THE WORLD BANK REPORT ON THE EVALUATION OF TURKISH-EU CUSTOMS UNION

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1 THE WORLD BANK REPORT ON THE EVALUATION OF TURKISH-EU CUSTOMS UNION TRANSPORT; UND COMMENTS and EU PROVISIONS INTRODUCTION: The report launched on 8 April 2014 by the World Bank highlights the fact that although the objective of growth of reciprocal trade in volume and in value has been achieved to a certain extent, however, it also indicates that it has been growing below its full potential because of restrictive measures such as road transport quotas and visas, emphasizing the need for liberalization of the transportation of goods in free circulation for the better functioning of the Customs Union. Although the Customs Union requires free movement of goods, the reciprocal trade of goods ( that are supposed to be in free circulation) has been proved to become more expensive due to certain protective instruments, particularly as a result of transit restrictions imposed within the EU customs territory (and the Single Market), thus, avoiding expected benefits for the two sides. Our comments on the interesting findings in the report are as follows.

2 INTRODUCTION UND, as the prominent professional association representing the Turkish international road freight transportation sector, has launched in 2014, a comprehensive and multi-dimensional initiative to ensure liberalization of transit operations performed by Turkish vehicles within the European Union,bringing an enduring resolution to one of the most significant problems that deter the growth of the sector in the current global competition environment. Within the framework of our struggle against restrictions on transit, there have been various activities carried out in Turkey and abroad at national, international, bilateral and multilateral platforms. Through such activities, the problem of non-tariff and discriminatory restrictions imposed upon transit operations performed in EU member states by international road freight transporters registered in Turkey has been brought to the top agenda of the EU Commission, proving the recognition by the latter of the common impact upon the Turkish and European Union economies which get kore and more integrated since This is proved by the launch of specific study missions that aim to assess such impact on both economies, one of which was recently finalized through the report published by the World Bank on Turkish-EU Customs Union. The fact that such transit restrictions imposed by the EU upon Turkish transporters, apparently violate the rights currently held by turkish transporters on the legal basis of the Turkish-EU association, is today widely acknowledged by all relevant stakeholders in Turkey, in the European Union as well as those abroad. The current Association relationship set up through the Ankara Agreement signed in 1963 between Turkey and the EU (then referred as EEC ), coupled with its Additional Protocol signed in 1970 with the aim of the Agreement s implementation, has been reinforced through the subsequent establishment of a Customs Union, the final phase of which entered into force as of 1 January 1996 via the Decision on the Association Council Nr. 1/95. As a result of such agreements that have set a very peculiar structure whereby the EU has built up a special bond with Turkey, bearing no similarity with any other state along the path to full membership, Turkey is no more any 3rd country for the EU. Whereas, it is also confirmed through past rulings by the highest judicial body, ECJ, that as a result of such association relatinship, Turkey should be considered as equal to a full member state, except for issues such as participation in decision-making mechanisms or budgetary decision. On grounds of such legal relationship, Turkey and the EU compose a single customs territory and any customs duties or duties with equivalent effect or quantity restrictions or meaures with equivlent effect to be imposed upon industrial goods or processed agricultural products that are traded within the said territory, are banned (Article 10 of the Association Agreement; Articles 21 and 2 of the Additional Protocol of 1970; Decision Nr. 1/95 of the Turkish-EU Association Council). Goods that are in free circulation within the common customs territory belong to the EU s single market, either they are sold from Turkey to EU member states or they are imported from the EU to Turkey. Therefore, transit quotas or other discriminatory practices plus charges on transit imposed upon goods transport vehicles carrying goods in free circulation under the Customs Union, represent duties with equivalent effect to customs duty as well as measures with equivalent effect to quantity restrictions, both of which are banned as required by the principle of free movement of goods. On the other hand, Articles 23 and 41 of the Additional Protocol of Association Agreement stipulate both Turkey and the EU, to abide by the principle of stand-still which is one of the most important rules of international law, during their reciprocal provision of trade in goods and services. This means, both sides have committed themselves not to worsen the current conditions or make them more restrictive compared to what is applicable at present. However, Bulgaria might be cited at first instance, as a counter example, where Turkish hauliers used to transit freely before 2007, after which date (immediately following the country s accession to the European Union) has launched tran-

3 sit quota restrictions upon Turkish hauliers, followed by introduction of a transit charge of 86 Euros per round trip, clearly violating the principle of stand-still. Similarly, Turkish transporters who used to pay 436 Euros to transit Hungary before 1 July 2013, while after that date, starting from the introduction of a new road toll system, they have been charged an extra amount of 120 euros, without having the existing charge abolished. This has created an environment of unfair competition whereby transport vehicles registered in other countries have been only paying the amount of 120 Euros (as part of the new toll system), Hungary s charging on Turkish transporters has turned out to become discriminatory, representing another violation of the principle of stand-still. Particulary, given the fact that the Turkish economy has been rapidly integrating with the global economy, it would be logical to acknowledge that the Turkish economy has naturally been an integral part of the European Union economy. 70 % of the total foreign direct investment originates from EU member states, while 50 % of all Turkish exportation have been conducted by EU-capital companies established in Turkey. Besides, it is a widely acknowledged fact that 74 % of Turkish exports to the EU have been imported, again from EU member states. Exportation by EU member states to Turkey, accounts 1.5 times higher than Turkey s exports to the EU ( 92 billlion US$). The situation clearly demonstrates the seriousness of the problem of restrictions on road goods vehicles registered in Turkey during their transit operations through EU member states, also with respect to the related costs for EU investors in Turkey and producers, consumers as well as traders in the EU. Apart from the EU legislation, restrictions on transit operations, above all, is currently banned under Article 11 of the latest Trade Facilitation Agreement of the World Trade Organization signed in December 2013 in Bali. The said global agreement was signed by 159 WTO member states including 28 EU member states,incoporates important commitments includiing the abolishment of any quantity restrictions and discriminatory charges on both goods and transport vehicles in transit, accompanied by exact commitments to facilitate transit as much as possible. In the light of the above, the request for liberalization of transit by Turkish goods vehicles transiting EU member states, should be a natural one, with all necessary acceptable grounds. Moreover, a review on the report published by the World Bank in April 2014, titled as Evaluation of the Turkish-EU Customs Union and subject to this information booklet, would demonstrate the accuracy and justifications of all arguments defended so far by the Turkish side on the breach of freedom of transit rule. It is, consequently, high time to ensure implementation of the fredom of transit rule which is an irreplacable right for the smooth international trade, across the world, while it is equally important to eliminate unnecessary extra costs in Turkish-German reciprocal trade through ensuring unrestricted and free transportation from Turkey to her largest trade partner, Germany, laying down equal conditions of business for Turkish transporters with their coleagues from the EU. We have no doubts that the World Bank, having made substantial investments around the world to ensure uninterrupted flow of world trade along developed transport infrastructures, towards the main objective of increased wealth for all nations, will naturally offer its support to such liberalization. On this occasion, I would like to express my sincere gratitude to all contributors of the report on Evaluation of Turkish- EU Customs Union which handles this vital issue objectively and properly, particularly the representatives from the World Bank and the EU Commission, besides relaying my thanks to the members of the UND Board of Directors, the EU Consultant to the Board Mr. Can Baydarol; members of the UND Executive Committee, its Chairman Mr. Fatih Şener, Vice Chairpersons Mr. Alper Özel and Ms. Evren Bingöl as well as the prominent business associations in Turkey mainly TOBB, TİM, İKV, TÜSİAD and MUSİAD, for their continuous support. Çetin Nuhoğlu UND President

4 REPORT: Item 102. UND comments: All goods produced in Turkey actually belong to the EU Single Market within the common Customs territory. 50 % of exports by Turkey to the EU market are carried out by EU-capital companies established in Turkey, while 30 % of all exports from Turkey to the EU, are done by German-capital companies. By restricting transit, EU member states also restric turkish export goods that are supposed to move freely within the common customs territory, while they actually restrict the free circulation of EU goods produced in Turkey as well as EU s exports to Turkey. Indeed, the EU has already consider the transport dimension of the Customs Union, acknowledging its relevance to the free movement of goods, already since the signature of the Ankara (Association Agreement) signed in Pushing a number of service providers operating in the market of Turkish exports/imports to the EU, via restricting transit, disturbs competition causing unfair practices besides causing problems for shippers in exportation and importation. Therefore, producers in Turkey and in the EU, end consumers and manufacturing industry are obliged to pay higher costs. Road quotas, and notably transit permits, create obstacles to the free movement of goods and impede transit traffic thereby hindering the full operation of the CU. In the EU, bilateral road transport agreements including quota negotiation remain a sovereign attribute of the individual EU member states (see Annex 14). By limiting the number of Turkish-registered vehicles that can carry goods in their territory, EU member states set limits on Turkish goods that can be transported to the EU by Turkish road transport operators (although they can still be carried by EU road transport operators). This raises costs if the most efficient transport operator can no longer be used. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : o DECISION No 1/95 OF THE EC-TURKEY ASSOCIATION COUNCIL ARTICLE- 2 This Chapter shall apply to products other than agricultural products as defined in Article 11 of the Association Agreement ARTICLE This Chapter shall apply to goods: - produced in the Community or Turkey, including those wholly or partially obtained or produced from products coming from third countries which are in free circulation in the Community or in Turkey, - coming from third countries and in free circulation in the Community or in Turkey ARTICLE- 4: Import or export customs duties and charges having equivalent effect shall be wholly abolished between the Community and Turkey on the date of entry into force of this Decision. The Community and Turkey shall refrain from introducing any new customs duties on imports or exports or any charges having equivalent effect from that date. These provisions shall also apply to customs duties of a fiscal nature ARTICLE- 5 : Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited between the Parties ARTICLE- 6 : Quantitative restrictions on exports and all measures having equivalent effect shall be prohibited between the Parties. o1970 ADDITIONAL PROTOCOL ARTICLE 21 Quantitative restrictions on imports and all measures having equivalent effect shall, without prejudice to the following provisions, be prohibited between the Contracting Parties. ARTICLE 22 1.The Contracting Parties shall refrain from introducing any new quantitative restrictions on imports or measures having equivalent effect. ARTICLE The Council of Association shall extend to Turkey, in accordance with the rules which it shall determine, the transport provisions of the Treaty establishing the Community with due regard to the geographical situation of Turkey. In the same way it may extend to Turkey measures taken by the Community in applying those provisions in respect of transport by rail, road and inland waterway. o1963 AGREEMENT ESTABLISHING AN ASSOCIATION BETWEEN EEC AND TURKEY ARTICLE The customs union provided for in Article 2 (2) of this Agreement shall cover all trade in goods. 2. The customs union shall involve: - the prohibition between member States of the Community and Turkey, of customs duties on imports and exports and of all charges having equivalent effect, quantitative restrictions and all other measures having equivalent effect which are designed to protect national production in a manner contrary to the objectives of this Agreement; - the adoption by Turkey of the Common Customs Tariff of the Community in its trade with third countries, and an approximation to the other Community rules on external trade. ARTICLE 15 The rules and conditions for extension to Turkey of the transport provisions contained in the Treaty establishing the Community, and measures adopted in implementation of those provisions shall be laid down with due regard to the geographical situation of Turkey. 4

5 REPORT: Item 103. Other key elements hampering international road transport include the national licensing system and visa restrictions (for professional drivers) imposed by certain EU member states. Other costs to road transport firms, estimated to account for 10 percent of transport costs, include those relating to obtaining visas for drivers, customs transit documents (e.g. TIR Carnets) and transport permits. Firms often obtain Schengen visas for the EU for their drivers. These allow multiple entries, are generally valid for one year and cost but only allow 90 days stay over the period and this can be a constraint for drivers. Nevertheless seven documents are needed to apply for a visa for truck driving to or through the Schengen area including an invitation from the receiving firm which can be difficult to obtain. Reference letters are also required and visas are not transferable to replacement drivers. Every loss of time for EU visa for drivers, generate the result of Measures Having Equivalent Effect with The Quantitative Restrictions installed by Ankara agreement between Turkey in 1964 in terms of Partnership and Customs Union relations. Additional expenditures such as visa fees and invitations which are hard to obtain for each application, are also having an equivalent tax effect to Turkish industrialists and exporters. Concerning truck/tir drivers visa application, invitation letter or partnership document from a company in EU territory is demanded in order to enter or transit through Schengen territory. The relationship between EU guarantor company and driver end with the delivery of the good to the consignee. It can be clearly seen from the situation that invitation demanded from drivers has no purpose other than cause complication the visa application process. As nature of their mission, the professional drivers are only responsible for delivering the goods to the given addresses and it is not possible for them to have a partnership document besides it is not meaningful to demand invitation considering that they will not be participating an organization which will require invitation (meeting, exhibitions etc.) However as it is mentioned in the document published in 2009 with the name Guidelines regarding Turkish citizens circulation in order to provide service in EU, Professional Turkish drivers have the the status as service provider and it is confirmed they have received the right of limited visa exemption. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : o1970 ADDITIONAL PROTOCOL ARTICLE 23 Without prejudice to Article 22 (5) the Contracting Parties shall, in their trade with one another, refrain from making more restrictive the quantitative restrictions on imports and measures having equivalent effect existing at the date of entry into force of this Protocol. ARTICLE The Contracting Parties shall refrain from introducing between themselves any new restrictions on the freedom of establishment and the freedom to provide services. 2. The Council of Association shall, in accordance with the principles set out in Articles 13 and 14 of the Agreement of Association, determine the timetable and rules for the progressive abolition by the Contracting Parties, between themselves, of restrictions on freedom of establishment and on freedom to provide services. The Council of Association shall, when determining such timetable and rules for the various classes of activity, take into account corresponding measures already adopted by the Community in these fields and also the special economic and social circumstances of Turkey. ARTICLE The Council of Association shall extend to Turkey, in accordance with the rules which it shall determine, the transport provisions of the Treaty establishing the Community with due regard to the geographical situation of Turkey. In the same way it may extend to Turkey measures taken by the Community in applying those provisions in respect of transport by rail, road and inland waterway. 5

6 REPORT: Item 103. Transport permits, notably for transit, are identified by both the industry and the public sector as important obstacles to Turkey s trade with the EU. Limitations such as quota, fees etc which Turkish transporters demanded to be liberated of, are nothing but a discriminative applications for Turkish vehicles regarding the performed transit transports through EU member states. Freedom of transit which is a universal right, is strongly pledged by 159 WTO members among EU countries under the article 11 of Trade Facilitation Agreement signed in Bali December As being on a geographically strategic country, Turkey has started the evaluation regarding freedom of transit completely in order to support Bali vision. What Turkey needs is, the transit freedom and permit quota that will be enough for import and export operations performed by road between EU and Turkey. Actual problem derives from the transit being an element of bargain as approval needed by transit countries before trade agreement is signed with the related country. Bilateral transports can only be regulated by special provisions of valid agreements between related countries. However, Transit is a universal right and a geographical responsibility, apart from that. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : odecision No 1/95 OF THE EC-TURKEY ASSOCIATION COUNCIL ARTICLE 7 The provisions of Articles 5 and 6 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animals or plants; the protection of national treasures possessing artistic, historic or archaeological value; or the protection of industrial and commercial property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary discrimination or a disguised restriction on trade between the Parties. 6

7 REPORT: Item 105. There are four types of permissions that can be granted to each other s carriers by two countries. It is not common international practice to require a permit for a truck entering empty in a country; however Turkey uses this clause in some of its bilateral road transport agreements. It does not seem logical to endure the costs of making an empty entry to take goods to another country, considering that there are other vehicles located near to goods. However there is the obligation of Turkish vehicles to pay extra 800 Euros for transit transports to EU and 800 Euro cost to board the train, whereas Balkan country vehicles are exempt from this cost and this enables them to make empty entry to Turkey. As being unjust gain obtained by additional costs as well as inconsistent to the environmental and sustainable economy approach, one way empty traffic has to be prevented. Alongside the discriminative costs, the use of worlds cheapest fuel by neighbour countries at East, South and North has resulted empty entry vehicles to Turkey which have adopted export oriented enlargement pattern. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : o 1970 ADDITIONAL PROTOCOL ARTICLE 60 1.If serious disturbances occur in a sector of the Turkish economy or prejudice its external financial stabi1ity, or if difficulties arise which adversely affect the economic situation in a region of Turkey, Turkey may take the necessary protective measures. 7

8 REPORT: Item 106. In the EU, liberalization of the road transport market started with the Treaty of Rome but some restrictions remain. Title V of Article 71 in the Treaty of Rome explicitly provides for the freedom to supply international inland transport services although actual liberalization was not fully realized until the Single European Market was established. In the context of Transport of Passenger and Goods by Road and Railway Agreement signed in 1999 and came into effect on 1st of July 2002 between EU and Switzerland, transit transport has been liberated for EU and Switzerland vehicles. Thanks to Road Transit Agreement signed with Hungary in 2000 and with Romania in 2001, these countries road transport services have been regulated by European Union. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : o1970 ADDITIONAL PROTOCOL ARTICLE 14 Where, in respect of a country outside the Association, Turkey applies a shorter timetable than is provided for in Articles 10 and 11 to the elimination of a charge having effect equivalent to a customs duty, the same timetable shall be applied to the elimination of that charge in respect of the Community. ARTICLE- 20 in the case of each product, the value of imports provided for within the framework of the tariff quotas shall not exceed one third of the average value of Turkish imports of that product from third countries in the past three years for which statistics are available. 8

9 REPORT: Item 107. At the multilateral level, two schemes regulate access to the Turkish and EU road transport markets. The International Transport Forum (ITF) an intergovernmental organization with 54 member countries - manages the Multilateral Quota System (MQS) a permit system originally introduced in 1974 by the European Conference of Ministers of Transport (ECMT). In addition to being a member of the ITF, Turkey is also a member of the Black Sea Economic Cooperation (BSEC). BSEC is an intergovernmental organization established in 1992 with 12 members. ECMT Multilateral Quota System that is still administrated by International Transport Forum (ITF), is designed mainly to facilitate third country transport. As implied by ITF General Secretary, Turkey is considered as the Promoter Country in the system and most third country transport performed country with ECMT permit by foreign country vehicles. Again implied by ITF General Secretary, as well as being Most Liberal Country in terms of third country import/export, also a significant country in case Turkey quits the system. Turkish transporters are the most inefficiently ECMT permit user for third country transports as they have to get over artificial barriers in EU countries for transit. ECMT Multilateral Quota System, is severely damaging Turkey and transport sector under these circumstances. Therefore Turkey is evaluating to either quit ECMT system completely or limit country base quota to prevent the disadvantage of system versus Turkish transporters just like Russia. UND has presented official point of view to both ITF and Turkish Ministry of Transport, Maritime Affairs and Communications. 9

10 REPORT: Item 108. Bilateral quotas also control entry. The European Commission requires a mandate for any negotiation with third countries, be it in air transport or in road transport. In road transport, agreements between EU and non-eu countries remain an exclusive national competence and are dealt with bilaterally between two countries. The most common practice for defining annual bilateral road quotas is reciprocity, although there are many cases where the number of permits exchanged is not equal or the parties do not grant each other the same type of permission. For example, Turkey provides Romanian road transport operators with a number of triangular permits while Turkish carriers do not receive these types of permits from Romania. The basic principle for the determination of annual quota would be to set a permit quota fort he total trade, its equal distribution among transporters from both countries and ensure an equal share of the market between transporters of such countries. The ECMT multlateral quota system defines a third country load use capacity for all countries within the ECMT system, depending on their needs and capabilities. Third country permits have been used as instruments of bargaining by certain EU member states in return for allowing transit permits to Turkish transporters. This is not acceptable as freedom of transit is a global right and a responsibility of the country transited. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : odecision No 1/95 OF THE EC-TURKEY ASSOCIATION COUNCIL ARTICLE The following shall be prohibited as incompatible with the proper functioning of the Customs Union, in so far as they may affect trade between the Community and Turkey: all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 10

11 REPORT: Item 109. The restrictiveness of bilateral quotas and the costs they impose on trade varies. Three methods can be used to increase limitations associated with road transport permits. Firstly, some countries do not issue transit permits which obliges road transport operators to use alternative modes of transport (trucks on rail or ship) instead, which increases costs. Secondly, some also charge a fee for the transit permit (Box 14). Thirdly, there are some countries that have not increased their transit quotas over the past two decades despite increased trade. While transporting goods to Germany, due to limited number of Austria and Slovenia transit permit, Turkish vehicles are obliged to board insufficient Ro-La train moreover they have to pay 780 Euro for round-trip journey. As the reservation system is not functioning steadily, they also have to wait approximately 2-3 days in Ro-La terminals. When 200 Euro daily waiting costs are added and total waiting cost reach Euro, Turkish transporters became disadvantageous versus their EU origin competitors that do not undergo these costs as well as their delivery time advantage, along their transit through Austria. It can be clearly seen that it is a discriminative measure considering that Bulgaria charges 86 Euros, Romania charges 236 Euros and Hungary charges 436 Euros, the transit by Turkish transporters only. Since the last official meeting in 2008, Italy has not increased the transit quota limited to 6000, although there is an increase on export of Turkey to France, Spain, Switzerland, Portugal. Therefore, it has become an obligation for Turkish vehicles to travel extra km to reach France and Spain through Germany. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : odecision No 1/95 OF THE EC-TURKEY ASSOCIATION COUNCIL ARTICLE Any abuse by one or more undertakings of a dominant position in the territories of the Community and/or of Turkey as a whole or in a substantial part thereof shall be prohibited as incompatible with the proper functioning of the Customs Union, in so far as it may affect trade between the Community and Turkey. 2. Such abuse may, in particular, consist in: (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions; (b) limiting production, markets or technical development to the prejudice of consumers; (c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts. 11

12 REPORT: Item 110. Road transport quotas both on bilateral and transit transportation should be eliminated, at least for those goods covered by the CU, as they hinder free circulation, impose burdens on Turkish trade and prevent Turkish carriers from efficiently using their trucks. In the EU context, the European Court of Justice has ruled that obstacles to road transportation, even those not caused by the State, may impede the free movement of goods. During a transport between Turkey and Germany, the additional costs that Turkish transporters are exposed to when passing transit through the countries en route, are being incurred by exporters in Turkey and importers that are selling goods from EU to Turkey. The cost of transit restrictions not only affect the export of Turkey to EU but also affects EU export to Turkey. The import performed from EU to Turkey is 69,5 Billion Euro, which is 1,4 times higher than the Turkish export to EU. Therefore, there has been an annual loss on the side of importers in the EU, losing about 8 billion dollars of exporting opportunity to consumers in Turkey. As the protector (guarantor) of the agreements, EU Commission is urged to take action. Similarly road transport quotas impose additional costs on Turkey s trade, both financial and administrative. Preliminary results in a report prepared by Doğuş University for the Professional association UND, show that Turkey s lost export opportunities to 11 EU countries amounted to 1.66 billion tons of goods worth US$5.56 billion due to the quota system alone. 12

13 REPORT: Item 111. Similar mistakes have been made during the past EU enlargement process and limitation of transport caused limitation of foreing trade and economy have been experienced as loss. Experience gathered from the past mistakes shall not be repeated again. It is emphasized that according to World Bank report 18 year old Customs Union is affected by quotas and continues to pay the price. Considering the benefit of EU economy, it is carrying very much importance to correct this mistake immediately. Almost all candidate countries for EU accession have faced road quota limitations. 13

14 REPORT: Item 113. While multilateral agreement would be beneficial, more flexible arrangements should also be considered vis-à-vis the EU with the European Commission playing a lead role. Another option might be to negotiate a road transit agreement similar to those concluded by the European Commission with Hungary and Romania (Box 15). Alternatively a road transport agreement between the EU and Turkey could be negotiated liberalizing the carriage of goods covered by the CU. As it is clearly seen on Turkey- EU trade figures, there are limiting factors against rapid development of Turkey- EU trade. In response to given transit permit from Germany, a quota of transit permits has been granted by Austria and it is not only insufficient but also limiting barrier against Turkish-German trade. Correspondingly, it will be an option to establish a general transit quota to uplift this trade. In terms of losses incurred by both economies, for an urgent solution, a new decision of Association Council has to be published. As it is committed by the EU under Article 15 of Ankara Agreement which forms an association between Turkey-EU in 1963 and Article 42 of the Additional Protocol, considering the geographical situation, the extension of provisions to Turkey regarding the transport that takes place in the agreement is an obligation on the side of the EU. EXISTING AGREEMENTS SIGNED BETWEEN TURKEY AND THE EU STIPULATE : o1963 AGREEMENT ESTABLISHING AN ASSOCIATION BETWEEN EEC AND TURKEY ARTICLE 2 1. 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 an accelerated development of the Turkish economy and to improve the level of employment and living conditions of the Turkish people. 2. In order to attain the objectives set out in paragraph 1, a customs union shall be progressively established in accordance with Article 3, 4 and 5 3. Association shall comprise: (a) a preparatory stage; (b) a transitional stage; (c) a final stage 14

15 REPORT: Item 193. Institute a welldesigned Dispute Settlement Mechanism (DSM). This recommendation stems from the various trade irritants affecting bilateral trade in the CU. The existing DSM in the CU is not effective because it is currently limited to disagreements on the duration of safeguard measures. Shifting to a DSM where one party can bring a case on a broader range of issues would be more effective in resolving trade irritants. Existing bodies of the Turkish-EU Association relationship, namely the Association Committee and the Association Council, are not in a position to allow for a healthy and rapid resolution to present conflicts that have occurred because of certain political blockages that may even be reflected in the realm of road freight transportation, thus, there is a need fort he establishment of a new Dispute Settlement Mechanism. Such mechanism should be designed in a way it could provide, if necessary, for an instrument for any party that have been suffered due to the legal problems peculiar to the Turkish-EU relationship. 15

16 European Commissioner for Enlargement and European Neighbourhood Policy Stefan Füle: State of EU-Turkey relations: achievements and disappointments Third, in the past months, we also looked more closely at our trade relations. The evaluation by the World Bank of the Customs Union - the main economic pillar of European Union-Turkey relations - provides us with a great opportunity to study its strengths and weaknesses and to advertise the substantial gains it brings for both sides. First and foremost, it gives us the chance to make best use of its huge untapped potential if we constructively put our efforts to solve existing difficulties. I truly believe this could provide a boost to our cooperation for the years to come. ULUSLARARASI NAKLİYECİLER DERNEĞİ INTERNATIONAL TRANSPORTERS ASSOCIATION