RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/125
19 November 2003
(03-6055)
Trade Policy Review Body
TRADE POLICY REVIEW
TURKEY
Report by the Secretariat
This report, prepared for the third Trade Policy Review of Turkey, has been
drawn up by the WTO Secretariat on its own responsibility.  The Secretariat has,
as required by the Agreement establishing the Trade Policy Review Mechanism
(Annex 3 of the Marrakesh Agreement Establishing the World Trade
Organization), sought clarification from the Government of Turkey on its trade
policies and practices.
Any technical questions arising from this report may be addressed to:
Mr. Ricardo Barba (tel:  022/739 50 88;  fax:  022/739 57 65) or Mr. Jacques
Degbelo (tel:  022/739 55 83).
Document WT/TPR/G/125 contains the policy statement submitted by the
Government of Turkey.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Turkey.Turkey WT/TPR/S/125
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CONTENTS
Page
SUMMARY OBSERVATION vii
(1) T HE ECONOMIC ENVIRONMENT vii
(2) I NSTITUTIONAL FRAMEWORK vii
(3) T RADE POLICY INSTRUMENTS viii
(4) S ECTORAL POLICIES ix
(5) T RADE POLICY AND TRADING PARTNERS x
I. ECONOMIC ENVIRONMENT 1
(1) M AJOR FEATURES OF THE ECONOMY 1
(2) R ECENT ECONOMIC DEVELOPMENTS 3
(3) T RADE PERFORMANCE AND INVESTMENT 5
(i) Trade in goods and services 5(ii) Investment 10
(4) O
UTLOOK 11
II. TRADE AND INVESTMENT REGIMES 13
(1) G ENERAL FRAMEWORK 13
(2) L AWS AND REGULATIONS 14
(3) P OLICY OBJECTIVES 16
(4) T RADE AGREEMENTS 17
(i) WTO 17
(ii) Regional agreements 21(iii) Bilateral agreements 26(iv) Other preferential trade arrangements 27
(5) I
NVESTMENT FRAMEWORK 28
III. TRADE POLICIES AND PRACTICES BY MEASURE 31
(1) I NTRODUCTION 31
(2) M EASURES DIRECTLY AFFECTING IMPORTS 32
(i) Customs procedures 32(ii) Rules of origin 34(iii) Tariffs, other duties, and taxes 35(iv) Import prohibitions, quotas, and licensing 43
(v) Contingency trade remedies 47
(vi) Standards and other technical requirements 52(vii) Government procurement 57(viii) Local-content requirements 59(ix) Countertrade 60(x) Other measures 60WT/TPR/S/125 Trade Policy Review
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(3) M EASURES DIRECTLY AFFECTING EXPORTS 60
(i) Registration and documentation 60(ii) Export taxes 61(iii) Export prohibitions, control, and licensing 61(iv) Export subsidies, finance, assistance, and promotion 64
(v) Free zones 66
(vi) Other measures 67
(4) M
EASURES AFFECTING PRODUCTION AND TRADE 67
(i) Incentives 67(ii) Public enterprises and privatization 70
(iii) Competition policy and price controls 75
(iv) Protection of intellectual property rights 78
IV. TRADE POLICIES BY SECTOR 83
(1) O
VERVIEW 83
(2) A GRICULTURE AND RELATED ACTIVITIES 84
(i) Main features 84
(ii) Policy developments 85
(3) M INING AND ENERGY 92
(i) Overview 92(ii) Mining 93(iii) Energy 94
(4) M
ANUFACTURING 99
(i) Main features 99
(ii) Policy developments 100(iii) Selected industries 102
(5) S
ERVICES 106
(i) Main features 106
(ii) Financial services 107
(iii) Telecommunications and postal services 111(iv) Transport 113(v) Tourism 117
REFERENCES 119
APPENDIX TABLES 121Turkey WT/TPR/S/125
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CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Structure of merchandise exports and imports, 1998-02 7
I.2 Direction of merchandise trade, 1998-02 8
II. TRADE AND INVESTMENT REGIMES
II.1 Turkey's trade with EU, EFTA, and ECO partners, 1980-02 24
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 MFN tariff distribution by sector (ISIC1 definition), 2003 37
III.2 Tariff escalation by ISIC 2-digit, 2003 38III.3 Anti-dumping measures, 1995-02 51
IV. TRADE POLICIES BY SECTOR
IV.1 Turkey's tariff by ISIC classification, 2003 101
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Main economic indicators, 1998-02 2
I.2 Balance-of-payments, 1998-02 9
I.3 Foreign direct investment in Turkey, 1998-02 11
II. TRADE AND INVESTMENT REGIMESII.1 Trade-related legislation in Turkey, 2003 14
II.2 Turkey's selected notification requirements to the WTO, as of September 2003 17II.3 WTO dispute settlement cases involving Turkey, 1995-03 20II.4 Turkey's bilateral trade agreements, 2003 26
II.5 Sectors subject to foreign direct investment restrictions, 2003 28
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Structure of MFN tariffs in Turkey, 1998 and 2003 31
III.2 Preferential rules of origin, September 2003 35III.3 MFN tariff distribution, by type of duty, 2003 36
III.4 Key features of the concessional entry schemes in Turkey, September 2003 39
III.5 Preferential trading agreements, September 2003 40III.6 Preferential tariff quotas on agricultural and processed agricultural products, September 2003 41III.7 Import prohibitions, September 2003 44III.8 Quota and surveillance on certain textile and clothing imports, September 2003 45III.9 Imports requiring a licence, September 2003 46
III.10 Anti-dumping measures in force, September 2003 49
III.11 Official Turkish standards and their equivalence with international standards, September 2003 54III.12 Export prohibitions, September 2003 62III.13 Exports requiring a licence, September 2003 63WT/TPR/S/125 Trade Policy Review
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III.14 Key features of the export insurance programmes, September 2003 65
III.15 Public enterprises, September 2003 70III.16 Selected companies in the privatization portfolio, October 2003 73III.17 Independent regulatory institutions in Turkey, September 2003 76III.18 Cases handled and resolved by the Competition Authority, 1997-May 2003 77
III.19 Turkey's participation in international agreements, conventions, and treaties, September 2003 79
IV. TRADE POLICIES BY SECTORIV.1 Agricultural reform: selected support measures, 1999-03 86
IV.2 Purchasing prices for cereals, sugar, and tobacco, 2001-02 88IV.3 Export subsidies by agricultural products, 2003 89
IV.4 Transfers associated with agricultural policies in Turkey, 1986-02 90
IV.5 Producer subsidy equivalents by category of product, 2002 91IV.6 Credit schemes through the Commission, 2003 93IV.7 Turkey's energy balances, 1973-20 94IV.8 Selective state intervention in the energy sector, as at September 2003 96IV.9 Allocation of textile and clothing quotas to WTO Member countries, 2003 103
IV.10 Selected telecommunication indicators, 1995-02 112
APPENDIX TABLES
I. ECONOMIC ENVIRONMENT
AI.1 Structure of exports, 1995-02 123
AI.2 Destinations of exports, 1995-02 124AI.3 Structure of imports, 1995-02 125
AI.4 Sources of imports, 1995-02 126
II. TRADE AND INVESTMENT REGIMESAII.1 Legislation enacted by Turkey as a result of the CUD, 2003 127III. TRADE POLICIES AND PRACTICES BY MEASUREAIII.1 Products subject to non- ad valorem  tariffs, September 2003 129
AIII.2 MFN tariffs , by HS 2-digit, 2003 136
AIII.3 Key features of the export credit and guarantee programmes, September 2003 139
IV. TRADE POLICIES BY SECTORAIV.1 Applied MFN tariffs, by ISIC Rev.2 category, 2003 143
AIV.2 Summary of Article II (MFN) exemptions listed by Turkey 146AIV.3 Summary of Turkey's specific commitments in services 147Turkey WT/TPR/S/125
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SUMMARY OBSERVATIONS
(1) THE ECONOMIC ENVIRONMENT
1. Since its second Trade Policy Review
(TPR) in 1998, Turkey has implemented four
economic stabilization programmes.  Tradeand investment reforms, with a focus on export
promotion, have been major features of these
programmes.  The fourth programme, initiated
in response to the 2001 economic crisis
experienced by Turkey, has shown positiveresults.  Real GNP growth improved from -
9.5% in 2001 to 7.8% in 2002 (more than
double the 3% initial target), and inflation
declined from 68.5% to 29.7% (its lowest rate
in two decades and well below the 35%official target).
2. As part of its economic adjustment
strategy, Turkey adopted a floating exchange-
rate regime in February 2001.  After
recording deficits of 0.7% and 4.9% of GNP in
1999 and 2000, respectively, the current
account registered a surplus of 2.4% of GNPin 2001 (partly due to the reduction of
traditional merchandise trade deficit following
the real depreciation of the Turkish lira by
21.1%);  in concert with Turkey's economic
recovery, the current account recorded adeficit of 0.8% of GNP in 2002.
3. However, Turkey's economic situation
remains fragile.  Its public sector net debt
burden is still high (79.4% of GNP in 2002):
the public sector's primary surplus was 3.9%of GNP in 2002, against a target of 6.5%.
Inflation remains high, and since 1998,
economic growth has been largely a recovery
from recession, with growth alternating with
recession.
4. Turkey's vast potential for attracting
investment remains largely untapped, in part
because of economic instability, slow progress
in the implementation of its privatization
programme, and restrictions on foreign direct
investment (FDI) in sectors such as
broadcasting, transport, andtelecommunications.  Over the period 1980-
02, total FDI inflows into Turkey (aboutUS$14.7 billion) were less than foreign
investment in some emerging countries in a
single year. The 2003 law on foreign
investment is expected to pave the way for a
surge in FDI inflows commensurate to
Turkey's potential.
5. Turkey has a relatively diversified
export base. In general, since 1998, the
importance of manufactured goods has
increased, while the share of primary products
(mainly food, and to a lesser extent miningproducts) has declined. Machinery and
transport equipment, clothing, textiles, food
products, and iron and steel are the main
exports. More than half of Turkey's exports go
to the European Union (EU), with Germanythe major market.  Goods imports, dominated
by machinery and transport equipment,
chemicals, and fuels, largely originate in the
EU (45.3% of total merchandise imports in
2002), led by Germany.  Turkey continues to
be a net exporter of services, albeit with a
surplus that decreased from US$13.5 billion in1998 to US$7.9 billion in 2002.  Tourism
accounts for more than half of total services
receipts, while the major items on the debit
account are transportation and travel services.
(2) I
NSTITUTIONAL FRAMEWORK
6. Since its previous Review, Turkey has
maintained broadly unchanged its overall
institutional framework regarding trade policy
formulation. The Undersecretariat of the
Prime Ministry for Foreign Trade (UFT)continues to formulate, administer, and
coordinate Turkey's foreign trade policies.
Depending on the nature of the issues, the
UFT consults with relevant ministries and
other institutions, which also take part directlyor indirectly in foreign trade policy
formulation and/or impl ementation. The views
of the private sector, including NGOs, are
customarily taken into consideration
throughout the process.
7. Turkey has amended its domestic
legislation on intellectual property rights andtelecommunications, and enacted new
legislation on, inter alia, customs, anti-WT/TPR/S/125 Trade Policy Review
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dumping and countervailing measures,
standards and other technical regulations,
banking,  energy, and government procurement
to comply with its obligations under the EU
acquis communautaire and the WTO
Agreements.
8. Turkey is an original Member of the
WTO, an observer to the plurilateral
agreements on Government Procurement and
Trade in Civil Aircraft, and a party to the
Information Technology Agreement (ITA). Itgrants at least MFN treatment to all its
trading partners.
9. Turkey has a customs union
agreement (mainly on industrial products)
with the EU, and a free-trade agreement (alsoon industrial goods) with EFTA.  It has signed
14 bilateral trade agreements (up from six in
1998) with a view to bringing its trade regime
into line with its customs union with the EU.
Negotiations continue with seven other
countries. Turkey participates in the Euro-
Mediterranean Partnership, the EconomicCooperation Organization (ECO), and the
Black Sea Economic Cooperation (BSEC).
(3) T
RADE POLICY INSTRUMENTS
10. The tariff is Turkey's main trade policy
instrument.  Recent reforms have led to aslight decline in average tariffs;  the simple
average MFN rate declined from 12.4% in
1998 to 11.8% in 2003.  However, the tariff
remains complex, still comprising ad valorem,
specific, mixed, compound, and formuladuties.  Non-ad valorem duties apply mostly to
agricultural goods.  Imports of animal
products carry the highest tariffs, with ad
valorem rates ranging up to 227.5% on meat
products and edible meat offal.  In aggregate,the tariff displays mixed escalation, negative
from first-stage processed products to semi-
finished goods, and positive from semi-
finished to fully processed products.  This
structure is influenced by the high tariffs on
raw agricultural products, and to a lesser
extent, by the tariff structure in certainindustries.11. Some 46.3% of Turkey's total tariff
lines are bound;  rates applied to certain
products are well below the bound rates.  This
leaves Turkey margins for tariff increases.
Some 1.5% of total lines carry non-ad valorem
tariffs while they are bound at ad valoremrates, risking broken bindings.  Extension of
the scope of tariff binding commitments, and
further tariff rationalization, through
simplification of the structure and reduction of
rates, should introduce more predictabilityand transparency in the tariff regime, reduce
the need for concessions, and ensure the
further integration of Turkey into the
multilateral trading system.
12. Both to simplify and to harmonize its
tax system with the EU's, Turkey has modified
its excise duty legislation; introduced the
Special Consumption Tax (SCT), which
replaced various taxes and charges; and
reduced the number of value-added tax (VAT)
rates from five to three.  However, the Mass
Housing Fund (MHF) continues to apply tocertain imports of fish and fishery products.
With 33 anti-dumping actions out of 46
investigations over the period 1995-02, Turkey
ranks eleventh among WTO Members in terms
of initiation of anti-dumping investigations.  Ithas not taken any countervailing measures or
any action under Article XIX of the GATT.
13. In addition to duty and tax
concessions, various incentives schemes are
available to Turkish exporters in the form offinance, insurance, guarantee, promotion, and
marketing assistance.  The number of export
credit programmes administered through the
Turk Eximbank has increased from 14 to 20
since 1998, and KOSGEB, the public agencyfor the development of small and medium-size
enterprises (SMEs), applies several schemes
for improving exports by SMEs.  The number
of free zones has continued to rise alongside
various financial benefits.
14. Turkey enacted two new laws on
government procurement, where supplies ofTurkish origin are eligible for up to a 15%
price preference.  In addition, in the
automotive industry, foreign investors usuallyTurkey WT/TPR/S/125
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accept a certain share of local content in their
production, although this is not compulsory. In
general, import licences are maintained on
health, sanitary, phytosanitary, and
environmental grounds, under international
conventions to which Turkey is a signatory, orto administer tariff quotas set on MFN or
preferential basis.
15. The State exerts a direct and strong
influence on the economy, mainly through its
control of public enterprises. Some of theseare sheltered from competition and some
remain a severe drain on public revenue.
Recognizing the need to increase efficiency
and reduce the pressure on scarce resources,
a reinvigorated privatization programme is inprogress in many activities, including banking,
transportation, energy and
telecommunications.  In addition to the
Competition Authority, several regulatory
bodies have been established to handle
technical issues relating to competition in
their respective areas.  Nevertheless, pricecontrols still apply to certain cereals, utilities,
energy and sales of tobacco.
16. To improve protection of intellectual
property rights (IPRs), Turkey has taken steps
to further align its legislation on IPR on theTRIPS Agreement of the WTO and on the
relevant EU legislation.
(4) S
ECTORAL POLICIES
17. Agriculture is an important sector of
the Turkish economy despite the decline in itscontribution to GDP (to about 12%); it
employs  over 34% of the population. So far
excluded from Turkey's bilateral trade
agreements, agriculture remains the most
tariff-protected sector, with an average MFNrate of 25%.  Tariff protection and State
support have insulated the sector from
competition and world market price signals.
Turkey is in the process of implementing a
wide-ranging five-year programme (2001-05)
to restructure the sector.  Some of the
measures that potentially have the mostproduction distorting effects (e.g. administered
prices, production subsidies) are being phasedout and replaced by a less distortionary direct
support system. Turkey also aims to reduce its
direct involvement in production, processing
and marketing of agricultural goods.
However, because of relatively high tariff
protection, export subsidies are still grantedon certain agricultural products.
18. The mining, quarrying and energy
sector is being developed;  Turkey is among
the fastest growing energy markets in the
world.  Several public enterprises continue todominate mining and energy activities in
Turkey, and firms and consumers face very
high electricity and natural gas prices.  With
the general objective of improving the
functioning of the sector and reducing costlygovernment transfers, the energy sector has a
certain priority in Turkey's privatization
programme.  Under recently enacted laws, the
energy sector, the electricity and natural gas
markets in particular, is being liberalized,
with a view to improving efficiency.
19. Manufacturing contributes around one
fifth to real GDP and about 80% to the total
value of merchandise exports.  Public
enterprises have significant shares in
industries such as iron and steel, chemicals,
tobacco, and beverages.  Further, a complexsystem of state aids to manufacturers remains
in place. High tariff protection applies to some
processed food products, with tariffs ranging
up to 227.5%.  In general, in the absence of
incentives, the mixed structure of the tariffdoes not encourage investment in industries
producing semi-finished goods.
20. Services is the most important sector
in terms of contribution to GDP (about 65%).
Turkey has taken measures to address some ofthe structural problems in certain services
activities, notably banking and
telecommunications, where independent
regulators have been appointed and the scope
of the liberalization and privatization process
has been extended. Nevertheless, public
companies (e.g. Turk Telekom, Halk Bank,Ziraat Bank, and Turkish Airlines) continue to
dominate services activities, and still operate
under monopoly, or hold exclusive rights inWT/TPR/S/125 Trade Policy Review
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several branches of the sector.  Liberalization
of services should improve the efficiency of
other economic activities and the
competitiveness of Turkey's exports, especially
by reducing costs related to
telecommunications and transport.  Under theGeneral Agreement on Trade in Services
(GATS), Turkey maintains some MFN
exemptions; it has made commitments in
several services categories.
(5) T
RADE POLICY AND TRADING
PARTNERS
21. Turkey participates actively in the
multilateral trading system and in various
preferential arrangements to benefit from
increased market access.  Its membership inseveral regional and bilateral trade
agreements, particularly the customs union
with the EU, has contributed to improving
competition in the economy but has also made
its trade regime more complex.  Future trade
agreements could further complicate its
regime and might detract from multilateralefforts, given the increased demand on limited
administrative and negotiating resources, but
delays in alignment of its preferential trade
regime to that of the EU's may lead to trade
diversion to the detriment of Turkey's exports.Further multilateral trade liberalizations
could help address this situation.
22. Because of structural difficulties, high
external indebtedness and political instability,
Turkey's stabilization programmes are yet to
show full and sustained effects.  Exclusion ofagriculture from areas covered by preferential
trade agreements has limited further exposure
of the sector to competition.  The high level of
tariff protection for agricultural products
makes it difficult for them to be exported or tobe used as inputs in the production of export
goods without support, including subsidies.
This, together with delays in privatization,
further drains resources needed for debt
payment.
23. Continued structural reforms,
including privatization, and further tariff
rationalization would contribute to better
resource allocation, and improve Turkey's
ability to attract investment. Improvement of
Turkey's multilateral commitments, both on
goods and services, would increase thepredictability of its trade regime and render its
reforms more credible.  In the meantime,
trading partners could help by ensuring that
their markets are fully open to Turkey's
exports.