A significant risk under sui generis: Was it manufactured in the EU? Was it manufactured in conjunction with the EU?

Can Baydarol

Under normal circumstances, I would not write a column in the form of lecture notes in a column allocated to me. However, given that the EU has brought its most significant protectionism against the US and China to the agenda and that Turkey is also at great risk, it has become inevitable to write such an article in today’s conditions, where ignorance is unfortunately at its peak. If the EU decides that this product is manufactured in the EU, excluding Turkey and disregarding the customs union phenomenon that we will mention below, then considering only the automotive sector, the annual loss we would suffer could be enough to force us into bankruptcy. If we say that Turkey’s total exports from its main and ancillary industries reached $45 billion this year, 70% of which went to EU countries, our point may be better understood. After this painful introduction, let’s move on to the lesson notes.

Sui generis.

The exact Turkish equivalent of this Latin term is ‘kendine özgü’ or, in older parlance, ‘nev-i şahsına münhasır.’ I prefer to use the Latin form as a common language with the rest of the world. My apologies to my friends who favour pure Turkish.

Today’s EU, when the ECSC (European Coal and Steel Community – 1952), EEC (European Economic Community – 1958) and EURATOM (European Atomic Energy Community – 1958) were established, introduced a new concept into the jargon of international relations: supranational law. This law also distinguished its founding treaties from other classic international treaties. While classical international treaties are legislative in nature (creating, modifying or abolishing a status upon entry into force), the treaties determining European integration in the sequence leading up to the EU, although containing some provisions of a legislative nature, were framework in nature and contained an unnamed type of constitutional character. In other words, for example, the treaty establishing the EEC described how the EEC would be established rather than establishing the EEC itself; the treaty establishing the EU described how the EU would be established in the same vein. Essentially, at the point we have reached today, isn’t the source of much of the debate actually the fact that the EU has not yet been established, particularly in the area of ‘Common Foreign and Security Policy’, where satisfactory steps have not been taken? To the extent that these steps have not been taken, the EU’s weak voice in the face of major changes in the world and the inability to take decisions in the face of the sui generis nature of EU law are the biggest problems we face.

So, let us now refer to it as the EU. What impact does this sui generis structure have on us?

The history of Turkey’s relationship with the EEC dates back to the Ankara Agreement of 12 September 1963 (which entered into force on 1 December 1964). The Ankara Agreement is an agreement that establishes a partnership between Turkey and the EEC, with the ultimate goal being political in nature, namely full membership. However, it would be misleading to describe the agreement as merely this. In many respects, the agreement is a copy of the EEC founding treaty and is of a framework nature. Those who signed the agreement in 1963 probably did so without realising that they were signing an agreement of a constitutional nature. A question posed by the late Ziya Müezzinoğlu, whose friendship I greatly honoured during my youth, regarding Ismet Pasha’s sceptical approach to the agreement. “Ziya, can we withdraw from this agreement whenever we want?” When Mr. Ziya replied, “Of course, Pasha,” the Ankara Agreement was signed. 

Anyway, leaving this historical anecdote aside and returning to the course of history, the framework established by the Agreement was filled in by the Additional Protocol, which came into force on 1 January 1973. The period leading up to the Additional Protocol was the preparatory phase of the Agreement, while the Protocol marked the transition period. At this point, to clarify some misunderstandings and misinterpretations regarding the process, it should be noted that the final phase established by the Ankara Agreement was the last phase based on customs union, leading to full membership. The statement put forward by some economists and international relations experts who did not take into account the sui generis nature of the process, namely that ‘it is wrong to enter a customs union without full membership; an FTA (Free Trade Agreement) would suffice,’ was naturally not accepted as it would eliminate the Agreement’s goal of full membership.

It must also be acknowledged that, as of the date the Additional Protocol entered into force, the customs union began asymmetrically in legal terms (de jure). As of this date, the EEC countries had removed the tariffs and non-tariff barriers they applied against Turkey, in other words, they had fulfilled their obligations arising from the customs union, while Turkey’s fulfilment of its obligations was the subject of 12- and 22-year lists. Of these, 12 years was the basis, while 22 years covered certain sensitive industrial products.

Hiding behind the excuse of economic difficulties, Turkey intended to place all its obligations on the list of exceptional sensitive products, where 1 January 1995 was supposed to be the base date, and would start the final phase of the customs union as of 31 December 1995.

Naturally, at this point, it is necessary to highlight some of the mistakes we have made in the recent past and continue to repeat today.

The Prime Minister at the time, Çiller, had been convinced that she had found excellent material with the support of political propagandists. When she said, ‘After Lausanne, it was my destiny to make the greatest agreement!’, she probably believed her own words. However, alas, there was neither an agreement nor a treaty. The name of the document describing the final phase of the Customs Union was: ‘Decision No. 1/95 of the Association Council implementing the final phase of the Customs Union between Turkey and the EC.’ Note that the abbreviation EU was not used; instead, the abbreviation EC (European Communities) was used.

Before the decision came into force, certain politicians, whose names I will keep confidential, impressed me greatly by criticising the text of the agreement for about two hours. Criticising the content of a text they had not even read led me to the conclusion, which still holds true today, that all specialist knowledge comes to our politicians as divine revelation. However, I am saddened that some renowned international relations professors still believe that the Customs Union was established by an agreement.

The entry into force of the decision was also a cause for celebration. When our side insisted that the text was an agreement, the EU side insisted that the agreement had to be ratified by the European Parliament (EP) within the framework of its increased powers. Even today, I feel regret when I think of the politicians, bureaucrats and opinion leaders who went to lobby the EP. The Association Council decisions were regulated by the Ankara Agreement, and the approval mechanism in this regard took place between 1963 and 1964.

Naturally, it is worth pointing out Çiller’s rhetoric, which confused rights and obligations. The slogan ‘Customs union is our right, we will get our rights!’ would be used by Çiller’s opponents as opposition to the customs union. However, as we mentioned earlier, it was simply a matter of Turkey fulfilling its obligations in return for the rights it had asymmetrically obtained in 1973.

The Customs Union and World Trade Organisation issue

One important fact that was overlooked in the debate on the customs union was that, whether it was a customs union or an FTA, to the extent that it deviated from the rules of GATT (General Agreement on Tariffs and Trade), it had to be consolidated into that agreement. As GATT transformed into the World Trade Organisation (WTO) in 1995 and gained institutional identity, it would emerge as the institution into which our OKK was consolidated.

However, at this point, it is worth highlighting another little-known fact. It is also worth addressing another, more serious issue for today.

Contrary to what many experts and politicians believe, Turkey has not joined the EU customs union. On this point, I partly agree with the view of classical international relations experts. ‘There can be no customs union without full membership of the EU!’ The rationale for this view, if I recall correctly, is based on a 1978 or 1979 ECJ (European Court of Justice) ruling. A Greek citizen engaged in trade relations with the EC brought a case before the ECJ, arguing that ‘his country would become a full member of the EC in the very near future and that, essentially, Greece was already a partner member of the EC and therefore he should not be discriminated against in his trade relations’.

The ECJ’s ruling on this matter stated that “until a full membership agreement is signed with Greece, Greece is a partner member (just like us – there was an Athens Agreement in force at that time, parallel to our Ankara Agreement), therefore discrimination cannot be eliminated.‘ The ECJ’s statements regarding associate members also describe the ’sui generis‘ nature of our customs union. ’Relations with an associate member can be developed in the same way as with a full member. However, there are three exceptions. An associate member cannot sit at the decision-making table of the EU, cannot be part of the common legal system, and cannot be part of the common budget.” The Customs Union requires a tariff outside the budget to the extent that it constitutes common trade policy decisions with third countries (common customs tariffs, common protection measures and, more painfully for us, FTAs with third countries), the legal rules for implementing these decisions, and finally the revenue and expenditure items that constitute a significant part of the EU budget. In this case, it is not possible for Turkey to join the EU Customs Union without becoming a full member. However, it is possible to speak of a customs union between the EC Customs Union and Turkey’s customs area, which is assumed to operate in parallel with that of the EC. Consequently, when the EC signs FTAs with third countries, Turkey is excluded. While industrial products from these third countries enter Turkey unhindered via the EU (by diverting traffic), Turkish industrial products face significant protectionist measures. In other words, this asymmetry works against Turkey. Finally, the extent to which the FTA concluded by the EU with India for different reasons will affect Turkey’s competitiveness is also a serious topic of debate.

So, is the World Trade Organisation still around? Despite all its shortcomings, is our customs union still standing?

US President Trump’s recent imposition of high customs duties on third countries and, most recently, the EU’s desire to remove the “Made in the EU” label essentially signify the end of the World Trade Organisation and the beginning of an anarchic era in international trade.

The GATT, which forms the basis of the WTO, was an agreement concluded in 1947, immediately following the end of the Second World War. The rationale behind the agreement was the belief that the trade barriers (high protective tariffs) between major powers had contributed to the outbreak of the World War. Accordingly, a world trade order that would gradually become fully liberalised would also bring about the elimination of all wars. In this context, a set of rules was established, trade liberalisation negotiations (rounds) that could last for many years were organised, and countries that liberalised trade among themselves through customs unions or FTAs were granted exemptions from the general rules. But the most important rule was that when liberalisation took place, a country had to liberalise to the same level for all countries and could not retreat from that level. In other words, any retreat from the current level of customs duties and quotas would constitute a violation of GATT/WTO rules.

So, at this point, do you think the Trump doctrine, the application of high customs duties to third countries, and the EU’s enthusiasm for EU-origin production have left the WTO in limbo?

Naturally, the finding by US courts that Trump’s high customs duties are unlawful and the uncertainties surrounding Trump’s future may pave the way for a return from a period of anarchy in international trade to a period of rule-based trade. We cannot say. It is too early to comment.

Let’s move on to our main issue: EU-origin production? Production in conjunction with the EU?

We tried to emphasise this seriously at the beginning of this study. A scenario in which Turkey is excluded could lead to much more serious economic problems in the coming period.

First, let us seek an answer to the question of what the EU intends to do. The EU, which is struggling to withstand Chinese competition, particularly in the automotive sector, is seeking ultra-protectionism. The EC of the late 1980s, which transitioned from a common market to a single market, now intends to transition from a single market to a highly protected internal market. The question of how much this pursuit of high protection against China and the US, and the attempt to shift all production within the EU, aligns with the EU’s interests is starkly evident. Considering that an industrial product no longer consists of just a single component, but that numerous countries contribute to the final product process at different stages and at different costs, this decision does not appear straightforward. Naturally, it is inevitable that different interest groups will influence the decision-making process in different ways.

Let us consider, for a moment, the worst-case scenario for Turkey: that Turkey is excluded from the definition of EU-origin production. Can we feel comfortable thinking that we are protected by a customs union and that the Ankara Agreement remains valid?

If the EU were to take such a path, it must be acknowledged that the assessment would not differ significantly from that of the US, meaning that the GATT/WTO system would also come to an end for them. However, the FTAs they have concluded with third-country groups, primarily India, may draw attention to their search for a new world trade order under their own control. So where will we stand? Will we wait to see what the ECJ says about such practices, which are fundamentally contrary to customs union obligations, in line with the EU’s discretion? Will we be able to find a defensive shield against radical Turkey opponents who will say that GATT/WTO is over and your customs union and Ankara Agreement have also gone to waste? Don’t you think the time has come to turn our faces back to the EU to protect our own interests, moving away from a foreign policy line that has recently been entirely dependent on Trump? There is a clear need to better understand what is happening in the world and in the EU, and to more accurately substantiate the claim that they need us in defence matters. At the very least, now is the time to lobby for inclusion in the category of industrial goods produced in collaboration with the EU.

Apologies for the lengthy article. I should note that I have omitted many details that should have been included before concluding.