RELATIONSHIP BETWEEN FOREIGN EXCHANGE LEGISLATION AND CUSTOMS PROCEDURES

İbrahim Halil EKTIRİCİ
Customs Consultant

Foreign exchange is a Latin word meaning "exchange, exchange, value". In other words, foreign exchange refers to transactions related to the exchange and buying and selling of money or money substitutes.

Foreign exchange legislation refers to all the rules regulating the payments and collections that a country has to make in foreign currency. Foreign exchange legislation in our country is regulated by the "Law No. 1567 on the Protection of the Value of the Turkish Currency" dated 25.03.1930 and the "Decision No. 32 on the Protection of the Value of the Turkish Currency" dated 11.08.1989, as well as the communiqués published based on these and the circulars of the Central Bank.

Customs legislation consists of Customs Law No. 4458, Law No. 474 on Customs Entry Tariff Schedule, Law No. 2976 on the Regulation of Foreign Trade, Import Regime Decisions, Export Regime Decisions, Customs Regulation, Regulation on the Facilitation of Customs Procedures, customs notifications and circulars.

Although both groups of legislation seem to be separate from each other, essentially, both groups of legislation overlap with each other at some points in the regulation of foreign trade, and the deficiency of one is completed by the other legislation. While foreign exchange legislation regulates the movement of money in foreign trade, customs legislation regulates the movement of goods.

As a newly established state in the 1930s, the Republic of Turkey adopted an introverted and import substitution economic model and published very strict foreign exchange legislation in order to pay the capitulation debts it inherited from the Ottoman Empire. From the 1930s to the 1980s, "foreign currency" was a form of currency held only by the Central Bank, private banks were not allowed to open foreign currency savings or deposit accounts, and it was considered a crime for people to have foreign currency on their person or in their homes. In parallel with this, in the mentioned years, imports were carried out entirely based on license and preliminary permit; The goods within the scope of the import license, which do not include final consumption goods, were published in the official gazette as an annex to the import regime decisions. In other words, during this period, companies importing into the country could not have a license to import products such as automobiles, televisions, refrigerators, perfumes, bananas and pineapples, even if they had foreign currency.

When the "outward-open - export-led growth model" was adopted in Turkey in 1984, significant structural changes were made in the foreign exchange legislation and foreign trade regimes. In addition to granting private banks the right to open foreign currency accounts and transfer foreign currency abroad, foreign exchange offices were allowed to be opened within the country, allowing people to easily buy and sell foreign currency. The import of consumer goods, such as automobiles, televisions, perfumes and bananas, which were considered "luxury" at the time, was allowed, provided that the Mass Housing Fund was paid. Incentive elements under the name of "tax refund" were put into effect to encourage exports.

Despite all the conveniences introduced, the process of "monitoring foreign exchange movements" was not abandoned for a long time. The importer had to open a letter of credit at the intermediary bank for the product he wanted to import and associate this transaction with the import customs declaration. Likewise, the exporter was obliged to link the export customs declaration with the movement of foreign currency. It was mandatory to bring export foreign currency back to the country within 180 days. In addition to imposing fines according to Law No. 1567 on those who did not comply with this obligation, these exporters could be sued for smuggling due to violation of foreign exchange legislation.

In 2008, another revolutionary change was made in the foreign exchange legislation and exporters were left free to decide whether to bring export proceeds to the country. Essentially, it was meaningless for the exporter, who had to bring the money he exported to the country due to many expenditure items such as workplace rent, employee wages, electricity, water costs, stationery expenses, tax payments, asking "why didn't you bring your foreign currency within 180 days?" When it comes to "profit" other than all these expenses, interest rates are the factor that determines whether it would be more appropriate to leave foreign currency in the country or abroad. Since Türkiye is the country that pays the highest interest on foreign currency in the world, there was no need to worry about this issue.

One of the most important propositions of the global economy is that foreign trade transactions need to be simplified. In particular, carrying out customs procedures through a single document whenever possible, and that this document contains extremely limited information, has been touted as the key to success. As a matter of fact, with the understanding of "so that we can complete all customs procedures on a single document", a "Customs Declaration" format called "Single Administrative Document" was prepared in the European Union and started to be implemented first in EU countries and then in all countries.

With this understanding, the practice of writing foreign currency receipt numbers on import declarations or export declarations, adding these receipt samples to the declaration, or obtaining an "intermediary bank letter" from banks that mediate foreign exchange transfers has been abandoned. In this respect, the changes made in the foreign exchange legislation in 2008 elevated Turkey to the position of a fully developed global country.

However, with the "Communiqué No. 32 on the Protection of the Value of Turkish Currency" published in the Official Gazette dated 04.09.2018, numbered 2018-32/48, the obligation to bring export proceeds to the country within 180 days was restored. Accordingly, it was required to be brought to the country according to one of the following methods: payment by letter of credit, payment against documents, payment against goods, payment against letters of credit with acceptance credit, payment against documents with acceptance credit, payment against goods with acceptance credit, cash payment, and bank payment obligation (BPO). More importantly, the exporter was forced to sell at least 80% of these foreign currencies to a bank.

Fortunately, with the amendment of the communiqué published in the Official Gazette dated 31.12.2019, the practice of selling 80% of the export proceeds brought to the country in foreign currency to the bank to be converted into Turkish Lira was abandoned.

Undoubtedly, there is a connection between foreign exchange transfers and customs operations in terms of the obligations stipulated by foreign exchange legislation and customs legislation. The existence of this relationship can always be inspected by the public authority and the consistency of the foreign exchange transaction and customs transaction can be examined. However, basing the foreign exchange transfer-customs transaction relationship on a document and giving the customs officer, tax office officer or bank officer the authority to monitor and control it means creating additional burdens and documents in foreign trade transactions. We hope that this approach will be abandoned in a short time and Turkey's foreign exchange regulations regarding foreign trade will be brought back to the level they were in 2008.

Source:

Law No. 1567 on the Protection of the Value of Turkish Currency

Decision No. 32 on the Protection of the Value of the Turkish Currency

Communiqué on Decision No. 32 on the Protection of the Value of Turkish Currency No. 2018-32/48

Communiqué No. 2019/32-56 on Valuing Turkish Currency

Central Bank-Export Circular dated 01.2020

QUESTIONS AND ANSWERS

Question 1. According to the Central Bank-Export Circular based on the decision no. 32 on protecting the value of Turkish currency, how long does it take to bring the price of exported goods to the country in Turkish currency or foreign currency?

Answer: The price of the exported goods must be brought to the country within 180 days from the actual export date.

Question 2. Which law and decision regulates the regulatory and restrictive principles regarding foreign exchange transactions?

Answer: It is regulated by the "Law on the Protection of the Value of the Turkish Currency" No. 1567 and the "Decision on the Protection of the Value of the Turkish Currency" No. 32 published accordingly.

Question 3. If it is understood that it will take more than 180 days from the actual export date for the export proceeds to be brought into the country, can additional time be taken?

Answer: Yes, it can be taken. The communiqué stipulates that an additional period of 90 days may be granted, provided that the exporter submits a contract proving this situation.

Question 4. Can more than one payment method be included in the same declaration during the import of goods in a customs declaration?

Answer: It is possible to record more than one payment method in a customs declaration.

Question 5. According to the foreign exchange legislation, how long does it take for the price of imported goods to be sent abroad?

Answer: In the foreign exchange legislation, there is no time limit for transferring the cost of imported goods abroad, as in exports.