tebd workshop in athens, greece

This Project is co-funded by the European Union

and the Republic of Turkey

TEBD workshop in Athens, Greece24 June 2019

tepavThe Economic Policy Research Foundation of Turkey

Turkey-EU Business Dialogue

EU-Turkey Trade and Investments: opportunities , rules and requirements

M. Sait AKMAN, PhD

June 24, 2019 Athens

Outline

◼ Turkey – EU Customs Union: benefits & challenges, and the need for updating

◼ Turkey-Greece bilateral trade & investments

◼ Impact on SMEs

Slide 3

Turkey’s Exports to the EU: Product Composition ($ millions) UN Comtrade(2014)

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US$ M

illions

Foodstuffs Vegetable Products Fruit Products Textiles

Machinery Metals Vehicles

post-CU period

Slide 4

TUR – GRE economic positions in the region

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%)

Share of manufacturing in country’s total export (%)

1996

Source: UN Comtrade, World Bank, TEPAV calculationsNote: Bubble sizes represent volume of manufacturing exports in 1996.

3020

35

0

40

20

10 60 100

30

40 50 70 80 90

10

25

0

5

15

Georgia

Suudi A. Bulgaria

Azerbaijan

Romania

Cyprus

Russia

Israel

Kazakhstan

Jordan Malta

Greece

Tunusia

Turkey

ArmeniaQatar

Slide 5

30

0 30 8020

5

20

10

25

35

40

40 50 60 9070 1000

10

15

CyprusArmenia

Azerbaijan

BulgariaKazakhstan

Romania

Greece

Israel

JordanGeorgia

Turkey

Malta

Russia

Suudi A.

Tunusia

Turkey and Greece after the EU process

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ctu

rin

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%)

2017

Source: UN Comtrade, World Bank, TEPAV calculations

Note: Bubble sizes represent volume of manufacturing exports in 2017.

Slide 6

Share of manufacturing in country’s total export (%)

More sophisticated Turkish exports to the EU (100% = 1)

Source : Felbermayr, Aichele and Yalcin (2016)

Slide 7

The CU, then and now…

◼ CU 23 years-old, with expectations and realities of 1990s.

◼ ……things changed:

➔Emerging Economies (China et.al.)➔Globalisation (global production networks-GVCs)➔Global crisis➔Doha Round is “deadlocked”➔New generation FTAs (DCFTAs; mega-deals –TTIP)➔Trade protectionism

inducing a need to revise the CU.

Slide 8

World Bank proposes:(World Bank Report, 2014)

◼ Not designed as a well-equipped regimeto deal with modern day challenges

◼ CU has not fulfilled its potential:

◼ Formalize parallel negotiations for FTAs

◼ Reduce asymmetries in consultation and decision makingmechanisms under CU.

◼ Widen preferential trade to primary agriculture and services.

◼ First-best solution: progress in accession negotiations

Slide 9

Updating the CU (Ministry of Trade, Turkey)

1. Eradicating structural problems: asymmetries –FTAs / Decision making

2. Modernising the customs union

3. Deepening the customs union

Slide 10

Challenge: asymmetry in structure

TR has to align itself with EU policy andacquis, but cannot participate in decision-making in EU, in areas pertinent to CU.

Turkey is a ‘rule-taker’

Slide 11

EU trade agreements

Slide 12

Asymmetry: EU’s FTAs

◼ Turkish exporters cannot haveautomatic reciprocal access to FTA-partners market while the opposite is possible due to CCT

Slide 13

2. Modernising the customs union:

◼ Technical barriers to trade

◼ Intellectual property rights (IPRs)

◼ Trade facilitation and customs matters

◼ Trade defense instruments

◼ Dispute settlement mechanism

Slide 14

3. Deepening the customs union:

Agriculture

Trade in services

Public procurement

Slide 15

Progress to upgrade the CU

◼ 2014 World Bank study (Evolution of EU-TurkeyCU)

◼ 2015-May Memorandum of Understanding tomodernise and extend the CU

◼ 2016 Domestic procedures and impact assessmentreports

◼ 2016-Commisison proposal to Council to launch negot.

◼ 2017 political blocking of CU upgrading process

◼ 2019 still no progress, but full of trade barriers…

Slide 16

Effect on Turkey/EU: upgraded CU(E. Commission impact assessment study)

Slide 17

Bilateral exports(EUR million)

Welfare(EUR millions)

GDP (%)

EU

Upgrade CU 27,062 5,388 0.007

TURKEY

Upgrade CU 4,960 12,522 1.44

The challenges in upgrading CU

political

economic

Slide 18

Challenges

◼ EU:➔Domestic resistance (remember CETA, TTIP…)

➔Not all Member States like ‘Turkish delight’

➔European Parliament resolution to ‘suspend negotiations’

• stressed that suspending work on upgrading the customs union would have serious economic consequences for Turkey.

➔Political resistance in the Council (“Germany’s effect”)

◼ TURKEY:➔Is Turkey ready for reforms (public procurement,

agriculture so on)?

➔Rising anti-European discourse

Slide 19

Bilateral trade between Turkey and Greece, billion $

Source: UN Comtrade, BACI, TEPAV calculations

000 000

001

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Export from Greece to Turkey Export from Turkey to Greece

Turkey’s bilateral trade with Greece, billion USD $, 1995-2017


Export

Import

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Share of Turkey in Greece’s trade, %, 1995-2017


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Share of Greece in Turkey’s trade, %, 1995-2017


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Share of Greece in Turkey's export Share of Greece in Turkey's import

Source: UN Comtrade, Lall (2000), TEPAV calculations

Technology breakdown of Turkey’s exports to Greece, EU-28 and MENA, 1990-2017

39%

9%19%

7%

28%

7%

24%

21%12%

10%

16%

24%

16%

36%

55%

34%

35%

40%

19%

27%

10%

44%

20%25%

7%2%

EU-28_2017GRC_1990

1%

GRC_2017

3%

EU-28_1990

4%

MENA_1990

4%

MENA_2017

High tech

Medium tech

Low tech

Resource Based

Primary Products

Slide 24


Turkey’s export to Greeceby major sectors millionUSD $, 2017

Share

278

243

210

206

185

Machinery, electronics

Textile

Metals (iron&steel)

Mineral

Transportation

Turkey’s import from Greece by major sectors million USD $, 2017

1103,710

240,765

180,873

149,763

135,085

Textile

Metals

Mineral

Plastics


16.5

14.4

12.4

12.2

11.0

Share

53.0

11.6

8.7

7.2

6.5

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25

0 5 10 15 20 25

Other tubes and pipes

Wheat or flour

Steam generating boilers

Sunflower seeds

Vegetables

Auxiliary plant for use with boilers

Electric generating sets

Food

Plastics

Chemicals

Textile

Wood

Metals


Instruments, furniture, others

GROWTH / COMPETITIVENESS MATCHING

Growth rate of Greece’s import CAGR, %, 2007-2017

Turkey’s competitiveness RCA, 2017

Bubble sizes represnt

Greece’s import volume,

2017

Major sectors

breakdown


Slide 26

100 million$

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Semi-finished products of iron/non-alloy steel

Unmanufactured tobacco

Yachts

Other oil seeds

aluminium

Electric accumulators

Vessels

Food

Mineral

Wood

Plastics

Chemicals

Transportation

Textile

Metals


Instruments, furniture, others

GROWTH / COMPETITIVENESS MATCHING

Growth rate of Turkey’s import CAGR, %, 2007-2017

Greece’s competitiveness RCA, 2017

Bubble sizes represnt

Turkey’s import volume,

2017

Major sectors

breakdown


Slide 27

1.000 million $

Turkey’s FDI inflows, top 10 countries, cumulative, 2003-2019*

Source: FDI Markets, TEPAV calculationsNot: First three months of 2019.

Rank Country Billion $ Share

1 Azerbaijan 28.79 18.6%

2 Germany 18.04 11.7%

3 United States 16.34 10.6%

4 Netherlands 8.52 5.5%

5 China 8.14 5.3%

6 India 7.41 4.8%

7 France 6.45 4.2%

8 Japan 6.30 4.1%

9 Saudi Arabia 5.93 3.8%

10 UK 5.90 3.8%

29 Greece 0.41 0.3%

Slide 28

Turkey’s FDI outflows, top 10 countries, cumulative, 2003-2019*


Rank Country Billion $ Share

1 Russia 8.82 16.9%

2 Pakistan 3.66 7.0%

3 Romania 3.49 6.7%

4 Bulgaria 3.19 6.1%

5 Algeria 3.12 6.0%

6 Azerbaijan 2.14 4.1%

7 Kazakhstan 1.91 3.7%

8 Rwanda 1.51 2.9%

9 Serbia 1.32 2.5%

10 Macedonia FYR 1.26 2.4%

38 Greece 0.24 0.5%

Slide 29

Technological classification of Turkey's FDI inflows from Greece, cumulative, 2003-2019*

Slide 30


78,315%

9,638%

8,500%

3,548%

Services

Low technology

Medium-high echnology

Medium-low technology

Conclusions

◼ Bilateral trade and investment level is too low

◼ Growth rate / competitiveness matching in mutualtrade needs attention

◼ Exports need diversification and sophistication

◼ Better regulation and liberalkisation in agricultureand services trade

Slide 31

SMEs matter…

◼ SMEs are the main pillar of nearly all national economiesin the world.

◼ They generate more than a half of jobs and income as well as value added.

◼ SMEs contribute to economic growth and innovation.

◼ They are increasingly integrated in global value chains, and form a working ecosystem with larger enterprises.

◼ They are engaged in and deeply affected by the tradingand investment environment (i.e. doing business andtrade protectionism).

Slide 32

Challenges for the SMEs

◼ Limited access to finance

◼ Lower R&D, low intensity of technology use

◼ Limited internationalization and global supply chain (GVC) integration

◼ Regulatory environment

◼ Market access problems

◼ Limited skilled labor and productivity

SMEs in Turkey’s economy, 2014-2016

Γενικός τύπος

















The number ofenterprises

Number ofemployees

Salary and wages Turnover Value added withfactor cost

1-249(SME)

250+

Slide 34

Sound business environment is essential for SME competitiveness and growth

Slide 35

Why supply chains are essential for SMEs

◼ Trade, and Global Value Chain (GVCs) create opportunities for SMEs:

➔to absorb spillovers of technology, managerialknowledge

➔to innovate

➔to enhance productivity

➔welfare gains from SME internationalization.

OECD (2018), Fostering greater SME participation in a globally integrated economy.

Slide 36

SME integration to GVCs: Turkey

◼ Several important factors to boost SME competitiveness and GVC integration:

➔to improve access to finance

➔to cope with the digital transformation

➔to live in better regulatory environment and therule of law

➔to better integrate into the trading system, andto boost trade capacity.

Slide 37

Access to finance

◼ Strenghten financial market infrastructure forSMEs

➔G20/OECD High Level Principles* on SME financing

➔impact assessment on financial regulation aboutSME lending, insolvency rules…

◼ Facilitate access to financial instruments

➔Boosting financial literacy of SMEs

◼ Enhance digital financial inclusion

➔Boosting SMEs for digital finance, electronicinvoicing…

Slide 38

* The G20/OECD High Level Principles on SME Financing (in, 2015 Turkey presidency)

1. Identify SME financing needs and gaps.

2. Strengthen SME access to traditional bank financing.

3. Enable SMEs to access diverse non-traditional financing instruments.

4. Promote financial inclusion for SMEs and ease access to formal financial services, including for informal firms.

5. Design regulation that supports a range of financing instruments for SMEs, while ensuring financial stability and investor protection.

6. Improve transparency in SME finance markets.

7. Enhance SME financial skills and strategic vision.

8. Adopt principles of risk sharing for publicly supported SME finance instruments.

9. Encourage timely payments in commercial transactions & public procurement.

10. Design public programmes for SME finance which ensure cost effectiveness

11. Monitor and evaluate public programmes to enhance SME finance.

Slide 39

Financial inclusion: Shares of the credit provided to SMEs in selected countries, (2016)


Γενικός τύποςΓενικός τύπος


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Japan SouthKorea

France USA Germany Italy England India Grecee Turkey

Slide 40

Digitalization and SMEsPotential Benefits of Digitalization for SMEs:

◼ Greater access to markets: E-Commerce and theInternet lower costs for transaction while reducing theneed for physical infrastructure/presence in foreign market

◼ More access to financing: new opportunities for SMEsto obtain funding.

◼ Greater access to technology and applications: Through cloud services (improved ICT) SMEs can access a wide range of technologies and applications.

Slide 41

SMEs use internet less intensively

Slide 42

SMEs lag behind in adopting digital technologies

Slide 43

Regulatory environment and the rule of law

◼ For SMEs to take part in supply chains weneed FDI which seeks a better investmentenvironment:

◼ Doing Business in Turkey

◼ Rule of Law index

◼ World Governance Indicators

◼ …..

Slide 44

Turkey ranked 60-70 for years




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45

Doing Business Index, World ranking, 2009-2019

Best performance achieved by Turkey in the last decade, 2019

Turkey is among the 10 most improved economy in DB

Getting better in Doing Business indexDB 2018 DB 2019 Change

Starting a business 80 78 +2

Dealing with construction permits 96 59 +37

Getting electricity 55 60 -5

Registering property 46 39 +7

Getting credit 77 32 +45

Protecting minority investors 20 26 -6

Paying taxes 88 80 +8

Trading accross borders 71 42 +29

Enforcing contracts 30 19 +11

Resolving insolvency 139 109 +30

Overall ranking 60 43 +17

Slide 46

Rule of Law

◼ High tech FDI is needed to bring positivespillovers for productivity, technology.

◼ For Turkish SMEs to integrate into GVCs.

◼…. but this is possible by means of

more stability.

Slide 47

Needs to improve in Rule of Law index

Slide 48

Turkey’s Rule of Law Index indicators, 2012 & 2019

WJP Rule Of Law Index Factors

Ranking, 2019

Constraints on Government Powers

123/126

Absence of Corruption 57/126

Open Government 94/126

Fundamental Rights 122/126

Order and Security 96/126

Regulatory Enforcement 106/126

Civil Justice 96/126

Criminal Justice 85/126

Constraints onGovernment…

Absence ofCorruption

Open Government

FundamentalRights

Order and Security

RegulatoryEnforcement

Civil Justice

Criminal Justice

Turkey 2019 Sweden 2019 Turkey 2012-2013

Source: World Justice Project, TEPAV calculations (unweighted average)Note: Outer side represents higher score

Turkey needs to decide where it stands…

Slide 49

Source: World Governance Indicators, TEPAV calculations (unweighted average)Note: Outer side represents higher score

WB World Governance Indicators, percentile rankings of EU-28, MENA and Turkey, 2017

Voice and Accountability

Political Stability andAbsence of

Violence/Terrorism

Government Effectiveness

Regulatory Quality

Rule of Law

Control of Corruption

Turkey MENA EU

SMEs and trade barriers◼ Barriers to SMEs access to global markets:

➔(i) limited information about the working of the foreign markets, difficulties in accessing export distribution channels;

➔(ii) costly product standards and certification procedures,

➔(iii) burdensome customs regulations/procedures;

➔(iv) poor access to finance and slow payment mechanisms.

WTO World Trade Report,2016

Slide 50

Industrial firms engaged in exports,as % of total firms by size, 2013

Slide 51

SMEs voice in CU process

◼ More attention to the specific needs of SMEs in EU-TR customsunion.

➔Specific SME-friendly chapter

• Database listing all regulatory requirements for compliance

• trade facilitation (how to reform cumbersome procedures)-TFA

• Ellimination of unnecessary hurdles and simplify RoO

• capacity building in digital trade and e-commerce (Alibaba/Kompass)

• SME committee to follow up implementation

➔Deepening CU into agriculture and trade in services

• to promote productivity in services and agricultural enterprises

• Service trade restrictions represent 10-20 % of tariff equivalence

• to reduce farm prices that can minimize labour costs in urban areas(working mostly in SMEs)

Slide 52

Opportunities are mutual for EU and TR SMEs: if trading framework between the EU and TR is enhanced

EU SMEs

➔ Dairy products

➔ Processed foods

➔ Fruit and vegetables

➔ Basic chemicals and plastics(value chain integration forintermediate products)

➔ Auto, machinary andelectrical equipment

➔ Business and professionalservices- and trade services(wholesale and retailing)

Turkey’s SMEs

➔ Processed foods

➔ Fruit and vegetables

➔ Textile, clothing and footwear(also to third markets)

➔ Trade, construction andtransport services, recreational services, logistics

Source: BKP (2016) for the European Commission.

Slide 53

Customs Union and SMEs

◼ Opening negotiations for an upgraded CU can help

European (incl. Greek) and Turkish SMEs tobenefit mutually as well as in third countrymarkets.

◼ CU is a technical issue, which should not be politicized.

Slide 54

The EU acquis directly relevant to SMEs

Chapter not closed/not yet opened:

◼ Public procurement

◼ Company law

◼ Intellectual property law

◼ Competition

◼ Information society &media

◼ Food security, veterinary& phytosanitary policy

◼ Taxation

◼ Social policy and employm.

◼ Enterprise and industrial p.

◼ Regional policy…

◼ Environment

◼ Consumer&health protection

Chapter subject topolitical blockage:

◼ Free movement of goods

◼ Financial services

◼ Agriculture and ruraldevelopment

◼ Customs union

◼ Freedom to provideservices

◼ Education&culture

◼ Energy

Slide 55

Conclusions◼ Need for a new approach to internationalize SMEs

and their linkage with the GVCs

◼ Strong and credible program with a new SME-driven narrative

➔Turkey transformed itself from low-tech to mid-tech industrial country through EU engagement

➔Now is the time for the next jump (especially for its SMEs)

◼ Choosing priorities is a good starting point

➔Customs Union is an area of opportunity (should not be politicized)

➔Building digital capacity, integration with EU digital single market

➔ financial inclusion and level-playing field for SMEs

Slide 56

This Project is co-funded by the European Union

and the Republic of Turkey

tebd workshop in athens, greece

Documents