THE IMPACT OF THE EUROPEAN

SOVEREIGN DEBT CRISIS ON THE

TURKISH BUSINESS PEOPLE’S

PERCEPTIONS ABOUT THE EU-

TURKEY’S CUSTOMS UNION

Thesis submitted to the

Institute of Social Sciences

in partial fulfillment of the requirements

for the degree of

Master of Arts

in

International Relations

by

Mai Lan Thanh NGUYEN

Fatih University

January 2014

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© Mai Lan Thanh NGUYEN

All Rights Reserved, 2014

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APPROVAL PAGE

Student : Mai Lan Thanh NGUYEN

Institute : Institute of Social Sciences

Department : International Relations

Thesis Subject : The Impact of the European Sovereign Debt Crisis on the

Turkish Business People’s Perceptions about the EU-Turkey’s

Customs Union

Thesis Date : January 2014

I certify that this thesis satisfies all the requirements as a thesis for the

degree of Master of Arts.

Assist. Prof. Dr. Ahmet ARABACI

Head of Department

This is to certify that I have read this thesis and that in my opinion it is

fully adequate, in scope and quality, as a thesis for the degree of Master of

Arts.

Assist. Prof. Dr. Ahmet ARABACI

Supervisor

Examining Committee Members

Assist. Prof. Dr. Ahmet ARABACI ..........................

Prof. Dr. Berdal ARAL ..........................

Prof. Dr. Zehra Vildan SERIN ..........................

It is approved that this thesis has been written in compliance with the

formatting rules laid down by the Graduate Institute of Social Sciences.

Assoc. Prof. Dr. Mehmet KARAKUYU

Director

iv

AUTHOR DECLARATIONS

1. The material included in this thesis has not been submitted wholly or in

part for any academic award or qualification other than that for which it is now

submitted.

2. The program of advanced study of which this thesis is part has consisted

of:

i) Research Methods course during the graduate study

ii) Examination of several thesis guides of particular universities both in

Turkey and abroad as well as a professional book on this subject.

Mai Lan Thanh NGUYEN

January, 2014

v

ABSTRACT

Mai Lan Thanh NGUYEN January 2014

THE IMPACT OF THE EUROPEAN SOVEREIGN DEBT CRISIS

ON THE TURKISH BUSINESS PEOPLE’S PERCEPTIONS

ABOUT THE EU-TURKEY’S CUSTOMS UNION

Whether Turkey’s high and fast economic growth is a result of the Customs

Union between Turkey and the EU or not has been among one of the most

discussed topics in Turkey. This controversial issue in recent years is escalated

among the discourses by most TBP. While analyzing these discourses, we

crosscheck their justifications with empirical data and found that TBP have

changed their attitudes about the EU-Turkey’s CU more negatively after the

ESDC. Their main arguments lie among the CU’s asymmetric terms and

conditions, its impact on Turkish trade flow, and the competitiveness of Turkish

industry. Under the circumstance that Turkey is opening her market to more

destinations in the world, whereas in Europe there is discussion about the

dissolution of the euro-zone and economic turmoil in other member states of

the EU, the discourses by TBP also accumulated and left a message for a

reconsideration of the CU between Turkey and the EU.

Keywords:

Turkey, European Union accession, Customs Union problem, Free Trade

Agreements, European sovereign debt crisis, Turkish business people.

vi

KISA ÖZET

Mai Lan Thanh NGUYEN Ocak 2014

AVRUPA KAMU BORÇ KRİZİNİN TÜRK İŞ ADAMLARI’NIN

GÜMRÜK BİRLİĞİ ALGILARI ÜZERİNDEKİ ETKİSİ

Türkiye’nin yüksek ve hızlı büyümesi Türkiye ve Avrupa Birliği (AB) arasında

imzalanan Gümrük Birliği (GB)’nin sonucu olsun olmasın, GB Türkiye’de en çok

tartışılan konulardan biridir. Bu tartışmalı konu, son yıllarda pek çok Türk

işadamının söylemleri arasında da artan bir şekilde kendine yer bulmuştur.

İşadamlarının bu söylemlerini analiz ederken, onların gerekçelerini ampirik

verilerle karşılaştırdık ve Türk işadamlarının GB’ye karşı tutumlarının Avrupa

Kamu Borç Krizi’nin ardından olumsuz bir şekilde değiştiği sonucuna vardık.

İşadamlarının ana tartışma konuları; GB’nin adil olmayan şart ve koşulları,

GB’nin Türkiye ticaret akışı üzerindeki etkisi ve Türk sanayisinin rekabetçiliği

şeklinde özetlenebilir. Türkiye son dönemde dünyanın farklı bölgelerine ticari bir

açılım yapmıştır. Aynı zamanda son dönemlerde bazı üye ülkelerde ekonomik

bozulmaların meydana geldiği ve AB’nin bir çözülme sürecine girdiği yönünde

tartışmalar yapılmaktadır. Bu son gelişmelerin ardından, Türk işadamlarının GB

hakkındaki olumsuz söylemleri de artmıştır ve bu söylemler GB’nin yeniden ele

alınması konusunda bazı mesajlar içermektedir.

Anahtar Kelimeler:

Türkiye, Avrupa Birliği’ne giriş, Gümrük Birliği problemi, Serbest Ticaret

Anlaşmaları, Avrupa kamu borç krizi, Türk iş insanları.

vii

LIST OF CONTENTS

Approval Page iii

Author Declarations iv

Abstract v

Kısa Özet vi

List of Contents vii

List of Tables x

List of Figures xi

List of Appendices xii

List of Abbreviations xiii

Acknowledgements xv

Introduction 1

Chapter 1: Theoretical and Conceptual Frameworks 5

1.1 Literature Review 5

viii

1.2 Conception of the EU-Turkey’s Customs Union, Turkish Business People

and the European Sovereign Debt Crisis 9

1.2.1 Customs Union: A Bridge to the European Union for Turkey? 10

1.2.2 Categorization of the Turkish Business People 19

1.2.3 The European Sovereign Debt Crisis 22

1.2.3.1 Sovereign Debt 22

1.2.3.2 How Sovereign Debt is measured 23

1.2.3.3 The 2008 European Sovereign Debt Crisis 24

1.3 Research Design 28

Chapter 2: An Empirical Analysis about the Effects of the European

Sovereign Debt Crisis on Turkish Economy 31

2.1 The Impact of the European Sovereign Debt Crisis on Turkey’s Trade

Flow 37

2.2 The European Sovereign Debt Crisis and Its Implication for the

Competitiveness of Turkish Industry 40

ix

2.3 The Nature of Trade between Turkey and the EU after the European

Sovereign Debt Crisis 45

2.4 Turkey’s Diversification of Trade 47

Chapter 3: An Analysis on the Turkish Business People’s Discourses

about the EU-Turkey’s Customs Union 57

3.1 The Customs Union and the Turkish Business People’s Discourses before

the European Sovereign Debt Crisis 59

3.2 The Customs Union and the Turkish Business People’s Discourses since

the European Sovereign Debt Crisis 68

Conclusion 81

Appendices 85

Bibliography 105

x

LIST OF TABLES

Table 1 Turkish foreign trade by year 34

Table 2 Income Elasticity of Turkish Imports Demand 39

Table 3 Changes in Competitiveness of Turkish Industry 42

Table 4 Adjusted Grubel-Llyod Index 46

xi

LIST OF FIGURES

Figure 1 Inflation and growth rate of GDP per capita in Turkey 32

Figure 2 Turkish exports by years and country group 49

xii

LIST OF APPENDICES

Appendix A: Uruguay Round Agreement 85

Appendix B. Free Trade Agreements with the EU 92

Appendix C. Turkey’s Foreign Trade by Sectors 1999-2013 101

xiii

LIST OF ABBREVIATIONS

ACC Ankara Chamber of Commerce

ACP Africa, Caribbean and Pacific

ASEAN Association of South East Asian Nations

BSEC Black Sea Economic Region

CAP Common Agricultural Policy

CU Customs Union

DEIK Council of Foreign Economic Relations

ECO Economic Cooperation Organization

ECOTA Economic Cooperation Organization Trade Agreement

EEC European Economic Community

EFTA European Economic Free Trade Area

ESDC European Sovereign Debt Crisis

EU European Union

EUROMED Euro-Mediterranean Partnership

FTA Free Trade Area

GCC Gulf Cooperation Council

IKV Economic Development Fund

İTKİB Istanbul Textile and Apparel Exporters’ Associations

MERCOSUR Common Market of The South

MÜSİAD Independent Industrialists' and Businessmen's Association

NGO Non-Governmental Organization

xiv

NTB Non-Tariff Barriers

OIC Organization of Islamic Cooperation

PRETAS Preferential Tariff Scheme

PTA Preferential Trade Agreement

SACU Southern African Customs Union

TBP Turkish business people

TEPAV Economic Policy Research Institute

TIM Association of Turkish Exporters

TOBB Union of Chambers and Commodity Exchanges of Turkey

TTIPA Transatlantic Trade and Investment Partnership Agreement

TUSKON Turkish Confederation of Businessmen and Industrialists

TÜSİAD Turkish Industrialists and Businessmen's Association

xv

ACKNOWLEDGEMENTS

Though only my name appears on the cover of this thesis, a great many

people have contributed to its production. I owe a very important debt to all

those people who have made this thesis possible and because of whom my

graduate experience has been one that I will cherish forever.

First and foremost, I owe my deepest gratitude to my thesis supervisor,

Assist. Prof. Dr. Ahmet ARABACI. Without his continual guidance, professional

comments and persistent support this thesis would not have been possible.

I would particularly like to thank the thesis committee whose advices,

recommendations, suggestions, and feedbacks constitute the intellectual part of

my thesis. Berdal ARAL has always given me constructive comments and warm

encouragement. Prof. Dr. Zehra Vildan SERIN has been extraordinarily tolerant

and insightful.

In addition, I received generous support from Assoc. Prof. Dr. İhsan YILMAZ,

Assoc. Prof. Dr. Savaş GENÇ, and Assist. Prof. Dr. Özlem Demirtaş BAGDONAS

with their scholarly ideas. Other discussions with Assist. Prof. Ebru ALTINOĞLU

have been illuminating. I have also greatly benefited from Prof. Dr. Mehmet

ORHAN, Assoc. Prof. Dr. Bülent KÖKSAL, and Assist. Prof. Dr. Mehmet BABACAN

for their meticulous comments and instructions.

xvi

I am exceptionally grateful for the financial assistance given by the Scientific

and Technological Research Council of Turkey (TÜBİTAK) during my master

program in International Relations.

Certainly, many friends have helped me stay sane through these challenging

moments. Their support and care helped me overcome setbacks and stay

focused on my graduate study. I greatly value my friendship with Hami SAKA,

Halil İbrahim ÇELİKEL, Ramazan ALPAY, Keremet SHARSHALIEVA and Bilge

Kaan ALBAYRAK whose hands I can always reach. I deeply appreciate their

constant comfort and belief in me. I am also grateful to the Turkish families that

helped me adjust to a new country.

Most importantly, none of this would have been possible without the love and

patience of my brother and parents who have been a constant source of love,

concern, support and strength all these times. I would like to express my heart-

felt gratitude to my family.

1

INTRODUCTION

Turkey is a country of diversity with multi-cultural, multi-ethnic, and multi-

religious communities. There are so many intriguing facts with regard to the

Turkish economy, politics, and the society itself. Positioned as an

intercontinental state, Turkey is subject to both opportunities and risks with

respect to its geopolitics and geographical strategic location. It keeps adjusting

its policies accordingly not only to domestic issues, but also to neighboring

countries’ circumstances.

One of the most prominent and important neighbors for Turkey has been the

European Union (EU). Over the course of the Ottoman Empire to the creation of

the Turkish Republic, this intercontinental nation has exposed her close

attachment to the West. To illustrate, shortly after the establishment of the

European Economic Community (EEC) in 1958, Turkey immediately proceeded

to the membership application to this Community a year later. The Turkish

Republic further demonstrated her will to integrate the Turkish economy to that

of the European countries. As a result, the Ankara agreement1 was signed

between Turkey and the EEC on 12 September 1963, which came into effect in

December 1964. Supplementary to the Ankara Agreement is the Additional

Protocol signed in 1970 and came into effect in 1973. As a matter of fact, the

1 The official name is ‘the Agreement Creating An Association Between The Republic of Turkey and the

European Economic Community.’ See Ministry for EU Affairs, History of Turkey-EU relations.

2

ultimate aim of this Additional Protocol is the specification of the time schedule

for Turkey to join the Customs Union (CU) after 22 years. Finally, on 31

December 1995, Turkey concluded the CU agreement with the EU.

Along with multiple efforts to cope with the EU standards, with regard to

economic aspects, Turkey has performed very well since the beginning of the

twenty first century. With the CU, Turkey expects to broaden her market as well

as benefit from the agreement’s terms and conditions, which eventually leads

Turkey to fulfill her homework given by the EU. In other words, the CU has

been perceived by the Turkish side as a bridge to connect Turkey to the EU.

Whether Turkey’s high and fast economic growth is a result of the CU or not

has been among one of the most discussed topics in Turkey. If the CU is the

main drive for the good performance, it is certainly that the agreement is

welcomed in Turkey. Likewise, if the CU is not the causal factor or perhaps even

a potential barrier to Turkish economy, then Turkey needs to think again about

the expectations for the CU. These are exactly controversial issues nowadays in

Turkey, which are found mostly among the discourses by the Turkish business

people (TBP). It is observed that after the European sovereign debt crisis

(ESDC) in 2008, the TBP started to question more about the role of the CU on

whether it is to the advantage of the Turkish economy. The question raised in

this thesis is, therefore, if there was a change in TBP’s attitudes about the EU-

Turkey’s CU after the ESDC in 2008, and why was this.

3

This study will seek to answer the above question based on the fact that the

economic imperative is a kind of cornerstone of the CU between Turkey and the

EU. To do so, we will analyze the TBP’s discourses about the CU. Then we

collect empirical data about Turkish economy under the effects of the CU before

and after the ESDC in 2008. More specifically, to see how the ESDC has affected

the TBP’s perceptions about the CU, we divide our data into two periods, before

the crisis from 1999 to 2007, and after the crisis, from 2008 till recently. Along

with the economic performance, we compile official statements and speeches

about the EU-Turkey’s CU by representative Turkish businessmen and organized

business and trade associations, then through a method of discourse analysis,

we closely observe their perceptions about the CU in correspondence with the

empirical data to understand the logic of their justifications about their attitudes

toward the CU.

Since there is a scarcity of analysis in the literature about TBP’s attitudes

about Turkey’s EU accession process as well as their perceptions about the CU,

this study attempts to fill in this gap. In addition, the impacts of the ESDC have

been much discussed over the EU member countries only; nevertheless, we

believe that Turkey, as a candidate for full membership, deserves to be studied

as well. In this thesis, specifically, we will look at the impact of the ESDC on

TBP’s perceptions about the EU-Turkey’s CU. Therefore, we will start first with a

review chapter on the existing literature about the CU and its overall effects,

4

and then follows the EU-Turkey’s CU, in particular. The subsequent chapter

demonstrates the impacts of the ESDC on the Turkish economy under the

implementation of the CU. Then, in chapter three we will analyze TBP’s

discourses about the CU while comparing and contrasting with the empirical

framework provided in the previous chapter. Thereupon the final section

concludes our thesis.

5

CHAPTER 1

THEORETICAL AND CONCEPTUAL FRAMEWORKS

This chapter provides the general theoretical framework adopted in the

thesis. In particular, we present a theoretical reflection about the Customs

Union theory and its effects which have been studied before. This theoretical

framework will be used and complemented with our quantitative analysis in

chapter two, which deals with the time-series data to detach the impact of the

ESCD on Turkish economy under the effects of the CU. Likewise, we also define

our key concepts, namely, the EU-Turkey’s CU, TBP and the ESDC in the

following sections.

This chapter divides into three main parts. The first part is the literature

review about the CU theory and its effects. In the second part, we define the

key concepts of the research question: whether there was a change in TBP’s

attitudes about the EU-Turkey’s CU after the ESDC and why. Lastly, in the third

part, we describe the research design for our thesis.

1.1 Literature Review

We review the literature according to two main themes. The first one is

about the CU and its effects on theory according to which a particular country

will choose to enter, stay, or leave the CU. The second theme of our literature

6

review is, then, on the CU and its effects on Turkish economy, which will be

found in the conceptualization.

To begin, the CU theory has come into wide exploration in academic

literature since the work of Jacob Viner (1950). He essentially argues that the

CU arrangement has impact on both free-market economies and protectionists

in terms of economic welfare. Whether an economy chooses to participate in a

CU arrangement or not is based on the net effect of the CU brings about once

calculated. In other words, Viner’s analysis pays more attention to the effect of

trade on the production side. That is, the CU can result in trade creation and

trade diversion effects, entering or leaving the CU is a matter of the

diversification of a country’s trade relations. Follwing Viner, Meade (1955)

developed the theory on the expansion factor of trade and its implication for

economic welfare of an economy. Similar to Meade, Lipsey (1960) also focused

on the consumption dimension of the CU, which is Viner’s restriction, although

we believe that both production and consumption dimensions are not

sustainable in analyzing the effects of the CU. Ten years later, nonetheless,

Bhagwati (1971) criticized Libsey’s method of restriction on consumption, as he

believes that the method is “insufficient to rule out welfare-improving in trade-

diverting CU (8).” Wonnacott and Lutz (1989), likewise, stress the importance of

the low cost in transportation as the result of a regional trading arrangement

among member countries. Summers (1991), however, analyzes from a different

7

point of view. That is, he broadens the analysis to the trade associations that

make up the country’s business. These business people economically trade

greater among themselves, who can be from different countries in a region. The

trade volume, as a result, is high as the unity of the countries that form this

very same region in which these business people are operating. Consequently,

mal-effects stemmed from trade are minimum because of the increase in the

common regional welfare. To sum up, according to these authors, geographic

proximity and transportation costs to increase trade and commerce handle the

low and negative effect of trade, leading to an improvement of the welfare

effects of integration. In more practical studies, Panagariya and Suthiwart-

Narueput (1997), with regard to the CU theory, explains the nature of the

trading partners on the basis of volume of trade. He claims that if the trade

volume among member states is very high in comparison with non-member

countries, trade creation will be the case and as a consequence, CU will

increase welfare. According to the author, somehow similar to Viner’s theory

about CU, a country before integration looks upon the potential partner’s import

duty and estimate the tariff revenues and decide based on cost-benefit analysis.

Therefore, economic integration of the countries geographically close to each

other is more plausible and more attractive. This conclusion is, however,

opposed to the findings of Krishna (2003) that there is no evidence to support

the hypothesis that natural trading partners could be reached. The author’s

study covered the years of 1964-1995 with 24 trading partners of the U.S by

8

using a general equilibrium model. The value of welfare and trade volume

correlated with the geographic proximity was investigated. As a result, that the

trading volume and geographical proximity has effect on welfare could not be

found.

Another recent study on trade creation and trade diversion effect is by Zidi

and Dhifallah (2013). They analyze the case between Tunisia and the EU with a

gravity model. Then they find that after five years of the agreement between

Tunisia and Europe, there is no trade creation as well as that the preferential

agreement between the two partners does not generate trade diversion of

imports, whereas there is a trade diversion of exports. They also suggest that

the results can be applied to other Mediterranean countries as well because “the

tariff dismantling schedules that have been negotiated are very similar to that of

Tunisia. These countries can expect an effect of trade creation but several years

after the implementation of the agreement and a significant increase in the

protection of their domestic manufacturing industries for several years after the

entry into force of the agreements” (Zidi and Dhifallah 2013, 145).

As we can see from the theoretical literature, there are different arguments

about the effects created by the CU. These contrasting ideas have also been

proven with the empirical literature since different studies show different results

on whether an economic arrangement such as the CU would yield trade creation

or trade diversion and subsequently contribute to a country’s overal welfare or

9

not. Yet contradictory answers based on empirical analyses are also found

among scholars. Consequently, this theoretical framework leads us to an

interest in the effects of the CU on Turkish economy, in particular; and

especially with the context of the outbreak of the ESDC in 2008, we would like

to see how TBP perceive Turkey’s CU with the EU afterwards. Under the

guidance of our research question, we then define our key concepts in the

study: the EU-Turkey’s CU, TBP, and the ESDC.

1.2 Conceptions of the EU-Turkey’s Customs Union, Turkish

business people, and the European Sovereign Debt Crisis

In this section, we will define first the CU between Turkey and the EU relying

on the background of the agreement. As we would like to see the perceptions

of the TBP about this CU, we then specify what we mean by TBP with a

categorization based on their characteristics, may them be political ideology,

economic philosophy, their approaches to trade and economic arrangement, or

the composition of the TBP itself. At last, we will describe the ESDC with its

attributes on different dimensions of the concept.

10

1.2.1 Customs Union: A bridge to the EU for Turkey?

CU is a type of trading arrangements formed by a group of individual

countries which abolish tariffs among themselves while simultaneously agree on

common tariffs towards the rest of the world (Suranovic 2010, Chacholiades

and Johnson 1978). The CU was one of the exceptional cases about trade

liberalization as the result of the Uruguay round stated in article xxiv in the

GATT conference in 1994.2

A customs union shall be understood to mean the substitution of a single

customs territory for two or more customs territories, so that

(i) duties and other restrictive regulations of commerce (except, where

necessary, those permitted under Articles XI, XII, XIII, XIV, XV and XX) are

eliminated with respect to substantially all the trade between the constituent

territories of the union or at least with respect to substantially all the trade in

products originating in such territories, and,

(ii) subject to the provisions of paragraph 9, substantially the same duties

and other regulations of commerce are applied by each of the members of the

union to the trade of territories not included in the union (Section 8a, Article

XXIV, Part III).

2 See Appendix A for more information about the Customs Union framework in the article.

11

CU theory has been defined as “that branch of tariff theory which deals with

the effects of geographically discriminatory changes in trade barriers” (Lipsey

1960, 496). According to Harrison, Rutherford, and Tarr (1997), the biggest

advantage of the CU is the ability to access to third country markets. In the

existing literature there are various discussions about the CU as well.

In 1963, Turkey signed an Association Agreement with the EEC, which widely

known as the Ankara Agreement. This agreement was a framework for Turkey’s

accession process to the EU Common Market through three phases. The

preparatory phase from 1964 to 1970, the transitionary phase between 1973

and 1995, and the final phase from 1996 onward. After the completion of the

first stage, in 1973 the EU signed an Additional Protocal3 with Turkey which

envisioned a framework for a CU after 22 years.

In 1995 as a result, after the transition period, a CU was adopted, marking

the turning point for the new phase of the relation between Turkey and the EU.

Some argue that the CU is another version of the “Capitulations of the Ottoman

Empire.”4 To illustrate, articles 16 and 55 state that Turkey by precondition is to

comply with the EU and its counterparts’ treaties. That is, Turkey is, to some

3 For details of the Additional Protocol see:

http://www.avrupa.info.tr/fileadmin/Content/Downloads/DOC/e-add_ENG.rtf.

4 Metin, Aydoğan. "Avrupa Birliğini Yaratan Nedenler Ve Türkiye" (in Turkish). Retrieved 22 May 2013,

http://www.zmo.org.tr/resimler/ekler/b16b8498f74ba6b_ek.pdf?tipi=14.

12

extent, not autonomous in her foreign relations. Secondly, Turkey certainly

could not unilaterally sign any treaty with third country without EU’s knowledge

for the EU has the right to intervene and annul the treaty as one of the 56th

article of the CU. Moreover, being a CU member also means that Turkey is

subject to the European Court of Justice, where interestingly, there is no single

Turkish judge (64th article5).

The CU scope

The CU mainly covers industrial and processed agricultural goods.

Harmonization to the Common External Tariff applied by the Community on

some industrial goods from third countries was completed by 1 January 2001.

These products are referred to as sensitive materials such as automobiles,

shoes, leather products and furniture. Besides that, with the regulation of the

CU, Turkey is expected to comply with the EU requirements on intellectual,

industrial and commercial property rights.6

It is a fact that one of the ten reasons to invest in Turkey is that Turkey

singed a CU with the EU since 1996.7 Apparently, Turkey expects pretty much

5 Decision No 1/95 of The EC-Turkey Association Council of 22 December 1995 on implementing the final

phase of the Customs Union (96/142/EC),

http://www.avrupa.info.tr/fileadmin/Content/Downloads/PDF/Custom_Union_des_ENG.pdf.

6 Ibid. 7 Invest in Turkey (2013). “Ten Reasons to Invest in Turkey.” http://www.investinturkey.gen.tr

13

from the CU, both economically and politically. Above all, TBP including Turkish

businessmen and other industrialist associations see the CU as a gateway to the

full membership to the EU. Noticeably that the CU was signed in 1995 and came

into effect in 1996, at the time when Turkey experienced both economic and

political instability notwithstanding the previous coup d’états and following

trends in foreign policies.

Turkey’s economy has experienced a chain of consecutive short-term

economic and financial crises. Among the most prominent ones, which occurred

in the 1970s, 1980s, 1994, 2001, and 2008, the 1994 financial crisis has been

widely discussed with the implementation of the ‘April 5 decisions.’ The 1994

crisis was believed to be an inevitable outcome of Turkish economy, as the

previous crises had not been solved completely. The main reason was the

underestimation of those crises’ severity by the government who thought that

all problems could be handled by an exchange rate solution. However, in fact,

macroeconomic instability has caused Turkish economy its biggest current

account deficit and public debt.8 Moreover, as Turkey’s economy was attached

much to the EU since the Ankara agreement, it is believed that the European

Money Market’s turmoil during the 1990s was a triggering factor to the 1994

crisis (Yucel and Yildirim 2010, 8). Therefore, joining the CU reflected Turkey’s

8 According to Turkish Statistical Institute, the Current Accounts Deficit increased from 1 billion to 6.4

billion dollars by 1994, in addition to outstanding external debt about 12 billion dollars.

14

economic expectation on that Turkey’s economy would perform better as to

fulfill the treaty’s economic criteria. In addition, these decisions also illustrated

the fact that Turkey, after the 1980s crisis and attempts to reform, has

supported more liberal economy, as well as export-led growth strategy. It is

important for Turkey that being a signatory of the CU, in other words, opened

Turkey’s export markets to not only the EU, but also other third parties which

are trade partners of the EU.

Furthermore, after experiencing several military interventions as well as

economic and political instabilities, the EU model with its democratic level and

human rights protection attracted Turkey more than ever. Full membership to

the EU, then, became Turkey’s first and foremost priority. As a result, every

reform Turkey made is believed to be both the cause and effect of a more

deserved candidate for the EU. Being a member of the CU with the EU

indicates that Turkey had to be ready to open up its markets, adopt the EU’s

customs and tariffs’ regulations imposed on third party countries to fulfill the

economic integration conditions with the EU. Hence, TBP, in particular, were

facing both opportunities and risks in a more competitive environment. In

addition, as the CU was a means to an end for Turkey’s full membership to the

EU, this also meant that Turkey also faced challenges given by the Community’s

acquis and several other policies. Apparently, Turkey encountered substantial

administrative costs during the implementation process of the CU. Nevertheless,

15

Turkey “has incurred these costs with the hope of becoming a full member of

the EU” (Togan 2012, 22).

At the beginning, the CU was regarded as an effective instrument to

accelerate the process of economic opening in Turkey. That is, with the

operation of the CU signed with the EU, Turkey has implemented more

rigorously its trade liberalization arrangement since the 1980s. Notably, the CU,

among others, has incorporated its benefits to the unstable Turkish economy

during the 1990s by enhancing economic reforms in the country in terms of

regulations and other measurements. That is to say, to join the CU, is, to be

open to global competitiveness, certainly, requires Turkey to consolidate her,

first of all, competition policy, whether to choose to protect its key industry

during infancy period as a follow-up to the developmental state model, or to

extensively carry out export-led growth strategy with the new customs and

quantitative restrictions. Secondly, with regard to the increasing trend of

international trade and competition worldwide, more careful attention to

intellectual, commercial, and industrial rights is, too, a significant step, which

the CU was believed to bring to Turkey. Thirdly, these areas were taken care of

as a result of a demand for an activation of the CU between Turkey and the EU.

Nevertheless, “the CU was broadly criticized because of the implied loss of

Turkish sovereignty, but most Turks still managed to remain committed to the

ideal of EU membership. They regarded EU membership as confirmation of

16

Turkey’s European identity and its acceptance as part of European civilization.

This psychological factor has to be understood as an important element within

the relations between Turkey and the EU (Gündüz 2003, 12).” In retrospect, the

CU is not such a strong form of integration that could help Turkey realize this

goal easily. Strictly speaking, Turkey is vulnerable to the competitive levels with

other EU’s full member states whence joining the CU. As Keyman and Öniş

(2007) argue, “the CU represented a rather unbalanced mix of conditions and

incentives” (129). That is, the authors see Turkey at a more disadvantageous

side of the agreement. Consequently, not only Keyman and Onis but also other

economists as well as business people express their dissatisfaction with the

decision.9

Although there were pros and cons for the CU from the very beginning, even

during the negotiation process, the CU has been criticized. It seems that the EU

did not treat Turkey fairly in comparison with the other EU member states

(Gündüz 2003, 12-17). For instance, the EU had supported the development of

countries from Central and Eastern Europe even though the states themselves

did not demonstrate firm commitments. Similarly, Ülgen and Zahariadis (2004,

29) state that the CU resulted in “a policy-dependency framework that is

difficult to manage between two sovereign entities of a totally different size.”

9 For instance, Gunduz (2012) and Togan (2012) shared similar arguments and ideas in their papers as

well.

17

Meanwhile, Turkey had carried out several reforms in terms of economy,

politics, and other democratic measures. Despite this fact, Turkey is still

deliberately committing in the process until today. It is believed that Turkey and

the EU ended up in a CU framework mainly as a result of a legacy issue rather

than pure economic motives and new wave of regionalism in the 1990s (Onis

2001). As Ülgen and Zahariadis (2004) state, “this long historical relationship,

combined with the unique status of a CU between an existing regional trading

block and an independent country, have contributed to the establishment of a

successful, but also highly complex regional arrangement” (1).

To reinforce, Çalışkan (2009) argues that every part of the globe is

experiencing what is called “aggressive regionalism.” This is a result of

globalization and the escalation of international trade system, where “a CU

between asymmetric parties like Turkey and EU without a clear prospect for

closer integration may not work properly in the long run. In addition, Turkey's

memberships in several PTAs, as a result of CU framework, make its trade

regime more complex and difficult to manage” (Çalışkan 2009, 7-9). Sharing

somewhat similar view, Morgil (2000) announces that the CU has led to trade

creation effect as Turkey's trade with third countries has increased. In the same

study he also mentions that the CU has resulted in institutional changes,

reforms and rationalization of the Turkish economy. Most importantly he argues

that the CU contributed to the increase in competition as a result of economic

18

liberalization, which leads to more effective allocation of resources in the

country. In addition, Akkoyunlu (2000) also measure the effects of regional

economic integration after making an overall assessment of the research about

CU between the EU and Turkey and conclude that there was more trade

creation than trade diversion effects. This finding, moreover, is supported too

with the empirical study by Demir and Temur (1998) and Warning (2006). From

another perspectives, Malkoc (2002), Vergil and Yıldırım (2006), and Ekmen-

Özcelik and Erlat (2013) use Balassa index10 (Balassa 1965) to evaluate the

competitiveness of Turkish industry after the CU. The finding of Malkoc (2002),

for instance, indicates that Turkish machinery and transport equipment sector’s

competitiveness increased whereas that of textile, clothing and agricultural

products dropped. By the same methodology, Yilmaz (2003) investigates the

international competitiveness of Turkey vis-à-vis Bulgaria, Romania, the Czech

Republic, Hungary, Poland and the EU-15 in the world market between 1996

and 1999. Utkulu and Seymen (2004) do somewhat the same at the sector-level

while İnce and Demir (2007) conduct their study on Turkey and Germany

10 Balassa index in the short form of the Balassa’s classical RCA index to calculate the Revealed

Comparative Advantage or the level of competitiveness of an economy or a particular sector. For

instance, Amador et al. (2009) used Balassa approach for Portugal, Spain, Greece and Ireland between

1967 and 2004; Arghyrou and Bazina (2002) examined the competitiveness and the trade performance

of Greece at the sector level; Ferto and Hubbart (2002) investigated the competitiveness of the

Hungarian agri-food sector vis-à-vis the EU for the period 1992-1998; Haddad (2000) used the RCA index

to assess the competitiveness of the Middle Eastern and North African (MENA) countries in the world

market.

19

particularly. The result shows that Turkey’s textile and apparel commodities

have a comparative advantage vis-à-vis Germany, in contrast to the high-tech

products where Turkey faces disadvantage. This finding is also supported by the

study of Serin and Civan (2008).

As a matter of fact, TBP started to bring the issue about the impact of the CU

on Turkish economy into their discourses increasingly. The following section will

define who are the TBP and how we classify them in this thesis.

1.2.2 Categorization of Turkish business people

In previous studies, TBP were usually classified according to their ideologies.

For instance in (Yıldız 2011), TBP are categorized in line with their ideological

commitment characterized by Turkish political structure. For example, TÜSİAD

is considered neoliberal nationalist (Yıldız 2011, 62). That is, they are those who

support economomic liberalization and nationalist in terms of the legacy of

Ataturkism. In other words, they are Western oriented and advocates of pro-EU

policy; hence they are most of the times associated with a so-called term ‘the

White Turks.’11 These are also regarded as secularist, as opposed to more

conservative and Eastern-oriented business people such as MÜSİAD, TURK-İŞ,

11

A term constructed since the 2012 as opposed to ‘the Black Turks’ from the Tazimat period. The White

Turks composed of urban republican elites whereas the other are refered to Islamic or Anatolian Turks.

Journalist Ufuk Güldemir first coined the two terms in his 1992 book "Texas Malatya."

20

TUSKON. Lied in the middle are TOBB and ISO with neoliberal economic

ideology; yet they do not fully support pro-Western policy. From this point of

view, one can understand that TÜSİAD and the like were supporting Turkey’s

CU with the EU as they wanted to expand their export revenues and expected

that the EU would be a fruitful market for their established business. Also, the

CU agreement is certainly another product of Western-oriented and pro-EU

policy long followed by the Turkish Republic. By contrast, MÜSİAD and similar

business associations were against the CU for their own interest. That is, they

have reasons to protect their newly emerging businesses as well as their

ideological commitment (Viner (1950) and Gündüz (2003)). Briefly, the conflicts

between TÜSİAD and TOBB mainly represent the cleavage between outward-

oriented big conglomerates and largely inward-oriented firms (Onis and Webb

1994). On the other hand, MÜSİAD was generally in conflict with TÜSİAD, not in

terms of economic interests, but with each other in a more ideological sense

(Alkan 1998). As it was not long from the time Turkey opened its economy

through export-led growth strategy in the 1980s to the EU-Turkey’s CU

agreement, it is reasonable that TBP have different attitudes towards this

significant event. Those who are more liberals were more into the process,

while those who are more conservative are prone to skepticism.

In our thesis, however, we do not emphasize much the ideological

commitments of the TBP since we are not going to analyze them here. On the

21

contrary, in relation to the scope of our research interest, we are interested in

economic dimension of the issue. We define TBP at domestic level with a

categorization according to their sectors of production and degree of operation

of their economic activities. In other words, TBP, in this thesis, are industrialists,

trade and business associations, who are involved with Turkish trading

activities. Some of them are owners of individual companies while some are

managing NGOs. Yet the common feature of all is that they possess the

greatest strengths of Turkish business world and have a large share in exports

of Turkey. They are comprised of a number of entrepreneurs, ranging from big

conglomerates doing exports and imports extensively such as TÜSİAD, MÜSİAD;

small and medium-sized trade organizations such as TUSKON, ASKON as well as

those newly emerging so-called Anatolian tigers12 which also bear the name of

SİAD (Sanayici ve İşadamların Dernekleri), or Industrialists’ and Businessmen’s

Associations- such as KONSİAD in Konya, ÇOSİAD in Çorum, DESİAD in Denizli,

GASİAD in Gaziantep, and KAYSİAD in Kayseri13; and finally, some Chambers of

Commerce and Industry from different regions such as TOBB, ACC, ICC. This

selection is derived from our intention to analyze these economic actors with

“different societal visions, different identity/citizenship claims and different

12 The term refers to the Eastern cities in Turkey which experienced economically growth miracles based

on self-sufficiency and most conservative principles, namely, Denizli, Gaziantep, Kayseri, Bursa, Kocaeli,

Konya, Malatya, Kahramanmaraş. See, for instance, (Alpert and O'Neill 2006, Christianasen 1997, Turgut

2011).

13 See more at: http://portal9journal.org/articles.aspx?id=64#sthash.ghYvHxgE.dpuf.

22

institutional strategies (Keyman and Koyuncu 2005, 108)” on a political

economy base. These differences also reflect under their perceptions about the

CU between Turkey and the EU. In chapter three we will analyze the discourses

of those TBP and among them, representatives of some key economic industries

with regard to the CU effects in the context of the ESDC in 2008.

1.2.3 The 2008 European Sovereign Debt Crisis

There are a number of definitions of sovereign debt crisis in the theoretical

literature. In this section we will expose the concept of the sovereign debt first

and then specify the concept of the 2008 ESDC.

1.2.3.1 Sovereign Debt

First of all, sovereign debt is an accumulation of the outstanding payments

that a country’s government owes. It reflects the deficits created by an excess

spending of government expenditure in relation to tax revenues. As the term

“sovereign” means national government, sovereign debt can be interchangeably

used with national debt, country debt or government debt. Often time, the debt

is owed to foreign creditors; therefore public debt is another similar concept.

The Latin American debt crisis in 1980s, the Asian crisis in 1997, and the

Eurozone crisis recently are typical examples for a sovereign debt crisis (Rojas-

Suarez 2002, Reinhart 2002, Larraín, Reisen, and Von Maltzan 1997).

23

One of the most cited works in the literature on sovereign debt is of

Detragiache and Spilimbergo (2001) who define a country to be in a debt crisis

if there is an excess of 5 percent commercial outstanding payments to

commercial creditors. However, this definition does not distinguish sovereign

with private debts. Therefore in practice we usually rely on the standard

evaluation by, among few, Standard and Poor’s14 (2002) who defines a country

to be in default as long as there is not a sovereign debt obligation. In addition,

Reinhart (2002) in her sample study concludes that a country is on a brink of a

sovereign debt if there is a currency or banking crisis preceding.

1.2.3.2 How Sovereign Debt Is Measured?

As Reinhart and Rogoff (2008) states,

“Public debt follows a lengthy and repeated boom-bust cycle;

the bust phase involves a markedly higher incidence of

sovereign debt crises. Public sector borrowing surges as the

crisis nears...In the aggregate, debts continue to rise after

default, as arrears accumulate and GDP contracts markedly”

(13).

14 Along with Fitch group and Moody’s, S&P comprises of the Big Three of credit rating agencies,

http://www.standardandpoors.com/home/en/us.

24

In their paper, the authors demonstrate that at the first stage, the

government is playing a role in escalating credit borrowing within domestic

banks as well as from foreigners. Then banking crisis is accompanied with a

sovereign debt crisis (Reinhart and Rogoff 2008).

Most of the time the measurement is conducted by credit rating agencies,

among which is Standard and Poor’s, which measures debt relating with

commercial credits. Yet in our thesis’ context, sovereign debt is measured by

the amount one government owes to another, as well as to the international

creditors such as the IMF and the World Bank. The picture is different when it is

about the measurement for the European sovereign debt though. It is because

to stay in the Eurozone countries have to follow a certain restriction on a

country’s public debt according to Maastricht Criteria.15 Therefore, “their

measurement is broader, and includes state and local government debt, as well

as future obligations owed to social security” (Eurostat).

1.2.3.3 European Sovereign Debt Crisis

The ESDC is sometimes called as the Eurozone crisis or the Euro crisis. It is a

sovereign debt crisis that has great impact on the Euro-area member countries

15

The criteria include targeted inflation rate, government deficits to GDP ratio, long term interest rates,

etc. For more details see:

http://ec.europa.eu/economy_finance/euro/adoption/who_can_join/index_en.htm.

25

since its outbreak in 2008. It is a combined government debt crisis, a banking

crisis and a growth and competitiveness crisis (Shambaugh, Reis, and Rey 2012,

Reinhart and Rogoff 2008).

Likewise Lane (2012) argues that

“There are three phases in the relationship between the euro

and the European sovereign debt crisis. First, the initial

institutional design of the euro plausibly increased fiscal risks

during the pre-crisis period. Second, once the crisis occurred,

these design flaws amplified the fiscal impact of the crisis

dynamics through multiple channels. Third, the restrictions

imposed by monetary union also shape the duration and tempo

of the anticipated post-crisis recovery period, along with

Europe’s chaotic political response and failure to have

institutions in place for crisis management” (Lane 2012, 50).

The ESDC, as a result, can be defined at both national and European levels.

First of all, the ESDC took place first in the euro area members in the EU,

namely, Greece, Spain, Portugal, Ireland, and Cyprus. These euro zone

countries experienced heavily domestic economic crisis after heavy-borrowing

behaviors (Todorović and Bogdanović 2011) that led to government’s defaults

on both budget deficits and current account deficits, which eventually turned

26

out to be sovereign debts. As the situation became worse and there was not an

effective solution for these heavily indebted countries, other EU countries were

also adversely affected. As a consequence, the crisis went off.

While trying to define the ESDC in 2008 at national level, we look at the EU’s

member states. As a result of high economic integration and a monetary union

as a final goal within the EU, highly developed economies support the weaker

ones. However, this project, although seems to make sense in the European

economic integration, is not flawless, if the capital receiving parties do not have

a stable economic policy for catching up. During time of crisis, particularly,

countries might be reluctant to keep backing up the troubled economies. As a

result, the outbreak of the sovereign debt crises centered on these countries,

which “financed house price bubbles, such as Ireland and Spain. Elsewhere, it

funded excessive government consumption – for example, in Greece” (Dombret

2013, 1).

Correspondingly, we can also address the concept at the European level

based on neo-functionalism theory by Ernst Haas (1958). Haas, in his theory,

draws several assumptions and then makes predictions for the future of the EU

regarding its feature of regional integration. Some main indicators of this theory

are integration is inevitable, the spillover effect will further integrate states to

new areas, and the method for organizing interactions through integration is

parliamentary diplomacy. We argue that Haas’ neo-functionalism theory did not

27

apply under the circumstances of the crisis. This stemmed from his premise on

the organizing method and the spillover effect itself.

As a matter of fact, the European Central Bank is the unit responsible for the

monetary policy of the euro area countries. According to Haas, spillover effect

indicates that member states shall compromise and this central authority shall

look over the fiscal policies as well. Nevertheless, the fiscal policy of the 17

members of the euro area is a controlled individually. That is, each state is

responsible for its own fiscal matters, such as government spending and taxing,

etc. In other words, with regard to fiscal policy even under the common EU

umbrella, states are still above all other organizations. Here we see the

accountability and responsibility problems. To illustrate, countries irresponsibly

and constantly borrow at the cost of unwarranted endorsement.16

Furthermore, there is another problem at the European level when one looks

at the Maastricht Treaty. This treaty is one of the founding monetary union’s

settlements, of which the “no bail-out” principle is problematic. That is, no euro-

area country was to be liable for the debts of another member state. Thus,

16 Some scholars blame the borrowing behaviors of these countries nevertheless Bulow and Rogoff

(1989) shares the culpability on both the creditors and the borrowing countries that they found in the

case of the LDCs debt crisis in 1980s: “That is, loans to LDCs will not be made or repaid unless foreign

creditors have legal or other direct sanctions they can exercise against a sovereign debtor who defaults

Even if some lending is feasible because of direct sanctions, having a reputation for repayment in no way

enhances a small LDC's ability to borrow.”

28

individual responsibility was to be the guiding principle for fiscal policy in the

monetary union. In other words, each country was itself to bear the

consequences of its own fiscal policy. A chain of euro area members has faced

the same results; hence we experienced the ESDC (Lane 2012, Buiter et al.

1993, Beetsma and Uhlig 1999).

Despite the fact that Turkey has a huge stock of trade deficit and public debt,

the euro-zone crisis ignited Turkish economy into further hard times as the EU,

Turkey’s biggest trading partner, began to fall into economic recession. During

the ESDC, moreover, Turkey found herself very much disadvantaged while

having to obey the CU regulations and hence subjected to several constraints

although Turkey believes that it would have been better had the CU terms and

conditions benefited Turkey more. The CU between Turkey and the EU was

supposed to be a stepping-stone to speed up the full membership process of

Turkey to the EU, but it has been years that Turkey has been waiting. This fact

simultaneously affects the perceptions of the TBP about the CU. In the following

section we are going to design a research in order to explore the changing

nature of TBP’s attitudes towards the EU-Turkey’s CU after the ESDC in 2008.

1.3 Research Design

In this thesis, we are interested in answering the question whether there was

a change in TBP’s attitudes about the EU-Turkey’s CU after the ESDC in 2008

29

and why. After examining the theoretical and conceptual body, in this section

we draw a framework for our research design.

In the existing literature there are discussions about the effects of the CU.

Moreover we can also find the studies of the impact of the CU on Turkish

economy. More than that, studies on Turkish business groups and civil society

in Turkey are also available. However, there has not been study on TBP’s

perceptions about the EU-Turkey’s CU itself. To explore this issue, we then rely

on the discourses made by those TBP as available sources. As a result, to

answer our research question, we collect and analyze the TBP’s discourses to

examine their attitudes about the CU systematically on a yearly basis from 1995

until very recently. We expect to see a change in the TBP’s attitudes toward the

CU after the ESDC in 2008. Therefore both the qualitative data and the

discourses are divided into two periods: from 1995 to 2008, and from 2008 up

to now. To compare and contrast the discourses with the factual scenario, on

that account, we collect empirical data about Turkish economy under the effects

of the CU before and after the ESDC in 2008. Hence, we gather basic economic

indicators’ statistics from the Turkish Statistical Institute (TUIK). They are data

on variables that are directly affected by the CU, such as inflation; GDP growth

rate; and certainly Turkish exports and imports by country groups, by years and

economic activities. Based on Viner’s CU theory we employ Balassa (1965)

approach on a partial equilibrium model to detect the trade creation or trade

30

diversion effects brought about by the CU on Turkish economy with the break

point of the ESDC in 2008. Moreover, we also calculate Balassa index for some

selected economic sectors in Turkey to see whether there is a change in their

competitiveness after the ESDC. At last, we compute the adjusted Grubel-Lloyd

Index (Grubel and Lloyd 1971) to clarify the nature of trade between Turkey

and EU; whether it is still an intra-trade relation as assumed by the CU on

theory.

Accordingly, chapter two will present the empirical data to demonstrate the

impact of the ESDC on Turkish economy. Thereupon in chapter three we will

analyze the TBP’s discourses before and after the ESDC to see (1) if there is a

change in their attitudes toward the EU-Turkey’s CU due to the ESDC and (2)

whether our empirical data are accorded with their arguments.

31

CHAPTER 2

AN EMPIRICAL ANALYSIS ABOUT THE EFFECTS OF THE

EUROPEAN SOVEREIGN DEBT CRISIS ON TURKISH

ECONOMY

This chapter will present the empirical data to demonstrate the impact of the

ESDC on Turkish economy. We expect to see a change in some basic economic

indicators of Turkey after the ESDC in 2008. We will use the Balassa approach

on a partial equilibrium model to study the outcomes of the CU on Turkish trade

flow in line with Viner’s CU trade creation and trade diversion effects.

Necessarily, the Balassa index produced by the Turkish trade statistics will help

us look into the competitiveness of Turkish industry, and finally we will discern

the nature of trade between Turkey and the EU whether it is inter or intra-

industry after the ESDC by relying on the adjusted Grubel-Lloyd Index that we

will calculate.

First of all, in figure 1, we examine the two most common representative

criteria to analyze the strength of a country’s economic health, which are

inflation and GDP growth rate. The figure demonstrates Turkish economic

performance based on the two statistics in light of the relation between Turkey

and the EU since the first application of Turkey to the Community in 1959. At

32

first glance, we can see that Turkish economy has been constantly fluctuating.

GDP growth rate too are not stable. Inflation rate, in addition, was not in

control. The economic fluctuation is observed to be parallel with the political

instability of the country as well. Since we are interested in the CU effects on

Turkish economy so far, we pay more attention to the 1996 situation on ward.

Interesting enough, as the figure shows, after the CU came into force in 1996,

Turkish economy did not perform well. One of the indicators is that Turkish GDP

growth rate kept declining since 1996 as figure 1 shows. Only until 1999 with

the Helsinki summit and the announcement of EU candidacy for Turkey did we

see positive growth rate in the economy, yet the figure immediately dropped

with the 2001-banking crisis.

Figure 1. Inflation and growth rate of GDP per capita in Turkey

Source: Salehi Esfahani and Çeviker-Gürakar (2013, 2).

33

After the regulations of banking sectors and macroeconomic stability policies

implemented as a result, CPI inflation became stable. Moreover, the Turkish

economy recovered very quickly that there was a boost in GDP growth rate

again. In fact, this occurred almost the same as the outburst of the 2008 global

financial and economic crisis. That is Turkey was affected by the crisis; however

its ability to quickly recover is a success. Turkey is at this stage a candidate for

membership to the EU; yet this has been so far a long-standing, open-ended

negotiation process. As the EU also suffered from the ESDC itself, in 2008,

again we see the decline in GDP growth rate of Turkey, despite the rather

stable inflation rate. That is to say, the ESDC more or less influenced Turkish

economy as a whole. The next indicator of the CU effects we are going to look

at in this chapter is Turkish foreign trade volume. Since the CU is expected to

initiate an increase in Turkish exports with trade liberalization policy, we would

like to see how the ESDC influenced on Turkish trade activities under the

implementation of the CU as well.

To start with, the statistics in table 1 show that, after the CU, there was not

significant change in export as expected and even much lower than before the

CU until 2001 crisis. From 1995 to 1996 there was only 7.3% increase in export,

much lower than that in the year before the CU was signed, that is 9.5%.

However since the CU came into effect, in 1996 total export increased from

7.3% to 13.1%. Nevertheless, the figures were not always stable. In contrast,

34

one year since the CU came into force, total export was not performing very

well.

Table 1: Turkish foreign trade by year

Year

Exports Imports Volume of Foreign Trade Proportion

of Imports covered by

Exports

Value Change Value Change Value

'000 $ % '000 $ % '000 $ %

1991 13 593 462 4.9 21 047 014 -5.6 34 640 476 64.6

1992 14 714 629 8.2 22 871 055 8.7 37 585 684 64.3

1993 15 345 067 4.3 29 428 370 28.7 44 773 436 52.1

1994 18 105 872 18.0 23 270 019 -20.9 41 375 891 77.8

1995 21 637 041 19.5 35 709 011 53.5 57 346 052 60.6

1996 23 224 465 7.3 43 626 642 22.2 66 851 107 53.2

1997 26 261 072 13.1 48 558 721 11.3 74 819 792 54.1

1998 26 973 952 2.7 45 921 392 -5.4 72 895 344 58.7

1999 26 587 225 -1.4 40 671 272 -11.4 67 258 497 65.4

2000 27 774 906 4.5 54 502 821 34.0 82 277 727 51.0

2001 31 334 216 12.8 41 399 083 -24.0 72 733 299 75.7

2002 36 059 089 15.1 51 553 797 24.5 87 612 886 69.9

2003 47 252 836 31.0 69 339 692 34.5 116 592 528 68.1

2004 63 167 153 33.7 97 539 766 40.7 160 706 919 64.8

2005 73 476 408 16.3 116 774 151 19.7 190 250 559 62.9

2006 85 534 676 16.4 139 576 174 19.5 225 110 850 61.3

2007 107 271 750 25.4 170 062 715 21.8 277 334 464 63.1

2008 132 027 196 23.1 201 963 574 18.8 333 990 770 65.4

2009 102 142 613 -22.6 140 928 421 -30.2 243 071 034 72.5

2010 113 883 219 11.5 185 544 332 31.7 299 427 551 61.4

2011 134 906 869 18.5 240 841 676 29.8 375 748 545 56.0

2012 152 461 737 13.0 236 545 141 -1.8 389 006 877 64.5

Source: Turkish Statistical Institute

35

From 1997 to 1998 there was almost very little increase in total export, but

the figure showed, unfortunately, only a slight increase of 2.7% and

immediately after the following year, that is, in 1999, export fell sharply.

Turkish economy could not export its products as much as before, not even at

the same level. Nevertheless, after the crisis in 2001 with the new regulations in

banking sector and several economic reform packages as well as more

deliberate economic policies, the numbers increase. Yet as a result of the ESDC

in 2008 we see a significant change in 2009 export data that appears here as

such becomes negative 22.6% in 2009. One of the reasons is a dramatic

decrease in export with the biggest trading partner of Turkey, i.e., the EU.

Similarly we can see how vulnerable Turkish foreign trade is as a result of the

2008 ESDC by glancing at the import statistics. There was a change of negative

30.2% compared to the pre-crisis year. That is, with regard to the CU

agreement, under the effect of the ESDC, although Turkey could not export as

usually did, but on the contrary and worse, Turkey had to comply with the CU

and imported foreign products at a customized level of tariffs and taxes even

though this is completely against the interest of Turkish economy by that time.

So to see, the proportion of imports covered by exports in 2007 is 63.1%, in the

crisis year of 2008 is 65.4%, and after its impact spread to the economy, it is

the highest figure since the 2001-banking crisis. That is, 72.5% of imports were

covered by exports. To illustrate, we can see this significant change in volume

36

of foreign trade in Turkey with our focus on the 2008, the year in which the

global economy suffered from the economic and financial crisis, and in

particular, among all, the EU with the ESDC. Consequently, we see an abrupt

decline in the total foreign trade volume in Turkey, which is from about $334

billion to $243 billion, a decrease of approximately 27%.

Furthermore, after the CU was completed, foreign trade deficit increased

because of increasing of import level, which is between Turkey and EU. In

1998-1999, there was a minor decline in the foreign deficit because of economic

crisis. Today this deficit again started to increase (İsmail 2005, 15-17). In like

manner, Kalaycı and Artan (2010) also comment that

“In the process of customs trade, it is observed that while, in means

of proportion, there is an increase in the export of investment and

intermediate goods to EU, there is a decrease in the export of

consumer goods and on the other hand, the situation in the import

process is completely reverse” (Kalaycı and Artan 2010, 301).

In short, it may be improbable to say that the CU of Turkey with the EU bring

Turkish economy either positive or negative effects. The same discussion can

also be found in the study of Neyaptı, Taşkın, and Üngör (2012). Based on

theoretical literature, we attempt to look at the effects of the CU on Turkish

trade flow. More specifically, according to Viner’s theory on CU, Turkey, as a

partner of the CU with the EU, is believed to experience the effects of this CU,

37

i.e., trade creation or trade diversion (Özkale and Karaman 2006, 3). During

and immediately after the ESDC, the EU signed several new FTAs with third

parties. That is to say, Turkey is expected to face a new risk of trade diversion

as a result (Akdag 2013). In other words, when examining the obligations of the

CU between Turkey and the EU, what exposed is the asymmetric content of the

agreement.

“Third party originated commodities and services can travel to Turkey

without tax, but Turkey cannot benefit the same favorable method

until it also signs a similar agreement with the third party. This

asymmetry is hard to refrain from until the EU membership is

acquired, and the famous ‘wishful Turkey Clauses’ in the FTAs haven’t

been very effective” (Akdag 2013, 1).

This argument will later also be found in most TBP’s justifications for their

disappointment in the EU-Turkey’s CU analyzed in the following chapter. In the

next section, we will specifically evaluate the expected CU creation effect on

Turkish trade flow to see whether the ESDC changed its nature.

2.1 The impact of the ESDC on Turkey’s Trade flow

Most CU theories suggest that this type of economic arrangement will bring

benefits to participating countries, in terms of increasing trade volumes among

the members as well as improvement of welfare of individual countries. In other

words, CU is expected to lead to trade creation among member countries.

38

However, Jacob Viner in his CU theory (1950) argues that the CU does not

necessarily result in trade creation but trade diversion as well. Consequently,

there is no guarantee that an individual country will be better off as choosing to

participate in the CU. With regard to the TBP’s discourses, we attempt to test

those effects of the CU on the economy of Turkey to see the impact of the

ESDC. Therefore, we will analyze the two effects of the CU on a partial

equilibrium analysis according to Balassa approach (1967). The logic is to relate

the imports volume to the country’s GDP. That is, the ex-post income elasticity

of imports demand in intra area and extra area trade for periods before and

after the ESDC is computed, which is defined as:

η = (ΔM/M) / (ΔY/Y),

where η is ex-post income elasticity of imports, ΔM/M is the percentage

change in imports, and ΔY/Y is the percentage change in GDP.

The resulting elasticity will be interpreted as follows, an increase in η for

imports from partners in the post-crisis period implies the existence of gross

internal trade creation, an increase in η for imports from all sources in the post-

crisis period indicates the existence of gross external trade creation, a decrease

in η for imports from non-partners in the post-crisis period would imply the

existence of trade diversion. In this study, in order to see the impact of the

ESDC on Turkish trade flow, we collect Turkish imports and GDP data from 1999

39

to 2013 on annual basis. Since the ESDC boasted in 2008 we divided the data

into 2 sub periods to observe the role of the ESDC, from 1999 to 2007, and

from 2008 to 2013. Table 2 provides the result of our calculations.

Table 2. Income Elasticity of Turkish Imports Demand

Selected Industries

Total imports Imports from the EU Imports from the

non-EU

1999-07

2008-13

Diff 1999-07

2008-13

Diff 1999-07

2008-13

Diff

Chemicals and related products 0.65 0.49 -0.17 0.56 0.33 -0.24 0.54 0.41 -0.13

Raw materials 0.79 0.79 0.00 0.60 0.21 -0.38 0.51 0.58 0.07

Food, drinks and tobacco 0.51 0.90 0.39 0.25 0.08 -0.17 0.44 0.65 0.21

Automotive,

machinery and transport equipment 0.70 0.75 0.05 0.60 0.21 -0.39 0.58 0.55 -0.02

Mineral fuels, lubricants and related materials 0.75 0.46 -0.29 1.29 1.79 0.50 0.60 0.38 -0.22

Textile 0.46 0.27 -0.19 0.32 0.29 -0.03 0.38 0.23 0.15

Total 0.65 0.61 -0.03 0.60 0.49 -0.12 0.51 0.47 -0.04

Source: Eurostat, IMF, Turkish Statistical Institute and own calculations

We see here the income elasticity of import demand and the difference

between ex-ante and ex-post crisis periods. That is, we see trade creation in

some sectors before the ESDC while there is trade diversion after that. Firstly,

we see, at total, the income elasticity of import demand decreases from 0.65 to

0.61, which indicates that even though the CU is there, there is no trade

creation due to the ESDC. Moreover, income elasticity of import demand from

the EU fell from 0.60 to 0.49 showing that there is no gross trade creation

either, although with the existence of the CU as the ESDC took place. Similarly,

40

the figures from the non-EU imports point out that there is no trade creation as

well due to a decrease in income elasticity of Turkish imports demand from 0.51

to 0.47, even though the difference is not much. Relying on the results we got

in the table 2, from the selected sectors, we can say that there is only one

industry that enjoys gross internal trade creation at the post-crisis period. That

is the sector of mineral fuels, lubricants and related materials. While there is no

internal trade creation in automotive, machinery and transport equipment as

well as food, drinks and tobacco, on the other hand, there is gross external

trade creations in these sectors. Likewise, besides raw materials and food,

drinks and tobaccos, the rest of the industries go through trade diversion effect

after the ESDC. The trade diversion effect can be understood through the

various discourses by the TBP. They widely argue that Turkey had to oblige to

import from third countries to prevent trade diversion towards the EU, yet that

would cause harm to some certain Turkish sectors as discussed. An analysis on

Turkey’s competitiveness may give a more complementary explanation of the

issue.

2.2 The ESDC and its implication for the Competitiveness of Turkish

industry

Since the commencement of the CU, Turkey’s economy has been open to the

world more intensively. This fact results in a more challenging environment for

Turkish firms. In addition, since the 2000s economic reforms, Turkish economy

41

has performed so well that it now has numerous trading partners from almost

every part of the globe. Stated somewhat differently, Turkish firms have been

exposed to more competitive environment not only at the regional level, as

previously mostly with the EU and Eurasian partners, but at the international

level due to the fact that Turkey has multilateral trade agreements with

different economic zones, especially since 2000.

The comparative advantage or level of competitiveness in trade is perhaps

one of the most studied topics dating back from David Ricardo’s theory of

international trade17. However, it does not mean that countries, which trade

with each other freely, will necessarily gain comparative advantage. Rather

there are cases that one of the parties always appeared as the winner of all

time, such as one of the attacks by advocates of World System analysis18. In

the literature, the studies about the impact of the CU on Turkey’s

competitiveness yield somewhat interesting results. In the context of our thesis,

we compute Balassa index (1967) to examine the comparative advantage of

17 The Ricardian theory of international trade is also called the ‘theory of comparative advantage’ by the

modern bourgeois economists with the publication of his book “On the Principles of Political Economy

and Taxation” on 19 April 1817.

18 Immanuel Wallerstein (1974) is believed to have initiated the World system analysis in which he

believes that the capitalists always win and specifically Europe or the West made use of and controlled

over most of the world economy, with the tool of industrialization and capitalist economy, of which

indirectly results in unequal development.

42

certain Turkish industries and then compare the outcomes in two periods before

and after the ESDC. The formula is as below:

Balassa Index B=(Xct-Mct)/(Xct+Mct)

Where Xct is exports of commodity c in time t and Mct is imports of

commodity c in time t.

A comparative advantage exists if there is a high value of Balassa Index.

Moreover, an increase in B indicates that the country under consideration has

improved its competitive position against its competitors. Table 3 illustrates the

results.

Table 3. Changes in Competitiveness of Turkish Industry

Selected Industries

Against World Against EU Against Non-EU

1999

-07

200

8-13 Diff

199

9-07

200

8-13 Diff

199

9-07

2008

-13 Diff

Chemicals and related products -0.70 -0.65 0.05 0.78 0.70 -0.08 -1.41 -1.31 0.10

Raw materials 0.00 -0.18 -0.19 0.32 0.60 0.28 -0.01 -0.38 -0.37

Food, drinks and tobacco 0.29 0.31 0.03 -0.59 -0.29 0.30 0.57 0.62 0.05

Automotive, Machinery and transport equipment -0.45 -0.28 0.17 0.28 0.24 -0.04 -0.90 -0.55 0.35

Mineral fuels, lubricants and related materials 0.29 0.31 0.02 0.44 0.70 0.26 0.52 0.61 0.09

Textile 0.39 0.36 -0.02 -0.37 -0.25 0.12 0.21 0.55 0.33

Total -0.03 -0.02 0.01 0.14 0.28 0.14 -0.17 -0.08 0.09

Source: Eurostat, IMF, Turkish Statistical Institute and Own Calculations

43

Table 3 shows that while Turkey’s chemicals and related product sectors as

well as automotive, machinery and transport equipment sectors have

competitiveness against the whole world and the non-EU countries,

nevertheless these sectors are not competitive against the EU after 2008.

Conversely, Turkey only has competiveness against the EU in raw materials but

not against the world, neither against the non-EU countries. This is why we see

most TBP in these industries complain about the CU especially after the 2008

ESDC.

The Balassa index also indicates that Turkey has comparative advantage

against all parts of the world, including the EU and the non-EU countries in

food, drinks and tobacco, as well as mineral fuels, lubricants and related

materials with the breakpoint of 2008. This is shown by the increases in B in the

post-crisis period in comparison with the pre-crisis, or a positive difference of

the two indices on the same row.

Regarding textile industry, what is important here is that Turkey has

comparative advantage against both EU and non-EU countries in comparison

with the whole world. This finding is in confirmation of the study by İnce and

Demir (2007) as well. That is, they also found that Turkey’s textile and apparel

products enjoyed comparative advantage against Germany in the pre-crisis

period. Predominantly, the sector of textile and apparel is defined as traditional

sector in Turkey. It is believed that the country is a leader in this sector in terms

44

of production, trade volume and technology. But if we evaluate Turkey as a

global player, it is not in the good position and has not enough shares in the

textile and apparel industry. On the other hand, although the sector’ trade

volume is increasing, profit of the sector’ players is decreasing.

In short, heavy industrial sectors including automotive and high tech

products could not enjoy the comparative advantage after the ESDC even

though the CU was tightly implemented. That is to say, the CU does not work

for Turkish heavy industry’s advantage. Consequently, TBP in these industries

may find dissatisfied with the agreement and look for new alternatives.

Secondly, although Turkey has comparative advantage in textile industry, the

level decreases due to the Eurozone crisis. On the other hand, the fact that

Turkish textile and apparel industry has faced increasing challenges from

foreign competitors like China and other European partners also do not

guarantee its level of competitiveness position in the world market after being

hit by the ESDC. TBP in textile industry, thus, find themselves rational to alter

their markets or lobbying for protection from government such as adjusting

deals or agreements with trading partners.

Necessarily, as the EU is Turkey’s largest trading partner, we too are

interested in investigating whether the presence of the ESDC could alter the

45

nature of trade between the two parties. The following section will do so by

computing adjusted Grubel-Lloyd Index and see the effects accordingly.

2.3 The nature of trade between Turkey and the EU after the ESDC

Here we will evaluate whether the nature of trade between Turkey and the

EU after the ESDC is inter or intra-industry as most official EU documents claim.

In order to analyze intra and inter-industry specialization, we use adjusted

Grubel-Lloyd Index which is calculated as follows:

Adjusted GLijk = 1 – { | (Xijk/Xij) – (Mijk/Mij) | / [ (Xijk/Xij) + (Mijk/Mij)]}

where Xijk (Mijk) = exports (imports) of goods k from country i to country

j,

Xij (Mij) = total exports (imports) from country i to country j.

The results are provided in table 4 below. If the adjusted GL index is unity,

then we have a complete intra-industry. On the contrary, if the index value is

zero then we have an inter-industry relation between the two partners. The

figures indicate that, overall, the nature of trade between Turkey and the EU

has become plainly inter-industry after the ESDC even though they both are

46

parties to the CU, sharing common tariffs and imposed the same taxes on third

countries’ products.

Table 4. Adjusted Grubel-Llyod Index

Selected Industries

1999-2007 2008-2013 Difference

Chemicals and related products 1.00 0.93 -0.07

Raw materials 0.98 0.69 -0.29

Food, drinks and tobacco 0.92 0.57 -0.35

Machinery, automotive and transport equipment 1.00 0.48 -0.52

Mineral fuels, lubricants and related materials 0.94 0.46 -0.48

Textile 0.94 0.57 -0.38

Total 0.96 0.62 0.35

Source: Eurostat, IMF, Turkish Statistical Institute and Own Calculations

At the first period before the outbreak of the ESDC, the figures are more

toward unity. That is to say, before the ESDC, there was a kind of intra-industry

relation between Turkey and the EU. However, with the impact of the ESDC,

that nature has changed. Turkey and the EU in the second period, as shown in

the table, the adjusted Grubel-Lloyd Index tells us that the nature of trade

relation between Turkey and the EU has become more inter-industry, especially

47

in key industries such automotive, machinery, transport equipment, and mineral

fuels, etc.

With the impact of the ESDC, we see that Viner’s theory proved to be true in

the sense that participating countries do not necessary benefit from intra-

industry relations and hence increase the countries’ welfare accordingly.

Therefore, it makes sense if one is indifferent about staying in or leaving the CU

since bearing with the agreement does not bring extra benefit such as a

creation of an intra-industry trade relation with each other, which is most visible

after the ESDC. As a matter of fact, we increasingly observe that, especially

after the ESDC, Turkey has been attempting to diversify her foreign trade, not

only with the major trading partner such as the EU, but through multilateral

trade agreements with every part of the globe.

2.4 Turkey’s diversification of trade

Foreign trade plays an important role in economic development and is the

chief drive of the Turkish economy. After the economic crisis of 2001, and later

on the ESDC in 2008, under the policy of economic restructuring and a strong

reform, foreign trade of Turkey experienced the boom period. That is, exports

and imports continued to grow at a high level. Both importing and exporting

markets are constantly expanded. Likewise, Turkey is increasingly focusing on

the international market, tend to favor trade liberalization, supporting

48

businesses seeking enhanced business opportunities with foreign partners

through signed agreements, cooperation agreements that create the legal

framework for the countries and regions in the world. The fact that Turkish

foreign trade flourished in recent years has contributed to boosting the

country's economic development, bringing Turkey to become one of the world's

top 20 countries of import and export scale and ranked 16th in the OECD

(Haberler, 27 December 2013). To contribute to the expansion of foreign trade

activities, so far, Turkey has signed and implemented FTAs with 19 countries

and regions around the world. At the same time, Turkey is negotiating FTAs

with 14 other partners.

“Turkey’s emerging trade destinations provide a relative advantage for

the smaller size entrepreneurs due to their firm size while yielding

significant amounts of positive externalities for the conglomerates in

their increased bilateral economic ties as well. Turkey’s new trade

orientation or re-balancing act has been, therefore, beneficial to all

parties at the domestic level while providing cyclical results –beside

Africa- at the international level. The latter argument is evident in

Turkey’s significant losses in European, North American, Asian and

Middle Eastern –including Gulf countries” (Babacan 2011, 138).

During the period of 2008-2009, Turkey’s trade with its traditional partners

such as EU-27, North America, Russia, China, and the Middle East as well as

many other markets shrank dramatically as observed in figure 2, yet the only

exception to this general rule came from certain North African and Central Asian

markets.

49

Figure 2. Turkish exports by years and country group

Source: Turkish Statistical Institute

50

Turkey became a member of the WTO on 26 March 1995 while originally the

country joined the GATT in 1951. Regardless of the fact that Turkey has

experienced periods of ups and downs in politics and economy, the country has

established a number of trade relations with other parts of the world. Especially

after the 1980 coup d’état, (first Prime Minister in 1983-1989), President Turgut

Ozal has done everything possible to lead the country out of isolation. One of

the most significant contributions that President Ozal has ever made for his

country is the economic opening to the world through trade liberalization, free

competition under the principles of free market economy.

(A) The CU

The most significant landmark in the history of the Turkish economy can be

accounted for the conclusion of the CU between Turkey and the EU, the

community of which Turkey would long like to become a part. The economic

relation between Turkey and the EU, which became closest with the CU in 1996,

has also been an important factor in the initiation of the full membership

negotiation process. This relation seemed to be stable until the outbreak of the

ESDC when Turkey lost her confidence in the EU in several respects, most of

which are discussed by the TBP in the following chapter. Since then, under

different circumstances, Turkish economy experienced different opportunities

and challenges.

51

(B) A free trade agreement with EFTA

Free Trade Agreement between Turkey and the European Free Trade

Association (EFTA) is modeled on similar asymmetry of the CU between Turkey

and the EU. This agreement regulates industrial products, fish and seafood

products, processed agricultural products, intellectual property, competition

rules, state aid and anti- dumping. The agreement took effect on 1 April 1992.

Since then, EFTA countries bypassed customs duties and have the same effect

for non-agricultural goods imported from Turkey, except textiles and garments

which EFTA countries have tax redemption from 1 January in 1996. Turkey has

as well adopted equivalent tariff measures for imports from EFTA and from the

EU.

(C) Euro-Mediterranean Partnership (EUROMED)

In November 1995 a conference of European Ministers of Foreign Affairs

ended with the establishment of the Euro-Mediterranean Partnership of which

framework based on three pillars: political cooperation and security partners;

economic and financial, social arrangement; humanities and culture

(Europa.com). In the context of partnership and as part of establishing a free

trade area between Europe and the Mediterranean region, Turkey ended free

trade agreements bilaterally with Egypt, Israel, Morocco, Tunisia, the Palestinian

Authority, Jordan, Syria and Lebanon.

52

(D) Economic Cooperation Organization (ECO)

Along with Iran and Pakistan, Turkey established the Economic Cooperation

Organization (ECO) in 1985. ECO was expanded to include Afghanistan,

Azerbaijan, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan and

Uzbekistan in 1992. The goal of ECO is to promote economic development and

social sustainability. The project was launched to cooperate in priority areas

such as energy, trade, transportation, agriculture, and the control drugs.

Moreover, ECO members have signed a framework agreement to promote

trade cooperation between the Member States in March 2000. Subsequently,

Afghanistan, Iran, Pakistan, Tajikistan and Turkey established the ECO Trade

Agreement (ECOTA) on 7 May 2003. ECOTA whose mandatory provisions of

state monopolies, state aid, protection of intellectual property rights, the anti-

dumping measures exclude out quantitative restrictions on trade. For members

of ECOTA tax is reduced to not less than 10% per year to a maximum of 15%

in the eight years since ECOTA effect19. Recently most members of the ECO

have also become full members of the Shanghai Cooperation Organization, of

which Turkey is not a member yet. After the ESDC which resulted in less

19 For details about the agreement, see ECO Trade Agreement at:

http://wits.worldbank.org/GPTAD/PDF/archive/ECO.pdf; and a summary by the Turkish Ministry of

Foreign Affairs at (Türker 2006).

53

motivation to cope only with the EU’s markets, there have been plausible

discussions about Turkey’s leaving the CU and joining the SCO instead.

E) Developing Block (D8)

Developing-8 is an organization for development cooperation among

Bangladesh, Egypt, Indonesia, Iran, Malaysia, Nigeria, Pakistan and Turkey. The

establishment of D8 is done through the Declaration of the Heads of State or

Government on 15 June 1997 in Istanbul. The goal of the organization of D8 is

through economic cooperation to strengthen the role of Member States in the

world economy, diversifying and creating new opportunities in trade relations,

promote participation in the planning policy at the international level, and

improve the living standards of people in each country.

Additionally, the D8 member countries signed a Preferential Trade Agreement

(PTA) to promote economic integration and trade in 2006. The agreement was

done to promote and expand trade by lowering taxes and eliminating non-tariff

barriers (NTB).20 It must be recalled that in such organization, unlike the CU,

Turkey has full sovereign voting rights as a member of the block.

(F) The Organization of Islamic Cooperation (OIC)

20

http://www.economy.gov.tr/upload/31BB29F4-9CED-E2E1-E2AFF480C2655BE5/Developing8.pdf.

54

The Organization of Islamic Cooperation (OIC), formerly the Organization of

the Islamic Conference is an intergovernmental organization of 57 countries in

four continents, where Turkey is a part of it. OIC's purpose is to strengthen

economic cooperation, trade and deepen economic integration, towards the

establishment of a common Islamic market. With the first phase, the

Framework Agreement on Trade Preferential System of OIC member countries

takes effect in 2002, which identifies the general rules and principles for

negotiations. The negotiations on tariff reduction modalities and schedule ended

with the Protocol on Preferential Tariff Scheme for Trade Preferential System of

the OIC (PRETAS) adopted in 2005 and entered into force in February 2010.21

PRETAS also covers non-tariff barriers, the anti-dumping measures and trade

defense and other issues related to trade. The negotiations on rules of origin

have ended in 2007. The Regulation entered into force on 9 August 2011.

(G) The Black Sea Economic Cooperation (BSEC)

The BSEC Declaration, signed on 25 June 1992 by Albania, Armenia,

Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russian Federation,

Turkey and Ukraine, aims to strengthen and diversify economic relations and

trade between the signatory countries. Areas of cooperation in the framework

of BSEC are very wide including banking and finance, exchange statistics and

21 http://www.economy.gov.tr/upload/31BB29F4-9CED-E2E1-

E2AFF480C2655BE5/The%20Organization%20of%20Islamic%20Cooperation.pdf.

55

economics of energy, transport, telecommunications, commercial and industrial

products, agricultural - farming, environmental protection, tourism, science and

technology.

(H) Bilateral free trade agreements

The association agreements and the CU have contained trade relations of

Turkey by the standard model based on the preferences that each party had

with the EU. Industry trade has been fully liberalized by the end of the

transition period, while the mutual concessions in the exchange of agricultural

products and processed agricultural products are selected. Since the review of

trade policy most recently, Turkey has concluded negotiations with Montenegro,

Serbia, Georgia, Chile, Jordan, Lebanon and Mauritius. Up to now Turkey has 17

FTAs in effect.22

Since 2008, which is the time of the ESDC, just as shown in the figure,

Turkey has less trade relation with the EU, whereas the country has intensified

trade relations via numerous business people with existing partners as well as

started to get in touch with the rest of the world. Evidently, we have seen

Turkish commitment to negotiate with the Faroe Islands, GCC, MERCOSUR,

Ukraine, Moldova, Colombia, Libya, Seychelles, South Korea, Cameroon,

Democratic Republic of Congo and Malaysia in very recent times. Turkey has

56

also initiated negotiations with Mexico, the Southern African CU (SACU), Algeria,

the ASEAN countries, Indonesia, India, Africa, Caribbean and Pacific (ACP),

Canada, Peru and Central America. However, since the discussions with

CARICOM Secretariat took place in 2009 to date, Mexico, and Algeria still did

not reply Turkey's proposal to participate in the FTA. Lately in most TBP’s

discourses, Turkey has put much effort in negotiating with the U.S for a

Transatlantic Trade and Investment Partnership Agreement, which is not

surprising given the decrease in TBP’s confidence in continuing the

implementation of the CU with the EU. In the following chapter, I am going to

analyze the discourses by TBP to conceive their attitudes as well as their

reasoning with regard to their perceptions about the EU-Turkey’s CU.

22 http://www.economy.gov.tr/index.cfm?sayfa=tradeagreements&bolum=fta&region=0.

57

CHAPTER 3

AN ANALYSIS OF THE TURKISH BUSINESS PEOPLE ’S

DISCOURSES ABOUT THE EU-TURKEY’S CUSTOMS UNION

Since the effective date of 1 January 1996, the provisions of the CU with the

EU have become the main component of trade policy of Turkey. The EU has

started accession negotiations with Turkey from May 10, 2005. Accordingly, the

guidance on reform priorities through the program was announced; yet with the

impact of the euro-zone economic turmoil, for the third time Turkey published

the National Program on 31 December 2008 stating the goals and objectives

identified in joining the EU. On 15 March 2010, the EU Council of Ministers

together with Turkey drew a framework for 2010-2011, identified the legal basis

for accession and the need to conduct research during the negotiation process.

At the national level, the long-term development strategy of Turkey (2001-

2023), prepared by the Ministry of Development, highlights the structural

development of export-oriented manufacturing and high technology content

with an emphasis on those products and services of high added value. The

export-oriented activities, especially the activities of small and medium

enterprises, will have more support with the provision of credit and insurance

underwriting through the Turkish Eximbank. Moreover, these decisions

harmonize with the regulations for legal investment with EU standards, reduce

58

bureaucratic procedures for exporters and enhance foreign trade infrastructure

as well. On top of that, Turkey has carried out a strategy to enhance brand

image of Turkish goods in the world and help businesses in Turkey, be they

exporters or producers’ associations.23

Especially after the crisis in 2008, Ministry of Economy has periodically

reviewed Turkey’s trade policy. In this context, the regime of import and export

regulations and standardization is also reviewed annually and updated when

necessary. The private sectors and non-governmental organizations (NGO) are

responsible for the inputs of trade policy and inform and evaluate their ideas to

the Ministry of Economy and the Union of Chambers and Commodity Exchanges

of Turkey (TOBB), the Association of Turkish Exporters (TIM), Turkish

Industrialists and Businessmen's Association (TÜSİAD), Independent

Industrialists' and Businessmen's Association (MÜSİAD) and the Council of

Foreign Economic Relations (DEIK), as well as local chambers of commerce and

other individual and export associations. The consultation is sometimes

conducted with universities and research institutes such as Economic

Development Fund (IKV), Economic Policy Research Institute (TEPAV) and the

Turkish Secretariat for foreign trade.

23 The official document for long-term export strategy (export strategy for 2023) is yet being drafted.

59

3.1 The Customs Union and the Turkish Business People’s

discourses before the European Sovereign Debt Crisis

In 1995 the CU was one of the most discussed topics in Turkey. Different

opinions have been raised with regard to the benefits and potential downsides

of the CU that it would potentially bring. TBP especially, are those of most

concerns about such an important economic agreement. This is because the CU

probably affects them the most. Economically, their business shares and

competitiveness will be challenged.

Secondly, accepting the CU to merge into Turkish economy is similar to

assimilating European styles of production and consumption into their traditional

Turkish style. Third, certain products according to the agreement traditionally

produced by these TBP for exports will now be subject to common tariffs

determined by the EU. In other words, they will no longer have autonomy in

export as well as import quantity in several industries.

More than that, in most sectors Turkey will have to lower its tariffs barriers

and import extensively products from the EU with no bargaining powers from

individual firms. However, at that time of the signature, most business people

had high expectations and positive views about the promising profitable

economic agreement. As a result, we observe that there were often different

discourses by TBP from different business groups since 1995 till recent times.

60

We find sometimes, supportive statements, yet often times we also come across

with negative expressions.

At the very beginning, for instance, MÜSİAD in March 1995, strongly

predicted that:

“The government and media is crying of joy for the CU. However the CU

will not bring to Turkey much promising effects… There will be more

imports from the EU, the inflation rate will not fall, and the foreign

capital will not come”(MÜSİAD Pamphlet 2002).

This prediction has been confirmed with figure 1 in the previous chapter,

where we do not see a decline in inflation rate after the CU, although there was

a slight increase in Turkey’s exports to the EU as illustrated in table 1.

Immediately after the CU came into force, in 1996, thereupon, President of

MÜSİAD, Erol Yarar expressed his discomfort about the CU. Instead he

supported the Silk Road Union and the Cotton Association project. The Cotton

Association Project in comparison with the CU Project is much more

advantageous and much more based on solid foundations, Yarar asserted (Aras

1996). He also said that the CU was pushing Turkey to unfair competition when

he compared benefits in terms of capital and competitiveness of automotive

industry between MÜSİAD’s partner at that time, Daewoo Automotive Auto

Representative, and the CU (Milliyet, 17 July, 1998).

61

Similarly, in 2001, Fuat Miras, President of TOBB, in Dünya Gazetesi, 17

March 2001, stated that, “The CU was the biggest mistake. It blew our imports”

(MÜSİAD pamphlet 2002).

This argument by TOBB’s President proved to have shared the same view

with MUSİAD as discussed above. That is, both of these two business groups

are concerned about Turkish trade volume, whether it is exports in MUSİAD’s or

imports in TOBB’s President’s statements.

In the same year, in Dünya Gazetesi, 22 April 2001, President of the

Employers' Association of Textile Industry Halit Narin also commented that:

“Getting into the CU was very harmful for us. We need to get this deal

reconsidered” (MÜSİAD pamphlet 2002).

Through the discourse, we can see that the flow of the critics about the CU

by TBP gets tenser as the implementation of the agreement prolongs. The

Chairman of Ankara Chamber of Commerce (ACC), Sinan Aygun, among others,

several times have explicitly stated his pessimistic views about Turkey's CU

Agreement signing, in many respects. For instance, in a press release, Aygun

said that how much benefits Turkey by the time of signing the CU hoped to

attain, in the meantime, nevertheless, the exact opposite results were obtained

(Ankara Chamber of Commerce, Press Release and Report 2002).

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Moreover, on his statements about the EU’s CU with Turkey, Aygun

expressed that Turkey’s exports to the EU was expected to explode and foreign

investment capital would flow from the EU to Turkey as well as Turkey would

benefit from PTAs which are singed between the EU and third counties;

however, what Turkey actually got is a loss of 77 billion dollars with the

implementation of the CU (Ankara Chamber of Commerce, Press Release and

Report 2002).

In addition, regarding competitiveness for Turkish industry, Aygun also

commented on the textile industry, thus:

"In our exports to the EU, 65 percent of which is accounted for the

textile sector, after the 1995 agreement the Turkish textile sector

expects to explode again the volume to the EU. However they were all

dishearten because the EU textile, with EU having special relationship

with the former East European countries, China, and India, are imported

from those countries” (Ankara Chamber of Commerce, Press Release

and Report 2002).

Furthermore, Aygun also complained that Turkey's 1995 document alone

with the EU, i.e, the CU, has an impact on Turkish manufacturing products as

well as duty-free imports. That is, the EU levied the clauses of the CU in favor

of the EU member states, and with non-EU member countries, the imposed

customs disregarded Turkish foreign trade’s position. To illustrate, Aygun said

that,

63

"the same goods Turkey export to Japan became 10 percent cheaper,

but we had to impose 20 percent tax as complied with the CU terms that

the goods became more expensive as EU goods. Therefore, in order to

be imported, Turkey currency is depreciated… Likewise, in the

pharmaceutical industry of the Patent Act, as the obligation by the CU...

the drug prices have soared, large foreign pharmaceutical companies in

the Turkish market dominance has increased. EU imports of Turkish

food and agricultural products are negatively impacted. Moreover, EU

with its CAP will adversely affect Turkish agriculture sector” (Ankara

Chamber of Commerce, Press Release and Report 2002).

These are some examples on how the CU works to the disadvantage of

Turkish economy. The Chairman, for instance, has pointed out some areas such

as agriculture and pharmaceutical products. The reason is, as he said that

prices went up in addition to the emergence of a vast number of foreign

companies, which are threats for local manufacturers. In another statement in

December 2002, again, the Chairman of the ACC strongly stated, “the CU, after

the crisis, should be revised” (NtvMSNBC.com, 16 December 2002). Here he

referred to the 2001-banking crisis in Turkey, which again increased Turkish

trade deficit as exports decreased and imports increased more than exports

(table 1), which is believed to be due to the depreciation of Turkish Lira. Hence,

the proportion of import covered by export increased to more than 77%, which

is similar to that of the 1994, a year before the CU was signed. That is to say,

the CU failed to expose as a beneficial economic arrangement for or a positive

influence on Turkish economy in time of the financial or banking crisis. We will

later check if this is also the case in the 2008 ESDC.

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Following the vulnerability of Turkish automotive industries as President of

MUSİAD, Murat Yarar pointed out under the impact of the CU; Jan Nahum, a

former manager of Koç Holding’s automotive industry, claimed that “during the

1990s when the CU is introduced, automotive industry died, consequently,

Tofaş, Otosan could not survive in the sector” (Türk 2004). The statement

reflects the dissatisfaction about the CU from one of the key industries for

economic development in Turkey.

As Chairman of the ACC seems to be very much concerned about the

implementation of the CU as well as its effects in Turkey, he did not only focus

on external effect of the CU but also the cost of carrying out the project as well.

The Chairman, in the same year, expressed that “Entered into the CU has a

major impact on the public budget” (Ankara Chamber of Commerce, Press

Release and Report, 17 October 2004) .

He explained that these effects occur in two ways, one of them is interest;

the other is customs duty revenue. He said that the total cost of these two

effects on the budget holds about 71 billion dollars, with the addition of 8.4

billion dollars as the total cost of trade diversion, then Turkey loss due to the

implementation of the CU reached 79.5 billion dollars.

“Annual real treasure when the CU together with interest reflected in

increased interest payments on domestic debt was $ 57.9 billion dollars…

As complied with the CU, customs duties have demonstrated a decline in

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GNP. This decline, taking place in the beginning of 1996 until the end of

2003 on budgetary cost, is calculated as 8.6 billion dollars. The loss of

customs duties for the next 10-year period, the total net present value is

estimated at $ 4.6 billion. As a result, the loss of customs duties of 13.2

billion USD over budget stands out” (Ankara Chamber of Commerce,

Press Release and Report, 17 October, 2004).

Furthermore, the Chairman also suggested that Turkey should return to a

FTA model instead of the CU. He underlined that the Progress reports about

Turkey’s performance took the road that was quite troublesome or even

impossible to overcome obstacles to full membership. In order to establish a

predictable and sustainable relationship with the EU, it is required to, among

other conditions, “cancel the CU Agreement” with the EU and instead sign an

FTA, Aygun asserts.

"Such agreements require autonomy in economic policies and

institutional harmonization… FTA with the EU, NAFTA or similar FTA with

Far East countries will be enabled as well. In other words, what is

important is that in these agreements which sectors will be covered will

be bilaterally determined, and certainly, Turkey can opt out any sectors

that may harm Turkish economy under bilateral negotiations… FTA with

the EU will continue until Turkey's full membership is reached. After being

a full member Turkey will re-enter the CU” (Ankara Chamber of

Commerce, Press Release and Report, 17 October, 2004).

In this press release, apparently, the Chairman has underlined the

shortcomings of the EU-Turkey’s CU. That is, the CU obscured Turkey’s

economic autonomy and hence, economic policy, to some extent. Moreover,

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that Turkey does not have a right in determining which sectors to have common

external tariff with the EU against third countries as well as which products

whose tariffs will be abolished with other EU member states encouraged a

reconsideration about a fairer economic arrangement. In his speech, for

instance, the Chairman of the ACC has suggested an FTA with the EU like that

with other economic zones signed by Turkey earlier.

In 2006, ten years after the CU was signed, TOBB again expressed their

attitudes about the CU in a President’s speech:

“The EU accession process is a new transformation process containing

both opportunities and risks for the real sector…Let us not forget that

undervaluing the opinions of the business community concerning the CU

process has caused many expensive mistakes.”24

With regard to a process of economic integration with the EU, the President

of TOBB suggested that Turkey has to set up systems that “will prepare our

companies for this process and reflect the sensitivities of our sectors to the

negotiations.25” While giving the opinions from the businesses about the CU as

an example for a public support to the government’s EU policy, he also

emphasized that such a system would be to the advantage of the government

24 M. Rifat Hisaarcıklıoğlu, President's Speech for 61st General Assembly of TOBB, 27 May 2006, Ankara.

Available at:

http://www.tobb.org.tr/Baskanimiz/Documents/Eng/konusmalar/genel_kurul_2006_english.doc.

25 Ibidem.

67

for the maintenance of the public opinion support, which will inevitably diminish

when serious difficulties arise.

Cem Duna, a former member of the Board of Directors of TÜSİAD at the very

beginning of the CU signature, said that, “We expect that the CU with the EU

will lower this number, and our external trade relations will be more open”

(Milliyet, 28 May 1996). The statement was made in a meeting with TÜSİAD

office in Europe as well as with the EU represetatives not long after the EU-

Turkey’s CU was realized. This shows a high expectation of, in particular,

TÜSİAD, for the CU, most importantly in terms of trade relations with the EU.

Thereupon Cem Duna highlighted again the issue by emphasizing in a seminar

in 2004 with regard to foreign trade deficit of Turkey.

“… Towards the development of the country, we give more importance

to the issue of foreign trade deficit” (TÜSİAD Press Release, 4 March

2004).

However, the outburst of the ESDC in 2008 has changed almost significantly

most TBP’s perceptions about the CU, including TÜSİAD. We can see at first

this change in attitude of the TBP with the discourse by the President of

TÜSİAD, Arzuhan Doğan Yalçındağ. She pointed out that during the crisis the

FTA that the EU has signed with third countries has affected Turkey negatively

(Euractive 2008).

68

3.2 The Customs Union and the TBP’s discourses since the

European Sovereign Debt Crisis

Another evidence is from a yearly report by TÜSİAD in 2008, where we

observe very obvious disappointing attitudes among those businessmen and

industrialists. They argue that there is the black side of the coin. That is,

Turkish industry is required to comply with the CU regulations in terms of

reforms and other economic activities. However, the EU did not provide the

required financial assistance that the Turkish industry remained to assume itself

the costs of the whole process. When the EU decides to sign any additional

trade agreement with third countries, Turkey is, unfortunately, not included in

the decision-making process and hence, faced substantial scathes.

“We TÜSİAD, in the last period are ever more skeptical about the EU’s

FTA process. We are observing the situation in which Turkey will face

losses under these FTAs signed unilaterally by the EU. Here is the

problem: Some third countries subject to FTAs do not take Turkey

positively. Turkey demanded a solution from the European Commission,

but unfortunately due to lack of an EU member status, Turkey cannot

make pressure on third countries” (TÜSİAD report, 30 April 2008).

By third countries, the industrialists here refer to those which are in the EU's

FTA agenda. TÜSİAD believe that there are preparations with South Korea,

Ukraine, ASEAN (i.e. Indonesia, Malaysia, Philippines, Singapore, etc.) for FTAs.

“If we cannot conclude the FTAs with these countries by the time, which

may be the locomotive for Turkey, we will see major damage in sectors

69

such as textiles, electronics, automotive, iron and steel, and chemistry.

We as TÜSİAD expect to see the EU to work closer on this matter and

we expect to resolve the CU terms and conditions of the fastest and

most efficient so that both sides will have benefits” (TÜSİAD report, 30

April 2008).

At the same period of time, Mustafa Koç, the Chairman of the Board of Koç

Holdings, one of the biggest business groups in Turkey, very strongly and

explicitly criticized the CU. He was also talking about the Turkish TV and other

electronic device manufacturers and the market loss that they encountered in

Europe during the crisis. Koç and Bülent Bulgurlu, the CEO of Koç Holdings

point out that while the manufacturers from Far East increase their market

share in Europe, Turkish manufacturers encountered with market share loss.

Bulgurlu also further pointed out that the CU was confronted with a fait

accompli in a short period of time.

The two Koç Holdings members also mention about the FTA between South

Korea and Europe. They argue that this agreement will provide convenience for

the Korean commodities to enter the EU with reciprocity principle. Nevertheless,

interestingly this is not the case for Turkey, a long time partner with the EU,

although Turkey is within the CU.

“We are in the CU but we have no right to speak. We have got post-

haste inside the Union without taking anything… Turkey is the only

country that enters the CU and not yet a member of the EU. As to their

interest we are from Europe, as not to their interest we are not from

Europe” (Ekinci 2008).

70

With the outburst of the ESDC, this discourse of Mustafa Koç later on was

believed to influence very much on the perceptions of TBP about the CU as well.

Meanwhile, such attitudes have been found in several other discourses by TBP

in the same year, when the European countries’ sovereign debts were on the

brink of crisis. Therefore, it is sometimes believed that that Turkey did not

become a full member of the EU is more beneficial for the development of this

country because it could avoid the consequences of the downturn of the

European economic health lately (Peker 2013, Kaya 2013, Quest 2012).

Consequently, at the same period of the publication a year later, that is, after

the eruption of the ESDC, we see a shift in the discourses by TBP. They no

longer speak more about the CU, neither their belief of the economic

arrangement being a bridge to speed the Turkish full membership to the EU. By

contrast, TBP draw our attentions to different economic destinations with

potentially lucrative markets in which trading partners are from other parts of

the globe, besides the traditional European countries. For instance, Turkey’s

former Ambassador in Washington, Faruk Loğoğlu, soundly talked about the

TTIPA as a synthesis of the EU, Turkey and the U.S with an emphasis on the

role of Turkey in the region,

“(Turkey’s) unique capabilities…are among the factors that enable

Turkey to play a useful and facilitating role in the ME, the Caucasus and

the Balkans. However Turkey’s activity and efforts alone will not be

enough to bring these complicated conflicts to resolution. We need to

connect Turkish energies to the capacities of the US and the EU. Such

71

synergizing should enhance the overall effectiveness of the Euro-Atlantic

community”(Loğoğlu 2008, 53).

In 2009, a yearly publication by TÜSİAD is another evidence for illustrating

their perspective about the issue. It is clearly stated in the publication that

Turkish industry and business association are encouraged to invest more in the

US (TÜSİAD publication, April 2009).

The more attractive the other markets are, as expected, the less favorable

the CU portrayed, most obviously after the ESDC. Again recently the matter of

the unfair terms in the CU regarding third country has been increasingly

criticized by the TBP. Among them, for instance, President of TOBB, Rıfat

Hisarcıklıoğlu has such statement:

“On the one hand the CU release the commodities movement, on the

other hand the EU requires a visa from seller of these commodities and

its logistic. Turkey has entered the CU without becoming a member of

the EU. Turkey has to adhere to the agreements those EU has been

made. The EU makes FTAs with third countries and they don’t care

about Turkey’s opininon... Unfortunately this is not fair for Turkey. This

is the reverse of the CU’s understanding” (Patronlar Dünyası, 22

February 2010).

Similar ideas have been shared by Ender Yorhancılar, Chairman of the Board

of the Aegean Region Chamber of Industry (EBSO), at the Crafts Automotive

and Supplier Industry Group Joint Committee Meeting in 2012, has pointed out

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that Turkey is so disadvantageous with regards to the CU as the EU unilaterally

signed additional FTA with the third parties.

“As we all know, the CU represents Turkey's EU agreements with third

countries. That is, Turkey is to comply with the terms of the CU and

levied common tariffs to third parties according to the EU standards.

However, Turkey is not included in agreements between the EU and

third countries. Therefore, we want our country to be included as soon

as possible in the process of the EU's FTAs with third countries CU”

(EBSO Chairman speeches, 24 February 2012).

Not only pointing out the flaw of the CU with regard to Turkish side,

Chairman Yorhancılar also illustrated the competitive disadvantage of the

automotive, iron and steel and electrical machinery industry as one of the

sectors negatively affected as a result of the CU.

“In particular, the EU has signed an FTA with South Korea, this will harm

Turkey's exports to the EU regarding automotive, iron and steel and

electrical machinery industry in terms of rising unfair competition as a

result of the CU” (EBSO Chairman speeches, 24 February 2012).

As a matter of fact, the above discourse is confirmed with the result of table

3 in chapter two which shows the Balassa index or the level of competitiveness

of Turkish industry. In that table, too, the Balassa index of the automotive,

machinery and transportation equipment industry exhibits that Turkey has

comparative advantage against both non-EU and the world’s markets, but has

not such competitiveness against the EU. This is exactly what the Chairman of

EBSO was arguing.

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Moreover, it is important to note that Turkey is the only non-EU member

state and at the same time a member of the CU with the EU. Therefore Turkey

experienced some disadvantageous conditions compared to other EU’s full

members. In other words, without having the same rights and status as an EU

member state, the CU created asymmetrical FTA markets, which are unfair for

Turkey with accession to EU’s partners. We have seen this from various

discourses of the TBP as well.

Considerably, one of the explanations for Turkey’s economy to experience

very quick recovery after the economic downturn created by the CU’s limitations

after the ESDC is the fact that Ankara has found confidence in new exporting

markets. That is, Turkey has enlarged its markets with many more trading

partners from other parts of the globe, from Africa, Middle East, to Latin

America and Asia through several FTAs such as those illustrated in the

diversification of trade in chapter two. Observed a bit more closely with both

the empirical data and the discourse help us understand that Turkish trade

dynamic was carried out mainly by the TBP after the event of the ESDC took

place in 2008.

To illustrate, Hikmet Tanrıverdi, president of the İstanbul Textile and Apparel

Exporters’ Associations (İTKİB), told Sunday’s Zaman, suggesting at the same

time that Turkey may also think of replacing the CU with an FTA with the EU.

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“Turkish businesspeople have long expressed discomfort with the CU

agreement, maintaining that it doesn’t work in Turkey’s favor, especially

because of the FTAs the EU has concluded with third countries. The

textile industry may be one of the potential victims…If Turkey is not

allowed to be a party to the FTA, then Turkey should think about getting

out of the CU” (Albayrak 2013).

This is exactly what appeared in the 2004 discourse by President of the ACC,

Sinan Aygun, where he suggested a cancellation of the CU and a formation of

an FTA between Turkey and the EU instead until Turkey achieves a full

membership status.

Furthermore, TÜSİAD President, Muharrem Yılmaz showed his concerns

about private sectors regarding the formation of an economic trading bloc. For a

developing country like Turkey, private sectors are believed to play very

significant roles in economic development process. Therefore, a concern about

private sector by TÜSİAD should be also taken into account to understand how

they relate this sector to the effects of the CU from say, TBP’s perspectives.

“Undertaken as part of Turkey's CU of the EU's preferential trade

regime, due to the EU and third countries, groups of countries that

conduct FTA is of great importance for the Turkish private sector”

(Federation of Industrial Association Report, 7 May 2013).

While analyzing the discourses of the TBP with the emphasis on their

perceptions about the CU, in addition, we find that most TBP are very much

sensitive and concerned about the unfair competition of Turkey with regard to

75

the CU and the third countries’ FTA solitarily signed by the EU. Moreover, the

fact that there have been rising comments on the dissolution of the Eurozone

with a prolong debt crisis also discourages trade condition between Turkey and

the EU.

One of the most recent discourses about this matter is by Nurettin Özdebir,

the Chairman of the Board of the Ankara Chamber of Industry. He spoke of the

recommendation about a revision of this economic arrangement, especially after

the ESDC. He explains that there has been increased risk of economic recession

in the EU and countries with open or secret methods resorted to protectionist

policies. In such an environment, then, Turkey needs to jealously guard her

domestic market. Market surveillance and control mechanisms should operate

effectively to the extent that the country will curb the entry of foreign or shoddy

goods in time of economic crisis.

“In addition, we believe that our customs policy should also be revised.

From third countries entering the CU to problems of free movement, all

lead to unfair competition for our domestic producers” (Özdebir 2012).

All in all, Chairman Özdebir affirms that the issue about the CU with respect

to the EU's free trade agreements with third countries should be revised, with a

more proper tariff or rate of customs duty policy. Moreover, this proposal is too

supported by Ahmet Zorlu, the Chairman of the Board of Zorlu Holdings, one

among the biggest business groups in Turkey. He justified for his unpleasant

perception about the CU by claiming that,

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“The main reason is discrimination: With current agreement, the EU sells

to us commodities how much ever they want. But Turkey is not on equal

terms with the EU regarding the rule of the game created by the CU. We

have the right to say to the EU that we have to be on equal terms”

(Aksam Gazetesi, 28 March 2013).

Nevertheless, it is not that the EU has not responded to any of the voices

and comments of the TBP. In May 2013, for instance, Jean Maurice Ripert, a

French diplomat and an ambassador of the EU to Turkey, in his statement, said

that both the EU and Turkey agreed on reaching out to the World Bank to

intervene in their CU agreement with regard to the EU-US trade deal.

“There are irritants on both sides on the functioning of the CU. We try to

find a solution. We, together with Turkey, asked the World Bank to

study comprehensively the functioning of the Customs Union with its

advantages and disadvantages” (Demirtaş 2013).

Indeed, Ripert since 2011 tried to convince that the EU had an attempt to

appease the situation. In one of his speeches in summer 2013, he explicitly

stated the timeline that the EU promised to follow with regard to the CU with

Turkey.

“Both sides claim that CU does not function well. We too would like to

find a solution. The special team is working on it. We will reach the

conclusions in autumn. After that we will decide what will be

done”(Demirtaş 2013).

Frustrated by lack of any solution in this front, TBP boldly asserted much

stronger criticisms with regard to the terms of the CU, the unfair competitive

environment for Turkey, lack of Turkish consent when the EU signed other FTAs

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with the third parties, etc. For instance, when asked about the branding issue in

Turkey, the Garanti Bank General Manager Ergun Özen said that Turkey has

gained some positive effects by the CU with the EU at the beginning, yet to

develop efficient business models at some stage, it requires the CU agreement

to be re-examined (Akarsu 2013).

Regarding the terms and clauses of the CU itself, recall that TOBB President

Rifat Hisarcıklıoğlu again harshly criticized the CU with somewhat similar

arguments from that which he made in 2010. He argued that Turkey has been

experiencing problems in logistics and transportation of the traded goods, and

plainly denounced the CU once again.

“This is not like the CU and free movement of all goods were once

claimed. Even there is the CU agreement, we still face quantitative

restrictions when we sell some properties. This is the problem of the

basic clause about the free movement of goods” (Patronlar Dünyası, 22

February 2010).

This claim by President Hisarcıklıoğlu has, to some extent, explained the

problem of trade deficit of Turkey. In other words, TOBB President accounted

the decrease in volume of Turkish exports to, say, the EU, for the quantitative

restriction on some certain products. That is, he claims that there is no proper

implementation of the free movement of goods clause in the CU terms between

Turkey and the EU.

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In the year of 2013, especially, a number of intensive meetings and

negotiations between the EU and the US on a FTA ignited the concerns of most

TBP and top economic officials. President of the Turkish Confederation of

Businessmen and Industrialists (TUSKON), Rızanur Meral, recently expressed his

perspectives about the TTIPA within the constraint that Turkey is a party of the

CU with the EU.

“This is a great danger for Turkey. In the future, the trade imbalance

between Turkey and the US would further increase… Now, the US

signed a FTA with the EU, Turkey also has foreign trade relation with the

US then we will also sign… In this context the requirements of the CU

agreement must be revised” (Albayrak 2013).

By exposing such attitude, President Meral suggested too a more active

diplomacy by Turkey to counter such a deal between the US and her CU’s

partner, the EU. In the same manner, TÜSİAD President, Muharrem Yılmaz, in

his speech in Washington, has expressed his weariness about the CU

agreement, which was first created between Turkey and the EU in order for

Turkey to speed up the accession process. He further argued that a party to the

CU without a TTIPA would cause damages to Turkish economy. He expects by

the time the TTIPA is concluded and came into force, Turkey will become a full

member of the EU, and then the picture will be better (Esmer 2013).

Indeed, it is argued that if there were only FTA with the EU, Turkey could

have flexibly adjusted its economy without following many regulations.

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However, as tied with the CU, Turkey has to align all her customs arrangements

according to the treaty,

“Despite Turkey has urged the EU to restructure the terms of the

current CU, or cancel the CU altogether and make a separate free trade

deal with Turkey…The CU has begun to work completely against Turkey.

Under these circumstances, to switch to a Free Trade Deal would be

more in line with Turkey’s interests” (Levent 2013).26

In addition to the unfair attitudes of the EU, technically speaking, Turkey also

faced asymmetrical terms and conditions with regard to the CU articles. Firstly,

the EU-Turkey’s CU covers only the industrial goods and the agricultural

products whose contents are, too, industrial. Traditional agricultural goods,

however, are not included in the CU. Secondly, as a result of being a CU

member, Turkey has eliminated all customs duties, tariffs, quotas, and other

similar taxes, not only from the EU, but also from the third parties countries

with which the EU had separate preferential agreements (Togan 2012, 22).

By the same token, Turkey cannot enter into any FTAs with countries that do

not sign an agreement with the EU. These facts, accordingly, triggered the

concerns of the TBP. With one hand being tied to the CU with the EU, Turkey

found it hard to be flexible in managing its trade balance. Surrounding with the

ESDC conditions, as one can understand from the discourses, the CU between

26 Quoted from Çağlayan’s speech during a meeting of automotive industrialists on March 27, 2013.

Source: Hurriyet Daily News.

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Turkey and the EU exposed its shortcomings so obviously that most TBP

increased their already existing negative perceptions about this EU-Turkey’s CU

even more.

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CONCLUSION

We have seen that most TBP have always been criticizing the CU since the

very beginning of the agreement. Those who did not express their negative

attitudes had hopes for the full membership of the EU based on the expectation

that the CU would finalize the accession process by increasing economic

standards in Turkey and the like. However, as we can see, lines of criticisms

keep increasing in our time-series analysis about the discourses of TBP. We also

observed that these excoriations reached their climax as there were continuous

and numerous discourses about the negative effects of the CU exposed clearly

after the ESDC. As a result of the crisis, moreover, the discourses shift Turkey’s

attention to the new alternative markets, where there have been improved

trade relations in the environment created by the 2008 ESDC. This has been

empirically demonstrated with actual data as we have analyzed.

Up until the ESDC in 2008 too we experienced a tremendous shift in the

competitiveness of some selected Turkish industry. While Turkey’s chemicals

and related products’ as well as automotive, machinery and transport

equipment sectors have competitiveness against the whole world and the non-

EU countries, nevertheless these sectors are not competitive against the EU. By

contrast, Turkey only has competiveness against the EU in raw materials but

not against the world, neither against the non-EU countries. This is why we see

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most TBP in these industries complain about the CU especially after the 2008

ESDC.

The Balassa index also indicates that Turkey has comparative advantage

against all parts of the world, including the EU and the non-EU countries in

food, drinks and tobacco, as well as mineral fuels, lubricants and related

materials. Regarding textile industry, what is important here is that Turkey has

comparative advantage against both EU and non-EU countries in comparison

with the whole world. Moreover, we also find out that the nature of trade

between Turkey and the EU changed promptly from intra-industry to inter-

industry as a result of the ESDC.

All in all, the ESDC is believed to be the reason for more excoriations by the

TBP as the severity of the crisis has had a sharp impact on Turkey’s economy as

a whole, and their trade and business associations’ market shares in particular.

More precisely the ESDC has created a second time an environment in which

the EU-Turkey’s CU could not function well. These are found both in the

empirical data and the discourses by the TBP.

Secondly, the perceptions of the TBP are also widely influenced by the on-

going debates and discussions about the possible dissolution of the euro-zone.

As TBP give great importance to the EU with regard to the fact that the EU

could be a large and potential, profitable market for exporting products from

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Turkey, now that the EU has got into a severe crisis, it is understandable that

the TBP lobbying for Turkey’s withdrawal from the CU is taken into

consideration. As the EU is in decline due to the ESDC, Euro-skeptics in Turkey

have been increasingly given reasons for Turkey to forget about being a

member of such a problematic community. Moreover, with the belief that

Turkey and the EU have been closely connected with each other as a result of,

most demonstratively, the CU, now that Turkey is under the discussion of

parting from the EU, implementing the CU, therefore, no longer makes sense

for the TBP.

The most obvious and practical justification for the TBP became less

motivated about the CU between Turkey and the EU after the ESDC is the effect

of globalization itself. The whole world seems to put their eyes more towards

the East and newly industrializing countries. Hence, it is also reasonable for

Turkey to open its markets to the larger and more promising destinations. That

is to say, with new alternatives available, Turkey can and has been easily

formed PTAs, FTAs, or any other trade agreements with new partners from

South East Asia, Latin America, Africa, and the Middle East.

In conclusion, since Turkish economy is growing very fast, Turkey needs to

take into account deliberately which economic strategies are good for the

country. One of them is the issue about FTAs between Turkey and other trading

partners. In the end, it seems that the CU between Turkey and the EU should

84

be revised so that the supposed benefits from such an economic arrangement

shall be realized, especially from the perspectives of the TBP.

85

APPENDIX A

URUGUAY ROUND AGREEMENT

Understanding on the Interpretation of Article XXIV of the General

Agreement on Tariffs and Trade 1994

Members,

Having regard to the provisions of Article XXIV of GATT 1994;

Recognizing that CUs and free trade areas have greatly increased in

number and importance since the establishment of GATT 1947 and today cover

a significant proportion of world trade;

Recognizing the contribution to the expansion of world trade that may be

made by closer integration between the economies of the parties to such

agreements;

Recognizing also that such contribution is increased if the elimination

between the constituent territories of duties and other restrictive regulations of

commerce extends to all trade, and diminished if any major sector of trade is

excluded;

Reaffirming that the purpose of such agreements should be to facilitate

trade between the constituent territories and not to raise barriers to the trade of

other Members with such territories; and that in their formation or enlargement

86

the parties to them should to the greatest possible extent avoid creating

adverse effects on the trade of other Members;

Convinced also of the need to reinforce the effectiveness of the role of

the Council for Trade in Goods in reviewing agreements notified under Article

XXIV, by clarifying the criteria and procedures for the assessment of new or

enlarged agreements, and improving the transparency of all Article XXIV

agreements;

Recognizing the need for a common understanding of the obligations of

Members under paragraph 12 of Article XXIV;

Hereby agree as follows:

1. CUs, free-trade areas, and interim agreements leading to the formation

of a CU or free-trade area, to be consistent with Article XXIV, must satisfy, inter

alia, the provisions of paragraphs 5, 6, 7 and 8 of that Article.

Article XXIV:5

2. The evaluation under paragraph 5(a) of Article XXIV of the general

incidence of the duties and other regulations of commerce applicable before and

after the formation of a CU shall in respect of duties and charges be based upon

an overall assessment of weighted average tariff rates and of customs duties

collected. This assessment shall be based on import statistics for a previous

representative period to be supplied by the CU, on a tariff-line basis and in

values and quantities, broken down by WTO country of origin. The Secretariat

shall compute the weighted average tariff rates and customs duties collected in

87

accordance with the methodology used in the assessment of tariff offers in the

Uruguay Round of Multilateral Trade Negotiations. For this purpose, the duties

and charges to be taken into consideration shall be the applied rates of duty. It

is recognized that for the purpose of the overall assessment of the incidence of

other regulations of commerce for which quantification and aggregation are

difficult, the examination of individual measures, regulations, products covered

and trade flows affected may be required.

3. The “reasonable length of time” referred to in paragraph 5(c) of

Article XXIV should exceed 10 years only in exceptional cases. In cases where

Members parties to an interim agreement believe that 10 years would be

insufficient they shall provide a full explanation to the Council for Trade in

Goods of the need for a longer period.

Article XXIV:6

4. Paragraph 6 of Article XXIV establishes the procedure to be followed

when a Member forming a CU proposes to increase a bound rate of duty. In this

regard Members reaffirm that the procedure set forth in Article XXVIII, as

elaborated in the guidelines adopted on 10 November 1980 (BISD 27S/26-28)

and in the Understanding on the Interpretation of Article XXVIII of GATT 1994,

must be commenced before tariff concessions are modified or withdrawn upon

the formation of a CU or an interim agreement leading to the formation of a CU.

5. These negotiations will be entered into in good faith with a view to

achieving mutually satisfactory compensatory adjustment. In such negotiations,

88

as required by paragraph 6 of Article XXIV, due account shall be taken of

reductions of duties on the same tariff line made by other constituents of the

CU upon its formation. Should such reductions not be sufficient to provide the

necessary compensatory adjustment, the CU would offer compensation, which

may take the form of reductions of duties on other tariff lines. Such an offer

shall be taken into consideration by the Members having negotiating rights in

the binding being modified or withdrawn. Should the compensatory adjustment

remain unacceptable, negotiations should be continued. Where, despite such

efforts, agreement in negotiations on compensatory adjustment under

Article XXVIII as elaborated by the Understanding on the Interpretation of

Article XXVIII of GATT 1994 cannot be reached within a reasonable period from

the initiation of negotiations, the CU shall, nevertheless, be free to modify or

withdraw the concessions; affected Members shall then be free to withdraw

substantially equivalent concessions in accordance with Article XXVIII.

6. GATT 1994 imposes no obligation on Members benefiting from a

reduction of duties consequent upon the formation of a CU, or an interim

agreement leading to the formation of a CU, to provide compensatory

adjustment to its constituents.

Review of CUs and Free-Trade Areas

7. All notifications made under paragraph 7(a) of Article XXIV shall be

examined by a working party in the light of the relevant provisions of

GATT 1994 and of paragraph 1 of this Understanding. The working party shall

89

submit a report to the Council for Trade in Goods on its findings in this regard.

The Council for Trade in Goods may make such recommendations to Members

as it deems appropriate.

8. In regard to interim agreements, the working party may in its report

make appropriate recommendations on the proposed time-frame and on

measures required to complete the formation of the CU or free-trade area. It

may if necessary provide for further review of the agreement.

9. Members parties to an interim agreement shall notify substantial changes

in the plan and schedule included in that agreement to the Council for Trade in

Goods and, if so requested, the Council shall examine the changes.

10. Should an interim agreement notified under paragraph 7(a) of Article

XXIV not include a plan and schedule, contrary to paragraph 5(c) of Article

XXIV, the working party shall in its report recommend such a plan and schedule.

The parties shall not maintain or put into force, as the case may be, such

agreement if they are not prepared to modify it in accordance with these

recommendations. Provision shall be made for subsequent review of the

implementation of the recommendations.

11. CUs and constituents of free-trade areas shall report periodically to the

Council for Trade in Goods, as envisaged by the CONTRACTING PARTIES to

GATT 1947 in their instruction to the GATT 1947 Council concerning reports on

regional agreements (BISD 18S/38), on the operation of the relevant

90

agreement. Any significant changes and/or developments in the agreements

should be reported as they occur.

Dispute Settlement

12. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated

and applied by the Dispute Settlement Understanding may be invoked with

respect to any matters arising from the application of those provisions of

Article XXIV relating to CUs, free-trade areas or interim agreements leading to

the formation of a CU or free-trade area.

Article XXIV:12

13. Each Member is fully responsible under GATT 1994 for the observance of

all provisions of GATT 1994, and shall take such reasonable measures as may

be available to it to ensure such observance by regional and local governments

and authorities within its territory.

14. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated

and applied by the Dispute Settlement Understanding may be invoked in

respect of measures affecting its observance taken by regional or local

governments or authorities within the territory of a Member. When the Dispute

Settlement Body has ruled that a provision of GATT 1994 has not been

observed, the responsible Member shall take such reasonable measures as may

be available to it to ensure its observance. The provisions relating to

compensation and suspension of concessions or other obligations apply in cases

where it has not been possible to secure such observance.

91

15. Each Member undertakes to accord sympathetic consideration to and

afford adequate opportunity for consultation regarding any representations

made by another Member concerning measures affecting the operation of

GATT 1994 taken within the territory of the former.

92

APPENDIX B

FREE TRADE AGREEMENTS WITH THE EU

Source: European Commission

Tables I and II list all preferential trade agreements that the EC has notified under either Article XXIV of the GATT or Article V of the GATS and where the GATT/WTO notification has not been overtaken by later notifications of successor agreements. Table III lists EPAs under preparation.

I. Agreements notified under GATT Article XXIV (Free Trade Areas and CUs covering Trade in Goods

Partners

Nature of agreement

OJ Reference

Date of entry into force

Date of

notification

to

GATT/WTO

Status of GATT/WTO examinati

on

Comments

European Community

EC Member States

(EC12)

Treaty of Rome 01.01.58 24.04.57 Examination concluded in 1957.

Subsequent accessions of

Denmark/Ireland/UK, Greece

and Portugal/ Spain were also

all notified and examined.

EC - Accession of

Austria, Finland and

Sweden (EC15)

C/241, 29.08.94 01.01.95 19.01.95 WTO consideration concluded.

EC – Accession of:

Cyprus, Czech

Republic, Estonia,

Hungary, Latvia,

Lithuania, Malta,

Poland, Slovakia,

Slovenia (EC25)

L/236, 23.09.03 01.05.04 26.04.04 WTO consideration

concluded.

EC – Accession

of Bulgaria and

Romania (EC27)

L/157, 21.06.05 01.01.07 27.09.06 WTO consideration ongoing.

93

CU

Andorra CU L/374, 31.12.90 01.07.91 25.02.98 Factual examination

concluded

Exchange of Letters.

Turkey CU L/35, 13,02.96 31.12.95 22.12.95 Factual examination

concluded

Decision 1/95 of the EC-

Turkey Association Council.

San Marino Customs Union L/359, 09.12.92 01.12.92 Interim agreement,

Pending entry into force of CU also signed on 16.12.91.

MFN exemption for

customs regime with Italy

recognised by the GATT

Havana Conference.

Free Trade Agreements (a) Europe

Faroe Islands Free Trade Agreement L/53, 22.2.97 01.01.97 19.02.97 Factual examination

concluded

Replaces earlier (1991)

trade agreement.

Norway Free Trade Agreement L/171, 27.06.73 01.07.73 13.07.73 Working Party report

adopted

Iceland Free Trade Agreement L 301, 31.12.72 01.04.73 24.11.72 Working Party report

adopted

Switzerland Free Trade Agreement L/300, 31.12.72 01.01.73 27.10.72 Working Party report

adopted

FTA also covered

Liechtenstein, which now participates in EEA.

94

The former Yugoslav

Republic of

Macedonia

Stabilisation and

Association Agreement (SAA)

L/084, 20.03.04

L/085, 23.03.04 C/213e, 31.07.01

01.05.04 23.10.01 Factual examination First applied concluded under Provisions

Interim Agreement.

Croatia Stabilisation and L/26, 25.01.05 01.02.05 20.12.02 Factual examination First applied

Association Agreement concluded under Interim Agreement.

Albania Stabilisation and L 104 01.04.2009 07.03.07(goods) Factual examination Provisions first applied

Association Agreement (24/04/2009) 07.10.09

(services)

concluded for trade in goods, under Interim Agreement.

L 300 on going for trade in services

(31/10/2006)

L 107

(28/04/2009)

Montenegro Stabilisation and L 108 01.05.2010 16.01.08(goods) Factual examination ongoing Provisions first applied

Association Agreement (29/04/2010) 18.06.10(services

)

for trade in goods and

services

under Interim

Agreement

Bosnia and Interim Agreement on L 186 01.07.08 11.07.08 Factual examination ongoing Interim agreement,

Herzegovina trade and trade related

matters

(15/07/2008) for trade in goods pending entry into force of

SAA

L 233

(30/08/2008)

L 169

(30/06/2008)

Serbia Interim Agreement on L28/2, 30.01.10 01.02.10 31.05.2010 Factual examination Interim agreement,

trade and trade related

matters

ongoing for trade in goods pending entry into force

of SAA.

95

(b) Mediterranean

Algeria Association Agreement L/265, 10.10.05 01.09.05 24.07.06 Factual examination not

started

Euro-Mediterranean

Agreement replaces co-

operation agreement

(L/263, 27.09.78) notified to

GATT on 28.07.76 (report

adopted 11.11.77)

Egypt Association Agreement L/345, 31.12.03 01.06.04 04.10.04 WTO consideration on-going. Euro-Mediterranean

Agreement; replaces co-

operation agreement

(L/266, 27.09.78) notified to

GATT on 15.07.77 (report

adopted 17.05.78)

Israel Association Agreement L/147, 21.06.00 01.06.00 20.09.00 Factual examination

concluded

Euro-Mediterranean

Agreement; trade provisions

initially applied under

Interim (1995) Agreement

Jordan Association Agreement L/129, 15.05.02 01.05.02 20.12.02 Factual examination

concluded

Euro-Mediterranean

Agreement, signed on

24.11.97

Lebanon Interim Agreement L/262, 30.09.02 01.03.03 04.06.03 WTO consideration not

started.

Euro-Mediterranean

Agreement signed on

17.06.02; replaces

cooperation agreement

(L/267, 27.09.78) notified to

GATT on 15.07.77 (report

adopted 17.05.78)

Morocco Association Agreement L/70, 18.03.00 01.03.00 13.10.00 Factual examination

concluded

Euro-Mediterranean

Agreement

96

Palestinian Authority Association Agreement L/187, 16.07.97 01.07.97 30.06.97 Factual examination not

started

Interim

Euro-

Mediterran

Agreement

Syria Co-operation Agreement L/269, 27.09.78 01.07.77 15.07.77 Working Party report adopted

17.05.78

Euro-Mediterranean

Agreement signed in

October 2004. It has not

entered into force yet.

Tunisia Association Agreement L/97, 30.03.98 01.03.98 23.03.99 Factual examination concluded Euro-Mediterranean

Agreement

(c) Others

Certain Overseas Countries and Territories (OCT/PTOM II)

Association Agreement 01.01.71 14.12.70 Working Party reported

adopted 09.11.71

Association of the Overseas

Countries and Territories, as

foreseen under Part Four of

the Treaty of Rome

Chile Association Agreement,

and Additional Protocol

L/352, 30.12.02

L/38, 10.02.05

01.02.03 (trade)

01.03.05 (full)

03.02.04 Factual examination concluded Association Agreement

signed in November 2002

Mexico Economic Partnership,

Political Coordination and Cooperation Agreement

L/276, 28.10.00

L/157, 30.06.00 L/245, 30.09.00

01.07.00 25.07.00 Factual examination

concluded

Decision 2/2000 on EC-

Mexico free trade area in

the context of global

agreement signed in

December 1997

97

South Africa Trade, Development and

Co-operation Agreement

L/311, 04.12.99 01.01.00 02.11.00 WTO consideration ongoing. Under an Exchange of

Letters, the provisions

establishing an FTA in

Goods are applied

provisionally from 01.01.00

pending entry into force of

the full agreement.

CARIFORUM States

(Antigua and

Barbuda, Bahamas,

Barbados, Belize,

Dominica, the

Dominican Republic,

Grenada, Guyana,

Haiti, Jamaica, Saint

Lucia, Saint Vincent

and the Grenadines,

Saint Christopher and

Nevis, Suriname,

Trinidad and Tobago)

Economic Partnership

Agreement

L/289, 30.10.08 Pending 16.10.08 WTO consideration ongoing. Succeeds the trade

provisions of the Cotonou

Agreement which expired

on 31 December 2007.

Date of signature: 15

October 2008 (Haiti

signed on 11

December 2009)

Ivory Coast Interim Economic

Partnership Agreement

L/59, 03.03.09 Pending 11.12.08 WTO consideration ongoing. Agreement on trade in

goods which succeeds the

trade provisions of the

Cotonou Agreement which

expired on 31 December

2007.

Date of signature: 26 November 2008

Cameroon Interim Economic

Partnership Agreement

L/57, 28.02.09 Pending 24.09.09 WTO consideration ongoing. Agreement on trade in

goods which succeeds the

trade provisions of the

Cotonou Agreement which

expired on 31 December

2007.

Date of signature: 15 January 2009

98

II. Agreements notified under GATS Article V (Regional Economic Integration Agreements covering Trade in Services)

Partners

Nature of agreement

OJ Reference

Date of entry into force

Date of

notification

to

GATT/WTO

Status of GATT/WTO examination

Comments

European Community

EC Member States

(EC 12)

Treaty of Rome 01.01.58 10.11.95 Factual examination

concluded

EC 15 Enlargement C/241, 29.08.94 01.01.95 19.01.95 Factual examination

concluded

EC 25 Enlargement L/236, 23.09.03 01.05.04 26.04.04 WTO consideration

concluded

EC 27 Enlargement L/157, 21.06.05 01.01.07 26.06.07 WTO consideration ongoing

Europe

Iceland,

Liechtenstein

, Norway

European Economic Area L/1, 03.01.94 01.01.94 10.10.96 Factual examination concluded EEA replaces

previous FTA

agreements with

these countries

(L/300-301,

31.12.72 and

L/171, 27.06.73)

which were notified

to GATT on

27.10.72, 24.11.72

and 13.07.73.

(reports adopted

on 19.10.73 and

28.03.74

99

Chile Association Agreement L/352, 30.12.02 01.03.05 28.10.05 WTO consideration

concluded

Mexico Economic Partnership,

Political Coordination and Cooperation Agreement

L/276, 28.10.00 01.10.00 21.06.02 WTO consideration not

started.

Decision 2/2001 of EC-

Mexico Joint Council, in context of EC-Mexico Economic Partnership, Political Coordination and Cooperation Agreement signed 8 December1997

CARIFORUM States

(Antigua and Barbuda,

Bahamas, Barbados,

Belize, Dominica, the

Dominican Republic,

Grenada, Guyana, Haiti,

Jamaica, Saint Lucia,

Saint Vincent and the

Grenadines, Saint

Christopher and Nevis,

Suriname, Trinidad and

Tobago)

Economic Partnership

Agreement

L/289, 30.10.08 Pending 16.10.08 WTO consideration on-going. Date of signature: 15

October 2008 (Haiti signed on 11 December 2009)

The former Yugoslav

Republic of Macedonia

Stabilisation and

Association Agreements

L/84, 20.03.04 01.04.04 06.10.09 WTO consideration not

started

Croatia Stabilisation and

Association Agreements

L/26, 28.01.05 01.02.05 13.10.09 WTO consideration not

started

Albania Stabilisation and

Association Agreements

L/107, 28.04.09 01.04.09 07.10.09 WTO consideration not

started

100

III. EPAs under preparation

Partners Nature of agreement Comments

EAC

(Burundi, Kenya, Rwanda, Tanzania, Uganda)

Interim Economic Partnership Agreement Agreement on trade in goods which succeeds the trade provisions of the Cotonou

Agreement which expired on 31 December 2007.

Negotiations on a more comprehensive Economic Partnership Agreement ongoing.

ESA

(Comoros, Madagascar, Mauritius, Seychelles,

Zambia, Zimbabwe)

Interim Economic Partnership Agreement Agreement on trade in goods which succeeds the trade provisions of the Cotonou

Agreement which expired on 31 December 2007.

Signed on 29 August 2009 by Mauritius, Seychelles, Zimbabwe and Madagascar. Negotiations on a more comprehensive Economic Partnership Agreement ongoing.

Pacific

(Papua New Guinea, Fiji)

Interim Economic Partnership Agreement Agreement on trade in goods which succeeds the trade provisions of the Cotonou

Agreement which expired on 31 December 2007.

Papua New Guinea signed on 30 July 2009. Fiji signed on 11 December 2009.

Negotiations on a more comprehensive Economic Partnership Agreement

ongoing.

SADC

(Botswana , Lesotho, Namibia, Mozambique,

Swaziland)

Interim Economic Partnership Agreement Agreement on trade in goods which succeeds the trade provisions of the Cotonou

Agreement which expired on 31 December 2007.

Botswana, Lesotho, Swaziland and Mozambique signed in June 2009.

Negotiations on a more comprehensive Economic Partnership Agreement ongoing.

West Africa

(Ghana)

Interim Economic Partnership Agreement Agreement on trade in goods which succeeds the trade provisions of the

Cotonou Agreement which expired on 31 December 2007.

Negotiations on a more comprehensive Economic Partnership Agreement ongoing.

101

APPENDIX C. TURKEY’S FOREIGN TRADE BY SECTORS 1999-2013 Source: Turkish Statistical Institute, Eurostat.

All sources Export Import Export Import Export Import Export Import

1999 1999 2000 2000 2001 2001 2002 2002

Chemicals and related products 1 234 778 6 846 332 1 397 489 8 083 680 1 480 503 6 775 274 1 580 672 8 660 577

Raw materials 183 224 146 802 147 744 189 072 176 001 125 501 156 221 151 622

Food, drinks and tobacco 2 123 260 1 095 809 1 958 560 1 198 519 2 097 287 1 053 900 1 980 451 1 407 770

Automotive, Machinery and transport

equipment 1 211 737 5 065 188 1 375 956 5 837 874 1 564 386 4 936 880 2 077 511 6 474 241

Mineral fuels, lubricants and related materials 1 605 235 1 245 916 1 781 993 0.1525 1 964 732 1 195 637 2 399 942 1 496 867

Textile 4 557 626 1 645 807 4 614 078 1 852 729 4 943 497 1 682 881 5 532 758 2 500 459

EU Export Import Export Import Export Import Export Import

1999 1999 2000 2000 2001 2001 2002 2002

Chemicals and related products 3,635 394 4,922 505 4,211 555 5,043 628

Raw materials 762 646 1,098 630 974 672 1,316 610

Food, drinks and tobacco 493 1,914 546 1,946 349 2,177 501 2,090

Machinery and transport equipment 10,321 3,478 16,520 4,240 9,438 5,519 11,650 6,906

Mineral fuels, lubricants and related materials 464 129 927 195 421 250 421 212

Textile 734 1,675 1,026 2,006 843 2,293.20 1,015 2,521.44

Non-EU Export Import Export Import Export Import Export Import

1999 1999 2000 2000 2001 2001 2002 2002

Chemicals and related products 339.6912432 6,845,938 283.93 16007.28725 351.5799646 12207.70169 313.4388152 13790.72731

Raw materials 240.4509715 146,156 134.56 300.1144681 180.6996484 186.7571893 118.7091316 248.5608609

Food, drinks and tobacco 4306.816116 1,093,895 3,587.11 615.888335 6009.417201 484.106604 3952.99694 673.5740349

Automotive, Machinery and transport equipment

117.4049794 5,061,710 83.29 1376.857127 165.7539911 894.5243213 178.3271295 937.4805728

Mineral fuels, lubricants and related materials 3459.558028 1,245,787 1,922.32 0.0007823 4666.821012 4782.546244 5700.573822 7060.695406

Textile 6211.586661 1,644,132 4,495.04 923.7136887 5860.878081 733.8571913 5452.974696 991.6789779

102

All sources Export Import Export Import Export Import Export Import

2003 2003 2004 2004 2005 2005 2006 2006

Chemicals and related products 1 926 341 11 238 032 2 556 412 15 134 359 2 818 310 17 477 334 3 480 913 19 599 125

Raw materials 188 850 225 783 226 348 245 549 296 435 249 465 309 946 258 459

Food, drinks and tobacco 2 739 391 1 691 939 3 427 469 1 977 347 4 393 446 2 207 638 4 520 648 2 537 185

Automotive, Machineryand transport equipment 3 118 511 8 141 311 3 913 354 10 362 811 4 865 027 12 209 659 6 005 610 14 315 315

Mineral fuels, lubricants and related materials 3 303 494 1 648 182 4 516 855 2 291 100 5 371 430 2 951 774 6 148 833 3 866 133

Textile 6 841 165 3 094 036 7 998 061 3 786 308 8 742 704 3 974 375 9 265 791 4 226 822

EU Export Import Export Import Export Import Export Import

2003 2003 2004 2004 2005 2005 2006 2006

Chemicals and related products 5,638 671 6,998 801 7,861 907 8,704 1,189

Raw materials 1,606 724 1,760 805 1,891 923 2,332 1,146

Food, drinks and tobacco 515 2,034 580 2,451 756 2,946 785 3,019

Automotive, Machinery and transport equipment

14,086 8,142 19,453 11,092 21,054 12,734 23,574 15,282

Mineral fuels, lubricants and related materials 655 194 1,108 306 1,602 474 1,589 928

Textile 1,112 2,759.04 1,402 3,081.96 1,574 3,221.10 1,805 3,594.60

Non-EU Export Import Export Import Export Import Export Import

2003 2003 2004 2004 2005 2005 2006 2006

Chemicals and related products 341.6709764 16748.18548 365.3060201 18894.33091 358.5179412 19269.38686 399.9210176 16483.70464

Raw materials 117.5901323 311.8543781 128.6068319 305.0295192 156.7607432 270.2759029 132.9098686 225.5315219

Food, drinks and tobacco 5319.205816 831.8283707 5909.429117 806.7510065 5811.437016 749.3679141 5758.787289 840.4056519

Automotive, Machinery and transport equipment

221.3907801 999.9153699 201.1696868 934.2599203 231.073775 958.8235267 254.755649 936.7435692

Mineral fuels, lubricants and related materials 5043.502931 8495.78218 4076.583788 7487.255278 3352.952413 6227.370468 3869.624094 4166.091597

Textile 6152.637129 1121.417587 5706.450095 1228.538832 5554.550954 1233.856413 5133.831498 1175.881112

103

All sources Export Import Export Import Export Import Export Import

2007 2007 2008 2008 2009 2009 2010 2010

Chemicals and related products 4 056 760 23 624 613 4 994 803 26 993 947 4 299 617 21 374 356 5 705 513 27 034 188

Raw materials 331 734 413 248 350 568 569 207 387 148 409 086 439 441 574 977

Food, drinks and tobacco 5 359 215 2 743 138 6 752 639 3 867 115 6 197 542 3 018 013 6 998 599 3 522 217

Automotive, Machineryand transport equipment 8 032 297 17 094 630 9 763 363 17 013 992 8 070 272 12 533 249 9 059 416 15 533 245

Mineral fuels, lubricants and related materials 7 649 672 4 357 985 9 852 462 5 037 458 8 238 942 3 763 793 8 961 460 4 711 327

Textile 10 804 633 5 316 839 11 323 038 5 093 383 9 559 339 4 345 440 10 932 274 6 058 596

EU Export Import Export Import Export Import Export Import

2007 2007 2008 2008 2009 2009 2010 2010

Chemicals and related products 9,152 1,355 9,200 1,592 8,527 1,342 10,639 1,815

Raw materials 2,666 1,228 3,311 1,013 2,413 643 4,317 1,097

Food, drinks and tobacco 991 3,054 1,173 3,135 1,128 2,929 1,740 3,310

Machinery and transport equipment 24,180 17,505 23,781 17,544 18,690 13,793 27,572 16,004

Mineral fuels, lubricants and related materials 1,522 719 2,687 1,076 1,829 417 2,552 403

Textile 1,998 4,135.32 1,964 3,821.76 1,614 3,048.12 2,099 3,492.00

Non-EU Export Import Export Import Export Import Export Import

2007 2007 2008 2008 2009 2009 2010 2010

Chemicals and related products 443.2648521 17435.139 542.9133748 16955.9967 504.2355664 15927.24013 536.2828351 14894.86924

Raw materials 124.4314598 336.5215223 105.8799229 561.9022405 160.442636 636.2152056 101.7932288 524.1356486

Food, drinks and tobacco 5407.885976 898.2114538 5756.72531 1233.529375 5494.275139 1030.390115 4022.183417 1064.113939

Automotive, Machineryand transport equipment 332.187645 976.5569828 410.5531022 969.7897739 431.7962619 908.6673691 328.5730569 970.5851571

Mineral fuels, lubricants and related materials 5026.065687 6061.175293 3666.714707 4681.652057 4504.615692 9025.883422 3511.543964 11690.63712

Textile 5408.094894 1285.714059 5764.388119 1332.73243 5923.363725 1425.613031 5209.502096 1734.993123

104

All sources Export Import Export Import Export Import

2011 2011 2012 2012 2013 2013

Chemicals and related products 6 742 722 33 244 587 7 308 244 31 700 962 5 564 713 25 263 376

Raw materials 460 091 792 126 462 074 663 132 337 228 515 868

Food, drinks and tobacco 9 181 614 5 007 390 9 929 534 5 249 995 8 030 732 4 138 289

Automotive, Machineryand transport equipment 11 126 283 21 291 819 11 856 605 20 683 742 9 323 267 17 176 842

Mineral fuels, lubricants and related materials 10 272 321 5 743 480 10 672 456 5 644 108 8 476 546 5 023 436

Textile 12 920 412 6 880 909 13 259 405 5 454 259 10 681 310 4 425 374

EU Export Import Export Import Export Import

2011 2011 2012 2012 2013 2013

Chemicals and related products 11,869 2,083 12,220 2,284 12,223.61 2286.203956

Raw materials 4,887 1,220 5,173 1,139 5,176.03 1138.243779

Food, drinks and tobacco 2,343 3,429 2,264 3,578 2,263.24 3579.554745

Machinery and transport equipment 32,587 17,663 31,404 17,891 31,392.60 17893.30943

Mineral fuels, lubricants and related materials 4,057 762 6,171 749 6,203.16 748.8722178

Textile 2,434 4,027.14 2,541 3,845.88 2,542 3844.148984

Non-EU Export Import Export Import Export Import

2011 2011 2012 2012 2013 2013

Chemicals and related products 568.0952006 15959.95518 598.0559487 13879.58074 455.2428751 11050.35949

Raw materials 94.14591037 649.2835058 89.32408904 582.2050284 65.15186706 453.2140763

Food, drinks and tobacco 3918.742672 1460.306314 4385.836442 1467.298641 3548.33938 1156.090359

Automotive, Machinery and transport equipment

341.4331763 1205.4475 377.550802 1156.097603 296.9893415 959.9589157

Mineral fuels, lubricants and related materials 2531.99936 7537.375635 1729.453307 7535.524302 1366.48931 6708.001103

Textile 5307.483994 1708.63413 5217.466129 1418.208417 4201.160811 1151.197371

105

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