Turkey is the EUs sixth biggest trading partner

Turkey is the EU's sixth biggest trading partner

Modernisation of the European Union (EU) and Turkey's 20-year-old customs union should be made a priority, the  European Apparel and Textile Confederation (Euratex) has said, in order to enhance bilateral trade ties between the two regions.

The customs union came into force in 1995 as a first step in Turkey's accession talks with the EU, allowing goods to travel between the two entities without any customs restrictions. Under the agreement, industrial goods are traded duty free. It doesn't, however, cover areas such as agriculture, to which bilateral trade concessions apply, services or public procurement.

The process of modernising the union has been slow in the face of opposition from some EU member states, but in May, the European Commission said the two regions would look to modernise the union, “bringing it into the 21st century”.

Customs union modernisation

Speaking at this year's International Apparel Federation (IAF) convention in Istanbul, Euratex director general, Francesco Marchi, told delegates the EU needs to bring the customs union up to a level that reflects the type of commitments it makes in modern free trade agreements (FTAs) with other countries. In particular, he said, addressing the issue of services. At present, the plan by the EU and Turkey to broaden their customs union will see the elimination of tariffs only on trade in processed agricultural products.

“The issue is that our relationship for the moment is only focused on industrial products. The solution to the problem will come with improvement of our bilateral institutional set-up. We have to first improve our customs union. That is the main priority we need to set with Turkey. On that basis we should be able to have a better association in our future FTAs.”

Marchi said that ideally, the move to have an improved and enlarged customs union should become part of the European Commission's strategy.

“It is important we have a political signal from the Commission. I'm sure our Turkish friends would be very happy to take the proposal and work effectively [with us]. It would be good to know if this is in the [Commission's] plans and whether it will be announced one of these days.”

European Commission deputy for trade, Michelangelo Margheritha, also speaking on the panel, said he was unable to comment on whether it was being included in their strategy but said he was “optimistic”. He concurred with Marchi's view that there is a need to accelerate the upgrading of the customs union.

“It's the only way to put everyone at the same level and on the same wavelength,” Margheritha said. “We are saying the same things but not always at the same time. Having the same customs union, and larger, will ensure that what is already being implemented is also recognised legally. It will increase our relationships even more and maybe re-balance the loss of Euro-Med area weight. Don't forget, it's not only production, it's production and consumption. It's production and respecting a number of conditions.”

Turkey trade talks

Talks to modernise the customs union have been seen as a prelude to Turkey joining the EU – a deal that has still not happened. However, the terms of the pact mean Turkey is unable to pursue a bilateral free-trade agreement with any country until the EU has already established one – and is left out of any important trade deals the EU signs. It also means non-EU countries with an EU FTA can access Turkey duty-free, but Turkish exporters do not have reciprocal access.

Turkey has also repeatedly threatened to leave the EU customs union should it not become party to the Trans-Atlantic Trade and Investment Partnership (TTIP), currently under negotiation. Indeed, while the two parties have been in discussions to improve relations over challenges such as terrorism and economic headwinds, the one issue troubling Turkey is that the trade deal between the EU and US will leave its exporters at a disadvantage.

Turkey is the EU's sixth biggest trading partner, and figures from the EC's Directorate-General for Trade show clothing imports into the EU from Turkey in 2014 were worth EUR9.37bn, up 4.9% on the previous year. Textile imports, meanwhile were up 7.5% year-on-year to EUR4.32bn.

Negotiations between the EU and US teams over the TTIP are currently ongoing and in September were said to have intensified. However, last month, groups representing apparel brands and retailers on both sides raised various labelling and product safety issues.

US and EU apparel groups see labelling issues under TTIP

Margheritha told delegates that there is “no such ambition” over a final agreement yet, but that both parties are currently “very deeply engaged in negotiations” over the type of disciplines the EU wants to establish with the US.

He added that round-table talks taking place this week will cover “very in-depth issues” regarding the challenges of the current agreement.

“It is true that on both sides there is clearly a willingness to make this agreement the best standard that we can set: the goal standard in terms of what FTAs should be looking like, generally speaking, in the future.”

Opportunities outside EU

Last month, the European Commission said it would prioritise the conclusion of a number of major projects, including the TTIP, the EU-Japan FTA, and the EU-China investment agreement. It said it will also consider new negotiations in the Asia-Pacific region and intends to deepen the EU's relationships with its African partners.

Marchi, however, told IAF delegates that while FTAs are important to Europe, there is an issue in that the EU has signed a number of trade deals that have “weakened” its traditional partnership with the Euro-Med region.

He added: “On the other side, signing with a country like Vietnam is not in our interest at all. But we are in the process of attempting to maintain a fair market opening for our products, hoping that our SMEs - we have on average ten employees per company in Europe, which is a completely different structure to Turkey or the US - are an example of a capacity of companies able to conquer [new] markets.

The target for Europe, he said, is Japan and the US. Both key markets.

“Those two are very important markets. Don't forget one thing, of our EUR43bn of exports, roughly one third goes to the Euro-Med area and Turkey. All of the other FTAs represent roughly 10%. If we negotiate successfully on the same footing with the US and Japan, this will add between 15%-20% of our exports on top of that. So it's key. It's key because we negotiate with people that have the same standards, maybe defined differently, but the same standards. So for us, it's important to get the complete picture. It's not only tariffs, it's public procurement, it's intellectual property rights, it's access to distribution in certain cases, it's ensuring that the rules of origin maintain manufacturing in the zone.”

But while the TTIP is certain to bring growth and jobs, there has been criticism that it will only benefit big business, with many of the rules favouring multi-national companies and not SMEs.

“The concern is the way in which we explain the rules and the way in which companies understand the rules for accessing [trade deals],” Marchi explained. “We should stay with rules that are globally similar to the ones we are used to but improve them, because the industry is changing. I don't see the problem with this question of educating.

“Clearly the bigger structured companies have much more capacity to dedicate the resources to understand how the FTAs will be implemented for them. But for the SMEs it is complex.”

This complexity, however, is now starting to be addressed by member states through educational programmes to help smaller companies understand how the FTAs will work for them. According to Margheritha, the European Commission is inserting an SME chapter into the TTIP that focuses on exactly that, including databases of information on tariffs and rules that will apply to them.

Marchi added: “Companies that have already invested in certain markets are clearly in a better position because they know the market better. We are looking to the others that are more and more attempting to go outside of Europe.”

According to Euratex, in the last five years the share of the total turnover of the EU industry dedicated to export outside of Europe, increased from 20% to 26%. This year it is expected to reach 27%.

“It is a growing trend, not only because the internal market is slow, but because they see more profits outside [of Europe].”