THE INTERFACE BETWEEN WORLD TRADING SYSTEM AND GLOBAL ISSUES: CHALLENGES FOR THE WTO, TURKEY AND THE EUROPEAN UNION

1
THE INTERFACE BETWEEN WORLD TRADING SYSTEM AND
GLOBAL ISSUES CHALLENGES FOR THE WTO, TURKEY
AND THE EUROPEAN UNION

• An expanding trade agenda of the EU and possible
  implications for Turkeys trade policy, with
  special reference to free trade agreements
• Dr. M. Sait AKMAN
• Marmara University EU Institute and TEPAV
• 14 - 15 May 2010, Istanbul

2
Outline

• Changing nature of EU trade policy (Global Europe
  strategy)
• Turkeys alignment with the EUs preferential
  trade regime
• Free Trade Agreements (FTAs) impact on Turkey?
• Which criteria for a sustainable relationship
  between
• TR-EU in FTA issue
• What to do in FTA issue?

3

• Changing nature of EU trade policy
• (Global Europe strategy)

4
EU Trade Strategy Global Europe

• Lisbon Strategy (2000) to make the EU the most
  competitive economy in the world (EU growth and
  job strategy) with a mid-term review in 2005.
• Complement Lisbon agenda by introducing an
  external dimension Global Europe Strategy (2006)
• a trade policy complying with the objectives of
  growth and employment.
• a trade policy adopted to the changing global
  context
• Emergence of new powers
• Fragmented and globalised production process
• Need for innovation and RD
• Europe 2020 Strategy (2010) (for smart,
  sustainable and inclusive growth) and its new
  trade strategy for EU2020, to assess
  implementation and explore new directions based
  on priorities announced and considering recent
  economic and trade policy developments such as
  the global crisis.

5
Key facts on EU trade

• EU exports
• EU (27) is the leading exporter (16.2 in goods
  in 2009)
• Over 2/3rds EU exports are intra-EU (of which 90
  is among EU15)
• North America and Asia are the EU27s main
  markets outside Europe, each accounts less than
  1/10th EU exports.
• Africa, Latin America and the Middle East have
  marginal shares
• EU imports
• EU (27) is the leading importer (17.4 in goods
  in 2009)
• The pattern on the import side is very similar to
  the export side
• Main difference is trade deficit with Asia (12
  imports vs. 7 exports)
• EU average tariff is low (average bound rate is
  about 3.5)

6
Market share in value terms (1995-2005)
source BACI and CEPII, see E. Commission Global
Europe
7
EU trade deficit rises since 1995
8
EU tariffs are low in manufacturing goods
Textiles and clothing
12
Transport equipment
22
Average
Leather, rubber, shoes travel gds
17
Chemicals and photographic supplies
High
23
Electric machinery
14
Non-agricultural articles n.e.s.
14
Mineral products, precious stones
12
Metals
10
Non-electric machinery
10
Wood, pulp, paper and furniture
10
Dairy products
210
Grains
101
Live animals and products thereof
192
Tobacco
75
Coffee and tea, cocoa, sugar, etc.
114
Fruit and vegetables
150
Beverages and spirits
71
Fish and fishery products
26
Oil seeds, fats, oils and their products
76
Other agricultural products
76
Cut flowers and plants
19
0
50
100
150
200
250



Source WTOs Trade Policy Review, EU 2007
9
EU exports are destined to less dynamic markets
compared to the US and JAP

• EU has to export to more dynamic markets

  of total exports going to the most/least dynamic markets of total exports going to the most/least dynamic markets of total exports going to the most/least dynamic markets Contribution to the rise of world imports over a ten year period
US Japan EU25 67.6 0.7
On 10 most dynamic markets 78 76 46.9 67.6 0.7
On 20 least dynamic markets 1.8 3.3 5.3 67.6 0.7
10
EU is competitive in up-market goods

• EU investment in high-quality goods is key to
• growth and jobs
• Intellectual property protection is important for
  EU firms

11
EU high-tech product exports lose share in total

• Innovation and high-tech goods are essential for
  EU competitiveness

12
EU performs well in services exports

• EU needs liberalisation in trade in services

13
Asian share is high in EU imports

• EU needs to export more to Asian markets (Korea,
  India, ASEAN...)

13
14
EU needs a deeper agenda (WTO )

• 1. Insufficient market access services
• 2. Insufficient protection of EU interests
  Intellectual property (TRIPS) Investment (TRIM)
  technical barriers (TBT)
• 3. Need for new multilateral regulations
  (competition) Competition govn. procurement
• 4. Need for new multilateral regulations (market
  failures) environment labour standards

15
WTO topics in selected EU FTAs source
FTA / CU EEA TURKEY TUNUSIA ISRAEL MOROC JORDAN S. AFRICA MEXICO FYROM EGYPT CROATIA CHILE ALBANIA CARIFOR TOTAL
Industry x x x x x x x x x x x x x x 14
Agric. x x x x x x x x x x x x x 13
Custom x x x x x x x x x x x x x x 14
Exp.tax 0
SPS x x x x x x x x 8
TBT x x x x x x x x x x x x x x 14
STE x x x x x x x x x x x x x 13
ADD x x x x x x x x x x x x x x 14
CVM x x x x x x x x x x x x x x 14
State Aid x x x x x x x x x x x x x 13
Pub.proc. x x x x x x x x x x x x x 13
TRIMs
GATS x x x x 4
TRIPs x x x x x x x x x x x x x x 14
WTO Total 12 9 10 11 10 10 9 11 11 10 11 12 10 12 148

Source Horn, Mavroidis and Sapir (2009)
16
EU policy change towards regionalism

• Lamy argued, in his Trade Policy Assessment
  document that
• our arguments in favour of a better regulated
  multilateral world have been less effective.
  Indeed, arguably as a result, trade policy or the
  WTO has too often been the sole focus for efforts
  to strengthen international governance, which
  risks weakening its legitimacy both internally
  within the Union, and in the outside world.
• I dont believe the WTO can or should remain the
  sole island of governance in a sea of unregulated
  globalization.
• (European Commission, 2004, p. 5)

17
Different terms, similar objective, varying paths
Terms EU document WTO event aims / emphasis hot topics Path
Santer-Brittan 1995-1999 1996 communic. 1996 Singapore Market access (non-reciprocal) NTBs New Rules Singapor issues Built-in agenda WTO WTO
Prodi-Lamy 1999-2004 Lisbon Strategy Seattle Summit 99 Doha R. 01 Cancun 03 July 2004 Market opening is not enough but right internal policies Business support Societal needs Built-in Development WTO WTO RTAs
2004-2009 Barrosso-Mandelson Barrosso-Ashton 08 2006 Global Europe ReviewLisbon Hong Kong 2005 2006 Doha suspended Market access (reciprocal) New Rules Jobs and growth Investm. IPR Gov.Pro. RTAs RTAs WTO
2010- Barrosso II-de Gucht EU 2020 Trade strategy for EU 2020 -Assess progress in Global Europe -Sustainable and inclusive growth -Global crisis eff. high-tech green g. Services Raw mat. Climate c. RTAs WTO
17
18

• Turkeys alignment with EUs preferential trade
  regime

19
Article 16 of Association Council Decision No
1/95 

•     
• With a view to harmonizing its commercial
  policy with that of the Community, Turkey shall
  align itself progressively with the preferential
  customs regime of the Community within five years
  as from the date of entry into force of this
  Decision. This alignment will concern both the
  autonomous regimes and preferential agreements
  with third countries. To this end, Turkey will
  take the necessary measures and negotiate
  agreements on mutually advantageous basis with
  the countries concerned. The Association Council
  shall periodically review the progress made.

20
FTAs Turkey had concluded

• Turkey has completed 26 Free Trade Area
  agreements in conformity with the EUs FTAs
• 10 of these lapsed due to the accession of these
  countries in the EU (Poland, Hungary, Czech Rep.,
  Slovakia, Slovenia, Estonia, Latvia, Lithuania,
  Bulgaria, Romania)
• 13 of the FTAs are in force (EFTA, Israel,
  Macedonia, Croatia, Bosnia-H, Palestine, Tunisia,
  Morocco, Syria, Egypt, Albania, Georgia,
  Montonegro)
• 3 are waiting for ratificiation of the Parliament
  (Serbia, Chile, Jordan)
• In all of these agreements, Turkey already
  achieved the concessions which the EU had secured
  previously in FTAs with the said countries

21
Current State of the EU and Turkish FTAs

• EUs Free Trade Agreements (in force and in the
  pipeline) Status of Turkeys FTA
• EFTA In force (1992)
• Israel In force (1997)
• FYROM -Macedonia In force (2000)
• Croatia In force (2003)
• Bosnia and Herzegovina In force (2003)
• Palestine In force (2005)
• Tunisia In force (2005)
• Morocco In force (2006)
• Syria In force (2007)
• Egypt In force (2007)
• Albania In force (2008)
• Chile Agreement signed in 2010
• Montenegro Agreement Signed in 2008
• Serbia Agreement Signed in 2009
• South Africa Exploratory talks
• Jordan Agreement Signed in 2009
• Mauritius Negotiating

22
Turkeys trade with the FTA partners (as a of
its total trade, 2008)

• TR import from.. TR Exports to..
  TR trade with
• EFTA 3.10 2.50 2.90
• Israel 0.70 1.50 1.00
• FYROM -Macedonia
  gt.10 0.20 gt.10
• Croatia gt.10 0.30 0.10
• Bosnia and Herz.
  gt.10 0.40 0.20
• Palestine gt.10
  gt.10 gt.10
• Tunisia 0.20 0.60 0.30
• Morocco 0.20 0.70 0.40
• Syria 0.30 0.80 0.50
• Egypt 0.50 1.10 0.70
• Albania gt.10 0.20 gt.10
• Georgia 0.30 0.80 0.50
• Montenegro gt.10 gt.10 gt.10
  
• Chile 0.20 gt.10 0.10
• Serbia gt.10 gt.10 gt.10
• Jordan gt.10 0.30 0.10

23
Turkeys preferential trade (as a of its total
trade, 2008)
TR imports from TR exports to TR trade with
EU 37.4 48.3 41.7
16 FTA partners (appr.) 6.0 9.7 7.0
Total 43.4 58.0 48.7
24

• The impact of EU Free Trade Agreements (FTAs) on
  Turkey Main arguments

25
EUs FTA strategy What impact on Turkey?

• Preference erosion for Turkey in the EU market
• Turkey loses its share in EU markets as other
  partners of the EU secured improved access by
  means of FTAs. Being Turkeys most stable and
  largest export market, the EUs preferential
  advantage under the CU is decreasing.
• - This argument is not convincing against the
  EU, as the latter can legitimately claim that it
  has freedom to regulate its bilateral trade
  relations with third countries
• - nor it is economically rationale from the
  vintage of competitiveness and free trade

26
EUs FTA strategy What impact on Turkey?

• FTA partners of the EU have the opportunity to
  have an easier access to Turkish market
• FTAs with the EU allow them a tariff- free
  (circumvention) access to Turkey, of FTA
  partners goods, once entering into free
  circulation within the EU.
• This will be more visible in indirect imports
  from more competitive countries like S. Korea,
  India and ASEAN whose exports may hit several
  labour and capital intensive sectors.
• - This argument is correct, but it depends on
  the potential volume of trade that can be
  deflected into Turkey via the EU.
• - the argument must also consider that this is a
  result of competitiveness problem and Turkey
  must develop an adjustment strategy.

27
EUs FTA strategy What impact on Turkey?

• FTA partners do not have the obligation to
  negotiate with Turkey an FTA despite Turkey
  clause
• These countries with which the EU has FTAs do
  not reciprocate because Turkish goods cannot have
  preferential access in their markets via the EU
• - To counter this argument the EU has added
  Turkey clause in its FTAs.
• - In practice, Turkey had concluded FTAs with
  several of these countries, or started
  negotiations recently like Korea and India. But,
  not effective in the cases of Mexico or S.
  Africa).
• - The argument is more convincing if formulated
  as such
• Reluctant behaviour by third countries cause
  substantial delay, and disadvantages to Turkey.
  This must be compensated.

28
EUs FTA strategy What impact on Turkey?

• Asymmetry effect in trade agreements
• A. Turkey is not as forceful as the EU in
  negotiations
• - This argument can be invalidated as Turkey
  already secured many concessions in its
  first-generation FTAs, that the EU had obtained.
• - However, this may be more challenging issue in
  second-generation FTAs
• B. liberalisation is asymmetrical in FTAs at
  Turkeys expense.
• - Turkey abolished tariffs upon entry into force
  of the Agreement, while has to wait for
  progressive dismantling from partners.
• (Morocco 9 years, Tunisia 9 years, Egypt until
  2020 in List 4, Syria 12 years).
• - However, limited competitiveness of these
  countries industries, this helped Turkey to
  persuade them conclude FTAs. In the case of
  Jordan, for example, the non-simultaneous
  reductions in tariff schedules were included in
  the Preamble!

29
EUs FTA strategy What impact on Turkey?

• Turkey enters in FTA markets later than the EU
  (the latecomer effect)
• Turkey has to follow the EU to make FTAs,
  sometimes a couple of years later, hence putting
  Turkish exporters into a disadvantageous position
  with regards to EU exporters who has a
  preferential status in third country markets much
  before.
• - This is a convincing argument, as the EU does
  not allow Turkey to negotiate jointly, or ask for
  its partner to continue parallel negotiations
  with Turkey. This argument is commercially
  sensible in markets where the EU and Turkish
  exporters have rivalry (e.g. Lebanon, Jordan...)

30
EUs FTA strategy What impact on Turkey?

• Tariff-revenue loss for Turkey
• Circumvention of exports not directly from third
  countries, but by way of trade deflection via the
  EU, induce a tariff-revenue loss for Turkey
• - This argument has a ground, but especially in
  sectors with tariff peaks and for imports
  originating from countries that constitute a
  significant share in Turkish market.
• - In 2008, the largest-share country in Turkish
  imports (that has an FTA with the EU) was Algeria
  (1.6). TUR mainly imports energy goods with low
  tariffs.
• - If the aim is no circumvention, and import via
  the EU is not especially destined to Turkish
  market ? The side that has the right to collect
  the customs revenue will be the EU anyway, but
  not Turkey

31
EUs FTA strategy What impact on Turkey?

• Preferential agreements shift attention away from
  the Doha Round and multilateral WTO rules
• Turkey's FTAs makes its trade regime complex
  and difficult to manage. Future trade agreements
  could further complicate the trading environment
  creating a web of incoherent rules and detract
  from multilateral efforts, given the limited
  resources available Turkey TPRM Report (WTO,
  2003 17).
• - This is a forceful argument. The regional
  agreements are only second-best and can only be
  accepted if they do not undermine the WTO and
  Doha Round.
• - Turkey may have disadvantages in liberalising
  trade by means of FTAs, rather than the WTO.

32
Tariffs before and after NAMA
Calculation by UFT Economic Research Section
based on the formulas and coefficients suggested
in the latest Draft on NAMA Modalities (4th Rev.)
where the coefficients are assumed to be 8 and 25
for the developed and the developing countries
respectively where the formula is (i.e. t1 a or
(x,y or z)t0 / a or (x,y,or z)t0 )
33
EUs FTA strategy What impact on Turkey?

• Turkey cannot have its own FTAs independently of
  the EU
• Turkey cannot negotiate preferential agreements
  and has to refrain from negotiating with third
  countries with which the EU has not accorded yet
• - Legally, this argument is open to challenge.
• - Is there any specific country with which
  Turkey desires a preferential link, but cannot
  make due to EU opposition!

34
EUs FTA strategy What impact on Turkey?

• EU priorities do not match Turkish trade
  strategy
• EU has its own priorities and normative concerns
  to reflect in FTAs without taking into account
  Turkeys priorities
• - This is a major argument when one considers
  that Global Europe strategy is more keen on
  preserving the interests of European
  multinationals in third country markets,
  especially concerning investments, non-tariff
  barriers, intellectual property rights,
  competition rules and government procurement as
  well as other regulatory areas such as
  environmental and labour standards.
• - The negotiations do not necessarily reflect
  Turkish inerests and, nor they may match priority
  areas in Turkish strategy.

35

• Criteria for a sustainable relationship between
  TR-EU in FTA issue

36
Customs Union Decision 1/95

• Turkey has aligned its trade policy to EUs past
  trade policy arrangements
• Turkey also pledged to align its policy to EUs
  future trade strategy
• The future shape of EUs trade strategy depends
  on several unforseen developments. Thus, Turkey
  currently is, and in the future will be exposed
  to any change and shifts in EU trade strategy.
  But TR cannot participate in decision-making of
  EU directly. Therefore, it seems that the current
  state of affairs will only be acceptable in
  Turkey, if at least some of the following
  criteria are satisfied

37
Certainty criterium

• If the EU trade strategy is sufficiently clear,
  transparent and foreseeable for Turkey amidst
  global challenges and developments
• Turkey has the disadvantages because it has
  little possibility to predict the next EU step.
  The uncertainty can only be mitigated if Turkey
  is allowed to participate in decision making, or
  it is sufficiently consulted and informed by the
  EU.
• But consultation mechanism does not work
  properly and Turkeys access to detailed
  information has limitations

38
Compatibility criterium

• If the EU trade strategy matches Turkeys trade
  policy priorities

39
EU and Turkish Trade Strategies Are they
compatible?
Priority topics EU Global Europe Strategy Turkish Export Strategy Plan
Market Access High-tech goods Services ensuring greater openness in other markets... Innovation and high-tech goods investment in high-quality goods Essential for EU market strategy export structure conducive towards sustainable export increase High-quality products Services are considered
Access to input markets EU access to resources and cheap global sourcing in third country markets Provide exporters with inputs at internationally competitive prices via domestic resources
WTO issues Deeper trade agenda to include competition, TRIPs, investment, regulatory standards and govn. proc. No specific emphasis on a deeper agenda (except the inclusion of services and investment in part.)
Priority markets Korea, India, ASEAN, MERCOSUR, ANDEAN, Canada... Neighbouring and surrounding countries essentially
Negotiation forum Preferential trade (FTAs) and bilateral relations have priority Preferential trade (due to the EU effect - Art. 16 of CU Decision)
40
WTO criterium

• If the EU is committed to, and a firm defender of
  the WTO, and if multilateral negotiations have
  the primacy in EU trade strategy
• The EU gives only a lip service to the
  completion of Doha Round and the WTO as a forum
  for trade negotiations.
• Furthermore, many FTAs have adverse effects on
  the multilateral trading system (EU Trade Study
  Group Report, ECIPE 2010)

41
Hegemony/leadership criterium

• If the EU is a normative hegemon which has the
  ability to urge Turkey (and almost all of its
  spokes) to behave in harmony with the rules and
  norms it sets out.
• However, the EUs normative and hegemonic role
  to provide stability in the world trading system
  is problematic
• see next page

42
Does Global Europe strategy make the EU a
normative power? (1)

• The EU is not an angel itself
• Protectionism in CAP
• Trade defense instruments (i.e. anti-dumping..)
• Standards protectionism!
• Enlarged EU dilutes single entity in external
  action not all MS are interested in market
  opening abroad for FDI, services etc.
• behind-the-border issues and globalisation
  process makes trade policy politically
  contentious not only between the EU- third c.,
  but domestic divison on Singapore issues

43
Does Global Europe strategy make the EU a
normative power? (2)

• 4. EU competence on many trade-related matters is
  weak That puts the E. Commission in difficulty
  in external negotiations in new areas (energy,
  investment, services (partly), environment,
  social clause...)
• 5. Export of European social and regulatory model
  (European norms, values, domestic rules...) is in
  many cases confronted with the WTO jurisdiction
  DS rulings against the EU measures)

44
Compensation criterium

• If Turkeys perceived loss is compensated to
• satisfy Turkey under institutional, procedural
  and/or financial mechanisms or if the customs
  union is extended to areas where Turkey can
  obtain extra benefits
• services
• agriculture

45
Agriculture

• Only processed agricultural products are
  included in CU regime
• Expansion of Customs Union regime to agricultural
  goods would lead to noticeable increase of
  Turkish agricultural exports into the EU market
  (by 14 in vegetables 12.5 in fruits 38.5
  in processed agr.) (Lehmann et.al. 2007) see
  also Eruygur and Çakmak (2005).
• Cost of Turkeys adoption of the CAP must be
  considered
• Turkeys position in Doha Round diverges as it
  supports G-33 and developing c. position in
  sensitive goods and SSM and G-20 and Cairns
  group position on domestic subsidies.

46
Accession negotiations criterium

• If the accession process goes smoothly
• But remember the difficulties in opening
  chapters
• 8 chapters are suspended (although they are
  concerned with trade issues) due to Cyprus issue.

47
Political belief criterium

• If the EU accession process continues to be
  politically a prevailing idea in Turkish public
  (or at least in the policy-making circles)
  despite all uncertainties.
• It is visible that this has lost ground among
  several circles/elites in Turkey which once
  adhered to EUs anchoring role or its
  conditionality, but became disappointed due to
  open-endedness of the accession process.

48
Turkey now stands between the CU that cannot be
rolled back and the full membership that is not
conceivable in a foreseeable future

• My intention here is not to frame a pessimistic
  scenario but to make a concise analysis of the
  current case of TR-EU relations, considering the
  global and domestic factors that may cause a
  convergency between Turkish and EU trade
  strategies.
• It should also be noted that it is not clear
  even for the EU itself
• - how its internal reshuffling affects its
  external action and its global role
• - how the new Lisbon Treaty will shift the power
  among domestic actors (e.g. institutions and
  others)

49

• What to do in FTA issue?

50
What to do in FTAs issue? (1)

• INSTITUTIONALLY
• A Free Trade Agreement Study Group under the CU
  Joint Committee to be established in order to
  discuss technically challenging issues.
• This may help Turkey to recieve regular and
  comprehensive information about EUs FTA
  negotiations.
• Turkey already offered a trade policy study
  group and E. Commission welcomed the idea.
• An informal sub-committee under Article 133
  Committee (under the initiative of trio
  Presidency) where TR business community and NGOs
  can express their concern on EU trade agreements.

51
What to do in FTAs issue? (2)

• TURKEY TO REMIND THE EU
• 3. to apply key economic criteria ? while
  making FTAs the EU should consider risk that
  preferential access to EU markets currently
  enjoyed by our neighbouring and DC partners may
  be erodod.
• This criterium is not instrumentalised (for
  TR). EU must consider the likely impact on
  Turkey of its FTAs strategy by adding Turkey into
  its impact analysis.
• 4. EU should not ask for concrete examples of
  injury in TR industries as a result of its FTAs,
  as injury from FTAs can be hypothetical now but
  more physical in the future.
• 5. EU not to ratify its FTA until the third
  country starts negotiations with Turkey
• This idea was not welcomed by the EU at all.

52
What to do in FTAs issue? (3)

• COUNTER MEASURE AS A COMPENSATION
• 6. Article 58(2) of the Decision 1/95 should
  be applicable
• If discrepancies between Community and Turkish
  legislation or differences in their
  implementation in an area of direct relevance to
  the functioning of the Customs Union, cause of
  threaten to cause impairment of the free movement
  of goods or deflections of trade and the affected
  Party considers that immediate action is
  required, it may itself take the necessary
  protection measures...
• Article XXIV ad. Para. 9 of GATT can be
  applicable.

53
What to do in FTAs issue? (4)

• MULTILATERAL (OUTSIDE THE BILATERAL)
• TR must insist on the multilateral path and
  completion of Doha (most EU FTA partners will be
  unwilling on Doha if they achieve preferential
  access in EU and US markets).
• Use dispute settlement mechanism if the EU FTAs
  harm Turkeys rights deriving from the WTO rules
  and agreements
• It is not practical nor friendly among Customs
  Union partners, and considering Turkeys
  accession process.

54
references

• Akman, M. S. (2006), The Compatibility of
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• Checkel, J. (2000), Compliance and
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• ECIPE (2010), A Modern Trade Policy for then EU
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• the EU Trade PolicyStudy Group. ECIPE
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55
Thank you!

• Dr. M. Sait AKMANMarmara University and TEPAV
• sait.akman_at_tepav.org.tr
• or
• saitakman_at_marmara.edu.tr
• Tel. [phone]
• Fax. [phone]