A landmark customs union with the LU came into force on 1 January. First provided for in a 1963 association agreement, the customs union is a key stage on the road to eventual full EU membership.

The union passed its final diplomatic hurdle with ratification by the EU parliament on 13 December, although strong domestic political opposition remains to the terms of entry agreed in early March 1995 (see Feature).

In particular, the opposition alleges Prime Minister Tansu Ciller traded off the customs union for Turkish acquiescence in full EU membership for Cyprus. Ciller is also criticised for accepting only ECU 1,800 million (about $2,300 million) in EU assistance over five years to ease the economy's entry into the union, compared with up to $30,000 million individually for countries like Spain, Portugal and Greece.

Especially at risk are small-to-medium sized companies, say the critics. Economists also say inefficient state economic enterprises (SEEs) may be impacted by the union, increasing pressure for their privatisation.

Other sectors which have been protected for decades could suffer including iron and steel, food processing, paper products, beverages and durable consumer goods.

However, industries which will benefit from cheaper imported inputs include textiles and glass and glass products. already substantial export earners.

After the EU parliament's ratification, two remaining technical accords cleared the way for the union's formal introduction:

agreement announced on 26 December for the end of EU textile import quotas removed lingering doubts that the EU commission considered Ankara had not fully complied with EU conditions in areas like incentives and competition. Removal of the quotas is expected to increase textile sales by around 12.5 per cent in 1996 from the anticipated $7,000 million-8,000 million in 1995;

the two sides on 21 December initialled the Europe coal and steel community (ECSC) free trade agreement in Brussels. The agreement calls for the zeroing of customs taxes and duties, and other equivaient taxes applied to the importation of 640 items of coal, and various iron and steel products from 1 January.

The chief features of the restructuring of tariffs and trading relations resulting from the union are:

a Council of Ministers decree for a 1996 import regime drafted in conformity with the EU common customs tariff (CCT) also came into force on 1 January. The new regime generally abolishes customs duties and a special, mass housing fund levy on industrial imports from the EU. It makes final 5 per cent and 10 per cent cuts respectively for goods in 12-year and 22-year lists attached to an additional 1971 protocol to the 1963 association agreement with the EU.

however, the terms of entry to the union provide dispensations in the phased removal of protection to ease the impact of open competition on vulnerable industrial sectors like automotives, and on agriculture. Abolition of duties by Ankara on 132 items covered by the ECSC will be phased over three years.

protection against industrial imports from third countries will also fall to 5.8 per cent from the current 10.97 per cent with the introduction of the CCT and the abolition of the mass housing fund levy. The 1996 imports regime also subjects agricultural imports generally to new rules in line with GATT commitments.