Turkey’s bid for a greater integration with the world and the European Union

On its way toward European Union (EU) membership, Turkey pursued economic as well as political reforms and went through a major structural transformation. The reforms regarding “free movement of goods” and “customs union” issues had already begun before the Customs Union (CU) agreement with the EU went into effect in 1996. According to the provisions of the CU agreement, apart from abolishing  trade restricting measures such as tariffs and quotas, Turkey increased its efforts to harmonize its legislation with that of the EU in specific areas such as competition, state aids, public procurement, industrial and intellectual property and technical barriers to trade. The recovery program, the so-called “Transition to a Strong Economy”, was launched after the deep financial crises of 2000 and 2001 and paved the way for tight banking and fiscal policy reforms. Moreover, grant of institutional independence to the Central Bank and the establishment of several regulatory agencies (Capital Markets Board in 1982, Competition Board in 1995, Banking Regulation and Supervision Agency in 1999, Energy Market Regulatory Authority in 2001, Public Procurement Authority in 2002, etc) reshaped the macroeconomic sphere of Turkey. On the other hand, political reforms required for the fulfillment of the Copenhagen political criteria such as the abolishment of death penalty and provision of non-Turkish speaking minorities with broadcasting and limited educational rights accompanied economic reforms after 2002. Furthermore, the opening of accession negotiations in 2005 and ongoing “chapter by chapter” negotiation process with the European Commission has helped Turkey entangle with EU standards and norms and transform the structure of its economy.

Volume of exports and imports started to follow an increasing trend in the aftermath of the CU. However, both exports and imports surged after the 2000- 2001 economic crisis, increasing by almost four and five folds and reaching 135 billion and 241 billion dollars in 2011, respectively. The liberalization of the domestic market forced Turkish producers to change their attitude and to increase their contestability. Turkish industry was able to adapt to the new conditions of trade and proved its capacity to cope with competitive pressures and market forces. Productivity growth in Turkish manufacturing industry, especially in import competing sectors, as well as the shift of exports from low-technology sectors (textile, wearing apparel, food products) to medium-technology ones (machinery equipment, automobile) allowed the Turkish economy to integrate into the  production chains of the EU. New markets were available for Turkish exports and new import products were available to Turkish consumers who could benefit from greater diversity of goods at lower prices and higher quality.

The transformation process and Turkey’s official status as an EU candidate country made its economy more attractive for foreign investors. Before 2005, the average annual foreign direct investment (FDI) was less than one billion dollars despite the CU and Turkey’s greater export-orientation. In 2005, FDI inflows went up to 9.6 billion dollars and they reached 13.4 billion dollars in 2011.

Turkey’s fairly good performance after 2001 can be attributed to the structural reforms that aimed at establishing the institutional and legal base of a modern competitive market economy. It is worth mentioning that economic reforms as well as political reforms contributed to this success. A sustainable economic growth, indeed, relies on the acquisition of high quality institutions guaranteeing democracy, the rule of law, protection of property rights and the respect of human rights. The strong support of the Turkish private sector to the reform process also played a significant role in the transition towards a competitive market economy. 

All these structural reforms brought stability as well as transparency to Turkey and improved its business environment. Nevertheless, Turkey has a long way to go to catch up with the more advanced EU countries, especially while considering that Turkey's GDP per capita is only 22 percent of EU-15 average in 2011.

Membership to the EU was a strong motivation that speeded up the reform process in Turkey. Yet, today the ambition of being a full member of the EU seems to have lost its charm. Turkey requires a new motivation to encourage further reforms.

 



Gül Ertan Özgüzer and Macarena Nuño