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    Country profile: Turkey

    Note: This text provides brief details of the conditions foreign business will encounter in trade with Turkey. It is based on a WTO Trade Policy Review for Turkey, issued mid-September 2007. Readers wishing for deeper analysis should turn to the original Trade Policy Review available on the WTO website.

    Trade Policy Reviews are an exercise, mandated in the WTO agreements, in which member countries' trade and related policies are examined and evaluated at regular intervals. Significant developments that may have an impact on the global trading system are also monitored.

    A recently issued series of documents on Turkey's trade policies and practices comprising the WTO Trade Policy Review (TPR) report relatively high annual real economic growth in recent times, averaging 7.4% (2002-2006). The TPR describes relatively low tariff protection on non-agricultural goods but high protection for agriculture, tending to limit competition in that sector. For investment, it underlines moves to improve the investment climate, which have resulted in inflows of foreign direct investment (FDI), but notes continued FDI restrictions in a number of sectors, notably broadcasting, fishing, petroleum, mining, and financial services. Key industries continue to be dominated by state-owned enterprises (SOEs).

    Turkey's merchandise exports have more than doubled since 2002, with manufacturing contributing over 80% of the total, followed by agriculture, and mining products. More than half the country's exports are destined for the EU. Merchandise imports have also more than doubled since 2002, with manufactured goods representing about two-thirds, followed by mining, and agriculture products. Turkey is a net exporter of services, with a surplus of USD13.4 billion in 2006 (up from USD 7.9 billion in 2002).

    Trade partnerships include a customs union agreement (mainly on non-agricultural products) with the EU, a free-trade agreement with European Free Trade Association (EFTA), also mainly on non-agricultural goods, and nine bilateral agreements with: Bosnia-Herzegovina, Croatia, Egypt, Israel, Macedonia (FYR), Morocco, Palestinian Authority, Syria, and Tunisia. Turkey has also signed a bilateral trade agreement with Albania, which is due to enter into force soon, while a number of negotiations with other trade partners are ongoing. It is part of the Euro-Mediterranean Partnership, the Economic Cooperation Organization (ECO) and the Black Sea Economic Cooperation (BSEC). (See note below).

    Turkey's tariff on industrial products and the industrial components of processed agricultural products (imported from third countries) are based on the EU common external tariff. As a founding member of the WTO, it accords at least MFN treatment, i.e. the principle of non-discrimination, to all its trading partners:

    • Imports may be subject to various charges: customs duties (customs tariffs, and the Mass Housing Fund levy); and internal taxes (excise duties also known as the Special Consumption Tax, the VAT, and the stamp duty);

    • Tariff comprises ad valorem (97.9% of total lines) and non-ad valorem rates (specific, mixed, compound, and variable duties);

    • Simple average applied MFN tariff: 11.6% (2007):

    • Average applied MFN tariff in agriculture (WTO definition): 47.6%;

    • Average applied MFN tariff in non-agricultural products (WTO definition): 5%;

    • Some 46.3% of Turkey's tariff lines are bound.

    • Simple average bound tariff: 33.9% (Note: a gap between bound tariff, i.e. the agreed tariff that government commits not to raise, and applied tariff, i.e. the tariff actually charged, gives governments leeway to charge higher tariffs, and increases unpredictability for importers);
      Note: Additional to applied and bound tariffs, Turkey also maintains a statutory tariff, whereby the government can replace the applied MFN tariff rate by 150% of the corresponding rates of the statutory tariff, with a view to ensuring higher protection to local industries. Where tariffs are bound, and the 150% of the statutory tariff rate is higher than the corresponding bound tariff rate, the latter applies.

    • Customs tariffs in mining and quarrying: 0.3% (average);

    • Imports of electricity: duty free.

    For imports, Turkey maintains import licences to administer tariff quotas and on the grounds of human, animal and environmental health. Standards and technical regulations are in the process of alignment with those of the EU. For exports, its incentives system comprises duty and tax concessions, finance, marketing assistance, and promotion; there are twenty free zones. For government procurement, supplies of Turkish origin are eligible for price preferences of up to 15%.

    Agricultural policy is moving closer to that of the EU, with some of the potentially most production distorting measures being phased out and replaced by a direct support system. Manufacturing is a major beneficiary of state aid as well as various incentive schemes (duty and tax concessions in particular), and export credits and guarantees.

    Services are a key sector of Turkey's economy, in terms of contribution to both GNP and foreign exchange earnings. However, various state-owned enterprises (SOE) continue to dominate the sector, in some cases still operating under monopoly, or holding exclusive rights. An example is the Turkish Postal Administration, the regulatory and operational body for postal services, whose monopoly covers open and closed letters, postcards, and telegraphs for domestic or foreign destinations. There is no monopoly on fixed line, domestic long-distance, and international telecommunications and there are several operators in mobile telecommunications.

    In banking, of fifty banks operating in Turkey in 2006, twenty-one were private, twenty-one foreign, and the remainder either state-owned or under the Savings Deposit Insurance Fund (SDIF). All banks are allowed to carry out almost all types of financial activities. Foreign and domestic banks are subject to the same rules in terms of establishment, operation, and supervision. They can operate by establishing branches, subsidiaries or joint ventures with banks established or about to be established. Cross-border supply of banking services is not legally restricted.

    In insurance, of forty-six companies operating end 2006, twenty-nine had foreign capital, either directly or indirectly and foreign companies accounted for 32.3% of total premiums. All insurance and reinsurance companies, foreign or Turkish, are subject to the same legislation. Foreign firms may be established in Turkey only in the form of joint-stock companies, as mutual companies, or operate by opening branches. Cross-border supply of non-life insurance services is prohibited, subject to specified exceptions,

    In transport, the rail monopoly is held by SOE Turkish State Railways (TCDD) for both passenger and freight transport services. TCDD also operates the six largest ports, although the operating concessions for some smaller parts are currently under tender. Only Turkish flag ships are allowed to provide merchant maritime transport and passenger services, pilotage, and all other port services.

    State-owned carrier Turkish Airlines (THY) dominates Turkey's air transport, although a further nineteen air carrier companies exist. Airports are, in the main, state-operated although, as of 2007, concessions have been assigned to private firms for the operational rights of the main terminals of certain airports, including Atatürk (Istanbul) and Esenboğa (Ankara). Turkey has no plans to ease the restriction on foreign direct investment in the sector. Airlines with a majority of shares under foreign control are not permitted to carry passengers from one national point to another. Cabotage, i.e. transporting freight or passengers between two points in Turkey, is not open to foreign competition. Nor is cabotage permitted in road transport by vehicles registered in a foreign country.

    For tourism, the government grants a number of incentives and, among other things, defines zones with high potential, designates tourism centres and promotes Turkey abroad. There is no limitation on foreign investment in tourism

    According to the TPR, the Turkish government has institutionalised private sector participation In formulating, administering and coordinating the country's trade policy by setting up a WTO Coordination Committee, headed by the Undersecretariat for Foreign Trade (UFT), and including representation from the private sector and NGOs.

    Euro-Mediterranean Partnership (Barcelona Process): A wide framework of political, economic and social relations between the Member States of the EU and 10 Mediterranean Partners: Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestinian Authority, Syria, Tunisia and Turkey. Libya has observer status since 1999. One of the partnership's three main objectives, as defined in the 1995 Barcelona Declaration, is the "construction of a zone of shared prosperity through an economic and financial partnership and the gradual establishment of a free-trade area" (economic and financial chapter). This is to be achieved by 2010. The other two chapters are political and security and social and cultural.
    Economic Cooperation Organization (ECO): an intergovernmental regional organization established in 1985 by Iran, Pakistan and Turkey. Current members are: Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyz Republic, Pakistan, Tajikistan, Turkey, Turkmenistan and Uzbekistan. Among its objectives are: progressive removal of trade barriers and promotion of intra- regional trade; greater role of the ECO region in the growth of world trade; gradual integration of the economies of the ECO members states with the world economy; development of transport & communications infrastructure linking the ECO members states with each other and with the outside world; and economic liberalization and privatisation.
    Black Sea Economic Cooperation (BSEC): Established in 1992 in Istanbul (Bosphorus Statement), by Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey and Ukraine as a multilateral political and economic initiative. Headquartered in Istanbul. 2004, Montenegro and Serbia joined (as 'Serbia and Montenegro'). BSEC represents a region of some 350 million people with a foreign trade capacity of over USD 300 billion annually; after the Persian Gulf region, it is the world's second-largest source of oil and natural gas. It also has rich proven reserves of minerals and metals and is fast becoming Europe's major energy transfer corridor.

    A note on textiles and clothing

    Although the machinery and transport sector has been Turkey's largest export sector since 2004, textiles and clothing still constitute one of Turkey's largest industries, accounting for 4.2% of GDP, 13.3% of manufacturing output, 22.7% of total merchandise exports in 2006 (down from 34.4% in 2002) and employing about 22% of workers in manufacturing.

    Not surprising then that the "turbulence", in the words of the Turkish government, created by the termination all textile quotas and restrictions on 1 January 2005, has led Turkey to engage in textile and clothing initiatives within the Doha round negotiations on non-agricultural market access (NAMA) and the WTO Council for Trade in Goods (CTG).

    At the March CTG meeting, Turkey proposed that WTO prepare a study on the effects of the phasing out of quotas in the textile and clothing sector, looking at production, consumption, market share, technology and innovation and trade, indicating adjustment challenges and bottlenecks certain developing countries might face. China rejected the move on the grounds that it was too early to draw any conclusions from the end of the previous quota regime. It maintained - a view shared by a number of WTO members - that textiles and clothing should not be subject to special treatment and further stated hat it would oppose any move to make it so.

    In July, Turkey reiterated its proposal, saying the study it proposed should not be a threat to the multilateral trading system, nor should it have adverse effects on any WTO member. It added that it had detected significant support for the proposal - supporters include Tunisia, Jordan, the Dominican Republic, Honduras, El Salvador, Morocco, Japan, Mexico, the US and Egypt - and urged flexibility from other members. China, with support from India, Thailand, Pakistan, Vietnam and Hong Kong, China, re-stated its position, which it said would not change in the near future. A further attempt by Turkey at a CTG meeting in November met with similar results, with China this time suggesting it was time to stop raising the issue at CTG meetings.

    In recent times, textile and clothing production in Turkey has shifted towards higher-value-added finished products and ready-made clothing. MFN tariffs in the sector, as with leather goods, average 7.8%, with rates ranging up to 17%. It operates quotas for forty-four categories of textiles and apparel products from China, such as shirts, jerseys, T-shirts, and gloves. Turkey also has ninety-three definitive anti-dumping duties in force, mostly against China, followed by Chinese Taipei, India and Thailand, and mostly applied to textiles and clothing, base metal products, plastics and rubber articles, and other manufactures such as lighters and pencils. The majority are specific tariffs, i.e. charged as fixed amount per quantity such as USD 100 per tonne.

    Turkey, in accordance with its customs union agreements with the EU, used to operate a number of quotas and restrictions on imports of textiles and clothing. Like the EU, it phased them out on 1 January 2005 in line with commitments under the WTO Agreement on Textiles and Clothing (ATC) of 1995, except on certain textiles and clothing of Chinese origin.

    The Council of for Trade in Goods (Goods Council) oversees the working of the General Agreement on Tariffs and Trade (GATT). It has a number of committees dealing with specific subjects: market access; agriculture; sanitary and phytosanitary measures; anti-dumping practices; subsidies and countervailing measures; safeguards; import licensing; rules of origin; customs valuation; technical barriers to trade; and Trade-Related Investment Measures ("TRIMs Agreement"). Also reporting to the Goods Council are a working party on state trading enterprises, and the Information Technology Agreement (ITA) Committee.

    Goods Council: No accord on textiles and clothing (World Trade Net Business Briefing, March (2) 2007)


    Sources: BSEC, ECO, European Commission, ITC and WTO.