As Pakistan and Turkey head towards a free trade agreement, the important question is: will Turkey offer meaningful tariff concessions to Pakistan?

The question arises because of Turkey’s obligations under its customs union with the European Union. To answer the question, one needs to look at the salient features of the customs union.

The Turkey-EU customs union dates back to Dec 31 1995. It came into being following an Association Agreement between the two sides as part of Turkey’s efforts to enter the EU club.

The customs union covers all products other than agricultural products, which means more than two-thirds of Turkey’s tariff lines, including almost all the industrial products, are within the purview of the customs union.

For import and export of all the covered products between Turkey and EU countries, all customs duties and charges stand eliminated.

This means on a reciprocal basis, all Turkish exports (industrial products) enter EU countries duty free. Besides, neither side is allowed to impose quantitative restrictions (quotas) on imports or exports traded with the other side.

Turkish regulations on technical barriers to trade have also been brought in conformity with those of the EU.

The customs union further makes it obligatory upon Turkey to adopt the same external trade policy as maintained by the EU for trade with the rest of the trading partners.

This includes common import tariffs and regulations, common rules for protection against dumped and subsidised imports, and common rules for exports.

This means, for instance, that if the EU applies five per cent duty on import of T-shirts from a third country such as Pakistan, Turkey is bound to apply the same duty — neither more nor less. Hence, following the customs union, Turkey had to adjust its customs tariffs, within the stipulated period, to bring them at the same level as the EU’s.

Thus Turkey is not in a position to change, on its own, its common customs tariffs or other import regulations. It can, and must, do so only if the EU decides to amend the relevant regulations or tariff structure.

Reference may be made to Article 14 of the customs union agreement, which states in categorical terms: “Under no circumstances may the Customs Union Joint Committee authorise Turkey to apply a customs tariff which is lower than the Common Customs Tariff for any product.”

Here a question arises that in case the EU grants concessions to a third country through a reciprocal agreement, such as an FTA, or an autonomous arrangement, such as the GSP, what shall Turkey do?

As per Article 16 of the customs union agreement, Turkey must grant the same level of preferences to that third country so as to maintain the common tariffs. Turkey is thus required to negotiate similar agreements with such countries.

In other words, it is mandatory for Turkey to negotiate and conclude FTAs with the countries with which the EU strikes an FTA. At the same time, it must not deny GSP, including GSP plus, benefits to all those counties which are the recipients of the EU’s GSP scheme.

Thus when the EU granted GSP plus to Pakistan at the start of 2014, Turkey was also required to do so. But for legally inexplicable reasons it chose not to do so despite all the apparent warmth in bilateral relations.

Besides, as per the terms of the EU-Turkey customs union, it is Turkey which has to follow changes in EU external trade policy and not the other way round.

In practice as well, Turkey follows the EU as regards negotiating or concluding FTAs. Turkey’s FTA partners include South Korea, Egypt, Jordon, Israel, European Free Trade Association, and Chile. All these are also the EU’s FTA partners.

Since India and the EU are in the process of concluding an FTA, Turkey has also made a pitch to India for a similar agreement. If Turkey does not follow EU on FTAs, it will end up reducing its tariffs for EU-FTA partners, to bring them at par with the EU’s preferential tariffs, without securing a reciprocal market access in those countries.

Despite recent events the Turkey-EU customs union is still intact. It will remain so, if for no other reason, for the sheer volume of bilateral trade, which was registered at $145 billion in 2016 including $68bn Turkish exports and $77bn exports from EU countries.

The foregoing makes it amply clear that it will be exceedingly difficult, if not impossible, for Turkey to offer tariff concessions to Pakistan on industrial products, such as textiles, clothing and leather products which are of special export interest to Pakistan, under the FTA.

Only on agricultural products, which are not covered by the customs union with the EU, is Turkey free to reduce tariffs.

But, as in case of EU countries, agriculture is politically sensitive and thus a highly protected sector in Turkey. For example, rice is of immense export interest to Pakistan but it will be unrealistic to expect Turkey to offer meaningful preferential market access to Pakistani rice.

It is also possible that Turkey may grant GSP plus benefits to Pakistan, which in any case it was bound to offer Pakistan, under the FTA.

However, there are two fundamental differences between GSP plus and an FTA. One, an FTA is a reciprocal arrangement, while GSP plus is a unilateral arrangement.

Two, unlike an FTA, GSP plus is a temporary arrangement as it does not represent a legally binding international treaty.

Thus any GSP plus treatment offered by Turkey to Pakistan in the shape of FTA concessions will have to be withdrawn or modified when the EU abolishes or alters the GSP plus arrangement.

hussainhzaidi@gmail.com

Published in Dawn, The Business and Finance Weekly, August 28th, 2017