The imposition of additional duties on imports of textiles and apparel, among other things, means that companies from Asian countries like India or China that export to Turkey now face cumulative duties of 28 per cent for textiles and 42 per cent for apparel. For EU exporters and for exporters from countries with whom Turkey has free trade agreements, the situation is different. Jozef De Coster reports on the disputes.

During a conference in Brussels, on February 23, 2016, specialised European law firms made it clear that the Turkish additional duties on the imports of textile, apparel and an increasing number of other products like carpets, rugs, bedding, leather bags, are illegal. These duties are in breach of WTO rules and, as far as Turkish imports of EU and Euro-Mediterranean products are concerned, they are also in breach of the EU-Turkey Customs Union. It can only be a question of time before complainants sue Turkey and force it to clean up its act.

In 2011, following a safeguard investigation which was triggered by a textiles firm alleging that it was suffering serious injury caused by a significant increase of imports, Turkish authorities announced a series of decisions, published in the Turkish Official Gazette No 28055 of September 15, 2011. They imposed additional customs duties for woven fabrics and apparel (HS codes 50 to 62). Depending on the country of origin for textiles imported into Turkey, the additional customs duties varied from 11 per cent (for LDC and GSP countries) to 20 per cent (for countries subjected to MFN rates). For apparel, the additional duties varied from 17 per cent (for LDC and GSP countries) to 30 per cent.

Taking into account the Turkish Most Favoured Nation (MFN) rate of 8 per cent for textiles and 12 per cent for apparel, this means that companies from Asian countries like India or China that export to Turkey face cumulative duties of 28 per cent for textiles and 42 per cent for apparel. These are quite high import duties for companies that have to compete with Turkish companies operating in their home market. The Turkish textiles/apparel sector is one of the most competitive worldwide.

Imports from Asia suffer most

For EU exporters and for exporters from countries with whom Turkey has free trade agreements, the situation is different. In a decision dated June 1, 2012, the Turkish authorities confirmed that additional duties are not charged to goods originating in the Pan-Euro- Mediterranean area (practically EU EFTA plus those 17 countries with whom Turkey has a preferential trade agreement). This was an important confirmation for exporters concerned. Turkey is surely an interesting market for EU exporters. According to the Textile and Clothing Information Centre, quoted by the European Apparel and Textile Confederation (Euratex), in 2015 EU textile exports to Turkey amounted to €1.8 billion (increase of 4 per cent compared to 2014) while EU apparel exports reached €900 million (plus 2 per cent).

On May 30, 2015, Turkish authorities revised the textile measures imposed in 2011. The ad valorem rates remained the same. Only the minimum and maximum amounts of additional duties for GSP beneficiary countries were elevated.

It was no surprise that the introduction of the additional duties in the second half of 2011 had an adverse impact on textiles and apparel exports to Turkey. In general, Turkish imports of textiles and apparel decreased substantially in 2012. However, they started to increase in 2013. In 2014 and in the first half of 2015, Turkish textiles and apparel imports decreased only with the general trend of decrease in total Turkish imports of all products.

The statistics show, however, a different development for Turkish imports of Asian origin and those of pan-Euro-Mediterranean origin. Between 2010 and 2014, the share of imports of textile and apparel products from Asia decreased from 64.7 per cent to 57.9 per cent. During this same period, the share of imports (of items not originating in EU countries or Mediterranean countries with whom Turkey has an FTA) from EU and FTA countries increased respectively from 19 per cent to 23.6 per cent and 8.8 per cent to 12.5 per cent.

According to representatives of the Turkish industry, the main effect of the additional duties over the local textiles and apparel industry is the increase in local investments and creation of new employment, especially in the relatively less developed eastern parts of Turkey.

Illegal additional duties under attack

At a well-attended conference under the title 'Trouble Selling in Turkey?', the experienced Belgian international trade, customs and EU regulatory lawyer Yves Melin, of McGuireWoods LLP, explained to the audience that the discussed Turkish additional customs were not only in breach of the EUTurkey Customs Union Agreement (1995) but as well with Turkey's own WTO obligations. GATT Article II:1(b) says that non-ordinary customs duties cannot normally be imposed. Such duties like additional customs duties, are only compatible with the WTO if they are compatible with the WTO Agreement on Safeguards. However, Turkey has not followed the WTO Safeguards procedure.

A few associations like Euratex, Belgian Textile Industry (Febeltex) and Italian Textile Finishing Industry (Federtessil) have already filed a complaint against the Turkish additional customs duties in the context of the European Commission's Trade Barrier Regulation (TBR). The TBR is a means for EU enterprises and associations affected by a foreign measure to have access to the international dispute settlement mechanism (Note: there is no dispute settlement mechanism in the EUTurkey Customs Union).

The main purpose of these TBR complaints was to exert pressure on the European Commission and on Turkey so that they would settle for a solution in order to prevent a dispute settlement action at the WTO level. However, up to now the complaints seem to have been unsuccessful.

Nothing happened. As far as the EU is concerned, Turkey is presumably well aware of the existing barriers to trade (like the additional customs duties), but wants to address them as part of the modernisation of the EU-Turkey Customs Union.  

Not only international law specialists of McGuireWoods, but also lawyers from other member firms of Green Lane, The Alliance of European Customs and Trade Law Firms, are convinced that it would be a good thing that companies, associations, countries that suffer injury caused by the Turkish additional customs duties, undertake action. Not only the interest of suffering parties is at stake, but also the broad public interest of maintaining observance of international trade laws.

Sporting goods too have been affected

At the conference 'Trouble Selling in Turkey? Stuart Newman, legal advisor at Foreign Trade Association, Brussels (representing 1,700 EU retailers, importers and brand-name companies) gave another example of the gradual erosion in Turkey of the rule of law. Additional customs duties on footwear came into effect on August 10, 2014. Accredited EU-laboratory test results on footwear (not originating in EU or FTA countries) are no longer accepted by Turkey, which is in conflict with Article 10 of the EU-Turkey Customs Union. The EU sporting goods industry estimates the cost of additional duties at €120 million, the cost of tests at around €4 million, and cost of additional warehousing at €4 million.

It can be expected that probably sooner than later a group of either EU or Asian companies will try to mobilise broader support among same-sector companies, associations from different sectors and several states to fight against the Turkish additional customs duties. Each company/association will then have to substantiate revenue losses, employment losses and competitiveness losses. The adverse impact on integrated supply chains could form a key argument. According to lawyers who explained the case at the 'Trouble Selling in Turkey?' conference, a well-devised action may lead to the measures being withdrawn by Turkey, without recourse to the WTO Dispute Settlement Body (DSB), or it could lead to forced withdrawal of the measures if DSB is convinced that impairment of trade benefits is important.