Jump the Gap

How vital is Turkey’s involvement in the Transatlantic Trade and Investment Partnership (TTIP) for the future of the economy?

Approximately 45.2% of Turkey’s total exports ($68.6 billion) and 41.8% of its imports ($105.3 billion) was represented by trade with TTIP members as of 2013, meaning that the country’s involvement with the Partnership is crucial. The TTIP process is thus expected to be a game changer in global trade. Moreover, with the TTIP being described as the “NATO of the economy,” its members are some of Turkey’s main strategic and political partners in terms of its foreign, economic, and trade policies. However, what distinguishes Turkey from any other country wanting to be a part of the TTIP is the Turkey-EU Customs Union and its Model Partnership with the US. In fact, due to the Customs Union with the EU, Turkey will be directly affected by the TTIP not only in commercial, but also in legal terms. According to WTO rules and the Turkey-EU Customs Union, both sides are required to conclude parallel free trade agreements (FTAs) with third countries for the proper functioning of the Customs Union. Therefore, Turkey is willing to conclude a parallel FTA with the US. Otherwise, the absence of such a parallel FTA would not only create asymmetry in the Customs Union, but also contradict WTO rules since the EU and Turkey would apply different preferential regimes toward the US. Moreover, without such a deal, players in Turkey and the EU would not benefit from different market access opportunities in the US market. More specifically, Turkish operators would face unfair competition and less advantageous market access conditions compared to their EU counterparts in the US. Furthermore, this asymmetric structure always runs the risk of trade deflection for Turkey. The principle of free circulation of goods in the Customs Union allows goods imported from FTA partners to benefit from the preferential regime as well. Consequently, products originating in the US would be able to freely move into Turkey through the EU. On the other hand, within the margin of our relations with the US, an FTA between Turkey and the US, in conjunction with the TTIP, will establish an essential concrete legal framework for our economic relations based on the Model Partnership. Turkey strongly believes that an FTA will serve up mutual benefits since it is eligible to craft better market access and investment conditions for both sides through the establishment of a concrete legal basis for bilateral economic relations. Such an FTA will also mutually guarantee and consolidate bilateral market access requirements under legal terms, and that will increase predictability and transparency for bilateral trade. With regard to its prospective political ramifications, an FTA between a significant global player like the US, and a regional one like Turkey, will definitely contribute to prosperity and stability in the region. All in all, concluding a comprehensive FTA with the US would not only bring about dynamism and a new dimension to our strategic relations with the US, but also for our political and economic relations with the EU. Furthermore, the FTA is expected to create a similar effect that the Customs Union, which entered into force in 1996, had on the Turkish economy, considering its transformative potential and dynamics in line with modern global economic systems and needs.

In 2013, Turkey’s CAD rose by $16.5 billion over the 2012 figure. How is the Ministry working to reduce this gap in 2014?

The Turkish economy is still in a phase of transformation. The technological content of manufacturing and product diversity has been increasing, but it is a gradual and long-term process that requires a structural shift. Turkey faces difficulties in maintaining sustainable growth without increasing the CAD due to the import dependency of production and exports. Low savings rates and a high trade deficit are the underlying factors of this structural problem. In 2013, developments in the gold trade also played a significant role in the widening of the CAD. When non-monetary gold trade is excluded, the CAD decreased by 1.8% in 2013 compared to 2012. In addition, import demand was fuelled by domestic demand in 2013. In order to resolve this structural problem in the long term, the Ministry of Economy is developing policies to reduce the trade deficit with an overall perspective on the investment-production-export chain. The measures aim both to increase exports and to reduce imports and the growth rate of imports. The Export Strategy of Turkey for 2023, the Export-Oriented Production Strategy, the Input Supply Strategy, and the New Investment Incentive Scheme form the basis of our policies. By 2023, on the 100th anniversary of the Republic of Turkey, the strategic goal for foreign trade is to increase the share of Turkey in world merchandise trade and to expand merchandise exports to $500 billion. We aim to ensure sustainable growth in exports, improve Turkish exporters’ competitiveness, and increase domestic value-added in tradable industries by implementing new policies.

What is the Ministry’s strategy to further increase the economy’s FDI pull?

FDI is one of the most important factors in boosting the growth rates and welfare levels of countries by supporting investments in economies experiencing savings gap problems. On top of that, FDI provides host countries a healthy channel for technology transfer, new employment opportunities, and extended market access for local production. These expected outcomes encourage developing economies to attract more FDI. As you know, we have observed a decline in FDI flows in the world economy in recent years. According to UNCTAD’s 2013 World Investment Report, the negative influence of the current fragility and uncertainties in the world economy on FDI is forecast to continue over the coming years. And while the negative effects of global fluctuations have been perceived in many economies, Turkey has been able to manage these fluctuations successfully. According to the UNCTAD report, in 2012, Turkey ranked 24th in the world in attracting FDI, moving two places up on the previous year, also ranking first within western Asia and 14th among emerging economies. Having attracted cumulative FDI of only $15 billion prior to 2002, Turkey has received over $136 billion over the last decade. In accordance with Turkey’s 2023 targets, FDI as a share of Turkey’s GDP is currently close to 1%, with 3% being the target.