Worldwide: UK-Turkey Free Trade Agreement: Key Points Guide

UK-Turkey Free Trade Agreement: Key Points Guide

On 28 December 2020, the United Kingdom and Turkey concluded a Free Trade Agreement (the "FTA") to ensure the continuity of their trade following the United Kingdom's exit from the European Union ("EU").¹ It was estimated that without a deal, 75 percent of Turkish exports to the UK would have been subject to tariffs, leading to losses amounting to an estimated $2.4bn in 2021.

The previous UK-Turkey trade relationship was regulated principally by the EU-Turkey Customs Union, together with agreements on agriculture and coal and steel. It was therefore of paramount importance to both countries, given the volume of trade between them, to agree on trading arrangements once the UK exited from the European Union.

We have highlighted some of the key issues from the terms of the FTA.

Is the FTA in force?

While the formal entry into force of the FTA is subject to ratification² by each Party, it will nonetheless apply as of 1 January 2021 on the basis that each Party notifies the other prior to that date.³

What does the FTA cover?

The FTA covers trade in goods between the two countries to enable preferential or tariff free access covering both industrial and agricultural products.

The FTA does not cover services and therefore businesses providing services from Turkey to the UK, or from the UK to Turkey, must observe the laws and regulations of the country into which they are providing services. The FTA also does not cover investment into Turkey or the UK, and in this respect, where relevant, the existing Bilateral Investment Treaty would apply.

What are the tariff rates on goods?

Preferential or tariff free rates for trades in goods will continue to apply.

For industrial goods, a zero tariff rate will apply.

For agricultural products, Annex 2-B to the FTA sets out reduced or zero tariff rates depending on the classification of the product. Tariff Rate Quotas ("TRQ") have been set to allow a predetermined volume of a certain good to enter the market at a zero or reduced tariff rate. Sample tariffs to be applied to certain agricultural goods being imported into the UK and into Turkey have been included in Annex-1 and Annex-2 of this briefing for illustrative purposes. The new TRQs are based on expected yearly trade volumes between the two countries.

Are there any other taxes or duties on goods?

A non-discriminatory principle applies so neither party may impose additional taxes, duties or charges on goods for export unless these are also applied to like products for domestic consumption.

Other fees on importation or exportation (such as customs processing services) are to be limited to the approximate cost of services and should not act as an indirect barrier to trade.

Do tariffs apply to all goods being exported from UK or Turkey?

In order for products to benefit from preferential tariffs they must have originated in either the UK or Turkey, as applicable. The importer will be required to declare they hold proof that the goods comply with the rules of origin such as the export declaration.

The Protocol on Rules of Origin (the "Protocol") outlines the requirements for a good to be considered as having 'originated' in that country. The basic principle is that products wholly obtained⁴ and products that have undergone sufficient working or processing⁵ will be considered to have originated in the UK or in Turkey.

There are cumulation provisions in the Protocol to cover materials or processing in the EU, Switzerland, Liechtenstein, Iceland and Norway provided that the processing or working goes beyond the very basic modifications listed in the Protocol (eg. peeling fruits and vegetables). If the working or processing does not go beyond activities listed, but the value added in the UK or Turkey is greater than the value of the originating goods, then cumulation will nevertheless be satisfied.

Turkey's obligations to the EU through the EU-Turkey Customs Union mean that the rules of origin will need to align with rules of origin provisions in the trade deal between UK and EU, and as such, the Protocol is likely to be updated in the future.⁶

Are non-tariff barriers to trade covered in the FTA?

Not in detail due to Turkey's commitments to the EU. Technical barriers to trade ("TBT") provisions cover aspects relating to technical regulations, standards and conformity assessments for goods. They are important to reducing non-tariff barriers for businesses. However, due to Turkey's existing commitments to harmonize with EU law, it is difficult for the Parties to agree bilateral TBT provisions.⁷ Thus, a review clause is included so that provisions can be updated in line with provisions contained in the EU/UK trade agreement.

Until such update occurs, the provisions are based on the WTO Agreement on Technical Barriers to Trade. The FTA also reaffirms the commitments of the Parties under WTO anti-dumping, subsidy, and safeguard agreements.⁸ The parties also commit to maintaining measures that prohibit anticompetitive business conduct and ensuring suitable and effective intellectual property protection.⁹

Will customs processes be simplified?

The FTA set out¹⁰ some recommendations and obligations to facilitate passage of goods through customs but these provisions will require further implementation measures:

• Commitment to further simplification of customs procedures such as the use of customs declarations, and the ability to clear goods directly from importer or exporter premises. Each party is to ensure these systems are adopted with a view to releasing goods as quickly as possible, and in a manner that reduces the time and cost of compliance for operators.¹¹
• Goods must be released in under 48 hours from customs custody if the Party has received all necessary information and the goods are not subject to physical inspection. Electronic data processing should be adopted so that authorities are able to focus their inspections on high-risk consignments while expediting the release of low-risk consignments¹²
• Upon submission of a written request, the customs authority of the relevant Party must issue an advance ruling that details the treatment to be provided to the goods concerned. The requirements for the submission of a request shall be published online.¹³
• Customs procedures must not require the mandatory use of customs brokers.¹⁴

How is the FTA supervised?

A UK-Turkey Joint Committee will be established to oversee the operation and implementation of the Agreement. The Joint Committee is also empowered to amend Annexes and Protocols. Such amendments are binding on parties and not subject to domestic scrutiny, while amendments to the agreement itself are subject to domestic ratification and scrutiny procedures.

How are disputes regulated?

The dispute settlement mechanism applies to Turkey and the UK, but not to individual traders whose remedies are set out according to the relevant provisions such as customs determination challenges.

The complainant Party may submit a dispute to the Joint Committee with provisions to enable submission to an arbitration panel if the Joint Committee does not resolve the matter.¹⁵ There are also additional compliance requirements to ensure the effectiveness of the dispute resolution mechanism. Accordingly, the Party ruled against must adhere to the panel ruling and there is a review mechanism to determine progress toward compliance. ¹⁶ A new mechanism, whereby parties can agree compensation, or the complaining party can suspend concessions under the FTA in case of non-compliance, has also been introduced to provide a tool to enforce the obligations of the Agreement.¹⁷

Conclusion

Entry into the FTA was critical to preserve the continuity of trade in goods between the UK and Turkey following the UK's exit from the European Union. It is not a comprehensive agreement and gaps remain. In particular the FTA will need to be developed to track updates to the Trade and Cooperation Agreement between the UK and Turkey in particular on matters such as the rules of origin for products, and technical barriers to trade remain to be addressed in the post-Brexit world. Nevertheless, the FTA is sufficient to enable the significant volume of trade in goods between the two countries (particularly in the textiles, iron and steel and automotive sectors) to continue and creates opportunities for agricultural producers. The FTA provides a template on which to build further liberalization and facilitation of trade between the UK and Turkey.

This note is not intended to cover every aspect of the FTA and you may contact members of our team for further details.

Annex 1: Tariffs on Agricultural Imports into Turkey

The table above lists key tariff themes which apply to a selected number of goods. For a more detailed list which also includes the tariff quota limits and the dates during which preferential rates apply, please consult Annex 2-B-1 to the Agreement. It has been specified in the FTA that Turkey will "accord tariff preferences to agricultural goods originating in the United Kingdom which are at least as favourable in every respect as the tariff preferences accorded to goods originating in the United Kingdom on the 31 October 2020." Therefore, if Turkey applies higher tariffs to agricultural goods of the EU, it will then be able to apply the higher rate to the agricultural goods originating in the UK within the same particular tariff classification.

Annex 2: Tariffs on Agricultural Imports into the UK

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.