The Political Economy of Turkey's Relations with the Asia-Pacific

CHAPTER 11 The Political Economy of Turkey’s Relations with the Asia-Pacifc Altay Atlı INTRODUCTION Addressing a group of international investors and entrepreneurs on November 24, 2018, in Istanbul, Turkey’s minister of trade, Ruhsar Pekcan, a former businesswoman herself, said that one cannot inter- pret the global economy correctly without understanding the develop- ments in the Asia-Pacifc1 frst. “The Asia-Pacifc region has become the world’s new focal point with respect to global production and trade,” she said, “in the following decades the Asia-Pacifc region will bear strategic importance for the Turkish economy and Turkey’s exporters. 1 In this chapter, the term “Asia-Pacifc” refers to the 38 countries classifed by the World Bank under “East Asia and Pacifc” in its list of country and lending groups. These countries belong to the subgroupings commonly called as North, East, and Southeast Asia as well as Oceania, and they include neither South Asia nor those countries in the Americas littoral to the Pacifc Ocean. For a full list of the countries included, see World Bank, n.d. A. Atlı (*) Department of International Relations, Koç University, Istanbul, Turkey e-mail: [email protected] © The Author(s) 2020 271 E. Parlar Dal (ed.), Turkey’s Political Economy in the 21st Century, International Political Economy Series, https://doi.org/10.1007/978-3-030-27632-4_11 [email protected] 272 A. ATLI As Turkey, we are implementing policies in accordance with this global megatrend” (BloombergHT 2018). The Turkish government, in collaboration with the representative institutions of the country’s business community, has indeed taken sub- stantial steps over the past few years with the purpose of improving economic ties with the Asia-Pacifc. Two of the four countries that were designated in 2018 by the Ministry of Trade as “priority markets” for Turkish exporters, China and India, are in the Asia-Pacifc.2 Other ministries are following suit; for the Ministry of Foreign Affairs, the Asia- Pacifc is of great importance “for the diversifcation of our export markets, attracting foreign direct investment to our country and securing international support for our political positions” (MFA, n.d). China, being the second largest economy of the world, is very much at the center of Ankara’s attention, and several Turkish ministries have included specifc objectives with regard to the rising economic powerhouse of the Asian continent in their action plans and policy papers (Atlı 2018a), yet in the meantime, other parts of the Asia-Pacifc are not neglected either, as evidenced by the fact that in 2017, after years of diplomatic efforts, Turkey has commenced “sectoral dialogue partnership for stronger cooperation” with the Association of Southeast Asian Nations (ASEAN) (Anadolu Agency 2017). Turkey’s interest in improving economic relations with the countries of the Asia-Pacifc is real and profound, and it is in line not only with the conjunctural realities of the global economy today but also with Ankara’s efforts for greater foreign policy proactivism, which “did not detach Turkey from its historical and strategic ties but aimed to develop a more multi-faceted and global outlook via increasing Turkey’s outreach to the Middle East, Africa, Asia-Pacifc and Latin America” (Baba 2017, 574). Moreover, as the Turkish economy continues to sail through turbulent waters, with a chronic current account defcit,3 excessive dependence on external funding, and industrial productivity levels much lower than the potential,4 the country has to make a breakthrough toward long-term 2 The other two “priority markets” are Russia and Mexico (Aydınlık 2018). 3 As of November 2018, the 12-month current account defcit of Turkey was $33.9 billion. In year 2001, Turkey had a current account surplus of $3.8 billion (TCMB 2018). 4 Turkey has one of the lowest labor productivity rates among OECD countries, with $28.3 of GDP per hour worked, compared to $56.8 in the United States, $54.3 in Germany, $38.3 in Japan, and $34.4 in Greece, as of 2017 (OECD, n.d.). [email protected] 11 THE POLITICAL ECONOMY OF TURKEY’S RELATIONS … 273 sustained growth, a process during which constructive interaction with a rising Asia-Pacifc can be benefcial. However, Turkey’s economic relations with these countries, including the economic behemoth that is China, are at the moment far from producing the desired effect. As will be discussed in the following section in greater detail, merchandise trade with the Asia-Pacifc is one of the largest sources of Turkey’s defcit, whereas foreign direct investment (FDI) from the economic power- houses of Asia into the Turkish economy is still much lower compared to investment from European countries. Turkey has expectations from the Asia-Pacifc, but the Asia-Pacifc is not yet a major contributor to Turkey’s economic development, although there is enough reason to be realistically optimistic for the future. This chapter will commence with an overview of the actual state of Turkey’s economic relations with the Asia-Pacifc, focusing on bilateral merchandise trade and fows of FDI. The argument brought forward is that while in the short term Turkey aims to increase its exports to the region and improve the value added obtain from imports, in the long term what matters for the Turkish economy is to establish a sustainable relationship with the Asia-Pacifc, not necessarily with equilibrium in bilateral trade fgures, but one where Turkey makes the best of its export potential while at the same time securing increased amounts of FDI from the Asia-Pacifc that will contribute to the economy not only through its effect on the balance of payments, but also, and more importantly, by facilitating the fows of technology, know-how, and infrastructure into the Turkish economy. As an early case to illustrate this argument, Japanese and Korean FDI into the Turkish economy in the 1980s and 1990s will be examined, after which Turkey’s position with regard to, and its expectations from, China’s Belt and Road Initiative (BRI) will be discussed in detail as a current example. OVERVIEW OF TURKEY’S ECONOMIC RELATIONS WITH THE ASIA-PACIFIC In 2018, Turkey had the nineteenth largest economy in the world as measured by nominal gross domestic product (GDP). Turkey’s GDP of $713.5 billion placed it right after the oil-rich Saudi Arabia and just before Switzerland in the ranking (IMF 2018). The year has been a diffcult one for the country, with a currency crisis taking a toll on the [email protected] 274 A. ATLI economy, including high infation and deteriorating levels of investment and consumption. After having registered a 7.4% GDP growth in 2017, Turkey’s economy is expected to have grown by 3.3% in 2018 and to contract by 0.4% in 2019 (OECD 2018). This is not a rosy picture; however, despite the slowing domestic demand an increase in exports can be expected to offset the adverse effects and pave the way toward recovery as early as 2020 as long as and to the extent business, household and investor confdence in monetary and fscal policies are restored (ibid.). Turkey’s merchandise exports have actually increased in 2018, rising to $168.0 billion in annual volume, compared with $157.0 billion in the previous year,5 a trend that is aimed to be further developed by the government and the business community through initiatives such as the “e-Export Mobilization” launched by the Ministry of Trade and Turkish Union of Chambers and Commodity Exchanges (TOBB) in June 2018, and the establishment of Turkey Trade Centers around the globe, of which the current number of 5 is planned to be increased to 35 in the near future as stated in the action plan released by the President’s Offce (TCCB 2018). As mentioned above, two of the Turkish government’s designated “priority markets” for exports are in the Asia-Pacifc region. However, while this appears to be a rational objective given the current structure of the global economy, the question remains where exactly the Asia- Pacifc located today in Turkey’s current bilateral trade with the rest of the world (Fig. 11.1). The fgure above illustrates the geographical composition of Turkey’s merchandise trade with various regions of the world comparing the most recent data, year 2018, with year 2001. Besides the overall increase in trading volumes, the most signifcant feature observed here is that the European Union (EU) has been the main partner of Turkey, both as an export destination and source of imports. This is a fact that is not sur- prising given the geographical proximity, a strong Turkish diaspora in Europe with business links with their ancestral land, and, perhaps more importantly, a customs union in effect between Turkey and the EU since 1996, allowing free movement of goods between the two entities 5 All fgures related to Turkey’s total bilateral merchandise trade with other countries are either directly taken or calculated by the author using the data from the website of the Turkish Statistical Institute (TUIK, n.d.) unless stated otherwise. [email protected] 11 THE POLITICAL ECONOMY OF TURKEY’S RELATIONS … 275 Fig. 11.1 Turkey’s Bilateral Trade with the Regions of the World (Source TUIK) (i.e., tariff-free), although this free movement does not cover individuals.6 In 2018, Turkey’s exports to the 28 countries of the EU amounted to $54.0 billion, corresponding to exactly 50.0% of Turkey’s total exports to the world.7 The share of the non-EU countries of Europe was 7.0%.

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