TRADE POLICY REVIEW BODY: REVIEW OF TURKEY
TPRB'S EVALUATION Back to top

The Trade Policy Review Body of the World Trade Organization (WTO) concluded its second review of Turkey's trade policies on 12 and 13 October 1998. The text of the Chairperson's concluding remarks is attached as a summary of the salient points which emerged during the discussion. The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including its domestic laws and regulations, the institutional framework, bilateral, regional and other preferential agreements, the wider economic needs and the external environment. A record of the discussion and the Chairperson's summing-up together with these two reports, will be published in due course as the complete trade policy review of Turkey and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed:  Argentina (1992), Australia (1989, 1994 & 1998), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991 & 1998), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991 & 1998), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994 & 1998), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

TRADE POLICY REVIEW BODY:   REVIEW OF TURKEY
CONCLUDING REMARKS BY THE CHAIRPERSON Back to top

The second Trade Policy Review of Turkey was conducted by the TPR Body on 12-13 October 1998. These remarks, prepared on my own responsibility, are intended to summarize the main points of the discussion; they are not intended as a full report. Details of the discussion will be reflected in the minutes. The representative of Turkey provided replies in the context of the meeting and undertook to supply further written replies within one month.

The discussion developed under four main themes: (i) economic background; (ii) trade and investment regime; (iii) specific trade measures; and (iv) sectoral issues.

Economic background

Members commended Turkey for its implementation of far-reaching structural and legislative reforms since its previous review. These reforms had contributed to the economy's sound annual average growth of almost 8% in the past three years. However, some members questioned the sustainability of this growth performance in the present macroeconomic and external framework, in which the large fiscal deficit had led to rapid inflation and high real interest rates. Members also raised issues regarding the importance of trade, including unrecorded "shuttle trade" with Russia in Turkey's external position, and sought information about the effects of the global financial crisis on the Turkish economy.

In response, the representative of Turkey said that the slowdown in economic growth in 1999, resulting principally from the three-year economic stabilization programme, would help rectify macroeconomic imbalances and reduce inflation. On the fiscal side, the primary budget surplus in the period January-August 1998 was six times higher than a year earlier and tax reforms, to be introduced from January 1999, would further increase revenues in the future. Wholesale price increases in 1998 were expected to be around 50%, as projected. Increases in workers' remittances had more than offset growth in the trade deficit, leading to a continuing improvement in the current account of the balance of payments.

As Turkey's trade with the Asian region was small, the current crisis had only a slight adverse effect on exports. Moreover, since exports to the Russian Federation, a much more important trade partner, were mostly basic commodities (food and textiles), the negative effects on Turkey of the devaluation of the rouble were expected to be slight; but there would probably be an increase in shuttle trade. The turmoil in financial markets and the consequent outflow of capital from developing countries had had few effects beyond a rise in Turkey's interest rates.

Trade and investment regime

It was recognized that the customs union between Turkey and the European Union had given a new impetus to the liberalization process in Turkey, going beyond its Uruguay Round commitments. The reforms had led to improved market access and a more secure trading environment for all investors and traders. Members raised questions and clarifications on the following:

1. the consistency between the customs union decision, which excluded agricultural products, and the WTO requirement on removing restrictions on "substantially all trade" between parties to regional agreements;
2. the effects of Turkey's adoption of common regulations in areas such as rules of origin, anti-dumping, SPS, and the introduction of quotas on textiles and clothing; and
3. the possibility of trade diversion as a result of the customs union.

4. Members also sought information on the Government's plans to speed up privatization of state-economic enterprises; and Turkey's intention to remove remaining restrictions on foreign direct investment.

5. In reply, the representative of Turkey stressed that, in principle, agricultural products were covered by the customs union. However, the two parties had agreed to postpone the free movement of agricultural products until Turkey's adoption of the Common Agricultural Policy. As yet, there was no fixed plan for this, which would be negotiated bilaterally. In the meantime, a new concessional trade regime for agricultural products, implemented from January 1998, meant that 93% of Turkey's exports to the EU (based on 1997 data) were now subject to duty-free treatment. Turkey was also in the process of aligning other trade regulations with EU provisions. He noted that anti-dumping procedures could only be aligned upon full harmonization; on the other hand, rules of origin had already been harmonized and Turkey would apply pan-European cumulation from 1 January 1999. Turkey would also adopt the EU's SPS measures gradually, as relevant products would be put into free circulation. He stated that the Customs Union Decision had required Turkey to apply the EU's clothing and textile arrangements, including applicable quotas. While the representative acknowledged that Turkey's imports from the EU had increased considerably during the first year of the customs union, trade with the EU was expected to reach a more balanced level eventually.

6. The representative also acknowledged that although progress on privatization had been slow, the new Government had intensified its efforts since June 1997. 46 state-owned enterprises were slated for privatization, the proceeds of which would be US$5 billion in 1998. It was Turkey's intention to include telecommunications and oil refineries in privatization.

7. The representative emphasised that Turkey's FDI regime was based on the principle of national treatment. Almost all sectors open to private investors were open to domestic and foreign investors alike. Nevertheless, restrictions on FDI were applied to some sectors on grounds of national security, public order, health and the maintenance of professional standards. Turkey had already simplified its screening and approval process, eliminating approval requirement for investments over US$150 million, and planned to revise its GATS schedule of specific commitments accordingly in the near future.

8. Specific trade measures

9. Members complimented Turkey for its implementation of important trade and trade-related reforms since its previous review. In the tariff area, the average level of border taxation had been cut from 27% in 1993 to 13% in 1998, while the Mass Housing Fund levy had been almost eliminated. Other liberalization measures included elimination of most export subsidies, simplification of customs procedures, the establishment of a competition authority, and the enactment of comprehensive legislation covering intellectual property rights, going beyond the TRIPs Agreement provisions in some areas. However, members raised concerns and questions on:

10. tariff protection higher than the common external tariff for a number of "sensitive" items; the increasing difference between MFN applied and bound duty rates; the introduction of agricultural tariff quotas; and the Government's plans to simplify the tariff system;
11. the automatic nature of the import licensing system;
12. the anti-dumping procedures applied by Turkey;
13. Turkey's state-aid system, including possible distortionary effects and high cost, and the system's conformity with Turkey's WTO obligations;
14. enforcement of intellectual property rights, and the date when Turkey's legislation will be brought in full compliance with the TRIPs Agreement;
15. Government procurement, including the law's Article on "force account"; treatment granted to foreign and domestic suppliers; channels for unsuccessful bidders to lodge complaints; and Turkey's intention to accede to the WTO Agreement on Government Procurement; and
16. local-content measures in the automobile sector and their consistency with Turkey's obligations under the TRIMs Agreement.

17. In response to these issues, the representative of Turkey said that imports of a limited number of products had been subject to higher duties than the common external tariff (CET). However, Turkey would gradually align these rates to the CET by 1 January 2001. He also noted that the existence of 242 distinct tariff rates should not be viewed as complex, in light of the large number of tariff lines (19,000) in the 12-digit Turkish tariff nomenclature. The tariff system would be evaluated with a view to simplification. Information on the tariff quotas granted by Turkey to the EU on certain processed agricultural products was provided at the meeting. He also noted that Turkey was not prepared to re-bind its tariff at this stage.

18. The representative of Turkey stated that the import licensing system was in full conformity with the WTO Agreement on Import Licensing and was applicable to imports from all sources. The system was automatic in the sense that, once applicants met established objective conditions, which were based on security and safety reasons and were intended to protect consumers or the environment, the licence was issued automatically.

19. The representative stated that Turkey's anti-dumping legislation was yet to be fully harmonized with those of the European Union. Once the process was complete, identical practices would be applied to third countries. Meanwhile, the parties were required to coordinate their actions toward third countries. The five-year "Sunset" clause of the Anti-Dumping Agreement would become valid as from 1995.

20. Turning to state aid, he noted that Turkey's system of subsides as a whole was in line with WTO rules and had been notified in July 1998. The export credit system implemented by Turkish Eximbank was in full conformity with the guidelines under the OECD Consensus. Accordingly, the Turkish Eximbank did not engage in any credit lines with operating losses.

21. On intellectual property rights, a new law covering unresolved copyright issues was being submitted to Parliament. Regarding patents, Turkey would protect pharmaceutical and veterinary products and their production processes at the latest on 1 January 1999. Regarding the protection of undisclosed test data on pharmaceutical and agricultural chemical products submitted for marketing approval, Turkish law was identical with the TRIPs Agreement. He gave details of provisions regarding trademarks and industrial designs. He also noted that in order to attain successful enforcement, Turkey was, inter alia, training judges, lawyers and police, disseminating information broadly to society and implementing deterrent legislative provisions.

22. The representative said that Turkey did not discriminate against foreign suppliers in government procurement. He also noted that unsuccessful bidders may lodge complaints against the application of the procurement procedures and the award of the contract with the procuring entity. Turkey, as an observer to the Committee on Government Procurement would consider acceding to the Agreement. Written answers would be provided to the questions on "force account commission" procedures and tendering by the Electricity and Power Generation Corporation.

23. The representative also noted that Turkish laws and regulations regarding foreign direct investment contained no clauses foreseeing local content requirement. Local content practices had been introduced voluntarily by the joint-venture partners and were therefore consistent with the TRIMs Agreement.

24. Sectoral issues

25. Members noted with concern the increased protection of the agricultural sector, while the manufacturing sector had been opened up to foreign competition. With reference to the Secretariat report, members noted that this sectoral imbalance could be a tax both on consumer welfare and on manufacturing and services that compete with agriculture for production factors. On agriculture, members raised questions on the following:

26. prospects of reversing the levels of tariff protection in agriculture (which had increased since the previous review from 35% in 1993 to 43% in 1998);
27. prospects of reducing Government interventions (total transfers amounted to 7.5% of GDP in 1997);
28. the scientific justification for the ban on imports of live animals and meat, and its consistency with Turkey's WTO obligations; and
29. the Government's intentions in the future multilateral trade negotiation in agriculture.

In reply, the representative of Turkey noted that, in line with the Agreement on Agriculture, Turkey had bound all tariff lines for agricultural products, and had applied customs duties to these products at or below its concessions. He also noted that Turkey had progressively scaled down export subsidies for its agricultural products; domestic support programmes had been reduced to three products and were in full conformity with their WTO obligations. Turkey was examining the introduction of a direct-income payment system. He noted that the ban on imports of live animals and meat was a temporary measure, related to the spread of foot-and-mouth disease. It was the Government's intention to terminate this measure once the risk of the disease no longer existed.

In contrast to the agricultural sector, the manufacturing sector had been substantially liberalized since the previous review. For example, as a result of the customs union, average border protection in the manufacturing sector had more than halved from 27% in 1993 to 12% in 1998.

On services, members commended Turkey for its contribution during the recent negotiations including the Information Technology Agreement, the Basic Telecommunications Services Agreement, and the Financial Services Agreement. Members asked about the Government's intentions to undertake further commitments with respect to its GATS schedule. Members also asked about the Government's plans to reform the financial sector.

In response to these issues, the representative of Turkey said that the Government was planning to include new sectors, such as research and development, in its new schedule of specific commitments during the next services negotiations in the year 2000. He gave further information on conditions for establishment in professional services and on maritime transport conditions. On the financial sector, he noted that Turkey had fully implemented its commitments. Over and above its commitments, Turkey had also, inter alia, increased its effectiveness of the supervision of the banking sector through more stringent enforcement of the capital adequacy requirement and of the ceiling on banks' net open foreign exchange positions.

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Conclusions Back to top

This review has shown the strength of Turkey's economic performance in the past few years, and the wide-ranging liberalization that has taken place in Turkey's trade policies as a result of the customs union with the European Union and the application of Uruguay Round provisions. At the same time, specific concerns have been expressed about the scope of the customs union and its effects on third countries, in particular in agriculture, textiles and certain regulatory areas. Some of these concerns run parallel to issues raised in the Committee on Regional Trade Arrangements. We have benefited from replies given by Turkey in this meeting, and look forward to receiving further replies in writing within the next month, as promised.

In conclusion, I should like to extend the thanks of the TPRB to Dr. Ege and his large and able team of colleagues from Ankara and Geneva, and I wish Turkey well in its further progress towards economic liberalization.

Finally, as you all know, our colleague Peter Tulloch is attending this meeting of the TPR Body for the last time as Director of Trade Policies Review Division. I should like to take this opportunity to thank him for his very active leadership and contribution to the success of the TPR Mechanism. Peter has served this Body since its establishment in 1989 and been Director of the TPR Division for the past seven years. During that time, he has ensured the smooth functioning of the Mechanism. I am sure you would all like to join me in wishing him every success in his future endeavours as Director of the Development Division. At the same time, I should like to welcome Clem Boonekamp, who has assumed Peter's duties as Director of the TPR Division. We look forward to his carrying on Peter's fine work in achieving the goals of the Mechanism.

After these remarks, I now declare the proceedings of the Review of Turkey closed.