Turkey
M. Bahri Oktem
Levying the additional taxes was complicated, and the government abolished them in 1992.
Turkey’s policy of moving toward trade integra-tion with the EU required that it adopt the EU’s common external tariff. In 1995, the European Community–Turkey Association Council commit-ted Turkey to adopting an entire body of legislation in the field of trade and adhering to conventions in the fields of intellectual, industrial, and commercial property rights. In 1996, Turkey entered into a customs union with the EU and incorporated the basic rules of the European Community’s Customs Code into its customs legislation. At that time, the government removed all customs duties and quantitative restrictions on industrial products imported from EU countries.
The EU–Turkey Customs Union currently covers industrial and processed agricultural products.
After a five-year transition period, the government introduced the EU common external customs tariff in early 2001. Turkey’s coding, description, and classification of goods became harmonized with the EU’s system of combined nomenclatures.
Turkey also implements the EU’s preferential trade regimes, adheres to the Common Transit System and Single Administrative Document con-ventions, and signed the relevant protocols with EUROCUSTOMS. The application of the single administrative document was initiated unilaterally on January 1, 1996.
In addition to the EU–Turkey Customs Union, Turkey entered into free trade agreements with the European Free Trade Area, Bulgaria, the Czech Republic, Estonia, Hungary, Israel, Latvia, Lithuania, the former Yugoslav Republic of Macedonia, Poland, Romania, the Slovak Republic, and Slovenia.
The import duty regime is still rather compli-cated, because the TCA also administers the VAT and a series of other taxes that are intended for ear-marked funds. The regular VAT rate is 18 percent, but basic goods are taxed at 1 percent or 8 percent and luxury goods at 26 percent. In addition, some excise taxes and earmarked taxes benefit the Agricultural Fund, the Tobacco Fund, the National Education Fund, the Fund for Promoting the Defense Industry, and the Price Stability Fund. The TCA also levies two lump-sum taxes per declara-tion: a charge contributing to education, which raises approximately US$2.7 million per year, and a
special transaction tax, which raises approximately US$7 million per year.
Relations with the World Customs Organization and Other International Organizations
Turkey belongs to a number of organizations that seek to facilitate trade and strengthen customs operations. In 1953, Turkey became a member of the World Customs Organization, and it is a signa-tory of its major conventions and declarations.
Turkey has also entered into mutual administrative agreements with many countries. Those agree-ments are based on the model bilateral agreement of the World Customs Organization.
With the EU, Turkey signed the United Nations–European Economic Council Convention on the International Carriage of Goods by Road, the 1954 Tourist Facilitation Convention, the Con-vention for Temporary Importation of Private Motor Vehicles, the Transport International Routier Convention, the Container Convention, and the Pallet Convention.
Turkey also participates in activities under the aegis of the South East Cooperation Initiative, the Economic Cooperation Organization, and the Regional Intelligence Liaison Office.
Membership in the World Trade Organization and Customs Valuation
Turkey became a member of the World Trade Organization (WTO) in 1994 and thereby accepted the WTO valuation principle, according to which imports are to be valued on the basis of their trans-action value unless reasonable doubt permits the use of secondary valuation rules. Before 1994, the TCA used the Brussels definition of value and relied heavily on reference prices. Customs officials state that they are using the WTO definition of value for 99 percent of import transactions, an esti-mate confirmed by traders, who mentioned that this new valuation practice initially caused some delays and difficulties, but that those difficulties appear to have subsided substantially. Manufactur-ers, by contrast, are not pleased with this valuation system, because it deprives them of the protection granted under the prior system.
Revenue Importance of Import Taxes
The importance of customs duties as a source of budgetary revenue has fallen considerably in recent years. By 2001, duties raised less than 1.0 percent of total tax revenue, down from 3.7 percent in 1994 (see table 8.1). That decrease is the result of the trade liberalization policies of the 1990s. By contrast, the revenue contribution of VATs on imports rose slightly, from 11.2 percent in 1994 to 13.0 percent in 2001. Because the TCA also levies VAT at the importation stage, the TCA remains responsible for about 14 percent of total tax revenue. Nevertheless, the share of total budget revenue managed by the TCA is much lower than that in most developing countries. Without neglecting its revenue mobilization role, the TCA could increasingly look for ways to enhance the efficiency of its operations and to manage its processes so as to reduce the burden that paying import taxes imposes on traders.
The Modernization Program
At the outset of the reform, the TCA prepared a four-year action plan that presented in chronological order the various interconnected activities that it intended to undertake to achieve the reform objec-tives. Those objectives focused on bringing customs practices in line with those prevailing in the EU and on easing the burden of customs operations on trad-ing activities. The achievement of the objectives was to benefit substantially from the introduction of an up-to-date computerized import and export pro-cessing facility. Table 8.2 sets out the components of the four-year action plan.
The Reform Steering Committee, chaired by the deputy undersecretary of the TCA, was established
to implement the program, but until 1997 it made virtually no progress. In 1997, the reform program was relaunched and a project unit staffed with customs employees was established to manage the reform and accelerate the decisionmaking process.
The deputy undersecretary of the TCA was desig-nated as the project coordinator.
The remainder of this section discusses the reforms as they affected customs law and import processes; reorganization of the TCA; improve-ment of physical infrastructure with support from the private sector; human resource management;
automation; and customs controls, selectivity, and postrelease inspection.
New Customs Code and Simplified Trade Procedures
The modernization process included issuance of a new Customs Code and simplified trade procedures.
New Customs Legislation The reform of cus-toms legislation began with the adaptation of the Customs Law to EU standards. Initial efforts in 1995 to ensure that Turkish customs laws con-formed to the main principles of the EU Customs Code were not totally satisfactory, and in 1996 the government submitted a new Customs Code to the Grand National Assembly. Approval of this code was delayed; it was not obtained until 2000. The dis-cussions during the last Assembly meeting lasted less than four hours, a tribute to the efforts of the state minister responsible for the TCA in convincing Assembly members of the advantages of the reforms ahead of the final Assembly discussions.
The TCA made a special effort to explain the practical implications of the new Customs Code to TABLE 8.1 Revenue Importance of Customs Duties and Taxes, Selected Years (percent)
Category 1994 1997 1999 2000 2001
Duties and taxes, collected by the TCA 15.25 17.41 13.36 16.18 13.96 as a share of total tax revenue
Custom duties as a share of total tax revenue 3.73 2.61 1.62 1.46 0.96 VAT on imports as a share of total tax revenue 11.20 14.76 11.69 14.68 12.95 Customs duties as a share of the value of 3.50 2.00 1.70 1.37 0.94
total imports Source:TCA data.
the trading community and to customs staff mem-bers. It started out by producing a publication that clarified the Customs Code. It also prepared a large number of documents for detailed guidance on spe-cialized issues. Those documents led to the rapid production of decrees explaining the Customs Code, regulations, and general notifications, as well as to circulars and explanatory notes in relation to
those circulars. Some of the documents were revised several times in 2000 to accommodate various issues that arose during the implementation of the new legislative framework. For instance, a decree was issued at the end of 2000 that explained the deter-mination of the rules of origin; however, by March 2001, seven new amendments to the decree were issued. The regulatory framework that constitutes TABLE 8.2 The TCA’s Four-Year Action Plan
Year 1 Year 2 Year 3 Year 4
• Prepare the plan for modernizing the Customs Code. The plan needs to deal with the simplifica-tion of procedures;
the production of the new forms required by these simplified procedures; the development and acquisition of a computer system;
the training of customs staff; and the development of a public information program to acquaint traders and their brokers with the new procedures, in particular, the use of the comput-erized system.
• Decide on the hardware, software, and telecommuni-cation requirements of the IT system.
• Prepare and issue tender documents for the hardware and software.
• Acquire the electronic customs management system and begin development of the electronic import declaration processing system (e-base system).
Source:TCA.
• Complete
development of the e-base system and launch it in a pilot office.
• Assess the ability of customs facilities to operate the proposed IT system efficiently.
• Develop and implement the public information campaign.
• Develop and implement training for the e-base system.
• Acquire hardware and software.
• Roll out the e-base system in the largest locations.
• Develop and implement simplified manual procedures for the sites that have not been automated.
• Develop the remainder of the customs IT system, particularly the components related to export declarations, revenue accounting, manifest declaration, transit, and warehousing.
• Complete imple-mentation of the hardware and software in the remaining smaller locations.
• Complete the roll out of the e-base system.
• Gradually phase in the modules of the overall customs IT system as they become available.
• Pilot test the computer system with the brokerage community.
• Offer the computer system to all brokers.
• Complete implementation of the computer system, including participation by other government departments, banks, and transport companies.
the legal basis for computerized customs procedures was promulgated in 1998. To consolidate the vari-ous updates of the regulations, the TCA published new customs regulations, consisting of 756 articles, in the Official Journalat the end of May 2002 and readied them for general distribution in July 2002.
This publication reflects the TCA’s desire to be responsive to comments from the public and to strive for transparency in the regulatory framework of its operations.
New Import Procedures Import transactions begin with the carrier’s submission of the cargo manifest of goods to be shipped in from abroad to a customs office.1The cargo manifest and declaration data has to be entered into the Computerized Customs Management System (CCMS) through a kiosk or electronic data interchange (EDI) and reg-istered by the CCMS. At that stage, customs person-nel match the number of packages of cargo with the number that is declared in the cargo manifest.
Goods that are not to be cleared immediately are promptly moved to temporary storage places and warehouses. The storage procedure causes serious disruptions and delays at several ports, particularly in Haydarpasa (Istanbul), Izmir, and Mersin, where port authorities have not computerized their ware-housing procedures. Traders can clear their goods themselves, but they use brokers for 89 percent of their trade transactions because they still view for-eign trade procedures as technically complicated, requiring the involvement of many organizations and entailing substantial paperwork.
In the past, customs declaration formalities had to be completed within 45 days in the case of sea freight and 20 days in the case of goods transported by other means. Today traders or their brokers sub-mit their declarations electronically by using their dedicated user codes and passwords and by identi-fying the final importer of the goods, the docu-ments attached, and the harmonized system code for the goods declared. This declaration needs to be made within 24 hours of the arrival of the goods, a
period that some traders claim is too short to per-mit preparation of the necessary documentation.
Traders also complain that they are often fined for small, inadvertent mistakes.
At that stage, the computer system verifies the declaration and assesses the risk that the declara-tion may be faulty or erroneous. This verificadeclara-tion may prompt customs staff to ask for additional documentation. Traders interviewed for this study noted that this process often takes excessive time and is sometimes erratic. The computer system calculates the duties due, informs declarants of the outcome of the risk analysis for their cargo, and gives them a registration number. Goods are assigned different clearance channels: red for phys-ical examination, yellow for documentary checks, blue for goods under postrelease controls, or green for immediate release. The risk rating is performed in light of details previously entered by customs headquarters staff members into the customs computer system through a risk analysis module.
Goods are routed through the red channel only if they are included in the analysis list. Until 2001, declarants paid the assessed duties at the cashier’s desk at the Ministry of Finance, but now they can make payments at banks. Traders have wel-comed payment at banks, because they no longer need to transport large amounts of cash or obtain checks from the banks to present at the Ministry of Finance and wait for their clearance.
An alternative process for clearing goods is to secure a bank guarantee. After the bank informs customs agents that the duties have been paid, the goods are released.
Besides having to comply with customs proce-dures, imports must conform to specific product standards that aim to protect public security, human health, and the environment. Organizations entrusted with establishing product standards and controlling conformity with the standards include the Turkish Standards Institution, the Ministry of Agriculture, the Ministry of Health, and the Under-secretariat of Foreign Trade. Each organization has its own laboratory and procedures for conformity checks. The Turkish Standards Institution inspects about one in five import declarations. Because the various laboratories are located at a considerable distance from customs offices, the verifications sometimes take months to finalize and thus result in considerable costs and delays. Traders
1. The Council of Ministers set up an importers’ association in May 2002. All importers were instructed to obtain an import permit from that association, as is already the case for exports.
The legislation was to become effective in July 2002, but it was postponed for one year. Traders oppose the new regulation because it is certain to delay import transactions.
interviewed for this study believe that the verifica-tions act as nontariff barriers to imports. They noted that the inspections undertaken by the Min-istry of Agriculture and the MinMin-istry of Health are particularly burdensome. Because of recommenda-tions by the World Bank’s Foreign Investment Advisory Service, the TCA set up the Committee of Foreign Trade Standards and Customs to propose ways to simplify the procedures. The committee is to work in close association with the private sector and the standard-setting organizations.
Simplified Import Procedures for Certified Importers In accordance with the Kyoto Conven-tion of the World Customs OrganizaConven-tion, the Customs Code has provisions for accredited com-panies to benefit from simplified procedures. To qualify for the simplified procedures, enterprises must have clean records with the customs and tax authorities and must keep adequate records so that postclearance verifications can be performed. The simplified procedures specify that goods will be cleared without the usual documents required for customs clearance (invoices, certificates of origin, movement certificates, and administrative or other commercial documents). Importers have to keep those documents and make them available to the customs inspector if their transactions are audited.
The procedures are expected to speed up the cus-toms clearance process greatly. As of mid-2002, 289 companies had been certified for simplified procedures, but the simplified procedures had not yet taken effect. Importers anxiously await their introduction.
The trading community has welcomed the new import procedures but notes that progress is still somewhat uneven because manual procedures are still in place at a number of regional customs posts.
They complain about the time it takes to satisfy organizations other than the TCA that are involved in goods clearance, because the control procedures of those organizations are lengthy and excessive and tend to undermine the progress made by the TCA. Traders claim that providing illegal “facilita-tion payments” at this stage to speed up the process is the current practice.
Export Procedures Export declarations must first be registered for approval by the Exporters’ Associa-tion, a nongovernmental organization that is not
associated with the TCA. Registration requires mem-bership in the association (and a hefty memmem-bership fee), as well as a fee equivalent to 1 percent of the export value per registration, although some goods are exempt from the fee.2Once the declarations are registered, they are submitted to the TCA and are issued a computer-generated registration number. A customs official electronically verifies the declara-tion, and the computer system directs the shipment through a red, yellow, or green control channel, a process similar to the one used for imports except for the absence of a blue channel. Once checked through the assigned channel, goods are cleared for export.
As is the case for simplified import procedures, companies can be given the status of certified exporter and can thereby qualify for a simplified export processing formula. However, these certifi-cates are issued by trade associations, not by the TCA. Some 70 companies have earned the status of certified exporters.
Reorganization of the TCA
In 1996–97, the organization of the TCA was reviewed in the context of the modernization pro-gram for which World Bank support was being mobilized. The review concluded that
• Customs offices with low efficiency, determined in accordance with economic and not political criteria, should be closed.
• Customs clearance and enforcement services are closely interconnected, and to enhance the coor-dination of their functions, the respective direc-torates should be integrated under a single regional directorate.
• Operational responsibility and authority should be delegated to regional and local offices.
Some 73 customs offices with low efficiency were closed in 1999. The consolidation or closure of other customs directorates is under consideration.
Measures to adjust the TCA’s administrative structure have, however, encountered severe prob-lems, because the Constitutional Court nullified
2. A plan to communicate export permissions electronically between the Exporter’s Association and the TCA is being prepared but is not yet in place.
the decisions that the Council of Ministers made in 2000 to put a new administrative structure in place.
A legislative proposal to adjust the administrative structure was again put before the government in mid-2002 and was presented for consideration by the Grand National Assembly. The most important change proposed by the Draft Law for the Reorga-nization of Customs Administration is that cus-toms clearance and enforcement offices would be consolidated, thereby further streamlining the pro-cessing of import declarations.
As an integral part of the administrative reform of all public organizations, the number of torates was reduced from 36 (18 customs direc-torates and 18 regional direcdirec-torates) to 14 in 2002.
The reform was also intended to delegate greater authority to regional and local offices. The goal of that change was to increase the efficiency of cus-toms operations by reducing both operating costs and staff numbers, and it achieved its intended objectives.
Improvement of Physical Infrastructure with Private Sector Support
One goal of the modernization program was to refurbish and upgrade the physical condition of customs offices. Existing buildings needed to be adapted to meet workflow requirements and the use of ICT. Even though the Customs Fund and regional chambers of commerce and industry have contributed funds to improve the physical infra-structure, the programmed improvement of the infrastructure included in the World Bank loan was not realized because of budget constraints.
In a joint effort by the TCA and chambers of commerce and industry, the construction of mod-ernized premises for the Kayseri, Gemlik, and Konya customs offices was completed in 2001–02.
The regional chambers of commerce and industry and the Association of Transporters were also com-mitted to building customs facilities on the basis of a build-operate-transfer model by the end of 2002 at the customs offices in Gürbulak (border post with Iran) and Ipsala (border post with Greece).
Human Resource Management
TCA personnel policies must follow the policies that apply to the overall civil service, which severely
limits the TCA’s flexibility in relation to human resources. Because of budget problems at the national level, the TCA could not hire any new staff members after 1996 despite major changes in oper-ational procedures since that time. In light of that situation, the TCA undertook two major initiatives.
First, the TCA launched a major training and continuous education initiative to familiarize customs staff members with automated customs processing, with a special focus on training man-agement staff members. Some 158 customs officials have been trained for total quality management under a protocol signed by the Undersecretariat of Customs and the Turkish Society for Quality in March 2002. Following training, continuous improvement teams were established to motivate personnel and provide more standardized services at central and regional units. However, traders indi-cate that, as of mid-2002, the results were mixed.
Many customs personnel are unfamiliar with the new procedures and, therefore, do not apply the new regulations correctly, causing problems and delays in the processing of traders’ goods. Traders also complain about the high staff turnover at regional customs offices.
Second, the TCA entered into contractual agree-ments with a number of experts—especially computer programmers, analysts, and controllers—
whose expertise was required to implement the reforms. The contractual staff is located mainly at customs headquarters.
During 1996–2001, the number of staff mem-bers fell by 10 percent, with staff reductions concentrated at the regional offices, which were consolidated during that period. During the same period, the number of trade declarations rose by 40 percent (70 percent for exports and 24 percent for imports), reflecting a 54 percent increase in the number of trade declarations handled by each staff member.
The salaries of customs officers comply with civil service regulations, and thus the TCA has no flexibility in the matter; however, employees sup-plement their salaries with overtime work, which traders request and pay for. This practice is not without its inconsistencies and problems for traders, because some customs employees arrange to concentrate their work during periods that call for overtime pay. Overtime pay can amount to 50 percent of employees’ base pay, so those who