters
into a FTA with the EU78
. In addition, if Turkey is unsuccessful or delayed in establishing similar
FTAs with each of these countries, their existing trade deficit will continue to deteriorate.
75
Paul Oslington, “Contextual History, Practitioner History and Classic Status: Reading Jacob Viner’s The Customs Union
Issue” (2012)
76
http://www.al-monitor.com/pulse/originals/2014/11/turkey-us-eu-trade-deal-hit-turkeys-customs-union.html (Accessed
10/12/2014)
77
Berlin, “Deepening Turkey’s Customs Union with TTIP Perspectives” (2014)
http://www.gmfus.org/archives/deepening-turkeys-customs-union-with-ttip-perspectives/#sthash.OqKCMezF.dpuf Accessed
10/12/2014)
78
Ibid
35. 35
Of the free trade agreements established by Turkey in recent years, the majority have taken place as
an obligatory follow-on process to EU negotiations and have not been motivated by the desire to
integrate the economic environment. For instance, the EU entered talks with South Korea in regards to
trade liberalisation in May 2007 and a deal was reached in 2011. However, Turkey began negotiating
with South Korea in June 2008 and these talks only concluded in 2013 as Turkey imports a significant
amount of products from South Korea (6.3 billion USD) but exports comparatively little (0.5 billion
USD)79
.
Thus, it is likely that Turkey will soon enter trade talks with Canada and Japan following the
foundation of a comprehensive free trade agreement between Canada and the EU. In terms of EU-
Japanese negotiations, talks are ongoing and expected to reach a conclusion soon due to the tight
deadline imposed on the process.
Upon first glance, from a Turkish point of view, the Ankara Association Agreement seems
unfavourable on account of the superior position of the EU when entering into trade negotiations with
other countries. Nonetheless, the implementation of the CU should be interpreted in light of Turkey’s
desire to be accepted into the EU. In effect, the CU was devised to facilitate the accession process and
should Turkey be assimilated into the EU on a full-time basis, they will enjoy the same economic
benefits as the EU in terms of trade activities.
Furthermore, many Turkish businesses are adversely affected by all FTAs established by the EU as
many industries, most notably the manufacturing industry, are faced with increased market
competition following the implementation of each FTA80
. At the same time, if Turkey is unsuccessful
in establishing a similar agreement with all countries that have reached an agreement with the EU,
they will experience an increase in their trade deficit, which is currently at a critical level.
79
ErdAl Yalcin, “The 50th
Anniversary of the Ankara Agreement; Economic Achievement of the EU-Turkey Relationship to
date and Future Perspectives”, CESifo Forum 4/2013file:///Users/admin/Downloads/forum4-13-special4.pdf (Accessed
11/12/2014)
80
Ibid.
36. 36
2. Visa Concerns
"The time when Turkish people feel least European is when they wait in line for a visa"81
The issue of Turkish visas is a key area of concern in regards to the CU and according to Abdullah
Gul, it is unfortunate that Turkish people cannot travel freely across EU states in the same way as
Turkish products.
82
In fact, Turkey is the only nation out of all EU candidates that has not been
incorporated into the Schengen agreement, a policy that permits freedom of movement between
countries. In addition, many non-EU countries, such as Brazil, Honduras, Paraguay and Venezuela,
are not required to obtain visas before entering an EU state. Similar provisions are also being
negotiated to facilitate the free movement of people from Russia, Moldova and Georgia. However,
many posit that Turkish freedom of movement was granted by the signing of the Ankara Agreement
and the Additional Protocol and was only revoked when the military seized power on 1980.83
As part of its commitment to establishing a trading state, Turkey has agreed to visa waiver policies
with at least 70 different nations in an attempt to establish positive trade relationships with
international regions. However, although Turkey imports a significant proportion of EU goods, a
similar agreement has not been offered by the EU. This is unfortunate as the advantages of the CU
form the perspective of the EU will increase if Turkish people are granted freedom of movement in
the EU as Turkish businessmen will invest and consume in EU states. However, if they are required to
secure a visa before entering an EU state, they are more likely to take their business elsewhere to
regions with no visa requirements.84
As a result, it can be claimed that the rising dissatisfaction of the Turkish government and the
recently-implemented laws on the entry of foreign travellers has prompted the EU to engage in visa
negotiations with Turkey. This is also prompted by the fact that a prominent land route from the EU to
Greece passes through Turkey, necessitating the need for greater ease of movement of both people
and products. However, Turkey perceives the initiation of visa talks as the beginning of accession
negotiations and believes that signing the admission agreement will fast track their integration into the
81
Turkey's former Minister for EU Affairs Egemen Bagis quoted this statement in ESI Report 2013.
82
The president made this comment during his tour of the Baltics when we met with Dalia Grybauskaite in Vilnius in 2013.
http://www.hurriyetdailynews.com/turkish-president-gul-slams-eu-visa-policy-for-turkey.aspx?
PageID=238&nID=44296&NewsCatID=338
83
Bozkurt, Abdullah, “EU won't ask Turkey to suspend visa-free travel with third countries; Today's Zaman” (2013)
http://www.todayszaman.com/diplomacy_eu-wont-ask-turkey-to-suspend-visa-free-travel-with-third-countries_315540.html
(Accessed 11/12/2014)
84
Abbas, Mohammed, “Frustrated Turkey still wants EU entry, but maybe not euro”, (2013)
http://www.topix.com/forum/world/turkey/TDH42B624N198FN2H (Accessed 12/12/2014)
37. 37
European Union. However, the European Stability Initiative (ESI), a report published in 201385
,
advise Turkey to stand their ground during negotiations and not to accept all provisions proposed by
the EU. Instead, the ESI state that Turkey should offer the EU voluntary provisions, perhaps by
committing to the reduction of illegal immigrants in the EU, in order to establish a rapport.
85
European Stability Initiative, “Cutting the Visa Knot. How Turks can travel freely to Europe.”
http:// www.esiweb.org/pdf , (Accessed 15/12/2014)
38. 38
VI. THE JUDICIAL RESPONSE TO THE EU-
TURKEY FREE TRADE AGREEMENT
The court has started addressing the provisions outlined in the Ankara Agreement, the Additional
Protocol and the Decisions in an attempt to demonstrate the integration of national legislation with
that imposed by the EU. In addition, the courts aim to distinguish between rights that are accurate and
conditional and those that are not directly relevant. However, the courts do not perceive the mixed
nature of the Association Agreement and the fact that it may need to be integrated on a national level
as a hindrance to establishing jurisdiction in terms of Article 234 (ex 177) EC.86
According to the
ECJ, the Agreement and all subsequent decisions represent the Community legal order and all
provisions contained within them that are clear, concise and unconditional must be directly applied.87
This chapter will investigate the reaction of the ECJ to the Association Agreement in an attempt to
determine the judicial perspective on the issue. However, it must be acknowledged that word limit
restrictions require the author to focus only on evaluating the legal perspective on the Ankara
Agreement.
1. The ECJ Case Law on Turkish Immigrants
According to the ECJ, the rights of non-EU citizens to enter an EU country to work, attend college,
receive benefits or tax advantages depends on the relationship between the EU and the relevant
country, referred to as derivative rights, or the existence of an international agreement with the EEC,
referred to as direct rights.88
In many cases, the response of the ECJ differs based on which form of
rights are invoked as derivative rights are based on freedom of movement while direct rights are based
on the external relationships of the EEC.89
As a result, it is important to note that we are not assessing
the rights of Turkish citizens based on their connections to an EU citizen or unemployment with an
EU company as there are a multitude of policies and directives offering specific rights to those related
to EU citizens regardless of their own place of birth. For instance, the ECJ have proclaimed that ‘the
spouse of a worker who is a national of a member-state to whom Article 11 of Regulation 1612/68
applied is entitled to be treated in the same way as a national of the host member-state’90
; this allows
86
See Demirel, para 9; Sevince, para 9 among others.
87
See Demirel, para 9; Sevince, para 9 among others.
88
See Weiler 1992: 71-72
89
Alexander 1992: 63
90
Emir Gül v. Regierungspräsident Düsseldorf (case 131/85) [1986] ECR 1573; [1987] 1 CMLR 501 para 30 of the
judgement; this case concerned a Turkish national married to an EC citizen.
39. 39
equal access to the spouse of an EU national to employment, medical treatment and social services
based on the specifications of Directive 75/363.
The legal framework of the EU is distinct from other international legal frameworks as decisions;
agreements and acts established by the EEC are relevant and directly applicable to EU states.
Conversely, international legal provisions cannot all be directly implemented in a similar way.91
Thus,
if a legal provision of the EU is applied, domestic courts are forced to adhere to the provisions as EU
law supersedes national law.92
In other words, EU law takes precedence over national law in
circumstances in which they are applicable. Based on EU law, if a right derived from an agreement
must be implemented by the ECJ, this right is considered to form part of the “acquis
communautaire”93
and must be enforced by national courts of the EEC. In addition, if a national court
believes that a national provision conflicts with EEC law, the courts are required to implement
Community law until further advice has been sought from the ECJ.94
Although the ECJ largely determines the treatment of non-EU nationals that have connections to those
from EU states, a regimented framework has yet to be established. Over time, EU member states have
established conflicting opinions in regards to migration policies. In effect, while many member states
acknowledge the need for greater cooperation on an EEC level in terms of formulating migration
policies for citizens of third countries95
, many also assert that issues in relation to the entry, residence
and employment of immigrants should be controlled by national courts and that each state has the
right to implement independent strategies aimed at regulating immigration levels from third
countries.96
At this stage, there is no cohesive framework of EU law, which delineates the rights of non-EU
nationals residing in member states in comparison to the detailed legal framework delineating the
rights of EU members. Although a significant percentage of member state populations are accounted
for by third country immigrants, including Turks, the issue of immigration has generally been
regarded as lying outside of EU jurisdiction and the goals of the EU in advocating a greater level of
European assimilation.97
91
See Steiner 1992: 24-41; Craig and Burca 1995: 151-199.
92
Steiner 1992: 42-53; Craig and Burca 1995: 240-282.
93
The Community acquis is the body of common rights and obligations, which bind all the Member States together within
the European Union.
http://europa.eu/legislation_summaries/glossary/community_acquis_en.htm (Accessed 13/12/2014)
94
Marleasing SA v. La Commercial Internacional de Alimentación SA (case C-106/89) [1990] ECR I-4135, [1992] 1
CMLR 305; Factortame v. Secretary of State for Transport [1989] 2 All ER 692, 3 CMLR 1; on this see Craig and Burca
1995: 395-397.
95
Ketelsen 1992: 44
96
Ibid.
97
See Hedemann-Robinson, 2001, ss. 525-526.
40. 40
Thus, immigration issues have generally been seen as the responsibility of the host country as the
majority of member states believe that matters of immigration and the status of migrants from third
countries should be dealt with on a national basis. As a result, there has been little reference to the
European perspective on the residence of third country immigrants in EU member states. This issue
has formed part of political talks based on the impact of immigration policies on the EU’s external
relationships with third countries.
Although suggestions were made to include immigrants in freedom of movement agreements between
European states, the overall position of the EU on the subject has not changed to any great extent.
Thus, any inclusion of third country residence policies has been based on the outcome or prerequisites
of EU trade agreements. Based on a study of progress in integrating the EU with the EC Treaty and
the subsequent first pillar legislation on immigration policies, it is clear that third country migrants
may not be offered the same intra-European rights as migrants from member states in terms of
mobility rights as well as other community rights.98
Thus, the existing system sees third country
migrants being accepted on a national level before being naturalised and recognized by the European
Union.
2. Employment-based Legal Integration
Based on the specifications of Association Law, the right of Turkish immigrants to enter the labour
market of foreign countries is a serious issue that warrants discussion. Presently, there is no freedom
of movement policy in place like the one offered to member states to grant Turkish workers admission
into EU countries. According to the ECJ, it is up to each individual state to determine whether third
country immigrants should be allowed enter and work in their country.99
Thus, until a Turkish citizen
acquires a legal permit to enter a member state and secures a job, there will be no discussion of long-
term employment or residential rights. In effect, each member state decides independently what
restrictions they impose on the movement and migration of non-EU citizens.100
In addition, it is also apparent that any Turkish citizen or family that acquires a residential permit in
an EU member state is not given the right to move freely between other EU member states other than
the state in which they reside.101
In other words, the legal actions of one member state have no impact
on the legal obligations of another. In fact, Article 1(1) of Regulation 1612/68 states that only EU
nationals should be permitted to acquire paid employment in a different member state. Nonetheless, it
has long been proclaimed that the Treaty should grant freedom of movement to all workers of all
98
See Hedemann-Robinson, 2001, ss. 528-529.
99
See Günaydın, para 23 of judgement; Birden, paras 37-38 of judgement
100
The entry and residence of nationals of member states and their families are regulated by two separate Directives
68/360/EC (for workers) and 73/148/EC (for the self-employed).
101
See Günaydın, para 22 of judgement.
41. 41
nationalities in the interests of progress. Moreover, the European Commission has stated several times
that it aims to expand the single market of the European Union to offer all legal citizens the right to
seek employment in any EU country.102
Furthermore, it has recently been suggested that EU
citizenship be defined by a person’s place of birth as well as their current place of residence.103
In
other words, this would allow any non-EU national legally residing in an EU member state the right to
apply for full EU citizenship and the right to enjoy all the benefits associated with membership of the
European Union.
Article 6(1) of the Association Council Decision 1/80 asserts the current status of Turkish workers in
terms of movement and employment rights and states that, based on the free access to employment for
members of his family provision, a Turkish worker legally registered on the labour market of an EU
state will be entitled to renew his work permit after one year has passed provided the employer is
willing to employ him in the same role for another year. In addition, this worker is entitled to accept a
different employment position in the same profession after three years of employment in a member
state and is entitled to accept any work in any field following four years of employment in a member
state.
It is important to note that Article 6(1) of Decision 1/80 does not offer Turkish migrants the right to
reside in a member state long-term following a prolonged period of employment. In fact, the
provisions outlined in Regulation 1251/70104
and Directive 75/34105
in terms of residence policies for
migrant workers has not been directly incorporated into the Association Council Decisions. Thus, the
ECJ has endorsed the claims of national courts who believe that member states have the right to
decide independently what rights are offered to immigrant workers in terms of long-term employment
and permanent residency.106
This indicates the significance of employment and the key role it plays in
the provisions outlined by the Association Council and the Agreement.
3. Legal Employment
The importance of legal employment is mentioned numerous times throughout Article 6(1) of
Decision 1/80 as it is a prerequisite of the attainment of employment rights for Turkish workers. Thus,
it is necessary to investigate the meaning of legal employment. There is no strict delineation of how
102
See The Guardian, 26 July 1994
103
See ESCAPE, Refugee Across Europe, Number 1, 2003.
104
See Commission Regulation on the right of workers to remain in the territory of a Member State after having been
employed in that State (O.J. Sp. Ed. 1970 (II) 402).
105 See Directive 75/34 concerning the right of nationals of a Member State to remain in the territory of another Member
State after having pursued therein a self-employed activity (O.J. 1975, L 14/10).
106 See Bozkurt, para 35 of judgement
42. 42
migrant workers can acquire legal entry into the workforce of a member state in the Agreement of
Article 6 and the reason a Turkish worker initially sought access to a member state should have no
impact on those that have acquired a legal right to live and work in an EU country. Thus, in legal
terms, the employment status of migrant workers must be established based on the legislative
framework implemented by the host country in which the migrant resides and works.107
Based on Bozkurt proceedings, in order to determine the employment status of a migrant working as
an international lorry driver, the ECJ ruled that the court must decide whether or not a migrant
workers ‘employment relationship retained a sufficiently close link with the territory of the Member
State’ based on the place of employment, the territory in which the job was performed and the
relevant legal framework in terms of employment and social security.108
Based on the case of Sevince, Mr Sevince was not considered to be in legal employment during his
time in the Netherlands on account of the delays caused by his legal appeal and his failure to renew
his employment permit. Based on the definition offered in Article 2(1) (b) of Decision No 2/76 and
Article 6(1), third indent, of Decision 1/80, a Turkish worker cannot be defined as legally employed
during his appeal against the refusal for right of residence.109
Based on the case of Kuş, the ECJ ruled that Mr Kus’s divorce did not affect his right to apply for a
permit renewal following one year of employment even though he first received admission into
Germany based on his marriage status, a marriage that had ended prior to the renewal application
being made.110
As a result, the migrant’s divorce in this case had no bearing on his pursuit of a
renewed employment permit (Nachbaur, 1995). Based on the provisions contained within the third
indent of Article 6(1) of Decision 1/80, legal employment is offered on the assumption that the labour
force is stable and secure.111
In fact, the Advocate General states that any form of employment that is
legally permitted is acceptable on a stable labour market.112
Thus, based on these assertions, any
employment that is regarded as temporary or short-term is included in the context of a stable labour
market, a provision that also refers to the legal status of trainees. According to the courts, if a migrant
worker has a valid work permit in a stable labour force, measures cannot be taken by the host country
to revoke this permit or his/her right to residency in the event of an economic crisis.113
However, a
worker’s personal status is not stable if, for example, they make an appeal against a deportation ruling
based on their attainment of residential status by deceiving the authorities as to the true nature of their
107
See Bozkurt, para 27 of judgement.
108
See Bozkurt, para 22-23. For the purposes of the application of Council Regulation (EEC) No 1612/68: see Lopes da
Veiga v. Staatsecretaris van Justitie, (case 9/88) [1989] ECR 2989, para 17. The same argument is upheld by the ECJ in
relation to subsequent cases: see Günaydın, para 29, Ertanır para 39, Birden para 33.
109
Sevince, paras 30-33 of the judgement
110
Kuş, the second paragraph of the ruling of the ECJ
111
Sevince, para 30; Kuş, paras 12 and 22; Bozkurt, para 26, Birden, para 55
112
Eroğlu, point 40
113
See Sevince, Kuş, Eroğlu, Kol, Günaydın.
43. 43
marital relationship or if they make an appeal objecting to having an extension to their residence
permit refused in cases where the worker failed to be granted a work permit before registering an
appeal.114
Based on these examples, it appears that the standard duration of legal employment is at the discretion
of the courts.115
It has also been claimed that the one-year provisional period can begin before the
worker has acquired legal status as long as they have been accepted as a legal part of a stable
workforce before the final day of this one-year period. However, any employment activities
undertaken during an appeal will not be included as part of the legal employment period if the
outcome of the appeal is unsuccessful.116
The ECJ is also focused on the formulation of official guidelines on the impact of short-term breaks in
employment. For example, based on the Nazlı proceedings, the court decided that the one-year
detainment of a Turkish migrant worker on account of drug trafficking charges would not disqualify
him as a legal member of the labour market based on Article 6(1). The court justified this decision by
claiming that his incarceration prior to a trial should have no impact on his employment rights based
on the provisions contained in Article 6(1). However, this judgement was conditional in that it was
based on the assumption that the lapse in employment was short-term and that the party in question
would secure employment within a reasonable amount of time following his release from custody.117
In the case of Tetik118
, the third indent of Article 6(1) of Decision 1/80 required that workers be
offered the right to leave a place of employment and secure a new job within a specified period of
time. This approach has also been endorsed by the ECJ, who delineate the employment rights of
family members under Article 7, as it was ruled that the absence of a worker for longer than one year
would have no impact on the viability of said worker’s son who had been a German resident for 15
years.119
Further examples of ECJ case law indicate that the provision of migrant rights derive from the
association instruments and are not based on any previous formal administrative treatises
implemented by host countries in regards to employment or residential permits. In the case of Ertanir,
for example, the court ruled that when member states offered backdated work or residency permits for
workers who had not applied for legal status within the specified timeframe delineated by the host
country, this time would be considered a period of legal employment.
114
See Kol.
115
See Wornham 1994: 12-13, Kemper 1995: 116-117
116
Kuş, para 16 of judgement
117
See Nazlı, Para 40-45 of judgement
118
See Para 30 of judgement.
119
See Ergat.
44. 44
4. Standstill Clauses
The Association Agreement contains three fundamental standstill clauses which prevent new
restrictions in host countries being applied to migrant workers originating from Turkey. One of the
most crucial standstill clauses refers to new limitations on the right of establishment and the ability to
offer services that have been made accessible on account of the implementation of the Additional
Protocol (Article 41(1)).
The additional two standstill clauses are believed to be of direct effect and are contained in Article 7
of Decision No 2/76 and Article 13 of Decision No 1/80.120
These clauses prevent the application of
new restrictions on employment eligibility to those who have work and residency permits for the
member states in which they reside. According to Article 7 or Decision 2/76, EU member states are
not allowed to implement new restrictions on employment requirements that would affect migrant
workers that are legally permitted to work in the country.
In effect, the implementation of Decision 2/76 on the 20th
October 1976 in line with the provisions of
Article 7 states that Members are prohibited from altering the requirement conditions of Turkish
migrant workers and are prohibited from making it more difficult for workers to secure a work permit.
Thus, the implementation of these regulations in 1976 applied to all Turkish workers legally-entitled
to seek employment in EU member states and was not influenced by the fact that the Association did
not anticipate the formulation of implementation strategies, the failure to publish the decisions or the
application of specific safeguard clauses.121
This provision was expanded to apply to all family members of workers who were legally entitled to
work and live in an EU member state in Article 13 of Decision 1/80. This provision states that EU
member states cannot “introduce new restrictions on the conditions of access to employment
applicable to workers and members of their family legally resident and employed in their respective
territories”.
This meant that the standstill clause integrated into Article 13 also applied to the family members of
migrant workers, which in turn meant that the case law contained in Article 13 became more relevant.
As indicated by the case law of the ECJ, the provisions of Article 13 of Decision 1/80 and Article
41(1) of the Additional Protocol had a direct effect. As asserted by the ECJ, these provisions are
120
See Sevince, para 26.
121
See Sevince, paras 16-26 of judgement.
45. 45
concise and unconditional in enforcing standstill clauses that must be adhered to by all contracting
parties by law.122
As a result, Turkish migrants can depend on Article 13 of Decision 1/80 to prevent host countries
from imposing new rules and regulations that affect the free movement of non-EU workers.123
Generally speaking, this clause, which took effect upon the implementation of Decision 1/80,
disallows member states from imposing different rules on Turkish immigrants and offering
preferential treatment to EU citizens in terms of employment.124
However, the courts believe that
although Turkish drivers are legally employed in Germany, they do not spend enough time in the
country to acquire citizenship status. As a result, Article 13 is only relevant in cases where Turkish
nationals are legally employed in a member state and spend enough time in that territory to be
justifiably integrated.
Thus, as we reach the conclusion of this chapter, it can be claimed that the existing immigration
policies in the EU perceive third country immigrants as a separate category of people who cannot and
should not be afforded the same rights as EU citizens residing in member states. As a result, many
countries have been reluctant to integrate legal instruments and their provisions in regards to rights
and safeguards into national policy on EU immigration requirements. Furthermore, the ECJ’s
realisation of the Decisions of the Association Council in the past indicate that EU-based
developments have been and will continue to be the primary instigators of change in terms of the legal
rights of Turkish immigrants as there has been a distinct lack of reform on a national level in recent
years. However, this progression may have a negative impact on Turkish immigrants if member states
are reluctant to expand the range of rights offered to Turkish workers based on the aforementioned
legal provisions. In this case, the case law of the ECJ will most likely govern the implementation of
relevant Agreement provisions that do not require the application of any additional measures.
122
See Savas, paras 46-47; Abatay, para 58.
123
See Abatay, para 59.
124
See Abatay, paras 74, 80.
46. 46
VII. Analysis; Is There A Future for the EU-
Turkey Free Trade Agreement?
1. Expanding the Scope of the Customs Union
As mentioned several times throughout this study, the customs union was the main driving force
behind increased Turkish integration in the EU and the international economy. Generally speaking,
the impact of the CU on both contracting parties has been largely beneficial, as trade integration has
stimulated trade creation. However, it is important to consider the dynamic impacts of the agreement
as opposed to the static effects. For instance, the CU has encouraged Turkey to develop their core
competencies in becoming more effective competitors on the ever-increasing competitive market. In
effect, the CU and its implications for the Turkish economy have had a positive effect on Turkish
output and overall productivity. In addition, it has also prompted the reform of the industrial structure
as Turkish companies strive to establish international chains of manufacturing and distribution.
Furthermore, the CU represents a driving force behind the reform of economic legislation in Turkey
and their ability to operate in a contemporary business environment. Based on these events, it is clear
that the CU has had many positive effects on the Turkish economy and the EU market.
In terms of downsides to the CU, there are two primary issues that have been subject to debate since
the agreement came into effect. Firstly, there are divergences in the trade policies implemented by
Turkey and the EU. Upon signing the CU, Turkey continued to reform their commercial policies so
that they became more aligned with those of the EU. They achieved this by entering into independent
free trade agreements with any nation that had already reached a satisfactory agreement with the
European Union.125
This aspect of the agreement was non-negotiable and there was little Turkey could do to resolve the
situation as they were never automatically included as one of the contracting parties of an EU trade
agreement as they were not an official member of the European Union. As a result, they were forced
to enter into talks independently once the third country in question had reached an agreement with the
EU. However, the EU could encourage third countries to enter into talks with Turkey and to induce
them to behave honourably when reaching an agreement. In fact, the EU began to incorporate a clause
in their bilateral trade agreements, which required that countries establish a similar FTA with Turkey
125
Hoekman, B. and M. Leidy (1993), “Holes and Loopholes in Integration Agreements”, in K. Anderson and R. Blackhurst
(eds), Regional Integration and the Global Trading System, Hemel Hempstead: Harvester.
