World Trade Organization	RESTRICTED
	WT/TPR/G/192 5 November 2007
	(07-4735)
Trade Policy Review Body	Original:    English

 

 

 

 

 

 

TRADE POLICY REVIEW   Report by   Turkey

 

 

 

Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), the policy statement by Turkey is attached.

Note:    This report is subject to restricted circulation and press embargo until the end of the first session of the meeting of the Trade Policy Review Body on Turkey.

CONTENTS

                                                                                                                                                                                                Page

I.              Introduction 5

                (1)           Overview                                                                                                                                                    5

                (2)           Macroeconomic Policies and Development                                                                              6

                (i)            Public financing and debt management                                                                                   6

                (ii)           Inflation and monetary policy                                                                                                   7

                (iii)          Enhancement of the private sector's role in the economy                                                    9

                (iv)          Financial sector reforms                                                                                                           12

II.            Trade Policies                                                                                                                                                   13

                (1)           Implementation of WTO Agreements                                                                                        13

                (i)            Trade in goods                                                                                                                           13

                (ii)           Services                                                                                                                                       17

                (iii)          Trade-related intellectual property rights (TRIPs)                                                               18

                (2)           Turkey's Accession Process to the EU                                                                                         20

                (i)            Recent developments in Turkey-EU relations                                                                      20

                (ii)           Turkey's current status of harmonization with the EC policies                                          21

III.           Developments in Turkish Foreign Trade                                                                                            27

                (1)           Overview of Strategies                                                                                                                     27

                (2)           Trade Developments by Regions, Countries, Regional Organizations

                                and Sectors                                                                                                                                            28

                (i)            By regions and countries                                                                                                         28

                (ii)           By regional organizations                                                                                                        30

                (iii)          By sectors                                                                                                                                   31

appendix tables                                                                                                                                                                 33

 

 

I.                   introduction

(1)               Overview

1.                   A steady strong growth has been the distinctive feature of the Turkish economy during the period 2003–07. The economic program distinguished by tight fiscal and monetary policy implemented through decisive actions at the backdrop of political stability has led to a remarkable and multifaceted transformation in all sectors. The structure of growth has also improved significantly as a result of increasing private sector investment, capital accumulation and total factor productivity.

2.                   Fiscal discipline became one of the cornerstones of the ongoing economic program and played the leading role in maintaining macroeconomic stability by decreasing debt burden. This policy and its offspring successful debt management strategy have been some of the foregoing factors that led to the impressive track record of the Turkish economy in the past four years.  The reaction of the Turkish economy to the financial turmoil of 2006 and the more recent fluctuations in the financial markets, proved once more the rightness of the tenets underlying the economic program; the Turkish economy remained intact and stable though with new balances in the exchange and inflation rates.

3.                   A persistent problem of the Turkish economy, the high level of net public debt, has fallen significantly; while the average annual primary surplus, one of the main indicators of the fiscal discipline, has been realized in more than satisfactory figures.

4.                   The durable fiscal adjustment has also been crucial in convincing the markets of the prudent economic policies. Through this channel, the risk premium and cost of public borrowing declined considerably. Also worth noting is that, while the debt stock fell relative to Gross Domestic Product (GDP), its structure has improved at the same time. The maturities extended and the foreign exchange denominated component of the debt decreased.

5.                   In addition to the fiscal discipline, the other keystone of the economic program; tight monetary policy and the inflation targeting strategy in particular has paved the way for equally striking results. Most remarkably, in 2004, single digit inflation rate was achieved for the first time in more than 30 years and consumer price index (CPI) inflation decelerated below the targeted levels. Although various supply shocks (beginning from April 2006 and financial turmoil in May-June period) has led to an accelerated inflation; policy measures, taken to ensure the convergence of inflation to the target, proved to be effective and annual CPI inflation followed a downward path in the last quarter of 2006.

6.                   On the other hand, booming investment, increase in imports of capital and intermediate goods as a result of the shift towards capital and technology intensive products in manufacturing industry and finally the increase in energy prices after 2004 have been the factors that adversely affected the current account deficit during the 2003-2006 period. The strengthened domestic currency increased the substitution opportunities between domestically produced raw materials and imported goods, which in turn contributed to the increasing trend of the current account deficit.

7.                   However, one of the factors that led to the widening of the deficit, i.e. flourishing investment, has at the same time worked adversely to offset its impact in the total balance of payments account. The astonishing increase in the amount of foreign direct investment (FDI) over the last 3-4 years eased the negative externalities of the current account deficit.

8.                   The level and quality of the external financing kept improving in this period. The share of non-debt creating capital flows has risen quite significantly with an upward trend, especially in FDI, while there has also been a significant shift in the structure of financing from short-term to long-term. Due to the improvement in investment environment and banking sector, the FDI hit record high level in 2006, in the forms of acquisitions in private sector, progress in privatization and acceleration in Greenfield investments".

9.                   Performance of the banking sector has been supporting the overall macroeconomic success during 2003-06 period. Banks have begun switching their asset portfolios mostly towards loans instead of holding government securities. This change in the balance sheets of banks obviously led to significant improvement in the financial intermediation role of the banking sector in the economy.

10.               The aforementioned balance sheet demonstrates how far the Turkish economy improved over the last four years from a crisis-hit country trying to recover, to a stable, resilient and flourishing market.

(2)               Macroeconomic Policies and Development

11.               In response to determined macroeconomic policy implementations, prominent results have been achieved in production with continuously growing real GDP throughout the 2003-06 period. In the mentioned timeframe, real GDP grew by 31,3% on a cumulative basis and 7,0% on average making the Turkish economy one of the fastest growing economies in the world. Moreover, Turkey’s per capita GDP has risen above US$5,000 in 2005 for the first time ever and continued to rise to US$5,482 in 2006.

12.               Impressive developments on the macroeconomic side of the program have been fortified by actions that addressed challenging micro-level issues which have also had macro-level ramifications. Below are the policy actions taken in certain significant realms of the economy that have had the accumulative effect of impressive success of the overall balance sheet.

(i)                 Public financing and debt management

13.               The Law on the "Organization of the Public Financing and Debt Management" was put into effect in April 2002 (Law No. 4749) in order to increase fiscal discipline, transparency, accountability and the effectiveness in the management of debt and claims, a central objective of the economic program.

14.               Turkey took important steps on tax policy and tax administration with a view to increase the tax base in the country in order to allow for lower general rates. With this perspective, corporate and personal income tax reforms, which simplified the tax system and improved the tax base while allowing for lower rates, have been put in place in 2006 and 2007. Regarding the tax administration, a new semi-autonomous Revenue Administration was established to increase the revenue collection capacity and enhance enforcement. A Large-Taxpayers Unit was also established within the Revenue Administration to better serve the needs of the largest taxpayers. These steps were complemented by the foundation of Tax Policy Unit which is specialized on policy development.

15.               Turkey has also been working on a comprehensive reform on the Social Security System. The structural disorganization has been overcome via Law No: 5502 (16 May 2006) that unifies the three separate institutions under the newly founded Social Security Institution. The reorganization has been followed by the reform in pension systems and universal health insurance, which is regulated by Law No. 5510 (31 May 2006). However, as the enforcement of this Law has been postponed from January 2007 to January 2008 upon the annihilation of certain articles by the Constitutional Court, Turkey is still working on the necessary amendments to this Law. The reform aims to decrease the burden of the social security system from 4,5% of the GDP to 1% via a new pension scheme and universal health insurance.

16.               Furthermore, Turkey engaged in comprehensive public sector governance reforms, starting from the year 2000 with the aim of increasing the efficiency of the overall public expenditures and service quality. In this regard, the Financial Management and Control Law No. 5018 (10 December 2003) was introduced. With this Law, the scope of financial management and budget was enlarged; principles of accountability and fiscal transparency were streamlined; strategic planning and performance-based budgeting was introduced, multi-year budgeting was also introduced within the medium-term expenditure framework; and lastly, unity of accounting in the public sector and periodic publication of the comprehensive fiscal statistics were ensured.

17.               As an expected outcome of all the above-mentioned policy actions, Turkish economy has undergone structural changes over the past 5 years. Debt stock ratios have lowered subsequently improving the economic indicators. The net public debt to Gross National Product (GNP) ratio fell from 90,4% in 2001 to 45% in 2006 with an average 9,1 point decrease each year, and the gross external debt to GNP ratio dropped from 78% in 2001 to 51,9% in 2006.

18.               The average annual public sector primary surplus, on the other hand, has been above 6% of the GNP over the last four years, while the ratio of budget deficit to GNP declined from 11,3% in 2003 to 0,8% in 2006.

19.               The developments of the past five years prove that reducing the public debt ratio and maintaining the economic growth primarily depends on strict control of public finance. In this respect, high primary surplus target rate was set as one of the central planks of the Medium Term Program of 2007-09.

20.               The medium term debt management strategy was introduced in the beginning of 2007 by the Debt Management Committee to further reduce the public debt stock ratio and its risks. According to this strategy, the domestic cash borrowing will be made mainly in the New Turkish Lira (YTL), fixed rate instruments will be used as a major source in YTL borrowing and the average maturity of domestic cash borrowing will be increased by market conditions.

21.               In addition to the decrease in the public debt stock ratio, interest and foreign exchange sensitivity of the debt stock has declined as a result of prudent debt management policies in recent years. Floating rate and foreign currency denominated proportions of total public debt stock have decreased significantly.

(ii)               Inflation and monetary policy

22.               The Central Bank of the Republic of Turkey (CBRT) continued to implement implicit inflation targeting together with a floating exchange rate regime in years 2003, 2004 and 2005 so as to achieve and maintain price stability. To this end, the short-term interest rates were the main policy instruments while, at the same time, Base Money and the Net International Reserves (NIR) were monitored as performance criteria and the Net Domestic Assets (NDA) as the indicative target, in compliance with the economic program conducted with the International Monetary Fund (IMF).

23.               A glance at the consumer price developments in the Turkish economy during implicit inflation targeting period reveals a strong momentum of disinflation with the help of the prudent fiscal and monetary policies and also structural reforms. The annual CPI inflation declined from 68,5% at the end of 2001 to the single digits, 9,3% at the end of 2004 and annual inflation remained below the official end-year targets for four-consecutive years. Furthermore, this progress has been coupled with a strong growth performance- 7.5% on average for the period between 2002 and 2005. Inflation expectations maintained a favourable course under the cautious stance of monetary policy, strong determination of the government on structural reforms and fiscal discipline.

24.               Thus, The year 2005 was announced as the "transition year" to the full-fledged inflation targeting regime due to two important developments: First of these was the currency reform of dropping six zeros from the Turkish lira, hence the YTL. With this reform, the CBRT indicated its confidence on the permanency of the achievements made during implicit inflation-targeting period, which in turn, enhanced the credibility of the monetary policies further. Secondly, the new price indices were introduced by the Turkish Statistics Institute, according to which, both the base year and calculation methodology of the CPI index have changed.

25.               The full-fledged inflation-targeting regime was launched at the beginning of 2006. In this framework, the year-end targets were announced as 5%, for 2006 and 4% for 2007 and 2008 at the end of 2005 together with the government. Besides, the quarterly path of inflation for 2006, consistent with the year-end targets with an uncertainty band of 2 percentage points on both sides was publicized for the purpose of accountability.

26.               However, as a reaction to the volatility in financial markets in May-June 2006 period and the consequent rise in inflation expectations, the CBRT implemented a two-pillar strategy. The first pillar of the policy reaction was the 400 basis points interest rate hike in June 2006. Together with the further 25 basis points increase in July 2006, raising the overnight borrowing rates to 17,50%, the CBRT aimed at containing the second round effects of the exchange rate pass-through and eliminating the gap between inflation expectations and the medium-term targets. This gave the markets a clear signal that the CBRT was determined in its commitment to the medium term inflation targets. The second pillar, on the other hand, was a set of measurements taken to manage the YTL and foreign exchange liquidity in the market.

27.               These policy measures confirmed the adherence of the CBRT to its medium-term commitments, and hence they were well received by the markets. As a consequence, financial markets stabilized and the YTL rebounded. Meanwhile, the deterioration in inflation expectations stopped in July, although they remained well above the medium term target of 4%. On the other hand, the risk premium, supported also by the favourable global conditions, declined by almost 100 basis points between end-June and end-August. In this period, the market interest rates also displayed a declining trend.

28.               In the second half of the year 2006, the contribution of the domestic demand conditions to the disinflation process increased while the international liquidity conditions improved. However, the CBRT maintained the tight stance of the monetary policy through the rest of the year.

29.               As a result of these developments, the annual CPI realization at the end of the year 2006 was 9,65%, breaching the upper limit of the uncertainty band announced as 7% for end-2006.

30.               Even though the target for 2006 was missed, the CBRT preferred to keep the 2007 target at 4%. Taking into account the structural transformation of the economy, the transition from chronic high inflation to low inflation, and the real convergence process, a target of around 4% is considered appropriate for the medium-term. Therefore, inflation target for 2009 was also set as 4%.

31.               The effects of the monetary tightening in 2006 on inflation started to be seen in 2007. Although the lagged effects of exchange rate depreciation continued in the first half, the considerable slowdown in the domestic demand is the main factor curbing the increasing inflation. As of June 2007, the annual inflation declined to 8,6% from its peak of 11,7% in July 2006. Thus, by the end of the second quarter, the annual inflation remained within the uncertainty band. The effects of monetary tightening are clearly visible on prices of services and durable goods. On the other hand, the high course of annual inflation partly owes to the elevated unprocessed food prices and the hikes in the prices of tobacco products. Moreover, although the lagged effects of the exchange rate pass-through have moderated, some cumulative impact still remains.

32.               In light of these developments, the CBRT has maintained its tight policy stance in the first half of the year 2007 and kept the overnight borrowing interest rates at 17,50%. Annual inflation is expected to continue to decline in the second half of the year 2007 due to the lagged effects of monetary tightening.

 

(iii)             Enhancement of the private sector’s role in the economy

(a)                Improvement of the investment environment

33.               Turkey’s efforts to attract foreign direct investment in amounts commensurate with its market size and economic potential have received fruitful results since the last TPR.

34.               The process starting with the studies undertaken[1] to identify the main investment barriers and the ensuing Decree on Improving the Investment Climate in Turkey (11 December 2001) which then resulted in the establishment of the Coordination Council for the Improvement of the Investment Environment (CCIIE), has been a defining step in Turkey’s investment efforts.

35.               Despite the initial emphasis on FDI, the CCIIE program aimed "to streamline the investment environment and attract more private direct domestic and foreign investment" from the outset. The CCIIE process therefore has not been limited narrowly to foreign investment but has been assisting in improving the business and investment environment for private domestic investors as well. So far, the activities of the CCIIE have been quite successful. The Government has taken several steps in compliance with the recommendations of the Council and enacted 20 laws, including a very liberal Foreign Direct Investment Law and Company Registration Law among others.

 

 

 

 

36.               In addition to CCIIE, Investment Advisory Council of Turkey was established in 2004 to provide an assessment of business climate from an international perspective for further improvement of business environment.[2] Since 2004, the Council has convened once a year, holding its last meeting on 11 June 2007. So far, concrete steps have been taken in line with the recommendations of the Council such as simplifying the tax regime, strengthening corporate governance, reducing administrative and bureaucratic barriers, accelerating the privatization program and, reforming the social security system.

37.               Furthermore, Investment Support and Promotion Agency of Turkey (TISPA) was established in July 2006 to fulfil the corporate capacity needed in the effective promotion of the investment opportunities in Turkey. TISPA will define and implement investment support and promotion strategies to encourage international investors to invest in Turkey.

38.               As a result of the general improvement of the Turkish economy as well as the reform program to improve business environment, FDI inflows to Turkey started to increase in 2003 and reached to a record high level in 2006.

39.               According to the balance of payments statistics of the Central Bank of Turkey, total value of FDI inflow reached US$20,070 million in 2006, with a 104% increase relative to the 2005 value of US$9,803 million.[3]

40.               Moreover, a considerable increase in the number of companies with foreign capital was witnessed since the Foreign Direct Investment Law came into effect.[4]

(b)                Privatization

41.               Turkey aims at further enhancing her functioning market economy through ensuring openness and competitiveness; upgrading productivity; strengthening the investment climate-attracting much more Foreign Direct Investment-encouraging private initiative/entrepreneurial skills and as a result promoting employment.

42.               Therefore, major legislative changes took place in Turkey in recent years such as Electricity Market Law, Natural Gas Market Law, Telecommunications Law, Sugar Law, Tobacco Law, Banking Law, Petroleum Market Law, Foreign Direct Investment Law, Company Law, Law concerning the elimination of FDI restrictions in some sectors, Law regarding several amendments which is aimed at accelerating privatization, and provisions authorizing real estate purchases to foreigners.

43.               As a result, unprecedented privatization proceeded and the noticeable increase in foreign investor interest has been observed. While overall earnings from privatization in 2005 (on a commitment basis) reached US$12,5 billion, the amount of proceeds (on a commitment basis) as of 31 December 2006 has reached US$8,1 billion.

44.               Substantial portion of the total privatization flows, on a commitment basis, both in 2005 and 2006 arise from big-ticket items such as TURK TELEKOM (Telecommunications, 55%), TÜPRAŞ (Petroleum Refining, 51%), ERDEMİR (Iron and Steel, 49.29%), ATATÜRK AIRPORT (Airport operations, Operating rights of 15.5 years), VAKIFLAR BANKASI (Banking, Initial Public Offering / 25,18%), TÜPRAŞ (sale channelled through ISE to an Institutional Investor Fund, 14,76%), ETİ ALÜMİNYUM (Bauxite/Aluminum production, 99,99%), PETKİM (Petrochemicals, Secondary Public Offering / 34,5%), BAŞAK Companies (Insurance & Retirement Fund, Various Stakes), THY (Turkish Airlines, Public Offering / 28,75) and ATAKÖY Group of Companies (Tourism including marina operations, all of the state-owned shares).

45.               In addition, Turkey has also initiated the privatization process of the seaports and already launched the tender processes of Mersin, Derince and İzmir Ports. The tender for the transfer of management rights of Mersin Port (located on the Mediterranean coast of Turkey), which is an asset of Turkish State Railways Administration, for a period of 36 years were held on 12 August 2005. The highest bid was given in an amount of US$755 million. The Concession Rights Agreement was signed on 12 May 2007.

46.               On the other hand, the negotiations for the transfer of operational rights of Izmir Port (located on the Aegean coast of Turkey), which is an asset of Turkish State Railways Administration, for a period of 49 years has been completed on 3 May 2007. The highest bid was given in an amount of US$1.28 billion. The approval process about the tender is ongoing.

47.               Hence, during the period beginning with 2003 until July 2007, the privatization implementations of Turkey have resulted in a net worth of approximately US$30 billion (excluding both of Istanbul Sabiha Gökçen & Antalya Airports Operations).[5]

48.               Privatization process will continue unabated between the years 2007–09. The big ticket items, in sectors of petro-chemicals, tobacco and tobacco products, lottery games, civil aviation, electricity distribution, power generation, harbor/seaport operations, sugar processing, cruise port/tourism complex, mining, banking, toll road construction, maintenance and repair operations, and telecommunications are planning to be privatized in this period.[6] 

(iv)             Financial sector reforms

(a)                Banking sector reforms

49.               Banking Law: (November, 2005) There have been significant reforms in terms of regulation and supervision in the last few years. Upon approval of the new Banking Law which touches upon issues such as risk based supervision, capital adequacy and provisioning, full-fledged secondary regulations were issued in late 2006. These reforms further converged Turkish banking system with the international best practices and the European Union (EU) standards.

50.               Strengthening the Banking System: The credit intermediation role of the banking sector is improving with the support of the reforms in the sector and declining public sector borrowing need. The ratio of credits to assets has increased from 23% in 2002 to 44% in 2006. Although the amount and ratio of loans have increased, the total credit to GDP ratio in Turkey is still one of lowest in Europe. 

51.               Improved Banking Soundness Indicators: The high capital adequacy ratio of 22,4% and low gross non-performing loan ratio of 3,8% in 2006 are two indicators of the high asset quality in the Turkish banking system. Additionally, the foreign exchange position of the banking sector is quite low. Most recently, the required capital adequacy ratio has been increased to 12% for banks which desire to open new branches and general provisions has been increased to 1% for new loans.

52.               Increased Foreign Participation and Privatization: In parallel with the improvements in the banking business, there have been significant changes in the ownership structure of the banking sector in terms of increased foreign participation and declining state ownership. With strong growth potential of the economy and the sector, Turkish banks have become more attractive for foreign investors. Total share of foreign participation in the banking sector capital has increased from 4,3 in 2004 to 22,4% in 2006 through mergers and acquisitions in the last years. On the other hand, there are important steps to further reduce the public sector’s share in the banking sector. Upon completion of the financial and structural restructuring of state banks, privatization process has been initiated. In parallel with this strategy, two state banks have gone through successful IPO (Initial Public Offering) processes.

(b)                New mortgage law (February, 2007):

53.               The new Mortgage Law has brought in new opportunities for long-term funding and helped banks to better manage their portfolios. This law lays the legal basis for a more efficient and financially stable mortgage lending system, by allowing mortgage finance institutions, securitization of housing loans and variable rate mortgages.

(c)                New insurance law (June, 2007):

54.               The new Insurance Law is another important achievement in the financial sector. With the law, the insurance sector further complies with the EU standards and international best practices on issues such as minimum capital, fit and proper requirements, direct licensing, and changes in control. 

II.                TRADE POLICIES

55.               The objective of Turkey’s trade policies at all levels is to effectuate the principle of "free and fair trade" in its relations. The World Trade Organization (WTO), which regulates the course of the multilateral trade system, and the ongoing Doha Development Round negotiations are considered as invaluable platforms by Turkey to voice its concerns and endorse its interests.

56.               The Customs Union established with the European Community (EC) in 1995, which came into force in 1996 right after the completion of the Uruguay Round has also been a cornerstone in Turkey’s trade policies. The EC’s determining influence in Turkey’s trade relations has intensified even more with the beginning of the full membership process.

57.               Turkey also makes efforts to achieve a liberalized world trade and beginning from its region, works to enhance its commercial and economic relations with its neighbours. Turkey expects its trade policy to contribute to the economic and also political stability in its region. Towards that end, Turkey also pursues ambitious trade agendas from a regional perspective in organizations such as Economic Cooperation Organization (ECO), Black Sea Economic Cooperation (BSEC), Organization of Islamic Conference (OIC) and Developing-8 as a member.

(1)               Implementation of WTO Agreements

(i)                 Trade in goods

58.               The Import Regime of Turkey reflects national economic needs and Turkey’s rights and obligations arising from the WTO Agreements, the Customs Union with the EC and other bilateral, regional and multilateral agreements including free trade agreements (FTA).

59.               In scope of the Turkish Import Regime, import of goods is free. However, import of some products is subject to restrictions on the grounds of public morality, public order or public security, and the protection of health of humans, animals and plants.

60.               The Turkish tariff structure is transparent and simple. With respect to taxes and fiscal charges, Turkey’s import regime has been totally simplified. There is no seasonal or temporary customs duty for any good.

61.               The clarity of the Import Regime is ensured by indicating the rates of customs duties separately for countries and country groups; and by classifying the products under six lists; namely, agricultural products (List I), industrial products (List II), processed agricultural products (List III), fish and fishery products (List IV), the suspension list (List V), and list of goods used in civil aircraft eligible to relief from customs duties (List VI).

62.               These lists are made available to the public in the Official Gazette in the beginning of each year. They are also released in the official website of the Undersecretariat of the Prime Ministry for Foreign Trade (UFT) as well.

63.               The most recent changes in the import regime were introduced with the Import Regime Decree for the year 2007, which was published in the Official Journal (No: 26392 bis) on 30 December 2006. The Import Regime Decree of 2007 has been prepared by taking into consideration the Agreement Establishing the WTO, the Customs Union Decision (CUD), the free trade agreements with various countries, the preferential treatments granted under the Generalized System of Preferences (GSP) to developing, least developed and special incentive arrangement countries, and also the needs and demands of the agricultural and industrial sectors in accordance with the objectives determined by the development plans and annual programs.

(a)                Non-agricultural products

64.               As a participant to the Uruguay Round negotiations and a signatory of the Agreements indicated in the annexes of the Agreement establishing the WTO, Turkey has undertaken tariff reductions on industrial and agricultural products to be implemented gradually. In addition, as a result of the Customs Union with the EC, Turkey began to apply the Community’s Common Customs Tariff (CCT) on the imports of industrial goods from third countries, which is far below its Uruguay Round bound rates. Thus, with the Customs Union, Turkey’s simple average protection rate for the third countries declined from approximately 15% to 4,2% in 2007. This rate is zero for the EU and EFTA countries since 1996. Hence, despite its developing country status in the WTO, Turkey has embarked on one of the most comprehensive tariff reductions among member countries.

65.               Moving from this picture, Turkey expects ambitious results from the Doha Round in terms of genuine market access opportunities, which can be realized through the simple Swiss formula, harmonizing the tariff rates of the member countries.

66.               An essential component for a harmonizing result is definitely reaching a well-calculated balance between the formula and the flexibilities. In addition, achieving 100% binding rate for all Members is another important objective to attain for Turkey

Information technology products

67.               Being one of the 70 participant countries to The Ministerial Declaration on Trade in Information Technology Products (ITA), signed on 13 December 1996 in Singapore at the conclusion of the first WTO Ministerial Conference, Turkey committed to phase out customs duties on information technology products as of 1 January 2000. Turkey has completed the integration stages on 1 January 1998 before the deadline.

Preferential treatment for LDCs

68.               As part of the Customs Union Decision, Turkey has been aligning its Generalized System of Preferences with the EC's.[7] Duties on products under the CUD are entirely eliminated for the least developed countries in line with the Everything But Arms (EBA) Initiative of the EC GSP Scheme. In compliance with the agreement with the EC, Turkey also grants further preferences to selected 15 countries under the Special Incentive Arrangements for Sustainable Development and Good Governance. Beneficiary countries are announced annually in the Annexes of Turkey's Import Regime.

(b)                Agricultural products

69.               Within the framework of Agreement on Agriculture, Turkey has bound all of its tariffs for the agricultural products in 1995. According to the Schedule of Commitment List (Schedule 37) attached to this Agreement, Turkey has made 10% minimum cut per product and 24% average cut for all agricultural products between the period 1995 and 2004. As a result, Turkey has reached the bound rates in 2004. The average customs duty for agricultural products by 2006 is 59,2%.

70.               On the other hand, decisive steps have been taken since 2001 by the Ministry of Agriculture and Rural Affairs (MARA) in order to deal with the structural problems of the sector through a multifaceted reform process. In November 2004, Turkey has prepared Agricultural Strategy Paper – ASP (2006-10), building on the formerly enacted ARIP (Agricultural Reform Implementation Project, 2001-05) for shaping an organized, competitive and sustainable agriculture sector that utilizes resources efficiently. With the enactment of ASP, the implementation of ARIP has been extended to the end of 2008. ARIP is a policy tool to support farmers with an appropriate social and economic safety net while putting in force a new agricultural support system, which aims to increase productivity in the sector. In the context of the reform package, measures have been taken in four main areas: (i) withdrawing the State from direct involvement in production, processing, and marketing of crops; (ii) reducing output intervention purchases financed from the budget leading to price cuts; and phasing out price support and credit subsidies, and their replacement by a less distorting direct income support (DIS) system to farmers based on a uniform per hectare payment (about US $90/ha), and (iv) making available one-time transition grants to farmers, switching out of crops and suffering excess supply, such as hazelnuts and tobacco, to assist them covering their transitional costs, and facilitating the transition to efficient production patterns. The ARIP, which is restructured by the ASP, is supported by a World Bank Loan Agreement. This process enriched the ARIP with new sub-components such as rural development activities and agri-environmental policies. Land Consolidation actions, Village Based Participatory Investments program, Licensed Warehousing investments, Conservation of Agricultural Lands for Environmental Purposes (CATAK) are projects started in this context.

71.               Besides, in April 2006, Turkey has adopted Agriculture Law (Law No. 5488) to establish required policies for developing agricultural sector and rural areas. The support instruments determined by the Agriculture Law are in line with the Agricultural Strategy Paper.

72.               Turkey highly prioritizes the ongoing Doha Development Round negotiations on agricultural products. Agriculture is one of the dominant sectors in the Turkish economy with its 27% share within the total employment. However, in comparison to the other sectors with respect to employment, the income of those employed in the agricultural sector remains extremely low. Therefore, the results of the negotiations will not only have economic but also social-adjustment impacts. In case of the market access, as tariffs are the only instruments to sustain agricultural production in Turkey like most developing countries, a gradual liberalization process and some complementary instruments to minimize the possible negative impacts of liberalization are expected. In that sense, Turkey fully believes in the necessity of Special Products (SP) and Special Safeguard Mechanism (SSM).

(c)                Rules

Anti-dumping and subsidies/safeguards

73.               Turkey enacted its first anti-dumping and subsidy legislation (Legislation on the Prevention of Unfair Competition in Imports) in 1989, which was comprised of the Law on the Prevention of Unfair Competition in Imports (Law No. 3577); The Decree on the Prevention of Unfair Competition in Imports (Decree No. 89/14506); and the Regulation on the Prevention of Unfair Competition in Imports, which took effect on 1 October 1989. Pursuant to Article 90 of the Constitution of the Republic of Turkey; the Agreement on the Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 and the Agreement on Subsidies and Countervailing Duties of the WTO, on which the legislation is based on, constitute an integral part of the Turkish national legislation.

74.               Certain imperative amendments were made in the Legislation on the Prevention of Unfair Competition in Imports became imperative, following the outcomes of the Uruguay Round and the Customs Union established with the EC.[8]

75.               The amendments introduced by the Law on the Prevention of Unfair Competition in Imports No. 4412 set forth new rules and procedures to be followed during the course of anti-dumping and anti-subsidy investigations, to counteract injury caused by dumped or subsidized imports. The amendments introduced by the Decree No. 2005/9840 brought new rules pertaining to the prevention of circumvention of anti-dumping duties which are of significant importance to sustain the effective functioning of the legislation against injurious dumped or subsidized imports. The amendments introduced by the Regulation on the Prevention of Unfair Competition in Imports relate to two main areas: namely, rules concerning imports from non-market economies, published on 2 June 2002; and rules and procedures to be followed during anti-circumvention investigations, interim and expiry reviews, refund and other investigations published on 26 January 2006. All amendments were notified to the Committee on Anti-Dumping Practices and Committee on Subsidies and Countervailing Measures of the WTO.

76.               Turkey also has had Safeguard Legislation in compliance with the Agreement on Safeguards of the WTO since 1 June 1995. After the accession of People’s Republic of China to the WTO, Turkey amended its legislation according to the Article 16 of the Accession Protocol on 28 May 2003.

(d)                Technical barriers to trade

77.               Turkey has been implementing The Agreement on Technical Barriers to Trade of the WTO since 1 January 1995, in line with which, an Enquiry Point was also set up.

78.               In order to render the distribution of notifications timely and effective, and information about draft regulations easily accessed by all actors of trade, the notifications have been exchanged by means of electronic communication since the end of 2002. To complement this process, in 2006, a website www.teknikengel.gov.tr has been introduced in order to ensure the efficient administration of that notification system.

79.               To ensure cooperation in the fields of technical regulations, standardization, conformity assessment, metrology, accreditation and consumer safety and to contribute to the development of bilateral trade through eliminating technical barriers to trade, Turkey has signed technical cooperation agreements with China (P.R.), Ukraine and Israel. Text based negotiations for signing and implementing similar agreements are in progress with other countries.

(e)                Investment

80.               Turkey has attributed considerable importance to the foreign investment and pursued liberal foreign policies since 1980's in parallel with the advances in the global economy. The new foreign direct investment regime became effective on 17 June 2003 by the publication of "Foreign Direct Investment Law No. 4875" in the Official Gazette. The law not only provides foreign capital the best international standards, such as equal treatment, guarantee to transfer proceeds, right to resort to international arbitration and right to employ key expatriate personnel, but also repeals prior approval procedures for foreign investors and minimum capital requirements to invest in Turkey.

81.               On the other hand, the Turkish Investment Encouragement System, which is currently in force, consists of an integrated program called as "The Investment Encouragement Program (IEP)", which contains various measures to encourage, support and orient all types of investments with objectives such as regional development, support of SMEs, R&D and environmental protection based on the provisions of related legislation.

82.               The Program (IEP) is based on a regional and horizontal approach. As far as the mechanism is concerned, domestic and foreign investors are equally treated; the companies having foreign capital can benefit from all encouragement measures granted to domestic companies with the same conditions. Within the objectives and the scope of the Program, eligible investment projects can benefit from tax based encouragement measures (namely "Exemption from Customs Duties" and "Value Added Tax Exemption for imported and domestically purchased machinery and equipment") and "Energy Support for Tourism Investments". Additionally, a new measure "Interest Support" provides for the compensation of certain percentage points of the interest rate for credits obtained in commercial terms by investors.

83.               In addition to IEP, within the context of "Law No. 5084 dated 29 January 2004 on Encouragement of Investments and Employment and Amendment of Certain Laws", "energy support" is provided to undertakings in certain provinces lagging behind the others in socio-economic terms.

84.               In all legal measures and programs introduced, Turkey is very rigorous to observe its commitments to the TRIMs Agreement. Today, Turkey’s FDI regime is in full compliance with the rules set forth in the Agreement.

(ii)               Services

85.               In scope of the National Ninth Development Plan (2007-13), it is estimated that the annual average real growth rate of the services sector would be 7,3% between 2007 and 2013, while the share of services in GDP is expected to reach 65.0% in 2013 in Turkey. The current share of services is 64.2% of the GDP as of 2006.

86.               With the aim of liberalization of services, Turkey has made commitments in several services categories under the General Agreement on Trade in Services (GATS). Turkey has also been actively and constructively engaged in trade in services negotiations (both bilaterally and plurilaterally) on the basis of GATS, since 2000.

87.               In the Doha Round services negotiations, Turkey’s objective is to improve the number and quality of market access and trade-related commitments. In this context, Turkey has submitted its initial conditional services offer to the WTO on 15 August 2003 and its revised conditional offer on 12 September 2005. They were circulated on 3 September 2003 (TN/S/O/TUR) and on 29 September 2005 (TN/S/O/TUR/Rev.1), respectively.

88.               Turkey, on the way of full membership to the EU, has continued its regulatory reforms in services since its last TPR in 2003. The reforms are embodied particularly in key sectors such as telecommunication and financial services. In the telecommunications services, monopoly of Türk Telekom on voice telephony and infrastructure was removed at the end of 2003. In addition, Türk Telekom, having been a state monopoly, was privatized as of 14 November 2005.

89.               With regard to financial sector, some significant structural and regulatory reforms have also been made, in line with the EU standards. As mentioned above, a new Banking Law No. 5411 entered into force in November 2005. With the new Law, the supervision and regulation authority of non-bank financial institutions, which have formerly been in the responsibility of Undersecreteriat of Treasury, was assigned to Banking Regulatory and Supervisory Agency (BRSA) as well.  In the insurance sector, the new Insurance Law No. 5684 came into force in June 2007 to provide economic integration with international financial markets, and to assure an effective operating sector in a secure and stable atmosphere. Finally, in the tourism sector, a new Law No. 5571 entered into force in January 2007 enabling foreign service suppliers to operate travel agencies in Turkey with the same qualification requirements applied to domestic service suppliers.

(iii)             Trade-related intellectual property rights (TRIPs)

90.               In line with its commitments under the WTO TRIPS Agreement and in scope of its efforts to align laws and regulations with the EU legislation, Turkey has introduced certain changes to its intellectual property regime since the last TPR.

Copyright

91.               Latest comprehensive amendment in the Intellectual and Artistic Works Law of December 5, 1951 was made to prevent piracy and to reconcile disputes between collecting societies and users (Law No. 5101, 3 March 2004). In this context, reproduction or lending of works for the needs of the disabled has been ensured and economic rights of broadcasting institutions have been rearranged in detail in accordance with Article 14 of TRIPS. Besides, implementation of the provisions of the Customs Law No. 4458 concerning struggle with piracy and the Law on Combating Against Smuggling has also been re-planned in accordance, through the process. 

92.               On the other hand, Public Prosecutor was authorized to request the competent court to confiscate the illegally reproduced copies and publications. In the case of infringement of rights of authors and other right holders, the authorities can have the copies destroyed, the technical devices of reproduction sealed and the venue where sale and illegal reproduction takes place closed down. The necessary amendments were made to ensure that, upon recurrence of offences the penalty of imprisonment cannot be adjourned and turned into fines or precautionary measures and the related provisions of "the Law upon Fight against Profit-Oriented Criminal Organizations" shall apply to the offences (Law No. 5846). Penalties, within the scope of Law on Intellectual and Artistic Works, have also been reduced to applicable levels, taking into account the TRIPS Article 61.

93.               Moreover, Reconciliation Committee has been established by the Ministry of Culture and Tourism so as to resolve any disputes, which may arise in the course of fixation of tariffs. The opportunity to establish collecting society has been granted to publishers as well as authors and related right holders.

94.               Efforts have also been made for transparent administration of collecting societies in terms of administrative and financial liabilities. To this end, collecting societies have been put under the supervision of the Ministry of Culture and Tourism (Articles 42/A and 42/B of the Law No. 5846).

95.               The amendments effected cover (i) the certification of the enterprises producing materials like CDs, VCDs, DVDs or recording, reproducing, selling or distributing the intellectual and artistic works; (ii) the royalties payable to the right holders in case of resale of works of fine arts (Article 44 and 45 of the Law No. 5846).

96.               Principles and procedures regarding banderol (strip stamp) implementation, inspection, and penalties to be imposed in case of infringement of the implementation have been rearranged. Ex officio authority has been granted to security forces and municipal police concerning banderol infringements. Furthermore, sale of legally reproduced banderolled work copies on streets, squares, bazaars, pavements, wharfs, bridges and similar spots has been banned (Article 80 and 81 of the Law No. 5846).

97.               Additional articles have been put in force, regarding the sui generis protection in databases (in line with the EU Directive on Legal Protection of Databases). With these additional articles, establishment of a database that will facilitate the flow of work between Ministry of Culture and Tourism and other related units, diminish bureaucratic transactions, and ensure easy access to reliable information for pursuit of intellectual property rights has been realized. The database, comprising information with respect to banderol, certification, recording-registration, and authors and other right holders, will be accessible to collecting societies, courts, the Undersecretariat of Customs, and the Ministry of Interior.

98.               Besides, in the scope of membership to the EU, a Twinning Project "To Support Turkey’s Efforts in the Full Alignment and Enforcement in the Field of Intellectual Property Rights with a Focus on Fight Against Piracy" has been initiated in May 2006 and scheduled to end by November 2007.

99.               Finally, according to the Circular on the loss of tax revenues stemming from actions of piracy and counterfeiting, which is issued and updated on 20 March 2006 by the Ministry of Justice, the Offices of Public Prosecutors shall inform the Finance Departments on the final decisions of the criminal courts regarding conviction of piracy and counterfeiting to prevent tax evasion.

Industrial property rights

100.            In the field of industrial property rights, The Law protecting the topographies of integrated circuits came into force on 22 April 2004 (Law No. 5147). "Law on the Protection of Breeders’ Rights on New Plant Varieties" numbered 5042 entered into force on 15 January 2004.

101.            The Law No. 5000 relating to the establishment and the functions of the Turkish Patent Institute came into force on 6 December 2003 and invalidated the previous Decree Law No. 544 dated 1994).

102.            Turkey signed the PLT (Patent Law Treaty) on 2 June 2000 and Singapore Treaty on 28 March 2006 both of which are World Intellectual Property Organization (WIPO) administered treaties. The Hague Agreement and the Trademark Law Treaty (TLT) came into force on 1 January 2005.

103.            Moreover, Turkey has been a party to the European Patent Convention (EPC) since 1 November 2000. Turkey has also ratified the revised version of the EPC (EPC 2000), which is expected to come into force on 13 December 2007. The revision aims to adapt the international laws particularly TRIPS and PLT.

104.            The patent and trademark agent system, an important element of structural framework of industrial property rights has been established and a draft law for a patent and trademark agent union has been prepared and submitted to the interested parties for consultation.

IPR-related Courts

105.            In order to strengthen the enforcement of intellectual property rights two specialized courts (Criminal IPR Court and Civil IPR Court) were set up in 2001 in Istanbul, where IPR cases are relatively intensive in comparison with other cities (almost half of the total number of cases are in Istanbul).

106.            The number of Specialized IPR Courts was increased by:

-            eight in 2004 (2 civil and 3 criminal IPR Courts in Istanbul,  1 civil and 1 criminal IPR Courts   in Ankara, 1 criminal IPR Court in Izmir)

-                      twelve in 2006 (4 civil and 3 criminal IPR Courts in Istanbul,  3 civil and 1 criminal IPR      Courts in Ankara, 1 criminal IPR Court in Izmir)

-                      nine in July 2007 (3 civil and 3 criminal IPR Courts in Istanbul, 1 civil IPR Court in Ankara,        1 civil and 1 criminal IPR Courts in Izmir).

 

107.            On the other hand, a pilot project[9] funded by European Union was completed successfully in May 2004. The overall objective of the Project was to enable Turkey to meet its commitments in the fields of intellectual, industrial and commercial property rights in accordance with the Agreement on European Community-Turkey Customs Union.

(2)               Turkey's Accession Process to the EU

(i)                 Recent developments in Turkey-EU relations

108.            Turkey made its first application to join the then European Economic Community (EEC) in 1959. This application resulted in the signature of the Ankara Agreement in 1963, which foresaw a gradual process for Turkey’s EU integration and envisaged the progressive establishment of a Customs Union. The Ankara Agreement was supplemented by an Additional Protocol signed in 1970, which set out the timetable for abolition of tariffs and quotas on goods circulating between Turkey and the EEC.

109.            In line with the Ankara Agreement, Turkey undertook to eliminate its customs tariffs on industrial products in 22 years starting from 1973, culminating in the establishment of Turkey-EC Customs Union on 1 January 1996.

110.            In 1987, Turkey applied for full membership. The Helsinki European Council held on 10‑11 December 1999 produced a breakthrough in Turkey-EU relations, during which Turkey was officially recognized without any precondition as a candidate country. Thus a pre-accession strategy has begun for Turkey to stimulate and support its reforms.

111.            A defining moment in Turkey-EU relations has been experienced on 6 October 2004, when the European Commission published the 2004 Progress Report and the Recommendation Document. Within that Document, Turkey was said to have fulfilled the political criteria in required measure and the launch of accession negotiations with Turkey was recommended.

112.            Brussels European Council of December 2004 then confirmed that Turkey sufficiently fulfilled the Copenhagen political criteria and decided to start accession negotiations with Turkey on 3 October 2005. Decisions taken at the Brussels Summit with regard to Turkey’s membership included some special clauses that were not featured in previous rounds of EU enlargement. In the decision, there was reference to the possibility of permanent restrictions in such areas as freedom of movement of persons, structural policies and agriculture.

113.            The European Commission presented the Accession Negotiations Framework for Turkey on 29 June 2005. The framework includes the principles regulating the negotiations, the content of negotiations, negotiation procedures and negotiation headings. The framework document emphasized that the ultimate objective of negotiations is full membership. The document was adopted by the EU Council on 3 October 2005. On 29 July 2005, Turkey signed the Additional Protocol extending the Turkey-EU Customs Union to new member states that acceded to the EU on 1 May 2004.

114.            Shortly after the EU Accession Negotiations was launched on 3 October 2005, Screening Process was started with a meeting on the Chapter "Science and Research" on 20 October 2005. Screening Process for all negotiation Chapters was completed on 13 October 2006.

115.            On 29 November 2006, the European Commission recommended suspension of opening of negotiations in 8 chapters (Free Movement of Goods, Right of Establishment and Freedom to Provide Services, Financial Services, Agriculture and Rural Development, Fisheries, Transport Policy, Customs Union and External Relations) and not closing negotiations in any of the chapters due to problems in Commission’s view of implementation of Additional Protocol to Ankara Agreement. The EU General Affairs and External Relations Council agreed with the recommendation of the Commission to suspend opening of negotiations for 8 chapters on 11 December 2006.  This decision was confirmed by Brussels European Council of 14-15 December 2006.

116.            As of July 2007, negotiations regarding Chapter "Science and Research" are provisionally closed, and negotiations for Chapters "Enterprise and Industrial Policy", "Financial Control" and "Statistics" are ongoing.

117.            Turkey’s Program for Harmonization with the EU acquis was released on 17 April 2007. The said Program that includes the necessary legislative changes for the period 2007-13 will serve as a roadmap for the harmonization efforts within the framework of accession negotiations.

(ii)               Turkey’s Current Status of Harmonization with the EC Policies

(a)                Harmonization in commercial policies

118.            Harmonization with the basic mechanisms and principles of the EU’s Common Commercial Policy constitutes a substantial part of Turkey’s obligations in scope of the Decision No. 1/95 of the EC-Turkey Association Council establishing the Customs Union between Turkey and the European Union.

119.            In this framework, in line with Article 12 of the above-mentioned decision, harmonization with the EU acquis has been achieved in the following areas: "common rules for imports and exports", "common rules for exports from certain third countries", "administration of quantitative quotas",  "protection against dumped and subsidized imports", "community procedures in the field of common commercial policy in order to ensure the exercise of the community’s rights under international rules", "officially supported export credits", "textile imports under common rules", "textile imports under autonomous arrangements", "inward processing", "outward processing" and "outward processing in textile and clothing". Thus, Turkish legislation regulating the foreign trade regime has been harmonized with the EU acquis to a great extent.

Textiles and clothing

120.            One of the most important aspects of the Customs Union between Turkey and the European Union was Turkey’s adoption of the EC’s textiles and clothing restrains as part of the Common Commercial Policy measures, in conformity with Article XXIV of GATT 1994. Since quotas and all restrictions were phased out on 1 January 2005 under the WTO Agreement on Textiles and Clothing (ATC) of 1995; Turkey terminated all textile quotas for WTO members. On the other hand, in accordance with the paragraph 242 of the Report of the Working Party on the Accession of China to the WTO, Turkey has quotas in place for certain Chinese origin textiles and apparel products.

121.            On the other hand, market conditions that came to effect after the removal of quotas have created turbulence in Turkey. As an exporter country in textiles and clothing products, Turkey has engaged in certain initiatives within two separate bodies of the WTO, the Council for Trade in Goods (CTG) and the NAMA Negotiating Group, to underline the unique status of this sector.[10]

Preferential customs regime of the EC

122.            Article 16 of the Decision of the Association Council No. 1/95 states that with a view to harmonizing its commercial policy with that of the Community, Turkey shall align itself progressively with the preferential customs regime of the Community as from the date of the entry into force of the Decision. This alignment will concern both the autonomous regimes and preferential agreements with third countries.

Generalized system of preferences[11]

123.            EC’s Generalized System of Preferences (GSP) has been adopted by 1 January 2002 partly for 2456 products, taking account Turkey’s domestic needs and interests. The product coverage has been further enlarged to cover half of the products (3056 CN codes) under the EC’s GSP regime as of 1 January 2004. Turkey also enacted a new decree on 25 August 2004. With this new decree all industrial products covered by the EC’s GSP Regime are included into Turkey’s GSP. According to 2007 Import Regime, the GSP Regime covers 5357 products (CN codes) and it constitutes nearly 53% of total tariff lines and 68% of all industrial products.

124.            Under Turkey's GSP regime, preferences are granted to industrial goods and some agricultural goods in the scope of the CUD.  The goods covered by the regime are classified according to their "sensitivity". Duties on non-sensitive products are fully eliminated, while those on sensitive products are reduced. The reduction is by 3.5 percentage points on the MFN duty rate, unless preferential rates under the EC's GSP scheme provides for tariff reductions of more than 3.5 percentage points. In that case, the higher reductions will apply. Finally, for Chapters between 50-63 the reduction is 20% of the MFN duty rate. 

Free-trade agreements

125.            The Customs Union between Turkey and the EC constitutes the legal basis of Turkey’s free trade agreements.

126.            The composition of Turkey’s FTAs is quite extensive. More precisely, the tariff concessions for the industrial and agricultural products, quantitative restrictions on imports and exports, customs duties or measures having equivalent effect, basic duties, safeguard measures, internal taxation, technical barriers to trade, sanitary and phytosanitary measures, rules of origin, services and investment, general exceptions, security exceptions, state monopolies, payments, rules of competition, public procurement, intellectual property rights, dumping and subsidy, re-export and serious shortage and balance of payments difficulties are governed by FTAs. Moreover, rules of origin are a major component of FTAs.

Graph 1.

(*)           FTAs with Lithuania, Hungary, Estonia, Latvia, Slovakia, Poland, Slovenia, Romania, Czech Republic and Bulgaria have not       been mentioned since all these countries have become full members to the EU.

(**)         Out of the scope of harmonization efforts. The EU does not have an FTA with Georgia.

(***)       Turkey-Albania FTA has been signed on 22 December 2006 and will enter into force once the internal ratification procedures are        completed in both countries.

127.            The Agreement between Turkey and the EFTA States^[12], which entered into force on 1 April 1992, constitutes the first step towards Turkey’s undertaking of preferential customs regime of the EU.

128.            Regarding the CEEC, following the FTA between Turkey and EFTA, between 1997 and 2000 Turkey concluded FTAs with Romania, Lithuania, Hungary, Estonia, Czech Republic, Slovakia, Bulgaria, Poland, Slovenia and Latvia respectively.  The FTAs signed with these 10 CEEC have been terminated due to the enlargement of the EU in May 2004 and January 2007. As of these dates, preferential trade between Turkey and these countries is conducted within the scope of Turkey-European Community association relationship.

129.            Within the context of the Stabilization and Association process of the EU towards the Western Balkans countries^[13] and due to Turkey’s well-founded historic, social and cultural relations as well as trade and investment opportunities, trade relations with these countries constitute another major area of concern for Turkey. Accordingly, Turkey’s FTAs with Macedonia (September 2000), Croatia (July 2003), and Bosnia and Herzegovina (July 2003) are in force and a FTA with Albania was signed on 22 December 2006 in Tirana which will enter into force once the internal ratification process in both countries are completed. Regarding Montenegro, after its independence in June 2006, the first round of negotiations are held in 24-25 May 2007 in Kolasin, Montenegro and the second round is planned to be held in 8-9 October 2007 in Ankara. The FTA negotiation process between Turkey and Serbia is supposed to be initiated before the end of 2007.

130.            Turkey is also part of the Pan-Euro-Mediterranean Partnership process. The Pan-Euro-Med Partnership process is based on the Barcelona Declaration^[14], which was accepted in Euro-Mediterranean Ministerial Conference dated on 27-28 November 1995. It envisages the formation of Euro-Mediterranean Free Trade Area as of the year 2010^[15].

131.            In this context, Turkey started her initiatives to conclude FTAs with the Mediterranean countries.[16] The FTAs with Palestine (2005), Tunisia (2005), Morocco (2006), Syria (2007) and Egypt (2007) entered into force respectively. Moreover, Turkey’s FTA negotiations with Lebanon and Jordan are still continuing and FTA negotiations with Faeroe Islands which were brought to a standstill by the year 2000 are set to resume in the second half of 2007.

132.            Alongside Jordan, Lebanon, Montenegro and Faroe Islands, Turkey’s FTA negotiations with the Gulf Cooperation Council (GCC) countries^[17] and Georgia are also under way. Finally, The exploratory talks with South African Customs Union (SACU), Mexico, Chile and Ukraine were held in July 2005, May 2005, May 2007 and June 2007 respectively.

(b)                Harmonization in competition policy

133.            The Turkish Competition Authority (TCA) is responsible for the enforcement of competition rules regulated by the Act No 4054 on the Protection of Competition (Act No. 4054). Brief information on the history and description of the Act No 4054 and the TCA can be given as follows:

134.            According to the Decision No. 1/95, Turkey had to make its legislation in the competition field compatible with articles 81 and 82 of the Rome Treaty prohibiting anti-competitive agreements and abuse of dominant position respectively. To that purpose, the Decision No. 1/95 requires Turkey to adopt a law prohibiting anti-competitive agreements and abuse of dominant position and establish a competition authority to apply the law before the entry into force of the Customs Union. Moreover, Turkey had to ensure that, within one year after the entry into force of the Customs Union, the principles contained in block exemption regulations in force in the Community, as well as in the case-law developed by EC authorities, shall be applied in Turkey.

135.            Although the Act No 4054 entered into force in 1994 before the Customs Union as provided in the Decision No. 1/95, establishment of the TCA could not be realized until 1997. As a result, the TCA and its decision-making body, the Competition Board, could begin its operations in 1997.

136.            According to the Act No. 4054, anti-competitive agreements, concerted practices and decisions, abuse of dominant position are prohibited in line with the Articles 81 and 82 of the Rome Treaty. Moreover, Act No. 4054 provides necessary rules for merger control as well. According to the Act No. 4054, the Turkish Competition Authority has administrative and financial autonomy. The Turkish Competition Authority has the necessary administrative capacity and enforcement tools in order to apply the law effectively.  Here it is also important to mention that in addition to its enforcement role of the competition rules envisaged in the Act No. 4054, the TCA has also competition advocacy role to develop competition culture and eliminate anti-competitive regulations and acts of the State.

137.            As a matter of fact, following the screening report praising the state of competition rules in Turkey, the final Progress Report of 2006 on Turkey also provides that harmonization level of Turkish competition rules is "well advanced" reflecting the main principles of competition rules in the Community, and the Turkish Competition Authority has sufficient level of administrative capacity to enforce the competition rules. Additionally, the findings in the Peer Review Report on Turkey’s Competition Law and Policy prepared by the OECD in 2005[18] are parallel to those of the European Commission in terms of enforcement record, legislative framework and the institutional capacity.

(c)                Harmonization in technical legislation

138.            Turkey has undergone a structural change in its regulatory practices as a result of its obligation to approximate its technical legislation with that of the European Union within the framework of the Turkey – EC Customs Union Decision. This CUD stipulates the elimination of not only classical trade restricting measures but also the barriers to trade arising from different regulatory practices on goods in the two signatories to the CUD.

139.            Within the context of the transposition of the EU horizontal legislation in relation to the safety of products, the Law on the Preparation and Implementation of Technical Legislation on Products (The Framework Law No. 4703) was put into force as of 11 January 2002.

140.            The Framework Law has been prepared to transpose different elements of the EU technical legislation into the Turkish legal order and describes the rights and duties of the regulators, producers and third party conformity assessment bodies.

141.            Turkey has made significant progress especially in the implementation of the so-called horizontal technical legislation. Moreover, the alignment of the sector-specific legislation has also accelerated. Competent authorities put into force 232 pieces (out of approximately 300) of technical legislation, which was determined by Turkey-EC Association Council Decision No. 2/97.

142.            The market surveillance concept has also deeply changed towards a new direction in Turkey with the Customs Union. The Framework Law, which lays down general principles of product safety brought about fundamental changes in the national market surveillance system.

143.            Moreover, in accordance with Article 6.3 of the TBT Agreement and in order to prevent any possible trade diversion between Turkey and the EU, Turkey is planning to conclude bilateral agreements parallel to EU’s mutual recognition agreements. As a first step, Turkey has started text based negotiations with EFTA to conclude mutual recognition of conformity assessment between Turkey and the EFTA States.

144.            On the other hand, Turkey has the Regime for Technical Regulations and Standardization for Foreign Trade, which consists of a Decree (No. 2005/9454), a regulation and number of Communiqués. It was first put into force in 1995 and continues to regulate the standardization activities since then. It is a transitional regime that is revised annually. The aim of the regime is to prevent technical legislation, specifications and standards applied in foreign trade from constituting an obstacle to international trade.

145.            With regard to Turkish technical institutions, Turkish Accreditation Agency, which is one of the main institutions in ensuring international acceptance of certificates issued by conformity assessment bodies, was established on 4 November 1999, with the enactment of the Law on the Organization and Functions of the Turkish Accreditation Agency (TÜRKAK). To ensure its international recognition and to enhance international cooperation, TÜRKAK has become the member of European Co-operation for Accreditation since 28 November 2002 and has signed 4 out of 7 EA‑MLAs in April 2006. It is expected that the 3 remaining EA-MLAs will be signed within the second half of 2008. TÜRKAK has also become a full member of the International Laboratory Accreditation Cooperation (ILAC) and International Accreditation Forum (IAF). Whereas TÜRKAK has signed an MRA with ILAC in the fields of testing and calibration, its application for MLA with IAF has not been concluded yet.

146.            Turkish Standards Institution (TSE) is the sole responsible authority for the preparation and adoption of national standards. TSE, which is a full member of the International Organization for Standardization (ISO), the International Electrotechnical Commission (IEC) and affiliate member of the European Committee for Standardization (CEN) and the European Committee for Electrotechnical Standardization (CENELEC), has applied for the full membership of both CEN and CENELEC. TSE is expected to become a member of CEN and CENELEC after the Turkish Parliament adopts the amendments to its existing law.

(d)                Harmonization in agricultural policies

147.            Turkey and the EC have agreed to extend the preferential regime in basic agricultural products with a view to assisting Turkey to adapt its agricultural policy to that of the EU. In that respect, a series of negotiations on better market access possibilities for agricultural products have been held between the Parties during the period 1993-1997.

148.            As a result of these negotiations, the Parties concluded the Decision No. 1/98 of the Turkey-EC Association Council, which entered into force as of 1 January 1998.

149.            In the context of the Association Council Decision No. 1/98, apart from full ad valorem exemption on almost all agricultural products, Turkey acquired concessions in a number of products including tomato paste, poultry meat, sheep and goat meat, olive oil, cheese, certain fruits and vegetables, hazelnuts, fruit marmalade and jams in the form of duty exemption/reduction, within tariff quotas or without any quantity restrictions. Similarly, Turkey has granted concessions to the EC in the form of tariff quotas on live bovine animals, frozen meat, butter, cheese, seeds of vegetables and flowers, flower bulbs, apples, peaches, potatoes, cereals, refined or raw vegetable oil, sugar, tomato paste and some animal food.

150.            Finally, negotiations between Turkey and the European Commission were undertaken with a view of adapting the Association Council Decision No. 1/98 in order to take into account of the enlargement of the European Community on 1 May 2004. As a result of the negotiations, the Association Council Decision No. 2/2006 amending the Protocols I and II of the Association Council Decision No. 1/98 was adopted on 17 October 2006. With the Decision, the modality of the existing concessions has been improved.

151.            On the other hand, within the context of the Association Council Decision No. 1/95, Turkey adopted Community’s system regarding the processed agricultural products (PAPs). Thus Turkey aligned its import regime accordingly and charges separate duties for the agricultural and industrial components in imports of PAPs from all countries. However, as the industrial products are in free circulation within the customs zone, Turkey and EU mutually eliminated tariffs applicable to the industrial component and PAP’s are in free circulation with the EU since 1 January 1996.

152.            Upon the enlargement of the Community on May 1, 2004, Association Council Decision No. 1/2007 has entered into force on 1 July 2007 which includes concessions in the form of duty free tariff quotas for the most of the processed agricultural products.

III.             DEVELOPMENTS IN TURKISH FOREIGN TRADE

(1)               Overview of Strategies

153.            More than a quarter of century has passed since Turkey switched from defensive, inward-oriented import substitution policies towards an export-led, outward-oriented economic growth model. From 1980’s to the 2000s, Turkey established a free market economy integrated into the global economic system.

154.            Over the past four years, utilization of the opportunities of the global trading environment and a sound integration with the world economy, have been, more than ever, the main motives behind the economic and trade policies of Turkey. To this end, ambitious steps have been taken in line with the programs introduced by the Government and strategies developed by the public institutions.

155.            In particular, policies are adopted to transform Turkey from a peripheral, labour-intensive production centre to an increasingly high-tech and capital-intensive goods exporting country. To lessen Turkey’s market dependency and concentration on certain regions and countries, extra political capital has been spent and new export strategies devised for improved access to a wider range of markets.

156.            In this context, "The Neighbouring and Surrounding Countries Strategy"(2000) has been taken on board by the Undersecretariat of the Prime Ministry for Foreign Trade to fully utilize the benefits of the location and logistics. This strategy, covering the neighbouring regions as the first phase than the surrounding regions as the second, paid off well to gain sufficient access in the markets concerned, through the intensive contacts at both official and business levels along with intensive promotional activities. In addition, specific regional strategies such as "The African Countries Strategy"(2003), "The Asian-Pacific Countries Strategy" (2005), and "The Americas Strategy" (2006) have also been implemented through the identical policy tools.

157.            Turkey has also been increasing its regional efforts, within the organizations that it has been a member of, such as the Islamic Conference, the Developing-8, the Organization for Economic Cooperation, and the Black Sea Economic Cooperation (BSEC). The main purpose of these regional policies are to add a comprehensive trade dimension to the agenda of these organizations with a view to create new market access opportunities for members and to eliminate any barriers to trade through the proposed arrangements.  

158.            Moreover, based on a comprehensive approach, "The Exports Strategic Plan for 2004-06" has been prepared by the Undersecretariat for Foreign Trade, in order to set targets to reach and the appropriate policy tools to utilize for enhanced market access opportunities. The plan offers long-term solutions to the structural problems of Turkish export oriented industries, rather than dealing with short-term considerations. Following the successful implementation of the Strategic Plan for 2004‑06, the Government has set the goal of "improving competitive structure towards a sustainable export growth" on the basis of its "Three Year (2007-09) Export Strategy Plan".

159.            Thus, in the period concerned, the upward trend in external trade figures has been striking, where the ratio of trade volume to GDP also increased steadily. Exports have grown on an accelerated momentum in the last five years.

(2)               Trade Developments by Regions, Countries, Regional Organizations and      Sectors[19]

160.            Both external and internal factors have triggered Turkish external trade in different ways, leading to record foreign trade volumes, US$190,3 billion in 2005 and US$225 billion in 2006. Increasing global demand depending on relatively higher economic growths in major markets created a favourable global environment for Turkish exports reaching US$85,5 billion in 2006. Main internal driving force for exports was the regional and sectoral policies, as mentioned above, implemented by the government. On the other hand, peaking oil prices as a result of the future supply concerns related to the depletion of reserves and political-military conflicts in major producer countries has had ramifications in Turkey, a net energy importer, as high import values. Moreover, high growth rates in the Turkish economy increased the demand for imports due to higher income and additional investments. Turkey imports a large amount of intermediate goods, more than 70% of its total imports. Consequently, integration of the Turkish economy to global markets accelerated with a dazzling performance in recent years.

161.            Over the past four years, while exports reached US$85,5 billion with an annual average rate of 24%, imports surged to US$139,5 by rising at an annual average of 28%. At the same time, the ratio of exports to imports fell to 61,3% in 2006 from 69,9 in 2002.

162.            An overall review of the current Turkish trade in bilateral and regional perspectives would provide the picture of the general structure of Turkey’s commercial links as a country that bridges different groups of countries with respect to their production patterns, economic and political structures, different geographies and cultures. For this purpose, here will be taken major trading partners of Turkey with figures in merchandise exports and imports to reflect recent trends in bilateral trade and then some regional initiatives that Turkey is involved will be highlighted in a broader perspective.

(i)                 By regions and countries

The European Community (EC)

163.            The EC is clearly the biggest trade partner of Turkey. In 2006, the EC accounts for 51,4% of total exports and 39% of total imports. Turkey is an important trade partner of the EC as well. The foreign trade statistics of the EC for the year 2006 demonstrate that Turkey ranks seventh at imports of the EC with a share of 2,8% and fifth at exports of the EC with a share of 4%.

164.            The Customs Union has strengthened the traditionally comprehensive trade relations. The volume of trade between Turkey and the EC reached to US$99 billion in 2006 from US$27,9 billion in 1995.

165.            Even though imports from the EC has fluctuated in parallel with internal and external macro economic developments, during the 1995-2000 period, imports recorded a higher rate of increase than exports. However, this trend reversed in 2001 and some positive developments were observed in trade balance with the EC. During the period of 1995-2006, the increase rate of exports has exceeded the increase rate of imports.

166.             The Customs Union locked in reforms towards liberalization in Turkey and accelerated the regional integration process, which characterizes external trade relations of Turkey. The openness rate of Turkey, which is the share of total trade volume in GNP, increased considerably to 56,3% in 2006 from 30,6% in 1994.

Other Europe & CIS Countries

167.            Compared to the EU, the growth rate of trade volume with other European countries transcended between 2002 and 2006. With the impetus stemming from the FTAs with the non-EU countries (Croatia, Macedonia, Albania, Bosnia and Herzegovina), jumping by nearly 3,3 fold since 2002, trade volume with this group of countries reached US$33,7 billion in 2006. Imports from Other Europe consist mostly of raw materials, intermediate goods and energy.

168.            On the other hand, The Commonwealth of Independent States (CIS), besides its cultural ties with Turkey, plays an important role in Turkey’s foreign policy as well as in its external trade and economic strategies. The trade volume reached US$30 billion in 2006 with an impressing 300% increase compared to the year 2000.

169.            As of 2006, trade volume with Russian Federation, the first country in the ranking of Turkey’s imports, totalled US$21 billion with a bilateral trade deficit of US$14,6 billion on the side of Turkey.

170.            Due to the success of policies followed since 2000, the trade volume between Turkey and the Central Asian – Caucasian Republics attained US $4, 8 billion in 2006 whereas it reached only US$1,2 billion in 2000. In 2006, Turkey’s exports to Central Asian and Caucasian countries augmented to US$2,5 billion with a threefold increase.

Asia-Pacific Countries

171.            Asia-Pacific, the most dynamic region of the world in terms of economic and social development, is another potential market for Turkey so that a trade development strategy is tailored in 2005. A solid trade and investment infrastructure and an increase in the interaction with those growing markets are expected to be established. The rise of the share of Asia-Pacific Countries in the world trade also stimulates Turkey’s trade relations with countries in the region. The total trade, which was US$22.4 billion in 2005, reached US$27.1 billion in 2006, with an increase of 21,1%. Turkish businessmen’s increasing access to certain Asian markets caused steady expansion in Turkish exports, especially, in mining ores, oil and oil products, non-iron metals, electrical and non-electrical products. In this context, Turkey’s exports to China have shown an increasing trend since 2000 and have been realized as US$693 million in 2006 compared to US$96 million in 2000.

172.            Turkish exports to Japan has shown a stable trend, ranging around 150-300 million dollars between the period of 2003-06, while Turkish imports from Japan has shown a fluctuating trend. In 2006, Turkish imports from Japan were realized as 3,2 billion dollars and Turkish exports to Japan were registered as 263 million dollars.

Middle East

173.            Over the last four years, the Middle East countries have been a crucial country group within the scope of Turkey’s trade strategy. As a result of an increase in both imports and exports over the five years, Turkey’s total trade volume has increased from US$6 billion in 2002 to around 20 billion in 2006.

174.            For five years since 2002, export of Turkish goods to this region has exceeded imports. However, trade surplus has gradually decreased within the last two years; from US$2,1 billion in 2004 to 368 million in 2006. The foremost reason of this decline is the increase in oil and natural gas imports. Exports of Turkey to the region totalled US$10,2 billion (11,9% of the total) in 2006.

Africa

175.            Having a 5,3% share in Turkey’s total trade in 2006, African countries have gained particular significance in trade figures of Turkey starting especially with the contribution of African Countries Strategy in 2003. The results obtained so far in terms of the development of trade seem to be much promising. The total trade volume reached US $9,6 billion with 77% cumulative increase between 2003 and 2005, and US$11,9 billion in 2006. Of the total trade with Africa, 65% of imports and 67,8% of exports in 2006 were realized with four North African countries, namely, Morocco, Algeria, Tunisia, Libya and Egypt.

Americas

176.            Turkey’s trade with the Americas approached US$16 billion in 2006. Of the total trade volume with this group, 72,5% was realized only with the USA. Turkish exports to the USA reached US$5,1 billion in 2006, amounting to a share of 5,9% in Turkey’s total exports. Having almost 1 billion trade volume with each, Brazil and Canada are the other biggest trading partners of Turkey in the Americas. In 2006, Turkey’s exports to Canada were US$378,5 million, while imports from this country amounted to US$674,7 million. In the same year, Turkey’s exports to Brazil reached US$121,9 million, while imports from Brazil amounted to US$933,9 million.

177.            As one of the two pillars of the Strategy towards Americas, "The Trade and Investment Enhancement Strategy towards North America", which had been contemplated in an innovative style, was put into effect at the beginning of 2006 with the aim of enhancing commercial relations with the US and Canada. This market access strategy targeting some selected US and Canada Federal States utilizes a "province-product matrix" in order to capture the potential share for Turkey from the largest export market in the world.

178.            On the other hand, The Latin American and the Caribbean countries with strong economic capacity and trade development potential are among the priority regions with whom Turkey wants to increase its trade. In 2006, Turkey’s export to Latin America and the Caribbean region was 888,9 million dollars, and its import from these countries was 2,5 billion dollars. Turkey aims to increase its trade volume to the region and MERCOSUR in particular. In this regard, Turkey launched "Trade Enhancement Strategy with Latin American Countries" in 2006, the second pillar of the Strategy towards Americas.

(ii)               By regional organizations

Economic Cooperation Organization (ECO)[20]

179.            On the other hand, Turkey’s trade volume with the Economic Cooperation Organization (ECO) region reached US$11,4 billion by 2006, resulting in US$4,7 billion deficit. The value of Turkish exports to this region in 2006 reached US$3,3 billion, which represents a share of 3,8 in total exports. With the entry into force of ECO Trade Agreement (ECOTA), it is expected that the steady increase in Turkish exports to the region will gain momentum. ECOTA will also bring about deepening trade relations among ECO member countries.

Black Sea Economic Cooperation (BSEC)[21]

180.            As for the Black Sea Economic Cooperation (BSEC), Turkey’s trade with the region accelerated with spectacular rates in each year over the past four years. Of the total trade volume with the BSEC countries, having nearly 17,2% share in Turkey’s total trade volume, in 2006, the proportion of imports was nearly 70% causing more than US$15 billion deficits. The value of Turkish exports to the BSEC region in 2006 reached US$11,6 billion (13,5% in total exports). In the first seven months of 2007, the value of Turkish exports to the region rose by 54,9% and totalled US$8,9 billion.

Organization of Islamic Conference (OIC)[22]

181.            Turkey is a founding member of the Organization of Islamic Conference (OIC). In 2006, while Turkey’s exports to OIC countries reached US $15 billion with a 14,9% annual increase, its imports from those countries showed a remarkable increase by 32% and reached US $19,1 billion mostly due to drastic increase in world oil prices. Overall, the establishment of a Trade Preferential System among the OIC countries by 1 January 2009 will have positive effects on Turkey’s exports to these countries.

Developing 8 (D-8)[23]

182.            On the other hand, trade volume with Developing 8 (D-8) countries in 2006 surged to US$11,1 billion by 38% annual increase. While there is a sluggish percentage increase in Turkey’s exports to the member countries by 5%, amounting to US$2,2 billion, imports from those countries reached US$8,9 billion with a considerable increase by 50% mainly due to a huge jump of imports from Iran. However, the conclusion of the negotiations on the Preferential Trade Agreement among D-8 countries is expected to stimulate Turkey’s exports to D-8 countries.  

(iii)             By sectors

183.            Sectoral composition of exports has been changing towards more capital and technology intensive products in accordance with the developments in global trends in world commerce. The share of medium and high-tech products in Turkish exports moved up from 26% with a value of 8 billion dollars in 2000 to 35% with a value of 25 billion dollars, increasing by more than three folds compared to the value in 2000.

184.            In the recent years, the share of "machinery and transport equipment", a product group dominated by high value added and high-tech products, increased from 23,9% in 2002 to 30,5% in 2006. "Machinery and transport equipments", which is a capital-intensive sector, has become the largest component of Turkish exports since 2004, surpassing "textiles and clothing". But it is particularly the "automotive industry products" that played the most significant role in increasing the share of this relatively high capital-intensive product group. While the average annual rate of increase for total exports in 2002-06 was approximately 24%, it was 38,5% for "automotive products" and 28,7% for "electrical machinery and apparatus".

185.            The total share of "automotive industry products", "office machines and telecommunications equipment" and "chemicals" increased continuously from 17,5% to about 21,9% between 2002 and 2006. Clothing, automotive products, iron and steel are the products with the largest weight in the exports of industrial products. While the shares of these sectors in exports were 22,4%, 8,8% and 7,9% in 2002 respectively, they were 14,1%, 13,7% and 8,5% in 2006.

186.            Turkey has also been making efforts for the smooth adjustment of its labour-intensive exports sectors such as textiles and clothing. Both Turkish policy makers and private sector work to adjust to the new circumstances and to transform the sector towards "niche" markets that promise higher productivity and higher returns.

187.            In the period between 2002 and 2006, imports also increased significantly due to various reasons. First of all, the economic growth fed the need for intermediary and capital goods. Secondly, higher income levels accompanied with the postponed purchases in 2001 crisis caused a boom in domestic demand in the following years. Also, the appreciation of Turkish Lira created a cost advantage for imports. Energy prices rose dramatically pushing the cost of energy imports up in the world. 76 billion US dollars of the rise in imports between 2002 and 2006 is due to intermediary and capital goods and 19,4 billion US dollars of this increase are completely attributable to fuels and oil. Meanwhile, energy imports increased three folds from 9,2 billion dollars to 28.6 billion US dollars and constituted more than one fifth of total imports in 2006.

188.            In 2006, 16,7% of imports were capital goods, 71,3% were intermediary goods and 11,6% were consumption goods. Due to the import dependency in industrial production, growth in production triggers growth in imports.  In the same period, intermediary and capital goods marked 20,8 and 13,8% increases, respectively.

APPENDIX TABLES