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RESTRICTED GENERAL AGREEMENT C/RM/G/42 20 December 1993 ON TARIFFS AND TRADE Limited Distribution

(93-2123)

TRADE POLICY REVIEW MECHANISM THE REPUBLIC OF

Report by the Government

In pursuance of the CONTRACTING PARTIES' Decision of 12 April 1989 concerning the Trade Policies Review Mechanism (BISD 36/403), the initial full report by the Republic of Turkey for the review by the Council is attached.

NOTE TO ALL DELEGATIONS Until futher notice, this document is subject to a press embargo. The Republic of Turkey C/RM/G/42 Page i

CONTENTS

Page

INTRODUCTION 1

1. ECONOMIC ENVIRONMENT 4

1. Wider Economic and Development Policies and Objectives 4

A Basic Objectives of Turkish Development Plans 4 B Economic Policies and the Structural Adjustment Programme in the 1980s. 4

2. External Economic Developments 6

A Major Trends in Balance of Payments 6 B Developments in Terms of Trade 7 C External Debt 7 D Recent Developments in Turkish Exchange Regime 8 Il. TRADE POLICIES AND PRACTICES 10

1. General Framework and Trade Policy Formulation 10 2. Trade policies 11 (a) Import policy 11 (b) Export policy 12

3. Other Issues Related to Foreign Trade 13

III. RELATIONS WITH EC, EFTA AND OTHER MAJOR TRADING PARTNERS 16

1. Turkey - EC Association 16

A The Association 16 (a) The Agreement 16 (b) The Additional Protocol 16 (c) Turkey's Application for Full Membership 17 (d) The Present Situation in Turkey - EC Association 17 C/RM/G/42 Trade Policy Review Mechanism Page ii

Page

B Implementation 18 (a) Fulfilment of Obligations Originating from the Additional Protocol 18 (b) Coordination of Economic and Financial Policies 20 (c) Turkey's Commercial Relations with the EC 21

2. Turkey - EFTA Free Trade Agreement 23

3. Turkey's Relations With Other Major Trading Partners 25

A North America 25 B Asia Pacific Region 25 C Central and Eastern European Countries 26 D Regional Cooperation Arrangements 26 (a) COMCEC 26 (b) Economic Cooperation Organization (ECO) 28 (c) Economic Cooperation 28

STATISTICAL ANNEX 30

List 1 Multilateral Economic And Commercial Agreements 30

List 2 Bilateral Trade And Economic Cooperation Agreements Signed by Turkey 30

Table 1 and Graph 1 Imports By Countries And Country Groups (1981-1992) 35-39

Table 2 and Graph 2 Exports By Countries And Country Groups (1981-1992) 40-44

Table 3 Imports By Sectors (1981-1992) 45-46

Graph 3 Commodity Composition of Imports (1980 and 1992) 47

Table 4 Exports By Sectors (1980 and 1992) 48-49

Graph 4 Sectoral Breakdown of Exports (1980 and 1992) 50

Graph 5 Terms of Trade (1980-1992) 51 The Republic of Turkey C/RM/G/42 Page 1

INTRODUCTION

1. The multi-party general elections in 1945 marked the beginning of democracy in Turkey. At that time, Turkish was underdeveloped by any standard. Turkey tried hard to reconcile the establishment of democracy, democratic rights and freedoms and democratic institutions with socio-economic development ofan underdeveloped country. Nevertheless, political rights and freedoms developed faster than the capability ofthe economy which sometimes failed to cater to disproportionately large expectations aroused by this situation.

2. In this respect the case of Turkey is rarely, if ever, seen in economic history. Industrial democracies of the West developed their and political regimes in a more balanced manner and in a much longer period of time. Even the Western process of economic and political development was not free from crisis, at times from upheavals. Most developing countries, especially the successful ones, restrict in varying degrees the use of political rights and freedoms with a view to accelerating capital accumulation and disciplining social forces.

3. It may be interesting to note that Turkey recognized in 1963 all trade union rights and freedoms including collective bargaining and right of strike at a time when Turkish economy was heavily agricultural and rural. and industrial sectors were mostly embryonic.

4. These constraints required governments to constantly search for consensus between various socio-economic groups which fact slowed down the growth performance. Unlike in other developing countries. Turkish economy was not able to fully enjoy "cheap labour" as an important element of comparative advantage.

5. Development economics and import substituting industrialization which were in fashion until the 1980's suited well the needs of the then Turkey. Backed up by the prevailing economic school of thought, Turkey followed an inward-looking economic strategy based on the protection of all segments of the economy. It is not surprising that this strategy ended up in crisis in the late 1970's.

6. The predicament of Turkey stemmed partly from its geographical location. Turkey was surrounded by the Balkan peninsula in the west, the Black Sea and the Caucasus in the north, Middle-East in the south and the west Asia in the east. Among immediate neighbours which share common borders with Turkey, none, but one country, is a member of the GATT.

7. Although in the aftermath of the two oil crises the of the oil producing countries increased, their trade regimes retained their non-transparent character.

8. The chronic Middle-East crisis which culminated to three wars inevitably led to the ordering of priorities in the countries concerned on the basis of security and at the expense of economic development. The Gulf war had a disruptive effect on the economies of the region. The countries which are supposed to be in transition to free market in the Balkans and the Caucasus are fighting either between or within themselves causing utter devastation and instability.

9. Contrary to Western or the pacific rim, this situationdoes not enable Turkey to develop economic relations within its region. As a result, Turkish economy is compelled to fight continuously the effects of entropy in the areas of the country bordering the regions in turmoil. C/RM/G/42 Trade Policy Review Mechanism Page 2

10. Under these conditions, Turkey attempted at launching various regional cooperation schemes. As will be explained in the text. the Black Sea Economic Cooperation, ECO and COMSEC embody as members the countries to the north, east and south of Turkey. Turkey considers that regional cooperation also helps the countries ofthe regions in question, especially those in transition, to gradually move towards a free market economy. Obviously, these efforts do not substitute for but support Turkey's intensive economic relations with the OECD countries in general and the EC in particular.

11. It is in this framework that the economic policies and trade regime of Turkey will be examined.

12. After facing severe economic difficulties especially in the second half of the 1970s, Turkey adopted a stabilization and reform programme in January 1980. representing a sharp break from earlier policies of market intervention, import substitution and reliance on public sector. The short-term objectives of the programme were the stabilization of the balance of payments, restoration of international creditworthiness, and reduction in rate.

13. However, the most important aspect of the programme was its long-term objectives which can be summarized as follows: liberalization of all spheres of economic life; - establishment of the free market system; - transformation of the economy from an inward to an outward orientation; - reducing public intervention; - encouragement of foreign investment; - enhancing the role of the private sector through privatization and limiting the weight of public enterprises in certain sectors.

14. These policy changes first addressed foreign trade, then financialmarkets and finally capital movements. Rigid controls over exchange rates, interest rates and prices were abolished, the import regime and the regulations concerning foreign direct investment were liberalized.

15. Trade policies since the adoption of the structural adjustment programme are geared to full liberalization of foreign trade, export development and the fulfilment of our obligations towards a customs union with EC.

16. Import liberalization which reversed import substitution policies and reforms in foreign exchange policies did not serve consumers only, but exporters as well.

17. Trade liberalization. which had started with the progressive elimination of quotas and prohibitions, reached in 1990 the goal of total abolishment of the import permit system. At the same time, all import formalities were greatly eased or reduced to the strict minimum. As a result, Turkey has become one of the rare countries which does not maintain any quantitative controls on imports.

18. Regulatory tariff adjustments were first introduced in 1984 and served the double objective of lowering the existing tariff rates in general, while compensating for the effects of the phasing out of quantitative restrictions. With the introduction of a new Import Regime in 1993, however, all additional taxes previously applied were abolished, except the charges of the Mass Housing Fund. The new practice has notably increased the transparency of the regime.

19. Policies aimed at export promotion were effective not only in increasing the volume ofexports, but also in shifting its composition toward manufactured goods. The Republic of Turkey C/RM/G/42 Page 3

20. Along with its general policy of further integration with the global economy, and with a view to establishing the customs union with EC in 1995, Turkey is determined to continue its liberalization efforts.

21. Turkey, being a Contracting Party to the General Agreement on Tariffs and Trade since 1951, also attaches great importance to the successful conclusion of the Trade Negotiations. It is her belief that this will strengthen the multilateral trading system and accelerate world economic growth. C/RM/G/42 Trade Policy Review Mechanism Page 4

1. ECONOMIC ENVIRONMENT 1. Wider Economic and Development Policies and Objectives A. Basic Objectives of Turkish Development Plans 22. Since the early 1960s, the medium-term development planning has been a feature of Turkish economic policy. The Constitution requires governments to submit to the Parliament Five-Year Plans and Annual Programmes. Plans and the related Annual Programmes are binding for the public sector and indicative for the private sector.

23. The First and Second Five Year Plans covering the period of 1963-1972, aimed at maintaining a stable and high growth rate of income and production. and improving basic infrastructure and import-substitution and state-led industrialization.

24. The Third (1973-1977) and the Forth (1979-1983) Five Years Plans aimed at increasing the level of income, speeding up industrialization, reducing the dependence on foreign resources, improving the balance of payments and make the economy self-sufficient.

25. The Fifth Plan (1985-1989) emphasized the integration of the Turkish economy with the world economy and the implementation of outward-oriented development policies. For this purpose, it gave priority to reduce state intervention. to implement a liberal foreign trade and foreign capital policy, to invest on infrastructure and housing investments and to take necessary steps to bridge inter-regional development gap.

26. The principal objectives of the Sixth Plan (1990-1994) are further liberalization ofthe economy through increased reliance on market forces and to shift resources from the public to the private sector and from consumption to saving and investment.

27. The strategy of the Seventh Plan (1995-1999) published in April 1993 emphasizes Turkey's increasing share in world trade and further integration ofthe Turkish economy with the global economy, increasing reliance on free market forces, raising productivity and increasing share of industry and services in total and industrialization taking into account the environmental effects.

B. Economic Policies and the Structural Adjustment Programme in the 1980s

28. Turkey had pursued an inward-oriented state-led growth strategy over the period 1930-1980 except for 7 years from 1946 to 1953. Usual policy tools were high tariff rates and quantitative restrictions on imports, an overvalued exchange rate to facilitate imports of intermediate and investment goods, and heavy state intervention in the product markets through direct price controls.

29. In the late 1970s, due to the inability of the system to cope with external shocks, the Turkish economy underwent a serious crisis.

30. Turkey entered 1980s with the backdrop of the 1970s, with deteriorating balance of payments, high rates of inflationnegative growth in real GNP and large public sector deficits. The mix of these problems was more intricate than those of the earlier decades. This complexity resulted partly from the international economic and political environment and partly from a re-thinking and re-shaping of development concepts. The Republic of Turkey C/RM/G/42 Page 5

31. In January 1980. Turkish authorities embarked on a major stabilization and reform programme, representing a sharp break from earlier policies. The objectives of the 1980 economic reforms can be summarized as follows: (i) to stabilize the balance of payments position; (ii) to encourage a more rational foreign exchange system by liberalizing import-licensing and to allow the market forces to determine the exchange rates; (iii) to adopt an export-oriented approach;

(iv) to encourage direct foreign investment and remittances by workers residing abroad;

(v) to improve the efficiency of state-owned enterprises (SOEs) by allowing them to raise their depressed prices and exposing them to increased domestic and foreign competition;

(vi) to enhance the economic weight of the private sector by encouraging privatization and by limiting the role of public enterprises.

32. To this end. rigid controls over exchange rates, interest rates and prices were abolished, the import regime and regulations on foreign direct investment were liberalized.

33. The adoption of the managed floating exchange rate system has become the crucial instrument in the trade liberalization programme since the early 1980's.

34. The policy reform and structural measures adopted from July 1. 1980 onwards, aimed to reduce the degree of financial repression, thereby increasing real growth by improving the size and allocation of domestic resources. The liberalization of interest rates brought about positive real interest rates during the 1982-1987 period. Positive real deposit rates played an important role in increasing savings. Financial liberalization and subsequent increase in interest rates contributed significantly to the stabilization of the economy.

35. As a result of financial reforms. the financial system has evolved and the efficiency of financial instruments improved. These developments helped the mobilization of domestic savings and provided the Central Bank with additional and more effective tools of monetary policy.

36. The stabilization and structural adjustment programme left price determination to market forces and reduced the scope of interventions. Corrections were made on basic prices such as the overvalued domestic currency, highly subsidized prices of state-owned enterprises, negative reai interest rates, and rigid real . 37. Import liberalization gradually reduced the effective protection ofdomestic production, exposed domestic industries to international competition and raised both the quality and the profitability of exports.

38. In recent years, the process of further liberalization of quantitative restrictions and rationalization of tariffs have continued. The new Import Regime which entered into force on 1 January 1993 constitutes an important step forward in this respect. Moreover, in order to achieve increased transparency, all import taxes and charges with equivalent effect were abolished. C/RM/G/42 Trade Policy Review Mechanism Page 6

39. These new policies aimed at export promotion were not only instrumental in increasing the volume of exports. but also in shifting its composition in favour of manufactured goods. The share of industrial products in total exports rose sharply from 35.9 per cent in 1980 to 75.3 per cent in 1985 and to a further 82.9 per cent in 1992 40. The adoption ofliberal and transparent foreign investment policies. coupled with the improved economic climate in the country in 1980s. have had a positive effect on the inflow of direct foreign investment. New regulations on foreign investment provided national treatment to foreign capital and guaranteed the transfer of profits. fees and royalties. as well as the repatriation of capital in the event of liquidation or sale. Turkey constitutes a secure environment for foreign capital. being a signatory to several bilateral and multilateral agreements and party to several organizations. 2. External Economic Developments

A. Major Trends in Balance of Payments

41. Turkey s strategy of reorienting its economy toward export-led growth resulted in substantial increases in the value and volume of exports during the 1980s. Increased exports of manufactured products constituted the major source of growth. Increased revenues from and other services also contributed to an improved current account performance. Despite substantial debt service during this period. pressure on foreign reserves was significantly reduced. as capital account regulary gave surpluses.

Recent Developments

42. After a relatively slow pace of growth from the late 1987 to mid 1990. merchandise exports picked up in the second half of 1990. As a result of the good harvest in 1990. agricultural exports recovered in the second half of the year and remained buoyant in 1991. The increase in experts of manufactured goods in 1990 slowed down in 1991. Exports of . electrical appliances and processed agricultural products grew vigorously both in 1990 and in 1991.

43. Mer-handise imports grew fairly strongly in 1989. accelerated by purchases of agricultural products to compensate for the poor harvest in that year. In 1990. the growth rate of import volume increased extraordinarily. reflecting the strong domestic demand. the real effective exchange rate appreciation. and import liberalization. In 1991. parallel to the decline in domestic demand. imports fell and the trade deficit shrunk to over USS7 billion from USS9.5 billion in 1990.

44. Despite the adverse effects of the Gulf Crisis on tourism receipts. the net income from invisible items and unrequited transfers reached USS7.6 billionin l991 increasing by US$668 millionover 1990.

45. As a consequence of these developments. current account recorded a small surplus in 1991.

46. In 1992. despite the uncertainties related to the Gulf War and the parliamentary elections of October 1991, economic activity recovered strongly from stagnation. The current account balance registered a deficit of US$943 million in 1992. This was due to the growing trade deficit and a 5 per cent fall in the net revenue from invisible services and unrequited transfers. Throughout 1992 the political climate in the and in the Balkans had an adverse effect on Turkish export markets. However, with the effect of the real depreciation of the TL in the first half of the year. exports of manufactured goods increased by 6.2 per cent in volume. and by US$1.626 billion in value in 1992. Exports of ready-wear and other products, as well as electrical appliances. cement. The Republic of Turkey C/RM/G/42 Page 7 and non-electrical machinery rose vigorously. Sales to , , the , and the were fairly robust. Trade with Eastern European countries and the former Soviet Republics also expanded. However, the poor harvest in 1992 had a negative effect on agricultural exports. 47. Parallel to the resumption ofgrowth, imports of investment goods increased by 1 1.9 per cent compared to 1991. Imports of crude-oil, machinery and motor vehicles showed an upsurge.

48. As for the invisibles, the temporary setback of 1991 ended and tourism revenue soared by 37 per cent, or to USS3.6 billion.

49. A net capital inflow of USS3.6 billion was registered in 1992 as compared to the net outflow of US$2.4 billion in 1991. These developments were due mainly to short term capital inflows and expansion in portfolio investment. Short term capital movements which had resulted in a net outflow of US$3 billion in 1991 turned about to record a net inflow of US$1.4 billion in 1992. In 1991 as a result of the impact ofthe Gulf War. the level of available credits provided by portfolio investments had declined. However, in 1992. portfolio investments picked up substantially. reaching a net amount of US$2.4 billion. representing a 272 per cent increase over 1991.

50. The net direct investment flows retained their rate of 1991 and registered a net inflow of US$779 million in 1992. 51. As a consequence of the above-mentioned developments. as well as the overall monetary and fiscal policies, officiaI reserves increased by US$1.5 billion in 1992. Thus. total official reserves went up to US$7.6 billion by the end of 1992 from the previous year's level of USS6.4 billion. In addition to the increase in official reserves. commercial banks reserves increased by US$1 .8 billion and reached USS7.6 billion in 1992. As a result. the total international reserves rose from US$12.3 billion in 1991 (equivalent of 7 months of imports in 1991) to US$15.3 billion (equivalent of 8 months of imports in 1992)

B. Developments in Terms of Trade

52. In the last three years. Turkey's terms oftrade improved on average. by 3.8 percent per annum. In 1990. import prices increased substantially (11 per cent) mainly due to the rise in crude oil prices. However. the overall increase in export prices has been higher than the overall increase in import prices. Qwing to an increase of 14.3 per cent in export prices. terms of trade improved by 3 per cent in 1990. Although the export prices declined in 1991 and 1992. the import prices declined even more. As a result. terms of trade went up by 1.4 per cent and 7 per cent in 1991 and 1992 respectively.1

C. External Debt

53. According to provisional figures. external debt stock of Turkey increased by 8.4 per cent to USS54.7 billion from its 1991 level of US$50.5 billion. The expansion of short term debt mainly accounts for this increase.

1As to the forcign exchange rates. the . that has appreciated in real terms in 1989 and 1990, depreciated by 6.4 per cent in 1991. Real depreciation ofTL has continued in the first half of 1992. However. in the second half of the year TL began to re-appreciate and returned to its level of December 1991 at the end of 1992. C/RM/G/42 Trade Policy Review Mechanism Page 8

54. 1992 provisional figures show the ratio of external debt service to total foreign exchange revenues as 27.5 per cent and the ratio of external debt service to export revenues as 54.3 per cent. These ratios were 26.8 per cent and 55 per cent, respectively in 1991. 55. According to provisional figures. the ratio of external debt service to GNP, which had been 6.9 per cent in 1991. increased to 7.2 per cent in 1992. 56. Turkey's borrowing strategy was to limit annual borrowings by the public sectortothe amount of principal repaid during the year and to refinancing high interest borrowing at lower current rates. Turkey's relative cost of borrowing has declined since 1987. with the exception of 1990 and 1991 due to the negative impact of the Gulf Crisis. 57. Turkey has continuously enlarged her investor base and sources of borrowing both in terms of markets and types of financial instruments. Since 1987. in addition to her traditional syndicated loan markets. Turkey has publicly issued bonds in German Mark. Eurodollar, and US Dollars and has sold securities in Japan. D. Recent Developments in the Turkish Exchange Regime 58. For many years after 1930. Turkey had had a rigid exchange control regime within the framework of the provisions of Law 1567 and a number of subsequent decrees and regulations attached to that Law. However. this regime has been considerably liberalized in the last decade and the level of liberalization is now consistent with the trend in world economy.

59. Following the promulgation of Decree No. 32 in August 1989 which liberalized current payments through banks. Turkish Lira was made convertible into foreign currencies for the payment of all international current payments, as accepted by the IMF in conformity with Article VIII ofthe Articles of Agreement.

60. Within the framework of Decree No. 32 and subsequent amendments to it. liberalization took place in the following areas:

Residents and non-residents can freely buy. sell and transfer foreign currencies. Residents may freely make payments for invisible transactions relating to all services to non-residents at home or abroad. Proceeds from invisibles accruing to residents may freely be used. Individuals residing in Turkey may accept foreign currency from non-residents for the services rendered in Turkey.

* Turkish residents may freely transfer capital in order to establish or participate in commercial companies in the form ofcash up to US$5 million through banks and special finance institutions. or in kind. according to the provisions set forth in the customs legislation.

* Residents may freely obtain credits in kind or in cash from abroad without tern limits, provided that they utilize such credits through banks or special finance institutions.

* The Central Bank and the banks which hold a " Exchange Intermediation Certificate" are authorized to import unprocessed gold. Export and import of unprocessed gold are effected outside foreign trade regimes through declarations to be made to Customs Administrations. The Republic of Turkey C/RM/G/42 Page 9

* In June 1991, an amendment to the Decree No. 32 permitted residents to issue, introduce and sell securities in financial markets abroad, and following a second amendment in March 1993, residents were entitled to purchase and sell all kinds ofsecurities traded (not necessarily quoted) in foreign financial markets abroad through banks, special finance institutions and intermediary institutions authorized according to the Legislation. March 1993 amendments enlarged the coverage of securities by adding "other capital market instruments" among the capital and money market operations to be carried out by residents and non-residents in both domestic and foreign markets.

61. Non-residents including investment companies and mutual funds abroad are now free to buy and sell securities and other capital market instruments (not necessarily quoted in the stock exchange) in Turkey through banks and intermediary institutions authorized according to the Capital Market Legislation and to have their incomes and sales proceeds transferred without any restriction. C/RM/G/42 Trade Policy Review Mechanism Page 10

II. TRADE POLICIES AND PRACTICES 1. General Framework and Trade Policy Formulation 62. Under the Turkish Constitution. power to legislate is vested with the Turkish Grand National Assembly (TGNA). which performs this function on behalf of the Turkish nation. 63. The TGNA exercises its parliamentary control by means ofparliamentary questions, parliamentary investigations, general debates, ministerial questioning and inquiries. 64. According to the Constitution, the exercise of the executive power devolves on the President and the Council of Ministers. 65. The President of the Republic. elected by the TGNA, is the Head of State. Both Acts of the National Assembly and Council of Ministers' Decrees are submitted to the President for signature. 66. The Prime Minister is appointed by the President of the Republic from amongst the members of the Grand National Assembly. The fundamental duty of the Council of Ministers is to formulate and implement domestic and foreign policies. The Council is accountable to the Parliament in the conduct of this duty. 67. Judicial power is exercised by independent courts functioning on behalfof the Turkish nation.

68. The Constitutional Court was established in 1961. Its role is to examine all laws in respect to conformity with the Constitution. The President of the Republic, the parliamentary group of the government or main opposition party members or one-fifth ofthe total member ofdeputies in parliament may directly file suit with the Constitutional Court.

69. It is important to note from the standpoint of trade policy formulation that with the advent of the current Government, which was established in June 1993. the Undersecretariat for Treasury and Foreign Trade (UTFT). the State Planning Organization and the newly formed Undersecretariat for Customs (which is separated from the Ministry of Finance and Customs) are brought under the Prime Ministry.

70. The Undersecretariat for Treasury and Foreign Trade (UTFT) which has primary responsibility for the co-ordination of foreign trade policy, prepares decisions on trade policy by collecting views of other ministries. agencies and subsidiary bodies. The Ministry of Finance, the Undersecretariat for Customs. the State Planning Organization (SPO), the Central Bank ofTurkey. theTurkish Eximbank and the Turkish Development Bank take part in the process of policy formulation and implementation. Other Ministries directly involved are the Ministries of Agriculture and Rural Affairs, Energy and Natural Resources. Health, and Environment.

71. The UTFT also implements the Legislation on the Prevention of Unfair Competition which regulates anti-dumping and countervailing measures applicable to imports.2

2Turkey has so far applied no countervailing duties, but initiated 36 anti-dumping investigations on product basis involving 22 countries. Of these, 13 were concluded without any measure and in 20 cases measures were imposed. Investigations for the remaining three cases are still in progress. (See document SCM/1/Add.28) The Republic of Turkey C/RM/G/42 Page 11

72. Customs procedures including the collection of all payable duties are performed by customs offices across the country. Payments for imported goods may be made through any bank performing exchange operations. 73. The Export Regime and Regulation are published as a Decree of the Council of Ministers. The UTFT. which is responsible for export policies may also issue in the Official Gazette communiqués regulating practical issues of implementation. 74. Incentive measures and guidelines for Turkey's exports are established in decrees and communiques that are published in the Official Gazette. The UTFT has the overall responsibility for the implementation and supervision of the incentive program.

75. In the process of consensus building, Unions of Chambers of Commerce, Industry and Exporters, other relevant business circles are also consulted. 2. Trade Policies

76. Three objectives shaped the trade policies of Turkey since 1980:

(a) Trade liberalization. (b) Export development, (c) Creation of a customs union with EC.

The combination of these objectives already resulted in many reforms.

(a) Irnport policy

77. The liberalization process which, after cautious first attempts. gained momentum and resulted in the complete abolition of quantitative import restrictions in 1990 caused no undue hardship to the economy. In this respect it would be useful to assess the previous situation marked with a long-lasting import substitution policy. In fact, for a considerable length of time, Turkey had resorted to many instruments of a close control on her imports. These had included outright prohibitions for economic reasons. quota limitations and non-automatic licensing (permit system). The reforms started with the progressive elimination of quotas (1984), prohibitions (1986), and import permit system (1990). At the same time, all import formalities (which included an Import Guarantee Deposit Scheme abolished in 1990) were greatly eased and finally reduced to the strict minimum.

78. As a result of these reforms. Turkey became one ofthe few countries which maintain practically no quantitative controls on imports.

79. Another aspect oftrade liberalization in Turkey concerned tariffs. Regulatory tariffadjustments were first introduced in 1984 and served the double objective of lowering the existing tariff rates in general, while compensating for the abolishment of quantitative limitations. This meant tariffication and dismantling of tariffs at the same time.

80. When changes were introduced, the Customs Tariffs previously determined by law kept their validity as the legal basis of all implementations. They reflected existing contractual commitments such as GATT concessions, preferences under the Protocol Relating to Trade Negotiations Among Developing Countries or bindings to the EC. The new rates were determined by the Import Regime which was adopted (and amended periodically) by the Council of Ministers. The implementation led C/RM/G/42 Trade Policy Review Mechanism Page 12 to lowering the general level of duties and creating new exemptions, thus permitting a free flow of imports and avoiding any unnecessary degree of protection. 81. As import figures show the outcome was spectacular. The annual import value which had an average of US$5 billion in the period 1975-1979 surged in 1980 and reached almost 8 billion. The subsequent developments in yearly averages are shown below.

Periods Imports annual averages in US$) 1981-83 9 billion/year 1984-86 11 billion/year 1987-89 15 billion/year 1990-92 22 billion/year The latest figure is US$23 billion for 1992.

82. The Turkish Government introduced a new import regime on 1 January 1993 which represented a very important step towards further liberalization and transparency. Turkey's obligations and commitments towards the completion of the Customs Union with the European Community as well as the free trade agreement with EFTA States have been duly taken into account in the preparatory process. All taxes with equivalent effect levied on imports were abolished with effect from 1 January 1993, by a law adopted in July 1992. They included the Stamp Duty, the Municipal Tax and the Infrastructure Tax.

83. Payments to the Price Support and Stabilization Fund were similarly terminated on the same date.

84. Consequently. the cost of importation into Turkey in terms of collectible charges within the new Import Regime now solely consists of the sum of Customs Duties and payments to Mass Housing Fund.

85. Given that the protection rate of 12 per cent ofthe products bound to GATT (which corresponds, only to 5 per cent of the total imports in 1991) is above the set levels, 28 per cent is par and the remaining 60 percent is lower than the bound levels, not much remains to do to achieve full liberalization in the near future.

86. As a matter of fact. the gradual phasing out of the fund system in the coming years will leave Turkey only with custom duties which, in turn. will enable us to conform to the Common Customs Tariffs of the EC. (The chapter on relations with EC covers more details concerning the Customs Union). (b) Export policy 87. In the last decade, Turkey has taken significant steps forward towards opening up the economy and has achieved important progress in terms of the volume and composition of its exports. The Republic of Turkey C/RM/G/42 Page 13

88. This policy encouraged regular and steady export-oriented production of goods instead of maintaining a trend of the past which had reflected the tendency to produce primarily for the domestic market and export the quantities that were not consumed locally. 89. Apart from import liberalization which put an end to import substitution, reforms in foreign exchange policies served the interests of both exporters and importers. New possibilities including export credits. export insurance, pre-shipment credits. recourse to fortfaiting, leasing, transit trade, reexportation, offset or hedging were either introduced or authorized and for each ofthem an institutional basis was created. All export formalities including those applying to new instruments were reduced to the strict minimum. Efforts were also made to create marketing conditions that would not provoke anti-dumping or countervailing measures. But the policies of importing countries still harmed Turkish exports of textiles, and products, chemicals as well as some electrical and electronic devices.

90. As a result of the measures introduced, in 1992, total exports have reached a level nearly five times higher than that of 1980. The share of industrial products in total exports rose from 36% to 83% while the share of agricultural products fell from 57% to 15%, and mineral products from 7% to 2%. In the same period. the number of countries as trading partners increased to 130 and exportable products exceeded 4000. 91. In the composition of Turkeys exports, textiles and have the largest share (35% in 1992). Other principal merchandise groups are iron and steel products (11%), products of the industry (9%), electrical machinery and equipment (4%). hides and skins (4%).

92. As to the trend. the annual growth rate of Turkish exports which was 11.4% in 1990 fell to 4.9% in 1991 and recovered to 8.3% in 1992.

93. Like most developing countries. Turkey attaches great importance to the formulation and implementation of the export incentive policy with emphasis on improving GATT disciplines relating to all subsidies and countervailing measures that affect international trade.

94. Being a signatory of GATT Subsidies Code since 1985. Turkey has taken steps towards revising her incentive system downward to generally accepted levels by abolishing various incentives. In order to attain structural change. export incentives in the first years of the stabilization program had been oriented towards direct cash grant measures such as Tax Rebate or the Resource Utilization Support Premium. As the desired structural change was attained, the above-mentioned incentive measures were abolished in 1988 and 1986 respectively, and Turkey shifted from direct cash grants to a system of export credits and insurances.

95. The incentive measures currently in force aim to eliminate the adverse effects of high domestic inflation and the shortage and high cost of financing.

3. Other Issues Related to Foreign Trade

Competition Policy

96. Along with its general policy of further integration with the global economy, an appropriate policy and legal framework for competition is a major concern of the Turkish government in recent years. In this context, a draft Competition law (which is also known as the Anti-Cartel Law) is prepared in order to promote a greater degree ofcompetition in the domestic market by prohibiting arrangements between enterprises which restrain or distort competition. The Draft Act includes a non-exhaustive C/RM/G/42 Trade Policy Review Mechanism Page 14 list of forbidden practices as well as procedural rules and the foundation of an independent authority which will be in charge of controls and arrangements for enforcement.

Foreign Investment Policy 97. Within the framework of globalization, the Turkish Government attaches great importance to foreign investment. It pursues a liberal policy in this field. 98. The Law concerning the encouragement of foreign capital provides foreign capital the same rights and obligations as domestic capital, and guarantees the transfer of profits, fees and royalties, and the repatriation of capital in the event of liquidation or sale.

99. In addition to the guarantees provided by the national legislation, Turkey provides a secure environment for foreign capital as a party to several bilateral and multilateral agreements and organizations, such as OECD Codes, agreements for the reciprocal promotion and protection of investments with various countries agreements for avoiding double taxation and Convention on ICSID and MIGA for the settlement of disputes and investment guarantees.

100. All fields open to Turkish private sector are also open to foreign participation and investment; and there is no limitation in terms ofthe equity participation ratio for foreign shareholders. With respect to the employment offoreigners. there are no restrictions for the assignment ofexpatriates as managers and technical staff. 101. At present there are more than 2,500 enterprises in operation with foreign partnership which produce around 15% of the total industrial output in the country.

Intellectual Property Rights

102. One of the areas which Turkey gives priority in recent years is the protection of intellectual property rights.

103. A new Draft Patent Law was prepared for providing an appropriate framework for the protection of inventions and for the procedure of granting of patents and utility models. The Draft Law is in the Parliament together with a draft Patent Institute Law.

104. The Draft Law includes provisions for the utility model certificates; examination system as to novelty, inventive step and industrial applicability; publication and objections made by third parties; protection terms; employee inventions; contractual and compulsory licences; infringement of patent rights and applicable punishments; industrial property rights etc.

Services

105. Turkey, as a member of GATT and OECD, is continuously taking further steps to liberalize her policies in the services sector. The paves the way for full membership through a customs union and provides institutional mechanisms and procedures for the conduct of relations between Turkey and the EC. 106. Although she had enjoyed a general derogation from the liberalization obligations under the OECD Codes until 1986, substantial liberalization measures have been taken since then and the number of reservations was reduced to sixteen. Turkey now intends to withdraw a significant number of the The Republic of Turkey C/RM/G/42 Page 15 remaining reservations and revises her position vis-a-vis the Code ofLiberalization ofCurrent Invisible Operations as a result of the recent amendment which extends national treatment. 107. On the other hand, Turkey, actively participating it Uruguay Round GATS negotiations, submitted to the Secretariat in March 1991 her initial commitment list with regard to "market access" and "national treatment" provisions of the GATS and revised this offer in March 1992 by including additional sectoral commitments for transportation and telecommunication services. This offer is now being revised once again by taking into consideration the provisions in the Financial Sector Annex and the "Understanding", in order to include new sectoral commitments. Environment 108. Turkey's environment policy is inspired from the Constitution and based on Environment Act of 1983. 109. The law on Environment which also includes the "polluter pays principle", stipulates technical arrangements which is enforced through regulations such as Regulation on Air Quality Control. Regulation on Water Pollution Control. Regulation on the Determination of Crime and Penalties to be charged to ships and other sea vessels, Regulation on Environmental Impact Assessment and Regulation on the Control of Medical Waste. etc.

110. Turkey is a party to a number of international environmental agreements and protocols, i.e. the Vienna Convention on the Protection of the Ozone Layer and the Montreal Protocol on Substances that Deplete the Ozone Layer.

111. A number of other instruments such as the Basel Convention and several amendments to the Montreal Protocol are on the agenda of the Turkish National Assembly for ratification. C/RM/G/42 Trade Policy Review Mechanism Page 16

III. RELATIONS WITH EC, EFTA AND OTHER MAJOR TRADING PARTNERS 1. The Turkey - EC Association

A. The Association 112. The Turkey-EC Association Agreement of 1963 is now the oldest formal relationship that the EC has with a "third country". In nearly 30 years since the Association Agreement was signed in 1963, the two sides developed considerably, often in directions not foreseen by the original signatories. The Additional Protocol of 1970 still provides a valid framework for the actual conduct of relations between the EC and Turkey. (a) The Ankara Agreement

113. Turkey applied to the EEC on 13 July 1959, only a year after the Treaty establishing the Community took effect. After four years of negotiations, the Ankara Agreement was signed on 12 September 1963 and entered into force on 1 December 1964 creating an "association" between Turkey and the EEC.

114. The Ankara Agreement paves the way for fulI membership and provides institutional structures and procedures to conduct relations between Turkey and the EEC. The agreement aims "to promote the continuous and balanced strengthening of commercial and economic relations, while taking full account of the need to ensure an accelerated development of the Turkish economy and to improve the level ofemployment and the living conditions ofthe Turkish People". In order to attain these objectives, the Agreement envisages the graduaI establishment of a customs union through three consecutive stages: (i) preparatory stage, (ii) transitional stage and (iii) final stage.

115. As the process advances far enough, in line with Article 28 of the Ankara Agreement, parties, i.e. the Community and Turkey will examine the possibility of Turkey's accession to the Community. Article 28 of the Ankara Agreement thus envisages Turkey's full membership to the Community.

116. The Ankara Agreement established the Council of Association as the main organ of the Association. The Council of Association created three organs: The Association Committee, the Customs Cooperation Committee and the Joint Parliamentary Commission.

117. Currently, the Council of Association is seeking to create an Economic and Social Committee in order to increase cooperation and dialogue between economic and social circles of the Community and Turkey. (b) The Additional Protocol

118. In May 1967, two years before the end of the preparatory stage, Turkey applied to the Community to initiate the transitional stage. Since the Ankara Agreement provided only the framework of the Association, a more detailed agreement was necessary for determining the terms and conditions for the implementation of the transitory stage.

119. The Additional Protocol was signed on 23 December 1970, and entered into force on 1 January 1973, although its commercial provisions were already being implemented as of 1 September 1971. The Republic of Turkey C/RM/G/42 Page 17

120. The Additional Protocol, as an executive arrangement for the implementation of the Ankara Agreement, envisages 22 years for the transitional stage. It lays down rules for the free circulation of industrial goods as well as persons, services and capital. In accordance with this Protocol, free movement of agricultural products between the Community and Turkey is to be achieved through the gradual adaptation of the Common Agricultural Policy of the Community by Turkey also in 22 years. The Protocol prescribes the harmonization of financial and commercial policies of the two parties. 121. At the end of the transitional stage, a customs union is to be established between Turkey and the EEC as stated in the Ankara Agreement. 122. On the date of the Protocol's entry into force, the Community abolished all the customs duties and quantitative restrictions on industrial goods originating from Turkey, with certain exceptions stipulated in the Provisional Protocol. Turkey enjoyed a reduction on the customs duties applied to specific agricultural products within the limits of tariff quotas. 123. The main obligation that Turkey assumed was to gradually abolish all customs duties and quantitative restrictions on industrial goods from the Community within 12 years. With regard to the less competitive goods. this period was extended to 22 years.

124. The Additional Protocol has provisions for safeguard measures that can be implemented in case of the economic difficulties which may arise in Turkey or in the Community.

(c) Turkey's Application for Full Membership

125. The implementation of the comprehensive economic stabilization programme adopted on 24 January 1980 enabled the Turkish economy to reactivate the process of the customs union. The desire to preserve the values of a democratic and secular society drew Turkey closer to Europe after the 1983 general elections. And Turkey applied to the European Community for full membership on 14 April 1987.

126. The 'opinion' of the EC Commission which was released on 5 February 1990 concluded that the Community's future relations with Turkey should be developed on the basis of the existing Association Agreement which enshrines Turkey's right for full membership.

127. In the 'opinion' series of substantial measures were recommended for increased cooperation within the framework of Ankara Agreement. The measures would focus on the completion of the customs union, intensification of financial cooperation, promotion of industrial and technological cooperation as well as strengthening of political and cultural links.

(d) The Present Situation in Turkey-EC Association

128. Turkey's application for membership to the Community on 14 April 1987 marks a new phase in relations between Turkey and the Community. Following Turkey's application, two Ad-hoc Committee meetings were held at the end of 1988. Turkey declared its readiness to implement a five-year timetable for tariff reductions during those meetings. After the implementation of this timetable, in 1993, Turkey expressed its political will for the completion of the customs union.

129. Pursuant to the approval of its opinion in February 1990, the Commission prepared a cooperation programme (the "Matutes Package") and submitted it to the Council on 6 June 1990. The cooperation package is primarily of economic nature. It proposes the completion of the customs union by 1995, C/RM/G/42 Trade Policy Review Mechanism Page 18 increasing customs cooperation, resuming and intensifying financial cooperation, for greater alignment between Turkey and the Community. 130. The Association Committee which met on 16 October 1992 and the Council of Association on 9 November 1992 adopted a report to promote the Cooperation Package and the Working Programme which supplements it. The report outlined a number of areas for increased cooperation including the completion of the customs union, economic and financial cooperation, free movement of persons and services, competition, taxation and approximation of laws. 131. Following this report, a "Steering Comrnittee" was set up in March 1993 under the supervision ofthe Association Committee to monitor and encourage progress towards the completion ofthe customs union. B. Implementation

(a) Fulfilment of Obligations Originating from the Additional Protocol

132. The Additional Protocol regulates almost every aspect ofeconomic and social relations between Turkey and the Community.

133. Trade obligations of the parties originating from the Additional Protocol and the extent of their fulfilment can be summarized as follows: Free Circulation of Goods: Industrial Products

134. The customs union which will be realized by 1995 envisages the elimination of all customs duties and charges having equivalent effect, the adoption by Turkey of the Community's Common Customs Tariffs and the abolishment of all quantitative restrictions.

135. The Community abolished all customs duties and charges having equivalent effect as well as quantitative restrictions on imports from Turkey on 1 September 1971 by a Provisional Protocol. The Additional Protocol, however, states four exceptions to the elimination of customs duties. These are some products, yarn, cotton wovens and made carpets. The Community eliminated all duties and quantitative restrictions on cotton yarn, cotton wovens and machine made carpets by 1986. For petroleum products, the Community established import quotas within which importation is free of customs duties.

136. Turkey, in accordance with its obligations, has concluded the first two reductions on its customs duties towards the Community, in 1973 and in 1976 and reached to the rates of 20% on the 12 year list and 10% on the 22 year list. The reductions which would have been realized in 1978 were postponed by Turkey due to economic constraints. After a period of stagnation in relations, Turkey resumed her efforts to fulfil its obligations within an accelerated calendar. Currently. the cumulative reductions in customs duties reached 80% on the 12 year list and 70% on the 22 year list. 137. Developments regarding the reductions in customs duties are stated below: The Republic of Turkey C/RM/G/42 Page 19

12 Year List 22 Year List Reduction Total Reduction Total Rate Reduction Rate Reduction

Before 1988 - 20% - 10% 1.1.1988 10% 30% 10% 20% 1.1.1989 10% 40% 10% 30% 1.1.1990 10% 50% 10% 40% 1.1.1991 10% 60% 10% 50% 1.1.1992 10% 70% 10% 60% 1.1.1993 10% 80% 10% 70%

138. The Additional Protocol envisages Turkey's adoption of the Community's Common Customs Tariff on both the 12 and 22 year lists by the end of 1995. Turkey made the first alignment in 1989 at the rate of 20% on both lists. On January 1993. total alignment reached 60% on the 12 year list and 50% on the 22 year list.

139. It goes without saying that once the customs union with the EC will be realized in 1995, Turkey s foreign trade regime will be replaced by the foreign trade regime of the Community, notwithstanding possible additional transitional periods for certain products.

140. Progress towards the adoption of the Common Customs Tariff is indicated below:

12 Year List 22 Year List Reduction Total Reduction Total Rate Reduction Rate Reduction

Before 1989 - 1.1.1989 20% 20% 0% 20% 1.1.1991 20% 40% - 1.1.1992 - - 20% 40% 1.1.1993 20% 60% 10% 50%

141. The extent of liberalization of quantitative restrictions in favour of the EC which had been 40% before 1989 was raised to 80% by May 1991. The degree of liberalization applied to Turkish imports from the EC (in terms of certain percentages of Turkish imports on private account from the Community in 1967 and consolidated in this respect) is as follows: C/RM/G/42 Trade Policy Review Mechanism Page 20

Consolidation Rate Total Rate of Consolidation Before 1989 - 40% 03.07.1989 5% 45% 22.08.1990 15% 60% 27.05.1991 20% 80%

Agricultural Products

142. The Additional Protocol includes provisions on agricultural products. Free trade in agricultural products is to be accomplished progressively over the transitional period of 22 years. At the end of this period, the Council of Association will adopt measures to implement free movement ofagricultural products between the Community and Turkey. It may determine derogations or change the date of implementation of the measures.

143. The Additional Protocol also provides the basis for the application of a preferential regime for agricultural products between the Community and Turkey. This regime for the transitional stage is embodied in the Annex 6 of the Additional Protocol. Within the framework of this Annex. the Community granted tariffreductions on most agricultural products and also levy reductions on a number of products originating from Turkey.

144. In line with Turkey's commitments under the Additional Protocol (Article 17 of Annex 6). a preferential treatment was granted to the Community for some agricultural products with the new Import Regime which entered into force on 1 January 1993. In the same regime a preferential margin has been established for some additional agricultural products originating from member countries. Also. the preferential treatment for and marine products originating from EFTA states which had been established within the framework of the EFTA-Turkey Free Trade Agreement was also extended to the EC.

145. The Community's elimination of customs duties did not abolish all barriers to Turkish agricultural exports. Non-tariff barriers in the form of the mechanisms of the Community's Common Agricultural Police. such as levies. reference prices. minimum import prices. compensatory levies and countervailing charges etc. still prevail.

(b) Coordination of Economic and Financial Policies

146. The smooth functioning of the Association between the Community and Turkey depends to a great extent on the successful coordination of the economic and financial policies. To this end. the parties have completed the first round of exploratory talks.

147. The steps to be taken are defined in the Additional Protocol in terms of liberalization of payments. the encouragement of the private capital. and the simplification of formalities on capital transactions and transfers. These are the basic elements of the economic integration between Turkey and the Community.

148. The progress in the liberalization of foreign trade. the convertibility of its currency and the adoption of flexible exchange rates brought Turkey to a point far beyond the premise of the Additional Protocol. The Republic of Turkey C/RM/G/42 Page 21

(c) Turkey's Commercial Relations with the EC

149. The European Community is Turkey's principal trading partner. Since the late 1960s, the Community's share in Turkey's foreign trade has been around 40%. As for the Community's foreign tradewith third countries. Turkey ranks in the first ten for EC's exports and in the first twenty for its imports 150. Even though the trade balance has always been in favour of the EC, Turkey's exports to the Community have been increasing continuously. Between 1980 and 1992, Turkish exports to the Communiiy rose almost 6 times and reached US$7.6 billion from US$1.3 billion. Similarly, imports from the Community increased more than four limes to US$ 10 billion from US$2.4 billion in the same period. However. Turkey's trade deficit against the Community continues.

151. The commodity composition ofTurkish exports has considerably changed in favour ofindustrial goods. especially after 1982. Within a decade, the share of agricultural products in exports to the Community declined from 51% to 11.3% while exports of industrial goods increased from 41% to 87. 1 %. First ten products in experts to the Community consist mainly of industrial goods.

Commodity composition of Turkey s trade with the EC (%) 1980 1990 1991 1992

1. Total Exports a) Industrial Products 36.0 79.4 78.2 83.2 b) Agricultural Products 57.5 18.1 19.2 15.0 c) 6.5 2.5 2.1 1.8

2. Exports to the EC a) Industrial Products 41.4 82.7 82.8 87.1 b) Agricultural Products 51.1 15.2 15.2 11.3 c) Mining 7.5 2.1 1.9 1.6

3. Total Imports a) Industrial Products 60.5 76.1 81.9 81.5 Agricultural Products 1.5 6.1 3.8 5.2 c) Mining 38.0 17.8 13.7 13.3

4. Imports From The EC a) Industrial Projects 98.7 96.2 97.2 97.7 b) Agricultural Products 0.8 3.5 1.8 1.9 c) Mining 0.5 0.3 1.0 0.4 C/RM/G/42 Trade Policy Review Mechanism Page 22

152. On the other hand. the composition of Turkish imports from the Comrnunity has been quite stable. Since 1980. approximately 95 % of the imports from the Community consist of industrial goods and nearly 3.5 % of agricultural products.

Turkey-EC Trade (US$ million) 1990 1991 1992 Country Export Import Balance Export import Balance Export Import Balance German FR 3.063.6 3.496.8 433.2 3.413.0 3.232.0 181.0 3,660.5 3.754.7 -94.2 Former DDR 12.9 25.7 -12.8 0 0 0 0 0 0 Belgium/Lux. 311.7 522.7 -211.0 287.5 557.2 -269.7 290.0 551.3 -261.2 86.6 111.9 -15.2 87.1 95.3 -8.2 92.5 104.6 -12.1 France 736.8 1,340.4 -603.3 688.7 1,226.6 -537.9 809.3 1.250.4 -541.1 Netherland% 435.4 572.9 -137.5 474.9 641.6 -166.7 499.9 (698.5 -198.6 UK 744.8 1.013.7 -268.9 676.0 1.165.6 489.6 796.3 1,187.0 -390.7 Ireland 24.8 61.4 -36.6 19.1 42.6 -23.5 23.7 51.( -27.3 1.106.3 1".271 -,20.8 971.6 1.845.3 -X73.7 942.7 1,916.7 -974.0 139.4 128.6 10.8 143.6 77.1 66.5 145.7 88.2 57.6 199.1 345.3 -146.2 23X8.0 319.9 -81.9 299.4 319.8 -20.4 44.3 17.5 26.8 42.5 18.3 24.2 42.1 24.2 18.() EC total 6.9W5.7 9.354.0 -2,448.3 7.042.0 9.221.6 -2.179.6 7,6('2.2 10.046.3 -2,444.1

Turkey's 12.959.3 22.302.1 -9.342.8 13 ç93.5 21.047.0 -7.453.5 14.719.2 22.870.,7 8.151.5 total trade

Source: UTFT.

Turkey-EC trade by countries (export) (US$ million) Coountry 1989 Share 1990 Share 1991 Share 1992 Share (%) (%) (%) (%) Germany FR 2.175.7 41 2 3,063.6 44.4 3.413.0 49.2 3.66(.5 48.2 Former DDR 0.0 <).0 12.9 0.2 0.0 0.0 0.0 0.0 Belgium Lux. 261.5 4.9 311.7 4.5 287.5 4.1 '9cK.0 3.8 Denmark 74.4 1.4 X6.6 1.3 87.1 1.3 92.5 1.- France 594.8 '1.3 36.8 10.7 6X8.7 9.9 809.3 10.6 406.9 7., 43,5.4 6.3 474.9 6.8 499.9 6.6 UK 616.1 11.7 744.8 10.8 676.0 9.7 796.3 10.5 Ireland 19.3 0.4 24.8 0.4 19.1 0.3 23.7 0.4 Italy 978.1 18.5 1.106.3 16.0 971.6 14.0 942.7 12.4 Greece 124.9 2.4 139.4 2.0 143.7 2.1 145.7 1.9 Spain 131.5 s.5 199.1 '.9 2'38.0 3.4 299.4 3.9 Portugal 25.1 (.5 44.3 0.6 42.5 0.6 42.1 0.6 EC total 5.28.3.4 46.5 6.905.7 53.2 7.042'.0 51.8 7.602.2) 51.6

Turkey's total 11.627.0 10.0 12.959.3 10.(0 13.593.5 1Y0.0 14.719.2 100.0 exports

Source: UTFT The Republic of Turkey C/RM/G/42 Page 23

Turkey-EC trade by countries import) (US$ million) Country 1989 Share 1990 Share 1991 Share 1992 Share

(%) (%) Germany FR 2,204.0 37.0 3.496.8 37.4 3,'32.0 35.0 3.754.7 37.4 Former DDR 00.0 25.7 0.' 0.( (.( 0.0 0.0 Belgium/Lux. 443.1 7.4 522.7 5.6 557.2 6.0 551.3 5.5 Denmark 39. ().7 101.9 1.1 95.3 1.0 104.6 1.() France 744.8 12.5 1,340.4 14.3 1.'26.6 13.3 1.350.4 13.4 Netherlands 445.2 7.5 572.9 6.1 641.6 7.0 698.5 7.0 UK 727.7 1'. 1,0i3.7 10.8 1,165.6 12.6 1,187.0 11.8 Ireland 19.1 0.3 61.4 0.7 42.6 0.5 51.0 0.5 Italy 1,070.9 18.0 1.7,27.1 18.5 1.845.3 29.() 1.916.7 19.8 Greece 1(0.9 1.7 128.6 1.4 77.1 0.8 88.2 0.9 Spain 250.4 4.2 345.3 3.7 319.9 3.5 319.8 3.2 Portugal 9.6 0.2 17.5 0.2 18.5 (.2 24.2 0.2 EC total 5.954.0 38.4 9.328.3 41.8 9.221.7 43.8 10.046.3 44.0

Turkey's total 15,762.6 I(X.0 22.302.1 10X.0 21.046.8 100.0 22.870.7 100.0 imports

Source: UTFT.

2. Turkey-EFTA Free Trade Agreement

153. In view of Turkey's aim of integration with the European and global economy. Turkey wished to seize the opportunity created by the emergence of the European Economic Area. To this effect. contacts with EFTA States were enhanced in the earlv 1990's which led to the negotiation and conclusion of a Free Trade Agreement (FTA). 154. The FTA between Turkey and the EFTA States was signed on 10 December 1991 in Geneva. This Agreement entered into force for all States Parties as of 1 October 1992.

155. The Agreement is based on the relevant articles of GATT. But, it also contains provisions for the development of cooperation on other areas of common interest. It aims at promoting, through the expansion of trade, harmonious economic relations and establishing fair conditions of competition for trade between the Parties. The contribution to the world trade through the removal of barriers and enhancement of cooperation between the EFTA States and Turkey is also among the objectives of the Agreement.

156. The Agreement mainly covers the industrial goods, including processed agricultural products and fish and other marine products.

157. As a part of the FTA. separate bilateral arrangements on trade in agricultural products were also concluded between Turkey and each EFTA State. These arrangements provide for unilateral tariff concessions by EFTA States for some Turkish agricultural products. They also contain clauses for developing technical and scientific co-operation between Turkey and the individual EFTA States.

158. Upon the entry into force ofthe FTA, the EFTA States abolished all customs duties on imports and charges having equivalent effect in force on 1 January 1991 for products originating from Turkey, except for some sensitive goods such as textile products. C/RM/G/42 Trade Policy Review Mechanism Page 24

159. Turkey will gradually abolish all customs duties on imports from the EFTA countries by the end of 1994. In practical terms, Turkey will apply, vis-a-vis the EFTA States, the same levels of reductions effectively applied to the EC according to the provisions of the Additional Protocol.

160. Once these levels reached. trade relations between the EFTA countries and Turkey will be conducted on the same preferential basis as the trade between Turkey and the EC. 161. In accordance with the FTA, quantitative restrictions on imports or exports as well as measures having equivalent effect have been abolished. No new restrictions shall be introduced in trade between the EFTA States and Turkey, except as provided for in Annex VIII of the Agreement.

162. Moreover, the EFTA States accepted to open unilaterally their market to Turkish products of iron and steel and sectors (Products of the European Coal and Steel Community) and the EURATOM products, whereas these products are not included in the association relations between Turkey and the European Communities. 163. The FTA also lays down rules concerning public procurement, intellectual property rights, state aid. competition and dumping. 164. An evolutionary clause included in the FTA gives the possibility of developing cooperation between the signatory States in areas not covered by the Agreement.

Trade Relations Between Turkey and EFTA Countries

165. As shown in the table below, the level of trade relations between EFTA countries and Turkey is far from their potential. Trade balance has always been in favour of the EFTA countries. And the gap has been widening at an increasing rate in the last decade. In 1992. Turkey's trade deficit against EFTA has been calculated as USS759 million.

166. Total imports from the EFTA countries grew by 4.2% in 1991 and 16.3% in 1992, while exports to the EFTA countries decreased by 4.3% in 1991 and then rose by 8.2% in 1992.

Turkish exports to and imports from the EFTA countries (US$ million) Year Imports Share Exports Share Total Share (%) (%) trade (%) 1985 540.5 4.R 327.2 4.1 867.7 4.5 1986 653.3 5.9 332.9 4.5 986.3 I.3 19837 808.9 5.7 633.6 6.2 442.6 5.9 1988 807.6 5.6 552.4 4.7 1,360.0 5.2 1989 9()1.0 5.7 450.1 3.9 1.351.1 4.9 1990 1.166.3 5.2 617.5 4.8 1.783.8 5.0 199' 1.14.8 5.8R595.0 4.3 1.805.9 5.2 1992 1.398.6 t6639.2 a.3 2.037.9 5.4

Source: UTFT.

167. The relative weight of EFTA in Turkish foreign trade is far below EC. In 1992. EFTA's share has been 4.3% whereas EC's share was 51.7% in Turkey's exports and 6.1% and 43.9% in her imports. The Republic of Turkey C/RM/G/42 Page 25

Taking into account the potential of the Parties, it is expected that their trade relations will gain a new momentum owing to the Free Trade Agreement. 3. Turkey's Relations With Other Major Tradin Partners A. North America 168. The USA is Turkey's second most important trading partner after Germany. Between 1987 and 1992 Turkish imports from the USA were almost doubled reaching US$2,667 billion from US$1,386 while Turkish exports to the USA changed between the levels of US$713-971 million. The bilateral trade has always shown deficit against Turkey. This trade deficit reached US$1,735 billion in 1992. 169. Besides quotas on textiles. the US Government imposes anti-dumping and countervailing duties on iron and steel products imported from Turkey.

170. Our bilateral trade with Canada has registered an increase at the beginning of 1980's, but has shown a downward trend in the recent years. The total bilateral trade which has been US$297 million in 1988 decreased to US$ 159 million in 1992. Over the previous years the bilateral trade always yielded in an unfavourable balance for Turkey. In 1992 the deficit against Turkey has been reduced to US$51 million.

171. The Canadian Government imposes quotas on Turkish textiles exports under MFA. These quotas are determined by a Memorandum of Understanding signed in 1987 and extended annually since then.

B. Asia-Pacific Region

172. The rise in the share of Asia-Pacific countries in world trade also stimulates Turkey's trade relation with them. The total trade which had been approximately US$2 billion in 1987 was almost doubled in 1992. reaching US$3.7 billion. Despite steady increase in our exports, the trade balance continues to be in favour of these countries, owing to higher increases in imports from the region.

173. Taiwan. and Japan are the leading destinations for Turkish exports, while Japan is the main source of imports. 174. Japan is one ofthe major trading partners ofTurkey. In the years 1990, 1991 and 1992, Turkish exports to Japan represented 1.8%, 1.7% . 1.1% of our total exports. the share of our imports from that country were 5%, 5.2% and 4.9% of the total. Turkey's exports to Japan were US$162 million and import from Japan were US$1.113 billion in 1992.

175. Taking into the account the great potential of the Peoples Republic of , Turkey has made considerable efforts to develop trade relations with this country in recent years. The outcome of those efforts is increasing exports and declining trade deficit against Turkey. Exports to China reached US$144 million in 1992. marking an increase of 605%. Imports remained stable at US$172 million in the same year. Turkey's major export items are iron and steel products. Another important export product of Turkey, namely tobacco, is almost excluded from this market by a ban on its imports applied since 1989. C/RM/G/42 Trade Policy Review Mechanism Page 26

C. Central and East European Countries 176. Turkey attaches importance to the development of economic and trade relations with all of the countries in central and . 177. In this context, Turkey has initiated negotiations for free trade agreements with a number of countries in the region in conformity with the European Agreements signed between these countries and the EC. 178. Turkey's trade relations with are governed by the Trade Agreement of 23 April 1974 as well as the Protocol of 29 April 1982 and are carried out on hard-currency basis. Trade between the two countries had an increasing trend except in 1987. Turkey and Poland decided to sign a free trade agreement in the near future similar to the one with EFTA Countries. The total trade between Turkey and Poland was US$273 million in 1992. 179. Turkey's commercial relations with the former Czechoslovakia had been carried out on clearing basis until 1975. Since then trade between the two countries was liberalized. All agreements which were in force between Turkey and Czechoslovakia continue to be valid for Turkey on the one hand and Czech Republic and Slovak Republic on the other. The total trade with the former Czechoslovakia which had been US$91.5 million in 1986 kept increasing during the following years and reached USS235.9 million in 1992. The trade balance in the same period showed deficit against Turkey. except in 1988.

180. Trade relations between Turkey and are carried out in accordance with the Bilateral Trade Agreement of 1974, which included a more liberal framework based on hard currency. A Long Term Economic. Commercial, Industrial and Scientific Cooperation Agreement which was signed in 1977 serves as a basis for economic relations between the two countries. Our total trade with Hungary was US$124 million in 1992.

D. Regional Cooperation Arrangements

181. Almost all neighboring countries ofTurkey in the Balkans. Black Sea. Caucasus, Middle East and West Asia. with the exception of Greece, are not members of the GATT. Their foreign trade regimes are either underdeveloped or oblique. Turkey looks forward to their becoming members of this organization soon. In the meantime, Turkey embarked on regional cooperation schemes with these countries. Evidently, these efforts are not confined to trade. But, their expected effects on trade are not negligible. It is the hope of Turkey that regional cooperation will help prepare these countries towards full-fledged market economies, thus reducing the entropy effect of the surrounding regions on Turkey. (a) COMCEC 182. The Standing Committee for Economic and Trade Cooperation of the Organization of the Islamic Conference (COMCEC) was established at the third Islamic Summit held in Casablanca. in January 1984.

183. The Standing Committee is given the task of identifying all possible means of strengthening cooperation among the member states of the Organization of the Islamic Conference and of reviewing the progress already achieved. as well as formulating programmes and proposals. The COMCEC meets once every year. in , under the chairmanship of the President of the Republic of Turkey. The Republie of Turkey C/RM/G/42 Page 27

184. Names of some of the 51 members of COMCEC countries with which Turkey has bilateral agreements are marked with asterisk in Annex List 2. Amongst them, Turkey's relations with its neighbouring countries are quite significant. 185. The major trading partners of Turkey in the region are the pre-war and . The share of the total trade with these countries was about 15% of Turkey's trade in general. in 1988. Since then there has been a slow down in trade relations, hence in 1992 the trade share of these countries was only 3 %. The main reason of this sharp decline, in particular for Iraq, was the Gulf Crisis and now, our trade with this country came to a halt as a result ofthe UN embargo. Consequently, Turkey's total trade with Iraq decreased from US$2.423 billion in 1988 to a mere US$213 million in 1992.

186. Iran is still an important trading partner for Turkey in the region although the bilateral trade between the two countries showed ups and downs in recent years. The total bilateral trade figures with an upsurge stand as US$820 million in 1992 down from US$1,206 billion in 1988.

Iraq US$ million Year Imports Exports Total trade Balance 1988 1,437 98( 2.423 - 451 1989 1.65( 445 2,095 - 1,205 19 ) 1.047 215 1,262 - 832 1991 0,5 122 122 + 122 1992 1 212 213 + 211

Iran US$ million Year Imports Exports Total trade Balance 1988 660 546 1.206 - 114 1989 233 561 794 + 328 199( 492 495 987 + 3 1991 91 487 578 + 396 1992 365 455 820 + 90

187. The increasing share of the Middle East Countries in our exports since 1987 declined in the last few years together with our imports. Still, Turkey's imports from the region amounted to US$ 2.648 million and exports to US$ 1.972 million in 1992.

188. As for the North African countries such as Algeria, Morocco, Libya, Egypt and Tunisia. Turkey's exports were US$637 million, whereas imports reached US$575 million in 1992. Joint economic commission meetings are held with all of the North African Countries. C/RM/G/42 Trade Policy Review Mechanism Page 28

(b) Economic Cooperation Organization (ECO) 189. The ECO was established in 1985 as a trilateral organization between Iran, Pakistan and Turkey to promote regional cooperation. Its aims and work procedures are identical with those of its forerunner, the Regional Cooperation for Development (RCD) which had remained in existence from 1964 to 1979. 190. The activities of ECO are conducted through eight technical committees which discuss and develop projects and programmes of mutual benefit in the fields of economic and commercial cooperation, transport and communications, agriculture, energy, infrastructure and public works, narcotics and educational, scientific and cultural matters. 191. The final text establishing a system of Tariff Preferences amongst members of the Economic Cooperation Organization was signed by Turkey, Iran and Pakistan on 17 February 1992 in Teheran. In this context limited tariffpreferences are expected to attract foreigntrade companies in their respective countries to each other's possibilities.

192. The Turkish concessions represent a 10% reduction on MFN rates for a number of products (covered by 37 four-digit tariff lines). 193. The preferences are based on the Enabling Clause (GATT Decision of 28 November 1979) permitting regional arrangements amongst developing contracting parties. On the issue, the GATT Council was informed by Turkey and Pakistan on 19 June 1992, and details were presented to the Trade and Development Committee in November 1992. 194. The break-up of the former Soviet Union led to the independence of the Republics of and Caucasus. As a result, Azerbaijan, Kazakhistan, Kyrghyzistan, Tajikistan, Turkmenistan and Uzbekistan along with Afghanistan were admitted to the ECO.

195. With this enlargement ECO currently covers 10 countries with 360 million inhabitants on a vast geographical area which has very rich but greatly untapped resources.

196. Far from reflecting their true potential, Turkey's trade figures with some of those countries in 1992 are given below.

US$ million Year Imports Exports Total trade Balance Azerbaijan 35 103 138 - 68 Uzbekistan 21 54 75 + 33 Kazakhistan :1 19 30 + 8 Turkmenistan 21 7 28 - 14

(c) Black Sea Economic Cooperation

197. The Black Sea Economic Cooperation (BSEC) has. since its inception, aroused great interest both within and outside the region. The BSEC, comprising a region with a of nearly 400 million and significant natural resources, incorporates the basic elements for a successful cooperation. The Republic of Turkey C/RM/G/42 Page 29

198. The Participating States of the BSEC are Turkey, Albania, , Azerbaijan, , Georgia, Greece, Moldova, , Russian Federation and Ukraine.

199. Following the signing of the Summit Declaration of the Black Sea Economic Cooperation in 1992, the Participating States determined their priorities and proceeded to building an organizational structure.

200. Activities of the working groups cover areas such as organizational matters, exchange of statistical data and economic information, banking and finance, trade and industrial cooperation, transport and communications, agriculture and agro-industries and free travel of the businessmen of the Participating States.

201 . The major trading partners of Turkey in BSEC are the Russian Federation, Romania, Bulgaria and Ukraine. Trade figures with those countries in 1992 are given below.

US$ million Year Imports Exports Total trade Balance Russian Fed. 1.041 438 1,479 - 632 Romania 256 173 429 - 83 Bulgaria 225 72 297 - 153 Ukraine 90 36 126 - 153

202. The development of trade and economic relations with the Russian Federation, the most important among the BSEC participants, is based on the 1984 Agreement which was originally concluded with the then USSR.

203. Investment projects in infrastructure and field have created favourable conditions for Turkish contractors. Currently, the total volume of contracts undertaken by Turkish contractors reached US$2.8 billion. C/RM/G/42 Trade Policy Review Mechanism Page 30

STATISTICAL ANNEX List 1 Multilateral Economic and Commercial Agreements GATT (1951) Association Agreement with EC (1963) Additional Protocol with EC (1970) Protocol relating to Trade Negotiations among Developing Countries (1972) MFA (1974) Supplementary Protocol with EC (1973) ITCB (1984) Subsidies Code (1985) International Wheat Agreement (1986) International Agreement on Oil and Table (1988) Customs Valuation Code (1989) Treaty of Izmir redefining RCL 1977) Protocol amending the Treaty of Izmir and renaming RCD as ECO (1990) Common Fund for Commodities (1990) Free Trade Agreement with EFTA Countries (1992) Other membership: OECD Organization of the Islamic Conference IMF EBRD Asian Development Bank Islamic Development Bank Social Development Fund Black Sea Economic Cooperation Project ECE UNCTAD

List 2 Bilateral Trade and Economic Cooperation Agreements signed by Turkey

(MFN clauses are indicated for non-GATT members only) (*) AFGHANISTAN - Trade 1975 (MFN) - Economic and Technical Cooperation 1976 (*) ALBANIA - Trade 1986 - Economic, Commercial, Industrial and Technical Cooperation 1988 (MFN) (*) ALGERIA - Trade 1979 - Economic, Scientific and Technical Cooperation 1983

ARGENTINA - Economic and Trade Cooperation 1992 The Republic of Turkey C/RM/G/42 Page 31

AUSTRALIA - Trade, Economic and Technical Coopcration 1988 AUSTRIA - Trade 1949 (*) AZERBAIJAN - Trade and Economic and Cooperation 1992 (MFN) (*) BAHRAIN - Economic, Industrial and Technical Cooperation 1990 (*) BANGLADESH - Trade 1976 - Economic and Technical Cooperation 1979 BELARUS - Trade and Economic Cooperation (MFN) (initialled 1993) BELGO- - Economic. Industrial and Technological Cooperation 1987 ECONOMIC UNION BULGARIA - Trade 1974 (MFN) - Long-term Economic. Technical, Industrial and Scientific Cooperation 1975 CHILE - Trade: Economic. Technical and Scientific Cooperation 1989 CHINA, P.R. - Trade 1974 (MFN) - Economic, Industrial and Technical Cooperation 1981

former CZECHOSLOVAKIA - Trade 1975 - Long-term Economic. Technical, Industrial and Scientific Cooperation 1976

DENMARK - Trade 1948 - Economic, Industrial, Scientific and Technical Cooperation 1976 (*) DJIBOUTI - Trade; Economic and Technical Cooperation 1989 (MFN)

(*) EGYPT - Trade 1976 - Economic and Technical Cooperation 1977

FINLAND - Trade 1966 - Economic, Industrial and Technological Cooperation 1978

FRANCE - Trade 1946

(*) GAMBIA - Economic, Scientific and Technical Cooperation 1988

GEORGIA - Trade and Economic Cooperation 1992 (MFN)

GERMANY - Trade 1952 C/RM/G/42 Trade Policy Review Mechanism Page 32

GREECE Trade 1953 HUNGARY - Trade 1974 - Long-term Economic, Technical, Industrial and Scientific Cooperation 1977 - Trade 1973 - Economic and Technical Cooperation 1978 INDONESIA - Trade 1959 - Economic and Technical Cooperation 1982

IRAN - Trade and Navigation 1937 (MFN) - Trade 1964 - Economic Industrial and Technical Cooperation 1982 IRAQ - Trade 1965 (MFN) - Economic and Technical Cooperation 1976 ITALY - Trade 1952 - Economic. Industrial and Technological Cooperation 1976 JAPAN - Trade 1955 JORDAN - Trade 1980 (MFN) - Economic, Industrial and Technical Cooperation 1983

KAZAKHSTAN - Commercial, Economic. Scientific and Technical Cooperation 1991 KOREA, R. - Development ofTrade and Economic and Technical Cooperation 1977 KUWAIT - Economic, Industrial and Technical Cooperation 1982 KYRGYZSTAN - Economic and Commercial Cooperation 1991 LEBANON - Commercial, Economic. Industrial, Technical and Scientific Cooperation 1991 LIBYA - Economic. Cooperation and Trade 1975 (MFN) - Economic and Commercial Cooperation 1992 (MFN) MALAYSIA - Trade 1977 - Economic and Technical Cooperation 1977 - Trade 1987 MONGOLIA - Trade, Economic and Technical Cooperation 1992 (MFN) The Republic ol Turkey C/RM/G/42 Page 33

MOROCCO - Trade 1972 - Economic Scientific and Technical Cooperation 1984

NETHERLANDS - Trade 1949 NIGERIA - Trade 1982 - Economic, Scientific and Technical Cooperation 1986

NORWAY - Trade 1949 - Commercial. Economic, Industrial and Technical Cooperation 1978 PAKISTAN - Trade 1964 - Economic and Technical Cooperation 1975

POLAND - Trade 1974 - Economic and Technical Cooperation 1980 QATAR - Economic and Technical Cooperation 1985 ROMANIA - Trade 1970 - Long-term Commercial, Economic and Technical Cooperation 1987 - Commercial and Economic Cooperation 1991 - Agreement on the Establishment of a Joint Economic Commission 1992

SAUDI ARABIA - Trade 1974 - Economic and Technical Cooperation 1974 SENEGAL - Trade, Economic and Technical Cooperation 1992

SIERRA LEONE - Economic and Technical Cooperation 1979

SOMALIA - Economic and Technical Cooperation 1980

SPAIN - Trade 1951 - Economic and Industrial Cooperation 1992 SRI LANKA - Trade 1988 SUDAN - Trade 1980 (MFN) - Economic and Technical Cooperation 1982

SWEDEN - Trade 1948

SWITZERLAND - Trade 1930 - Trade 1974 (MFN) - Long-term Economic Cooperation 1982 C/RM/G/42 Trade Policy Review Mechanism Page 34

(*) TAJIKISTAN - Trade and Economic Cooperation 1993 (MFN) THAILAND - Trade 1987 - Economic and Technical Cooperation 1989

(*) TUNISIA - Trade, Economic and Technical Cooperation 1992 (*) TURKMENISTAN - Economic and Commercial Cooperation 1991 UKRAINE - Trade and Economic Cooperation 1992 (MFN)

former USSR - (Existing Economic and Commercial Agreements with former USSR were declared valid between Turkey and Russia in 1992.) - Trade and Navigation 1937 (MFN) - Trade and Payments 1937 - Economic and Technical Cooperation 1975 - Development of Economic Cooperation 1977 (see also Russia) (*) UNITED ARAB EMIRATES - Economic and Technical Cooperation 1984 UNITED KINGDOM - Trade and Navigation 1930

U.S.A. - Commerce and Navigation 1929 - Cooperation on Defense and Economy 1980

UZBEKISTAN - Economic and Commercial Cooperation 1991 (*) YEMEN - Trade. Economic and Technical Cooperation 1991 former YUGOSLAVIA - Trade 1971 - Long-term Economic. Technical.Industrial and Scientific Cooperation 1976

ZAIRE - Trade 1983 - Economic and Technical Cooperation 1983

(*) Members of COMCEC The Republic of Turkey C/RM/G/42 Page 35

Table 1(a) Imports by countries and country groups (US$ million) 1981 1982 19S3 194 1985 1986 Total general 803 8,842 9.235 10,757 l1.343 11.105 1. OECD countries 1,279 4.434 4.481 5,555 6.3.62 7.304 A. EEC countries 2,632 2,566 2.775 3,314 3.895 4,565 Germany 940 1(')O9 1.053 !.172 1.369 1,772 Belgium-Luxembourg 153 147 148 199 235 310 Denmark 29 24 19 23 32 39 France 4(0) 263. 218 243 51s 54s Netherlands 166 158 182 212 218 264 United Kingdom 434 434 441 443 468 519 Ireland 3 2 4 4 6 4 Apain 112 9' 176 324 322 147 Iitay 3/2 415 510 629 658 8m Portugal 5 3 17 26 1 6 Greece 2' 14 21 48 47 78 B. Other OECD countries 1.64f 1,867 1 .706 2.241 2.467 2.739 Australia 19 14 2?7 5,p 88 79 Austria R( 118 13'I 138 1 5 139 USA 59 914 695 1,073 1.150 1.17, Finland 29 'R '6 62 50 70 3 102 ç1 11i 13 137 533 33l0 26 234 !86 285 lceland O ( I ' 0 O 206 357 3-40 405 5017 684 Canada Sfi 74 80 123 167 1277 3 .9 31 2' 18 .2 New Zealand I i 9 11 15 19 Il Countries with free cur. agr. 4.452 4.14. 4. 72 4.790 4.421 2.850 A. East European countries (COMECON) 790 402) 77 81 539 753 East Germany 18 21 1 14 19 Bulgaria 57 (A0 100 12:' 99 41 Czechoslovakia 38 4'2 79 151s9 68 Hungary 52 4 31 47 54 38 Poland "V) 44 11 1l 49 129 Romania 372 104 1I4 118 64 1(04 USSR 164 107 23 31i 221 353 B. Miiddle East (free cur.) '.534 ,694 2.449 2.73' 1 2.657 1.195 Iraq 1.504 1.417 944 944 1. 137 169 Iran 515 74R 1.22 1.548 1.2! 5 221 Syrian Arab Republic 19 14 3 18 16 19 410 507 2'9 2'1 2'26 176 Jordan .é 8 11 5 13 10 C. North African countries 9(05 964 1.007 947 8-0 441 Morocco 39 47 73 1 60 Algeria 44 8 ,77 105 16! Libyan Arab Jamahiriya 789 M90 793 661 621 292 Egypt 3 1 25 4 7 Tunisia 30 18 39 55 21 ' Table 1(a) (cont'd) C/RM/G/42 Trade Policy Review Mechanism Page 36

1981 1982 1983 1984 1985 1986 D. Other countries with freecur. agreement 233 83 140 231 355 461 Afghanistan (0 n 0 0 1 Albania 6 2 1 1 1 0 China 1 3 5 8 64 94 Indonesia O 1 4 8 1( 7 Ethiopia ( ( 0 0 0 0 India 4 1 3 5 6 29 Republic of Korea 13 i 1' 19 29 54 Malaysia 22 28 46 62 79 73 Nigeria () 00O) 1 Pakistan 2 10 6 16 2 4 Bangladesh 12 7 7 12 1 1 9 Sudan 0 O 0 ( O Yugoslavia 52 24 26 67 113 119 Other 92 7 30 33 40 69 III. Other countries 202 264 382 411 560 951 Abu Dhabi O ( O 0 4 159 Dubai 0 0 0 G 0 O Turkish Republic of N. ( O 0 9 7 9 Kuwait 107 93 168 98 98 209 Lebanon 3 3 2 2 I 6 Others 92 168 2 12 302 450 568

Source: SIS. The Republic of Turkey C/RM/G/42 Page 37

Table 1(b) Imports by countries and country groups (USS million) 1987 198 1989 1990 1991 1992' %2 Total general i4.I58s 14.335 15.792 22,302 21,047 22R.70 8.7 1. OECD countries 9.0 <86 9,251 9.935 14,251 14.070 15.421 9.6 A. EEC countries 5.7:.0 5,908 6.077 9.354 9,221 10,049 9.0 Gemiany3 2.1(i3 2,067 2.226 3.523 3,232 3.754 16.2 Belgium-Luxembourg 44)3 478 443 523 557 551 -i.l Denmark 49 48 39 102 95 10o 1(.5 France >8 R29 745 1.340 1,226 1,351 10,2 Netherlands ,7 385 445 573 642 698 8.7 United Kingdom 739 728 1.014 1.166 1,187 1.8 Ireland 18 18 19 61 43 51 18.6 Spain 99 243 250 345 320 321 (0.3 Italy 1.0,76 1,(K)6 1.(71 1.727 1.845 1.919 4.0 Portugal 14 1 3 10 i7 18 24 33.3 Greece .27 82 101 129 77 88 14.3 B. Other OECD countries i6 3,343 3.858 4.897 4.849 5.372 10.8 Australia *) 191 120 105 10(2 113 1(.8 Austria 192 3212 155 25,1 3'2 '92 -12.4 USA 1,3157 1.520 2'.094 2.282 2.255 2.6(X) 15.3 Finland 52 69 96 104 96 103 7.3 Sweden 1. 44 142 157 215 257 222 - 13.6 Switzerland ;65 344 412 537 489 688 40.7 Japan Sf) 555 53<) 1.120 1.092 1.113 1.9 Canada 213-t8 178 183 155 105 -32.3 Norway 45 4 1 7Q 57 51 103 102.0 Other 24 32 37 43 30 43 43.3 II Other European countries Ji S17 6i56 885 971 933 981 5.1 Bulgaria 9 16 3 32 14() 225 Czechoslovakia 3146 28 7' ;43 155 184 18.7 Turkish Republic of N. Cyprus 11 10 11 9 6 8 33.3 Hungary 71 93 87 1Mi3133 97 -27.1 Poland 6' 78 98 210 151 87 -42.4 Romania 2'9 198 239 203 199 256 28.6 Yugoslavia 89 233375 260 148 97 -34.5 Other 4 1 27 (4.) lII.USSR 07 442 625 1,247 1,097 .. IV. Republic of former USSR ...... 1.244 (4.) Russia ...... I1,1041 (4.) Belarus ...... 4 (+) Ukraine ...... (+)...9(1 .. Azerbaijan ...... 35 (+) Kazakhstan ...... II (+) Uzbekistan ...... 21 (+) Turkmenistan ...... 2i (+) Other ...... 1 (4.) Table 1(b) (cont'd) C/RMIG/42 Trade Policy Review Mechanism Page 38

1987 1988 1989 1990 1991 1992' %2 V. Middle East 2,457 2.504 2,302 2,706 2,491 2,648 6.3 Abu Dhabi 38 0 2 189 365 354 -3.o Iraq 1.154 1.437 1,650 1,047 0 1 (+) Iran 948 660 233 492 91 365 301.1 Kuwait 75 89 81 54 ( 68 (+) Syrian Arab Republic 5 4 18 84 67 54 -19.4 Saudi Arabia 168 229 212 724 1,829 1,665 -9.0 Jordan 19 26 35 34 30 25 -16.7 Other 50 59 71 82 109 116 6.4 C. North African countries 576 311 503 938 481 575 i9.5 Morocco 73 76 28 97 78 30 -61.5 Algeria 132 105 154 287 52 10 -80.8 Libyan Arab Jamahiriya 306 79 286 487 281 445 58.4 Egypt 13 12 21 37 48 59 22.9 Tunisia 52 39 14 30 21 31 47.6 VII. Other countries i.115 1,172 1.542 2,189 1.975 2,(X)I 1.3 9 '0 94 193 109 116 6.4 Brazil IX' 173 '.34 174 '19 199 -9.1 China 173 115 77 246 172 172 0.0 Republic of Korea 71 92 143 302 361 373 3.3 Pakistan 8 3 4 84 70 44 -37.1 indonesia 14 13 13 17 27 42 55.6 Other 658 756 977 1.173 1,017 1,055 3.7

Provisional. 2 % changes over the previous year. 3 Includes the data for East Germany until 1991.

Source: SIS. The Republic of Turkey C/RM/G/42 Page 39

Graph 1 Imports by country, 1981 and 1992 USS million and per cent

Islamic countries 3,598

40%

Other OECD 20% countries 20% 1.760 Other countries 1.055

EEC counties 2.520 1981

Other OECD countries 5,388

Islamic countries 3.415

Other countries EEC 4,018 countries 10.050

1992

Source: . C/RM/G/42 Trade Policy Review Mechanism Page 40

Table 2(a) Exports by countries and countr groups (US$ million) 1981 1982 1983 1984 1985 1986 Total general 4.7703 5,746 5,728 7,134 7,958 7,457 I. OECD countries '.264 2.556 '.760 3.74() 4.106 4,292 A. EEC countries 1,564 1.8(02 2.067 2.780 3.204 3,263 Germany 643 707 838 1.28(1 1.391 1,444 Belgiunm- Luxembourg 94 88 107 19( 162 195 Denmark 7 1( '2 20 26 28 France 216 195 181 2'(X 215 299 Netherlands 96 1(15 141 18(1 213 222 United Kingdom 148 1s9 247 26(> 539 334 Ireland 6 5 4 s 9 8 Spain 41 23 4() 27 56 60 Italy 246 327 423 501 502 580 Portugal 2'1 3 16 2'1 15 17 Greece 47 130 58 96 76 76 B. Other OECD countries (99 754 693 96() 902 1.(129 Australia 3 2 3 6 5 9 Austria 96 98 89 127 1 23 111 USA 268 252 232 368 506 549 Finland 5 4 7 c 7 9 Sweden 19 19 23 36 65 42 Switzerland 264 324 286 358 128 162 ( () 0 () () ° Japan 35 43 37 37 43 99 Canada 8 9 1() 18 21 38 Norway ' 2 7 4 4 9 New Zealand 0 n o Oo Il. Countries with free cur. agr. 2.215 2,903 2,688 3.049 3,4(03 2.705 A. East European countries (COMECON) 320 312 229 26i 302 283 East Germany 6 23 1 4 4 11 Bulgaria 10 17 20 24 8 15 Czechoslovakia 15 26 9 11 14 24 Hungary 6 22 9 9 4 12 Poland 33 41 42 17 35 41 Romania 57 59 59 57 47 40 USSR l94 124 89 139 190 140 B. Middle East (free cur.) 1.206 1.928 1,942 2.233 ,640 1,706 Iraq 559 611 320 934 961 553 Iran 234 791 1.088 751 1.079 564 Syrian Arah Republic 129 63 59 62 56 62 Saudi Arabia 187 358 365 378 430 358 Jordan 97 105 11(1 108 114 169 C. North African countries 561 531 414 426 328 476 Morocco ' ' 4 3 4 Algeria 31 125 127 128 109 178 Libvan Arab Jamahiriya 442- 235 184 142 59 136 Table 2(a) (cont'd) The Republic of Turkey C/RM/G/42 Page 41

1981 1982 1983 1984 1985 1986 Egypt 72 145 70 141 141 145 Tunisia 15 24 30 11 16 14 D. Other countries with free cur. agreement 128 132 104 129 133 240 Afghanistan O O 0 3 ( I Albania 7 1 0 0 ( I China 17 17 17 40 34 119 Indonesia 1 13 2 1 5 I Ethiopia 0 0 I 1 1 1 India 17 9 12 21 22 45 Republic of Korea 15 2 8 5 4 7 Malaysia 1 1 I I 1 2 Nigeria 11 Il 4 7 1 Pakistan 19 39 22 21 16 20 Bangladesh 3 10 5 1 9 1 Sudan 7 6 4 3 5 7 Yugoslavia 25 20 16 22 33 16 Other 5 3 12 3 2 8 III. Other countries 224 287 280 345 449 460 Ahu Dhabi 2 7 4 3 12 15 Dubai 5 15 16 20 107 23 Turkish Republic of N. Cyprus 2 3 2 63 66 73 Kuwait 71 87 87 105 116 121 Lebanon 85 112 121 103 86 136 Other 59 63 50 51 62 92

Source: SIS. C/RM/G/42 Trade Policy Review Mechanism Page 42

Table 2(b) Exports by countries and country groups (US$ million) 1987 1988 1989 1990 1991 19921 %z Total general 10.190 11,662 11,625 12,959 13,594 14,719 8.3 1. OECD countries 6.455 6,736 7,196 8,823 8,857 9,354 5.6 A. EEC countries 4,879 5,127 5,428 6,906 7,042 7.602 8.0 Germany3 2,195 2,178 2,196 3,077 3.413 3,660 7.2 Belgium-Luxembourg 319 265 26 1 312 288 290 0.7 France 44 57 74 87 87 93 6.9 France 500 499 595 737 689 809 17.4 Netherlands 280 351 40)7 435 475 500 5.3 United Kingdom 541 576 61 6 745 676 796 17.8 Ireland 13 19 9 25 19 24 26.3 Spain 70 i07 13 31 199 238 299 25.6 Italv 851 955 97 78 1.106 972 943 -3.0 Portugal 8 25 2.5 44 42 42 0.0 Greece 59 96 1225 139 '44 146 1.4 B. Other OECD countries 1,576 1,6(9 1,7E 68 1,917 1,815 1,752 -3.5 Australia 13 21 441 23 25 26 4.0 Austria 189 180 12 31 178 213 230 8.0 USA 714 761 9., 71 968 913 865 -5.3 Finland 10 18 34 25 20 21 5.0 Sweden 06 76 84 80 73 84 15.1 Switzerland 356 265 1 î73 293 246 223 -9.3 Japan 156 209 33 239 226 162 -28.3 Canada 58 59 2364 64 55 54 -1.8 Norway 13 14 27 40 37 75 102.7 Other 2 7 42 O 7 12 71.4 Il. Other European countries 248 442 36 614 673 791 17.5 Bulgaria 14 28 1]27 10 76 72 -5.3 Czechoslovakia 27 35 39 64 64 52 -18.8 Turkish Republic of N. Cyprus 90 128 17 155 132 149 12.9 Hungary 18 25 25 331 35 27 -22.9 Poland 26 78 71 103 141 186 31.9 Romania 49 76 53 83 105 173 64.8 Yugoslavia 19 61 7185 145 83 66 -20.5 Other S 19 23 37 66 78.4 III. USSR 169 271 'O5 531 611 ......

IV. Rep. of former USSR ...... 683 (+) Russia ...... 438 (+)

Belarus ...... 5 .+)

Ukraine ...... 36 (+)

Azerbaijan ...... û103

Kazak histan ...... 19 (+) Uzbek kistan ...... 54 (+) Turkm enistan 7 (+) Other 21 (+, Table 2(b) (cont'd) The Republic of Turkey C/RM/G/42 Page 43

19871987 19881988 1989 1990 1991 1992'1992, %2 ] V. Middle East countries 2.502 2.597 1,982 1,629 1.850 1,972 6.6 Abu Dhabi 13 22 30 57 51 62 21.6 Iraq 945 986 445 215 122 212 73.8 Iran 440 546 561 495 487 455 -6.6 Kuwait '48 199 167 92 16 66 312.5 Syrian Arab Republic 61 143 177 194 264 216 -18.2 Saudi Arabia 408 359 364 338 484 487 0.6 Jordan 17' 13(0 63 81 158 164 3.8 Other 215 212 175 157 268 310 15.7 C. North African countries 439 691 662 646 692 637 -7.9 Morocco 6 8 13 25 27 61 125.9 Algeria 142 219 237 201 206 108 -47.6 Libyan Arab Jamahiriya 141 218 227 221 237 247 4.2 Egypt 139 185 140 160 169 174 3.0 Tunisia 62 45 40 54 49 -9.3 VII. Other countries 377 925 644 716 911 1,282 40.7 Argentina 1 I 2 50.0 Brazil 6 9 17 12 23 15 -34.8 China 103 216 68 37 20 144 620.0 Republic of Korea 6 31 24 109 316 191 -39.6 Pakistan 35 63 41 48 541 44 -13.7 Indonesia 2 14 9 15 19 -5.0 Other 223 591 484 494 479 866 80.8

Provisional. % change over the previous year. 3 Includes the data for East Germany until 1991.

Source: SIS. C/RM/G/42 Trade Policy Review Mechanism Page 44

Graph 2 Exports by country, 1981 and 1992 USS million and per cent

lslamic countries 1,964

Other OECD countries 761 Other countries 475

EEC countries 1.503 1981

Other OECD countries 1.745 lslamic countries 2.784

EEC countries 7,603 Other countries 2,58

1992

Source: Government ofTurkey. The Republic of Turkey C/RM/G/42 Page 45

Table 3(a) Imports by sectors (US$ million) L Sectors 1981 1982 1983 1984 1985 1986 Total 8,933 8,842 9,235 10,757 11,343 11,105 1. Agriculture 125 176 138 418 375 457 A. Vegetable products 71 122 55 312 242 241 Cereals 58 105 33 286 183 150 Oilseeds 4 1 2 S 31 21 Industrial plants 9 14 19 16 20 55 Others 0 2 I 5 8 15 B. Livestock and animal products 52 53 81 98 105 152 Live animals 4 4 3 5 4 12 Wool-hair 41 41 61 63 63 59 Rawhides and skins 5 6 14 27 32 70 Others 2 2 3 3 6 il C. products 0 O O 0 1 4 D. Forestry products 2 1 2 7 27 60 Il. Mining and quarring 3,478 3,739 3,442 3,644 3.626 2,146 Non-metallic quarrying products 116 73 75 54 63 66 Metallic ores 67 41 49 65 75 98 , coal. etc 3,292 3,624 3,317 3.525 3,487 1.980 Others 3 1 I O 1 2 III. Industry 5,330 4,927 5,655 6,695 7,342 8,502 A. Processed agricultural products 230 176 205 433 487 479 Food industry products 169 106 102 253 291 203 By-products of food industry 1 ! 2 22 8 9 Manufactured tobacco products O O 0 27 56 116 Manufactured forestry products 26 29 23 49 46 50 Processed fibres for textile 34 40 78 82 86 101 B. Processed petroleum products 621 221 423 264 290 200 C. Industrial products 4,479 4,530 5.027 5,998 6,565 7,823 Cement 0 1 0 1 1 3 Chemical industry products 1.201 894 1,154 1,340 1,294 1,422 Rubber and industrial products 241 237 252 359 343 372 Hides and skin products 1 0 1 6 16 25 Forestry products 2 6 3 4 8 6 Textile products 78 103 98 117 146 161 Glass. ceramics. brick products 40 34 58 63 62 96 Iron and steel products 607 593 677 862 1,060 1,028 Non-ferrous metal products 141 123 195 220 224 230 Metallic goods industrial products 23 38 34 34 38 51 Machinery 1.247 1,323 1,449 1,618 1,551 2,304 Electric machinery/equipment 341 379 402 573 663 891 Motor vehicles, parts thereof 384 612 496 517 813 768 Other industrial products 173 187 208 284 346 466

Source: SIS. C/RM/G/42 Trade Policy Review Mechanism Page 46

Table 3(b) Imports by sectors (US$million) sectors 1987 1988 1989 1990 1991 1992' % Total 14,158 14,335 15,792 22.302 21,047 22,870 8.7 1. Agriculture 782 499 1,041 1,318 808 1,178 45.8 A. Vegetable products 334 174 769 856 377 661 75.3 Cereals 79 56 570 561 103 156 51.5 Oilseeds 28 14 25 33 32 58 81.3 Industrial plants 201 81 148 189 182 360 97.8 Others 26 23 26 73 60 87 45.0 B. Livestock and animal products 320 212 205 325 288 353 22.6 Live animals 100 34 21 109 108 109 0.9 Wool-hair 80 97 83 84 60 73 21.7 Rawhides and skins 136 78 10( 129 116 166 43.1 Others 4 3 1 2 4 5 25.0 C. Fishery products 8 4 3 11 10 19 90.0 D. Forestry products 120 107 64 126 133 145 9.0 Il. Mining and quarrying 3.034 2,857 2,902 3,989 2,992 3,054 2.1 Non-metallic quarrying products 65 88 89 91 87 80 -8.0 Metallic ores 60 67 89 82 111 80 -27.9 Fuels, , etc. 2,909 2,702 2,722 3.817 2.793 2,894 3.6 Others 0 0 2 0 0 1 (I) 111. Industry 10,342 10.979 11,849 16,995 17,248 18,638 8.1 A. Processed agricultural 715 738 844 1.403 1.172 1,139 -2.8 products Food industry products 276 294 352 686 522 517 1.0 By-products of food industries 32 13 41 53 76 105 38.2 Manufactured tobacco products 178 i70 197 316 298 185 -37.9 Manufactured forestry products 117 126 107 89 79 111 40.5 Processed fibres for textile 112 135 146 260 196 221 12.8 B. Processed petroleum products 246 344 52' 805 962 865 -10.1 C. Industrial products 9,381 9.897 10.483 14,787 15,113 16,634 10.1 Cement 49 50 il 45 22 18 -18.2 Chemical industry products 1,937 1.984 2.103 2,449 2.464 2.625 6.5 Rubber and plastic industrial 488 525 482 804 841 979 16.4 products Hides and skin products 74 51 73 125 117 132 12.8 Forestry products 7 9 il 22 22 26 18.2 Textile products 204 260 296 579 557 730 31.1 Glass. ceramics, brick products 117 141 126 183 181 196 8.3 Iron and steel products 1,537 1,655 2.218 1.933 2.010 2,117 5.3 Non-ferrous metal products 418 412 420 535 451 426 -5.5 Metallic goods industry products 56 62 57 106 121 135 11.6 Machinery 2.454 2.400 2,187 3,751 3.756 4.043 7.6 Electric machinery/equipment 940 1.075 1,030 1.572 1.858 1.746 6.0 Motor vehicles. parts thereof 550 690 797 1.603 1.558 2.238 43.6 Other industrial products 550 583 671 1.081 1,153 1.223 6.1

Provisional. 2 % change over the previous year.

Source: S. The Republic of Turkey C/RM/G/42 Page 47

Graph 3 Commodity composition of imports, 1980 and 1992 USS million

Investment gonds

1 ,581

20%

Consumption gonds Raw material 170 6.158

1980

Investment goods 6,71

Consumption goods ,972

Raw material 13.128

1992

Source: Government of Turkey. C/RM/G/42 Trade Policy Review Mechanism Page 48

Table 4(a) Exports by sectors (US$ million) Sectors 1981 1982 1983 1984 1985 1986 Total 4.703 5,746 5,728 7.134 7.958 7.457 1. Agriculture 2.219 2.140 1L881 1'749 1,719 1,RR6 A. Vegetable products 1.923 1.699 1 484 1.32 1,44! 1I547 Cereals 110 130 187 92 63 3 Leguminous vegetables 216 207 ?89 175 171 243 Industrial plants 775 6R6 494 447 561 461 Fruits 735 576 726 565 52 694 Vegetables 60 72 65 8 1 96 126 Others 27 28 23 l2 22 20 B. Livestock and animal products 258 390 362 32'3 244 285 Live animals 233 351 305 238 176 231 Others 25 39 57 85 68 54 C. Fisher products 7 24 20 20 21 40 D. Forestry products 12 28 14 24 13 14 Il. Mining and quarrying 193 175 189 240 244 247 Non-metallic quarrying products 161 149 156 199 '90 197 Metallic ores 32 25 32 40 53 47 Fuels. coals. etc. t) I n O - Others O n t) I III. lndustry 2.290 3.430 3,658 5.!s;55.995 5.324 A. Processed agricultural products 4121 568 670 809 47 66-7 Food industry products 367 497 568 61i0 520 529 By -products of food industry 4 6 61 29 32 Manufactured tobacco products O0 0 1 0 2 Manufactured forestryproducts 8 14 28 16 12 ' Processed fibres for textile 56s3 66 81 85 95 B. Processed petroleum products 107 344 222 409 372 178 C. Industrial products 1 771 2.51i8 2,756 3.98 4.976 4,4.9 Cement 198 207 8 1 56 44 : Chemical industry products 94 148 120 173 266 350 Rubber and plastic industrial products 72 61 77 9- 108 141 Hides and skin products 82 111 192 401 4f4 345 Forest. products 20 33 15 24 106 52 Textile products 803 1.057 1.299 1.875 1.,789 1.85! Glass. ceramics. brick products 102 104 108 146 189 158 Iron and steel products 10() 362 407 576 969 804 Non-femous metal products 30 45 79 86 115 111 Metallic goods industry products 20 2 19 16 7 ( ( Machinery 65 116 103 118 3R 203 Elecutric machinery/equipment 6 75 69 1(O) 119 130 Motor vehicles. paris thereof 117 11() 126 135 147 82 Other industrial products 42 62 61 125 IX9 166

Source: SIS. The Republic of Turkey C/RM.G/42 Page 49

Table 4(b) Exportsby sectors USS million 1987 19M 1989 1990 I9I 1992' Total Il .862 I,3594 14.719 -.3 I. Agriculture 1.853, 2.34 -17.7 A. Vegetable products 1.484 1.989 2.405 1.,99V -16.9 Cereal 241 83 Il 280 416 48.6

Leguminous vegetables 23.4 ,., I 10 92 200 -17.4 4-2 '61 653F 414 -47.7 industral plants 1 s1 Fruits 704 769 17 771 -9.(. vegetabless 96 98 79 192 161 Others 30 4(0 43 ,-7 B. Livestock and animal products '11 286 276 216- 218 140 -37.3 Live animals 245 219'04 128

Others 250 (12 14 121 -14.3 45 5_ 50 50 0.0 C. Fishery products 51 D. Forestry products 14 40.0 120 II.Mining andquarrying 264 Non-metallic quarrying products 263 _42 212 -6.6 Metallic ores 50 956 55 49 -10 9 Fuels.coals. etc. -66 Others lm 8 Q43 10.625 12.251 15.3 III. Industry 125 A.Processed agricultural products 954 '.90 9,`. 133 13.1 Food 7991 _60 13 813 1.259 industry. products 8_ By-products of food industry 49 155.6 Manufactured tobacco products 106 29 161 _4. -o 8 Manufactured forestry products 46 79 _3R52 Processed fibres for textile 71 B. Processed petroleumproducts 291 231 -16.6 C. Industrial products 9.057 9.1-5 i0.683 16 9 119 Cement 10 1345 Chemical industry products .'4 618 463 491 6.0 Rubber and plasticproducts 1.45 . i i 20.31 Hides and skin products 514 b05 620 38S -S.4 249 Forestry products 16 c5.0 Textile products 311 4.060 4._28 _,4 Glass, ceramics, brick products 205 258 32'6 358

Iron and steel products i1.612 1.451 1.558 1.4

Non-ferrous metal products 184 256 250 -,4 164 -5.,7 3,4 76 If) Machinery 195 20L4 Electric machinery equipment 440 591 10).9

Motor vehicles, parts thereof 2l4 154 'I' 382 49.8 Other industrial products q2 '1°1 245 32I 31-0

1Provisional

2 si change overthe previous year.

Source: SIS. C/RM/G/42 Trade Police Review Mechanism Page 50

Graph 4 Sectoral breakdown of exports, 1980 and 1992 USS million

Agriculture and livestock 1.6-2

5d7%

Mining and Manufacturing quarrying industry products ! .04' 191

1980

Mining and quarrying 264

Agriculture and livestock 2.2ÇM4

Manufacturing industry l2!.24-

1992

Source: Government ofTurkey. The Republic of Turkey C/RMI/G/42 Page 51

Graph 5 Terms of Trade, 1980-92

Index. 19S - 1 I0 e

Fcl_ Export Price Index

105

95 90

1980 1981 1982 1983 1984 1985 1986 19X- 1988 1989 1990 1991 1992

Index. 1980 = 100 125 `O - Terms of Trade 120

115

110

105

I 0<

95 1 - 1980 1981 1982- 1983 1984 1985 1986 198X 1988 1989 1990 1991 1992 RESTRICTED GENERAL, AGREEMENT C/RM/S/42 20 December 1993 ON TARIFFS AND TRADE Limited Distribution

(93-2124)

COUNCIL

In pursuance of the CONTRACTING PARTIES' Decision of 12 April 1989 concerning the Trade Policy Review Mechanism (BISD 36S/403), the Secretariat submits herewith its report on the Republic of Turkey.

The report is drawn up by the Secretariat on its own responsibility. It is based on the information available to the Secretariat and that provided by Turkey. As required by the Decision, in preparing its report the Secretariat has sought clarification from Turkey on its trade policies and practices.

Document C/RM/G/42 contains the report submitted by the Government of Turkey.

NOTE TO ALL DELEGATIONS Until further notice. this document is subject to a press embargo. The Republic of Turkey C/RM/S/42 Page i

CONTENTS

Page SUMMARY OBSERVATIONS v

(1) The Economic Environment v

(2) Trade Policy Framework vi

(3) Trade Policy Features and Trends vi

(i) Recent evolution vi (ii) Type and incidence of trade policy instruments vii (iii) Sectoral policies viii (iv) Temporary measures ix

(4) Trade Policies and Foreign Trading Partners ix

I. THE ECONOMIC ENVIRONMENT i (1) Main Features of the Economy i (2) Recent Economic Developments 4 (i) Introduction 4 (ii) Supply 7 (iii) Demand 7 (iv) Savings and investment 7 (V) Prices 7 (vi) Labour 7 (vii) Public finance 8 (viii) Monetary policy 9 (ix) Balance of payments il1 (3) Composition and Direction of Trade 14 (i) Composition of trade 14 (ii) Direction of trade 18 (4) Outlook 18 C/RM/S42 Trade Policy Review Mechanism Page ii

Page II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES 19

(1) General Framework 19 (2) Trade Policy Formulation 20 (i) Advisory bodies 22 (ii) Review bodies 22 (3) Trade Laws and Regulations 22 (4) Trade Policy Objectives 23 (i) General trade policy objectives 23 (ii) Objectives in the Uruguay Round 23 (5) Trade Agreements and Arrangements 23 (i) Multilateral agreements 24 (ii) Regional agreements 24 (iii) Bilateral agreements 30

III. EXCHANGE RATE AND FOREIGN INVESTMENT REGIME 31

(1) The Foreign Exchange Régime 31 (i) Institutional framework 31 (ii) Exchange rate reform 31 (2) Foreign Direct Investment 32 (i) The legislative framework 32 (ii) Trends in foreign direct investment 34

IV. TRADE POLICIES AND PRACTICES BY MEASURE 41

(1) Overview 41

(2) Measures Directly Affecting Imports 42 (i) Registration and documentation 42 (ii) Tariffs 42 (iii) Tariff quotas 48 (iv) Variable import levies 48 (v) Other charges 48 (vi) Import prohibitions 52 The Republic of Turkey C/RM/S/42 Page iii

Page (vii) Import licensing 52 (viii) Import quotas 52 (ix) Import surveillance 53 (x) State trading 53 (xi) Countertrade 53 (xii) Standards and other technical requirements 54 (xiii) Government procurement 56 (xiv) Anti-dumping and countervailing actions 57 (xv) Safeguard action 63

(3) Measures Directly Affecting Exports 63 (i) Registration 63 (ii) Export taxes 63 (iii) Minimum export prices 63 (iv) Export prohibitions 64 (v) Export licensing 64 (vi) Export quotas 64 (vii) Export cartels 64 (viii) Voluntary restraints 64 (ix) Export subsidies 65 (x) Duty and tax concessions 66 (xi) Export credits 67 (xii) Export insurance and guarantees 69 (xiii) Export promotion and marketing assistance 69 (xiv) Export performance requirements 69 (xv) Free trade zones 69

(4) Measures Affecting Production and Trade 70

(i) Regional and industrial investment incentives 70 (ii) Assistance to research and development 75 (iii) Barriers to entry and competition 75 (iv) Commercialization and privatization 77

V. TRADE POLICIES AND PRACTICES BY SECTOR 89

(1) Overview 89

(2) Agriculture 96

(3) Mining and Energy 104 (i) Energy 107 (ii) Metallic and non-metallic ores 108 C/RM/S/42 Trade Policy Review Mechanism Page iv

Page

(4) Manufacturing 109 (i) Food, beverages and tobacco 109 (iii) Textiles and clothing 110 (iii) Leather products and footwear 113 (iv) Wood products and furniture 113 (v) Paper products 114 (vi) Chemicals 114 (vii) Petroleum refining and products 115 (viii) Rubber and plastic products 117 (ix) Non-metallic mineral products 117 (x) Metal products 118 (xi) Machinery 119 (xii) Transport equipment 120

VI. TRADE DISPUTES AND CONSULTATIONS 121 (1) GATT Dispute-Settlement 121

(i) Cases under Articles XXII and XXIII of the General Agreement 121 (ii) Tokyo Round Codes 121 (2) Other fora 121

REFERENCES 122 APPENDIX TABLES 125 The Republic of Turkey C/RM/S/42 Page v

SUMMARY OBSERVATIONS

(1) The Economic Environment 4. While Turkey has considerably liberalized its trade, foreign exchange and 1. Following a severe balance-of-payments investment régimes, other structural indicators crisis, Turkey initiated a stabilization and present a less rosy picture. The prevalence of adjustment programme in January 1980 tax allowances results in an effective corporate designed to move away from past policies of tax rate of 10 to 15 per cent and Turkey has import substitution and reduce the anti-export relied increasingly on taxes on trade - often bias of its traditional inward orientation. As through extra-budgetaryfunds - to helpfinance part of the process. the Turkish lira was its industrialization. The share of trade taxes immediately devalued; real exchange-rate infiscal revenue rosefrom 12 per cent in 1980 depreciation continued, combined with export to 18 per cent in 1990. The monetary incentives and controls, until the late authorities, which are subsidiary to the 1980s. Import protection was gradually, but Treasury, have found it difficult to control significantly, reduced and a privatization inflation, as money creation has been used to programme launched to cut back the scope of finance large public deficits. Losses of state- the public sector in economic activity. owned enterprises in agriculture and manufacturing have added to the budgetary 2. Between 1980 and 1987, Turkey's burden. The pace of privatization of these economy grew by an average of 5.6 per cent enterprises, dominant in mining, chemicals and annually (2.8 per cent per capital, fuelled by steel and important sources of non-urban a 25 per cent annual growth in exports. The employment, has been slower than planned; share of exports in GDP rose from 5 per cent nevertheless, receipts from privatization in 1980 to 25 per cent in 1990, while that of amounted to over US$2 billion between 1986 total trade rose from 20 to over 50 per cent. and 1991. In the economy as a whole, real wage At the same time, thepattern ofexports changed increases, unmatched productivity gains, have markedly: manufactures, which represented eroded Turkey's international competitiveness. one-quarter of exports in 1980, rose to almost High industrial concentration suggests that, 70per cent in 1990, with textiles and clothing, despite trade reform, there is inadequate iron and steel and chemicals predominating. competition in the domestic market and that it is relatively easy topass on wage increases into 3. Relaxation ofwage controls, combined prices; a new competition law is before with positive real interest rates, led to an Parliament. More open trade may provide appreciation ofthe real exchange rate in 1989; incentives for better resource allocation but, if growth in domestic demand in 1990 stimulated inefficient industries are sustained, the welfare an import surge, with the trade deficit reaching gains will be limited. nearly US$10 billion. Turkey remains a net importer ofmanufacturers, principally machinery, 5. On thepositive side, private saving has transport equipment and chemicals. Imports of matched investment requirements; however, the manufactures, however, account for less than servicing cfpublic debt may be crowding out one-fifth of domestic consumption, suggesting productive investment. While the stock offoreign that there is considerable scope for further direct investment has grown from under import growth. Geographically, trade has been US$1 billion in 1980 to over US$10 billion in concentrated on the European Communities, 1992, there remains considerable scope for whose share of both exports and imports have expansion should inflation and the exchange rate increased in the last decade, as has its share stabilize. of foreign direct investment in Turkey. C/RM/S/42 Trade Policy Review Mechanism Page vi

(2) Trade Policy Framework Measures in .1985 and the Customs Valuation Code, with reservations, in 1989. 6. Turkey is a parliamentary democracy. Executive power rests with the Prime Minister 9. Strengthening economic and trade and the Council ofMinisters; legislative power relations with the European Communities has is vested in the Grand National Assembly. The been a major objective of Turkish trade policy Constitution adopted in November 1982 for decades. A framewor for a customs union strengthened executive power at the expense of between Turkey andthe ECwasfirst established the legislature. Since then, decrees issued by in 1964 and extended in 1970; Turkey's the Council of Ministers have been the major objective is to reach customs union by 1995. instrument for introducing policy changes, Since 1971, EC imports of manufactures from including in the trade régime. While this has Turkey have been duty-free; meanwhile, on the enabled speedy implementation of structural basis ofthe transitional lists established under adjustment measures, frequent modifications in the 1970 Additional Protocol, Turkey has the implementation ofpolicy instruments create progressively loweredits tariffs on imports from uncertainty for economic agents. the Communities, whilereducing rates onm.f.n. imports inparallel. Turkey applies its EC rates 7. Economic policy is set by the State also to manufactured imports from EFTA Planning Organization within Five-Year members under a newfree-trade agreement in Development Plans and Annual Programmes. force since April 1992. The Undersecretariatfor Treasury and Foreign Trade (UTFT) is responsible for the 10. Turkeyhasalso concluded bilateraland co-ordination of foreign trade policies. It regional trade agreements with neighbouring prepares decisions on trade policy and related countries, notably the Economic Cooperation matters in consultation with other relevant Agreement with Iran andPakistan andthe Black Ministries, agencies and subsidiary bodies. Sea Economic Cooperation Project. Within Various committees, such as the Budget GATT, Turkey is a signatory to the Protocol Committee, within the Grand National Assembly Relating to Trade Negotiations Amongst may review trade policies. The private sector Developing Countries. can communicate its views to the Undersecretariat through individual contacts or (3) Trade Policy Features and Trends via industry and trade representative bodies, which have strong organic links with (i) Recent evolution Government. Draft proposals by the UTFTare presented to the Council of Ministers for 11. During the 1980s, Turkey's traditional adoption as decrees, which become operational policy of import substitution was replaced by on publication in the Official Gazette. Such progressive liberalization ofthe trade, foreign decrees have typically introduced the annual exchange and investment régimes. By 1985, Import Régimes, which establish the structure import prohibitions (except for health and of tariffs and other charges, along with security reasons) were phased out; between accompanying regulations. Amendments to trade 1983 and 1989, the number of items requiring taxes may be made during the year and are import authorization was reducedfrom 1,300 published in the Official Gazette. to 17 and, in 1990, the system of import authorization was abolished. 8. A contracting party to the GATT since 1951, Turkeyhasparticipatedin aIl multilateral 12. The first significant tariff cuts were trade negotiations. It acceded to the Tokyo introduced in December 1983; the process of Round Code on Subsidies and Countervailing duty reduction was continuedfrom 1989. Tariff reduction has been principally guided by the The Republic of Turkey C/RM/S/42 Page vii pace of cuts made under the trade agreement import quotas, tariffquotas or variable import between the EC and Turkey, under which levies are applied. preferential rates have been reduced by 50 per cent between 1988 and 1993 while m.f.n. 18. TheHarrnonized System tariffschedule, reductions have been made in tandem. adopted in January 1989, contains 18,610 tariff lines,a number which to complexity in 13. While tariffs were being reduced, administering customs procedures and can however, the number and scopeofothercharges permit fine-tuning of industrial protection. on imports grew. In particular, an import levy aimed at financing the Mass Housing Fund, 19. The 1993 Import Régime set explicit introducedin 1984, was significantly broadened tariffpreferences for imports from the EC and in thefollowing years; Fund chargesfrequently EFTA. The simple average tariff in 1993 was exceed tariffs. The 1993 Import Régime estimated as 9.5 per cent for m.f.n. suppliers consolidated most supplementary import charges and 5 per centfor EC or EFTA member States. into the Mass Housing Fund levy. Inter-in-dustry dispersion remained quite significant, with average sectoral m.f.n. tariffs 14. Initially, the promotion of manufactured ranging from 2 per cent on metallic ores to 78 exports was emphasized through a number of per cent on tobacco products. incentives, including direct and indirect tax exemptions, duty-free imports, direct payments 20. Protection at the border is increased and subsidized export credits. Major significantly by the addition ofthe Mass Housing beneficiaries were the state-dominated heavy Fund import levy, in 1993 applied to over industries such as iron and steel, paper and 16, 000 tariff lines.No distinction in treatment petroleum refining. The effectivelevel of is made between importsfrom m.f.n. andfree- assistancefrom these incentives to manufactured trade-area sources. The simple average rate exports reachedapeak in 1983; in 1985, Turkey for Fund charges levied on an ad valorem basis joined the GATT Subsidies Code and agreed to is estimated at 1 7per cent, increasing nominal phase out all export subsidies by 1989. protection to nearly 27 per cent on m.f.n. imports. With this charge, overall sectoral 15. Restrictions on foreign exchange and border protection within manufacturing varies capital controls have also been dismantled. between 15.2 per cent on printing and Import deposits were eliminated in 1990; since 83.8 per cent on tobacco products. One-sixth then, foreign exchangefor import payments has of tariff iines bear Fund charges on a specific been fully liberalized. Nevertheless, surrender basis; Secretariat estimates, based on unit requirements for export proceeds remain. prices of 1992 imports, calculate the 1993 specific levy as averaging nearly 38 per cent, 16. Foreign investment has been encouraged with substantial peaks in agriculture, food and by streamlining regulations and procedures; textiles. since 1986, minimum export requirements have been abolished, as have ceilings on foreign 21. With only one exception, tariffs are ownership with the exception ofparticipation applied on an ad valorem basis and, as such, in state-owned enterprises. are transparent. The consolidation of multiple import charges at the beginning of 1993 was a (ii) Type and incidence of trade policy further step towards transparency. However, the instruments large number of specific Housing Fund rates detracts from the transparency ofthesystem and 17. Tariffs and other charges are now the obscures the costs of sectoral protection. main instruments of import protection. No C/RM/S/42 Trade Policy Review Mechanism Page viii

22. Just over one-third of Turkey 's tariffs premium abolished. The chiefexport incentives were, before the Uruguay Round. bound under now consist oftaxdeductions, duty-free imports GATT. The import régime is unpredictable as for export-oriented production (e.g. on fuels) each year, and during the course of the year, and subsidized export credits. tariffs and other import charges may be changed according to estimates of shifting supply or 26. Tax allowances and duty-free import demand, or in the light of perceptions of concessions for investment in priority sectors industrial needs. Customs union with the EC remain major toolsfor regional development and and the adoption ofthe Common External Tariff industrialization: in 1992, these financial will - if rates are bound - ensure greater tariff incentives amounted to more than TL 4 trillion stability. The rates and scope of the Mass (US$581 million). Investments under incentive Housing Fund levy, however, are subject to no certificates account for roughly one-third of commitments other than promises that the charge annualfixed investment. Concessional credit is will be abolished in the nearfuture. also widely available; in a country where the cost of capital is very high, and interest rates 23. Duty-free imports are available to have been stronglypositive in the lastfewyears, holders of investment incentive and export this can confer a considerable advantage. incentive certificates. Close to 40 per cent of Financing of industrial and regional imports enter Turkey duty-free as a result of developmen. through export and investment tariffconcessions: crude oilfor refining accounts incentives has, in the past, been provided for roughly one-third ofthese imports, with the through various extra-budgetary funds, partly rest made up ofindustrial inputs, machinery and financed through trade charges. capital goods. The Mass Housing Fund levy is also waived on imported inputs for certain (iii) Sectoral policies industries, such as coal for iron and steel manufacturing and grain imports by the Grain 27. The shift to an export-led development Board. As long as the domestic market is not strategy in the 1980s favoured industry and competitive, suchselective exemptions are likely tourism, while creating a growing bias against to create excess profits without lowering production and exports in agriculture. domestic prices. While no information was obtained on anti-competitivepractices in Turkey, 28. Sectoral m.f n. tariffaverages varyfrom there is a long history of oligopolistic state a low of 2 per cent on metallic ores to involvement in industry. 78 per cent on tobacco products; preferential tariffs on imports from EC or EFTA sources 24. Turkey maintains no general local range between 0.8and 51.4percent. Industries contentprogrammes. However, for countertrade oriented towards domestic consumption, such transactions or buyers' credits, minimum local asfood, beverages, tobaccoandmotorvehicles, content is required. Government procurement tend to bear the highest protection. legislation allows a 15per centpricepreference for domestic suppliers. 29. In textiles and clothing, Turkey maintains bilateral restraint arrangements under 25. Export taxes, although considerably the Multifibre Arrangement (MFA) with the reduced in coverage, still affect certainprimary United States and Canada. Outside the MFA, exports, includingpumice andhazelnuts; these an agreement with Turkish industry establishes taxes are to be phased out by 1995. Export export quotas for the EC market. subsidies have been reduced since the mid- 1980s. Directpayments andindirecttax rebates 30. Major beneficiaries of tax allowances have been eliminated, the rate of income tax andduty exemptions under investmentor export exemption reduced and the transportation incentives amongst manufacturing sectors have The Republic of Turkey C/RM/S/42 Page ix been the textiles, iron and steel, petroleum should help to improve export earnings and refining and chemicals industries. Export promote development in the sector. Competition promotion through tax concessions has been the fromforeign imports could encourageproduction subject of at least one countervailing to shift to crops where market opportunities are investigation by the EC, on polyester yarn and best. fibres; this was terminatedfolloing Turkey 's decision to phase out the tax exemption. 34. Export subsidies on agricultural exports in the years 1986-1990 amounted to nearly 31. In the mining and energy sectors, US$ 500 million; in the Uruguay Round, Turkey dominated by state enterprises, a 2.5 per cent has agreed to reduce export subsidies by 24per surcharge on imports is in place to finance cent over ten years. stockholdingfor export. Domestic exploration and production for petroleum and natural gas 35. Since 1 January 1987, imports of is encouraged through direct production agricultural products from Turkey into the EC subsidies financed by a charge on imports. have been duty-free, but not fully exempt from other import restrictions imposed under the 32. Agriculture employs nearly half the Common Agricultural Policy. As a result, labour force but contributes less than certain exportsface seasonal tariffsor restrictive 16 per cent to GNP. Turkey is self-sufficient quotas. Under the 1993 Import Régime, in a number of commodities, including wheat, preferential tariffs were established by Turkey sugar, tobacco and cotton. Bindings coverjust for a number of agricultural imports from the 8 per cent of agricultural tariff lines, with no ECand EFTA countries. The terms for customs bound rates on grains or tobacco. Virtually all union with the European Communities by 1995 tariffs of over 25 per cent apply to agricultural require the adoption by Turkey of the Common or processed food products. Ad valorem Agricultural Policy. At present, the CAP is equivalents of specific Mass Housing Fund being applied on an experimental basis to levies, which may act as a variable charge on cereals, fresh fruit and vegetables. many agricultural products, can rise to several hundredpercentagepoints. Import monopolies (iv) Temporary measures for sugar and tobacco have been abolished but remain on alcoholic beverages; this state- 36. Since 1989, Turkey has had an anti- trading activity has not been notified under dumping and countervailing law which includes Article XVII. Although no import quotas apply neither a mandatory review period nor a sunset to agricultural products, for 'sensitive' clause. Since its entry into force, 20 out of commodities an importpermit may be required; 36 investigations have terminated in definitive in the case ofmilk powder, import control acts anti-dumping duties; these affect imports of toprotectdomesticproductionfrom worldprice polyester fibres, paper, glass and machinery. fluctuations. While support payments were Turkey has, to date, applied no countervailing considerably reduced in the 1980s, in the last duties norsafeguard actions underArticle XIX. few years prices andpayments have increased. According to the Government, these have led (4) Trade Policies and Foreign Trading to huge, costly inventories, with few direct Partners benefits tofarmers. 37. While abiding by its multilateral 33. Between 1980 and 1990, agricultural commitments, Turkey exhibits a strong degree itemsfell from 65 25 percent ofmerchandise of pragmatism regarding the advantages of exports. Taxes on agricultural exports during regional trading arrangements. Customs union the 1980s limited growth in farm income. The with, and ultimately membership in, the elimination of remaining export taxes by 1995 European Communities have been at the C/RM/S/42 Trade Policy Review Mechanism Page x forefront oftradepolicy. Regional integration, continued servicing of the foreign debt. Tighter through the Association Agreement, has budgetary control and a more stringent monetary accelerated the process oftariff reduction, both policy may attract capital, including foreign. on regional and m.f. n. bases. Adoption of the forproductive investment. A more effective tax European Communities' Common Customs system, pending competition legislation and Tariff, while setting a floor on m.f.n. tariff further privatization, would have the potential reduction, will simplify the operation of the to introduce greater stability. However, if Turkish tariffand may also create new binding competitiveness and efficiency in the domestic comitments. economy are to be secured, the monopolistic hold of both public and private enterprises or, 38. The trade-finance link in Turkey appears large segments must be loosened. Such a particularly fragile. As trade taxes inevitable development can be significantly enhanced by become a diminishing source of revenue, with a continuing commitment on the part of the tariff reduction and the elimination ofthe Fund authorities to increasing the contestability ofthe levy, the authorities will have tofind alternative domestic market, including by enhancing market means ofreducing the fiscal deficitand ensuring access for foreign suppliers. The Republic of Turkey C/RM/S/42 Page 1

I. THE ECONOMIC ENVIRONMENT (1) Main Features of the Economy

1. Turkey. with an area of 780,000 square kilometres and a total population of 58 million, is situated between the Black Sea, the Aegean and the Mediterranean. and has land borders with Armenia, Bulgaria. Georgia. Greece. Iran. Iraq and Syria. The country bridges Europe and Asia across the Bosphorus at Istanbul. the largest city and industrial centre with a population of over six million. Ankara. the capital. located in . has a population of 2.6 million. Population is growing by some 2.2 per cent annually: urban population has increased even more rapidly, and 61 per cent of the population now lives in the cities (Table I.1).

Table 1.1 Basic economic and social indicators 1970 19S0 1990 1v91 1. Population Population (million) .i 44 56 58 Labour force '4tusan'.js 19.74c 20.l45 Employment thousands) 19.047 1 .669 Labour force. fernale per cent of total :8 4 34 4 Total fermilityrate births per woman. 4 Life expectancy at hirth years c- 2 fi 2. GDP (USS million. 1987 prices) GDP at market prices r .c4 .! ^<1O -94:4 _9.09 GDP at factor cost 0 4. iF.' 9 Share in GDP Value added as ,trccntage of GDP at factor cost Agriculture '4.S 2(.7 17.0 1.0 Industry l.1 32.4 -c35.1iiE35 Manufacturing 21.0'I Z5.5 ... Services 43.1 46.S 47.9 47.1 3. Share of broad sector in total emplyment (per cent) 4 40 49.6 4R.0 lndustry 14. ! I5. Manufacturing 13".2. 14.1 Services36.2 3. 4. Education School enroll. ratio. primary cent 110 96 1(- 100 School enroll. ratio. secondary (per cent) 35 56 58

Not available.

1 .A conversion factor of ç-.!- Turkish lira per U.S. dollar has been used (the period average rate for 1987). 2. Includes students of above primaryschool age enrolled in primary schools.

Source: WorldTables 1991 '. ,STA.RS 'ct;'n: State Planning Organization. %ai,. Economic Indicators. March i99 C/RM/S/42 Trade Polic Review Mechanism Page 2

2. GNP per capita was estimated at US$2,604 in current prices in 1991.1 Real income per capita grew steadily at an average 28 per cent throughout most of the 1980s, although it declined slightly in 1989 and 1991 (Chart I ). There are considerable differences in income among regions and between urban and rural communities. Although Turky is a member of OECD, it is often classified as a , and on most indicators it is less developed than other OECD member. Almost all children receive, primary education, and 58 per cent ofschool-age children attended secondary school in 1991 (Table 1. 1 Chart I.1 Real per capita income, 1970-92

TL '000 1300

1200

1100

10

900

800

700

600 1970 1975 1980 1985 1990 1992

Source: World Tables1991/92 (STARS version):Treasury Monthly Indicators, February 1993.

3. In 1980. after a serious economic crisis. Turkey embarked on an economic stabilization and reform programme that began a move away from previous policies of import substitution. market intervention and state involvement in production. The stated objectives were as follows:

- to liberalize all spherer of economic life; - to establish the principles ofthe free market systen, and therefore rely on market forces in determining prices. interest rates. and exchange rates: - to transform the economy from an inward orientation and eliminate anti-export bias; - to reduce public intervention in economic activity. to encourage private economic activity; and - to encourage foreign investment.2

'Per capita income in purchasing power parityterms has been estimated at US$4.481 for 1989 (OECD, 1992). GATT document BOP/314, 15 March1993. The Republic of Turkey C/lRM/S/42 Page 3

4. Some measure of the success ofthe programme may be judged from the fact that. from a decline in economic activity in 1979-80. the economy grew at 5.6 per cent in real terms in the period 1980-87. This growth was driven largely by exports of goods and services (which rose by an average of over 25 per cent annually in real terms during this period) and. in the mid-1980s, by public spending. The current account balance shifted from a deficit equivalent to 5.4 per cent of GNP in 1980 to surpluses in 1988 and 1989. although it again fell into deficit at the time of the Gulf crisis. Manufactures have been the main component of merchandise export growth. tourism has become increasingly important in service income. The stock of foreign direct investment increased from US$228 million in 1980 to USSI 1.4 billion in 1992. As a consequence of the outward-oriented strategy. the ratio of trade in goods and services to GDP increased from 20 per cent in 1980 to over 50 per cent in 1990 (Chart I.2).

Chart 1.2 Trade in goods and services as percentage of GDP, 1970-90 Per cent

60

Trade/GDP MGS/GDP NGS/GDP

50

40

30

20

10

j-n 19r5 1980 1985 1199

Source: World Tables 1991 92 (STARS version).

5 In the domestic economy. as in external trade. industry and services have increased their share of production. while the share of agriculture has declined substantially (Chart 1.3 and Table 1.1). Inflation was c"^ from. over 80 per cent to an average of about 37 per cent between 1980 and 1987; however. it has since shown a serious resurgence. mainly attributable to the effect of large fiscal deficits. which have not been offset by monetary control.

Arslan and Celasun (1992) note that the volume of Turkish merchandise exports grew by 21.7 per cent in the period 1981-87. and that the share of exports to GDP rose from 5 to 16.5 pcr cent between 1980 and 1988. C/RM/S/42 Trade Policy Review Mechanism Page 4

Chart 1.3 Sectoral distribution of GDP Per cent 1970 1990

Agriculture Industry Industry 24.8 35.1 32.1 Agriculture 17.0

Services etc. Services etc. 43.1 47.8

Source: World Tables 1991/92 (STARS version).

(2) Recent Economic Developments (i) Introduction

6. Since 1987. Turkey's economic performance has been uneven. The rate of economic growth fell through 1989. recovered strongly in 1990 to over 9 per cent and declined again in 1991 under the effects of three political factors: the Gulf crisis, a change in Government in mid-year and parliamentary elections in October (Table 1.2 and Chart I.4). Current official estimates put real growth at 5.5 per cent for 1992.4 The economy appears to have largely recovered from the immediate effects of the Gulf crisis which. apart from direct effects on exports of goods and services, adversely affected invcstment and production decisions. Cash inflows (particularly remittances from Turks working abroad) and exchange rate flexibility helped to cushion the external account.

GATT document BOP/314. op. Cit.. The Republic of Turkey C/RMIS/42 Page 5

Table 1.2 Economic performance 1970-1992 1 1970-78 19780 198047 1988 1989 1990 1991 1992 1970-78 197840 Average annual real growth rates (per cent) I 1. GNM and Domestic Absorption Gross National Product 6.7 -1.4 5.6 3.6 1.9 9.2 0.3 5.4

GDP at market prices 6.8 4).9 5.6 4.4 -0.3 9).2 1.0 5.4 Domestic Absorption 6.5 -1.0 5.0 0.4 2.5 16.0 -2.4 7.5 Private Consumption 6.6 -3.7 5.4 2.8 4.2 10.4 2.1 10.6 General Govt. Consumption 6.7 5.1 2.6 I .9 3.3 17.0 1.0 1.9 Gross Domestic Investment 6.3 4.5 5.0 -6.4 -4.7 16.0

Fixed Investment 8.2 -6.8 5.8 -1.3 -1.0 13.9 -0.4 1.3 2. Resource Balance Exports of Goods & NF Serv. 5.6 -2.8 25.8 19.7 4.7 10.3 6.7 16.1 Imports of Goods & NF Serv. 4.6 -1.3 14.9 0.9 6.' 35.5 -3.6 9.0 3. Competitiveness Indicators GDP Deflator 22.9 86.0 65.7 66.3 54.4 57.3 62.1 20.6 8'.6 37.8 67.8 64.3 60.4 71.1 66.0 Manuf. Real Output per Emp. 0.5 -5.5 7.8 1.7 4. Money (Growth in local currency) and Interest Rates (per cent) Money Supply, Broadly Defined 28. ', 68.0 52.3 55.0 72.0 51.8 58.7 61.1 (M2) Money as Means of Payment 29.9 62.0 42.3 33.4 69.8 60.5 34.1 67.4 (M1) Discount Rate 9.1 18.4 44.1 54.0 54.0 45.0 48.0 48.0 3 Month Treasury Bill Rate 66.2 57 5 52.3 86.0 95.1 Share of GNP (per cent) 5. Government Finances General Government Government Revenue 20.6 22.6 18.5 '4.3 25.1 26.3 27.0 27.6 Government Expenditure 23-.5 27.6 23.6 27.9 30.1 31.5 36.9 37.1 Government Def.(-) or Surplus -'.8 -5.0 -5.1 -3.7 -5.0 -5.2 -7.4 -9.4 State Economic Enterprises -2.7 -2.5 -5.8 -4.4 -3.6 PSBR -6.4 -7.1 -10.5 -14.41 -12.6 6. Memorandum Items

Gr. domestic investment 21.3 20.3 21.8 24.0 22.7 24.4 23.8 22.6 Gr. domestic savings 16.4 14.8 18.2 26.1 21.7 23.4 21.3 21.3

Note: Data in Sections 1-4 above based on national currency at 1987 price. Data in Sections 5-6 based on current price data.

Source: Forany series which is complete to 1992, data for 1988-92 were takenfrom State Planning Organization. Main Economic Indicators, March 1993. Otherwise data were taken from World Tables 1991/92 (STARS version), and IMF. C/RM/S/42 Trade Policy Review Mechanism Page 6

Chart 1.4 Selected indicators of macroeconomic development, 1970-92 a) Contribution ofsupply components to growth 10 8 42LIub-, IJJ162bi~L2 o IdIdI

-2

4 Agriculture Industry Services GDP

-6 1970 1975 1980 1985 1990 1992

b) Contribution of demand components to growth 15 _ Consumption investment - Net Exports GDP 10.

l0

-5

-10 19-0 1975 1980 1985 1990 1992

c) Savings and investment 30 GDI/GDP- GDS/GDP

25

20

15

101970 - 1975 .-... 1980 1985 1990 1992 Source: World Tables 1991/92 (STARS version); Main Economic Indicators March 1993 and IMF. The Republic of Turkey C/RM/S/42 Page 7

7. Inflation, which had fallen in 1990. rose to ove: 70 per cent in 1991 and remained above 60 per cent in 1992. The main inflationary pressures have come from the growing public sector deficit and from wage increases. The moderation of inflation in 1992 was due to special factors (see below). (ii) Supply 8. The industrial and service sectors have led economic growth in Turkey since the early 1980s. Drought in 1989 severely affected agricultural production and contributed to poor overall performance in that year (Chart 1.4(a)), while unfavourable weather conditions also caused a slight decline in agricultural production, mainly industrial crops such as cotton and tobacco, in 1991 . In 1990, services led a broad-based recovery; in 1992. services and industry again led the recovery, growing at 4.6 and 6.6 per cent, respectively, although activity slowed in the second half of the year. (iii) Demand

9. Growth in 1990 was fueled principally by consumption (primarily in the public sector) and investment (mainly private), while the external resource balance declined sharply due to a surge in imports. In 1991, the resource balance turned around to make a positive contribution to demand, but the contribution of investment was negative, while that of consumption also weakened (Chart I.4(b)). The growth of demand in 1992 was essentially due to private consumption spending, stimulated by large wage increases at the end of 1991 (an election year), while agricultural support prices also increased by about 70 per cent, sustaining farm income and consumption.

(iv) Savings and Investment

10. The share of domestic savings in GDP increased sharply from around 15 per cent in 1984 to 26 per cent in 1988. declining again in 1989 and 1990 to around 22 per cent, mainly because of a fall in public saving. Savings recovered slightly in 1991, but have since declined again (Chart 1.4(c)). The share of investment in GDP also increased from 19 per cent in 1984 to 24.4 per cent in 1987, and has since declined to 22.6 per cent. Thus, the gap between dornestic savings and investment, which had closed in 1988, has since re-opened slightly. (v) Prices

11. Inflation. as measured by the consumer price index, was brought down in the early and mid- 1980s. but has been running at above 60 per cent annually since 1988, peaking at over 70 per cent in 1991. This was a direct consequence of expansionary fiscal and monetary policies, combined in 1991 with large wage increases and higher farm support prices prior to the October election. The monthly rate of inflation rose to ll per cent in January 1992, but declined to less than one per cent in May and June. mainly because of seasonal factors for agricultural products. Other strong underlying inflationary pressures remained, and the final figure for the year is estimated to have exceeded 60 per cent. (vi) Labour 12. Employment creation in Turkey appears to have failed to keep up with the rapid expansion ofthe population and labour force in recent years.5 It also appears likely that registered unemployment

5OECD (1993). C/RM/S/42 Trade Policy Review Mechanism Page 8 is considerably below the number who would like to work, and that there is substantial underemployment. In April 1992, un- and underemployed workers were estimated to total almost 16 per cent ofthe labour force. 13. Wages for many workers are established under a system of collective bargaining; the trade union movement is large and active. Wage settlements are generally intended not only to compensate workers for past movements in inflation but also to contain an anticipatory element. Between 1981 and 1988. the growth in real wages slowed. as labour legislation prohibited collective bargaining; subsequently. significant increases occurred. particularly in 1991-92 when new collective agreements covering State-owned enterprises. other public sector employees and major industries such as metalworking were concluded. Gross real wages in the public sector (including bonuses and social benefits) are estimated to have risen by 31.6 per cent in 1991 and some 9.1 per cent in 1992; in the private sector, gross real wages increased by over 49.6 per cent in 1991 and 2 per cent (estimate) in 1992.

14. According to a study by the State Statistical Institute. between 1985 and 1991 reai wages rose by some 79 per cent while labour productivity increased by just under 40 per cent.6 Such large wage increases are not sustainable and could put Turkey's economic programme injeopardy. The continued international competitiveness of Turkey's exports will depend largely on keeping wage increases in line with productivity gains.

15. The ability ofthe private sector and State Economic Enterprises to pass on recent wage increases suggests that the trade liberalization undertaken to date has yet to increase serious price competition in the economy. While it is hard to obtain information on the extent of cartels in the economy, particularly in the distributive trades. the Government has drafted new competition legislation which is now before Parliament (Chapter IV). (vii) Public finance

16. Turkey's public deficit (measured by the public sector borrowing requirement) is estimated by the authorities to have risen from 6.4 to 14.4 per cent of GNP between 1988 and 1991. and has been a major source of inflationary pressures. The main components of the deficit are the central Government budget. which rose to 7.4 per cent of GNP in 1991 (including grants); the deficits of State-owned enterprises. at 4.4 per cent of GNP; and the combined deficits of the extra-budgetary funds. estimated at 1.8 per cent of GNP in 1991. In 1992, the PSBR was reduced to 10.9 per cent of GNP (including grants). as revenue increased under a tax amnesty,7 some debt consolidation. incorporation of extra-budgetary funds into the budget. and stock run-down by the State Economic Enterprises. This still represents a slippage in the reduction of the PSBR, planned to fall from 14.4 per cent in 1991 to 8.8 per cent in 1992; the main reason for the slippage appears to have been the level of public sector pay increases and interest payments. An important step being taken in 1993 was to increase effective corporate tax collections from 11-14 per cent to a minimum 23 per cent (compared to a tax rate of 46 per cent). thus setting a ceiling on permissible tax exemptions.

6Nachrichten für Aussenhandelsinformation. 23 April 1993.

7Only fines were forgiven under the amnesty: taxes were still charged. According to OECD (1993), the existence oftax amnesties may have been factored into individuals and businesses' decisions regarding timing of tax payments. In addition, the large informal sector generally escapes the tax net. The Republic of Turkey C/RM/S/42 Page 9

17. Turkey's privatization programme has proceeded very slowly since its launch in 1984 (Chapter IV). It is aimed at the divestiture of State Economic Enterprises, which account for one-third of manufactured value added and employ roughly 5 per cent of the non-agricultural labour force.8 Between 1987 and 1991, total privatization receipts amounted to US$863 million. In the past, the privatizationprocess hadbeen slowed downby anumber ofpolitical and institutional obstacles, although a court ruling in 1992, allowing the sale of five cement factories to foreign buyers, cleared the way for a number of new privatizations.

18. Until 1991, Turkey maintained 77 extra-budgetary funds. which had their own sources of financing through taxes or levies. as well as the right to raise funds by borrowing. With the exception of the Defence Industry Fund. the Social Solidarity Fund, the Turkey Promotion Fund and a number of minor funds, extra-budgetary funds were brought into the central government budget in 1992. This may help to create greater financial discipline, although there is little change in the programmed deficit for 1993. (viii) Monetary policy,

19. The close links between fiscal and monetary policies in Turkey have. during the last few years, set up a vicious circle linking inflation. interest rates and the budget deficit. Budget overruns resulted in higher government borrowing from the Central Bank. the consequent increase in Treasury debt acted to push up interest rates. At the same time. high inflation gave rise to increased wage demands, particularly in the public sector, leading to further increases in the deficit. Monetary financing of the deficit sowed the seeds for further inflation, wage growth and budget deficits.'°

20. In 1990. the Central Bank publicly announced its first monetary programme, as well as its medium-term objectives. Annual monetary programmes are formulated within the framework of these objectives. The primary objective of the medium-term strategy announced by the Central Bank in 1990 was deflation; at the same time. the authorities aimed to strengthen the Central Bank's foreign exchange position and restructure the balance-sheet to allow more scope for intervention in the market. To achieve this. the medium-term strategy consists mainly ofcontrolling the volume and structure ofits own balance sheet as a prerequisite to controlling the money supply. Thus. annual targets are set for "central bank money", the size of the Central Bank's total balance sheet, total domestic liabilities and net domestic assets ofthe Central Bank." The exchange rate is determined by the market; the Central Bank intervenes through open market operations to smooth out large fluctuations in exchange rates, but does not target real or nominal exchange rate values.

8OECD (1992a). 0OECD (1993).

"The Treasury is the majority shareholder of the Central Bank. While limits have been set on Central Bank financing through short-term credits, these have fallen far short of government borrowing requirements.

""Central bank money" is similar to reserve money, but includes liabilities to banks due to reversible open market operations as well as potential and actual liabilities to the public sector. C/RM/S/42 Trade Policy Review Mechanism Page 10

Box I.1: Recent Reforms of the Financial System

The Turkish financial system was substantially reformed during the 1980s. In the first phase (1980-82) refonmers concentrated on deregulating the financial system. Legal restrictions on loan and deposit rates were removed and the banks were allowed to issue negotiable certificates of deposit. However, these reforms did not survive the financial crisis of 1982.

In the second phase (1983-87), reforms encompassed deregulation and strengthening the institutional foundations of the system. The Foreign exchange régime was liberalized during the 1980s (see ChapterIII), and the Banking Act 1985 introduced provisions regarding such matters as the structure of banks and protection of deposits. The Central Bank was empowered to engage in open market operations and its regulatory authority over the banking system was strengthened.

In the securities market. the Capital Market Board was established in 1983 to supervise and promote capital markets. It was responsible for the establishment of the Stock Exchange in 1985. ln 1987 mutual funds became active. In the third phase (1988-90) there was a consolidation and further implementation of the earlier reforms. An official foreign exchange market was established in 1988 and a gold market in 1989. The capital account of the balance of payments was liberalized in 1989.

21. No explicit monetary programme was announced in 1991. in view of uncertainties associated with the Gulf crisis. However, in 1992 the announced monetary programme envisaged an increase in central bank money of 40-50 per cent, consistent with an end-of-year inflation objective of 42 per cent. The planned central government budget deficit was TL32 trillion (4.4 per cent of GNP), of which TL11 trillion was to be financed by Central Bank advances to the Treasury. a substantial reduction of monetary deficit financing on the previous year. In the event, with a substantially higher central government deficit and PSBR, Central Bank advances to the Treasury rose by almost double the amount envisaged in the monetary programme and central bank money grew by 106 per cent. Reserve money. the sum of banknotes issued and net reserves of the commercial banks held at the Central Bank, grew by 67 per cent. more in line with nominal GNP.12 At the same time, broad money (M2) expanded by 61 per cent (Table 1.2). while M2X (M2 plus foreign currency deposits) grew by 80 per cent, partly because ofstrong interest-induced time deposits and foreign exchange deposits. including by residents.13

22. Interest rates ran at roughly the same level as inflation throughout the 1980s: only in the l990s did real interest rates increase substantially, particularly on Treasury bills, where real interest rates are now of the order of 20 per cent. However, recently real interest rates have been quite low on deposits, increasing with the length of the deposit. The Central Bank is trying to achieve a reversaI of this structure so that longer term borrowings will be at lower rates, and this will also operate to reduce the burden on .

!2This was partly because of the recent growth in the use of new financial instruments which are not subject to reserve requirements. A wide-ranging reform of capital market laws and regulations was introduced in May 1992. Non-bank institutional investors were empowered to establish mutual investment funds. Issues of non-voting shares, convertible bonds, depositary receipts and asset-based securities are now allowed. Controls on banks were increased. The scope for portfolio management was enhanced. The new legislation legalised and regulates repurchase transaction, allowing banks and other financial intermediaries to collect non-deposit funds not subject to reserve requirements. Interest earningson government bonds covered in such transactions are not subject to corporate taxation. 3The expansion of foreign exchange deposits by Turkish residents suggests a lack of confidence indomestic money, complicates control of the money supply and can to higher inflation. While the financial market reforms may reduce the costs of financial intermediation and improve the efficiency of capital markets, they reduce the ratio of base money toGNP. and raise the inflationary effects of financing government deficits through Central Bank lending. The Republic of Turkey C/RM/S/42 Page Il

(ix) Balance of payments

23. The balance-of-payments situation of Turkey has improved considerably in recent years. Mainly through favourable developments on current account, Turkey's international reserve position has strengthened markedly (Table 1.3). A consistently negative trade balance and large interest payments on foreign debt have been more than offset by revenues from tourism and workers' remittances.

'4. The strong export performance, particularly in manufactures, ofthe 1980s was associated with a real exchange rate depreciation, linked to declining growth in real wages (Chart I.5).'4 Following a 50 per cent nominal devaluation of the lira in January 1980, the adoption of a "crawling peg" exchange rate régime, with exchange rates adjusted on a daily basis from May 1981, and a more market-determined exchange rate system since 1984 (Chapter III), Turkey maintained the real depreciation until 1988. In August 1988. the exchange rate was made freely negotiable between authorized parties for sums over US$50.000.

25. Inthe period 1979-1985. imports also grow rapidly, but at a slightly slower pace than exports, spurred mainly by overall economic growth and by the need for inputs and capital goods for export-based industries, and, in consequence, the trade deficit decreased in this period. 26. Substantial real wage increases in 1989, and short term capital inflows in response to positive real interest rates and further capital market liberalization, led to an appreciation of the real effective exchange rate and adversely affected Turkey's international competitiveness. contributing to a drop in exports. These recovered in 1990 when the real effective exchange rate became more stable, as the nominal exchange rate depreciated to accommodate domestic price increases. The growth in domestic demand in 1990 also stimulated an import surge; the trade deficit reached a record level approaching USS1O billion.

27. The slowdown in demand in 1991 prevented the budget deficit from translating into an increased deficit on current account. while the negative impact ofthe Gulf crisis in that year was offset by grants and concessional loans from the GulfCrisis Financial Coordination Group (GCFCG). In consequence, the current account moved from a deficit of US$ 2,6 billion or 2.4 pe. cent ofGNP in 1990 (2.9per cent excluding GCFCG grants) to a surplus of US$258 million or 0.3 per cent ofGDP in 1991 (a deficit of 1.4 per cent excluding GCFCG grants). The widening of the current account deficit to US$943 million in 1992 is attributable to a decline in official transfers, a slight widening of the trade deficit and increased interest payments.

28. The general weakness of the world economy - particularly the European economies - is likely to act as a constraint on the growth of Turkey's exports in the short term. While Turkey's exports face trade barriers in a number of markets, its free-trade arrangements with the EC and EFTA, should give it some competitive advantage. particularly against iower cost textile and clothing exporters. In the United States market, where its MFA quotas were expanded after the Gulf crisis, Turkey has not been able to fill its quotas.

14Kumcu and Kumcu (1991). C/RM/S/42 Trade Policy Review Mechanism Page 12

Table 1.3 Balance of Pavments (US$ million) 1987 1988 1989 1990 191 1992 A. Current account -806 1,596 961 -2,625 258 -943 Trade balance -3.229 -1,777 -4,219 -9,555 -7.340 -8.191 Merchandise exports. f.o.b. 10,322 11,929 11,780 13,026 13,667 14,891 Merchandise imports, f.o.b. -13,551 -13,706 -15,999 -22,581 -21,007 -23,082 Other goods, services: credit 4,195 6,026 7,098 8,933 9,315 10,451 Travel 1,476 2,355 2,557 3,225 2,654 3,639 Interest 382 374 684 917 935 1,012 Other 2,337 3.297 3,857 4,791 5,726 5.800 Other goods. services: debit 4,162 4,812 -5,476 -6,496 -6,816 -7,262 Travel -448 -358 -565 -520 -592 -776 Interest -2,387 -2,799 -2,907 -3.264 -3,430 -3,217 Other -1,327 -1,655 -2,004 -2,712 -2,794 -3,269 Private unrequited transfers: credit 2.088 1,846 3,171 3,374 2.879 3,147 Workers' remittances 2.021 1,776 3,040 3.246 2,819 3,008 Other 67 70 131 128 60 139 Private unrequited transfers: debit -22 -19 -36 -25 -25 0 Official unrequited transfers 324 332 423 1,144 2,245 912 B. Capital account 1.891 -958 780 4.037 -2.397 -1,407 Direct investment 106 354 663 700 783 779 Portfolio investment 282 1,178 1,586 547 648 2.411 Other long-term capital 1.453 -209 -885 -210 -808 -938 Short-term capital 50 -2.28 1 -584 3,000 -3.020 -2,438 C. Net errors and omissions -506 515 971 -468 940 -1.221 D. Counterpart items 390 -263 50 364 170 0 E. Total change in reserves -969 -890 -2.762 -1.308 1,029 -1,484

Memorandum Items: Int'l reserves, excluding gold (USS) 1,719 2,307 4,831 5,972 4,910 6,116 Int'l reserves, as months of imports of 1.2 1.5 2.7 2.5 2.1 2.4 goods and services Terms of trade index (1987=100) 100 104 96 98 Export price index. f.o.b. (1987=100' 100 108 155 161 Import price index. c.i.f. (1987=100) 100 104 162 165 .. ..

Source: Central Bank of Turkev. Foreign Relations Department. May 1993, except terms of trade. export and import price indices from World Tables 1991/92. The Republic of Turkey C/RM/S/42 Page 13

Chart 1.5 REER index and Merchandise trade at 1987 prices, 1970-91

Trade (ISS thousands, 1987 prices) REER 'ndex (1987=100)

10 200

5 150

o.~ 74- - '--!.--

-

Imports -0- Exports Trade balance- REER -10 0 1970 1975 1980 1985 1990 Note: REER index estimated by GATT Secretariat using GDP exchange rates and trade weights of 9 major trading partners. Source: World Tables 1991/92 (STARS version), UNSO Comtrade data base and GA.TT Secretariat estimates.

29. Turkey has made considerable efforts, particularly since 1980. to attract foreign direct investment. net inflows ofwhich reached US$779 million in 1992. It has also been successfulinattracting portfolio investment since 1988 (Table 1.3). Although this fell away in 1990 and 1991. due to the Gulf crisis. it recovered strongly in 1992 to reach US$2.4 billion. Since 1988. Turkey has also been making net repayments to multilateral lenders. such as the World Bank and the European Resettlement Fund; these repayments reached US$938 million in 1992. With respect to short-term capital movements. there was a net outflow of US$2.3 billion in 1988. linked to the strategy of reducing short-term borrowine and to the USS1 .6 billion surplus on the current account. The sharp increase in short-term borrowing of USS3 billion in 1990 was due to tighter domestic policies. involving high domestic interest rates. However. this was followed by outflow of US$3 billion in 1991. in the wake of the Gulf crisis and some uncertainties in domestic markets. The surplus on the current account also reduced the need for short-term borrowing. Another outflow of USS2.4 billion in 1992 reflected an attempt to curb the rise in domestic interest rates. as well as the increased costs of foreign borrowing.

30. As a consequence of these developments, Turkey's official reserves. excluding gold, rose from USS1.7 billion in 1987. equivalent to 1.5 months of merchandise imports. to USS6.0 billion in 1990. equivalent to 3.2 months of merchandise imports. Although reserves fell to US$4.9 billion in 1991. they recovered again to US$6. 1 billion by the end of 1992 (equivalent to over 3 months ofmerchandise imports). 31. Turkey's foreign debt increased markedly in the late 1970s; in 1980. total international debt stood at US$515.7 billion, or approximately one-third of GDP. Debt continued to build up strongly C/RM/S/42 Trade Policy Review Mechanism Page 14 in the second half of the 1980s. mainly because of borrowings by the central government and, to a lesser extent. by non-financial public enterprises (the State Economic Enterprises). Total debt rose sharply by almost USS7.5 billion in 1990 and again by some US$4 billion in 1992 (Table 1.4). Of the 1990 increase. more than half was short-term debt, while some US$2.5 billion represented an increase in long-term borrowings by the central government to help finance the domestic deficit. The foreign debt.GDP ratio fell from a peak of 58.9 per cent in 1987 to 44.5 per cent in 1990. but it has increased again to 48.7 per cent in 1992.

Table 1.4 External debt 1980 and 1987-92 USS million) 980 1987 !!9989 1990 1991 !992 External Debt, total (EDT) 15.709 40.326 40(.722 41.751 49.035 50,489 54.7M Long-term Debt thy debtor) 13229 32.703 34.305 36.006 39.535 41.372 42.(046 Central Bank. incl. IMF credit 4.'84 7.860 6.845 7,023 -.l31 6.530 6.15(0 Central Government 6.411 18,391 20.446 '1.164 23.659 25.134 -5.449 Rest of General Government 4' .2.32 1.501 1.821 1.972 2.271 2.564 Non-financial Public 1.161 3.947 3.988 4.392 4,,85 5.1 5 5.05 Enterprises Private sector. incl. 1.330 1.273 1.525 1.66 1799 2.2522s.826 non-guaranteed ShortTern Debt 2.480 7.62 6.4'- 5,745 9.500 9.117 12Y,60

Memorandum Items EDT Exports of Goods & 268.3 238.2 202.3 185.e 185.2 179.6 186.1 Services (per cent) EDT'GNP (per cent) 26.9 58.9 57.5 52.0 44.5 46.5 49w7

Source: Government of Turkey.

(3) Composition and Direction of Trade

(i) Composition of trade

32. Chart 1.6 shows the changes that have taken place in the composition of Turkey s merchandise trade structure since 1970, particularly the rapid growth of trade in manufactures (from 8.9 to 67.9 per cent). Table AI. I shows that the most important growth items in manufactured experts have been clothing. textiles and iron and steel. but there has been significant diversification in the last decade. However. Turkey is also an important food exporter - mainly offruits and vegetables , of which alone account for almost one third of experts). as well as tobacco and cotton. 33. Imports are also widely diversified. While fuels accounted for over half the import bill in the early 1980s. their share in imports had declined to 20 per cent by 1990 (Table AI.2). Various capital goods. chemicals and automotive products dominate: there are significant imports of textiles. much of which are for clothing production for export. Food imports are substantial and growing. Meat imports and luxury" food items. previously banned. are expected to grow in line with Turkeys increased prosperity. The Republic of Turkey C/RM/S/42 Page 15

Chart 1.6

Commodity composition of Turkey's trade, 1970-90

USS billion

Imports

8010e

60%~

40'cé

20~l.

19-0 1980 199e

Exports

1(0%'

60%

20%

0% 190l~ 1980 1990

M Agriculture - Mining Manufacturing

Source: UNSO Comtrade Data Base. CJRMI/S42 Trade Policy Review Mechanism T'ge 16

Chart 1.7 Direction of exports, 1970-90 Per cent

1970

E1 (inc. DDR) 53.0 United States 9.8 Africa 1.5

Middle East 8.2,

Esst Asia 4.2

EFTA 10.5 Fast Europe and former lSSR 12.9

1980 EC12 (inc. DDR)

United States 4.5 Afirca 3.7 EFTA -.2

MiddleEast 19-2 East Europe and former U SSR 16.4 East Asia 2.-

1990

EC12 (inc. DDRR' 56.1

lnited States '.9

Afric9 6.1

middlee East 13.0

Esst Europe and East Ais 5.1 fornmr t SSR 6.7

Source: UNSO C(Lmtrade Data Base. The Republic of Turkey C/RM/S/42 Page 17

Chart 1.8 Origin of imports, 1970-90 Per cent 1970

'7 2 (inc. DDR) 46.8 United States 19.4

Rest of World 6.6 Africa 1.5 Middle East 5.6 East Asia 0.2 EFTA 8.3 East Europe and former USSR 11.7

1980 EC12 (inc. DDR) _ 30. EFTA

East Europe and former USSR United States 5.- 9.- East Asia 0.- Rest of World 6.4

Africa 10.6

Middle East 29.0

1990

EC12 (inc. DDR) 41.9 United States 10.2

EFTA 5.0 Rest of World 11.0

East Europe and formerUSSR Africa 6.0 East Asia Middle East 12.1

Source: UNSO Comtrade Data Base. C/RM/S/42 Trade Policy Review Mechanism Page 18

ii) Direction of trade 34. The European Communities forms by far Turkey's most important trading partner, taking 56 per cent of its exports and supplying 42 per cent of its imports in 1995 (Charts 1.7 and 1.8). The most important individual trading partners for Turkey are Germany. the United States and ltaly. Concentration on EC markets intensified in the 1980s, partly because the fall in oil prices reduced the importance of the Middle East, the second most significant region for Turkey's trade. In 1992, the share of trade with eastern European countries and the former Soviet Union declined markedly (Tables AI.3 and AI.4). The former Soviet republics, particularly the Russian Federation, remain important trading partners for Turkey. not least because of the Natural Gas Agreement under which Turkey imports gas from Russia against payment in hard currency, of which part must be used for purchases of Turkish goods and civil engineering services (Chapter IV). (4) Outlook 35. Turkey's present five-year Economic Development Plan, covering the period 1990-94, sets a number of ambitious targets. An average annual growth rate of 7 per cent is envisaged. reaching 8.3 per cent in 1994. Private sector investments are targeted to grow at an annual rate of 1 1 per cent, with growth reaching 15 per cent by the end of the plan. The current account surplus is expected to increase throughout the period. to reach USS2.500 million in 1994. Exports are projected to grow at an average of 15 per cent a year and to exceed USS22.000 million by 1994. Inflation is also projected to fall to 10 pe: cent a year by the end of 1994. 36. There were a number of improvements in:1992 compared to performance in recent years - particularly in the balance of payments and international reserves - but few indicators approach the targets of the plan. Some of the underlying tendencies renain a cause for concern. For example, the real growth in 1992 of 5.4 per cent was driven by consumption expenditure. financed by very large real wage increases at the end of 1991. The slight improvement in the public service borrowing requirement as a share of GDP owed more to a stock run-down than to a fundamental restructuring of finances. Future improvements will depend heavily on the ability of the government to rein in expenditure. as well as to broaden the tax base and improve effective tax collection.

37. The 1993 programme. established within the context of the overall five-year plan. is markedly less ambitious. moderated in the light of experience of the last three years. GDP growth is projected at 5 per cent. Private fixed capital investment is expected to grow at 6.8 per cent. Exports are still forecast to increase by 15 per cent. but may also be adverse, affected by the slowness of the world economic recovery. Inflation is expected to be of the order of51 per cent (GNP deflator). down from 62.6 per cent. based on a projected reduction of the PSBR/GNP ratio to 9 per cent. However. this is based on projected real wage increases of 9 per cent and 2 per cent, respectively. for the public; and private sectors. far below the levels attained in recent years. 38. Turkey s trade performance up to 1987 owed much to its increased competitiveness and productivity. Since then. its performance has remained strong by comparison with other OECD countries. although its dynamism has weakened by .omparison with other newly industrializing countries. If it is to achieve its potential, then greater attention will need to be given to a medium-term strategy to improve government finances and enhance macro-economic stability. The Republic of Turkey C/RM/S/42 Page 19

Il. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES (1) General Framework

39. The Republic of Turkey was established in 1923, within its present boundaries, following the dismantling of the . whose territories extended over a large part of Europe and the Middle East in the previous six centuries. It is a democratic and secular state.

40. Under the Constitution. legislative power is vested in the Turkish Grand National Assembly (TGNA). The unicameral legislature has 450 members, elected for a maximum term of five years bv universal suffrage and secret ballot. Since 1950, Turkey has had a multi-party political system except during periods of military rule in 1960. 1971 and most recently from 1980 to 1983. Legislative elections were last held in November 1991. 41. The Grand National Assembly has the responsibility for reviewing and changing statutes and law-amending ordinances. It exercises control through parliamentary questions investigations and general debates. While the Constitution states that legislative power cannot be delegated. the Assembly can authorize the Council of Ministers to issue decrees having the effect of law on certain topics and under certain conditions.

42. The President of the Republic. elected by the Grand National Assemblv for a seven-vear term. is the head of State. Both Council of Ministers' Decrees and Acts of the National Assemblv are submitted to the President for signature. Decrees which the President declines to sign do not enter into force. By contrast. the President can refuse to approve Acts once. but if they are then readopted by the Assembly they are promulgated as law automatically. 43. The Prime Minister is appointed by the President of the Republic from the members of the Grand National Assembly. Ministers. who are not required to be members of the National Assembly. are selected by the Prime Minister and appointed by the President. The main executive power rests in the hands of the Prime Minister and the Council of Ministers.

44. The administrative system in Turkey is centralized. The country is divided into seventy-four provinces subdivided into districts, each under a appointed by the Ministry of Interior. Municipalities. under elected mayors. are established in the main towns. 45. The Constitution is the supreme law of Turkey. Its -eneral rules define the form of the State. the principal organs of the Government. the rights and duties of citizens and of the State and the legal relationship between them. The Constitution can be amended either through a three-fifths majority in the Assembly. followed by acceptance in a national referendum, or by a two-thirds majority in the Assembly. A new constitution. adopted in a national referendum in November 1982. strengthened executive power at the expense of the legislature. Government decrees thereafter became the major instrument for introducing policy changes.15

46. The ranking of legal instruments indescending order ofauthority and importance is as follows: codes and statutes, law-amending ordinances. regulations. by-laws and common law. In practice. decrees issued by the Government have. in many cases. altered the implementation of the law.

15Onis and Webb (1992). p. 10. C/RM/S/42 Trade Policy Review Mechanism Page 20

47. Responsibility for reviewing and changing codes and statutes, and for making law-amein3ing ordinances, rests with the TGNA. For other instruments, the Council of Ministers and individual Ministries are responsible. Statutes and law-amending ordinances are prepared- as bills by the relevant Ministries for presentationto the TGNA. After approval by the Assembly and following the signatures of all Ministers, the Prime Minister and the President. they become law, entering into force on their publication in the Official Gazette. Other instruments generally come into force after being prepared by the relevant institutions and published in the Official Gazette. Regulations are presented to the Council of Ministers for approval. (2) Trade Policy Formulation 48. The Undersecretariat for Treasury and Foreign Trade (UTFT), under the Prime Ministry, has the primary responsibility for the co-ordination offoreign trade policy (Chart II. 1). It prepares decisions on trade policy by collecting views of other relevant Ministries. agencies and subsidiary bodies. The Minister of Finance, the Undersecretariat for Customs, the Undersecretariat of the State Planning Organization. the Central Bank of Turkey, the Turkish Eximbank and the Turkish Development Bank take part in the process of policy formulation and implementation. 6 Other Ministries directly involved in determining regulations affecting trade in goods under their responsibility are the Ministries of Agriculture and Rural Affairs. Energy and Natural Resources. Health and Environment. 49. Proposals for decisions are presented by the UTFT to the Council of Ministers. Decisions of the Council become decrees upon their publications in the Official Gazette.

50. The import régime is normally introduced on an annual basis. In the course of the year, tariffs and other import regulations may be amended by decisions of the Council of Ministers, based on proposals from the UTFT. These amendments are published in the Official Gazette. In preparing the import régime or amending tariffs. the UTFT takes account of Turkey's commitments under multilateral. regional and bilateral trade agreements as well as such factors as producer and consumer interests. unfair trade practices and the balance of payments. 51. The Ministry of Industry and Commerce is also indirectly involved in foreign trade; it is, for example, in charge of preparing certain trade-related laws such as the Competition Law. the Consumer Protection Law. the Organized Industrial Estates Law. the Patent 1aw and the Law Establishing the Turkish Patent Institute. The Turkish Standards Institute (TSI) prepares product standards for domestic consumption and export. The Ministry ofIndustry and Commerce has the authority to put into force industrial standards prepared by TSI which are related to public health and product safety and also carries out the inspection ofthese goods for compliance with standards at the production and sales stages. 52. The Undersecretariat of the State Planning Organization prepares overall development plans for five-year periods: annual programmes set out economic goals and specify public investment priorities. This branch is also empowered to implement incentive schemes for regional development and to assist in indicative regional planning.''

"1In June 1993. under the new Government, the Ministry of State in Charge of Economic Affairs was dissolved and the Undersecretariat for Treasury and Foreign Trade, the Undersecretariat of Customs (previously part of the Ministry of Finance and Customs) and the Undersecretariat of the State Planning Organization previouslyv the State Planning Organization (SPO)) were attached to the Prime Ministry. !IOECD (1992c), p. 128. Chart 11.1 Structure ofthe Undersecretariat for Treasury and Foreign Trade, 1993

b

Minister of State O, r>e1 Undersecretary '-i!

Directorate of Directorate of Directorate of Deputy for Foreign Trade Treasury Encouragement Common Issues and Application

General Directorate General Directorate General Directorate General Directorate of Exports of External of Incentives and Economic Relations Implementation of EC Coordination

General Directorate General Directorate General Directorate of Imports ofranking General Directorate of Economic Research and Exchange of Foreign Capital and Assessment

General Directorate General Directorate General Directorate Administrative of Agreements of Public Financing of Free Zones Issues e General Directorate of Standardization e

Source: Government ofTurkey. C/RM/S/42 Trade PolicyReview Mechanism Page 22

(j) Advisory bodies 53. Advice on economic and trade policies is sometimes sought from universities and research institutions. such as the Economic Development Foundation (IKV); the Scientific and Technical Research Council ofTurkey (TUBITAK); the ForeignEconomic Relations Board: the ForeignTrade Association of Turkey (TURKTRADE); and the Export Promotion and Research Centre (IGEME). 54. The private sector provides inputs to trade policy formulation by communicating its views either directly to the UTFT or through the Union ofChambers of Commerce, Industry, Maritime Commerce and Commodity Exchange (TOBB); the Turkish Industrialists' and Businessmen's Association (TUSIAD); as well as individual or local chambers ofcommerce and exporters' associations. These bodies exchange information or convey their suggestions and requests to Government agencies, such as the UTFT, for their evaluation. The channels of communication between these bodies and government are not formalized which encourages individual contacts between interested parties.18 (ii) Review bodies 55. Various Standing Committees in the National Assembly (including the Budget and Planning Committee and the Committee on State Economic Enterprises) are ina position to review trade policies. (3) Trade Laws and Regulations 56. The main laws and regulations relating to trade in Turkey are as follows:-

- Law 6202 (1953) implementing Turkish accession to the GATT under the Torquay Protocol;

- Law 261 (1963) "Regulating the Various Measures Affecting Taxes That Promote Exports";

- Law 474 (1964) "Law Changing the Import Customs Tariffs Based On Customs Law Number 5383" empowering the Council of Ministers to change tariff rates as well as the levels of other tariff-like charges;

- Law 2976 (1984) "Foreign Trade Regulations" which is the main source for legislative action on imports and exports, including export promotion; it allows the Council of Ministers to authorize the imposition or removal of "additional financial obligations" on foreign trade transactions.

- Law 3218 (1985) establishing free trade zones:

- Decree 85/9155 (1985) adopting the Agreement on Interpretation and Application of the Articles VI. XVI and XXIII of the GATT (the Subsidies Code);

- Decree 88/13194(1989) adopting the Agreement on Implementation ofArticle VII oftheGATT (the Customs Valuation Code);

- Law 3577 (1989) "Law on Prevention of Unfair Competition in Importation" which provides the basis for anti-dumping or countervailing actions:

18Onis and Webb, p. 17. The Republic of Turkey C/RM/S/42 Page 23

- Law 3824 (1992) "Amendment to the Tax Laws" which abolished the Supplementary Import Charges, effective 1 January 1993; - Export Incentive Decree and Communiqué 92/2644 (March and April 1992) which sets out the principal export promotion instruments; and the - Deeree on Import Régime (92/3902 of 31 December 1992) which establishes the 1993 import regime. (4) Trade Policy Objectives (i) General trade policv objectives 57. Turkey's major trade policy objective at the present time is to achieve customs union with the European Communities by 1995 and eventually full membership of the EC. Other trade policy objectives include improving trade relations with neighbouring countries. At the same time, it is continuing the process of trade liberalization and market opening on a wider footing, both autonomously and on a multilateral basis through its participation in the Uruguay Round negotiations. (ii) Objectives in the Uruguay Round 58. Turkey participates actively in the Uruguay Round. The authorities expect positive results to sapport turkey's liberalization efforts by establishing a strengthened muitilateral system that will provide a finn basis for its relationships with its regional trading partners. 59. On market access negotiations. Turkey has addressed requests to ten participants (including Australia. Austria, Canada. Finland. Japan, New Zealand, Norway, Sweden, Switzerland. United States). It has also received requests from Austria. Canada, New Zealand, Switzerland. Finland. Japan. United States. Sweden. In its mid-1993 Uruguay Round offer. Turkey proposed to increase the level of tariff bindings to 37 per cent of tariff lines in industry and to participate full in the tariffication and binding of measures applied to agricultural products.19 60. In the services sector. Turkey's conditional offer concerning initial commitments listed all existing domestic regulations it proposed to bind in terms of market access and national treatment provisions of the Draft General Agreement on Trade in Services. Following bilateral consultations. Turkey submitted a revised offer in March 1992 which included additional sectoral commitments for transportation and telecommunication services.0 On financial services. including insurance. Turkey's offer was prepared in accordance with the "Understanding" and by taking into consideration the "Annex on Financial Services". (5) Trade Agreements and Arrangements 61. The Ministry of Foreign Affairs is empowered to sign international treaties. International treaties. including the General Agreement and the MTN Codes, are part ofTurkish Law; their constitutionality may notbe challenged. In general. treatie. .equire legislative approval by theGrand National Assembly;

"The definition of "industrv" in the Draft Final Act ofthe Uruguay Round includes fish and fishery products, but excludes other . 20GATT document MTN.TNC/W/72/Rev. 1. C/RM/S/42 Trade Policy Review Mechanism Page 24 however, they may become binding without legislative approval, according to Article 90 of the Constitution.

(i) Multilateral agreements 62. Turkey acceded to the GATT in 1951 under the Torquay Protocol and has participated in all subsequent rounds ofmultilateral trade negotiations. It has accepted the MTN Agreements on Subsidies and Countervailing Measures and on Customs Valuation. It has observer status in other MTN Code Committees including the Committee on Technical Barriers to Trade, the Committee on Anti-dumping, the Committee on Government Procurement and the Committee on Import Licensing. Turkey is also a signatory to the Arrangement regarding International Trade in Textiles (the Multifibre Arrangement). 63. Turkey is a member ofthe International Cotton Advisory Committee (1947). the International Wheat Agreement (1986). the International Agreement on and Table Olives (1988) and the Common Fund for Commodities (1990). (ii) Regional agreements

(a) Turkey-European Communities 64. Turkey first applied for association with the European Economic Community in July 1959. Following this application. the Ankara Agreement. based on Article 238 of the Rome Treaty and establishing an Association between the European Economic Community and Turkey, was signed on 12' September 1963 and entered into force on 1 December 1964. The stated objective of the Agreement is to promote the continuous and balanced strengthening of trade and economic relations between the parties. while taking full account of the need to ensure accelerated development ofthe Turkish economy and the need to improve the level of employment and living conditions of the Turkish people. Its long- tern objective is the accession of Turkey to the Communities.' 65. The Agreement provides for the establishment of the Asson nation in three different stages: preparatory. transitional and final. After the preparatory stage of five years, extended to eight years, an Additional Protocol was signed on 23 November 1970 and entered into force on 1 January 1973. The Protocol sets out the conditions. arrangements and timetables for the establishment of a customs union between the Communities and Turkey by 1995. Progressive reductions in duties. on the basis of two lists. one covering a period of 12 years and another a period of 22 years. were defined in the Protocol. 66. Between 1976 and 1988. however, Turkey suspended the programmed annual customs duty reductions. In April 1987, Turkey applied for full membership of the EC. in accordance withi Article 237 ofthe Treaty ofRome and on the basis of the Association Agreement of 1964.22Following undertakings made in its 1987 application for membership and under a Decree adopted on 28 December 1987. aiming towards the goal of customs union and alignment of its tariffs with the Common External Tariff of the Communities. Turkey resumed its annual programme of duty reductions.

21Article 28 of the Ankara Agreement provides that "as soon as the operation of the Agreement has advanced far enough to justify envisaging fulI acceptance by Turkey of the obligations arising out ofthe Treaty establishing the Community, the Contracting Parties shall examine the possibility of accession ofTurkey to thc Commuriitv. ::The EC Council ofMinisters decided in February 1990. based on an opinion prepared by thc Commission. that the request for the reopening of negotiations for accession should be considered after 1993. The Republic of Turkey C/RM/S/42 Page 25

67. The customs duties applicable by Turkey to products originating in the EC are calculated as successive percentage reductions of the duties prevailing on 23 November 1970 (date of signature of the Additional Protocol). In 1993. the duties applicable to goods of EC origin (and those from EFTA, as noted below) were equivalent to 20 per cent of these basic duties for products on the 12-year list (which initially were to be eliminated in 1985) and 30 per cent for products on the 22-year list. The Harmonized Svstem Nomenclature was introduced by Turkey on 1 January 1989 to facilitate the alignment of Turkish tariffs with those of the EC. 68. Industrial products of Turkish origin have been exempt from customs duties and charges having equivalent effect in the Communities since 1971.. The EC has also abolished all quantitative restrictions on imports of such products. with some exceptions (Chapter IV).23 In accordance with the provisions ofthe Additional Protocol. Turkey bound in respect ofthe Communities its liberalization ofquantitative restrictions on imports equivalent to 80 per cent of its imports from the Community in 1967.

Box II.1: Exports of textiles and clothing to the EC

At the time of the signature of the Additional Protocol, the EC undertook to phase out duties on cotton yarn woven fabrics of cotton and machine-made carpets over a 12-year period. For cotton yarn and woven fabrics of cotton. tariff quotas were also established.

In July 1982, a voluntary export arrangement was signed between the Istanbul Textiles and Clothing Exporters Ascociation (ITKIB) and the Commission, providing quantitative limitations and a price mechanism for Turkish cotton yarn exports to the EC. The 1982 Agreement, which. first covered textile products, was later extended to clothing products and has, in successive years, been regularly renewed. In December 1985, 4 other textile categories were added to the cotton *arn limitations for the period 1986 and 1987. In 1986, further restrictions were agreed on 7 clothing categories. The 1991 clothing agreement covered 13 categories and the 1992 textile agreement covered 6 categories. The most recent arrangement concluded bv ITKIB in May 1993 involves increased quotas for 10 categories of clothing. N._'ite these voluntary restraint arrangements. 10 oul of 21 anti-dumping investigations initiated by the Commission against Turke.; Z-tween 1976 and 1992 related to textile and clothing products.

69. The provisions on customs union in the Additional Protocol do not apply to agricultural products. Since 1 January 1987. Turkey's exports of agricultural products governed. in the Communities. by the Common Agri:ultural Policy (CAP). have been exempt from EC import duties but not from variable levies. For certain products. the customs dut-, exemption is accompanied by quantitative restrictions. seasonal quotas or a requirement to observe reference prices. minimum import prices and voluntary export restrictions.24 The Additional Protocol proposes the adoption of the CAP bx Turkey by the end of the transitional period of 22 years. Meanwhile. in accordance with Annex 6 of the Protocol on agricultural products. Turkey is to grant preferential treatment to ensure a satisfactoryr increase" in imports of agricultural products from the Community. In the 1993 Import Régime. a preferential tariff margin on agricultural products was granted unilaterally on 43 tariff lines as well as on 152 tariff lines in accordance with Annex 6 of the Additional Protocol. The EC also benefits from preferential tariff treatment on fish and fishery products granted to EFTA countries in terms of the EFTA-Turkev Free Trade Agreement.

70. The terms of the Additional Protocol relating to anti-dumping procedures are in parallel with those in Article 91 of the Treaty of Rome. and require the use of procedures which empower the

23Imports of petroleum products are subject to a tariff quota of 740.250 tons. 24Tomato concentrates and other products. preserved mushrooms. hazelnuts and pulp arc subject to import quotas; fresh fruit and vegetables are subject to seasonal tariffs and reference prices: f:sh. fish products wine. raisins. preserved and preserved raspberries are subject to reference prices. CIRM/S/42 Trade Policy Review Mechanism Page 26

Association Council to make recommendations with regard to dumping practices and anN related action between the contracting parties. However, the EC applies Council Directive of 2 August 1988, used for non-EC exporters. in its anti-dumping investigations against Turkish exporters. Between 1987 and 1992, the EC held 20 anti-dumping and countervailing investigations on imports from Turkey. Eight of these terminated with the imposition of definitive duties (Table 1l. 1).

Table 11.1 EC's anti-dumping and anti-subsidy investigations against Turkey Definition of product Initiation date Result I Anti-dumping investigations Investigations terminated with the imposition of definitive duties I Polyester yarn 1.7.1987 Provisional duty: 17.6.1988: between 2.7 % and 13.2% Definitive duty: (16.12.1988; the same rates' Polyester fibre 1.7.1987 Provisional duty: 17.6.1988; 12.4% Definitive duty: 16.12.1988; 11.9% A review procedure was initiated on 15.9.1990

3 Cotton yarn 23. .. 1990 Provisional duty: 27.9.1991; 12.1% 4 Sermi-finished products of iron 14.8.1987 Provisional duty: 21.7.1988 Definitive duty: 22. 1.1988; 30 Ecu per ton. (Firms uhich accepted the price undertaking are exempted from duty)

5 Iron and steel profiles 2.9.1989 Provisional duty: 15.12.199; 18.5% Definitive duty: 8.4.1991; 18,5% (Fimis which accepted the price undertaking are exemnpted from dut%) 6 Polyester yarn 30.3. 1990 Provisional duty: 3.10.1991: 52.1% Definitive duty: 3.10.1992: 10.1

Alloy. steel 14.6,1990 Provisional duty, 30.3.1992; 16% Definitive duty: 2.7.1992: 16% (The firm which accepted the price undertaking is exempted from duty) Cement (Portland ) 2_.4.199I The investigation is still continuing.

II. Anti-subsidy in% estimation Polyester yarn and fibre 9.2.19 9 Provisional duty: 31.5. 1991: between 1.48-11.48'%. After the undertakingw by the Turkish Government on the reduction of Corporate Tax Exemption. the investigation was terminated.

In some textile and industrial products. the Communiry has also initiated 12 anti-dumping investigations which were concluded without the imposition of provisional or definitive anti-dumping duties. The termination of the investigations was hased on the absence of injury the withdrawal of the complaint or the acceptance of a price undertaking.

Source: UTFT.

71. Turkey's commitments to tariff reduction vis-à-vis the EC have not prevented ît from reducing tariffs on an m.f.n. basis (Chapter IV). Prior to the introduction of the 1993 Import Régime. the EC complained of the erosion of its preferential margin. Moreover. because the application of the Mass Housing Fund does not discriminate between goods from EC and non-EC sources. the Community considers the measure as having effects equivalent to a customs dut; and hence contrary to the provisions ofthe Association Agreement. The EC Commission was informed that the Mass Housing Fund charge will be phased out over the next five ears at the latest.

72. In 1992. Turkish exports into the EC were USS7.6 billion (52 per cent of Turkey's exports >; imports from the EC USSIO billion (44 per cent of Turkey's imports) (Table 11.2). The commnoditv The Republic of Turkey C/RM/S/42 Page 27 composition. of exports to the Communities has changed especially after 1980; agricultural exports declined from 51 to 15 per cent between 1980 and 1990 and exports of manufactures increased from 41 to 83 per cent over the same period. The commodity composition of imports from the EC has been stable.

Table 11.2 Trade between Turkey and the European Communities Imports Percentage of Exports Percentage of into Turkey total imports from Turkey total exports (1'S$ million) (US$ million)

R.895 34.3 *.204 40.3 198( A4.5(5 41.1 3,263 43.8 198 5.6 40.( 4.868 37 1988 5,895 41.1 5,098 43.7, 1989 6.055 38.3 5.408 46.5 1990 9.32 41.8 6.893 53.3 199i 9 '21 43 8 -.042 5.7 IQ2 10.050 43.9° 51.* j

Source: State Planning Office SPO. Main Economic lnidcators

(b) Turkey-EFTA 73. The Free Trade Agreement between the EFTA member States and TPrkey was signed on 10 December 1991 and entered into force on 1 April 1992. 74. The Agreement applies to industrial products within HS chapters 25 to 97. with the exception of some 16 agriculture-based tariff items (casein. albumin. dextrin. finishing agents. cork, flax. henpT>). where there seems to be virtually no trade. A number of agricultural products, accounting for 6.2 per cent oftotal trade. are covered under the bilateral arrangements between Turkev and individual al EFTA countries. These arrangements provide for specified tariff concessions bv individual EFT.\ States. However. these concessions do not preclude the lev-ing of import duties under the prict compensation system in the respective EFTA country. 75. Since 1 Januany 1993. Turkey has granted imports from EFTA countries the same customs dut' treatment as imports from the EC. By the end of I 995. Turkey will gradually abolish al] customs duties and charges having equivalent effect on industrial imports from the EFTA countries. For certain processed agricultural . fish and other marine ,roducts. Turkey reduced customs duties on imports from EFJA countries by 60 per cent with the enty into force of the Agreement.25 76. EFTA countries have abolished all customs dutiess on imports and any charges having equivalent effect on products from Turkey. Customs duties of a fiscal nature are also abolished. except for duties applied in Iceland. Switzerland and Liechtenstein for particular products. For textile and apparel products. specified for each EFTA member. a transition period of tariff reduction until the end of 1995 is foreseen. For ECSC and EURATOM products. Austriawill reduce 'tSduties by 50 per cent. whereas the rest ofthe EFTA countries have eliminated their duties with the entry into force of the P-grcement.

25Annexes Il and V of the Agreement in GATT document L/6989/Add. 1. 6 March 1992.

C/RN/S/42 Trade Policy Review Mechanism Page 28

77. The Agreement also contains provisions in areas such as public procurement, intellectual property rights, state aid, competition, dumping and procedures for application of safeguard measures. An evolutionary clause provides for the possibility of extending the Agreement to other areas

Table 11.3 Trade between Turkey and EFTA members, 1985-1992 Imports Percentage of Exports Percentage of into Turkey total imports from Turkey total exports (US$ million) (US$ million) 1985 540 4.8 327 4.1 1986 653 5.9 333 4.5 1987 809 5.7 634 6.2 1988 808 5.6 552 4.7 1989 901 5.7 450 3.9 199) 1.166 5.2 617 4.8 1991 1,215 5.8 591 4.3 1992 1.414 6.2 633 4.3

Source: State Planning Office (SPO). Main Economic Indicators.

78. The coverage of the FTA, together with bilateral agricultural arrangements, accounts for 94 per cent of total trade between EFTA and Turkey. Total trade between the EFTA States and Turkey during 1992 exceeded US$2 billion, with a considerable balance in favour of the EFTA States. (c) Other regional agreements 79. An agreement establishing a Tariff Preferential System amongst members of the Economic Co-operation Organization (ECO) was signed by Turkey. Iran and Pakistan on 17 February 1992 in Teheran. A Protocol establishing a Preferential Tariff Arrangement was signed on 23 May 1991 and an Additional Protocol on 17 February 1992.26 It provides for the liberalization of trade among the member States for a period of four years, automatically renewable for a period of another two years. The coverage of the Turkish concessions represent a 10 per cent reduction on statutory rates for a nuniber of products (covering 37 four-digit tariff lines). The Protocol has a safeguard clause (Article III) for balance-of-payments reasons and an accession clause for developinig countries.27 80. The Black Sea Economic Co-operation Project (BSEC), signed on 25 June 1992, was initiated by Turkey to promote peace and prosperity and to encourage economic cooperation among a group of 11 countries, bordering or located near the Black sea. Together these countries include a population of 321 million and trade with other members 6 per cent of Turkey's exports in 1990 (Table l1.4).28

26GATT document L/7047, 22 July 1992. 27GATT document L/7047, 22 July 1992. 28Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russian Federation. Ukraine. Membership is open to other countries. The Republic of Turkey C/RM/S/42 Page 29

Table 11.4 Turkey's foreign trade with the members of the Black Sea Economic Cooperation Zone, 1990 Imports into Turkey Exports from Turkey US$ million US$ million % Albania 1.5 0.01 5.7 0.04 Greece 128.6 0.58 139.4 1,08 Bulgaria 31.9 0.14 10.4 0.08 Romania 202.5 0.91 83.2 0.64 Former USSR 1.247.8 5.59 531.1 4,10

BSECZ total' 1,611.8 7.23 769.7 5.94

Foreign trade total 22,302.1 100.00 12,959.3 100.OO

1 Including those of the USSR's successor States which are not members of the Black Sea Economic Cooperation Zone (the Baltic States. Belarus, the Turkic States). Source: Gumpel (1993).

81. According to the Project, signatory governments are invited to determine the framework of their economic relations and to identify and develop projects of common interest. particularly in infrastructure such as transport and communications, informatics. exchange of economic and commercial information. standardisation, energy, environment, and science and technology. Economic cooperation is to be based on the freedom of movement of goods, services. labour and capital and by establishing appropriate conditions for investment, capital flows and various forms of industrial co-operation.29 82. Turkey is a party to the GATT Protocol Relating to Trade Negotiations Amongst Developing Countries of 1971. Under this Protocol, Turkey has given concessions on about 66 items, with a preferential margin varying between 2 to 22 percentage points on m.f.n. rates.30 Most of these concessions, which were negotiated about 20 years ago, no longer provide any effective preferential margins. Turkey took remedial action for the erosion of its concessions on a unilateral basis and, as from 30 July 1990, reduced the rate of its preferential concessions to levels below the m.f.n. rates in effect. Jute andjute products were added to Turkey's list ofconcessions in 1987. In 1992, Turkey's imports from other members of the Protocol amounted to US$74.8 million. 83. Turkey is not a member of the Global System of Trade Preferences (GSTP) but has benefited from Generalized System ofPreferences (GSP) treatment inJapan since 1971, New Zealand, the Czech and Slovak Republics and Russia since 1972, Canada and Australia since 1974, and the United States since 1976.

29Gumpel (1993).

30GATT document CPC/W/154, 10 March 1992. C/RM/S/42 Trade Policy Review Mechanism Page 30

(iii) Bilateral agreements 84. Turkey has signed bilateral trade agreements, the majority of which were supplemented by economic, industrial, technical and scientific cooperation agreements, with some seventy countries.31 85. A natural gas agreement was signed with the Soviet Union in 1984 and assured by the Russian Federation in 1992. Under this agreement, the Turkish gas pipeline company (BOTAS) pays for its imports in convertible currencies and Russia undertakes to use the proceeds of its sales to import goods and services from Turkey (Chapter IV).

31Afghanistan, Albania, Algeria, Argentina, Australia, Azerbaijan, Bahrain, Bangladesh, Belarus, Belgium, Bulgaria, Chile, China, Denmark, Djibouti, Egypt, Finland, France, The Gambia, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Iraq, Italy, Japan, Jordan, Kazakhstan, Korea, Kuwait, Kyrgyzstan, Lebanon, Libya, Lithuania, Malaysia, Malta, Mongolia, Morocco, Netherlands, Nigeria, Norway, Pakistan, Poland, Qatar, Romania, Russia, Saudi Arabia, Senegal, Sierra Leone, Somnalia, Spain, Sri Lanka, Sudan, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Yemen, and Zaire. The Republic of Turkey C/RM/S/42 Page 31

III. EXCHANGE RATE AND FOREIGN INVESTMENT REGIME (1) The Foreign Exchanie Régime (i) Institutional framework 86. The Central Bank of Turkey, the financial agent of the Government, conducts monetary and credit policy in conformity with the Annual Programme. Responsible for protecting the internal and external value of the currency, the Bank regulates all matters related to foreign exchange operations. Its main aim is the stability of financial markets, implemented through monetary policy or, as a second alternative, through exchange rate policy. Previously under the control of the Ministry of Finance, the Central Bank is now a joint-stock company with 51 per cent of its shares held by the Treasury, and reports directly to the Office of the Prime Minster. (ii) Exchange rate reform 87. Exchange rate reform. starting with an immediate 48.6 per cent devaluation of the Turkish lira, was central to the stabilization and adjustment measures, and the export-led growth strategy., adopted in January 1980. In the first few years, a "crawling peg" exchange rate régime was adopted, multiple currency practices eliminated and exchange regulations partially liberalized. Beginning in May 1981, the Central Bank began to adjust exchange rates on a daily basis. Starting in 1984, commercial banks were free to establish their own rates within a band of 6 per cent around the Central Bank rate. By the last quarter of 1986. the band was abolished. Since August 1988, the official exchange rate for the Turkish lira against the U.S. dollar has been established by the Central Bank through a fixing session with the participation of the commercial banks and financial institutions. Exchange rates for other currencies are set on the basis of cross rates with the U.S. dollar. 88. Commercial banks are free to conduct foreign exchange transactions according to their needs and within the margins of certain ratios set by the Central Bank, such as the liquidity ratio (the ratio of the foreign exchange assets to the foreign exchange liabilities) which may not be below 10 per cent. On the other hand, the ratio of all foreign currency-denominated assets to the sum of foreign currency deposits, foreign exchange overdrafts and foreign exchange loans received from abroad is subject to an exchange rate risk ratio requirement. Since 1 April 1992, the exchange rate risk ratio used in relation to foreign exchange position management is 75 per cent (minimum) and 115 per cent (maximum) for the U.S. dollar equivalent of the total amount concerned. Commercial banks are required to sell to the Central Bank a portion (reduced over the years and set at 20 per cent since November 1989) of all foreign exchange they obtain from exports and invisible transactions, within the first five days of the end of the month in which the currency is received. Commercial banks may deal freely in forward transactions within the predetermined limits set by the Central Bank.32 89. Major removal of exchange controls was first made in August 1989 when Decree No 32, under Law 1567 (Protection ofthe Value ofthe Turkish Currency) increased the convertibility ofthe currency (Annex III).33 In 1990, further amendments were made, including substantial liberalization oftransactions in securities, permission for residents to purchase foreign exchange and the termination of bilateral

32IMF, Exchange Arrangements and Exchange Restrictions, Annual Report 1992. 33Law No. 1567, dating from 1930, is still in force. Decrees issued within its legal framework have considerably liberalized exchange and investment regulations, but these have yet to be codified into national legislation. C/RM/S/42 Trade Policy Review Mechanism Page 32 payments arrangements. Turkey formally accepted the obligations of Article VIII, Sections 2, 3 and 4 of the International Monetary Fund Articles of Agreement on 22 March 1990.34 90. There is a surrender requirement for foreign exchange receipts from merchandise exports, although the share that may be kept by exporters has increased from 5 to 30 per cent ifexchange receipts are surrendered within 90 days. The maximum period allowed for the surrender is 180 days from date of shipment except in cases offorce majeure. 91. Since November 1992, imports may be financed directly from private foreign exchange accounts held with banks. Exporters and tourism enterprises can use their foreign exchange earnings directly for import payments. 92. Residents were first allowed to hold foreign exchange in 1984. Since 1991, nonresidents have been allowed to transfer foreign exchange or local currency abroad without limitations. All residents travelling abroad may carry foreign exchange notes up to the equivalent of US$5,000, or more than this amount if it is documented that notes have been purchased from a commercial bank or other authorized foreign exchange dealer. Residents can buy unlimited amounts of foreign currency from banks and capital transfers of up to US$5 million can be made without obtaining prior permission. Since April 1993, export of capital by residents exceeding US$5 million requires authorization by the Ministry to which the Undersecretariat of Treasury and Foreign Trade is attached. (2) Foreign Direct Investment (i) The legislative framework 93. The Law for the Encouragement of Foreign Capital (Law No. 6224 of 1954) provides the basic legal framework governing foreign direct investment. The legislation accords equal treatment to domestic and foreign investors (Article 10). In tandem, this does not allow for more favourable treatment of outside investors.35 A Communiqué issued in 1986 and the Foreign Capital Framework Decree No. 42/2789, published in March 1992, have further clarified and liberalized regulations. The Decree entrusts the General Directorate of Foreign Investment ofthe Undersecretariat ofTreasury and Foreign Trade with the promotion, permission, registration and granting of investment incentive measures related to entry of capital into Turkey and exporting of capital out of Turkey. 94. According to the law, foreign investment is permitted provided that it is "beneficial to the economic development of the country, concerns an activity open to the private sector and does not confer special or monopoly privileges". Legislation guarantees the transfer ofprofits, fees and royalties and the repatriation of capital. Investment incentives (customs exemption, investment allowances and subsidized credits) are equally available to foreign and domestic investors. No local content or export performance requirements are linked to foreign investment but each individual foreign investor must bring in a minimum of US$50,000. Moreover, to be eligible for investment incentives, the minimum value of the investment is TL 5 billion, approximately US$500,000.6

'Thus, it agreed not to impose restrictions on payments for current international transactions nor to engage in discriminatory currency practices without Fund approval. As a result, bilateral and trilateral payments agreements maintained with several countries have been terminated.

35Erdilek (1986), p. 188. 36In certain areas designated as priority regions, TL 1 billion is sufficient. The Republic of Turkey C/RM/S/42 Page 33

95. In principle, virtually all economic sectors in Turkey have been open to foreign investment since 1954. However, a restrictive application of the relevant statutes, including controls over transferability of profits, combined with overall economic and political instability in the late 1970s, brought direct investment inflows to a trickle.37 In 1979, cumulative foreign direct investment totalled just US$228 million. 96. The stabilization program ofJanuary 24, 1980 assigned a major rôle to foreign direct investment as a source of additional foreign savings to foster development, relieve balance-of-payments pressure and supply competitive technology. As a first step, the Government centralized authority for the approval of foreign investment in the Foreign Investment (Capital) Department of the State Planning Organisation, so minimizing red tape. This Department has since 1991 been transferred to the Undersecretariat for Treasury and Foreign Trade (UTFT) as the General Directorate of Foreign Investment. Non-resident individuals and corporations wishing to invest in Turkey must obtain authorization from this Directorate. The UTFT authorizes investments ofup to US$150 million; investments above US$150 million require the approval of the Council of Ministers. 97. The Framework Decree on Foreign Investment (Decree No. 8/168 issued in 1980) clarified vague provisions of Law 6224 and spelled out the new policy on foreign investment. It identified sectors where foreign investment should be actively encouraged but set limits on foreign capital participation. While the mining sector was opened for the first time, State enterprises remain closed to outside investment unless they have been officially targeted for privatization (Chapter IV). The Decree also pronounced that non-guaranteed trade debts could be converted into foreign investment capital. Initially, foreign equity participation was limited to less than 50 per cent and foreign investors were obliged to meet specific minimum export requirements, set according to industrial activity. In December 1983, Decree No. 28, under Law 1567 (Protection of the Value of the Turkish Currency) was introduced, inter alia, to encourage the repatriationofearnings. The Free Trade Zone law, passed in 1985, provided for the establishment of tax-free processing zones. Decree 86/10353, dated March 13, 1986, revoked the Framework Decree 8/168, thus allowing 100 per cent foreign ownership and eliminating minimum export requirements.38 98. Special incentives apply to the tourism and petroleum sectors. In 1982, Law 2634 for the Encouragement of Tourism Investments provided a number of incentives to this sector, such as low- interest loans by the Ministry of Tourism, preferential rates on public services and duty-free imports. In the petroleum sector, Law 2808 (amending Law 6326) promulgated in 1984, increased and broadened the incentives for firms to invest in the oil sector. Foreign oil companies may export 35 per cent of crude où and natural gas extracted from fields discovered after 1 January 1980; for offshore fields this ratio is 45 per cent.39 Inorderto promote foreign investment in developing Turkey's infrastructure, in particular power plants and other major infrastructural projects, the Build-Operate-Transfer Model (BOT) has been used since 1984. Depending on the character of the investment, the relevant public authority may finance up to 30 per cent ofthe equity participation in thesejoint-venture turnkey projects and also agrees to purchase the goods and services. 99. Turkey signed the OECD Codes on Liberalization ofCurrent Invisible Operations andofCapital Movements in 1961, lifting its general derogation in 1986. Like many members, Turkey maintains

37Kopits (1987), p. 10. 38Erdilek (1988), p. 145. 39OECD (1984), p. 50. C/RM/S/42 Trade Policy Review Mechanism Page 34 certain reservations to the Codes. For instance, authorization is still required for investment in explorationand exploitation ofpetroleum, in refining, transport and storage ofpetroleum, in establishing a bank subsidiary or participation in a Turkish bank; lastly, in order to invest in the mining sector, a company must be established locally. 100. Turkey has begun negotiations with 35 countries on bilateral agreements for the promotion and protection of investments, and has, according to the Government, signed agreements with 27 of these countries.40Eleven of these agreements have entered into force since 1989. Turkey has been a member of the International Centre for Settlement of Investment Disputes and the Multinational Investment Guarantee Agency since 1987. (ii) Trends in foreign direct investment 101. Foreign direct investment remained relatively insignificant in the first part ofthe 1980s although the number of firms with foreign capital participation rose from 100 to 610 between 1980 and 1986. By 1992, there were 2,271 firms with foreign capital participation with an average share of 51 per cent offoreign capital. Firms employing foreign capital account for 15 per cent ofindustrial output. Further liberalization of investment regulations in 1986 boosted annual foreign investment flows which, as measured by the dollar amount of permits accorded, rose from US$364 million in 1986 to US$1.8 billion in 1992.41 inflows of direct investment amounted to US$1.1 billion in 1992.42 At the end of 1992, the cumulative dollar amount of foreign direct investment permits was US$10.3 billion, over half in the manufacturing sector, whereas the cumulative realized inflow amounted to US$4.7 billion (Chart III.1).43 102. In the first half of the 1980s, foreign direct investment in the services sector gained at the expense ofmanufacturing, rising from 12.5 to nearly 40 per cent of foreign direct investment between 1980 and 1985.4 Between 1986 and 1991, there was relatively little shift in the sectoral allocation of foreign equity. Amongst manufacturing industries, food and beverages and chemicals have traditionally attracted the major share of foreign direct investment in manufacturing, followed by transport equipment and electronics (Chart 111.2). 103. The share of foreign investment permits allocated to European Community countries has risen from under 30 to over 50 per cent between 1986 and 1992; among EC sources, the share of Germany has fallen in favour of France and the Netherlands. Japan and the United States have increased their participation at the expense of Switzerland and other, particularly Middle East, sources (Chart III.3).

'Albania; Algeria; Argentina; Austria; Azarbaijan; Bangladesh; Belgium; Bulgaria; China; Czech and Slovak Republics; Denmark; Georgia; Germany; Greece; Holland; Hungary; Japan; Kazakhistan; Kirghizistan; Republic of Korea; Kuwait; Luxembourg; Mexico; Mongolia; Poland; Romania; Russian Federation; Switzerland; Thailand; Tunisia; Turkmenistan; Ukraine; United States; United Kingdom; Uzbekhistan; 41Republic of Turkey, Undersecretariat for Treasury and Foreign Trade, Main Economic Indicators. 42Republic of Turkey. Note that inflows exclude capitalization of retained earnings. 43Ibid. 44Karatas et al. (1988), Table 10.7. The Republic of Turkey C/RM/S/42 Page 35

Chart 111.1 Foreign direct investment permits by year, 1981-92

USS billion il1 10 9 8

6 5 4 3 2 1 0

Source: State Planning Organisation, Main Economic Indicators, March 1993, Table IV.16.

Chart 111.2 Sectoral distribution of foreign direct investment permits, 1986 and 1992 1986 1992 Total value: US$363.9m. Total value: US$1,819.2m. Percentage shares Percentage shares

Chemicals 13.8 Iron and steel manufacturing 5.3 ' Electronics _0{ . Food, beverages and tobacco Other Transport 16.7 manufacturing 9.6 Agriculture 4.6 manufacture 14.9 Services Services 27.1 42.0 1.Mining 1.0

Source: UTFT, Main Economic Indicators, October 1992, Table 27 and State Planning Organization, Main Economic Indicators. April 1993, Table IV.17. C/RM/S/42 Trade Policy Review Mechanism Page 36

Chart 111.3 Breakdown of foreign direct investment permits by origin, 1986 and 1992 1986 1992 Total value: US$363.9m. Total value: US$1,819.9m. Percentage shares Percentage shares

United States 6.7 Other EC countries Other EC countries 16.5 50.4

Switzerland Germany '-. - 12.4 >Germany 14.6 11.1 Japan U.7

Other sources 14.4

United States 10.9 Japan Other sources 2.0 49.0 Switzerland 11.2 Source: UTFT, Main Economic Indicators, October 1992, Table 28 and State Planning Organization, Main Economic Indicators, April 1993, Table IV.18. The Republic of Turkey C/RM/S/42 Page 37 nex III Annex III Steps in the Liberalizatihe Ff tlC ?oreign Exchange and Investment Régimes

1980 January Turkey adopts a flexible exchange rate policy. The Foreign Investment Department in the State Planning Organization is established centralizing authority for dealing with foreign investors.

1981 May The Central Bank is authorized to make daily adjustments to the exchange rate. August The preferential exchange rate for study abroad is eliminated.

November Special exchange rates applied to imports of fertilizers and agricultural pesticides are eliminated.

1982 March Law 2634 for the Encouragement of Tourism Investments is introduced.

1983

December Under Decree No. 28, residents and non-residents are permitted to hold foreign exchange and open foreign exchange deposit accounts. Non-residents may invest and buy property in Turkey with permission ofthe Foreign Investment Department. Profits may be transferred abroad.

1984

January Commercial banks are permitted to set their own rates within a band around the Central Bank rate.

Law No. 2808 on Petroleum Operations expands the incentives for foreign firms to invest in Turkey. Jlly Decree No. 28 for the Protection of the Value of the Turkish Currency and related communiqués are replaced by Decree No. 30, which integrates all regulations concerning foreign exchange transactions, including those related to exports and foreign investment. Turkish residents are allowed to hold foreign exchange. C/RM/S/42 Trade Policy Review Mechanism Page 38

December The Central Bank is authorized to buy and sell gold. Law No. 3098 amends the Central Bank Law 1970 enlarging the functions of the Central Bank and placing the Central Bankunderthe direct responsibility ofthe Prime Minister. The Bank is authorized to engage in open market operations.

1985 June Exporters are allowed to keep their foreign currency holdings up to three months instead of ten days.

1986 April Turkey lifts its general derogation to the OECD Codes on Capital Movements and Current Invisibles Transactions. March Decree 86/10353, based on Laws 6224 and 1567, revokes the 1980 Framework Decree and replaces the provisions of Decrees 28 and 30 issued under Law 1567. August The Istanbul Stock Exchange reopens.

1988 July Foreign investors are admitted to the Turkish capital market. August The exchange rate is made freely negotiable between banks and their customers for transactions above $50,000.45 October An inter-bank market for foreign currency is established whereby foreign exchange transactions between commercial banks and the Central Bank can occur.

1989 April An official gold market is opened. Banks, which participate in the Central Bank foreign exchange market, will be able to purchase gold with foreign currency. May Mutual investment protection and guarantee arrangements with the United States, Netherlands, Belgium, Luxembourg and Switzerland are ratified by Parliament. June Foreign investment funds are allowed to operate in Turkey.

45This floor has since been reduced to $3,000. The Republic of Turkey C/RM/S/42 Page 39

August Decree 32, Protection of the Value of the Turkish Lira, is issued: Turkish nationals are permitted to purchase foreign securities abroad and foreigners are allowed to buy Turkish securities quoted on thc Istanbul Stock Exchange. The transfer of income from such securities and proceeds from their sales is also liberalized. Turkish nationals and foreigners are allowed to open Turkish lira deposit accounts convertible into foreign exchange. Turkish residents no longer require government permission to obtain foreign credits secured by a mortgage or real estate in Turkey. Turkish banks are permitted to extend foreign currency credits with a maturity of over three years to trading companies and to Turkish residents holding an investment incentive certificate authorizing them to have access to foreign credits. Turkish residents are permitted to buy foreign exchange from banks and special finance houses up to US$3,000 or its equivalent and to hold foreign exchange at foreign exchange accounts in banks and to utilize it as effective foreign exchange.

Permission to export or import precious metals and stones is no longer required. The threshoid for authorization of the export of capital is raised from US$3 million to US$5 million.

September Exports against Turkish lira are permitted.

1990 February Residents are permitted to invest abroad. March Turkey accepts the obligations of Article VIII, Sections 2, 3 and 4 of the IMF Agreement.

1991

June Residents and non-residents are permitted to buy foreign exchange from banks and special finance institutions without limitation. Non-residents are allowed to transfer foreign exchange or local currency abroad without limitation. Banks and foreign exchange dealers are required to inform the Central Bank of transfers unrelated to foreign trade or invisible transactions, exceeding US$50,000 (or the Turkish lira equivalent) within 30 days. Banks are permitted to extend foreign exchange credits to residents for financing investment good imports as well as working capital; working capital credits may not exceed one-third of the foreign exchange credits extended by the banks for financing the import of investment goods. C/RM/S/42 Trade Policy Review Mechanism Page 40

Importers of investment goods are allowed to pay their imports directly from their private foreign exchange deposit accounts held with banks. Exporters, tourism enterprises, international transporters and contractors are permitted to pay for imports from foreign exchange earned from their activities. Banks are allowed to extend foreign exchange credits to other banks without limit of maturity. Residents are allowed to establish liaison, representative and similar offices abroad, but are required to inform the Undersecretariat of Treasury and Foreign Trade within 90 days. Residents are permitted to issue sureties and guarantees in foreign currency. Circulation of securities into and out of Turkey is liberalized. Transfers of revenues from real estate purchases by non-residents is liberalized.

The PTT is authorized to engage in foreign exchange transactions.

1992

March Decree 2789 on foreign direct investment is issued. November The export regulations set out the principles governing barter and countertrade. All imports may be financed through foreign exchange accounts or paid for in advance by selling foreign exchange on the date the letter of credit is opened.

1993

April Authorized commercial banks are allowed to import unwrought gold.

Source: OECD, Economic Survey of Turkey, various issues; IMF; Kopits (1987); Erdilek (1986); Government of Turkey. The Republic of Turkey C/RM/S/42 Page 41

IV. TRADE POLICIES AND PRACTICES BY MEASURE (1) Overview 104. In the last decade, Turkish trade policy has undergone major changes. Starting in 1980. wîith the adoption of structural and stabilisation measures in response to a severe balance ofpayments crisis, many traditional policies aimed at import substitution were eliminated and major reforms of the trade, foreign exchange and investment régimes completed. 105. Quantitative restrictions were partly phased out with the abolition of the Quota List in 1981. In Januar- 1984. the import programme replaced the positive list ofpermitted imports with three lists: the prohibited, liberalized and licence lists. In 1985, the prohibited list was abolished. Between 1983 and 1989, the number of items requiring import authorization was reduced from 1,300 to 17. 106. Tariffs were reduced significantly first in 1984 and, since, gradual reductions have continued. However, the scope and incidence of import surcharges, particularly the Housing Fund levy, was increased and, between 1980 and 1990, the share of taxes on foreign trade rose from 12.3 to 17.7 per cent of tax revenue.45

107. Restrictive export licensing and export price controls were terminated in 1984 and export taxes were generally dismantled, although a few products remain subject to a price support levy to be phased out by 1 January 1995. Minimum export prices and quotas apply to raisins and cotton yarn destined for the EC market.

108. Export promotion policies were a fundamental ingredient of trade reform during the 1980s, although their form changed as the decade progressed. In 1980, a new department was established to coordinate export policies. helping to reduce bureaucratic delays.46Exporters were given the right to import internmediate inputs and other capital goods duty-free and a subsidized export credit system was introduced.

109. Turkey joined the Subsidies Code in 1985, agreeing to eliminate export subsidies by i 989, and has made considerable progress. Nevertheless, in 1991, all subsidies, including direct pavyments and tax exemptions (excluding concessional credits) and freight subsidies amounted to nearly US$800 million, the equivalent of roughly 6 per cent of the value of total merchandise exports.

110. Turkish trade policy, by lowering tariffs and export subsidies, should have achieved greater neutrality amongst sectors in the last several years, but many other tools continue to be used by the Government to intervene in economic activity. The main industrial policy tool. incorporating a regional development element, has been the use of tax and interest rate concessions as investment incentives for priority sectors identified annually by the Goverment. These have been financed, at least in part, by various extra budgetary funds (Chapter 1). The Turkish Development Bank extends concessional financing from the Encouragement of Investments and Services Providing Foreign Exchange Earnings Fund (the "Incentive" Fund). which uses for this purpose 100 per cent of the Resource Utilization Support Fund and 25 per cent of the Support and Price Stabilization Fund (SPSF).

45OECD (1992a), Table A2.

4Kumcu and Kumcu (1991), p. 132. C/RM/S/42 Trade Policy Review Mechanism Page 42

(2) Measures Directly Affecting Imports (i) Registration and documentation

111. Individuals or companies, including these from the public sector, engaged in import must obtain an Import Certificate from the Undersecretariat for Treasury and Foreign Trade; this must be renewed every two years at a fee (in 1993) of TL 1,160,800 (approximately equal to US$100 in July 1993). All imports require a certificate of origin (or a certificate of movement in the case of imports from EC and EFTA countries) to benefit from the concessionary tariffs defined below. (ii) Tariffs 112. Turkish customs law recognises four types of tariff:47 (a) The legal (autonomous) tariff, established under Law No. 474, the "Law Changing the Import Customs Tariffs Based on Customs Law 5383" dated May 14 1964;48 (b) The concessionary (m.f.n.) tariff. which applies to GATT contracting parties or other sources recognised by Turkey under international agreements as most favoured nations; to benefit from m.f.n. rates. imported goods must bear certificates of origin; (c) The EC legal tariff. determined according to the regulations ofthe Additional Protocol (23 November 1970) to the Ankara Treaty between Turkey and the European Communities. this rate is defined as Legal rate x (1 minus agreed percentage reduction in tariffs). (d) The EC confessional tariff. applied to goods imported from EC countries under special certificates of movement. 113. Turkey's main policy objective in the tariff field is to complete its customs union with the EC by 1995 and thus to align its tariffs with those ofthe Commnunities, giving full preferences on industrial imports from EC and EFTA sources.49

114. In the following discussion. tariff averages are based on the rates specified in the 1993 Import Régime, which are the effectively applied rates. (a) Form of tariffs 115. Turkey's tariff is classified according to the Harmonized Commodity Description and Coding System (HS), adopted by Turkey on 1 January 1989. The reclassification increased the number of tariff lines from some 5,000 under the previous CCCN classification to 18,610 tariff lines currently. Such a high number oftariff lines combined with multiple rates. leads to complexity. The Government

47Togan (1993). 48Article 2 ofthis Law empowers the Council ofMinisters to change the customs duties. Since 1964, changes in import tariffs have been announced through government decrees. No imports are currently subject to the legal rate.

49Agriculture, ECSC and EURATOM products are not yet covered. The Republic of Turkey C/RM/S/42 Page 43 argues that statistical reasons call for the continuation of the current schedule and looks to the adoption of the Common Customs Tariff of the EC for eventual simplification. 116. All tariffs are ad valorem except those on lubricating oils.50 (b) Average tariffs 117. Turkey began a process of tariff reduction in December 1983, at which time average tariffs on a trade weighted basis were reduced from nearly 40 per cent to 22 per cent.51 From 1989, tariff reductions covering some 1,000 lines were made to approach the legal tariff more closely to the Common Customs Tariffofthe EC.52 Underthe .rade régime for 1993, two tariff rates are applied: the "EC/EFTA" rate, applied to imports from these sources, and the m.f.n. rate applied to imports from ail other sources. The simple average m.f.n. rate for ail imports is 9.5 per cent and the simple average EC/EFTA rate 5.0 per cent (Table IV. 1). However, these are supplemented by the Mass Housing Ftind levy. which is applicable only to imports; the overall level of charges on imports is therefore often substantially higher than indicated by tariffs alone (Table IV.2 and Chart IV. 1).

Table IV.1 Tariff treatment for MFN, and EC!EFTA imports into Turkey. 1993 MFN imports EC/EFTA imports Fund Average 9.5 5.0 17.11 Standard deviation 5 7 4.9 10.6 Coefficient of variation 60.0 98.0 62.0

By degree of processing - Primary products 6.5 4.8 19.7 Semi-processed goods 8 5 3.8 16.5 Finished goods 108 5.9 16.9

By sector - Agriculture 7 1 6.0 21.2 Mining 5 1 2.4 16.1 Industry 9 7 5.0 16.9 a The average is calculated only on the tariff lines which carryad valorem rates.

Note: The standard deviation measures the absolute dispersion or variability of a distribution: the coefficient of variation is a measure of relative dispersion. defined as the standard deviation divided by the mean and expressed in percentage ternis.

Source: GATT Secretariat based on 1993 Import Régime.

50Ex 2710.00 of the HS tariff classification. 51Alicanli & Rodrik (IS90), p. 21. 52GATT document BOP/W/139, 1 March 1991, p. 3. C/RM/S/42 Trade Policy Review Mechanism Page 44

Table IV.2 Trade taxes on selected products at different stages of processing in Turkey, 1993 Wheat Flat-rolled steel Passenger carsd engine sire <2000cc> enginesize Values per cent Value (c.i.f.) $126/ton $325/ton 100 100 M.f.n. duty³ 3% 6% 9 15 Sub-total $130 $344 109 115 Mass Housing Fundh $100/tonc $81ton 30 91 Landed cost $230 $352 139 206 Ad valorem equivalent of trade 83% 7.9% 39 106 taxes on c.i.f. value

a Calculated on c.i.f. value. b Calculated on c.i.f. value. c No fund payable by Turkish Grain Board. d Internal taxes on imported and domestic automobiles are not levied on a comparable basis.

Source: GATT Secretariat estimates.

Chart IV.1 Range of customs duties and Mass Housing Fund levy in Turkey, 1993 Number of lines 5,000 EC and EFTAMFN

3,000

IMM0

Free >O to >Sto lO>10to >ISto >20to >25to >30to >35to >40to >4Sto > 50 5 10 15 20 25 30 35 40 45 50 Percent Note: Includes only ad valorem MHF levies. Source: Government of Turkey and GATT Secretariat calculations. The Republic of Turkey C/RM/S/42 Page 45

(c) Tariff range

118. In 1993, tariffs ranged from zero, covering 10.3 percent oftarifflines, to 60 per cent on imports from the EC, and from zero, covering 2.6 per cent of lines, to 1 17 per cent on imports from third countries (Chart IV.2). The maximum tariff applies to only 7 tariff lines.53 For m.f.n. imports, more than half of all lines carry a tariff of 10 per cent or less; for EC/EFTA imports, more than half are 5 per cent or less. Virtually all tariffs ofover 25 per cent affect agricultural or processed food products: the highest rates apply to tobacco products.

Chart IV.2 Tariff ranges in Turkey, 1993 Number of lines 12,000

10,000

8,000

6,000

4,000

2,000

0

Per cent Source: Government of Turkey and GATT Secretariat calculations.

(d) Tariff escalation

119. For 1993, m.f.n. tariffs show escalation through all three stages ofprocessing, for all products, with averages of 6.5, 8.5 and 10.8 per cent for primary, semi-processed and finished goods, respectively; corresponding figures for the EC/EFTA rates show lower averages for semi-processed goods than for raw materials (3.8 as against 4.8 per cent) but some degree of escalation to 5.9 per cent on finished goods (Table IV. 1).

53Tobacco products. C/RM/S/42 Trade Policy Review Mechanism Page 46

(e) Tariff bindings 120. GATT-bound duties apply to 233 tariff lines in Chapters 1-24 (8 per cent of tariff lines) and 35 per cent of industrial tariff lines in HS Chapters 25-97 (Chart IV.3). In certain industrial sectors, such as machinery and transport equipment, rubber, chemicals and high-technology items, over half of tariff lines are subject to bound import duties; there are no bound duties on furniture, grains or tobacco. In 1992, imports under bound duties accounted for 39.6 per cent of total imports. Chart IV.3 Tariffbindings in Turkey, 1993

Per cent

Number of tariff 40 lines z Imports 1989 35

30

20

151.

Agriculture Industry All products

Source: Government of Turkey and GATT Secretariat calculations.

121. In its mid-1993 offer in the Uruguay Round, Turkey has agreed to reduce tariffs in agriculture, by a minimum of 15 per cent and an average of 24 per cent; on industrial products (including fish) the percentage ofbindings is to be 37 per cent. Thealignment ofTurkey's tariffwith the EC's Common External Tariff as the customs union is completed may also imply the de facto binding of Turkey's tariff at the same level as that of the EC. According to the Turkish authorities, the Uruguay Round industrial tariff proposal reflects a stage of the alignment to the EC tariff, to which Turkish tariffs are technically tied. (f) Tariff preferences 122. Preferential trade comprises a large part of Turkey's international trade: imports from the EC represented 43 per cent, and imports from EFTA, 6 per cent of its 1992 imports. 123. The Ankara Agreement, establishing an association between the EC and Turkey, entered into force on 1 December 1964. An Additional Protocol, signed in 1970, entered into force on 1 January 1973 (Chapter II). Under the Additional Protocol, two lists (one over a 12-year period and the other over 22 years) were established for industrial products; Turkey will reduce its customs The Republic of Turkey C/RM/S/42 Page 47 duties progressively until complete elimination in 1995. The initial reductions amounted to 20 and 10 per cent for the two lists respectively. As discussed in Chapter II, little progress occurred between 1976 and 1988. However, from 1989, reductions were resumed at a rate of 10 per cent annually. Thus, between 1988 and 1993. the scope of duty reduction grew from 30 to 80 per cent for products on the 12-year list and from 20 to 70 per cent for products on the 22-year list. Although m.f.n. duties have also been reduced, the preferential margin has widened in 1993.54 For the first time, reductions in duties on imports of agriculture and iron and steel products from the EC were implemented.

124. As of 1 January 1993, Turkey extends the same tarifftreatment to imports from EFTA countries as it does to imports from EC member states (Chapter II). 125. As a participant in the 1971 Protocol Relating to Trade Negotiations Among Developing Countries, Turkey offers preferential tariff concessions to other participating countries. More than 60 products are included in its list of concessions ranging from rice andjute to rubber tyres and machinery. In 1991, imports of these products from participating countries amounted to US$63 million out of total imports ofthese products of US$451 million, or roughly 14 per cent and less than 0.5 per cent of total imports. Leading imports were rubber tyres and refrigerators from the Republic of Korea, telephone equipment from Yugoslavia and jute from India and Bangladesh." 126. In February 1992, the members ofthe Economic Cooperation Organisation (Turkey, Iran and Pakistan) concluded an Additional Protocol on Preferential Tariffs providing a 10 per cent reduction in tariffs on certain products.56 (g) Tariff concessions 127. Tariff concessions (duty exemptions) apply to raw materials, intermediate and capital goods; imports exempt from duty represented 38 per cent of total imports in 1992. In addition, holders of investment incentive certificates are eligible to import all investment machinery and equipment duty-free (Chapter IV(4)(i)d). Between 1990 and 1993, certain investment goods were encouraged for import and, as such, duty and levy free; these continue to be imported exempt of duties and charges, although some are subject to the Mass Housing Fund charge. As additional evidence of the relative importance of concessions, the unweighted average of duties and surcharges in 1991 was about 40 per cent but due to exemptions, duty collected was closer to 10 per cent.57 128. In 1986, the exemption from customs duties on imports by the public sector was abolished in order to ensure free competition.58 However, Grain Board (TMO) continues to import grain free of the Mass Housing Fund levy, which all other importers must pay.

5In the 1990 to 1992 period the average tariff for imports from the EC was 5.9 per cent and for imports from third countries 6.4 per cent. In 1993, the average tariff was 5 and 9.5 per cent respectively. 55GATT document CPC/158/Add.1, 7 October 1992. 56GATT document L/7047, 22 July 1992. The list annexed to the Protocol reflects the situation in 1990: since then, three amendments have been made reflecting alignment with the EC tariff. 57Erzan (1992). 58GATT document BOP/283, 7 September 1988. C/RM/S/42 Trade Policy Review Mechanism Page 48

129. Some imports are also exempt from taxes; such exemptions are either stipulated in the tariff or under specific laws, e.g. the Petroleum Law. Under the Petroleum Law, the State-owned oil refineries are exempt from the specific MHF levy, but not the ad valorem levies. Imports of crude petroleum exempt from duties under the Law accounted for 12 per cent of total imports. (h) Customs valuation 130. Turkey applies the Brussels Customs Valuation Convention. In this connection, the "normal price" of goods for customs valuation of duty includes added freight, insurance and commissions and other charges and expenses incidental to the sale and delivery of the goods to the point of entry into the customs territory of Turkey. 131. The Government of Turkey ratified the Tokyo Round Agreement on the Implementation of Article VII (the Customs Valuation Code) on 13 January 1989.59 It delayed the application of the Agreement, in accordance with Article 21.1. for a period of five years. The delay in the application of the provisions was requested in order to allow sufficient time for the amendment and adjustment of the provisions of Article 65 of the Customs Law, of the relevant provisions of customs regulations and for training of customs officials. The Agreement entered into force for Turkey on 12 February 1989, therefore the implementation of its provisions is intended to begin no later than 12 February 1994.6

132. Turkish regulations do not provide for advance rulings on customs classification or on the applicable import duties on particular goods.6' Tariffdisputes are covered by Article 78 of the Customs Law.62 (iii) Tariff quotas 133. Turkey applies no tariff quotas. (iv) Variable import levies

134. Turkey does not maintain any variable levies. (V) Other charges 135. Up to the end of 1992 a number of other charges applied to imports. In January 1993, these were mostly abolished or partly merged into the Mass Housing Fund Levy. The complexity ofadditional taxes made it difficult for importers to calculate beforehand the real tax burden for a given product.63 The charges included the stamp duty, municipal tax, the Transportation Infrastructure Tax, an import surcharge destined to finance the Support and Price Stabilization Fund, a surcharge on imported minerals and the Mass Housing Fund levy. Rates ofthese supplementary import charges were frequently changed

59BISD 36/440. 60GATT document VAL/Spec/30, 26 January 1990. 61Bureau of National Affairs, International Trade Reporter, Export Shipping Manual, Turkey, 22 August 1990. 62Import Regulation 1993, Annex, Communique from the Undersecretariat, Import 93/3. 63GATT document BOP/314, 15 March 1993, p. 15. The Republic of Turkey C/RM/S/42 Page 49

(Annex IV. 1). Just prior to their removal, the stamp duty was levied at 10 per cent on the c.i.f. price of imports; municipal tax was charged at 15 per cent of the applicable customs duty on all imports; the transportation infrastructure tax was equal to 4 per cent of the tax-paid value for goods shipped by sea and 3 per cent for goods shipped by air or by road. These taxes did not apply to goods exempt from customs duty. The Support and Price Stabilization Fund surcharge was levied ai rates of 3 or 10 per cent on those goods not exempt and the minerals surcharge stood at 2.5 per cent. Another Fund, "Encouragement of Investments and Services Providing Foreign Exchange Earnings", is financed by payments on imports of capital goods which are duty free for incentive certificate holders but require a 5 per cent, and in some cases 20 per cent, payment to the Fund.64 136. As noted, in January 1993, under legislation adopted in July 1992, additional charges were abolished, or partly merged into the Mass Housing Fund levy. The only exception was the minerals surcharge, which remains. The initiative for this recent consolidation derives from the forthcoming Customs Union between Turkey and the European Community. Table IV.3 gives a product specific example of the effect of the new régime.

Table IV.3 Difference between 1992 and 1993 import charges: example, uncoated paper (HS 4805) 1992 1993 C.i.f. value $618/ton $618/torn Customs duty 1% 4% = $6.18 = $25.3 Municipal tax (15% of duty) .927 PSSF (10% c.i.f.) $61.8 Stamp duty (10% c.i.f.) $61.8

Sub-total $748.70 $643.3

Transportation infrastructure duty (4%) 29.9 -

Sub-total $778.6 $643.3

Total charges before Mass Housing Fund $160.6/ton $25.3/ton

Mass Housing Fund $20/ton $135/ton

Total import charges $180.b/ton $160.3/ton

Ad valorem equivalent 29.2 25.9

Source: UTFT.

137. Turkey also operates a value-added tax system, introduced at a standard rate of 10 per cent in 1985 to replace a large variety of production, sales and foreign trade taxes.65 VAT applies to almost all imports as well as to domestic production, whereas only certain imported commodities had been

64GATT document BOP/W/139, 1 March 1991. 65OECD (1992a), p. 76. C/RM/S/42 Trade Policy Review Mechanism Page 50 subject to the production tax. The base of the value added tax on imports is the sum of the c.i.f. value, customs duty and all other surcharges.' 138. The standard rate has been modified several times, the latest increase to 12 per cent occurring in 1990. There are currently five different rates ranging from l to 20 per cent.67 This practice ofmultiple rates gives rise to distortions between sectors and situations where similar commodities face different tax burdens at the final stage because they use different inputs.68 139. Exports and indirect exports are exempt from VAT. Firms investing in locally manufactured capital goods under an investment certificate may defer payment ofVAT until it can be deducted against taxable income. There is a direct cash grant, equal to the VAT, for incentive certificate holders for domestically produced machinery. In some priority sectors, a 10 per cent extra premium on the VAT may be granted (Chapter IV(4)(i)(c)). (a) Mass Housing Fund levy 140. In March 1984, Parliament approved the Housing Fund Law to finance the Government's low- cost housing scheme for poor and middle-income families. In addition to a share of the revenues generated from productionand taxes, as well as theproceeds fromprivatization, the Fund is financed by specific or ad valorem surcharges levied on imports since 1984. Initially imposed on 80 tariff headings, its incidence increased to over 200 in 1985 and 568 items in 1987.69 As of November 1990, 5,518 items were covered by the levy.70 As a consequence of the adoption of the Harmonized System, and the consolidation of other import charges, the levy, which is applied equally to imports from all sources, covers 16,000 tariff lines at present. The levy, currently averaging 17 per cent, is expected to terminate in 1998 at the latest (Table IV. 1 and Chart IV.4).71 The combination of the levy and the duty exceeds the level of GATT bindings on 12 per cent of tariff lines.72 141. The levy is calculated on the c. i.f. value of imports. Imports exempt from customs duty under incentive certificates are not liable for payment of the levy, nor are fertilizers imported by producers (under permit) or grains imported by the Turkish Grain Board; in the case of imports under lease agreements, 10 per cent of the levy shall be collected for each year of the lease period.

66OIgun and Togan (1991), p. 156. 67Basic food products were originally zero-rated but the zero-rating has since been removed. Since 1 January 1993, the 1 per cent rate applies to wholesale transactions of agricultural products, substantially all of which are exported, and to certain financial operations. The 6 per cent rate applies to basic foods, natural gas, printed matter, and theatre tickets; 12 per cent is the general standard rate; 13 per cent applies to fuel products and liquid petroleum; 20 per cent applies to luxury consumer goods and services. 68OECD (1992a). 69GATT document BOP/W/105, 15 June 1987. 70GATT document BOP/W/139, 1 March 1991. 71GATT document BOP/R/207, 28 April 1993. Note: The 17 per cent average is calculated only on tariff lines carrying an ad valorem levy rate. The ad valorem equivalent ofspecific rates applied for the Mass Housing Fund has been estimated as averaging nearly 38 per cent (Chapter V) (Chart IV.5). 'GATT document BOP/314, 15 March 1993. The Republic of Turkey C/RM/S/42 Page 51

Chart IV.4 Distribution of ad valorem Mass Housing Fund rates Number of tariff lines

3000

2500

2000

1500

1000

500

0 Duty free >0.0 to >5.0 to >10.0 tu >15.0 to >20.0 to >25.0 to >30.0 to >35.0 to >40.0 to >45.0 to 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Note: Only ad valorem levies, covering over 15,000 lines and not specific rates are taken into account. Source: Government of Turkey and GATT Secretariat calculations.

Chart IV.5 Distribution of ad valorem equivalents of specific Mass Housing Fund rates Number of tariff lines

350

300

250

200

150

100

50 o Duty free >0.0 to >5.0 to >10.0 to >15.0 to >20.0 to >25.0 to >30.0 to >35.0 to >40.0 to >45.0 to >50.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0 45.0 50.0 Note: Only 1463 (out of 3424) tarifflines bave been calculated due to difficulty in interpreting data. Source: Government ofTurkey and GATT Secretariat calculations. C/RM/S/42 Trade Policy Review Mechanism Page 52

(b) Minerals surcharge

142. In 1985, a surcharge of 2.5 per cent was introduced on imports of minerals used for energy production (e.g. oil and coal), metallic minerals, industrial minerals and precious stones, to finance the Mining Fund (Chapter V).73 The surcharge is still in force. (vi) Import prohibitions 143. Until the early 1980s, a large number of goods was subject to import prohibition (Annex IV. 1) At present, only the importation of narcotics, stearoptenc, weapons, ammunition and spare parts and coins made of silver or other metals (except gold) is prohibited under special laws for security or health reasons.74 (vii) Import licensing 144. Until 1981, all imports into Turkey were regulated by annual or semi-annual import programmes. These programs itemized commodities under the free import list, the restricted list, the quota list, the EEC consolidated list and a list enumerating commodities to be imported under bilateral clearing arrangements. The quota list specified the dollar value of imports. Imports not enumerated in any of the lists were prohibited. 145. Quantitative restrictions were partly phased out with the abolition of the Quota List in 1981. In January 1984, the import program replaced the positive list of permitted imports with three lists: the prohibited, the liberalized and the licence list. This shift from a positive list to a negative list reduced the rôle of quantitative restrictions substantially. In 1985, the prohibited list was abolished. Between 1983 and 1989, the number of items requiring import authorization was reduced from 1,300 to 17. 146. Since 1- January 1990, no imports require a permit and only those mentioned above are prohibited. All imports, however, require an import licence automatically issued by any bank making exchange operations, against commission. This is an automatic licence for statistical and surveillance purposes, the valid period ofwhichdepends on the request ofthe importer. No special permit is required for any importer to apply to any bank for an import licence. The import licence permits the necessary foreign exchange to be paid and permits goods to be cleared through customs. Import licences are issued to registered importers, industrialists, state economic enterprises and government departments. 147. Certain imports (primarily household durables, radio and television equipment and motor vehicles) require a certificate issued by the Ministry of Industry and Trade to the effect that after-sale services such as maintenance and repair are guaranteed within specified regions in Turkey and that maintenance personnel and spare parts are sufficient. (viii) Import quotas 148. As noted above, Turkey abolished explicit import quotas in 1981.

73GATT document BOP/283, 7 September 1988. 74GATT document L/5640/Add.29/Rev.4, 23 October 1989. The Republic of Turkey C/RM/S/42 Page 53

(ix) Import surveillance 149. Apart from automatic licensing, Turkey does not applyany specificmechanisms for surveillance purposes. (x) State trading 150. Certain production monopolies granted to the State-owned enterprises (SOEs) have been abolished and opened to the private sector. These include production and fertilizer distribution in 1984 and. more recently, tobacco and hard liquors (although an import monopoly on hard liquors remains in force)." 151. The import oftobacco was liberalized in 1986, but the state enterprise TEKEL, which produces tobacco and alcoholic beverages, remains the sole importer ofalcoholic beverages. MKEK, a producer of machinery and chemicals, is the sole importer of arms.76 Imports of sugar were opened up to competition from the private sector in 1989. The private sector now imports almost all sugar; for manufactured tobacco (HS 24.03) the private sector share of imports is some 40 per cent, and for tobacco products (HS 24.02) 5 per cent.' 152. Both for domestic production and imports of tobacco and tobacco products, TEKEL continues to set prices, although the authorities expect increased private-sector production to create price differentials. (xi) Countertrade 153. Until recently, Turkey maintained bilateral trade and payments (clearing) accounts with a number of Middle Eastern countries and other neighbours. Countertrade agreements were in force with Iraq until 1988 and Iran and Pakistan until June 1990. Under a special account with Libya, Turkey accepted oil at higher than world prices to settle outstanding contract service payments. The Natural Gas Agreement with Russia stipulates that Russia will use a certain share of the proceeds from gas sales for imports of goods and services from Turkey (Chapter II). In 1993, the share is to be 70 per cent: 45 per cent for goods and 25 per cent for construction services. All companies are allowed to conduct barter trade in accordance with established procedures. Tied operations, barter trade and indirect offset are defined in Article 4 of the Export Regulation. The General Directorate for Exports in the UTFT issues permits on the basis of reciprocal values. Main export commodities include food, clothing and iron and steel. Exports must meet a minimum level of 50 per cent domestic value added. Recent estimates of the annual value of countertrade (excluding the trade under the Natural Gas Agreement) are in the order of US$90 million.

75OECD (1992a), p. 92. 76Turkey has never made a notification to GATT under Article XVII, which requires contracting parties to notify all products imported or exported by State-trading enterprises. "The Turkish authorities expect these shares to rise when new private factories begin operation. C/RM/S/42 Trade Policy Review Mechanism Page 54

(xii) Standards and other technical regulations (a) Standards 154. The Turkish Standards Institution, established in 1960 under Law 132, is the sole organisation authorized to prepare national standards for Turkey. Turkey is a full member of the International Organization for Standardization (ISO) and the International Electrotechnical Commission (IEC) and an affiliate member of CEN and CENELEC. Turkish standards on electrical equipment comply with IEC 335 series and the EC Low Voltage Directive 73/23/EEC is compulsory. Roughly 80 per cent of standards conform to international norms. It is Turkey's policy to harmonize standards with those of the EC. 155. There are some 11,000 Turkish standards, of which 864 (mainly on building materials and electrical goods) are compulsory; 67 of the compulsory standards are quality control standards applicable to agricultural exports.78 Mandatory standards are published in the Official Gazette. 156. On the basis of the Measurement and Calibration Law No. 3516 of 1989, the General Directorate of Measures and Quality Control within the Ministry of Industry and Trade enforces the industrial standards set by the Turkish Standards Institution. it also ensures the development of quality control systems and establishes and operates test laboratories, instrument meteorology and calibration facilities. Following an agreement signed with the World Bank in 1991, a National Quality Council, responsible for accreditation of quality assessment and product certification bodies, laboratories and personnel certification was established. Any organization accredited by the Council can operate in a competitive environment. 157. Turkey recognizes testing procedures performed in exporting countries if it has concluded a mutual recognition agreement to this effect. At present, it has both mutual recognition of testing procedures and information exchange agreements with 28 countries.79 (b) Health and sanitary regulations 158. Production and import of agricultural and pharmaceutical products and foodstuffs is subject to health and sanitary control. The main legislation is Sanitary Law 1593 of 1930 and Agricultural Quarantine Law 6968 of 1957. The Ministry of Health controls pharmaceuticals and foodstuffs and the Ministry ofAgriculture and Rural Affairs agricultural products, veterinary medicines and chemicals. It is Turkish policy to adopt regulations in line with EC standards. 159. An Inspection Certificate (valid for six months) is required both before and on importation for a number of goods subject to health and sanitary regulations. The certificate is required at the time of issue of the import permit by the banks and by customs at the time of entry. Depending on the product, applications are filed with the Ministry of Health or the Ministry of Agriculture and Rural Affairs. For certain chemicals, a customs-certified copy of the certificate issued by the Ministry of Health must be submitted within 15 days following actual importation. Certain agricultural products,

78Quality control is exercised by the inspectors of the Undersecretariat for Treasury and Foreign Trade and an inspection certificate is issued prior to export. 'Austria, Azerbaijan, Belgium. Bulgaria, China, Egypt, France, Germany (DQS), Hungary, Iran, Iraq, Italy, Kazakhstan, Kirghizistan, Republic of Korea, Malaysia, Pakistan, Portugal, Romania, Russia, Saudi Arabia, Senegal, Syria, Tunisia, Turkmenistan, United Kingdom (RESOURCE), United States (ANSI), Uzbekistan. The Republic of Turkey C/RM/S/42 Page 55 as well as plastic and steel scrap and waste and rifles and ammunition, require approval from the Undersecretariat. The Ministry of Energy and Natural Resources issues certificates for the import of selected solvents and the Ministry of the Environment for coal and lignite as well as a number of toxic substances.

160. In many cases, the inspection certificate can be waived if the importer assures the authorities that the products are destined for the specified purposes or for the manufacturers' own use. (c) Marking, packaging and labelling 161. Marking and labelling requirements are compulsory under Turkish Standard 4331. 162. Imported medicines must on their packings carry such information as the name and address of the importer. the country of origin, the name of the producer. the date and number of registration. 163. Domestic or imported food products must bear labels conforming to the national Food Codcx and the Food Additive.s Regulation. (d) Environmental policies

164. The 1982 Constitution established the right to live in a safe and healthy environment and recognized the protection of the environment as the joint duty of the State and its citizens. The 1983 Environment Act endorsed the "polluter pays" principle and set the legal framework for a number of regulations.' The regulations set maximum standards, prepared by the Ministry of the Environment and other authorized agencies, including the Turkish Standards Institute; municipal governments are charged with ensuring compliance. Sources of pollution must be licensed. 165. Permission must be obtained from the Ministry of the Environment for the import of all types offuel. waste and remnants. Imports cfcoal, lignite and petroleum coke must meet certain specifications complying with the limits set by the Ministry of the Environment. in order to reduce pollution caused by i's indigenous high ash and sulphur content lignites. low-sulphur coal, as well as natural gas. are being imported in greater quantities. For example, import data for 1989-1991, shows an increase in imports of bituminous coal (2701.12) from 2.8 million tons to 3.8 million tons, natural gas imports rose from 3.3 billion cubic metres to 4.1 billion.

166. Turkey is a member ofa number ofInternational Conventions on safeguarding the environment, including the 1976 Barcelona Convention on the Protection of the Mediterranean and the Basel Convention on Hazardous Wastes and their Traffic. which Turkey signed in 1989.`' Turkey signed the Montreal Protocol on 19 December 1991. It is in the process of adopting the provisions required by amendments to the Protocol since 1990. Regarding the import and export of controlled substances. Turkey produced no ozone-depleting substances localiy and prohibited their import in 1992. Trade in the "transitional substances" requires a control document issued by the Ministry ofthe Environment. Within the framework ofthe Regulation on Control ofSolid Wastes, enterprises producing or marketing

'Regulation on AirQuality Control (1986), Regulation on the Control ofWater Pollution (1988). Regulation on Noise Control (1986), Regulation of the Penalties to be Imposed on Ships and other Sea Vessels (1987). Regulation on the Control of Solid Wastes (1991) and Regulation on Environmental Impact Assessment (1993). 81OECD (1992c). C/RM/S/42 Trade Policy Review Mechanism Page 56 goods in plastic, metal or glass containers must collect them according to specific quotas rising over the next few years.

167. The following are a few examples of standards and pricing policies used to encourage environmental protection; the levy on unleaded gasoline paid to the Fuel Price Stability Fund was reduced from 5 to 1 per cent in April 1993; that on regular gasoline remains at 5 per cent; the mandatory limit on the sulphur content of diesel oil is 0.7 per cent. (xiii) Government procurement 168. Turkey is an observer to the GATT Code on Government Procurement. 169. The Public Procurement (State Adjudication) Law, No. 2886. in force since January 1, 1984 replaced Law No. 2490 of 1934. The law applies to general. provincial and local governments but not to State Economic Enterprises or autonomous agencies. 170. There is no central purchasing agency; individual administrations carry out their own purchasing.8 The Budge; Law sets annual permissible limits for individual procedures. Procurement contracts by general administrations above TL 400 million (USS40.000 at 1993 exchange rates) require the endorsement of a designate of the Ministry of Finance; above TL 800 million the contract must be visaed by the Ministry itself. 171. Contractors wishing to submit bids in government tenders must have a legal address in Turkey and provide a document proving that they are registered with a Chamber of Commerce or Industry (or the Register of Tradesmen and Artisans in the case of real. as against legal, persons). Foreign legal persons not represented through a branch in Turkey must produce a document certified by a Turkish consulate in their country of residence. or by the Turkish Ministry of Foreign Affairs, attesting to their qualifications and competence.

172. The administration concerned determines an estimated cst or chocses the most suitable price between competing bids. A number of bidding procedures are available: open bidding, selective tendering or a negotiated procedure. The basic rulc for bidding is through 'closed offers" (sealed envelopes), with adjudication announced by newspaper advertisement. 'Open offers" (written or oral) are awarded in public auctions for contracts up to TL 2.500 million. Contracts falling under Article 44 of the Act. including military and infrastructural procurement needs. may either be advertised or in a form of selective tendering be awarded without advertisement upon receipt of offers from at least three competent bidders. Where three bidders do not come forward, the Council of Ministers may determine to invite only one or two bids. Should open or selective tendering fail to produce a suitable price. a negotiated procedure may be used (Article 43). Negotiated procedures are also accepted for police and army requirements. urgent or secret works, purchases of tyres and spare parts by authorized service stations and contracts valued at iess than TL 50 million for provinces and TL 30 million for towns over 50.000 population. 173. Tenders by local or provincial administration must be advertised ten days before the closing date. For contracts above TL 400 million. the administration must advertise outside its immediate municipal borders. Bids above TL 1,200 million are published in the Official Gazette.

'The State Supply Office buys office equipment and supplies for government agencies. The Republic of Turkey C/RM/S/42 Page 57

174. The law does not oblige agencies to advertise adjudications in a foreign language. If "deemed advantageous", and to ensure sufficient competition, tenders may be advertised abroad (Article 22). Advertisements are to be published in foreign countries 45 days before the closing date. 175. Decree 9342, issued in March 1985, concerns procedures governing international bidding. In all cases, permission to seek international bids is required from the Undersecretariat of Treasury and Foreign Trade. In transactions above TL 2 billion, the Minister of the relevant agency must give approval; for contracts valued above TL 20 billion, approval from the Council ofMinisters is required. According to Article 7, domestic firms can be given up to a 15 per cent price preference, the rate to be determined by the Council of Ministers and included in the bidding specifications. 176. No information is available on the total (estimated) value of procurement by state or local agencies or on the share of imports of goods and services in public contracts. (xiv) Anti-dumping and countervailing, actions 177. Article 21 of the Customs Law authorizes the Council of Ministers to take necessary measures against dumped imports. However. until the Legislation on Prevention of Unfair Competition in Importation (Law No. 3577) came into effect on 1 October 1989. no measures had been implemented. Turkey is an observer to the Tokyo Round Anti-Dumping Code. 178. Under the 1989 Law, complaints regarding material injury, or the threat thereof, impairment of the market or retardation of the establishment of a new industry as a result of dumped or subsidized imports are submitted to the Undersecretariat or Treasury and Foreign Trade. Complaints must include sufficient evidence to initiate an investigation.' The General Directorate of Imports must complete the examination ofa complaint within 60 days and make a proposal to the Board of Evaluation ofUnfair Competition as to whether to initiate an investigation.TM Ifthe Board decides to initiate an investigation. the decision is published in the Official Gazette. Questionnaires are sent to imported; and exporters of the product in question and answers must be submitted within 30 days.85The Govtrnment of the exporting country has the right of access to non-confidential information submitted during the investigation. The period of investigation, originally set at twelve months, can be extended up to an additional six months. If the "national interest" calls for immediate action, provisional measures may be applied for four months which may be extended up to six months upon request.1 Regulations provide for retroactive application of duties up to 90 days prior to the initiation of the measure. The validity of the period and the rate of a definitive measure. as well as rules for its revision, are determined by a Decree ofthe Council of Ministers. Once a definitive measure is in place, a review may be requested

83The Turkish legislation allows for 'ex officio' investigations, but these are launched only if sufficient evidence of the existence of injury caused by dumped or subsidized products is provided. Two investigations, concerning products under HS codes 52.05 and 52.08 have been initiated ex officio. 84The Board is composed of a representative of the Customs, the Ministries of Agriculture, Industry and Trade. the State Planning Organization. the Union of Chambers of Commerce, the Union of Chambers of Agriculture and the UTFT under the presidency of the General Director of Importation. fThe original legislation provided for 45 days, with an additional 30 days extension possible. In fact. the period may be extended up to 45 days, upon request. 'Under EC legislation, 'national interest' provisions allow the authorities not to take measures. (Messerlin (1992).) C/RM/S/42 Trade Policy Review Mechanism Page 58 after one wear, but a review is not mandatory nor is there a general sunset clause for anti-dumping or countervailing actions. 179. Table IV.4 presents the total anti-dumping investigations initiated between 1989 and the beginning of 1993. Of the 36 investigations, involving 22 countries. 13 were terminated without any measure being introduced and in 20 cases definitive measures were imposed. In three cases, the investigation is still in progress. Of the 20 cases where definitive measures were imposed, review of four cases was initiated; three were still under review in July 1993 and one was concluded with the abolition of the measure. In general, ad valorem duties have been used as definitive measures, although in a few cases, specific rates apply.' Ad valorem duties range from 5 per cent on paper from Finland to 100 per cent on glass from Romania. No price undertakings appear to have resulted, although this may have occurred where the investigation was terminated. Definitive duties still in place apply to polyester fibres from different sources, printing and writing paper. glass and tableware and certain kinds of machinery. Exports of the products concerned originate from a number of countries, in particular Romania, China, Taiwan, Pakistan, Indonesia, Republic of Korea, Finland, Italy and the Netherlands.

180. Turkey has been a signatory to the Agreement on Interpretation and Application of Articles VI, XVI and XXIII (the "Subsidies" Code) since 1985. To date it has not imposed any countervailing treasures on imports.

'According to the Turkish authorities, specific duties were chosen to ensure the effectiveness of the duties in question. The Republic of Turkey C/RM/S/42 Page 59

Table IV.4 Anti-dumping investigations in Turkey (up to 18 March 1993) CN Code Product in question Country of Initiation Provisional Definitive Conclusion origin dates of the measure measure (Anti- investigation (Security) dumping duty) 9L .11.21 Clinical or - East Germany 7.12.1999 Investigation is veterinary China terminated. thermometers 11.10.1990

9025.11.29 Other thermometers - East Germany ,.12.1989 Investigation is - China terminated. 11.10.1990

5503.20.00 Polyester synthetic - Romania 7.12.1989 - Romania 20% - Romania 20% Investigation is staple fibres (pot - Republic of - Republic of - Republic of terminated for Italy. carded, combed or Korea Korea Korea 15% 11.10.1990 otherwise processed - - Chinese Taipei Chinese Taipei for spinning) 20% 20% - Italy 11.10.1990 28.11.1990

5506.20.11 Polyester synthetic - Romania 7.12.1989 - Romania 15% - Romania 5% (Former CN staple fibres (carded, 11.10.1990 28.11.199C Code in combed or otherwise 1990 was processed for 5506.20.00 spinning) 831 i .10.10 Welding electrodes - Romania 7.12.1989 - Romania 50% - Romania 50% cored with iron or - Hungary - Hungary 50% - Hungary 50% steel and coated with - China - China 100% - China 100% refractory material 11.10.1990 28.11.1990

4802.52.10 Printing and writing - Finland 7.12.1989 - Finland ;5% - Finland 5 % papers (except - Former - Yug. 20% - Yug. 20% newsprint) Republic of 11.10.1990 28.11.1990 Yugoslavia 9017.80.21 Measuring tapes (not - Chinese Taipei 5.1.1990 -- Investigation is assembled) terminated, 23.11.19W

9017.80.22 Other measuring - Chinese Taipei 5.1.1990 Investigation is tapes terminated. 23.11.1990

846620.92 Lathe chucks - Poland 21.3.1990 - Poland 100% - Poland 100% Investigation is - Czechos. - Czechos. 100% - Czechos. terminated for - Former USSR 11.10.1990 100% USSR. 30.1.1991 30.1.1991

70.03 Cast glass and rolled - Romania 21.3.1990 --- - Romania glass (in sheets or 100% profiles) (whether or 21.2. 1991 not having an absorbent or reflecting layer. but not otherwise worked) Table IV.4 (cont'd) C/RM/S/42 Trade Policy Review Mechanism Page 60

CN Codde Product in question Country of initiation Provisional Definitive Conclusion origin dates of the measure measure (Anti- Investigation (Security) dumping duty) 70.04 Drawn glass and - Romania 21.3.1990 --- - Romania blown glass (in 100% sheets) (whether or 21.2.1991 not having an absorbent or reflecting layer but not otherwise worked) 70.05 Float glass and - Romania 21.3.1990 --- Investigation is surface ground or terminated. polished glass (in 21.2.1991 sheets) (whether or not having an absorbent or reflecting layer, but not otherwise worked) 7315.11 Roler chain - Chinese Taipei 21.3.1990 - Chinese Taipei Except 30% - CHAIN TIGER 21.2.1991 IND. CO. LTD. - KMC CHAIN IND. CO. LTD. 69.11 Tableware, - China 3.4.1990 - China kitchenware, other 2$ikg. household articles 21.2. 1991 and toilet articles, of porcelain or china 52.05 Cotton yarn (other - Egypt 8.5.1990 Investigation is than sewing thread, terminated. containing 85% or more by weight of cotton, not put up for retail sale

76.14 Stranded wire, - Romania 13.7.1990 - Romania 10% cables. plaited bands - Hungary - Hungary 10% and the like, of 9.7. 1991 aluminium, (not electrically insulated) 9607.19 Other slide fasteners - Chinese Taipei 13.7.1990 - Chinese Taipei 15% 9.7.1991

8708.99 Other (differential - Hungary 21.9.1990 - USA 45% - Hungry 10% The provisional and differential - USA 30.7.1991 21.8.1991 duty was applied gears for trucks) only for the firm DANA CORP.. settled in the USA 52.05 Cotton yarn (other - Pakistan 14.12.1990 - Pakistan 20% - Pakistan 20% Investigation is than sewing thread), - India 25.9.1991 10.12.1991 terminated for containing 85% or India. more by weight of 10.12.1991 cotton, not put up for retail sale Table IV.4 (cont'd) The Republic of Turkey C/RM/S/42 Page 61

CN Code Product in question Country of Initiation Provisional Definitive Conclusion orign dates of the measure measure (Anti- investigation (Security) dumping duty) 52.08 Woven fabrics of - Pakistan 14.12.1990 - Pakistan Investigation is cotton (containing - India 0.75 $/Kg. terminated. 85% or more by - China 23.10.1991 10.12.1991 weight of corton) - (weighing not more - Chinese Taipei than 200 g/m2) 52.09 Woven fabrics of - Pakistan 14.12.1990 - Pakistan Investigation is cotton (containing - India 0.75 $/Kg. terminated. 85% or more by - China 23.10.1991 10.12.1991 weight of cotton and - Hong Kong weighing more than - Chinese Taipei 200 gr/m2) 7311.00 Containers for - Czechos. 22.5.1991 --- Investigation is compressed or - Former Rep. terminated. liquefied gas. of iron of 20.5.1992 or steel Yugoslavia 8507.10.31 Electric - Republic of 22.5.1991 --- - Rep. of 8507.10.39 Accumulators (Lead- Korea Korea12% acid, of a kind used 20.5.1991 for starting piston engines and of a weight exceeding 5 kg.) (working with liquid electrolyte and other) 7224.90.32 Steel billets - Brazil 22.5.1991 --- Investigation is terminated. 20.5.1992

70.13 Glassware of a kind - Indonesia 6.6.1991 - Indonesia Except used for table, 0.10 $/kg. P.T. Kedaung kitchen. toilet, office 5.6.1992 Industrial Ltd. indoor decoration or similar purposes (other than that of heading No 70.10 and 70.18) 8458.19.31 Universal lathes - China 22.6.1991 - China 50% - China 50% 22.10.1991 22.4.1992

8702.10.11 Buses - Hungary 22.6.1991 Investigation is terminated. 20.5.1992

5503.20.00 Polyester synthetic - Italy 9.7.1992 - Italy 9% - Italy 9% staple fibres (not 19.8.1992 8.1.1993 carded, combed or otherwise processed - Extension for spinning) 17.12.1992

8702.10.11 Buses - China 30.7.1991 Investigation is - Former Rep. terminated. of 20.5.1992 Yugoslavia Table IV.4 (cont'd) C/RM/S/42 Trade Policy Review Mechanism Page 62

CN Code Product in question Country of Initiation Provisional Definitive Conclusion origin dates of the measure measure (Anti- investigation (Security) dumping duty) 2916.31.21 Benzoic acid - Nederlands 14.8.1991 - - Netherlands 0.29 $/Kg. 1.9.1992

8458.19.31 Universal lathes - Bulgaria 22.4. 1992 - Bulgaria CIF 100% 4.2.1993

5503.20 Polyester synthetic - Romania 20.5.1992 Review is staple fibres (not - Rep. of Korea Review continuing. carded, combed or otherwise processed for spinning) 5506.20.11 Polyester synthetic - Romania 20.5.1992 Review is staple fibres (carded. Review continuing. combed or otherwise processed for spinning) 4802.52..0 Printing and writing - Finland 20.5.1992 Review is papers Review continuing.

69.08 Glazed ceran-ic flags - Bulgaria 16.6.1992 Investigation and paving, hearth terminated on or wall tiles: glazed 12.6.1993. ceramic mosaic cubes and the like. (whether or not on a backing) 70.04 Drawn glass and - Bulgaria I.10.1i92 Investigation is blown glass (in initiated except sheets) (whether or - 7004.10.30 not having an - 7004.90.30 absorbent or CN Codes. reflecting layer, but not otherwise worked) 8459.69.34 Milling - Chinese Taipei 17.11.1992 Investigation is (Turret-type) continuing. 52.05 Cotton yarn(other - Pakistan 11.12.1992 Review resulted in than sewing thread) Review abolition of (containing 85% or measure more by weight of 14.1.1993 cotton, not put up for retail sale) 70.04 Drawn glass and Russia 7.1.1993 Investigation is blown glass (in continuing. sheets) (whether or not having an absorbent or reflecting layer, but not otherwise worked)

Source: Undersecretariat for à Treasury and Foreign Trade. The Republic of Turkey CJRM/S/42 Page 63

(xv) Safeguard actions 181. Turkey has never taken recourse to safeguard action under Article XIX. (3) Measures Directly Affecting Exports (i) Registration 182. Exporters must obtain an export licence, issued by the Undersecretariat of the Treasury and Foreign Trade. The certificate is valid indefinitely. Exporters must also be registered with the Exporters' Association and their local Chamber of Commerce. No fee is charged for certificates but the Exporters' Association charges 0.05 per cent of the f.o.b. value as its service commission. No export certificate is required for exporters engaged in cross-border trade worth less than US$50,000. 183. Commercial exports subject to registration include goods for which payments are made to the Support and Price Stabilization Fund (SPSF), exports against natural gas imported under the bilateral agreement with the Russian Federation, refined olive oil and products to which quantitative restrictions in export markets apply. Exports of chemicals used in chemical weapons manufacture are subject to registration, as are restricted products included under strategic controls and the Montreal Protocol; goods subject to international sanctions (currently exports to Iraq and the former Yugoslavia) are controlled by the trade authorities. Exports of certain electrical equipment (motors, generators, transformers and converters) is also subject to registration for strategic purposes.88 (ii) Export taxes 184. Until the mid-1980s, levies and surcharges were applied mainly to agricultural exports. but most ofthese have been dismantled (Annex IV.2). The taxation of agricultural exports varied between 1982 and 1991: for example, in 1982, processed tobacco was subject to a 26 per cent export tax but this was eliminated by 1988. The meat, vegetable and animal oils, sugar refining, beverages and milling products, were generally not taxed during this period, rather the tax burden was born by other processed foods and, to a lesser degree, the fruits and vegetables sector.89 At present, the following items are subject to export taxes in the form of deductions payable to the Support and Price Stabilization Fund: , hazelnuts, dried figs, liquorice root, stone and raw leather. Exports of rye and untreated olive oil to countries other than the European Communities, according to the Association Council's decision, are also liable to a levy paid to the Support and Price Stabilization Fund.9 (iii) Minimum export prices 185. In accordance with EC regulations, in order to meet minimum import prices set by the EC, Turkey applies minimum export prices to raisins. Seventy-four per cent of raisin exports are to the EC. .There are no minimum prices on exports to third countries.

88Export Régime 1992. 89Togan (1993), Table 32. 90Undersecretariat of Treasury and Foreign Trade. C/RM/S/42 Trade Policy Review Mechanism Page 64

186. On cotton yarn exports to the EC, minimum export prices are in effect under the agreements between Turkish exporters and the Communities (Chapter Il, Box Il.1). (iv) Export prohibitions 187. Goods which may not be exported are angora goats, historical works of art, Cannabis sativa and tobacco seed or seedlings. Sales ofarms and psychotropic drugs are made by government agencies, according to international arrangements. (v) Export licensing 188. Restrictive export licensing requirements and export price controls were abolished early in 1984.9' (vi) Export quotas 189. The Turkish Government does not unilaterally apply export quotas. However, an import quota is applied to exports of preserved mushrooms as well as tomato paste and other prepared tomatoes to the EC market.92 For the latter products, the annual quota is 16,500 tons of which the limit on tomato paste is set at 8,500 tons. In addition, exports of ten clothing and six textile categories to the EC are under restriction in accordance with the agreements between the Istanbul Textile and Clothing Exporters' Association and the EC Commission (Box I1.1). (vii) Export cartels 190. The Secretariat has no information on the existence of export cartels. 191. The Turkish Commercial Code and the Draft Law on Competition do not prevent, prohibit or limit the activities of export cartels, except to the extent that effects are also apparent within Turkish territory, in which case they can be subject to investigation by the Competition Authority. (viii) Voluntary restraints 192. Voluntary export restraints apply in the textiles and clothing sector. The textiles industry, represented by the Istanbul Textiles and Garments Exporters' Association, rather than the Government, negotiated an agreement with the EC on textiles in 1982 and on clothing in 1986.93 Bilateral restraint agreements under the MFA have been in force between Turkey and the United States since 1985 and Canada since 1987. An MFA restraint arrangement was concluded between Sweden and Turkey from May 1988 to June 1991 and between Austria and Turkey on Turkish exports for the calendar years

91Kopits (1987), p. 11. 92Quota imposed by the EC in the context of Association Council Decision 1/80. 93Turkey does not officially recognize quota restrictions and regards the VRA as being unacceptable within the framework of Article 24 of the Additional Protocol. As such, it says any agreement should be made with industry (Reuters, 18 June 1993). The Republic of Turkey C/RM/S/42 Page 65

1990-1992.9 The Exporters' Association issues export licences for deliveries to the United States and Canada.

193. Exporters are allocated shares in the export quota for the EC, U.S. and Canadian markets based on past performance. Approximately 10 per cent of the total export quota is left available for free distribution to allow for new entrants and for the expansion of sales. Established exporters receiving shares based on past performance may transfer their quotaallocations, subject to a fee, but ifthey transfer more than 50 per cent, they are not eligible to participate in the free distribution. Shares for different categories and destined for different member states may be exchanged between companies. Quota levels for outward processing, export of material from the EC for further processing and import by the EC, are set separately from direct exports (V)(4)(ii). (ix) Export subsidies

194. The Government of Turkey acceded to the GATT Subsidies Code in 1985. In so doing, in pursuance of Article 14:5 ofthe Agreement, Turkey committed to reduce or eliminate export subsidies whenever these were inconsistent with its competitive or development needs.95 To this end it decided to phase out tax and financial programmes noted as containing export subsidy elements by the end of 1989."6 195. As can be seen from Table IV.5, the tax rebate and direct payments have been phased down from US$900 million in 1984 to US$400 million in 1992.

196. The 1992 Export Régime introduced a 25 per cent price discount on electricity consumed in the manufacture of goods for export. According to the Government, it was intended to put Turkish energy prices on a par with the European average. The Turkish authorities note that the choice of method of enforcement caused delays, which were resolved only in the second quarter of 1993, when implementation began. Only sectors where electricity charges exceed 5 per cent of the cost of production can benefit from the discount.

197. A transportation premium, paid from the SPSF, was available from 1986 to 1990. Applied by UTFT, it applied to certain exports to distant countries and ranged between US$3 and US$12 per tonne according to distance.'

94GATT documents COM.TEX/SB/1596, 10 May 1991; COM.TEX/SB/1611, 28 June 1991; COM.TEX/SB/1527, 2 April 1990.

95Article 14:5 states: "A developing country signatory should endeavour to enter into a commitment to reduce or eliminate export subsidies when the use of such export subsidies is inconsistent with its competitive and development needs.

96GATT document SCM/61, 4 March 1985. In its bilateral discussions with the United States, Turkey identified three programmes to be phased out: the Export Tax Rebate scheme, the Partial Export Revenue Deduction for Corporate Tax Purposes and the Resource Utilization Support Fund payments. 97UTFT. C/RM/S/42 Trade Policy Review Mechanism Page 66

Table IV.5 Value of export incentives in Turkey (1982-92) Years Tax rebate Payments from RUSP** Total incentives SPSF* (million TL) (million TL) (million TL) (million TL) (US$1,OOO) 1982 86,716 86,716 538,809 1983 148,990 148.990 665,045 1984 329,060 329,060 901,905 1985 287,378 45,530 332,908 642,258 1986 281,602 8,102 146,209 435,913 651,209 1987 437,207 145,500 78,220 660,927 772,391 1988 674,802 330.975 3,724 1,016,695 71 r,599 1989 389,517 733,975 3,724 1,127,216 531,510 1990 24,101 1,264,477 -626 1,287,952 493,919 1991 5,349 1,881,323 -190 1,886,482 452.410 1992 26,572 2,713,394 -23 2,739,943 397,813

* Support and Price Stabilization Fund. e* Resource Utilization Support Premium. Source: Undersecretariat for Treasury and Foreign Trade.

(x) Dutv and tax concessions (a) Duty concessions

198. Exporters are allowed to import raw inputs and packaging materials duty-free up to 60 per cent of the value of exports pledged, and up to 80 per cent in the case of temporary imports. Applicants must produce customs entry and exit documents; if exports are not realized, duties are charged, with a fine in addition. AIl exporters are eligible for the Export Incentive Certificate, obtained from the Undersecretariat for Treasury and Foreign Trade, which entitles them to the aforementioned exemption fromdut. s. In 1989 and since 1992, exporters have been able to purchase fuel oil used in the production of exported goods from refineries at a price excluding duties or other import taxes. 199. Investment Incentive Certificate holders is exempt from taxes and charges on credit services used if they make an export commitment (between 5 and 20 per cent) of annual production. 200. Imports used in export processing must be re-exported within a period of two years. Under temporary import, duty and levies payable must be guaranteed. (b) Indirect tax rebates 201. Reimbursement of indirect taxes for exporters was originally introduced in 1963 (Law 261 Regulating the Various Measures Affecting Taxes that Promote Exports). In April 1981, ten different lists of commodities were made eligible for rebates with the maximum rebate rate set at 20 per cent. Since then, decrees have been introduced progressively reducing the rebate rate although throughout The Republic of Turkey C/IRM/S/42 Page 67 the period, an additional rebate was paid ifexports exceeded a certain value. This provided an additional incentive to large exporters and manufacturers. In 1988, the maximum rate was set at 8 per cent and the system terminated at the end ofthe year.98 In 1983, the assistance from this rebate system amounted to over 22 per cent of eligible exports and 11 per cent of total exports; by 1989, this had been reduced to 7.5 per cent of eligible exports.99 (c) Direct tax exemption

202. A certain percentage of expor, earnings is declared non-taxable. This measure was first introduced in 1981. In spite of a commitment by Turkey to phase out this subsidy programme, between 1986 and 1990, the value of corporate tax exemptions rose from US$115 million to US$483 million, due to increasing exports (Table IV.6). However, since 1990, the share of net export earnings exempt from taxes has been reduced from 20 to 5 per cent and in 1991 the cost in, revenues foregone had been reduced by nearly 30 per cent to US;$348 million, despite the increase in exports. In 1991, when the exemption rate was 12 per cent, the tax :.aving ($3 il million) was 2.3 per cent of agricultural and industrial exports (US$13.3 billion). At present, the 5 per cent corporate tax exemption applies to producer-exporters of industrial products whose annual export earnings are above US$ 250,000; to producer-exporters of fresh fruits and vegetables and fishery products and to freight revenues. °0 Exporters who are not producers may deduct only 1.25 per cent of earnings.

Table IV.6 Value of corporate tax and freight exemption for Turkisb exports (1986-91) (TL million) 1986 1987 1988 1989 1990 1991 Exports-industrial products 63.248 91,572 303.335 714.646 1,138.281 1,265,170 Exports-agricultural 6,822 15.823 11,700 13,346 39.718 34,320 products Freight exemption 3,623 9,324 13.574 24.670 34,05' 35.505 Tourism exemption 3.272 13,653 25,163 31.882 46.205 117,025

Total 76.964 130.372 353.772 784.544 1.258,255 1,452,020

Memorandum: TL/US$ exchange rate 669 855 1.421 2.121 2.607 4.170 US$ million 115 152 249 370 483 348 j

Source: Uindersecretariat for Treasury and Foreign Trade.

(xi) Export credits

203. Broadly defined, an export credit arises whenever a foreign buyer ofexported goods or services is allowed, under an exporting country's law, to defer payment. During the first half of the 1980s,

98GATT documents L/6588, 3 November 1989; SCM/M/60, 18 August 1992. 99Togan (1993), Table 20. 100GATT document L/6630/Add.3, 23 March 1990. C/RM/S/42 Trade Policy Review Mechanism Page 68 a substantial difference existed between the general lending rate and the rate of interest applied to export credits in Turkey. The subsidies provided by export credits financed by the Central Bank and commercial banks reached a peak of 10.3 per cent of total exports in 1983.'°' Since 1987 the subsidy element has been less than 2 per cent of total exports.102

204. The Central Bank withdrew from the financing of export credits in 1985, but began once again to rediscount through commercial banks at the end of 1986 (Annex IV.2). Low cost short-terrn export rediscount credit was made available to companies exporting at least US$1 million in the previous year and US$5 million in the previous three years.103 The Central Bank ceased to offer export credits in 1990. Starting in 1987, credits were provided by the newly established Turk Eximbank.104 In 1991, 50 per cent of export credit financing was provided through reserves transferred from the Support and Price Stabilization Fund; in 1992 the corresponding amount was approximately 4 per cent.

205. Turk Eximbank operates three main types of export credit schemes. To be eligible for subsidized export credits from the Export Finance Credit Programme. the exporter must have sold US$1 million in exports the previous year.105 Foreign Trade Companies Credits are extended to exporters with a minimum export value of US$50 million in the previous year. either in Turkish lira (Rediscount Credit) and/or foreign currency (Foreign Currency Credit). The combined amount of credit may be up to 17 per cent of the projected f.o.b. export value for the next three months and has a maturity of 90 days. Pre-shipment Export Credit up to 50 per cent for agricultural. mineral or manufactured exports is issued for 120 days at a current discounted rate of 46 per annum. Credit provided per company can not exceed TL 50 billion. Buyers Credits enable foreign buyers to purchase Turkish goods and services on a deferred payments basis: eligible goods are specified within the credit agreements and all goods and services must have at least 50 per cent domestic content. Buyers' credits have been arranged with the independent republics ofCentral Asia (Azerbaijan, Georgia. Kazakhstan. Kyrgyzstan. Tajikistan. Turkmenistan and Uzbekistan). Export credits to the former Soviet Union. totalling USS1.150 million since 1988. were assumed by the Russian Federation.106 Other credits offered by the Eximbank are Revolving Export Finance Credits and Islamic Development Bank Longer-Term Trade Financing Scheme.

101The subsidy rate is calculated as the interest rate savings on discounted export credits multiplied by the geometric mean of export credits as a percentage of total exports (cf. Togan 1993). The study by Milanovic which calculates the subsidy element of credits extended to the manufacturing sector as a per cent of manufacturing exports is lower at 6.5 per cent. The most apparent difference is the interest rate differential between general and export credits used to calculate the subsidy element: Milanovic used a differential of 18.9 per cent in 1983; Togan identifies the differential for Central Bank export credits (12.8 per cent) and for commercial banks (26.8 per cent) which, given the much larger share ofexport credits extended by commercial banks in the annual total results in an average discount to market rates of roughly 25 per cent.

102However. export credits finance only 12 per cent of exports. 103Togan (1993).

104The State Investment Bank was reorganized as the Export Credit Bank of Turkey, or Turk Eximbank. The Eximbank operates within the principles set forth in a Council of Ministers Decree dated 17 June 1987 and under the Turkish Commercial Code and the Banking Act as a joint stock company.

105The Export Finance Credit Programme was eliminated at the beginning of 1993. 106IMF (1993). p. 29. The Republic of Turkey C/RM/S/42 Page 69

206. Turkey is not a party to the OECD Arrangement on Guidelines for Officially Supported Export Credits, although Turk Eximbank follows the OECD guidelines in establishing interest rates for buyers credits. (xii) Export insurance and guarantees 207. Turk Eximbank provides credit, insurance and bank guarantees to promote export development. The Short-term Export Credit Insurance scheme provides insurance coverage against 90 per cent of the commercial and political risks for all goods exported on credit of up to 360 days. The Specific Export Credit Insurance Programme provides cover against political and commercial risks for exports of capital goods and equipment with at least 60 per cent domestic content with a credit period of up to five years; both pre- and post-shipment cover is provided for between 80 and 100 per cent of shipments. In the last few years, two new insurance programs were introduced: the Overseas Contractors' Services Insurance programme. introduced in June 1990, insuring 80 per cent of Turkish contractors' services exported against commercial and political risks, and .he Overseas Investment Insuranceprogramme. introduced in 1991. indemnifying 90 per cent ofoverseas investments by Turkish firms against political risks such as nationalization, foreign exchange transfer difficulties or internal strife. (xiii) Export promotion and marketing assistance

208. The Export Promotion Centre (IGEME) is a public organization founded in 1960. It provides market research and product information, publishes regulations on export procedures. coordinates with national and international trade promotion organizations and finances international trade fairs. In the past five years. the Export Promotion Centre of Turkey has spent nearly TL 20 billion (USS2 million) on international trade fairs. In 1993. budget allocations to the Export Promotion Centre amounted to TL 33.685 million.

(xiv) Export performance requirements

209. A minimum level of domestic content (usually 50 per cent) is required for exports under Eximbank Buyers' Credits. under the Natural Gas Agreement with the Russian Federatioli and in countertrade deals.

(xv) Free trade zones

210. Law, No. 3218 of 6 June 1985 established the framework for the establishment of free trade zones. The salient incentives to establishment in a free trade zone include- (i) exemption from all taxes (corporate, income, withholding); (ii) access to investment incentives. e.g. credits from the Resource Utilization Support Fund for investments over TL 1 billion (US$100.000 at present exchange rates); (iii) a ban on strikes and lockouts for ten years from the date of establishment of the zone and (iv) sales to the Turkish domestic market.

211. There are five free trade zones in Turkey. the first two (Antalya and ) operating since 1987. Between 1988 and 1992. trade in the free trade zones expanded from US$12.6 million ($83 million including transit trade) to US$498 .4 million ($577.4 million including transit trade). Trade in industrial products is diversified but dominated by clothing. leather and electronics. In 1992. sales

107The indemnification percentage was increased from 80 to 90 per cent in July 1991. C/RM/S/42 Trade Policy Review Mechanism Page 70 from the zones into Turkey were the principal activity, exports accounted for less than USS 100 million. or approximately one-sixth of total sales from the zones.

(4) Measures Affecting Production and Trade

212. Turkish trade policy. by lowering tariffs and export subsidies, has aimed to achieve greater neutrality in the last several years. bu, many other tools exist for Government to promote economic activity. The main industrial policy tool is the use of tax and interest rate concessions as "investment incentives": the major source is the use of extra-budgetary funds which, until 1992, were financed, at least party by charges on imports. (i) Regional and industrial investment incentives

213. Since 1968. in accordance with Law 933 of 1967. the State Planning Organisation has published annual investment Incentive Programmes providing incentives for the development of both industries and regions. Investment incentives available to both the public and the private sector, include an (i) investment allowance, i.e. tax deduction. (ii) preferential financing. (iii) cash grants. (iv) tax and duty exemptions and (v) indirect and direct tax deferments. In order to benefit from most of the incentives, investors mnust hold " incentive" certificates; since 1990 an opportunity to benefit from some of the incentive measures for small and medium-sized investments was made available.108

214. Certificates are issued if a project fulfils certain financial thresholds and other terms and conditions set forth annually by the Council of Ministers. Incentive measures are applied in various ratios for different regions and sectors with an emphasis on investments which will create employment. prevent environmental pollution. save energy or advance technology. 215. The 1992 Incentive Program introduced some changes broadening the eligibility of investments in some instances and transferring the administration of the program from the State Planning Organization io the Undersecretariat for Treasur; and Foreign Trade. General Directorate of Incentives and Implementation. The threshold for obtaining an encouragement certificate for investments in priority regions and free trade zones - as raised from TL 250 million to TL 1 billion (the limit for other regions is TL 5 billion (USS500.000): for investments in environmental protection and R and D the minimum investment for eligibility remains at TL 250 million and for computer software. tourism and garments reduced from TL 2.5 billion to TL 1 billion.10 216. In addition to promoting capital formation and industrialization. the incentive scheme lias been designed to encourage regional development. For this purpose the country is broken don into regions according to level of development: developed regions. normal regions. second degree priority regions and first degree priority regions.

108Concessional credit is available from the public Halk Bank; some of the resources are provided bY international or bilateral foreign loans (OECD (1991), p. 95).

1-'7 .anbul Chamber of Commerce (1993). Economic Report. p. 70. The Republic of Turkey C/RM/S/42 Page 71

217. In priority development regions, where GNP per capita is one-third the national average and unemployment twice as high, investments are eligible for an investment allowance of up to 60 (second priority regions) or 100 per cent (first priority regions) (see below) of capital. Nevertheless, in the last five years, the industrialized region of Marmara has received the largest share of investment incentive certificates (Chart IV.6). Before 1990, developed regions were limited in eligibility for incentive certificates for entirely new investments in certain sectors, but since then these limitations have been dropped.

218. From 1968 to 1980, about 4,800 investment encouragement certificates were issued. Between 1981 and 1991, the number rose to nearly 27,000. 110 By 1991, investments under certificates amounted to TL 38 trillion (million million) (compared to total fixed investment of over TL 100 trillion); in 1992. these amounted to TL 51 trillion (out of total fixed investment of TL 168 trillion) and the employment to be generated by these projects was estimated at 172,000 for 1991 and 116,000 for 1992. Manufacturing's share of investment certificates, although fluctuating during the 1980s, was nearly half of the total value of investment certificates. Within the manufacturing sector, textiles was the leading branch, rising from 5 to 45 per cent in the course of the decade, followed by chemicals and food and beverages (Chart IV.7). The majority of certificates have been issued for new investments, followed by expansion and a small share destined for modernization.

Chart IV.6 Regional breakdown of investment incentive certificates Per cent

1988 1992

Marmara Marmara 43.0 55.5 Central Anatolis 113 Others 5.8

Black Ses Others 7.0 Aegeon 16.8 _ 14.< -~~ \ I NMediterranean Black Sea Central Anatolia 8.3 Mediterrnean 3.7 13.8 Aegean 10.5 9.6

Source: State Planning Office, Main Economic Indicators, March 1993.

110Erzan (1992). C/RM/S/42 Trade Policy Review Mechanism Page 72

Chart IV.7 Sectoral breakdown of investment incentive certificates Per cent

1988

Energy 9.3 Textiles 45.5 Food 5.1

Sersices Others 38.4 2?.4 Cement 6.9 Metal goods 3.5

Agriculture Mining 1.1 2.0 Total Manufacturing

1992

Energy 2.2 Services Textiles 27.1 37.8

Food 14.7 Agriculture , 1.3 Cement Mining 6.3 2.9 Metal goods

Others Transportvehicles 20.6 Chemicals 7.8

Total Manufacturing

Source: State Planning Office, Main Ecnomic Indicators March 1993. The Republic of Turkey C/RM/S/42 Page 73

219. Official data are based on certificates issued rather than investments realized; still according to the authorities. the realization rate was nearly 70 per cent during the 1980s. (a) Tax concessions 220. Under the investment incentive allowance all certificate holders are entitled to deduct at least 30 per cent of the cost of the investment from taxable income. This write-off can range up to 100 per cent for priority sectors or regions."' In 1993, investments for expansion or modernization of all industrial plants are eligible for a 100 per cent write-off against taxable income. While nominally these are attractive tax incentives. the Government calculates that the investment allowance amounted to less than TL 1.5 trillion in 1991 (Table IV.7).112

Table IV.7 Realization of investment incentives (TL million, current prices) 1985 1986 1987 1988 1989 1990 1991 1992 Total

1. Budgetary Incentives a) Customs 554.433 784.171 942.689 1,646,535 1.887.535 626.278 612,.261 2,145,162 9.199.027 exemption b) Investment 45.868 148.44k) 308.983 545.524 991,277 1.456.152 1.918.246 5,414,489 allowance

2. Financial Incentives a) Incentive 187 4.716 18.637 27.902 80.203 170.950 231.174 280.868 864.637 premium b) Resource 656 22,214 79.f6f6 160.820 338.965 704.783 1.541.130 1.964.570 4.812.798 utilization support premium

Source: UTFT.

(b) Concessional credits

221. The Turkish Development Bank evaluates the granting of credits at concessional rates which are paid from the "Encouragement of Investments and Services Providing Foreign Exchange Earnings Fund" (the Incentive Fund) and the Mass Housing Fund. Twenty-five per cent of the Support and Price Stabilization Fund. and 100 per cent of the Resource Utilization Support Fund are collected in the Incentive Fund. One-year credits for operational expenditures are granted from the Bank's own

Prioritv sectors for 1993 include agro-industry, leather, textiles and garments, automotive industry. machinery electronics, pharmaceuticals, education. health, R&D, sports, culture, arts, press, broadcasting, où exploration at sea. BOT projects, energy, privatized industries.

112The authorities estimate that an investment normally needs at least six years to make a profit and thus become taxable. C/RM/S/42 Trade Policy Review Mechanism Page 74 funds. Concessional credits from the Mass Housing Fund are directed towards investors in the building sector. Credits are also issued by the Ministry of Trade and Industry. 222. Concessional credit of five years, with a two-year grace period, is made available to certificate holders. The percentage of support may be up to 60 per cent of the total investment amount, varying according to the sector and the type of investment. The interest rate varies between 10 and 30 per cent. depending on the region. Investors in given areas, not holding certificates, also benefit from this facility: the percentage ofsupport may, in some cases, reach 80 per cent ofthe value of investment, with interest rates between zero and 30 per cent. (c) Cash grants 223. "Incentive premiums" (cash grants) are available to all certificate holders, regardless of sector and region. These grants are equal to the total value added tax paid on domestically produced machinery and equipment and serve as a counterpart to the customs duty exemption on imported investment goods, so reducing the cost of domestic inputs to the level of imported. For priority sectors, 10 percentage points are added to the premium. In 1992, these payments amounted to TL 280 billion (Table IV.7).

224. Premiums paid out ofthe Resource Utilization Support Fund to certificate holders in all sectors amounted to nearly TL 2 trillion in 1992 and was the largest component in total investment incentives (Table IV.7). This premium. abolished in 1990, continues to apply to investments previously initiated. A premium is also paid by the Agricultural Bank for certain types of agricultural investments which do not require incentive certificates.

(d) Duty concessions on imports

225. Until recently. investment or capital goods eligible for duty-free treatment were defined in a separate list. At present, virtually all capital goods (machinery and equipment as well as raw materials and other inputs) are now exempt from duty and VAT to holders of certificates only. In 1992, the duty exemption, as a claim against the budget, amounted to TL 2. 1 trillion and between 1985 and 1992, over TL 9 trillion.

(e) Other concessions

226. Tax on 25 per cent of taxable income. placed in escrow with the Financing Fund ofthe Central Bank, may be deferred until the following in order to improve cash flow.

(f) Assistance to small and medium-sized industry

227. While measures available through investment certificates are available for all enterprises. additional government assistance has been provided to develop the small business sector. In 1983, the Small and Medium Industry Development Organization was established to upgrade the effectiveness and expand the share of small and medium-scale enterprises in meeting the social and economic needs of the country. In 1988, Turkish firms with more than one but less than 10 employees accounted for about 46 per cent of aggregate employment and 38 per cent of total production, but for only 8 per cent of exports.113 The Ministry of Trade and Industry channels funds towards the establishment of industrial estates at the interest rate of 15 per cent with average credits maturing after ten years. Between

113OECD (1991), p. 94. The Republic of Turkey C/RM/S/42 Page 75

1965 and 1992, TL 5.9 trillion was made available in credits for these industrial sites which with over 60,000 enterprises employed 365. 000 workers. The 1993 investment program for industrial estates came to TL 3.7 trillion expected to create 227 thousand jobs."4 (ii) Assistance to research and development 228. In 1987, the share of gross domestic expenditure on research and development was 0.54 per cent, the lowest amongst the OECD countries.115 The High Council of Science and Technology established a Science and Technology Fund to promote industrial research and development but this was found ineffective and abolished in 1991.

229. Investments in research and development are 100 per cent tax deductible and receive the maximum benefits under other incentive measures.116

(iii) Barriers to entry and competition 230. The prevalence of state-owned enterprises in heavy manufacturing, accounting for 35 per cent of 1989 manufacturing value added, and the historical bias of investment incentives towards large companies is likely to reinforce the status quo and limit new entrants. Indeed, the average three-firmn concentration ratio across fifty selected industrial products was relatively high at 86 per cent in 1988-1990 (Table IV.8). 117 Nevertheless, since Turkey's market opening measures began in 1980, the number of new entrants into the manufacturing sector has been significant and levels of domestic industrial concentration have fallen. In the tradables sector, openness to foreign competition, via a liberal trade régime, can go a long way to ensuring the contestability of the domestic market. On the other hand, in areas such as distribution networks or service provisions, where there are mainly domestic operators at work, a competition law may be necessary.

231. At present, there is no specific competition legislation or policy enforced in Turkey. Article 167 ofthe 1982 Constitution states that "The State... shall prevent the formation, in practice or by agreement, of monopolies or cartels in the market.' The Draft Act on the Protection of Competition is currently before the Grand National Assembly. Based on Articles 85 and 86 of the Treaty of Rome, it prohibits the abuse of a dominant position and forbids all agreements that have as their object or effect the prevention, restriction or distortion of competition within the national market. Article 2 of the Draft Act states that the Act also applies to agreements and decisions with the object or effect of preventing, distorting or restricting competition amongst undertakings which either operate in, or may effect, the market for goods and services in Turkey. There are no specific provisions concerning import or export cartels. although import cartels (affecting competition in Turkey) would be covered.

114Ministry of Trade and Industry. 115OECD (1991), p. 96. 116OECD (1992a), p. 75. 117Dutz (1992). C/RM/S/42 Trade Policy Review Mechanism Page 76

Table IV.8 Concentration ratios for selected goods, 1989-90 Selected products CR-1 CR-3

Televisions 35 74 Audio electronics 62 88 Vacuum cleaners 55 90 Sewing machines 50 100 Washing machines 80 100 Refrigerators 53 100 Electric 50 80 Household cooking ranges w/ovens 63 100 Household healing radiators 47 90 Electrical porcelain goods 86 100 Audio tapes 75 100 pipes and rods 50 80 Cardboard 50 100 Corrugated cardboard packaging 18 42 Sanitary paper products 59 98 Sanitary ceramicware 51 94 Beer 65 100 Toothpaste 72 99 Polyester fibre 73 100 Polyester yarn 36 86 Acrylic fibre 88 100 Machine-woven carpets 10 26 Pencils 95 100 Ballpoint pens 60 85 Steel cord and wire 70 90 LPG 50 75 Matches 60 100 Cosmetic goods (tons of production) 57 78 Aluminium plates 60 100 Aluminium rolls and sheets 30 70 Plate glass 100 100 Margarine 52 81 Light bulbs 40 90 Electrolytic copper 30 70 Ceramics 39 70 Newspapers 27 68 Paints 29 60 Detergents 35 80 Pesticides 18 43 Trucks 46 80 Pick-up tricks 52 97 Buses 95 100 Minibuses 90 100 Passenger 55 100 Agricultural tractors 43 94 Automotive batteries 70 85 Automotive tyre cord 100 100

Note: CR-1 refers to the share of total domestic sales accounted for by the largest producer, while CR-3 refers te the share of domestic sales accounted for by the largest three producers.

Source: Dutz (1992). The Republic of Turkey C/RM/S/42 Page 77

(iv) Commercialization and privatization 232. A legacy of statism and the import-substitution policies pursued until the end of the 1970s, state-owned enterprises generated over 35 per cent of manufacturing value added in 1989. 233. In 1992, there were 42 state-owned enterprises, including those transferred to the PPA employing 575,000 workers, 3 per cent of the non-agricultural work force in 1990. Of these, eight are Public Economic Institutions operating in electricity production and distribution, transportation and communications and in agriculture. The Soil Products Office (TMO) is responsible for the purchase of cereals. It administers the agricultural price support system together with the two SEEs responsible for sugar processing (SEKER) and tobacco and alcoholic beverages (TEKEL). These three jointly account for the largest share of public transfers. There are five public banks and the remainder (37) are non-financial State Economic Enterprises (SEEs) of which 14 are involved in manufacturing (Annex IV.3).118 State-owned enterprises dominate in heavy industries and are the major producers of non-ferrous metals, refined petroleum products, petrochemicals and basic chemicals, paper, newsprint and sugar. Amongst the 500 top industrial firms, the first three are public sector companies led by Tupras, the oil refinery, TEK, the electric utility and TEKEL, the tobacco and alcohol monopoly and these account for over 20 per cent ofsales amongst the Major 500. 119 State-owned enterprises, excluding those transferred to the PPA for privatization, accounted for an estimated US$2.8 billion of imports and US$2. 1 billion ofexports in 1992.120TEKEL and Botas (the oil pipeline) are the leading importers, and TMO and ETIBANK, the latter involved in mining and chemicals, are the leading exporters amongst SEES.

234. As part of its structural adjustment policies introduced in 1980, the Government undertook to reform its non-financial State Economic Enterprises. The new strategy set out to limit the scope of SEEs, reduce their monopoly power, diminish their reliance on government financing and increase their efficiency. Price controls were removed. except for coal, fertilizers and electricity. In October 1983, the legal basis for reform of the SEEs was established. This differentiates between SEEs to be operated according to commercial criteria and state monopolies producing basic goods and services not normally provided by the private sector. As state property, SEEs are subject neither to the commercial code, bankruptcy laws nor standard financial reporting and auditing rules.'2' In January 1990. the authorities introduced a new financial reporting system. 235. Decree Law 233 of June 1984 granted SEEs substantial autonomy and attempted to reduce political interference. Most significantly, it allowed SEEs to charge prices covering production costs and stipulated that the Government reimburse SEEs, with a guaranteed 10 per cent profit margin, for price restrictions mandated by the Government. In November 1984, tax privileges, exemption on income tax. stamp duty and banking and insurance tax were abolished.122 In May 1986, the special status granted to public sector entities. such as municipalities and SEEs, with regard to exemptions

128Dutz (1992).

119Journal of the Istanbul Chamber of Industry, August 1992. Tupras has been transferred to the PPA for privatization.

120UTFT. Monthly Treasurv Indicators, Tables V. 13 and V. 14.

121OECD (1992(a)), p. 99. 122OECD Economic Survev 1984/1985, p. 50. C/RM/S/42 Trade Policy Review Mechanism Page 78 from customs duties and import fees was terminated. 123However, SEEs continued to enjoy privileged status as borrowers in domestic and international financial markets, due to Government guarantees. 236. The above policies reduced the dependence of SEEs on Government transfers for a time; nevertheless, the borrowing requirements of SEEs contributed substantially to the public sectordeficit, amounting to between 3 and 4 per cent of GNP in the second half of the 1980s. Nor was there any positive impact on efficiency; total factor productivity of the public enterprise sector grew at half the rate of the private sector between 1981 and 1988.124 Price increases often above the average rate of inflation simply transferred the burden from the Government to the consumer while the SEEs continued to be a major drain on the budget (Table IV.9). Borrowing requirements averaged half of the entire public sector borrowing requirement in the 1985 to 1989 period and operating losses since brought borrowing requirements to 4.7 per cent of GNP in 1991.125 In addition to transfers the SEEs receive subsidies and transfers from extra-budgetary funds such as the Price Support and Stabilization Fund for fertilizer producers and transfers from the Development and Support Fund for the electric utility. For 1992, total losses of all the state-owned corporations amount to around $3 billion or 2 per cent of GDP.126

Table IV.9 Profit and loss account or operational SEEs* (TL billion) 1988 1989 1990 1991 19921 Expenditure 28,992.1 51,233.7 90,825.1 115,810.3 177.142.3 Wages and salaries 3,076.7 7,488.4 15,030.8 28,895.2 50,296.1 Other inputs 22.069.8 38,320.7 68,191.8 68,825.0 102,911.4 Depreciation and other provisions 3,846.1 5,424.6 7,602.5 18,090.1 23,934.8 Income 29,918.4 51,761.0 88,754.2 92,490.6 146,272.2 Sales revenue 27,991.0 49,574.7 77,501.9 80,603.3 145,040.4 Increase in stocks 1,927.4 2,186.3 11,252.3 11,887.3 1,231.8 Gross profit(+)/Ioss(-)2 925.7 527.3 -2,070.9 -23,319.7 -30,870.1

* Includes SEEs transferred to PPA for privatization.

1 Estimate. 2 Excluding duty losses; these amounted to TL 14,387 billion (estimated) in 1992. Source: SPO.

123OECD (1986), p. 54. 124OECD (1992(a)). Table 29. 125GATT document BOP/314, 15 March 1993. 126Financial Times. 18 November 1992. The Republic of Turkey C/RM/S/42 Page 79

237. The legislative framework for privatization was established under Law 3291 of May 1986. The Public Participation High Council, an inter-ministerial council chaired by the Prime Minister, is the decision-making and executive body of the privatisation programme. This Council is authorized to decide on the transfer of SOE shares to the Public Participation Administration which, under Law 3291, is in charge of implementing the privatization programme and selling shares in companies. 238. Privatization has, however, proceeded only gradually. In 1988, the High Planning Council decided to open up the possibility of block sales to foreigners, a move which led to local opposition to the privatization process. A legal suit was brought in late 1989 against the sale of an airline catering company and the proposed sale of five cement factories to foreign interests; the courts ruled in favour of the sales in the cement industry, but legal delays and conflicting statutes create uncertainty for potential foreign investors. Privatization has also been slowed by the shallowness of domestic equity markets and most public offerings have been block sales. Between 1985 and 1993, 15.7 per cent of shares in SOEs were sold to foreign investors. 239. Up to April 1993, according to data supplied by the Public Participation Administration, privatization receipts amounted to US$2,067 million between 1986 and 1991.127 US$571 million was generated in 1992 and in 1993, receipts are projected at $1.5 billion.128 InJuly 1993, the broadcasting sector was liberalized from State control.

240. A draft law envisaging the establishment of an Autonomization, Privatization and Reconstruction Council (TöYöK) to either rationalize, privatize or close state enterprises over the next five years, has been revised and is now before Parliament. The original draft foresaw that public enterprises presently under PPA control, excluding the public service monopolies, would be transferred to Tövök and the legal status ofSEEs changed so that they fall within the mandate ofthe commercial code.129 The current draft slows the pace by mandating that both transfer and timing will be decided on a case-by-case basis by the Council of Ministers. In order to alleviate the unemployment effects caused by privatization, an unemployment insurance fund. financed by 15 per cent of privatization proceeds and international institutional funds will be used for redundancy payments and retraining.

127Public Participation Administration (1993), Privatization in Turkey, position paper. 128GATT document BOP/314. 129OECD (1992(a)), p. 100. C/RM/S/42 Trade Policy Review Mechanism Page 80

Annex IV. 1 Changes in tariff and non-tariff measures. 1981 TO 1993

1981 January The Quota List is abolished. The rate of stamp duty is cut from 25 to I per cent.

1982 The Support and Price Stabilization Fund (SPSF) levy is introduced and set at 2 per cent on domestic production and imports, with a few exceptions.

1983 Public sector imports are exempted from the SPSF levy.

1984 With the Import Régime for 1984, tariffs are reduced between 5 and 100 per cent on some items. For some goods, recently liberalized, duties are increased. In total, the average tariff cut is 3.3 per cent; on a trade weighted basis tariff protection falls from 39 to 22 per cent between December 1983 and January 1984. The Mass Housing Fund levy is introduced and levied on 80 tariff headings including beverages, tobacco and petroleum products. The positive list of permitted imports is replaced with three lists: prohibited, licensed and free about 40 per cent of previously licensed imports are liberalized.

1985 The prohibited list is abolished and the number of items requiring import authorization is reduced from 1,300 to 625. The Mass Housing Fund levy is increased to cover 200 tariff headings. A 2.5 per cent surcharge on metals (minerals) imports payable to the Mining Fund is introduced.

1986 The number of items requiring import authorization is reduced from 625 to 245. The rate ofthe Support and Price Stabilization Fund levy is raised from 2 to 4 per cent. The stamp duty is raised from 1 to 6 per cent.

1987 The number of items requiring import authorization is reduced from 245 to 111. The scope of the Mass Housing Fund levy is raised to cover 568 items. September The Support and Price Stabilization Fund levy is raised to 6 per cent. The Republic of Turkey C.RM/S/42 Page 81

1988

January The number of items requiring permission is reduced from 111 to 33. Customs tariffs are lowered on 234 items and a maximum duty for all imports set at 50 per cent. The number of items subject to the Mass Housing Fund is increased from 577 to 787.

March Customs duties and import surcharges are lowered on several items.

July The surcharge on imports for the Support and Price Stabilization Fund is raised from 6 to 8 per cent.

October The stamp duty on imports is increased from 6 to 10 per cent. The SPSF surcharge is increased from 8 to 10 per cent. A surcharge of 3 per cent for the SPSF on the c.i.f. value of duty-free imports of some investment goods by the public sector is introduced.

December Surcharges on exports and imports of cotton are abolished. Imported petroleum products are exempted from the surcharge for the Resource Utilisation Support Fund.

1989

January Turkey adopts the Harmonized System.

March Imports subject to authorization reduced from 33 to 17. Import surcharges are changed for 62 items. The customs duty on imports of iron and steel products is abolished. Customs duties covering some 11,000 goods are reduced to align them with the EC tariff.

May The private sector is given permission to import sugar.

June The duty on cotton yarn is eliminated but the surcharge is raised from $130/ton to $200-300/ton.

A transport infrastructure duty is introduced, replacing the wharf tax. It taxes goods shipped by sea at 4 per cent and by air or road at 3 per cent.

August Curbs on the import and export of gold and precious stones are removed.

1990

January The advance import deposit scheme and the import authorization system are abolished. April 11 Levies and duties are reduced on 231 items. July 18 Duties are reduced on 98 items and eliminated on 243 items. The Mass Housing Fund levy is reduced on 36 items and eliminated on 28 items. C/RM/S/42 Trade Policy Review Mechanism Page 82

1991

January Tariffs and surcharges on several industrial goods are lowered; they are raised on livestock, sugar and milk.

The SPSF surcharge on imported oil and oil products is raised from 10 to 15 per cent; for normal and super gasoline, it is raised to 30 per cent.

May Surcharges on some imports of iron and steel products are raised and on some others are lowered.

September The SPSF surcharge on normal and super gasoline is lowered from 30 to 10 per cent; on other petroleum products, it is lowered from 15 to 5 per cent. December 21 The SPSF levy on imports of petroleum products is raised front 5 to 15 per cent. For kerosene, it is set at 21 per cent, and for gasoline raised from 10 to 40.25 per cent (normal) and 41.25 (super).

1992

February Surcharges and customs duties on several imports are raised for meat and livestock. cement, detergents, some paints and cotton yarn. They are lowered for bars and rods of iron and steel. other steel products. ball bearings, copper scrap and waste, conductors, vacuum tubes. security glass for boilers, articles ofbasalt and some chemical products.

Customs duties on several items imported from EC member states are further lowered by 10 per cent in the legal Customs Tariff as a result of tariff alignment.

1993

All surcharges are scrapped, except the Mass Housing Fund levy which now applies to slightly more than 16,000 tariff lines.

The Import Régime establishes, for the first time, effective (provisional) rates for the EC and EFTA countries, creating a net preferential margin for almost all industrial products and some additional agricultural products.

Source: OECD, Economic Surveys, various years; GATT documents BOP/W/105, BOP/283; IMF; Papageorgiou et al. (1991). The Republic of Turkey C/RM/S/42 Page 83 exV.

Annex IV.2 Key changes to the export régime, 1980 to 1993

1980

January The Export Promotion Decree established the Office of Incentives and implementation in the State Planning Organization to streamline administrative procedures for exporters.

1981

January Export incentives (corporate tax reductions and preferential credits for export-oriented investments) are introduced.

1982

January Law 2573 stipulates that 20 per cent ofexport revenues may be deducted from corporate tax if exports are more than US$250.000 per year.

1983

November A Free Zone Administration. attached to the Prime Minister's Office. is established.

December Exporters may retain up to 20 per cent of foreign exchange earnings.

The Support and Price Stabilization Fund (SPSF) is set up at the Central Bank designed to finance housing, an export insurance scheme and export-oriented investment. Fund levies are set on certain agricultural exports as weil as imports (Annex IV. 1).

1984 Export licensing is greatly reduced and export price controls are abolished. Indirect tax rebate rates are lowered by 20 per cent. Maturity of export credits reduced from 12 to 6 months.

April A "Foreign Credits Exchange Rate Differential Fund" is set up at the Central Bank. assuming the exchange rate risk on bans for export-oriented projects.

September Tax rebate rates on exports are lowered by 25 per cent to 55 per cent of the rates in force in December 1983.

December The Resource Utilization and Support Fund (RUSF) replaces the Interest Differential Rebate Fund and provides direct subsidies for exports (4 per cent of he f.o.b. value). Exporters who hold an Export Incentive Certificate valid for twelve months are entitled to use a foreign exchange allocation equal to 50 percent of export commitments. C/RM/S/42 Trade Policy Review Mechanism Page 84

1985 January Preferential export credits from the Central Bank are abolished but commercial banks continue .o extend credit at lower than market rates in exchange for exporters' foreign exchange receipts.

February Turkey signs GATT Subsidy Code and agrees to phase out all export subsidies by 1989. June The Law on the Establishment of Free Zones is approved by Parliament. July Formalities for the export of fresh fruits and vegetables are simplified and a 5 per cent tax rebate introduced.

October Export rebates for wheat, flour. . . dry beans. mohair and a few other commodities are abolished.

1986

March The RUSF cash premium is lowered to 2 per cent of export value. April The tax rebate on cotton yarn exports is abolished and the surcharge on exports of cereals is abolished.

August The surcharge on tobacco exports is abolished.

November Cash grants from the RUSF are abolished. The Government reintroduces export credits setting the interest rate at 38 per cent compared to 54 to 65 per cent for other short-term credits.

December Export tax rebates on some products are reintroduced: 2 per cent for fruits and vegetables to 8 per cent for manufactured goods. an additional rebate is introduced for exports exceedingspecified values.

1 987

January A selective system of export incentives is introduced covering 110 commodity categories financed from the Support and Price Stabilization Fund.

; 988

January The tax reh; e is reduced to zero on some expos (shoes. kitchenware, electrical motors) and to 2 per Cent on fertilizers.

Premiums from the SPSF are introduced for the export of motor vehicles and spare parts. The Republic of Turkey C/RM/S/42 Page 85

November 5 Firms that export at least US$1 million ofmanufactured goods or US$250,000 offruits, vegetables or animal products are permitted to deduct 20 per cent of their export proceeds from their taxable income.

December 30 Tax rebates are abolished on exports.

1989 February 15 Export-Import Bank pre-shipment credits are established.

Exporters are exempted from the surcharge on fuel oil and are granted price reductions for electricity and coal used in export-oriented production.

May 20 The threshold value of exports according eligibility for tax exemptions is reduced from US$1 million to US$250,000 on export earnings from industrial exports and no threshold for exports of fresh fruits, vegetables and animal products. The exemption rate is reduced from 20 to 18 per cent for the year 1990. June 13 Remaining export licences are eliminated.

August 1 1 Exporters are allowed to retain up to 30 per cent of foreign exchange earnings: the remaining 70 per cent must be exchanged in banks on special finacial institutions within 90 days of the actual date of export.

1991

February Exports of olive oil and other vegetable oils are granted subsidies from the Support and Price Stabilization Fund.

June Turkish Grain Board (TMO) is authorized to export wheat at world prices.

JuIy The surcharge on exports of wheat and is abolished.

August The export incentive system is amended allowing for soft-term credits from the Turkish Eximbank for companies whose annual exports exceed $1 million. Halfofthe revenues of the SPSF will be transferred to the Eximbank for this purpose. (This Decree was not put into force until May 1992; the transfer from SPSF was not realized and a revolving credit system was adopted by Eximbank).

Corporate tax exemption rate for exporters set at 12 per cent. C/RM/S/42 Trade Policy Review Mechanism Page 86

1992 Corporate tax exemption rate for exporters is reduced to 5 per cent. The Export Incentive Scheme introduces the energy subsidy. February Payments on exports from the SPSF are completely eliminated.

Source: OECD Economic Surveys, IMF, Milanovic (1986), Kopits (1987), Erzan (1992), Baysan and Blitzer (1990), Ministry of Trade and Industry (1992). The Republic of Turkey C/RM/S/42 Page 87

Annex IV .3 State economic enterprises by branch of activity SEEs Activity State Ownership MANUFACTURING

MKEK Machinery and chemicals 100.00% TAKSAN Industrial machinery Subsidiary TUMOSAN Industrial automobiles Subsidiary ASIL CELIK Industrial steel Subsidiary SEKA Pulp and paper 100.00% CITOSAN Cement 100.00% TDCI Iron and steel 100.00% GERKONSAN Iron and steel construction Subsidiary

MINING

TPAO Crude oil exploration and production 99.98% ETIBANK Mining. aluminium. chemicals 100.00% KBI Copper Subsidiary CINKUR Zinc Subsidiary TTK Coal mining 100.00% TKI Lignite mining 100.00%

ENERGY

TEK Electricity 100.00% TEMSAN Electrical equipment Subsidiary

SERVICES

DITAS Maritime tanker transport Subsidiary BOTAS Oil pipeline Subsidiary DMO Stationery and printing 100.00%

AGRICULTURE

IGSAS Fertilizer Subsidiarv TUGSAS Ferilizer 99.97% TSFAS Sugar processing 99.98% TMO Soil products 100.00% CAYKIUR Tea processing 100.00% TEKEL Tobacco and alcoholic beverages 100.00% TZDK Fertilizer distribution. tractors, agricultural equipment 100.00% TIGEM Agriculture 100.00% Annex IV.3 (cont'd) C/RM/S/4 Trade Policy Review Mechanism Page 88

SEEs Activity State Ownership TRANSPORTATION

TCDD Railway services 100.00% TUDEMSAS Railway transportation equipment Subsidiay TULOMSAS Railway transportation equipment Subsidiary TUVASAS Railway transportation equipment Subsidiary DHMI Airports administration 100.00% HAVAS Ground handling Subsidiary TGS 100.00% TDI Seaports administration 100.00% DEN.NAK. Maritime transport Subsidiary

COMMUNICATION

Post, telegraph, telephone 100.00%

BANKING

ZERBANK Banking (agricultural support credits) 100.00% EMLAKBANK Banking (mass housing support credits) 100.00% Banking 100.OO% T.KALK.B. Banking (development) 100.00% EXIMBANK Banking (export credit) 100.00%

FIRMS TRANSFERRED TO PPA FOR PRIVATIZATION

SUMERBANK Textiles TUPRAS Petroleum refineries PETKIM Petrochemicals THY Airlines POAS Distribution of petroleum products

CRUS Forest products EBK Meat, fish processing TSEK Dairy YEM SAN Animal feed

Source: Government of Turkey. The Republic of Turkey C/RM/S/42 Page 89

V. TRADE POLICIES AND PRACTICES BY SECTOR (1) Overview

241. The structural adjustment measures adopted by Turkey in 1980. with their emphasis on outward-- orientation, led to a surge in the manufacturing base. Manufacturing's share in GDP increased from 21 per cent in 1980 to 25.5 per cent in 1990 and the share ofmanufactures rose from 27 to 68 per cent of total merchandise exports.

242. As the pace of industrialization accelerated in the course of the 1980s, the share of agriculture in GDP declined, although nearly half the labour force is still employed in the farm sector. While manufacturing exports were subsidized through both tariff protection and explicit export subsidies, agricultural exports were taxed, lowering farm income. Turkey is self-sufficient in a wide variety of farm products and, typically, a net exporter. The farm sector receives assistance in the fonn of support prices and input subsidies, the latter primarily for fertilizer and subsidized farm credits. State-owned enterprises play a particularly important rôle in agriculture, where the TMO (Soil Products Office) also known as the Grain Board. TEKEL and SEKER disburse support payments for wheat, tobacco and .

243. Exports of manufactured goods are still heavily concentrated in a few sectors; textiles and clothing and iron and steel. together make up over half of manufactured exports. It has been suggested that such concentration, as well as the limited role of foreign direct investment (despite an open door policy). suggests weakness in the industrial structure, fostered by a relatively high degree ofprotection and the absence of competition in the domestic market.130

244. Industrial production in the private sector has risen by 40 per cent since 1986 while that of public sector industries has increased by less than half (19 per cent).231 Overall. the public sector accounted for some 36 per cent ofmanufacturing value added in 1989, ranging from less than 8 per cent in textiles and clothing to over 60 per cent in chemicals (Table V. 1). Public enterprises are important sources of employment, particularly in non-urban areas. However, the State Economic Enterprises. as a group. have been losing money since 1990 and many individual enterprises have made no profits for several years.132 Public sector enterprises in the manufacturing sector show little propensity to export; for example. in 1989, exports of the public sector were less than 10 per cent oftotal exports. 133 In 1991. exports of public firms dropped by 19 per cent while exports of private firms rose by 8 per cent.134

130OECD (1990), Economic Survey 1989/90, p. 90.

131Bundesstelle für Aussenhandelsinformation (1993), Wirtschaftslage zu Jahresmitte: Türkei.

132The costs of the SEES have escalated in recent years due to increased public sector wages and agricultural support prices.

133UTFT, Monthly Bulletin of Foreign Trade, September 1992, Table 16.

134Journal of the Istanbul Chamber of Industry, August 1992. C/RM/S/42 Trade Policy Review Mechanism Page 90

Table V.1 Share of public enterprises in manufacturing value added, 1989 Sector Per cent Food. beverages and tobacco 48.9 Textiles, apparel and leather 7.6 Wood products and furniture 28.7 Paper and paper products and printing 35.5 Chemicals, petroleum and products 61.9 Poverty, glass and cement 11.3 Iron and steel and other basic metals 44.8 Metal products, machinery and transport equipment 8.8 Other manufacturing 3.7 Total manufacturing 35.8

Source: State Institute of Statistics (SIS); Survey of Manufacturing Industry.

245. Quantitative restrictions no longer affect imports into Turkey. Instead, tariffs and tariff-like measures provide protection to domestic production. High average levels and substantial inter-industry dispersion of tariff protection have been reduced in recent years but remain significant (Box V. 1). For example. the combination of the average m.f.n. tariff and the average ad valorem Mass Housing Fund levy (17.1 per cent) still provides nominal protection of nearly 27 per cent (Table IV. 1). Moreover. the sectoral dispersion of tariff and Mass Housing Fund protection at the border for manufacturing branches ranged from 15 to 84 per cent in 1993 (Table V.2). Less transparent specific rates of the Mass Housing Fund levy (applicable to one-sixth of tariff lines and one-eighth of 1992 imports) occur with relative frequency in logging, pottery and china, paper products, iron and steel and electrical machinery and appear particularly to raise the level of protection in a number of sectors including agriculture, food products, textiles and printing (Table V.3).135 No specific Fund levies apply in mining, beverages, wood products, rubber and and clothing.

Box V.l: Rates of protection

A number of studies have calculated the impact of import du quantitative resrictions and other charges on imports and the changes in the last decade. Although there are some differences in the results. they demonstrate the same txrnd towards lower nominal and effective protection. One study, based only on selected commodities in the manufacturing sector. calculates the impact of import duties and quantitative restrictions as 99 per cent in 1984 and 59 per cent in 1988 (Krueger and Aktan, 1992). Another study shows that the nominal rats of protection for all economic sectors, including VAT on iniports, import deposits (eliminated in 1990) and the minerals surcharge, fell from 70 per cent in 1984 to under 30 per cent in 1991 (Togan, 1993). In 1989, 21 out of 49 industries, identified as tradable goods sectors. had a nominal rate of protection of over 50 per cent and 33 had an effective rate of protection of over 50 per cent.136 By 1991, only the beverages and clothing sectors had nominal protection of over 100 per cent and four of over 50 per cent. Tariff reform has also narrowed the inter-industry dispersion cf assistance, indicating more unifoni sectoral treatment, with the standard deviation reduced from 65 per cent in 1984 to 36 per cent in 1991 (Tables AV. 14 and AV. 15).

135In addition to the ad valorem Housing Fund levy, the Secretariat calculated ad valorem equivalents of specific levies which apply to over 3000 tariff lines. In fact, these could be calculated for only 1463 tariff lines because of the absence of trade or difficulty in interpreting the data. These calculations gave an average ad valorem equivalent (1993 specific rates based on 1992 import prices) of 37.7 per cent with maximum levies ranging up to several hundred percentage points. 136Olgun and Togan (1990). The Republic of Turkey C/RM/S/42 Page 91

Table V.2 Sectoral averages of tariff and ad valorem Mass Housing Fund (MHF) charges, 1992 (Per cent)

Sector (ISIC 3-digit) Simple average tariffs MHF Total M.f.n. EC/EFTA M.f.n. EC/EFTA 111 Agriculture and livestock 7.5 7.1 18.8 26.3 25.9 210 Coal mining 3.0 3.0 0.0 3.0 3.0 220 Crude petroleum 10.0 5.0 0.0 10.0 5.0 230 Metallic ores 2.1 0.8 1.9 4.0 2.7 290 Other mining and quarrying 5.9 2.8 21.0 26.9 23.8 311 Food products 12.8 11.8 23.8 36.6 35.6 312 9.8 7.4 25.6 35.4 33.0 313 Beverages 16.8 1.0 41.2 58.0 42.2 314 Tobacco (products) 78.1 51.4 5.7 83.8 57.1 321 Textiles and knitwear 10.9 5.5 19.3 30.2 24.8 322 Other clothing 13.5 7.3 21.8 35.3 29.1 323 Leather and products 9.6 5.2 25.4 35.0 30.6 324 Footwear 19.6 8.7 21.5 41.1 30.2 331 Wood and products 6.0 2.6 29.0 35.0 31.6 332 Wooden furniture 18.8 9.4 17.9 36.7 27.3 341 Paper and products 8.5 4.2 15.1 23.6 19.3 342 Printing and publishing 4.3 1.9 10.9 15.2 12.8 351 Industrial chemicals 8.4 3.2 15.4 23.8 18.6 352 Other chemical products 7.3 2.9 14.2 21.5 17.1 353 Refined petroleum 4.7 2.8 28.6 33.3 31.4 354 Petroleum and coal products 5.1 2.7 16.4 21.5 19.1 355 Rubber products 7.8 3.4 22.8 30.6 26.2 356 Plastic products 10.2 5.8 30.7 40.9 36.5 361 Pottery, china 11.2 5.4 21.1 32.3 26.5 362 Glass and products 8.6 3.2 20.2 29.0 23.4 369 Other non-metallic min. 6.8 3.0 26.1 32.9 29.1 371 Ironandsteel products b.b 2.7 11.2 17.8 13.9 372 Non-ferrous metals 7.1 3.3 11.0 18.1 14.3 381 Metal products 15.4 7.9 16.0 31.4 23.9 382 Non-electric machinery' 7.5 2.9 10.5 18.0 13.4 383 Electrical machinery2 10.6 4.5 13.3 23.9 17.8 384 Transport equipment 8.8 4.7 17.7 26.5 22.4 385 Professional, scientific 7.8 2.3 8.5 16.3 10.8 390 Other manufactures 12.7 6.3 16.9 29.6 23.2

1 Including office and computing equipment even if electrical. 2 Including telecommunications equipment.

Source: Government of Turkey; Secretariat estimates. C/RM/S/42 Trade Policy Review Mechanism Page 92

Table V.3 Ad valorem equivalents (AVE) of specific MHF levies (Per cent) ISIC Sector Average Maximum Share of Share of Code AVE AVE secteral sectoral tariff Hmes imports subject to subject to specific levy specific levy 111 Agriculture 76.8 375.9 6.3 36.5 Tobacco $2,000/ton 26.7 121 Forestry 49.5 49.5 1.6 1.4 122 Logging 0.9 2.4 49.5 99.4 311 Food products 63.5 561.0 14.4 52.9 - Offal $1,800/t 561.0 314 Tobacco products 62.7 62.7 11.1 2.8 321 Tex 44.7 773.1 11.8 21.2 - Ca, (silk) $600/m7 773.1 323 Leather products 242.0 242.0 0.4 0.0 - Artificial fur articles US$500/metre 242.0 341 Paper products 24.6 80.3 31.2 50.4 342 Printing 21.2 22.8 2.1 0.5 351 Industrial chemicals 12.1 33.5 0.3 2.3 352 Other chemicals. including pharmaceuticals 29.6 59.8 1.2 0.7 353 Petroleum refineries 12.2 12.3 2.2 1.4 361 Pottery and china 24.3 52.0 36.5 31.9 362 Glass and products 29.2 102.6 9.7 27.9 371 Iron and steel 9.1 85.7 25.7 44.1 372 Non-ferrous metal 12.3 20.4 2.1 11.1 381 Fabricated metal products 17.2 23.1 1.1 1.4 382 Non-electric machinery including 29.0 72.7 2.3 1.7 computers - Refrigerators 32.3 383 Electrical machinery 36.8 311.1 21.2 17.2 - Videos 36.9 384 Transport equipment 25.1 166.9 5.6 6.2 385 Professional and scientific equipment 16.4 48.2 2.1 1.5 390 Other manufactured products 89.1 619.2 3.2 10.5 Total 37.7 773.1 16.6 12.5

Source: GATT Secretariat calculations.

246. Given the legacy of import-substitution and that rates of protection are still rather high, it is not surprising that imports meetjust one-fifth ofdomestic demand for manufactures (Table V.4). Import- intensity is highest in the capital goods sectors and industrial inputs sectors, such as chemicals, machinery can equipment in 1990, machinery and equipment accounted for 40 per cent ofimports and chemicals 20 per cent. In these industries, imports have typically been eligible for tariffexemptions under export and investment incentives. The Republic of Turkey C/RM/S/42 Page 93

Table V.4 Import penetration ratios for manufacturing in Turkey, 1990

ISIC Sector Apparent Import penetration Code consumption (US$ million) (per cent) 311 Food products 7,159.2 8.2 312 2,474.5 13.7 313 Beverages 1;,485.4 0.7 314 Tobacco 2,404.5 13.1 321 Textiles 6,572.4 9.7 322 Clothing 674.4 1.3 323 Leather products 334.6 35.6 324 Footwear 212.1 4.4 331 Wood products 660.6 6.2 332 Furniture except metal 206.0 7.5 341 Paper products 1,610.7 17.9 342 Printing 926.6 4.7 351 Industriai chemicals 5,844.9 45.4 352 Other chemicals, incl. phann. 3.760.1 14.9 353 Petroleum refineries 9,274.0 5.4 354 Petroleum and coal products 2,797.3 2.5 355 Rubber products 1,106.1 13.3 356 Plastic products 1,019.1 7.1 361 Pottery and china 706.2 4.0 362 Glass and products 793.2 6.8 369 Other non-metallic mineral products 2,582.9 9.3 371 Iron and steel 5,628.0 21.6 372 Non-ferrous metal 1,905.8 25.5 381 Fabricated metal products 2,348.6 18.2 382 Non-electric machinery including computers 6.582.7 50.8 383 Electrical machinery 4.796.3 32.8 384 Transport equipment 6,387.3 28.3 385 Professional and scientific equipment 838.3 81.2 390 Other manufactured products 275.2 44.5 Total 81,367.8 20.2

Note: Apparent consumption equals domestic output less exports plus imports.

Source: SIS.

247. Only the broadest assessment can be made ofthe relationship between liberalization ofthe trade régime, increased trade flows and economic growth of specific sectors: between 1987 and 1990, the most recent period for which a consistent series of production and trade statistics were available, value added in, and imports by. the manufacturing sector grew considerably faster than exports. The relative increase in imports may be ascribed to a combination of lower levels of export assistance, trade liberalization allowing for increased imports and the slowing of the real depreciation of the Turkish lira in the second half of the 1980s, followed by its appreciation after 1989 (Chapter T). C/RM/S/42 Trade Policy Review Mechanism Page 94

248. Sectors which have achieved higher than the average rate of growth of manufacturing output include professional and scientific equipment, transport equipment, clothing, petroleum refining, beverages. food products and printing. Value added also increased more rapidly in these manufacturing branches, as well as in non-electrical machinery and rubber products. In the case of professional and scientific equipment, transport equipment, refining, printing, rubber products and clothing, increases in output were associated with above average import growth, a trend which continued into 1992 (Table V.5).

Table r!.5 Growth rates for output and trade by manufacturing branch (Annual average compound growth rate) ISIC Sector Output Value Imports Exports Growth Growth Code added rate rate imports exports 1987-90 1987-90 1987-90 1987-90 1990-92 1990-91 311 Food products 20.4 26.0 7.3 --0.3 21.4 30.7 312 11.5 11.1 72.9 -0.8 -61.0 63.5 313 Beverages 28.4- 25.8 7.7 6.6 7.2 89.9 314 Tobacco 17.8 9.1 21.1 134.4 -23.5 -64.1 321 Textiles 12.2 15.4 36.6 16.3 6.3 6.5 322 Clothing 29.0 32.6 62.7 8.3 47.8 -0.5 323 Leather products 0.3 1.6 17.2 25.5 3.1 -3.7 324 Footwear 16.1 21.7 40.2 3.3 43.9 41.2 331 Wood products 8.4 6.4 -37.6 1.8 -13.1 -18.7 332 Furniture except metal 16.4 23.3 124.3 6.3 50.5 -16.0 341 Paperproducts 10.3 21.0 19.1 -12.1 11.4 0.3 342 Printing 21.3 29.3 34.1 -16.2 1.3 13.7 351 Industrial chemicals 6.5 Il.2 9.8 -2.5 0 -16.3 352 Other chemicals. incl. pharm. 19.9 25.6 18.8 26.0 21.5 -22.4 353 Petroleum refineries 20.9 41.3 32.8 8.5 31.8 -4.6 354 Petroleum and coal products 17.0 22.9 29.7 -12.9 -45.5 -39.3 355 Rubber products 15.0 32.3 32.7 5.8 1.5 111.0 356 Plastic products 13.8 9.1 42.4 -16.5 17.0 85.5 361 Pottery and china 19.1 16.2 56.0 -2.7 -19.4 36.2 362 Glass and products 18.3 18.3 18.8 13.2 24.4 -1.9 369 Other non-metallic mineral 14.5 21.4 9.1 50.9 -22.6 34.6 products 371 Iron and steel 11.9 5.5 3.5 24.7 22.6 -12.2 372 Non-ferrous metal 13.5 18.5 7.7 16.0 -14.7 -44.9 381 Fabricated metal products 13.6 16.8 18.1 12.2 3.4 2.4 382 Non-electric machinery incl. 16.1 25.8 16.1 -34.9 6.4 23.5 computers 383 Electrical machinery 15.8 15.0 17.6 13.9 7.1 20.4 384 Transport equipment 25.8 28.6 36.7 18.5 18.0 13.3 385 Professional and scientific 61.7 74.4 19.6 -13.0 -6.7 -32.7 equipment 390 Other manufactured products :6.7 28.8 35.2 -17.4 26.6 23.6 Total 16.6 21.4 16.7 8.5 7.4 3.2

Source: GATT Secretariat calculations based on SIS data. The Republic of Turkey C/RM/S/42 Page 95

249. Sectors which registered below average growth in output in this period include textiles, leather, wood and paper products. iron and steel and other metals. Exports of textiles and iron and steel maintained their momentum; in the other branches. along with output. exports stagnated or fell. 250. While reform of the import regime was being carried out from the mid-1980s, so too was the scaling down of export subsidies. which had increased in the earlier part of the decade, providing a significant advantage to Turkish exporters of manufactures (Box V.2). As noted in Chapter IV, when Turkey acceded to the Subsidies Code in 1985, it began to phase down a number of export incentives including direct and indirect tax rebates, preferential export credits and direct payments. As recently as .1991. tax concessions for the export of industrial goods amounted to US$303 million, or 2.8 per cent of eligible exports (Table IV.6). If direct payments from the Support and Price Stabilization Fund (SPSF) are included, the rate of assistance rose to roughly 6 per cent (Table IV.5). These payments were completely abolished in Februarv 1992 (Annex IV.2). However, the Fund continues to exist: 1992 expenditures amounted to TL 9.7 trillion and an estimated TL 19.2 trillion is expected to be spent in 1993.137

= Box V.2: Export assistance

As with estimates of rates of protection, malculations for the average rate of export incentives varies from study to study. Sectoral estimates of exponr incentives have been made by Milanovic (1986), Togan (1993) and Krueger and Aktan (1992). According to Togan. between 1983 and 1990, the export incentive rate (including duty-free imports) fell from 32 per cent to 13 per cent of total exports: the average for manufactured export declining from 43.1 to 16.9 per cent. If duty-free imports art excluded, the average for all economic sectors fell from 23 per cent in 1983 to 6 per cent in 1990. Sectoral subsidies and inter-industry dispersion had been reduced considerably by 1990, although manufacturing and particularly. intermediary goods still received considerable assistance. In 1989 (the latest year for which da.a are available, 40 per cent of export credits were allocated to the iron and steel industry. and 12 per cent each to chemicals and Food and beverages.134 Sectors which continued tO benefit from nominal export subsidy rates of over 20 per cent in 1990 included iron and steel, paper and paper produces. petroleum refining and footwear (Table AV.16).

251. Until the end of 1986, payments from the SPSF went to subsidize agricultural exports but, in subsequent years, eligible products included many manufactured goods. In 1987. 1 10 commodities were made eligible for export incentives (Annex IV.2). Payments from the Support and Price Stabilization Fund varied considerably among sectors. For example, according to Togan, while the average subsidy effect of direct payments from the SPSF was 2.6 per cent in 1991, the rates were 16.7 per cent for footwear. 12.3 per cent for electrical machinery, 12.4 per cent for rubber products and 10.9 per cent for iron and steel (Table AV.17)139

137UTFT, Treasury Monthly Indicators, Table VI.2.

138Togan (1993). Table 16. This sectoral data refers to exports credits without certificate which, amounted to TLI.4 trillion (US$654 million) out of total export credits of TL 6.3 trillion (Table 17).

139Togan (1993), Table 30. C/RM/S/42 Trade Policy Review Mechanism Page 96

(2) Agriculture

252. Out of Turkey's total land area of 76 million , roughly 37 per cent is used for agricultural production and another 26 per cent is forested. Traditional crops, cotton and tobacco. accounted for more than one-quarter of agricultural exports in 1990 but other crops, including fruits and vegetW>es, have grown in importance in recent years (Table V.6). The tonnage of farm crop production in Turkey has remained remarkably static; in 1992, the overall quantity of crop output was only 11 per cent higher than in 1986, with few major variations in the intervening period (Table V.7). Cereals, which occupy over half of the cultivated area, along with sugar and tea are grown primarily for domestic consumption.

Table V.6 Agrictural exports from Turkey, 1989-1992 (US$ million) 1989 1990 1-91 1992 Agriculture and livestock 2,125.5 2-347.2 2,682.8 2,203.5 Crops 1,784.8 2,062.3 ',404.7 1,999.1 Cotton 160.0 161.0 168.7 45.9 Tobacco 479.8 416.6 563.5 309.4 Hazelnuts 266.1 452.7 365.4 291.1 Raisins 121.3 150.5 144.2 128.5 Others 757.6 881.5 1.162.9 1,224.2 Livestock products 276.2 215.6 218.1 140.3 Fishery products 52.0 57.0 49.7 49.9 Forestry 12.5 12.3 10.2 14.1

Source: State Planning Office (SPO). Main Economic Indicators. Table IV.9.

253. With increasing industrialization and urbanization, the share ofagriculture in GDP has declined to some 16 per cent in 1992, compared with over 20 per cent in 1983. Farms are generally small (mostly less than 10 hectares). and nearly half of the labour force is employed in agriculture. With its varied and favourable climate. Turkey has had little difficulty in meeting its objective of self-sufficiency in most agricultural and food products (Table V.8). Overall, Turkey typically generates a surplus in agricultural products; agricultural exports, which reached US$2.2 billion in 1990, accounted for between 15 and 20 per cent of total merchandise exports in the last five years. The main farm products exported are cotton, tobacco, raisins. dried and citrus fruits. olives, hazelnuts and vegetables. imports of primary agricultural products were 5 per cent of total merchandise imports in 1990.

254. Agricultural policies aim to provide adequate incomes to the farming community, but the average per capita income of persons employed in agriculture is only 37 per cent of the national average. At present, apart from border measures against imports (discussed below), the mai- instruments of assistance are support prices, subsidized credit and input subsidies. Institutions involved in setting or implementing agricultural policies include the Ministry of Agriculture and Rural Affairs, the Agricultural Bank of Turkey, a number of State-owned enterprises and the Unions ofAgricultural Sales Cooperatives. Policy implementation is guided by the objectives set by the State Planning Organization in its Development Plans and Annual Programmes, and the decrees setting support prices are issued by the Council of Ministers or the High Planning Council. The Republic of Turkey C/RM/S/42 Page 97

Table V.7 Agricultural production - major crops (Thousand tons) 1986 1987 1988 1989 1990 99 1 992j; Cereals Wheat 19.000 18,900 20,(50 16,200 20,000 20,400 19,300 Barley 7,000 6,900 7.500 4.500 7.300 7,800 6.900 Maize 2,300 2.400 2 000 2,0() 2,100 ,180 2,225 Pulses Lenuls 850 925 ,0w0 520 850 (,40 600 Chick peas 630 725 778 683 860 855 770 Dry beans 170 21(, 211 193 210 214 200 Industrial crops Sugar beet 10.662 12,717 11,534 10.929 13.986 15.474 14.840 Cotton 542 558 673 608 635 59t 629 Tobacco 158 182 214 270 296 228 320 Oilseeds Conon seed 867 892 .077 972 1,015 947 10'O6 SunfIower 940 1.100 1.150 1.250 860 800 950 Groundnut 50 80 60 50 63 60 67 Fruit and nuts and fig 3.370 3,655 3.700 3.7("3 3.8090 3.914 3,700 Citrus fruits 1.396 1.343 1.445 1.443 1.474 1,696 1.674 300 280 403 550 375 *15 520 i.865 1.680 1.950 1.850 1.900 1.900 2.100(J

Source: SPO. Main Economic Indicators, June 1993.

Table V.8 Self-suffiecy ratios o! major agricultural products in Turkey (1990-1992)' Per cent

Barley 114

Rice 46 Sunflower seed 83 Sugar 1(,) Tobacco 130 Soyabean 19 Cotton 109 Milk 95 Beef 86 Sheep near 110 Eggs 100 Chicken meat 1i01 a Three-year average.

Source: Undersecretariat of Treasury and Foreign Trade. C/RM/S/42 Trade Policy Reiew Mechanism Page 98

255 Ae duties of the Ministry of Agriculture and Rural Affairs are inter alia. to participate in the establishment and implementation of agricultural policies, to assist in the procurement. supply and distribution of agricultural inputs. to supervise marketing of agricultural commodities in compliance with quality and standard requirements and to establish standards for import. sale and use of pesticides and insecticides. t

256. The Agricultural Bank (Ziraat Bankasi). with rediscount credit supplied by the Central Bank, provides financing for the institutions commissioned to carry out purchases of supported commodities. pays input subsidies and grants credit to the agricultural sector at low interest rates. The institutions which pay the farmers the support price are the public agricultural enterprises, including the Soil Products Office (TMO). the State Monopoly Administration (TEKEL). Turkish Sugar Factories (SEKER) and the tea producer (CAYKUR) and the agricultural sales cooperatives (ASt s). The State-owned enterprises administer the support payments for major crops such as wheat and coarse grains. sugar and tobacco while the sales cooperatives can be made responsible 'or the payments to other commodities, such as cotton. hazelnuts and sunflowers. on which they are paid a commission.141 These institutions are not. however. with the exception of SEKER. the sole purchasers but act rather as buyers of last resort. The cooperatives buy roughly half the output of cotton. hazelnuts. raisins and sunflower seeds. In 1992. the private sector purchased 36 per cent of the 1991 tobacco crop. the remainder was purchased by TEKEL partly for its own cigarette production, partly as support. A certain degree of supply management is exercised as domestic producers of tobacco require a licence obtained from TEKEL. Tea growers must obtain a production permit from CAYKUR which while it lost its monopsony powNer in 1984. sets the price for tea and puchases about 80 per cent of Turkey's total tea output. In 1990. tea exports amounted to US$43 million.

257. Concessional credit is still made available from the Central Bank for the support payments for wheat and tobacco. while the Agriculture Bank finances the remaining commodities. Losses incurred by the SEEs are covered from the general budget, and. since support prices were increased. these losses have contributed to the public deficit. In 1991 a total of roughly TL 10 trillion was transferred from the budget to SEEs and .ASCs.142

258. In the course of the 1980s. the number of products with support prices was reduced from 30 to 10. and prices climbed slowly throughout the decade. In 1991 an election year the number of crops eligible for support was increased to 24. and further to 25 in 1992. and support prices uere increased by 60 to 75 per cent; Table V .9 E. Total supply payments to producers nearly doubled between 1991 and 1992 to an estimated TL 2 1.6 trillion. or 20 per cent of the value cf production in 1991. Cotton. tobacco. sugar beet and wheat received more than half the total payments. hazelnuts and sunflowers accounting for a further 10 and 7 per cent respectively. According to government sources. during the 1981-92 period. in real terms.. support prices increased by 20. 29 and 178 per cent for su-ar beet. cotton and tobacco. respectively. and decreased for wheat and sunflower seeds by 7.3 per cent and 10 per cent.

2These responsibilities have been defined according to Decree No. 441 (1991) pursuant to Act No. 3755 (1991).

- rouEh its administrative agency. the Ministn- of Industry and Trade. but its application must b1 lhe High Planning Council.

143 UTFT journal. Implementation of Agricultural Subsidies'. December 1992 (in Turkish). p. 44. Table V.9 Support prices for agricultural commodities pu 1987 1988 1989 1990 199 192 1988 1989 1990 1991 192 Wheat ) 19. ,"I 53,( , 49,9)-73' Barley' 18 1 .1(<) .389 628 985 7<), 1 99,1 44,2 61.5 56,8 -4X Ryc1 73 134 L,-) 4116 (A)1 925 7().9 14)1.4 54.8 44.4 53.8 Maize1 X(M 160 .11) 442 737 1,2'Y) 9<2,2 6,9( 42,6 (6,5 '15,1 M OatOl - 138 271 '$17 588 9294 96.5 53.8 40.9 57.9 Q Cotton2 145 . - 3,56) 5.6 - - S - 57.3 Tobacco' 1.4,43 2,94 4,714 7,707 10.870) 24,532 101l.2 62.3 63,5 41.1 125..7 Sugarbeet4 2.3 45 84 142 218 356 9>8.4 85.4 69.3 53.5 63.1 Sunflower5 20)2 6.() ,.5<() 2,5<8) - - (6.7 HaaeInuts6 1,2<8) - 5--,() 9.,XX) .7-64)7 Figs7 400) - - - 3,35i) 7,51N) 3-I3.1 Raisins8 - - - .3,( ) 6,2<8) - - - - 72.2 Olive oil9 - - - 8,5(X) 13,0N) - - - 52.9 Mohair10 4t225) 5,4<) 9,1NN) 1 1I(X8) 16,5(8) 2.5,(X8) 27.1 60.7 22.2 5().( 51.5 Pistachio11 2,2(X) 1- 6.5(<) 25,(X:() - - 5.1 Soyabeans' 19)2 -- 1,8) 2,64X) - - 1(0).0 Opium seed' - .145 1.1 l) 2,488 3,18)1 4.7(1) - 222.3 124.1 20.6 56.6 Rape seedl - 335-. - - Livcstock'- 4,094 - -4 14- Paddy' -- - - 1,04 3.,2() - 92.4 Green Icrtils' - -1-,751 2,788 - - 59.2 Chick peas' - - - 11,48X) 3.339 - - 125,7 Peanuts'" - - - 7,5)0 - - - Silk cocoon14 , 1 1I898 11.851 20,0)1 7 - .4 n8.9 Red peppers5 - - - 4,75ll 7,(01) - 6 O Olives15 - - - - 1 1.5

Average purchase price of Dir. Gen. of Soil Products Office, 1992 estimate. 8 Pricc for natural raisins, No. 9. 2 Price for Aegean and Amalya regions for tinginned and standard I white cotton. 9 Price for lamp oil, No. 5 acid base. 3 Average purchase price of Dir. Gen. of TEKEL, 1992 estimate. 10 Price for kid mohair. m 4 Average purchase price of Dir. Gen. of Turkish .Sugar Factories Co. Inc., 1992 Il Price for full pistachios. estimate. 12 Average purchase price for Dir. Gen. of Meat and Fish Products. et) e 5 Support purchase price. 13 Purchase price for exportable peanuts with 75 per cent yield. l-.4- 6 Price for hazeinuts witlh 50 per cent yield. 14 Average purchase price, 1992 estimate. it, 7 Price of extra quality size 4 dehydrated figs containing 5.1-56 figs in eachkg. 15 Price of olives with 220 calibre.

Source: SPO. Annual Programme. Table V.10 Support purchases and payments to producers FI Purchase amounts ('000 tons) Payments to producers (TL billon) 1987 19R8 1989 1990 1991 1992 | 1987 1988 1989 1990 1991 1992 m Wheat 3.14 2.19.3 47.1 5.,15') ,45.3 2,55<) 353 462 155 2.597 3,359 2,960) Barley 617 717 4 Y14 1.1 14 511) 49 97 1 317 7(X) 561 w Rye 23 3<) Il 56 Ill7 () 2 4 3 23 71 55 Maize 4() 5<) 157 1.11 187 25<) 3 X 49 58 138 322 Oats - 2 <).<)7 1() il 3 - 0).3 0.02 4 7 2 121 - - - 51( 815 76 1,838 4,634 Tobcco 115 1< 1 W 1 84 193 154 165 2,932 498 1.417 2,102 3,779 Sugarbeet1 12.717 11 5.11 10,92') 13(986 14<975 13.18<) 213 353 669 9.793 2.52<) 4,214 Sunflower 198 - 523 327 (AlN) 43 - 349 - 494 1,557 Hazelnuts 21 - - 5 2.1() 25 - 4i0 2,118 Figs 7 - - - 3 ') 2 - - 011 (4 Raisins 2 - -- 2.3 5() 13 9-1 317 Olive oil - -- - 21) 25 - - - - 188 358 Mohair 0.4 0.5 0.97 1.2 (1.8 ! 1 3 9 13 13 23 Pistachios .1)02 - - I) 2 ().1 - - - 164 5(1 Soyabeans l(X) - - - 12 25 2( - - - 13 65 Opium seed - 1() 3 3 2) Il) - .3 3 8 (O 47 Rapt seed ().2 - - - - - 1).1 Livestock - - .12 - - 14< - Paddy 4. - - 6 32 Green lentils - - 2 1M) - 4 28 Chick peas - - - 53 25 - - - - 78 83 Peanuts il - - - 42 Silk cocoon - - ().5 I ).4 - 6 8 8 Red peppers - -- I - 6I() Olives - - - - 1I' 30) - 6 315 Rose foroil - - - - 5 - - Red lentils -7 - - - - 23 Total - 966 1,224 1,885 5,421 12,526 21,638 Es

A total of TL 213.4 billion has been paid for sugarbeets in 1987, of which TL 83.3 billion for 1986 and TL 130.1 billion for 1987. In 1988, a total of TL 353.2 billion has been paid for sugarbeets. TL. 160.2 billion for 1987 and TL 193 billion for 1998. In 1989, a total ofTL 669.2 billion lias heen paid for sugarbeets, TL 329.2 billion for 1988 and TI, 340 billion ri) for 1989. ln 1990,totala of TL 979.1 billion has been paid.TL 577.9 billion for 1989 andTl 401.2 billion for 1990. In 991, a totalofTL 2,519.8 million hasbeenpaid, TL 1.587.5 billion for 1990 and TL 932.3 billion for 1991. In 1992, a total ofTL 4,213.6 billion has been paid. TL 2,330.8 billion for 1991 and TL. 1876.8 billion for 1992. In 193, TL 2,815.2 billion will be paid for 1992.

Source: SPO, Annual Programme. The Republic of Turkey C/RM/S/42 Page 101

259. Support payments have led to huge inventories and warehousing costs, so that, according to government representatives. transfers via state enterprises provide few benefits to farmers.143 260. The Agricultural Bank also supplies credit to producers (often channelled through cooperatives) at subsidized interest rates. and may draw on the Resource Utilization Support Fund (RUSF) for investment credits. In the last two years. the average interest rate has been 43 per cent, compared with markct rates of 81 per cent, thus providing an implicit interest subsidy of 38 per cent. 661 . Other input supports include mainly fertilizer subsidies. In 1990, total input subsidies amounted to TL 15 trillion ofwhich TL 1.2 trillion was for fertilizers. TZDK or DONATIM is the State-owned enterprise which distributes, and regulates the prices of. fertilizers and other agricultural inputs. Fertilizers are supplied to farmers at reduced prices; subsidies (the difference between the market price and the price paid by the farmer) are paid to the fertilizer producers and distributors. In the 1983 to 1990periodtheaverage subsidy rateon fertilizers was49 per cent.144 Since May 1987. farmers have received a 20 per cent refund on insecticides and pesticides. paid by the Agricultural Bank from the Support and Price Stabilization Fund.145 Electricity for irrigation pumps is provided at roughly half the rate for industrial use. 262. The average tariff on agricultural imports is low (7 per cent) but the Mass Housing Fund levy. applied on an ad valorem basis. adds a further average 18 percentage points to the rate of protection of agricultural imports. The Mass Housing Fund levy. at specific rates. applies to over one-third of imports and averages 77 per cent ad valorem. with a maximum ad valorem equivalent of 375 per cent Table V.3). The specific levy appears to act as a variable levy through periodic adjustments to buy the import price to parity with the domestic price. For example, wheat growers were paid USS200 per ton in 1990 when the world price waà S90 per ton."' It has been calculated that the ad valorem equivalent of the specific Housing Fund levy for wheat in 1993 amounted to 83 per cent (Table IV.2).147 are liable to a levy of S200/ton (over 200 per cent in ad valorem terms) 'Table V.11)145

145Ministry of Agriculture and Rural Affairs.

144Ministry of Agriculture and Rural Affairs. EEC and Turkish Agricultural Support Policies. 1993 (in Turkish.

OECD (1987). Economic Sunrey 1986/87. p. 71. ". 20 May 1991.

147The TMO. which is the major importer. docs not pay the levy.

148Ad valorem equivalents calculated by the UTFT are 62 per cent for wheat and 50 per cent for apples. C/RM/S/42 Trade Policy Review Mechanism Page 102

Box V.3: Incidence of specific levies

Specific' import levies are defined in terms of a rate per quantity unit (e.g. US$300/tonne), as against ad valorem levies defined as a percentage of importvalue. By definition. the ad valorem equivalence of the same specific levy on a low-value product must be higher than that on a high-value product.

A special case arises when - as in many agricultural products - the price of a good varies according to season. The ad valorem equivalent of a fixed specific levy on such a product will vary inversely with the price at which the goods are traded. Thus, on goods whose prices vary. a fixed specific-raie levy will have a variable protective effect: higher in seasons when prices are low, and vice-versa.

Turkey levies specific Mass Housing Fund levies on a number of agricultural and food products whose prices may be expected to rise and fall aâi, )ding to season. Thus, although legally Turkev maintains no variable levies, it maintains levies which. are likely to have a variable effect in practice. Ad valorem rates of levy would provide a more stable (and potentially less protective) basis for the Fund charge.

Table V.II Ad valorem equivalents of specific Mass Housing Fund levies on selected agricultural and food products ISIC Sector Mass Ad Imporis Sbare Code Housing valorem of Fund equivalent sectoral (US$ million) imports

1110 Agriculture and livestock 76.R 282.0 36.5

- HS 0808 (apples. pears. . fresh) 5200,ton 216.7 3111 Meat produces 10)3.7 59.6 25.5 - HS 0206 (offal) S1.800/ton 3112 Dair products 2796.4 89.5

3113 Fruit and vegetable canning 69.8 5.9 19.7

- HS 2002 (tomatoes. prepared and preserved) $700ton 137.0

3114 Fish products 60.3 0.7 0 3115 Oil and fats 11.6 254.2 58.7

3116 Grain mill products 24.8 97.2 94.6

3118 Sugar products 80.4 4.0 3121 Other food products 134.1 10.4 27.3

- HS 0902 (Tea) $3/kg 170.4

Negligible.

Source: GATT Secretariat calculations. The AVEs are calculated using 1992 unit Import values.

263. For imports of sensitive agricultural commodities, such as cereals. sugar, sunflower seeds, milk and dairy product*. import permits must be obtained from the Undersecretariat. In the case of milk powder. import control is designed to provide protection from price fluctuations on world markets.

264. Since the introduction of the Support and Price Stabilization Fund in 1980. certain agricultural exports have been taxed. although the number of products subject to this tax has been reduced and the tax is to be phased out by 1 January 1995 (Chapter IV). Initially, revenues went to support both domestic production and export of agricultural commodities but, in 1987. manufactured goods were also made eligible for these direct payments. In 1988, it was estimated. agriculture received greater than average assistance through the SPSF, but this trend was reversed in subsequent years (Table AV. 17). The Republic of Turkey C/RM/S/42 Page 103

Even within agriculture. export taxes on major horticultural crops were apparently directed to assist exports of the State-controlled sugar refining and grain industries. 149An earlier tax on cotton, abolished some years ago. undoubtedly helped to divert raw cotton to the local textiles industry. At present, an export tax of US$0.05/kg is levied on unshelled hazelnuts and US$0. 10/kg on shelled hazelnuts. Livestock exports are subject to a tax of US$1/head and dried figs 15 per cent.

265. Between 1986 and 1990, US$499 million was paid in subsidies to agricultural and food industry exports (Table V. 12). Exports in 1990 of agricultural products were US$2.2 billion. including processed products roughly equal to US$3 billion. For example, the subsidy per ton in 1990 for citrus fruit was US$80. for apples US$66 and for concentrated fruit juices US$250.150 In its Uruguay Round offer, Turkey has agreed to phase down export subsidies by 24 per cent from 1986-90 base levels over ten ears. With respect to support prices, Turkey has adopted the "de minimis" provision (i.e. no commitments on reduction of support) given that its base level outlays (for 1986-1988) accounted for less than 10 per cent of the value of production.

Table V.12 Export subsidies on agricultural produces (1986 to 1990)' (US$ million) HS Category Product Value 1990 Exports Total 499.0 ... of which: Processed fruits and vegetables 122.1 ... HS 2401 Tobacco 68.2 418.5 HS 0805 Citrus fruit 55.2 143.8 HS 07 13.20 Chickpeas 47.1 135.4 HS 0808.10 Appies 23.3 33.0 HS 1101.00 Wheat four 18.9 22.0 Meat 16.6 ... HS 1509 Olive oil 11.4 4.7 HS 0702 Tomatoes 10.7 12.6

Not available.

a Total disbursements over the five cars.

Source: UTFT for subsidies and GATf Secretariat calculations for exports..

266. The customs union with the EC excludes agricultural trade. but Article 17 of Annex 6 provides for preferential treatment to ensure a "satisfactory increase" of agricultural imports from the EC (Chapter II). In 1991. agricultural imports from the EC amounted to US$166 million. In the 1993 Import Regime. preferential treatment was extended to the EC and EFTA members on 26 per cent

149Togan (1993), Table 30 and 32. Note that. as only percentages and not absolute monetary amounts are given, it is not clear that premiums to the SPSF accounted for all of the financing of the export subsidies.

150GATT. Draft Schedule of Concessions and Commitments, June 1992. C/RM/S/42 Trade Policy Review Mechanism Page 104 of agricultural tariff lines.151 Fish and fish products enjoy preferential treatment (average tariff 6. 1 per cent compared with an m.f.n. tariff of 10.3 per cent (Table AV. 1) granted under the EFTA- Turkey Free Trade Agreement. 267. While Turkey has benefited from exemption from customs duty on its agricultural exports to the EC since 1987, it is subject to other restrictions on market access, including the import quota on exports of preserved mushrooms and prepared and preserved tomatoes and minimum import prices on raisins (Chapter IV(3)(iii) and (vi)).152 Other restrictions include tariff quotas on hazelnuts (above 25,000 tons, a 4 per cent duty is applied) and apricot pulp (90 tons), and seasonal tariffs and reference prices on many fruits and vegetables.

268. Article 33 of the Additional Protocol to the Association Agreement with the EC requires the adoption of the Common Agricultural Policy by Turkey. Cereals and fresh fruits and vegetables have been chosen as pilot sectors for the adaptation of Turkish agricultural policy to that of the Community. (3) Mining and Energy

269. In 1990, the mining sector had a gross output of US$1.7 billion (equivalent to less than 2 per cent ofGDP) and employed approximately 200.000 persons. Turkish mineral reserves include coal (mainly lignite), . in which it has a near monopoly of world supplies; and commercially viable deposits of bauxite, chrome. copper. iron, manganese, sulphur and zinc. in 1990, some 63 per cent of output of the mining sector was exported. accounting for 8 per cent oftotal merchandise exports (Table V. 13). Principal exports are boron , chrome and magnesite; principal imports are crude petroleum, hard coal and (Table V. 14). 270. TheMining Law. revised in 1983and 1985 (No. 3213/1985)and currently againunder review, introduced a number of changes in the mining sector, with the objective of developing the industry and promoting private sector activity. Private prospecting is now allowed for all minerals, but production continues to be mainly State-owned (Table V. 15). Private companies have started to operate in some parts of the oil sector, in lignite, chrome and lead-zinc production and in local electricity production and distribution.

271. The Mining Fund, established in 1985, provides a pool of capital financed by a surcharge of 2.5 per cent on the value of minerals imports. The Fund extends concessional credits, at the same rate as export credits. to finance stockholding prior to export. In 1992, the annual revenue from the surcharge was TL 243 billion (USS24.3 million) and all minerals exports, except boron, received assistance.

272. Tariffs on metallic and non-metallic minerals are low. but the Mass Housing Fund levy can range up to 34 per cent (Table AV.2). In addition, the minerals surcharge of 2.5 per cent under the Mining Fund is applied to imports of coal, metal ores and non-metallic minerals. An export tax of of $30/ton is levied on pumice stone. amounting to US$4.7 million in 1992.

151Certain preferences were extended on the basis of the Additional Protocol, others unilaterally. 152Turkey's total exports oftomato concentrates were 149,000 tons in 1991. compared to the EC import quota of 16,500 tons. The Republic of Turkey C/RM/S/42 Page 105

Table V.13 Production and trade data, 1990 (US$ million) ISIC Sector Gross Value Imports Exports Code output added 110 Agriculture ...... 1.018.8 2,233.4 120 Forestry ...... 116.6 12.7 130 Fishery ...... 4.6 40.5 Total agriculture ...... 1.140.0 2,286.6

210 Coal ...... 308.9 772.7 220 Oil and gas ...... 3.746.6 0 230 Metal ores ...... 612.1 90.0 290 Other mineraI mining ...... 90.4 240.8 Total mining 1,748.0 593.2 4,758.0 1.103.5

311 Food products 7.311.1 2,150.0 589.8 741.7 312 2.232.0 519.7 339.5 97.0 313 Beverages 1.492.5 910.9 11.0 18.1 314 Tobacco 2,112.6 1,167.3 315.8 23.9 321 Textiles 8,219.4 3,269.8 637.4 2,284 4 322 Clothing 3,195.0 997.3 8.8 2.529.5 323 Leather products 257.6 68.4 119.0 41.9 324 Footwear 226.7 71.8 9.3 23.8 331 Wood products 652.5 200.3 41.1 33.0 332 Furniture except metal 209.4 85.9 15.5 18.8 341 Paper products 1,382.8 565.7 287.8 59.9 342 Printing 890.6 445.2 43.5 7.5 351 Industrial chemicals 3.811.4 1,531.1 2.655.1 621.6 352 Other chemicals. incl. pharm. 3.433.7 1.484.0 561.8 235.4 353 Petroleum refineries 9,064.4 4,519.6 497.5 287.8 354 Petroleum and coal products 2,732.9 464.2 69.4 5.0 355 Rubber products 1,034.6 563.1 147.6 76.1 356 Plastic products 962.2 248.7 72.1 15.2 361 Pottery and china 705.4 467.2 27.9 27.0 362 Glass and products 931.7 533.8 54.2 192.6 369 Other non-metallic mineral products 2,512.8 1.381.7 241.3 171.1 371 Iron and steel 5,899.3 1.412.1 1.757.0 1.497.0 372 Non-ferrous metal 1.584.7 585.7 486.6 165.5 381 Fabricated metal products 2,185.9 942.9 427.3 264.6 382 Non-electric machinery including computers 3,430.7 1.456.3 3,342.8 190.8 383 Electrical machinery 3,647.4 1.500.1 1,573.3 424.4 384 Transport equipment 4,822.4 1.759.7 1,810.2 245.3 385 Professional and scientific equipment 187.9 94.3 680.9 30.5 390 Other manufactured products 173.0 88.2 122.4 20.3 Total manufacturing 75.302.4 29,485.2 16,404.8 10.339.4 TOTAL 22.302.0 13.729.0

. . Not available.

Source: SIS and trade data supplied by the Government of Turkey. C/RM/S/42 Trade Policy Review Mechanism Page 106

Table V.14 Trade in minerals, 1985 to 1991 (US$ million) 1985 1986 1987 19"8 1989 190 1991 1991 (per cent) sports - Hard coal 135 155 182 253 236 289 312 58.3 Iron ore 55 71 51 55 81 70 101 18.9 Phosphate 26 25 26 39 36 33 31 5.9 Lignite 83 91 12 84 12 20) 21 3.9 Total 304 336 3'3 427 445 495 536 100.0

Exports - Boron 129 131 136 167 173 148 133 46.7 46 40 40 71 113 64 461 16.3 Magnesite 28 30 32 40 44 39 41 14.3 Total 242 247 272 378 413 344 285 100.0

Source: UTFT.

Table V.15 Production of major minerals ('000 tons. monthly averages) 1987 1m 1989 1990 1991 Metallic Iron A 384.0 392.4 281.8 387.6 401.2 B 79.4 71.7 89.1 70.4 46.0 Copper A 220.4 259.7 318.5 335.1 328.5 Chrome A 19.3 17.2 24.6 18.5 14.4 B 60.1 93.4 103.2 72.6 78.7 Bauxite A 19.8 21.1 44.6 64.9 38.4 Lead - zinc A 2.3 2.8 8.8 3.7 5.1 B 17.4 21.2 21.8 24.8 21.9 Non-metallic Boron A 135.8 169.4 159.9 175.0 151.3 Magnesite A 13.5 29.7 33.9 15.8 28.6 B 70.8 65.9 69.2 51.9 67.4

A Public sector. B Private sector.

Source: SIS, Monthly Bulletin of Statistics. The Republic of Turkey C/RM/S/42 Page 107

(i) Energy 273. Energy produced in Turkey has increased from 6.4 million tons of oil equivalent (TOE) in 1950 to 25.8 million TOE in 1990. However, the self-sufficiency ratio has declined markedly; primary energy consumption has risen from 6.9 million TOE in 1950 to 53.3 million TOE in 1990. Oil meets 44 per cent, and coal roughly 31 per cent, of Turkey's energy needs. 53 274. Turkey imported 54 per cent of its energy supplies in 1990.' Imports of fossil fuels account for 15 per cent of total merchandise imports; an oil pipeline operating since 1977, but closed since 1990, connects Turkey to Iraqi oilfields and a natural gas pipeline from Russia has been operating since 1984. (a) Coal mining

275. Lignite reserves in Turkey are estimated at over 8 billion tons of which about 75 per cent are controlled by the Turkish Coal Enterprises (TKI) and the remainder are privately owned. The State- owned enterprises, TTK (Turkish Hardcoal Enterprise) and TKI are responsible for hard coal and lignite production, respectively. 13 per cent of lignite was produced by the private sector in 1991. Production of lignite far outweighs that of hard coal; in 1992, production of lignite amounted to roughly 48 million tons and hard coal 2.8 million tons (Table V. 15). Hard coal production has fallen from 4.8 million tons in 1975. Meanwhile, the share of imported coal increased from 4 per cent of total hard coal requirements in 1975 to 68 per cent in 1991.155 Between 1985 and 1991. the value of imports of hard coal rose from US$135 million to US$317 million (Table V.14).

276. The SEE responsible for hard coal production (TTK) was granted tax concessions within the investment incentives framework for regional development purposes amounting to an annual average of USS4.8 million in the 1988 to 1992 period, which represented an incentive of US$1.68 per ton of marketable coal. Production costs, at least for the state-owned enterprises. appear to be higher than market prices as operating losses of TTK and TKI mounted to TL 2.2 trillion (USS 528 million at 1991 exchange rates) and 400 billion (USS95 million). respectively, in 1991.156

277. Imports of coal, lignite and petroleum coke must meet certain quality specifications set by the Ministry ofthe Environment. Coal imports are subject to a duty of 3 per cent and, for the Mass Housing Fund. a levy of USS7/ton is charged on imported steam coal (both hard coal and lignite). 'This charge is waived on imports destined for the iron and steel industry and for imports by municipalities for residential heating and for power generation under build-operate-transfer (BOT) projects. Under the BOT model, introduced in 1986 (Chapter III), twenty-five projects have been completed, mainly hydroelectric stations and electricity distribution networks.157

153Ministry of Energy and Natural Resources. 154EIU (1992). 155OECD, (1992b). 156UTFT, Treasury Monthly Indicators, Table V.3. 157OECD (1992b). C/RM/S/42 Trade Policy Review Mechanism Page 108

278. Low-sulphur coal imported for heating purposes is exempt from the Mass Housing Fund levy and receives a subsidy of TL 105,000 per ton. This is intended to encourage use of clean coal to reduce the air pollution caused by burning lignite. (b) Crude petroleum and natural gas 279. Turkey's actual reserves of recoverable oil are estimated at about 21 million tonnes, mainly located in South-eastern Anatolia. The Turkish Petroleum Corporation (TPAO) is in charge of all oil and gas production, although the state-owned BOTAS manages the natural gas pipeline from Russia and sets the gas price for industry and electricity generation. In 1990, 3.7 million tons of crude oil and 212 million cubic metres of natural gas were produced locally (Table V. 16). For domestic production of "heavy" oil (below 16 API gravity), boththe exploration company and the refinery receive a government subsidy of US$2/barrel. If the domestic sales price of liquid petroleum gas (LPG) is below the import price, the Government equalizes this difference up to a limit of US$40/ton. These payments are made through the Petroleum Price Stabilization Fund.

Table V .16 Production of energy minerals 1988 1989 1990 1991 1992 Hard coal (thousand tons) 3,:2 3.038 2.745 2,762 2,83oe Lignite (thousand tons) 35.338 48.762 44.407 43,207 48,388a Crude petroleum (thousand tons) 2.565 2.877 3.717 4,451 4,281 Natural gas thousand m3 99,167 173.822 212.488 202.727 197,796 a Preliminary.

Note: In 1991. the private sector produced 13 per cent of lignite production and 22 per cent of crude petroleumi. Production of hard coal and natural gas is completely in the hands of the public sector.

Source: SPO. Main Economic Indicators and Ministny of Energy.

280. The major oil pipeline from Iraq has been closed since 1990 in compliance with UN sanctions against Iraq, and Turkey now imports more than half of its oil from Saudi Arabia. The m.f.n. tariff on crude oil is 10 per cent (crude oil imports from the EC/EFTA countries are subject to a 5 per cent customs duty). However. under the Petroleum Law (Article 112/1 and 112/2) imports of crude oil by refineries are duty-free.

281. Ultimately, cleaner natural gas is to replace ccal and fuel oil for residential heating. Turkey imports natural gas from Russia under a bilateral trade arrangement whereby Russia uses a share (70 per cent in 1993) of the proceeds from gas sales to purchase Turkish goods and services. Total imports of natural gas in 1991 amounted to 4. 1 billion cubic metres valued at US$338 million. Imports of natural gas and LPG are duty-free and no levy applies.

(ii) Metallic and non-metallic ores

282. Etibank is the state-owned enterprise responsible for minerals extraction. Boron. copper and bauxite production is in the hands of the State, while chrome and lead-zinc production is mainly mined privately (Table V. 15). Boron. chromium and magnesite account for three-quarters of ore exports The Republic of Turkey C/RM/S/42 Page 109

(Table V. 14). Exports of Etibank were US$271 million in 1992 out of total ore exports of US$285 million.158 283. After hard coal, iron ore imports rank second amongst mineral imports. Turkey became an important market for South African exports of iron ore during the second half of the 1980s. In 1990, imports were 1.4 million tons worth US$69 million, of which over 900 thousand tons were supplied b . Iron ore production rose from 2.7 million tons in 1980 to 5 million tons in 1990; the public sector accounts for some four-fifths of ore production.159 The Turkish Iron and Steel Works (TDCI), produced all the iron ore necessary for its steel producing plants in 1992.160

284. Imports of iron ore bear an m.f.n. tariff of 3 per cent; imports from EC and EFTA sources are duty free. There is no Housing Fund charge. Imports of non-ferrous metal ores are dutiable at between 2 and 3 per cent. with imports from EC and EFTA sources charged from zero to 2 per cent in 1993; the Mass Housing Fund charge ranges up to 10 per cent and there is an additional 2.5 per cent surcharge. (4) Manufacturing (i) Food, beverages and tobacco (a) Food products (ISIC 311 and 312)

285. The food industry is the third largest manufacturing sector in Turkey, after petroleum refining and textiles. In 1990. the sector's gross output amounted to US$9.5 billion. nearly 13 per cent of manufacturing output. but value added was relatively low and the sector accounted for onl 9 per cent of domestic value added (Table V. 12). The industry mainly produces for the domestic market using its own agricultural resources: less than 10 per cent of output (some US$800 million) was exported in 1991. accounting for 8 per cent of manufactured exports. There is also little import dependence: atjust over US$900 million in 1990 imports accounted for less than 10 per cent of apparent consumption. Principal imports in 1992 were oils and fats and meat products.

286. The public sector accounts for nearly half of the food. beverages and tobacco industry's value added (Table V. 1). Public monopolies existed for tea production until 1984 and sugar imports until 1989. During 1989. public agencies other than State-owned Seker Company (Turkish Sugar Factories). were authorized to import sugar and this authorization was then extended to the private sector.161 Sugar refining continues to be dominated by Seker. which purchases all sugar beet. while imports are largely in the hands of the private sector (for the rôle of public monopolies in the alcohol and tobacco sectors. see below).

287. For 1993. the average m.f.n tariff is higher than the average for total manufacturing (12.8 vs. 9.7 per cent). Within the sector, average m.f.n. tariffs range from 4.3 per cent on animal feeds (ISIC 3122) to 17.6 per cent on dairy products (ISIC 3112); in addition. the Mass Housing Fund levy

158UTFT. Monthly Treasury Indicators, Table V. 14. 159;SIS. Statistical Yearbook 1990. Table 219. 160TDCI. 161OECD (1990). C/RM/S/42 Trade Policy Review Mechanism Page 110 is charged at an average 23.8 per cent. Tariffs range as high as 40 per cent; the ad valorem Fund levy reaches a maximum of 36 per cent on fish products. However, the Fund levied at a specific rate (which affects 50 per cent of imports in the ISIC category 311) averages 63.5 per cent and can exceed 500 per cent in ad valorem terms (Table V.3). For example, on meat products the ad valorem equivalent of specific MHF levies averages over 100 per cent and on tomatoes (prepared and preserved) 137 per cent (Table V. 11). In addition to above-average protection against imports, certain branches benefited disproportionately from export subsidies: estimated payments in 1991 from the SPSF represented 7.8 and 9.3 per cent of exports of grain products and sugar refining. respectively (Table AV. 17). (b) Beverages (ISIC 313) 288. Like the food industry., the beverages sector is oriented towards the domestic market, with exports accounting for just 1 per cent of output. Imports are also about 1 per cent of apparent consumption. The public sector accounts for roughly half of beverage production: TEKEL. the State monopoly producing both tobacco and alcoholic beverages. is the sole importer of alcoholic beverages.162

289. The 1993 average tariff on beverages is 16.8 per cent and ranges up to 30 per cent: tariffs and levies are lower on beer and soft drinks (TableAV.3 ). The Fund levy varies between 30 per cent on mineral waters and 70 per cent on whisky: the sector thus continues to enjoy a high level of import protection.

(c) Tobacco products (ISIC 314)

290. In 1986. the tobacco import monopoly was abolished and imports by the private sector were permitted. The state tobacco enterprise. TEKEL. has a statutory obligation to buy tobacco at support prices and bought 41 per cent of the 1991 crop. It is reported to have 80 per cent of the cigarette market and is the sole distributor. Impors. representing approximately 15 per cent of the domestic market, grew faster than domestic production between 1987 and 1990 but have receded since 1990 as. according to the Government the quality of domestically produced cigarettes has improved.

291. Tobacco products are subject to one of the highest industrial sector tariffs. with an average of nearly 80 per cent: the maximum tariff increases to 117 per cent on m.f.n. imports. 60 per cent on EC/EFTA imports. This industry has a high degree oftariffescalation: the m.f.n. duty is 25 per cent on unmanufactured tobacco. amplified by a MHF levy of US$2.000/tonne, equivalent to some 27 per cent: the tariff on cigarettes is 90 per cent but the MHF charge does not apply. (ii) Textiles and clothing (ISIC 321 and 322)

292. The textiles and clothing industries. together. form Turkey's leading export sector. With ready access to locally produced cotton (an export tax was applied until 1988). Turkey has had a comparative advantage in the production of cotton textiles and clothing.164It has also developed a capacity in the production of synthetics within its state-controlled petrochemicals industry. Although production is much less than for cotton textiles, a much larger share ofoutput ofsynthetic yarns and fabrics is exported (Table V. 17). Imports of cotton fabric and yarns have grown considerably in the last several years.

162Reportedly. no imported wines are available for retail consumption. 1631993 Import Régime. Togan (1993). Table 31. The Republic of Turkey C/RM/S/42 Page 111

Value added by the industry was close to 15 per cent of the total for manufacturing in 1990. and the growth rate has well exceeded the average for the manufacturing sector (Table V.5). New investments in the clothing sector and in cotton ginning are no longer eligible for incentives under the incentive certificate program , but modernization in the clothing sector qualifies for tax and other incentives. 7

Table V .17 Production and trade in textiles and clothing C000) tons. except where indicated otherwise) 1984 1991 Production Exports Imports Production Exports Imports Cotton 528 52 0.5 57,8 146 85 Yarn 35 101 (.A 520 st 2 Fabric 940 102 2.5 1.097 55 Synthetic Yarn 615 3 l 0.4 76 30 5 Fabric C000 metres) 1(X) 2 2.9 405i 4'5 Garments (tons) w 46 3.2 182 117 Il

Source: EIU (1991 for production and imports; Ministry of lndustry and Trade 1992). Table 35 for exports.

293. Turkey's share in world exports of clothing rose from 0.3 per cent in 1980 to 3.6 per cent in 1991 Exports of textiles and clothing were nearly US$5 billion in 1991. accounting for nearly 48 per cent ofTurkish manufactured exports and over 30 per cent oftotal merchandise exports. Exports of cotton yarn amounted to roughly 10 per cent of production in 1991; Turkey is the leading supplier to the world market. with a 5 to 7 per cent share in total world export volume. Clothing exports alone amounted to US$2.5 billion in 1991. ofwhich over US$500 million was leather clothing. While the assistance provided by export incentives and subsidized credits has dropped from the levels in the mid-1980s. in 1990. textiles and clothing exports were estimated to receive assistance amounting to over 8 per cent of sectoral exports. part of which was through payments from the Support and Price Stabilization Fund (Tables AV. 16 and AV. 17).

294. In its major export markets. quotas are applied to imports from Turkey. as mentioned in Chapter IV. Previously existing restraints in the markets of Austria and Sweden have terminated. In Canada. MFA restrictions apply to trousers. shorts. overalls and underwear as well as bed linens. The selective MFA agreement with the United States also limits the volume of imports on twenty-nine product categories covering yarn. fabric and apparel. In 1991. many of the quotas under this agreement were increased by between 20 and over 100 per cent. reportedly to compensate Turkey for the effects

Ministry of Industry and Trade (1992). 166GATT. International Trade 91-92. EIU (1991).

GATT documents COM.TEX/SB/1799Add.1. 10 November 1992: COM.TEX/SB/1679 . 31 January 1992. C/RM/S/42 Trade Policy Review Mechanism Page 112 of the Gulf war on its economy. Exports to the United States in 1992 amounted to just under US$400 million. Industry representatives noted that they cannot fill their clothing guota in the United States where more competitive exporters prevail Turkish products. however, are quite competitive in the EC market where free-trade area access gives Turkish products a substantial preference. It has been estimated that. if Turkey were able to fill its quota, sales to the United States could reach US$1 billion

295. The European Communities take the largest share of clothing exports from Turkey. and Turkey is the second largest supplier to the EC market after the People's Republic of China.171 The most important individual EC markets are Germany . the United Kingdom and Italy. Quotas on exports to the EC have not been negotiated within the MFA. nor have they been agreed on by the Government. Instead. the Istanbul Textiles and Clothing Association has concluded an export restraint agreement (ERA) with the EC. on textiles in 1982 and on clothing in 1986 (Chapter II). Under the recently concluded ERA. quotas. which apply to 6 textile and 13 clothing categories. were increased between and 18 per cent. depending on the category. This has the potential of increasing 1993 exports by S170 million, a 4 per cent increase in value terms over 1992 exports. Outward processing quota levels. specified on a member state basis. increased by almost 100 per cent between 1992 and 1993.

296. Buoyant growth in clothing and other manufactured exports was partly achieved through currency depreciation and wage restraint (Chapter 1). These factors assisting export competitiveness no longer exist. in the late 1980s and earl: 1990s. labour costs rose: on average. workers hourly wages in the textiles industry are reported to have been around US$1.20 in 1988. USS1.90 in 1989. US$3 in 1990 and US$4.50 in 1991 . while the real exchange rate has tended to appreciate since 1988.

29. Turkey applies no quantitative restrictions to imports of textiles or clothing. Reportedly. in 1989 import tariffs on both raw materials and finished goods were significantly reduced. The m.f.n. tariff is roughly 10 per cent for textile- and 14 per cent for clothing. however. a Mass Housing Fund levy ofsome 20 per cent. not including the specific levies. provides additional protection to the domestic industries (Table AV.4). The ad valorem equivalent of Fund levies based on specific rates. averages 44. 7 per cent for textiles and reaches nearly 800 per cent on silk carpets (Table V..3).

298. Imports of clothing are minimal. although they doubled between 1990 and 1991 to US$17 million and increased further to US$19 million in 1992: imports of textiles and intermediate inputs account for nearly 10 per cent of apparent consumption. i: 1990. imports from lower-cost producers such as Pakistan. India and Egypt led to lay-offs and. since 1991. MHF levies on inported cotton yarn and

GATT document COM .TEX /SB1679. 31 January 1992: Financial Times. 18 November 1992 EIU (1991).

GATT document COM.TEX/W/245. 10 November 1992.

As noted in the previous chapter. voluntary export restraints are inimizal to the term of the Association Agreement. EIU (1991). EIU (1991). The Republic of Turkey C/RM/S/42 Page 113 fabrics have been increased, as have subsidized credits to exporters. (Nevertheless, exports of cotton yarn dropped by 45.4 per cent in 1992. In spite ofthe additional import charges. cotton yarn imports are reported to have amounted to 25.000 tons in 1991 cempared to less than 1.000 tons in 1984 (Table V. 17). 299. Since December 1990. Turkey has imposed anti-dumping duties on imports ofpolyester fibres from Romania. Republic of Korea and Chinese Taipei and. since the beginning of 1993 on similar imports from Italy. Turkey also levied anti-dumping duties of 20 per cent on imports of cotton yarn from Pakistan between December 1991 and january 1993 (Table IV.4). (iii) Leather products and footwear (ISIC 323 and 324) 300. The alue of gross output of the leather and footwear industry reached nearly US$500 million in 1990. accounting for less than one per cent of manufacturing production and manufactured exports (Table V. 13). In 1991, exports of leather products amounted to US$40 million and of footwear US$33 million. (Leather clothing. with exports of US$S500 million. is included in the clothing industry.) In fact. Turkey is a net importer of leather but a net exporter of leather products: in 1990 imports accounted for 35 per cent of .one domestic market (apparent consumption). While Turkey remains a net exporter of footwear. exports are not very significant in spite of subsidies (Table AV. 16). Imports in the sector have grown considerably faster than exports or value added in recent years.

301. By 1993 . the average level of m.f.n tariffhad been reduced to 9.6 and 19.6 per cent for leather products and footwear. respectively: however. the Mass Housing Fund levy is applied at average rates of 25 and 2 1 per cent. respectively. ranging up to 35 per cent (Table AV.5). Hence, import protection. particularly on footwear. remains high. There is also significant tariff escalation between the leather finishing. leather products and footwear industries. (iv) Wood products and furniture (ISIC 331 and 332) 302. Production of wood products and furniture was valued at some US$862 million in 1990. just over 1 per cent of gross man facturing output (Table V. 13). Trade in this sector is also relatively insignificant. with imports accounting for less than 8 per cent of the domestic market in 1990.

303. In 1986. duties on wood were lowered and duties on processed forest products were raised to assist the local processing industry. While. officially. this police remains in effect. furniture imports have grown from a very small base in the last five years and imports of wood products have dropped quite sharply (Table V.5). The sector currently enjoys higher than average protection from imports. Wood products are subject to an m.f.n. tariff of 6 per cent and wooden furniture to an m.f.n. tariff of 18.8 per cent. In contrast to the tariff structure, which demonstrates escalation. the current rate of the Housing Fund levy is 29 per cent on intermediate goods (with a maximum of 49 per cent) and 17.9 per cent on furniture (with a maximum of 20 per cent). As a result. for both branches the average nominal protection on, m.f.n. imports is approximately equal at 35 per cent.

EIU (1993).

International Herald Tribune. 27 May 1993. C/RM/S/42 Trde Policy Review Mechanism Page 114

(v) Paper products (ISIC 341 and 342)

304. Gross output of the paper and printing industries amounted to US$2.2 billion in 1990. approximately 3 per cent of manufacturing output (Table V. 13). The printing industry has shown particular dynamism. growing at a higher rate than manufacturing as a whole. Imports, which supplied 21 per cent of the domestic market for paper products in 1990. far outweigh exports in this sector. indeed. little output is exported. although the sector has disproportionately benefited from export incentivees. estimated to have provided a cost saving of over 30 per cent on 1990 exports. mainly through direct payments from the Support and Price Stabilization Fund (Tables AV. 16 and AV.17).

305. The public sector enterprise. SEKA. produced 35 per cent of value added in the paper sector in 1989 (Table V. 1). Although sales from forestry enterprises to SEKA are subsidized. production and exports by SEKA declined sharply in 1991. while its operating losses mounted to TL 358 billion.'

306. In 1993.. the average m.f.n. tariff for paper and paper products (ISIC 341) and for printed goods (ISIC 342 stood at 8.5 per cent and at 4.3 per cent. respectively. including the Fund levy, border protection amounts to 23.6 and 15.2 per cent respectively for these sectors. making the printing industry one ofthe least protected of all manufacturing branches. In cases where the Mass Housing Fund levy is specific - for paper products this is the case for over 30 per cent of tariff lines and 50 per cent of imports ($180 million in 1992) - the ad valorem equivalent of the levy has been calculated as 24.6 and21.2- per cent for paper and paper products and printing and publishing. respectively (Table V.3). Thus. the specific rates provide greater protection tnan the more transparent ad valorem rates.

307. Since the end of 1990. anti-dumping duties have been applied to imports of printing and writing parer from Finland and Yugoslavia (Table AV.6).

(vi) Chemicals (ISIC 351 and 352)

308. The gross output of the chemicals industry. including fertilizers but excluding petroleum products. amounted to over USS7 billion in 1990. nearly 10 per cent of manufacturing production. Turkey is a substantial net importer of chemicals and as for industrial chemicals. import penetration (45 per cent) is amongst the highest of all manufacturing branches (Table V. 13). Some US$622 million or 16 per cent of the output of industrial chemicals (ISIC 351 was exported in 1990. equivalent to 6 per cent of all manufactured exports. it is the fifth largest export sector after clothing. textiles. iron and steel and food.

309. Imports of industrial chemicals grew faster than output in the 1987-1990 period (Table V.5). For the other chemicals sector (ISIC 352. which includes pharmaceuticals and cosmetics) imports. exports and value added all exceeded the equivalent manufacturing averages. In 1992. imports were over USS2.6 billion. of which nearly US$1.5 billion consisted of basic chemicals and another US$800 million. plastics and synthetic fibres (Table AV.7).

310. Production of fertilizer and petrochemicals dominate the domestic industry. Public sector companies (IGSAS and TUGSAS) account for 40 per cent of fertilizer production. with a further

UTFT. Monthly Treasurv Indicators. February 1993, Table V.3. The Republic of Turkey C/RM/S/42 Page 115

28 per cent being produced by partly state-owned enterprises. In 1990. a TUGSAS factor, produced urea for TL 36.5/kg while the import price was iL 110kg.178 311. Until 1 July 1986. there was a legal monopoly on the import, domestic procurement and distribution of fertilizer. managed by the Turkish Agricultural Supply Corporation. the State-owned company. Turkish Sugar Factories, was allowed to distribute fertilizers to sugar beet growers. 179 Once producers and cooperatives were allowed to enter the marketing system, price controls were removed and fertilizer imports liberalized. 3 12. The average m.f.n. tariffon fertilizers and pesticides is 7 per cent, with a significant preference for EC/EFTA suppiiers (1.4 per cent). The Mass Housing Fund levy averages 7.9 per cent (Urea $5 ton; TSP (triple superphosphate) $15/ton). 313. Fertilizer use and production has typically been subsidized by the State to assist the agricultural sector. Following the market-opening measures in 1980. fertilizer prices were increased substantially. In 1981. the preferential exchange rate for fertilizer import was dismantled, and the cost to the budget was reduced from 6.9 per cent in 1977-79 to 4.3 per cent in 1980-1983. In 1992, fertilizer subsidies amounted to TL 2.4 trillion (roughly 1 per cent of Government expenditure. 314. Through its ownership of such major enterprises as PETKIM in petrochemicals and TUPRAS in petroleum refining. the State generates more than half the value added of the chemicals industry. PETKIM was transferred to the Public Participation Administration for privatization in 1987 and 7.8 per cent of shares sold to employees in 1990 PETKIM made, major investments after 1985 and the petrochemicals industry has expanded considerably exporting US$146 million in 1991 Polyethylene production in 1991 was 256.000 tons (62.000 tons of imports) andproduction ofpolyvinyl chloride (PVC) 132.000 tons. 315. Along with the ad valorem Mass Housing Fund levy. the average nominal import protection for industrial chemicals amounts to 23.8 per cent. for other chemicals. it is 21.5 per cent (Table AV 7). M.f.n. tariffs on polymers are 12.5 per cent. to which a 10 per cent levy is added. Anti-dumping duties apply to imports of polyester fibres from Romania, Republic of Korea. Chinese Taipei and Italy. (ii) Petroleum refining and products (ISIC 353 and 354) 316. ln terms of both output and value added. petroleum refining (ISIC 353) ranks as the leadin, manufacturing sector: in 1990. gross output was valued at over USS9 billion and value added

UTFT Journal. "lmplementation of Agricultural Subsidies", December 1992.

`Olgun (1991 )P 239

Olgun (1991). p. 263.

Foreign partners have been entitled to majority ownership in the petrochemicals industry since 1987.

Ministry of industry and Trade (1992). C/RM/S/42 Trade Policy Review Mechanism Page 116

US$4.5 million (Table V. 13).183 At the end of 1991, refining capacity amounted to 35 million metric tons enough to cover requirements until the end of the century. 317. Exports. just 3 per cent of output, amounted to US$287 million in 1990. The export subsidy rate for petroleum products has been above average (estimated at 28 per cent of exports in 1990) (Table AV. 16). Calculations ofthe average benefit provided through duty-free import of intermediates and raw materials amounted to 9 per cent in 1984 and 6.4 per cent in 1991 184 318. Imports of refinery products amounted tojust under US$500 million in 1990, about 5 per cent of apparent consumption. 319. Although the average tarifffor petroleum products is less than 5 per cent, gasoline and kerosene carry customs duties of 25 per cent. The average Mass Housing Fund levy on imports of refined petroleum products is 28.5 per cent. Propane is subject to an m.f.n. tariff of 16 per cent (3 per cent for EC/EFTA imports) and a Fund levy of 25 per cent. Gasoline, gas oils, diesel, fuel oils and lubricating oils are subject to bath ad valorem and specific Fund levies. The specific levy is waived on imports within the context of Petroleum Law No. 6326 (Article 112/5).185

320. An additional levy on most oil products for the Petroleum Price Stabilization Fund is set at the rate of 10 per cent on ex-refinery prices. For environmental reasons. the levy on unleaded gasoline paid to this Fund was reduced below that on regular gasoline. Similarly. the mandatory limit on the sulphur content of diesel oil is 0.7 per cent.

32 1. Importers who are not refiners must obtain an import certificate from the Ministry of Energy and Natural Resources in order to import crude oil or petroleum products. Authorization is granted ifthe importer provides proofofsufficient stockholding capacity. As a rule. one-sixth ofannual imports should be held in inventory.

322. On 1 July 1989. fuel prices. includingcoal. weredecontrolled. In 1993. therateofconsumption taxes were set as: gasoline. 85 per cent, kerosene, 80 per cent; diesel oil, 70 per cent; and fuel oil. 29 per cent (Table V. 18).'` Adjusted for purchasing power. gasoline prices (and residential electricity tariffs) are the highest amongst IEA (International Energy Agency) countries.'

160f Turkey's five refineries. four are owned by TUPRAS, a state company. In July, 1990, TUPRAS was transferred to the PPA, and its privatization started in May 1991 with the sale of 2.5 per cent of the equity to private investors. 'Togan (1993). Table 34. 1993 Import Régime. Article 10. OECD. (1992(b). Ibid. The Republic of Turkey C/RM/S/42 Page 117

Table V.18 Import and domestic taxes (excluding VAT) on petroleum products (August 1993) (Per cent) Products Mass Housing Fund Customs Duty Petroleum Consumption Stabilization Fund Tax LPG 0 0 ( 0.25 Premium gasoline 0.35 0.25 0.10 0.85 Regular gasoline 0.35 0.25 0.10 0.85 Unleaded gasoline 0.35 0.25 0.05 0.85 Jet fuel (.30 0 0.10 0 Kerosene 0.10 0.25 0.10 0.80 Gasoil 0.10 0.25 0.10 0.70 Light and heavy fuel oil ( 0.15 0.10 0.29 Bitumen 0.30 0,07 O O Base oils 0.30 0 0 0

Source: Ministryof Energy and Natural Resources.

(viii) Rubber and plastic products (ISIC 355 and 356) 323. Rubber and plastics production accounted for over US$2 billion of manufacturing output in 1990. Imports are low (US$250 million in 1992) although imports of plastic products have grown very rapidly in the last few years. However. the export-propensity of the rubber products industry has increasedd very substantially (Table V.5). Tyre exports increased from US$44.8 million in 1985 to US$136 million in 1991. Estimates of export assistance to the sector show higher than average support. payments from the SPSF are estimated at 12.4 per cent of 1991 exports (Table AV. 17). 324. The 1993 m.f.n. tariffon rubber products ranges up to 20 per cent and averages 7.8 per cent. The average tariff on imports from the EC or EFTA is 3.4 per cent. The average of the ad valorem rates applied for the Mass Housing Fund is 22.8 per cent, with a maximum of 35 per cent. Imported tyres must have been produced no more than 26 weeks before their arrival in Turkey.

325. For plastic products, the 1993 m.f.n. tariff has been set at 10.2 per cent, 5.8 per cent for EC and FFTA imports; the Mass Housing Fund levy averages 30.7 per cent (Table AV.7). (ix) Non-metallic mineral products (ISIC 361. 362 and 369) 326. This sector includes glass, cement and other non-metallic mineral products. including pottery and china. Gross output in 1990 was valued at over US$4. 1 billion and value added US$2.4 billion or over 8 per cent of manufacturing value added. Rapid population growth and the demand for housing, along with government incentives. have encouraged expansion of the cement industry. which now has acapacity of more than 30 million tons (up from 400,000 tons in 1950). making Turkey the tenth largest

Ministry of Industry and Trade (1992), p. 110. NfAI, 13 May 1993. C/RM/S/42 Trade Policy Review Mechanism Page 118 cement producer in the world. In 1991. Turkey produced 26.3 million tons of cement and exported 3.6 million tons, valued at USS111 million.

327. In October 1989. five cement factories of the state-owned CITOSAN were sold to a French croup. Privatization has been particularly successful in the cement sector; by the end of 1991, the public sector accounted for slightly less than one-quarter of cement production. Production of finished ceramic goods such as tableware, sanitary ware and tiles is mainly in the hands of the private sector. Imports of pottery and china grew very rapidly between 1987 and 1990, and the share of imports in the domestic market doubled but still represent just 4 per cent of apparent consumption.

328. Turkey ranks among the top ten producers and exporters of glass in the world. Production of glass and glassware, entirely in the hands of the private sector, has risen from 569,000 tons in 1983 to 871,000 tons in 1991. Exports, representing over one-fifth of production, have more than doubled from US$l2 million in 1986 to US$252 million in 1991 Imports of glass (US$54.2 million in 1990) have only a small share (6 per cent) of she domestic market.

329. M.f.n. tariffs for 1993 average 11.2 per cent for potter and china (ISIC 361), 8.6 per cent for glass and glass products (ISIC 362) and 6.8 per cent for other non-metallic mineral products (ISIC 369) (Table AV.8). The ad valorem Mass Housing Fund levy averages 32.3. 28.8 and 32.9 per cent. respectively. in the three manufacturing branches. The ad valorem equivalent ofspecific rates applied under the Fund levy (in the case of pottery and china over one-third of Fund levies are specific rates) are similar to the ad valorem rates. For certain imports. anti-dumping duties are in effect (Table IV.4). (x) Metal products (ISIC 371. 372 and 381)

330. In 1989. the public sector accounted for 44.8 per cent of the value added of the iron and steel industry and other basic metals industries.

331. The m.f.n. tariff average on iron and steel products is 7 per cent. and 15 per cent on fabricated metal products. The Fund levy is 11 per cent on iron and steel products and basic metals. and 16 per cent on processed products (Table AV.9).

332. Gross output of the iron and steel industry amounted to close to US$5.9 billion (7.8 per cent of industrial production) in 1990. ranking Turkey 19th in the world amongst steel producing countries. Crude steel production rose from 8 million to 10.3 million tons between 1988 and 1992 (Table V. 19). The volume of crude steel exported was 4.4 million tons in 1991. 192 Exports of iron and steel. valued at US$I .5 million in 1990. amounted to over 14 per cent of manufactured exports. Imports make up nearly 22 pe, cent of the domestic demand. The industry is particularly dependent on imports of scrap. which are duty-free: these amounted to 4.9 million tons in 1990. over halfthe volume ofsectoral imports.

190Ministry of Industry and Trade (1992).

UN/ECE, Working Party on Steel, 1993.

193Duruiz and Yenturk (1992), Table 4.14. The Republic of Turkey C/RM/S/42 Page 119

333. Apart from a strong export performance, the industry has shown little dynamism in recent years, with both output and value added growing considerably more slowly than the manufacturing average between 1987 and 1990 (Table V.5). High domestic input prices and the instability of imported input prices are said to play a rôle in the slow growth of the sector.

Table V.19 Production of selected metals

Manufacturing 1988 1989 1990 1991 1992 Crude iron (thousand tons) 4,462 3,508 4,826 4,594 4,489 Steel ingot (thousand tons) 8.0W9 7,854 9,413 9,398 10,343 Blistered copper (tons) 12,910 21,306 18,840 2-,380 29,980 Alumina (tons) 181,662 200.560 177,915 159,091 156,474

Source: SPO. Main Economic Indicators.

334. The Turkish Iron and Steel Works (TDCI) operates two integrated plants which combined have the capacity to produce nearly 3 million tons ofcrude steel and long products (used for construction and transportation) where current and projected future production capacity already surpasses domestic demand. . partly state-owned, has the capacity to produce two million tons of flat-rolled steel products (tin plate. cold rolled sheets, hot rolled and sheet plates). Exports of long products were 2.5 million tons in 1991. compared to less than 200.000 tons of flat products.196

335. The sector has apparently benefited disproportionately from export assistance, payments from the SPSF amounted to 20.7. 26.4 and 10.9 per cent of exports in 1989, 1990 and 1991, respectively and 40 per cent of subsidized export credits in 1989 were channelled to the iron and steel industry (Table AV. 17).197 (xi) Machinery (ISIC 382 and 383)

336. Gross output of the combined electric and non-electric machinery industries was valued atjust over US$7 billion in 1990, with value added almost US$3 billion. The non-electrical machinery sector (including computers) is highly dependent on imports which, at US$3.4 billion in 1990, meet over 50 per cent of domestic requirements. In the electrical machinery sector, imports account for almost one-third of apparent consumption. Although imports are much higher in value than exports. exports of electrical machinery (in particular electric cables) have been more dynamic in the last few years than several other sectors.

337. Nominal protection is m-derate in comparison to the norm for manufacturing, although again the incidence ofthe specific Fund levy. where applicable. can significantly increase the total assistance. For example, the ad valorem equivalent of the specific Fund levy has been estimated at 32.3 per cent

194 Duruiz and Yenturk (1992), p. 102.

195 Duruiz and Yenturk (1992). pp. 100-101.

196 UN/ECE. Working Party on Steel (1993). 197Togan (1993). Table 16. C/RM/SI42 Trade Policy Review Mechanism Page 120

On refrigerators and 36.9 per cent on video recorders (Table V.4). However, imports of capital goods (machinery and equipment) are duty-free for investment certificate holders, so much of the import protection may be only statutory in nature. (xii) Transport equipment (ISlC 384)

338. Gross output of the transport equipment industry was US$4.8 billion in 1990 with imports accounting for 28 per cent of the domestic market. In terms of both trade and production, growth has outperformed many other sectors.

339. The production of automobiles has more than doubled between 1988 and 1992, rising from 120,000 to over 265,000 units (Table V.20) and local content averages 85 per cent.198 Renault and Tofas, under licence, share over 90 per cent of the market.

Table V.20 Production of automotive equipment (Units) 1988 1989 1990 1991 1992 Tractors 31,327 19,602 30.739 21,964 23.012 Automobiles 1210,796 118,095 166.222 195.599 265,090 Trucks 12,765 11,581 16.679 16,906 20.743 Buses and minibuses 8.913 8.846 14,331 15,584 19,302

Source: SPO. Main Economic Indicators.

340. Importsaveraged 10.00 units a vear duringthe 1980sbutroseto65,000in 1990.199In 1992. the sector's exports roughly doubled to $644 million, the majority automotive components.200

341. Since 1990. automobile plants with a minimum of 100.000 cars a year, i.e. both the major manufacturers can benefit from the full (100 per cent) investment allowance.201

342. The motor vehicle industry has typically enjoyed above average protection. and. today. protection through tariffs and MHF levies ranges as high as 106 per cent on large passenger cars (Table IV.2). in addition to an average ad valorem Mass Housing Fund rate of 26.5 per cent. specific rates of the MHF levy apply to 20 per cent of tariff lines in the transportation equipment sector and average 36.8 per cent (Table V.3).

198Duruiz and Yenturk (1992), p. 63. 199Duruiz and Yenturk (1992). 200InternationaI Heraid Tribune, 27 May 1993.

201OECD (1991). p. 126 The Republic of Turkey C/RM/S/42 Page 121

VI. TRADE DISPUTES AND CONSULTATIONS (1) GATT Dispute-Settlement

(i) Cases under Articles XXII and XXIII of the General Agreement 343. In September 1992, Pakistan requested consultations with Turkey under Article XXIII: 1, regarding anti-dumping measures on imports of cotton yarn from Pakistan. Bilateral consultations resulted in the removal of the measure in January 1993. 202 (ii) Tokyo Round Codes

344. A signatory to the Customs Valuation and Subsidies Code, Turkey has not been a party to any consultations or disputes under the provisions of these Codes.

(2) Other fora 345. The bilateral and regional trade agreements to which Turkey is a party include provisions for consultation and conciliation and the settlement of disputes. However, no formal complaints by or against Turkey have been taken up under these provisions.

346. In the Association Agreement with th- EC (Article 25), the Association Council settles the dispute or may refer the matter to the European Court ofJustice or any other existing court or tribunal.

347. Trade issues are discussed in the Turkey-EFTA Joint Committee and the ECO Committee for Preferential Tariffs.

GATT documents C/M/259. 27 October 1992; C/M/264, 14 July 1993, C,186, 15 October 1993. C/RM/S/42 Tradee Policy Review Mechanism Page 122

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APPENDIX TABLES The Republic of Turkey C/RM/S/42 Page 127

Table AI.1 Merchandise exports by broad commodity group (US$ billion) Commodity 1970 1980 1985 1986 1987 1988 1989 1990 Total trade 588 2,910 7,958 7,457 10,190 11,662 11,626 12,959

Agriculture 82.9 64.7 29.8 34.6 27.6 27.7 26.3 25.4 Food 49.3 51.1 25.2 29.9 25.3 24.5 22.9 22.4 Agriculture Raw Materials 33.6 13.6 4.6 4.7 2.3 3.2 3.3 3.0 Mining 8.2 8.5 9.0 7.1 6.1 8.0 7.9 6.6 Ores 6.2 6.5 3. I 3.3 2.7 3.3 3.6 2.6 Non-ferrous metals 1.4 0.6 1.2 1.3 1.1 1.9 2.1 1.8 Fuels 0.6 1.4 4.7 2.4 2.3 2.8 2.2 2.3 Manufactures 8.9 26.9 61.0 58.2 66.0 64.2 65.8 67.9 Chemicals 1.6 2.6 3.8 5.6 6.7 8.3 8.3 5.9 Textiles 4.3 11.8 13.1 12.5 11.7 11.5 11.2 10.8 Iron & steel 0.5 0.9 11.0 10.0 7.7 11.5 10.9 11.5 Other semi-manufactures 1.1 3.6 7.5 5.5 5.3 4.8 4.8 5.2 Power generating mach. 0.0 0.2 0.6 0.3 0.4 0.3 0.3 0.3 Agricultural mach. 0.0 0.1 0.5 0.1 0.2 0.2 0.1 0.0 Office machinery 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.2 Other non-elec. mach. 0.1 0.2 4.0 2.2 6.0 2.2 1.0 0.9 Telecommunications app. 0.0 0.1 0.3 0.2 0.3 0.8 0.9 1.8 Other elec. mach. 0.2 0.5 1.2 1.7 2.7 2.0 I.3 1.7 Automotive prods. 0.1 1.7 1.4 1.1 1.0 0.9 1.1 1.1 Other transport equip. 0.0 0.0 0.1 0.0 0.1 0.0 0.1 0.5 Furniture 0.0 0.1 0.4 0.5 0.2 0.1 0.2 0.2 Travel goods & bags 0.0 0.0 0.2 0.2 0.2 0.2 0.2 0.3 Clothing 0.7 4.5 15.2 16.7 21.7 20.2 23.8 26.0 Footwear 0.0 0.0 0.2 0.3 0.2 0.2 0.4 0.3 Other misc. manufs. 0.2 0.5 1.6 1.3 1.7 1.1 1.1 1.2 Other 0.0 0.0 0.2 0.2 0.2 0.1 0.0 0.1

Source: UNSO COMTRADE Data Base. C/RM/S/42 Trade Policy Review Mechanism Page 128

"Table Al.2 Merchandise imports by broad product group (US$ billion) Commodity 1970 1980 1985 1986 1987 1988 1989 1990 Totaltrade 886 7,573 11,340 11,105 14,163 14,335 15,788 22,300

Agriculture 12.3 5.1 8.2 9.1 11.2 9.2 12.5 12.6 Food 7.6 3.5 5.2 4.9 5.2 4.2 7.9 8.3 Agriculture Raw Materials 4.7 1.6 3.0 4.2 6.0 5.2 4.5 4.3 Mining 10.9 51.8 37.7 24.9 28.2 28.2 28.7 26.3 Ores 0.9 2.3 2.4 3.2 3.1 4.2 5.5 3.1 Non-ferrous metals 2.5 1.0 1.9 2.0 2.8 2.7 2.6 2.3 Fuels 7.5 48.4 33.4 19.7 22.4 21.3 20.6 20.8 Manufactures 76.8 43.1 54.1 65.9 60.5 62.3 58.8 61.0 Chemicals 17.4 16.1 13.0 14.3 15.2 15.5 14.6 12.6 Textiles 2.0 1.1 1.3 1.4 1.4 1.8 1.9 2.5 Iron & steel 8.1 4.5 7.7 6.8 7.9 7.5 8.9 5.6 Other semi-manufactures 5.7 2.6 2.4 3.5 4.4 4.9 4.3 4.6 Powergenerating mach. 3.4 3.5 1.7 2.6 2.6 2.7 2.1 2.2 Agricultural mach. 1.0 0.4 0.2 0.5 0.1 0.1 0.1 0.2 Office machinery 0.5 0.1 0.8 1.5 1.7 1.9 1.6 2.0 Other non-elec. mach. 18.3 7.5 11.2 16.5 13.0 12.1 10.1 12.4 Telecommunications app. 2.0 0.5 2.0 2.5 2.1 3.0 1.8 1.6 Other elec. mach. 6.2 3.6 4.5 6.5 5.3 5.1 5.2 6.1 Automotive prods. 4.6 2.1 4.1 3.8 3.0 2.6 2.2 4.9 Other transport equip. 5.4 0.5 2.8 2.6 0.8 2.0 2.7 2.1 Fumiture 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 Travel goods & bags 0.1 0.1 0.0 0.0 0.0 0.0 0.0 0.0 Clothing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Footwear 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 Other misc. manufs. 2.4 0.7 2.4 3.2 2.9 2.8 3.1 3.9 Other 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1

Source: UNSO COMTRADE Data Base. The Republic of Turkey C/RM/S/42 Page 129

Table Al.3 Exports by principal region and country of destination, 1970-92 Partner 1970 1980 1985 1986 1987 1988 1989 1990 1991 1992 World 589 2,910 7,958 7,457 10,190 11,662 11,626 12,959 13,594 14,715

America 9.9 4.8 6.8 8.1 7.9 7.4 9.3 8.3 7.6 6.7 USA 9.6 4.4 6.4 7.4 7.0 6.5 8.4 7.5 6.7 5.9 Europe 75.9 69.5 48.6 52.4 57.3 53.7 59.4 65.7 65.6 66.0 EC12 (inc. 51.7 45.4 40.3 43.9 47.9 44.0 46.7 53.3 51.8 51.7 DDR) Germany 19.9 20.8 17.5 19.4 21.4 18.4 18.7 23.6 25.1 24.9 Italv 6.6 7.5 6.3 7.8 8.3 8.2 8.4 8.5 7.1 6.4 United 5.7 3.6 6.8 4.5 5.3 4.9 5.3 5.7 5.0 5.4 Kingdom France 6.7 5.6 2.7 4.0 4.9 4.3 5.1 5.7 5.1 5.5

Netherlands 3.6 2.9 2.7 3.0 2.7 3.0 3.5 3.4 3.5 3.4

Belgium- 3.7 1.9 2 .0 2.6 3.1 2.3 2.2 2.4 2.1 2.0 Luxembourg EFTA 10.2 7.1 4.1 4.5 6.2 4.7 3.9 4.8 4.3 4.3 Switzerland 7.5 4.3 I.6 2.2 3.5 2.3 1.5 2.3 1.8 1.5 East Europe & 12.6 16.1 3.7 3.7 3.0 4.5 7.9 6.4 8.5 4.4 former USSR

Former USSR 5.0 5.8 2.4 1.9 1.7 2.3 6.1 4.1 4.5 4.6 Other Europe 1.4 0.9 0.5 0.4 0.2 0.6 0.9 1.2 1.9 1.9 Asia & Oceania 12.6 21.9 39.5 31.7 29.2 31.0 23.6 18.4 20.6 23.3 Japan 3.3 1.3 0.5 1.3 1.5 1.8 2.0 1.8 1.7 1.1

Other East 0.7 1.4 0.7 1.9 1.6 4.3 2.9 3.0 Asia South Asia 0.4 0.3 0.6 1.0 1.3 2.4 1.2 1.0 Middle East 8.0 18.8 37.5 27.4 24.6 22.3 17.1 12.4 13.6 13.4 Iran 0.9 2.9 13.6 7.6 4.3 4.7 4.8 3.8 3.6 3.1 Saudi Arabia 0.0 I.5 5.4 4.8 4.0 3.1 3.1 2.6 3.6 3.3 Africa 1.5 3.7 4.3 6.7 4.7 6.7 6.6 5.8 6.0 13.4

Sub Saharan 0.1 0.1 0.1 0.2 0.4 0.6 0.6 0.4 .. . Africa Other Africa 1.4 3.6 4.1 6.4 4.4 6.1 6.0 5.4

.. . Not available.

Source: UNSO COMTRADE Data Base to 1990 and SPO, Main Economic Indicators, March 1993 for 1991-92. C/RM/S/42 Trade Policy Review Mechanism Page 130

Table Al.4 Imports by principal region and country of origin, 1970-92 (US$ billion) Partner 1970 1980 1985 1986 1987 1988 1989 1990 1991 1992 World 886 7,573 11,340 11,105 14,163 14,335 15,788 22,300 21,047 22,871

America 21.4 7.5 13.6 14.1 13.0 14.6 17.2 13.5 13.5 13.6 USA 19.4 5.7 10.1 10.6 9.7 10.6 13.3 10.2 10.7 11.4

Canada 1.7 0.8 I.5 1.1 1.2 1.7 1.1 0,8 0.7 0.5

Other 0.3 1.1 2.0 2.4 2.2 2.3 2.8 2.5 2.1 1.7 America Europe 67.1 48.7 44.9 54.9 52.6 54.4 53.7 57.1 59.2 59.8 EC12 (inc. 46.8 30.1 34.5 41.4 40.4 41.2 38.5 41.9 43.8 43.9 DDR) Germany 18.5 10.6 12.1 16.0 14.9 14.3 14.0 15.7 15.4 16.4

Italy 7.9 3.9 5.8 7.8 7.6 7.0 6.8 7.7 8.8 8.4

France 3.6 4.9 4.5 4.9 4.3 5.8 4.7 6.0 5.8 5.9

United 9.9 4.0 4.1 4.7 4.9 5.2 4.6 4.5 5.5 5.2 Kingdom

Netherlands 2.5 2.4 1.9 2.4 2.6 2.7 2.8 2.6 3.0 3.1

Belgium- 1.9 2.0 2.1 2.8 2.8 3.3 2.8 2.3 2.6 2.4 Luxembourg

EFTA 8.3 7.8 4.8 5.9 5.7 5.6 5.7 5.2 5.8 6.2

Switzerland 5.0 4.6 1.6 2.6 2.6 2.4 2.6 2.4 2.3 3.1

East Europe 11.7 9.7 4.6 6.6 5.1 6.0 7.1 8.7 9.6 4.3 & former USSR Former 4.4 2.4 1.9 3.2 2.2 3.1 4.0 5.6 5.2 5.4 USSR Other 0.4 1.1 1.0 1.1 1.3 1.6 2.4 1.2 0.7 0.6 Europe

Asia & Oceania 10.0 31.7 32.3 24.8 28.0 26.2 22.4 23.3 23.6 23.5

East Asia 0.2 0.7 2.0 2.8 3.0 3.0 3.1 4.7

japan 2.9 1.5 4.5 6.2 6.1 3.9 3.4 5.0 5.2 4.9

China 0.0 0.0 0.6 0.8 1.2 0.8 0.5 2.0 0.8 0.8 South Asia 0.4 0.3 0.2 0.4 0.4 0.3 0.4 0.8 Middle East 5.6 29.0 24.7 14.6 17.3 17.5 14.6 12.1 11.8 11.6

Iraq 3.9 15.2 10.0 6.9 8.1 10.0 10.4 4.7 0.0 0.0

Saudi Arabia 0.8 1.0 2.0 1.6 1.2 1.6 1.3 3.2 8.7 7.3

Iran 0.0 10.2 11.2 2.0 6.7 4.6 1.5 2.2 0.4 1.6

Africa 1.5 10.6 9.2 6.1 6.3 4.7 6.6 6.0 3.6 3.5 Libya 0.9 9.5 5.5 2.6 2.2 0.6 1.8 2.2 1.3 1.9

Sub Saharan 0.1 0.4 0.3 0.3 0.7 0.5 0.5 0.4 .. . Africa Other Africa 1.4 10.1 8.9 5.8 5.6 4.2 6.1 5.6

Not available.

Source: UNSO COMTRADE Data Base to 1990 and SPO, Main Economic Indicators, March 1993, for 1991-92. Table AV.1 Trade measures applied in Turkey to agriculture, forestry and Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting production l ISIC sector 1992 Average Range STD Average Range STD Average Range STD and trade US$'000 percentage percentage percentage 111 Agriculture & livestock 773,222 7.5 0-42 6.6 7.1 0-42 6.7 18.8 0-50 13.4 ex subject to export tax production 121 Forestry 4,211 4.2 0-6 1.8 2.1 0-3 0.9 21.6 0-25 3.9 122 Logging 2.1 2-3 0.2 1.0 1-1.5 0.1 16.8 0-17 1.7 130 Fishing 2,389 10.0 2.12 2.3 6.0 0-7.5 1.7 35.7 0-55 9.6 1301 Ocean and coastal fishing 1,742 10.0 2-12 2.1 6.0 1-7.5 1.5 35.9 20-55 6.3 1302 Other fishing 647 10.3 3-12 3.2 6.1 0-7.5 2.7 34.4 0-43 15.5

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates. Table AV.2 Trade measures applied in Turkey to mining and quarrying Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD production andtrade

US$S000 percentage percentage percentage 210 Coal mining 246,705 3.0 3 0.0 3.0 3 0.0 0.0° 0.0 220 Crude petroleum 2,632,090 10.0 10 0.0 5.0 5 0.0 0.0 O 0.0 230 Metal ores 78,001 2.1 2-3 0.3 0.8 0-2 0.5 1.9 0-10 3.3 2301 Iron ores, incl. roasted iron 72,128 3.0 3 0.0 0.0 O 0.0 0.0 0 0.0 2302 Non-ferrous ore mining 5,872 2.1 2-3 0.2 0.9 0-2 0.5 2.1 0-10 3.4 2.5% surcharge 290 Stone quarrying and other 81,824 5.9 0-8 2.3 2.8 0-4 1.2 21.0 0-34 11.0 mineral mining 2901 Stone, clay and sand 14,644 6.9 0-8 1.8 3.4 0-4 0.9 22.7 0-30 9.4 ex subject ta export tax 2902 Chemical and fertilizer 49,545 5.0 0-7 2.9 2.4 0-3.6 1.6 18.0 0-30 12.6 2.5% surcharge minerals 2903 640 5.7 3-6 0.9 1.2 0.6-1.3 0.2 24.0 15-25 3.2 2.5% surcharge 2909 Other mining and quarrying 16,995 5.1 2-8 2.3 2.6 0-4 1.1 19.8 0-34 12.6 ex subject toexport tax

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

o

'

AmM Table AV.3 Trade measures applied in Turkey to food products, beverages and tobacco Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD Production and trade US$'000 percentage percentage percentage 311 Food products 865,053 12.8 0-40 9.2 11.8 0-40 9.5 23.8 0-70 11.2 3111 Meat products 233,658 16.3 0-40 13.7 16.3 0-40 13.7 15.4 040 7.0 ex subject to export tax 3112 Dairy products 29,469 17.6 5-30 11.1 16.7 3-30 11.9 17.9 17-40 4.3 3113 Fruit and vegetable canning 29,884 14.8 3-25 7.1 14.5 3-20 7.2 19.7 0-50 7.5 (including jams, soups & juices) 3114 Fish products 17,675 10.8 3-16 2.6 6.8 1-12 2.3 36.0 4-70 9.8 3115 Animal and vegetable oils 433,056 5.1 3-25 2.3 4.7 1-15 1.8 26.0 10-50 6.6 & fats 3116 Grain mill products 102,729 11.7 5-26 6.7 11.7 5-26 6.7 33.9 17-50 11.8 3117 Bakery products 1,892 8.9 7-10 1.5 8.9 7-10 1.5 21.9 17-30 6.4 3118 Sugarand sugarproducts 3,978 5.1 3-15 4.1 5.1 3-15 4.1 19.5 17-25 3.6 3119 Chocolate and sugar 12,712 10.9 9-21 3.5 10.2 4.5-20 3.5 25.2 0-40 13.2 confectionery 312 Others 51,752 9.8 0-35 5.9 7.4 0-35 4.1 25.6 0-50 10.8 3121 Tea 38,100 10.7 5-35 5.9 7.9 2.5-35 4.2 26.4 0-50 10.6 3122 Animal feeds 13,653 4.5 0-6 1.3 4.3 0-5 1.3 19.8 0-30 11.1 313 Beverages 12,638 16.8 0-30 6.9 1.0 1-20 3.9 41.2 0-70 16.1 3131 Spirits and alchohol 11,111 19.1 3-30 5.8 10.0 2-20 3.5 46.6 0-70 16.3 3132 Wines, ciders, vermouths 689 19.0 5-30 5.8 10.2 5-20 3.3 46.9 30-50 6.8 3133 Beer, malt liqurs and malt 29 10.1 7-24 6.9 7.3 7-8.5 0.6 33.6 30-50 8.1 3134 Soft drinks and mineral 809 10.9 2-15 5.2 5.9 1-15 5.2 19.3 10-35 11.2 waters 314 Tobacco products 184,718 78.1 26-117 37.0 51.4 25-60 15.2 5.7 0-17 8.5

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

el Table AV.4 Trade measures applied in Turkey to textiles and clothing V ! - l J MFN tariff EC and EFTA tariff b aJ ISIC sector

percentage percentage percentage 321 Textiles 762,009 10.9 0-25 3.5 5.5 0-11 2.1 19.3 0-30 5.9 Anti-dumping duty (HS 51,52,53) 3211 Textile weaving, spinning & 630,931 9.8 0-25 3.5 4.8 0-11.6 2.0 18.9 0-30 6.6 finishing 3212 Made up textile goods 15,697 13.2 5.8-15 1.5 6.4 1-6.9 1.0 20.4 0-25 3.4 3213 Knitted fabrics and clothes 30,308 13.6 8-14 0.8 7.4 0-10 0.6 21.3 0-25 2.0 (incluidng underwear, jerseys & other knitted garments) 3214 Carpets and rugs 5,543 14.0 14 0.0 6.5 6.5 0.0 17.0 17 0.0 3215 Cordage, rope and twine 2,685 11.7 6-12 0.9 4.2 2-4.6 0.7 18.0 5-25 4.7 3219 Other textile products 76,845 8.0 3-15 3.5 3.7 1-7.7 2.0 15.9 0-27 9.9 322 Clothing (except knitted or 19,213 13.5 6-20 1.8 7.3 3.3-11.3 1.1 21.8 19-35 3.1 crocheted)

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

.. Table AV.5 Trade measures applied in Turkey to leather and footwear Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD production and trade US$'000 percentage percentage percentage 323 Leather and leather products 126,503 9.6 0-12 3.2 5.2 0-6.8 2.2 25.4 0-40 10.1 3231 Tanneries and leather finishing 113,957 4.9 0-7 2.5 1.7 0-3.3 1.5 10.2 0-25 8.8 ex subject to export tax 3232 Fur dressing and dying 8,270 9.2 9-10 0.4 5.4 5.3-5.8 0.2 31.0 17-40 7.8 3233 Leather products 4,276 11.6 6-12 1.3 6.6 3-6.8 0.9 29.9 25-35 1.2 324 Leather footwear 19,247 19.6 17-20 1.1 8.7 0-9.3 0.9 21.5 0-22 2.0

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

, z Table AV.4 Trade measures applied in Turkey to wood, wood products, paper and paper products Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range - production and trade t US$'000 percentage percentage percentage 331 Wood and wood 31,057 6.0 2-12 2.5 2.6 1-5 1.2 29.0 0-49 I0 .6 products 3311 Sawmills, planing and 25,499 6.5 3-12 2.6 2.8 1-5 1.1 23.9 040 7.1 other wood mills; wooden and cane containers and ware 3319 Wood and cork products 2,514 4.6 3-10 2.1 2.0 1-5 1.3 39.5 10-49 10.6 332 Wooden furniture 35,102 18.8 13-23 3.5 9.4 5.4-13 2.5 17.9 10-20 2.9 341 Paper and paper 357,112 8.5 0-12.5 3.5 4.2 0-6.4 1.8 15.1 0-24 6.1 Anti-dumping duty products (

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terrns. 2 STD = standard deviation from themean.

Source: Government of Turkey; Secretariat estimates. Table AV,7 Trade measures applied in Turkey to chemical, rubber and plastic products Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting 4 ISIC sector 1992 Average Range STD Average Range STD Average Range STD production and trade US$'000 percentage percentage percentage .351 Industrial chemicals 2,655,404 8.4 0-20 2.9 3.2 0-10 1.8 15.4 0-32 7.2 Anti-dumping duty (HS 15,27,28,29,32,3) 3511 Basic industrial chemicals 1,487,155 7.7 0-20 2.4 2.6 l-10 1.2 14.6 0-32 6.7 2.5% surcharge 3512 Fertilizers and pesticides 309,347 7.0 0-8.8 2.3 1.4 (0-3.3 1.4 7.9 0-23 9.6 3513 Plastic materials, synthetic resins 858,902 11.2 0-16 2.9 5.4 -10( 1.8 19.5 0-24 6.7 and fibres 352 Other chemical products 828,703 7.3 0-25 4.5 2.9 0-13 3.0 14.2 0-48 11.8 Paints varnishes and lacquers' 3522 Drugs and medicines 381,680 5.8 2-17.6 2.9 1.2 0-5 1.5 7.9 0-27 8.3 3523 Soaps, perfumes and cosmetics 87,671 7.0 6-7 0.2 3.7 0-4.1 0.6 32.2 0-48 14.4 3529 Otherchemical products 276,654 9.4 0-25 6.0 5.0 0)-13 3.8 18.1 0-45 8.8 353 Petroleum refineries 864,081 4.7 0-25 5.5 2.8 0-23 4.6 28.6 0-35 8.7 354 Petroleum and coal products 20,624 5.1 0-9 2.2 2.7 0-4.6 1.1 16.4 0-30 13.5 355 Rubber products 152,068 7.8 0-20 5.2 3.4 0-7.7 2.0 22.8 0-35 5.2 3551 Tyres and tubes 69.402 5.4 0-8 1.6 2.2 0-3.4 0.7 22.3 0-34 7.9 3559 Other rubber products 82,666 8.7 0-20 5.8 3.8 0-7.7 2.1 23.0 0-35 3.8 35'1, Mastic products 98,729 10.2 6-18 1.7 5.8 3.4-9.8 0.9 30.7 15-32 4.1

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

U Table AV.8 Trade measures applied in Turkey io non-metallic mineral manufactured products Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD production and trade US$'000 percentage percentage percentage 361 Pottery, china andearthware 18,106 11.2 7-15 2.7 5.4 3-8.5 2. 21.1 17-32 5.9 Anti-dumping duty (HS 69) 362 Glass and glass products 83,858 8.6 4.6-18 3.2 3.8 (-9.8 1.9 20.2 0-35 8.4 Anti-dumping d !ty (IS 70) 369 Other non-metallic mineral 144,546 6.8 2-10 2.2 30) 0-5.2 1.3 24.1 0-40 9.9 Anti-dumping duty products (HS 38,68,71) 3691 Structural clay products 72,624 0.7 2.7-9 2.1 2.5 0-3.9 1.3 24.5 0-32 10.2 3692 Cement, lime and plaster 18,349 4.1 3.2-8 1.9 1.7 1.3-3.3 (.8 19.3 17-29 4.8 3699 Other non-metallic products 53,572 7.3 2-1() 2.1 3.5 0-5.2 1.1 28.1 0-40 9.6

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

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a Table AV.9 Trade measures applied iln Turkey to metalLs and metal productes Importsi MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting Range ISIC sector 1992 Average STD Average Range STD Average Range STDD production and trade z US $'000 percentage percentage percentage I 371 Iran and steel products 1,825.565 6.6 0-14 2.0) 2.7 0-10 1.3 11.2 0-20 7.2 372 Non-ferrous basic 353,826 7.1 (-l( 3.3 2.8 (06.9 1.5 11.( 0)-2<) 7.2 metals 381 Metal products 456,740) 15.4 3-23 4.0 7.') (<-15 2.6 16.() 0-29 4.3 Anfi-dumping du.ly (HS 73,74,75,76,82.8) 3811 Cutlery and hardware 69,744 15.8 3-21) 4.5 7.8 l-15 3.2 14.4 0)-20 3.2 3812 Metal furniture and 8,991 16.() 15-2() 1.5 7.7 6.5-0.3 1.0 17.) 15-2(> 2.5 fixtures 3813 Stnictural metal products 86R886 14.) 6-18 3.9 7.5 3.3-1<).1 2.() 14.7 5-25 4.8 3819 Fabricated metal products 291.118 15.4 4.4-23 3.8 8.( 0-13.2 2.4 17.( 0-29 4.5

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates. Table AV.10 Trade measures applied in Turkey to machinery Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD production and trade US$'000 percentage percentage percentage 382 Non-electric machinery 3.781,663 7.5 0-25 4.5 2.9 0-14 3.1 10.5 0-4.5 8.9 Anti-dumping duty (HS 84,93) 3821 Engincs and turbines 84,763 7.5 2-13 2.6 3 0-5.4 1.9 8.4 0-17 6.4 3822 Agricultural machinery 22,412 7.6 3.8-11 3,3 3.2 ()-9 3.4 i4.2 0-36 11.4 ex export registration. 3823 Metal and wood working 358,247 7.9 3-16 4.3 2.3 (-8.5 3.2 8.3 0-25 5.4 machinery 3824 Special industrial machinery 1,433,827 5.7 2.2-20) 3.6 1.4 0-11.3 2.6 5.9 0-21 5 3825 Office and computing 497,332 6.3 4-20) 3.6 2.6 0-11.4 2.3 7.2 0-45 8.2 machinery 3829 Non-electrical machinery & 1,385,080 8.7 0-25 4.9 4.2 0)-14 2.9 15 0-45 10.1 ex export registration. .Q equipment 383 Electrical machinery 1,X04,6R4 1(.6 2.8-24 4.6 4.5 0-13.2 2.7 13.3 0-36 7.8 Anti-dumping duty (HS 85,90) 3831 Electrical motors and apparatus 400,992 6.8 4-15 1.9 3.7 1-8 0.9 14.5 0-25 6.9 ex export registration. 3832 Telecommunications equipment 974,448 11.4 2.8-24 4.7 4.1 0-13.2 3.1 10.3 0-36 8.8 ex export registration. 3833 Electrical appliances and 45,056 14.8 4.6-18 3.3 7.1 1-8 1.8 15.9 0-21 4.8 houseware 3839 Otherelectrical apparatus 384,188 11.7 5-18 4.3 5.4 1-9.8 2.4 16.4 0-25 5.2

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for produces where the Fund is levied in specific tenns. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

, Table AV.II Trade measures applied in Turkey to transport equipment Imports MFN tariff EC and EETA tariff Mass Housing Fund Measures affecting ISIC sector 1992 Average Range STD Average Range STD Average Range STD production and trade

US$'000 percentage percentage percentage 384 Transport equipment 2,519,161 8.8 0-25 4.9 4.7 0-15 3.8 17.7 0-91 17.1 Anfi-dumping duty (HS 84,86,87,88) 3841 Shipbuilding and 219.916 16.3 0-25 6.3 9.2 0-14.2 4.0 14.8 0-25 6.1 repairing 3842 Railroad equipment 24,230 4.8 3.8-7.5 1.0 0.1 0-4 0.7 0.1 0-5 0.8 3843 Motor vehicles 1,449,631 8.8 2-18 2.4 5.6 ()-15 2.6 26.5 0-91 17.4 3844 Motor cycles and 50,922 10.9 10-2<) 2.9 5.4 5-8.7 1.1 19.5 15-30 6.7 bicycles 4 3845 Aircraft 706,774 3.7 0-Il 2.6 0.4 0-1 0.5 0.1 0-6 0.9

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for produces where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates. n

u Table AV.12 Trade measures applied in Turkey to professional and scientific equipment Imports MFN tariff EC and EFTA tariff Mass Housing Fund Measures affecting _ ISIC sector 1992 Average Range STD Average Range STD Average Range STD prodtction and trade ' US$'000 percentage percentage percentage 385 Professional and scientific 592,148 7.8 2-15 2.6 2.3 0-8.5 1.7 8.5 0-34 8.9 equipment 3851 Professional, scientific, 447,520 7.0 2-15 2.5 1.7 0-7 1.4 5.7 0-34 8.4 measuring equipment 3852 Photographic and optical 80,029 9.7 3-15 1.7 3.5 0-8.5 1.5 15.3 0-25 6.4 goods 3853 Watches and clocks 64,599 9.5 6-10 1.2 3.7 0-5 1.4 13.0 0-20 7.2

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

' 1 D Table AV.13 Trade measures applied in Turkey to other manufactured products Imports MFN tariff EC and EFTA tariff Mass HousingFund Measures affecting ISIC sector 1992 production and trade b Average Range STD Average Range STD Average Range STD UlS$000 percentage percentage percentage

390 Other manufacturing 196,032 12.7 0-38 6.4 6.3 0-23.2 3.6 16.9 0-47 9.8 Anti-dumping duiy (HS 48,66,67,71,92,95,96) 3901 Jewellery and related 5,401 9.0 0-20 7.5 5.1 0-15 4.5 11.0 0-25 11.5 2.5% surcharge articles 3902 Musical instniments 6,036 9.8 7-10, (.8 4.2 3-4.5 0.4 11.7 3-15 5.1 3903 Watches and clocks 5.2 1-12.7 2.4 6.0 2-22 7.2 3909 Other manufacturing 167,762 13.9 0-38 6.5 6.9 0-23.2 3.7 19.7 0-47 8.8

Notes: 1 The Fund average is calculated using actual ad valorem rates where applicable and the overall average for products where the Fund is levied in specific terms. 2 STD = standard deviation from the mean.

Source: Government of Turkey; Secretariat estimates.

1 ,.- C/RM/S/42B Trade Poliçy Review Mechanism Page 144

Table AV.14 Nominal rates of protection in Turkey, 1984, 1989 and 1991 (Per cent) Sector Name 1984 1989 1991 Agriculture 36.1 28.9 22.5 Animal husbandry 25.9 20.9 12.7 Forestry 41.1 59.3 5.9 Fishery 45.0 126.2 55.3 Coal mining 85.4 23.7 17.0 Crude petroleum 29.5 24.2 30.9 Iron ore mining 20.3 36.9 3.6 Other metallic ore mining 20.1 41.8 3.6 Non-metallic mining 107.1 57.3 31.7 Stone quarrying 27.6 14.6 7.3 Slaughtering and meat 78.7 43.6 20.5 Fruits and vegetables 145.5 42.4 69.3 Vegetables and animal oil 61.3 140.1 12.7 Grain mill products 51.2 97.1 45.2 Sugar refining 144.4 73.8 44.1 Other food processing 131.7 80.7 48.4 Alcoholic beverages 95.0 188.8 182.3 Non-alcoholic beverages 68.4 93.5 151.7 Processed tobacco 378.7 71.8 87.0 Ginning 9.7 10.4 3.6 Textiles 104.4 37.5 34.5 Clothing 160.5 68.2 123.1 Leather and fur products 157.1 38.1 17.4 Footwear 161.8 55.0 51.9 Wood products 88.7 54.7 39.3 Wood furniture 133.9 74.7 46.0 Paper and paper products 64.0 45.6 25.7 Printing and publishing 26.8 25.8 12.2 Fertilizers 35.5 23.5 12.2 Pharmaceutical products 30.5 42.6 32.4 Other chemical products 45.2 37.6 25.4 Petroleum refining 62.9 30.5 24.5 Petroleum and coal products 69.9 24.7 13.8 Rubber products 61.7 32.9 37.0 Plastic products 256.3 69.5 50.8 Glass and glass products 74.3 73.3 40.6 Cement 5.9 27.5 25.2 Non-metallic mineral 58.8 49.8 34.7 Iron and steel 42.5 17.3 9.4 Non-ferrous metals 53.4 33.7 11.7 Fabricated metal products 86.9 64.8 33.9 Non-electrical machinery 57.1 53.2 21.2 Agricultural machinery 60.4 59.0 23.7 Electrical machinery 59.0 47.5 33.3 Shipbuilding and repairing 66.8 90.5 37.9 Railroad equipment 23.6 42.7 3.6 Motor vehicles 70.7 60.2 45.1 Other transport equipment 19.0 8.3 3.6 Other manufacturing industries 125.7 47.5 19.5

Mean 70.2 41.2 28.3 Standard deviation 65.4 33.6 35.8

Source: Togan (1993), Table 14 and Olgun and Togan (1990). The Republic of Turkey C/RM/S/42 Page 145

Table AV.15 Effective rates of protection in Turkey, 1984, 1989 and 1991 (Per cent) Sector Name 1984 1989 1991 Agriculture 35.9 31.1 28.9 Animal husbandry 18.4 14.4 16.1 Forestry 50.4 62.6 16.2 Fishery 43.5 143.2 63.9 Coal mining 93.1 27.9 30.5 Crude petroleum 45.2 45.1 43.3 Iron ore mining 12.6 40.7 10.6 Other metallic ore mining 16.3 52.1 12.8 Non-metallic mining 121.0 66.5 46.6 Stone quarrying 22.3 16.4 15.0 Slaughtering and meat 48,767.6 96.4 40.9 Fruits and vegetables 2,325.9 72.5 245.0 Vegetables and animal oil 105.2 506.9 12 Grain mill products 142.2 -323.9 261.0 Sugar refining -611.7 218.1 105.0 Other food processing 1,804.4 194.7 107.9 Alcoholic beverages -1.890.6 363.9 382.3 Non-alcoholic beverages 61.0 189.5 1,002.0 Processed tobacco -124.7 101-2 1574 Ginning -28.2 -3.8 -2.6 Textiles 212.9 67.5 68.4 Clothing 188.8 158.4 6,106 Leather and fur products 345.6 51.0 27.8 Footwear 195.6 74.0 87.0 Wood products 136.9 65.1 109.2 Wood furniture 197.6 113.7 68.8 Paper and paper products 92.3 93.1 54.1 Printing and publishing 6.3 24.7 17.0 Fertilizers 18.4 21.7 16.8 Pharmaceutical products 18.1 49.6 44.5 Other chemical products 46.5 48.1 43.0 Petroleum refining 101.8 50.0 27.1 Petroleum and coal products 81.4 30.8 13.3 Rubber products 59.9 36.9 60.6 Plastic products -2,170.0 159.3 116.7 Glass and glass products 105.4 100.0 59.9 Cement 0.9 54.0 62.3 Non-metallic mineral 78.8 83.8 62.8 Iron and steel 46.1 31.9 22.5 Non-ferrous metals 72.0 62.2 30.6 Fabricated metal products 126.0 202.3 91.5 Non-electrical machinery 54.4 80.4 35.9 Agricultural machinery 67.0 129.4 39.7 Electrical machinery 62.6 62.0 56.3 Shipbuilding and repairing 68.6 125.7 57.9 Railroad equipment 15.6 55.1 3.9 Motor vehicles 94.9 99.8 76.3 Other transport equipment 11.6 15.6 13.8 Other manufacturing industries 193.1 58.6 36.5

Mean 78.8 53.8 38.4 Standard deviation 409.7 110.0 65.8

Source: Togau (1993), Table 15 and Olgun and Togan (1990). C/RM/S/42B Trade Policy Review Mechanlism Page 146

Table AV.16 Export subsidy rates by sector in Turkey (Per cent of sectoral exports) Sector Name 1983 1984 1986 1988 l99m Agriculture 7.7 7.7 4.5 22.9 5.6 Animal husbandry 9.9 9.0 6.1 6.2 4.2 Forestry 8.4 8.0 6.8 3.3 -0.5 Fishery 17.4 16.3 12.5 12.1 4.6 Total primary 8.6 8.3 5.3 16.5 4.9 Coal mining 12.2 10.3 9.8 10.9 9.8 Crude petroleum 11.7 9.8 9.3 10.5 9.6 Iron ore mining 21.2 19.0 17.6 17.5 10.6 Other metallic ore mining 22.8 19.9 17.7 18.0 9.7 Non-metallic mining 20.0 17.7 15.5 15.4 9.8 Stone quarrying 33.3 28.5 23.7 12.6 9.4 Total mining 18.1 15.4 13.8 12.2 9.7 Fruits and vegetables 26.2 19.7 13.9 16.2 8.7 Vegetable and animal oil 27.1 22.2 18.9 20.6 13.3 Grain mill products 16.3 11.3 10.9 39.7 14.3 Sugar refining 29.3 22.7 18.2 16.5 16.6 Other food processing 21.6 15.9 -2.0 -1.7 0.34 Alcoholic beverages 31.3 23.9 18.5 21.3 7.6 Non-alcoholic beverages 29.8 23.0 18.4 21.1 8.1 Processed tobacco 7.4 1.1 11.8 11.6 13.5 Ginning 3.6 2.6 4.4 -11.5 7.4 Textiles 33.4 25.3 12.2 10.9 8.7 Clothing 44.9 35.5 15.4 10.9 8.1 Leather and fur products 44.8 36.8 117.3 24.3 20.6 Footwear 41.1 31.7 25.7 32.3 26.7 Wood products 72.7 31.4 24.0 25.8 8.8 Wood furniture 70.6 29.6 25.4 26.9 9.1 Paper and paper products 73.2 33.1 27.2 32.0 31.6 Printing and publishing 73.4 32.5 25.9 24.0 11.0 Fertilizers 40.7 33.1 27.8 20.9 13.0 Pharmaceutical products 35.3 27.9 22.6 28.1 10.1 Other chemical products 35.9 30.1 27.0 26.7 16.1 Petroleum refining 41.8 39.2 36.8 36.3 28.3 Petroleum and coal products 45.7 42.4 40.0 34.1 22.4 Rubber products 39.2 36.2 26.1 33.7 19.4 Plastic products 40.3 36.3 26.3 25.6 12.6 Glass and glass products 33.3 24.3 19.9 20.7 9.7 Cement 34.9 26.3 21.9 20.7 9.7 Non-metallic mineral 37.6 28.2 22.9 28.8 17.3 Iron and steel 54.4 39.7 30.1 45.6 37.7 Non-ferrous metals 57.4 41.3 31.1 31.4 15.2 Fabricated metal products 101.1 54.9 27.9 31.2 11.3 Non-elecutrical machinery 43.7 40.7 25.4 26.0 14.9 Agricultural machinery 47.8 45.9 31.0 43.5 21.5 Table AV.16 (cont'd) The Republic of Turkey C/RM/S/42 Page 147

Sector Naine 1983 1984 1986 1988 1990 Electrical machinerv 59.2 32.8 26.7 28.0 19.5 Shipbuilding and repairing 33.6 26.8 15.3 12.3 -2.2 Railroad equipment 12.0 12.6 8.3 7.3 1.5 Motor vehicles 40.8 34.7 23.4 37.5 4.0 Other transport equipment 30.4 23.7 12.2 24.1 -4.0 Other manufacturing industries 41.0 32.9 34.4 30.6 12.1 Total manufacturing 43.1 31.6 24.7 57.8 16.9 Mean 32.0 24.1 18.5 22.6 13.0 Standard deviation 19.8 11.6 16.4 11.4 8.1

Note: The estimates of nominal export subsidy rates by sector include the tax rebate scheme phased out in 1989), the PSSF and RUSF payments, deductions for PSSF, duty-free imports of intermediates and raw materials. exemption from the VAT, and corporate tax exemption.

Source: Togan (1993), Table 45. C/RM/S/42B Trade Policy Review Mechanism Page- 148

Table AV.17 Sectoral subsidy rates through payments from Support and Price Stabilization Fund (Per cent of sectoral exports) Sector Name 1988 1989 1990 1991 Agriculture 9.6 0.5 0.5 0.5 Animal husbandry 1.2 0.6 0.6 0.0 Forestry 0.0 1.0 0.0 1.0 Fishery 0.0 0.0 0.0 0.0 Coal mining 0.0 0.0 0.0 0.0 Crude petroleum 0.0 0.0 .(). 0.0 Iron ore mining 0.0 0.0 0.0 0.0 Other metallic ore mining 1.4 0.0 0.0 0.0 Non-metallic mining 0.3 0.4 0.4 0.0 Stone quarrying 0.5 0.3 0.6 0.0 Slaughtering and meat 4.2 5.3 6.3 4.2 Fruits and vegetables 2.0 2.9 3.2 2.9 Vegetable and animal oil 7.8 4.9 4.9 1.9 Grain mill products 29.9 5.2 6.3 7.8 Sugar refining 0.0 9.3 8.2 9.3 Other food processing 0.4 4.6 3.6 3.8 Alcoholic beverages 2.9 0.0 0.0 0.0 Non-alcoholic beverages 0.0 0.0 0.0 0.0 Processed tobacco 5.0 89.0 7.6 7.5 Ginning 0.0 2.1 3.3 3.3 Textiles 2.2 2.4 3.7 3.6 Clothing 1.2 1.5 '.4 2.7 Leather and fur products 0.0 7.0 9.3 7.0 Footwear 21.5 32.7 18.3 16.7 Wood products 0.0 0.0 0.0 0.0 Wood furniture 0.0 0.0 0.0 0.0 Paper and paper products 3.8 8.4 19.1 3.8 Printing and publishing 0.0 0.0 0.0 0.0 Fertilizers 0.0 0.0 0.0 0.0 Pharmaceutical products 6.1 0.1 0.1 0.0 Other chemical products 1.6 1.8 1.7 0.0 Petroleum refining 0.0 0.0 0.0 0.0 Petroleum and coal products 0.0 0.0 0.0 0.0 Rubber products 10.2 7.8 8.2 12.4 Plastic products 0.0 1.0 0.2 0.8 Glass and glass products 0.0 0.2 0.2 0.2 Cement 0.0 0.0 0.0 0.0 Non-metallic mineral 7.0 6.2 7.5 6.3 Iron and steel 18.7 20.7 26.4 10.9 Non-ferrous metal 3.5 4.3 2.9 4.3 Fabricated metal products 1.6 1.8 3.2 3.4 Non-electrical machinery 1.6 6.7 6.7 6.9 Agricultural machinery 11.2 9.8 9.3 0.0 Electrical machinery 3.8 13.0 11.8 12.3 Shipbuilding and repairing 0.0 0.0 0.0 0.0 Railroad equipment 0.0 0.0 0.0 0.0 Motor vehicles 13.8 0.0 0.0 0.0 Other transport equipment 14.0 0.0 0.0 0.0 Other manufacturing industries 1.4 1.1 1.1 1.0

Mean 5.0 3.3 3.8 2.6 Standard deviation 6.3 6.0 5.6 4.0

Source: Togan (1993).