Economic Research Forum (ERF)

Liberalising road transport markets between Turkey and Europe

The routes that connect Turkey to its most important trading partners in Europe are governed by a system of road transport quotas, which has a significantly negative effect on the country’s exports. This column explores the challenges of liberalising the market for road freight transport services between Turkey and the European Union.

In a nutshell

Quotas imposed by EU members on road transport services between Turkey and Europe increase costs, thereby restricting trade between the two parties.

To increase access to the EU’s road freight transport market, Turkey could pursue a road transport agreement; conclude a broader agreement on services trade liberalisation; or make use of WTO agreements.

In order to achieve the elimination of road transport quotas, Turkey will probably have to adopt and implement the whole EU acquis on road transport.

The European Union (EU) is Turkey’s most important trading partner. While 31% of Turkish exports to the EU by value are carried by road, the share declines to 17% in the case of imports. Since the EU-Turkey customs union established in 1995 applies only to industrial goods, it does not cover trade in road freight transport services between the parties. As a result, there has been little incentive to liberalise trade in such services – and hence this trade is restricted.

Road transport quotas

Road transport services operating between EU members and Turkey are primarily regulated by bilateral intergovernmental agreements between individual EU members and Turkey. A key feature of this trade is the application of a system of quotas, which authorise hauliers in the signatories to conduct transport operations, as long as they hold a permit for the country with which the bilateral accord has been concluded.

As a general rule, permits are exchanged on a reciprocal basis, and the number of permits is set on an annual basis. There are several types of quotas or road transport licences, such as bilateral permits, transit permits, third-country permits, multiple permits and return load permits. For example, to export goods from Turkey to Germany by road, the haulier carrying the freight must have transit permits for all transit countries on the route as well as a bilateral permit for Germany.

Thus, the routes that connect Turkey to its most important trading partners in the EU (such as France, Germany, Italy, Spain and the UK) require road freight operators to pass through the territory of other EU members. This traffic is most concentrated in Bulgaria and Greece, but extends into Austria, the Czech Republic, Hungary, Poland, Slovenia and other EU members. Note that with the exception of Cyprus, Ireland and Malta, all EU members have concluded bilateral road transport agreements with Turkey (World Bank, 2014; Pastori et al; Gross et al, 2018).

Some EU members, such as Bulgaria, Greece and Romania, have both free and payable transit permits. Once free permits are exhausted, hauliers have to use the paid permits. While EU hauliers have access to enough permits to carry goods to and from Turkey, the same is not true for Turkish hauliers. For the latter, the principal issue is that demand for transit permits exceeds the supply provided by some EU members, such as Austria, Hungary, Italy, Romania and Slovenia.

Furthermore, the number of permits determined by EU members, including both bilateral and transit permits, has been stable over time, rather than growing in line with trade flows. Estimates of the trade effects of road transport quotas between the EU and Turkey reveal that both bilateral and transit quotas have a significantly negative effect on Turkish exports (Ülengin, 2015; Çekyay et al, 2017; Togan and Bayar, 2016).

Ways to eliminate road transport quotas between the EU and Turkey

To increase access to the EU’s road freight transport market, Turkey has three alternatives:

  • First, it could reduce the trade costs by signing a road transport agreement.
  • Second, it could conclude a free trade agreement on liberalisation of services trade, which includes road transport services.
  • Third, it could try to make use of Article V of the General Agreement on Tariffs and Trade (GATT) and Article XI of the Trade Facilitation Agreement (TFA), governed by the World Trade Organization (WTO).

Road transport agreements

Liberalisation of road transport services between the EU and Turkey requires that there are no restrictions imposed on the operation of Turkish and EU hauliers between the two parties. Turkish hauliers should be able to carry freight freely between, say, Istanbul and Frankfurt, and also between, say, Frankfurt and Istanbul. Similar conditions should apply for EU hauliers.

Liberalisation further requires that no restrictions are placed on freight transport by a Turkish company between, say, Frankfurt and Hamburg as well as between, say, Frankfurt and Vienna. There should be no restrictions by EU members on ‘road cabotage’ – the national carriage of goods for hire or reward carried out by non-resident hauliers on a temporary basis in a domestic economy. Equally, there should be no restrictions on freight transport by an EU company between, say, Istanbul and Antalya (no restrictions on road cabotage by Turkey).

In the jargon of the WTO’s General Agreement of Trade in Services (GATS), this refers to liberalisation of cross-border supply (Mode 1 of GATS). In addition, liberalisation requires that there should be no restrictions imposed on the establishment of Turkish hauliers in the EU, and no restrictions on the establishment of EU hauliers in Turkey. In the GATS jargon, this refers to liberalisation of commercial presence (Mode 3).

Finally, liberalisation requires that Turkish transport service providers or Turkish employees of Turkish hauliers should be able to move freely for relatively short periods (temporarily) from Turkey to the EU a well as within the EU. Similarly, EU transport service providers or EU employees of EU hauliers should be able to move freely for relatively short periods (temporarily) from the EU to Turkey and within Turkey. In the GATS jargon, this refers to liberalisation of movement of natural persons (Mode 4).

Note that according to the EU acquis on road freight transport, the above requirements are satisfied in the EU among its members with the exception of road cabotage, which is restricted.

Road cabotage is governed by Regulation (EC) 1072/2009, according to which every haulier is entitled to perform up to three cabotage operations within a seven-day period starting from the day after the unloading of the international transport. When the haulier carries out the cabotage operations in different EU members, only one cabotage operation is allowed in a given EU member to be carried out within three days of entering that EU members without cargo. Thus, road transport operations within the EU are not completely free even among members.

The road transport agreement between the EU and Switzerland, which is not a member of the EU, provides for liberalisation of road transport services subject to the restrictions imposed by Regulation (EC) 1072/2009. To achieve this liberalisation, Switzerland essentially had to satisfy two conditions.

According to the provisions laid down in the ‘Treaty on the Functioning of the European Union’, the European Commission has external competence to conclude international agreements in the area of transport, but this competence has to be shared with EU members. In order to sign a bilateral road transport agreement with a non-EU state, the Commission needs to be authorised and empowered by the EU members through the European Council. In the case of Switzerland, such authorisation was given to the Commission.

Furthermore, Switzerland had to harmonise its road freight regulatory framework with that of the EU. In particular it had to implement large number of EU regulations and directives on market access and competition; prices and fiscal conditions; social conditions; technical conditions; and road safety (Togan, 2016). After satisfying these two conditions, Switzerland signed the road transport agreement with the EU in 2002.

Turkey could sign a bilateral road transport agreement with the EU similar to that between the EU and Switzerland as long as it satisfies the two conditions and all parties are willing to sign it. In such a case, the Commission would be authorised and empowered by the EU members through the Council to sign the agreement. Second, Turkey would have to adopt and implement the whole EU acquis on road transport.

A free trade agreement on liberalisation of services trade

The second alternative to liberalising trade in road transport services is to conclude a free trade agreement on services trade. Both parties are aware that the present customs union no longer meets the requirements of twenty-first century trade relations. Updating will include liberalisation of services trade between the EU and Turkey, and it is likely to cover liberalisation of transport services (Togan, 2018).

Adopting and implementing the EU acquis in services that will be included in the free trade agreement will be a daunting task for Turkey, but this approach will definitely liberalise trade in road transport services between the two parties.

WTO agreements

The third alternative for reducing trade costs between the EU and Turkey is to make use of Article V of GATT and Article XI of the TFA. The former determines the concept of traffic in transit and lays down the conditions that a member may impose on goods transported through its territory by another party to a foreign destination.

Accordingly, the main purpose of the provision is to provide for the freedom of transit through the territory of each WTO member for transport to or from the territory of other WTO members. In order to ensure that this freedom is effective, Article V stipulates two essential requirements: not to hinder traffic in transit by imposing unnecessary delays or restrictions or by imposing unreasonable charges; and to accord ‘most-favoured-nation’ treatment to transiting goods of all members.

Article XI of TFA clarifies and improves GATT Article V on freedom of transit. Accordingly, the article associated with the freedom of transit stipulates that WTO members shall not impose non-transport-related fees or seek voluntary restraints on traffic in transit through a binding commitment. It includes various disciplines on inspection and guarantee schemes as mostly binding commitments.

The TFA’s Article XI also forbids disguised restrictions on traffic in transit. Thus, Article V of the GATT 1994 and Article XI of the TFA could serve as useful tools for Turkey to open trade in road transport services between the EU and Turkey, particularly if they are clarified and tested following an effective interpretation by the WTO adjudicating bodies when invoked in a dispute initiated by Turkey or other members of the WTO (Artiran, 2016).

Conclusion

Quotas imposed by EU members on road transport services trade between Turkey and the EU increase trade costs, thereby restricting trade between the two parties. But whichever of the three ways to eliminate the use of road transport quotas that Turkey opts to pursue, it will probably have to adopt and implement the whole EU acquis on road transport.

Further reading

Artıran, P (2016) ‘Road Transport Restrictions, Freedom of Transit and
the Trade Facilitation Agreement: The Case of Turkey’, in Trade Costs and Inclusive Growth: Case Studies presented by WTO Chair-Holders edited by R Teh, M Smeets, M Sadni Jallab and F Chaudhri, World Trade Organization.

Çekyay, B, PT Palut, Ö Kabak, F Ülengin, Ö Özaydın and B Ülengin (2017) ‘Analysis of the Impact of Bilateral and Transit Quotas on Turkey’s International Trade by Road Transport: An Integrated Maximum Flow and Gravity Model Approach’, Research in Transportation Economics.

Gross, D, J Pelkmans, M Akgüç, M Busse and M Disalvo (2018) ‘Strengthening EU-Turkey Economic Relations: Can Services Revitalize the Customs Union’, Centre for European Policy Studies.

Pastori, E, A Sitran, C Rosa, D Bielanska, A Korzhenevych, M Artavia and A Jarvis (2014) ‘Study on the Economic Impact of an Agreement between the EU and the Republic of Turkey’, ICF Consulting.

Togan, S, and G Bayar (2016) ‘Liberalizing Transport Sectors and the Effects of Infrastructure Development’, in The Liberalization of Transportation Services in the EU and Turkey by S Togan, Oxford University Press.

Togan, S (2018) ‘Modernising the EU-Turkey Customs Union’, The Forum ERF Policy Portal.

Ülengin, F, B Çekyay, PT Palut, B Ülengin and Ö Kabak (2015) ‘Effects of Quotas on Turkish Foreign Trade: A Gravity Model’, Transport Policy 38: 1-7.

World Bank (2014) ‘Evaluation of the EU-Turkey Customs Union’.

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