98-3900 MOREPRESS RELEASE
EMBARGO: NOT FOR PUBLICATION UNTIL
1300 GMT 13 OCTOBER 1998
PRESS/TPRB/83
7 October 1998
TURKEY'S  TRADE  AGREEMENT  WITH  THE  EU  LEADS  TO
IMPROVED  BUSINESS  ENVIRONMENT  FOR  ALL  FOREIGN INVESTORS  AND
TRADERS
Turkey's far-reaching structural and legislativ e reforms, undertaken within the framework of
the customs union with the European Union, have led to improved market access and a more secure
trading environment for all investors and traders.  According to a new WTO Secretariat report on
Turkey's trade policies and practices, these reforms are expected to yield significant economic
benefits.  The commitments undertaken in the agreement with the EU go well beyond the basic
requirements of a custom union, as well as Turkey's obligations in the Uruguay Round.
The new WTO Secretariat report and a policy statement prepared by the government of
Turkey will provide the basis for a review of Turkey's trade policies and practices on 12 and 13
October 1998.
Since the Turkey-EU customs union entered into force on 1 January 1996, Turkey has adopted
the EU common external tariff on most industrial imports and on the industrial component of
processed agricultural goods.  In addition, import surcharges have been virtually eliminated, thereby
simplifying the calculation of taxes payable on imports.  As a result of these policies, the average tariffhas been cut from 27% in 1993 to 13% in 1998.  Turkey has also harmonized much of its legislation
with that of the EU in the areas of customs provision, duty concessions, officially supported export
credits, competition policy, state aid, intellectual property rights, standards, and sanitary and
phytosanitary measures.
The report states, however, that the customs union also obliged Turkey to introduce some new
external trade measures to achieve harmonization with those of the EU, particularly concerning the
adoption of the EU textile and clothing regime. This measure is currently subject to a challenge by
India under WTO dispute procedures. A number of  goods such as certain telecommunications
equipment, machinery, motor vehicles and chemicals remain subject to prior import licensing.PRESS/TPRB/83
Page 2/3
98-3900 MOREAccording to the report, imports into Turkey  from the EU increased from US$17 billion in
1995 to US$25 billion 1997, amounting to about half of Turkey's imports. The report states, however,
that exports to the EU increased only marginally, as most manufactured exports have been traded
duty-free since the early 1970s and agriculture is yet to be liberalized. While there may be concern
about possible trade diversion resulting from the customs union, the report notes that third countries
should altogether benefit from the alignment of Turkey 's tariffs with those of the EU and that reforms
are improving the business environment for all foreign investors and traders.
The report notes that agriculture, largely excluded from the customs union, continues to be
subject to extensive and costly government intervention. It points out important policy imbalances
between manufacturing and agriculture and states that while the manufacturing sector has experienced
substantial liberalization, transfers to the already heavily supported agricultural sector have increased.
According to OECD estim ates, total transfers to agriculture almost doubled in the period 1994 to
1997, reaching the equivalent of 7.5% of GDP.  With the increase of the MFN tariff from 35% in 1993
to 43% in 1998, tariff protection in the agriculture sector constitutes a significant barrier to imports. In
contrast, Turkey's average MFN tariff on imports of manufactures more than halved during the same
period from 27% to 12%.
The report observes that the overall economic situation remains fragile in Turkey, mainly
because of the slow progress in the implementation of key structural reforms. Turkey suffers from
high fiscal deficits and high inflation. The costly so cial security system needs to be restructured along
with the banking sector which suffers from a number of weaknesses, such as preferential lending to
favoured sectors, weak supervision and accounting standards, and cross-ownership. While the Turkish
government passed a comprehensive law on privatization in 1994, the report notes that implementation
has been slow. Privatization of dominant state economic enterprises in areas such as air transport and
basic telecommunications has been initiated but has yet to be completed.
Several service sectors are beginning to open up but in certain sectors, particularly finance and
banking, investors still require special government approval before being allowed to enter the market.
Turkey did, however, undertake commitments in each of the three major negotiations concluded in the
WTO in 1997, mainly the information technology agreement and the financial and
telecommunications services agreements.
The report concludes that while Turkey's overall economic performance is strong, the
efficiency of the economy would benefit from the privatization of state economic enterprises and a
reform of the financial sector. Changes induced by the customs union, however, are expected to have
significant economic benefits, especially in terms of restructuring and modernization of the
manufacturing sectors. Other countries should also benefit from the market-opening in manufactures
and greater security in the trade regime and business environment. However, the current trend of
increasing support in agriculture is contrary to the liberalization seen elsewhere in the economy. Thissectoral imbalance, states the report, could be a tax not just on consumer welfare but also implicitly on
manufacturing and services that compete with agriculture for production factors.
Notes to Editors
The WTO's Secretariat report, together with a policy statement prepared by the Turkish
Government, will be discussed by the WTO Trade Policy Review Body (TPRB) on 12 and 13 October
1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and
practices of each WTO member at regular periodic intervals and monitors significant trends anddevelopments which may have an impact on the global trading system. The Secretariat report coversPRESS/TPRB/83
Page 4
MOREthe development of all aspects of each of Turkey's trade policies, including domestic laws and
regulations, the institutional framework, trade poli cies by measure and by sector. Since the WTO came
into force, the new "areas" of services and trade-related aspects of intellectual property rights are alsocovered.
To this press release are attached the summary observations from the Secretariat report and the
full government policy statement. The full Secretariat report is available for journalists from the WTO
Secretariat on request (call 41 22 739 5019). It is also available for the press in the newsroom of theWTO internet site (www.wto.org). The Secretariat report, together with the government policy
statement, a report of the TPRB's discussion and the Chairman's summing up, will be published in
hardback in due course and will be available from the WTO Secretariat, Centre William Rappard, 154
rue de Lausanne, 1211 Geneva 21.
Since December 1989, the following reports have been completed: Argentina (1992),
Australia (1989, 1994 & 1998), Austria (1992), Bang ladesh (1992), Benin (1997), Bolivia (1993),
Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile
(1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995 ), Côte d'Ivoire (1995), Cyprus (1997), the
Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the
European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong
Kong (1990 & 1994), Hungary (1991 & 1998), Icel and (1994), India (1993 & 1998), Indonesia (1991
and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 &
1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 &
1997), Morocco (1989 & 1996), New Zealand (19 90 & 1996), Namibia (1998), Nigeria (1991 &
1998), Norway (1991 & 1996), Pakistan (1995), Paraguay  (1997), Peru (1994), the Philippines (1993),
Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995),
the Solomon Islands (1998), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998),
Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey
(1994), the United States (1989, 1992, 1994 & 19 96), Uganda (1995), Ur uguay (1992), Venezuela
(1996), Zambia (1996) and Zimbabwe (1994).PRESS/TPRB/83
Page 5
MORETRADE POLICY REVIEW BODY
TURKEY
Report by the Secretariat – Summary Observations
Since the previous Trade Policy Review in 1994, Turkey has implemented a wide range of
reforms within the framework of the customs union be tween Turkey and the EU, taking it significantly
beyond its Uruguay Round commitments as well as generating improved and more secure trading
opportunities for third countries.  In addition to halving its manufacturing tariffs to the levels of the
EU common external tariff (CET), Turkey has also ha rmonized much of its legislation with that of the
EU in areas such as competition policy, customs provisions, intellectual property rights and standards.
While the Customs Union Decision (C UD) has clearly resulted in an overall liberalization, some new
trade measures were introduced as a result of the customs union (quantitative restrictions on textiles
and clothing, and tariff quotas).  Another area of concern is the policy imbalance between
manufacturing and agriculture:  over the past four years, the manufacturing sector has experiencedsubstantial liberalization while transfers to the already heavily supported agricultural sector have
increased.  In addition, macroeconomic imbalances (high fiscal deficits and inflation) and slow
progress in the implementation of key structural refo rms (including in the social security system, the
privatization programme and in banking) may threaten the sustainability of Turkey's strong, but
variable, growth performance.
Economic Environment
In 1994, the Turkish economy experienced a severe recession, following growth of 8% in
1993.  A severe budget deficit and real currency appreciation triggered a financial and foreignexchange crisis at the beginning of 1994, leading to a contraction of 6% in GNP for the year.
However, the economy quickly recovered, aided by the customs union between Turkey and the EU
and deregulation in general:  annual average growth between 1995 and 1997 was 7.7%.
Over the same period, the current account deficit widened somewhat but was generally kept at
a manageable level.  Gross international reserves accumulated to a record high of nearly five months
of merchandise imports and the real exchange rate remained relatively stable.
Historically, expenditures on state economic enterprises were a major source of Turkey's fiscal
imbalances.  These have largely been brought under control;  however, social security spending and
interest payments have now become major causes of the deficit.  In the past, monetization of deficits
contributed to high inflation, but the new Banking Act has greatly limited the Central Bank's ability todo so.  The Government has, instead, resorted to domestic borrowing on the open market.  As a result,
the public sector borrowing requirement almost doubled between 1995 and 1997, reaching 8% of
GNP.  This has driven up real interest rates, threatening to crowd out private investment.
Despite the recovery, the overall economic situation remains fragile, particularly in respect of
price inflation.  Macroeconomic imbalances and slow progress in the implementation of key structural
reforms (including in the social security system, the privatization programme, and banking) may
threaten the sustainability of the strong growth performance.PRESS/TPRB/83
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MOREDevelopments in Turkey's Trade Policy Regime
Far-reaching structural and legislative reforms have been undertaken by Turkey in connection
with its customs union with the European Union.  Exposure to foreign competition has increased as
trade barriers have been lowered on an MFN basis, and many trade-related reforms have been
implemented while others are in the pipeline.  Examples include the adoption of new legislation
protecting intellectual property rights and the establishment of a competition authority.  Over the past
four years, Turkey has also enacted a comprehensive law on privatization and simplified its alreadyrelatively liberal foreign direct investment regime.  However, the restructuring of the costly social
security system, the implementation of the privatization programme and reform of the banking sector
are areas where much remains to be done.
Within the framework of the Customs Union Decision (CUD), which entered into force in
January 1996, Turkey has eliminated tariffs on manuf actured imports originating in the EU, adopted
the EU common external tariff (CET) for manufac tures and the industrial component of processed
agricultural products, and is progressively aligning itself to the EU's preferential trade regime, as
required.  The CUD goes well beyond the basic requirements of a customs union;  in the context of the
Decision, Turkey has enacted a wide range of trade and trade-related legislation, seeking to apply
many elements of the "acquis communautaire" in the areas of customs provisions, duty concessions,
officially supported export credits, competition policy, state aid, intellectual property rights, standards,and sanitary and phytosanitary measures.  Turkey has until 2001 to implement the CUD fully.
Generally, the adoption of the CUD has improved market access conditions for third countries
to most sectors of the Turkish market, and the implementation of many of the trade-related reforms
will improve the business environment for foreign investors and traders.  The Decision, however, hasalso obliged Turkey to introduce some new external trade measures to achieve harmonization with
those of the EU.  For example, the adoption of the EU textile and clothing regime was designed to
close the bridge to the EU market that would ot herwise be opened under the CUD;  this measure is
currently subject to a challenge by India under WTO dispute procedures.  Turkey itself is a major
exporter and very limited importer of textiles and clothing.  Turkey has also introduced tariff quotason some agricultural and processed agricultural products in the framework of some of its recently
signed free-trade agreements;  these include agreemen ts with the Baltic States (Estonia, Latvia and
Lithuania), several Eastern European countries (Bul garia, Czech Republic, Hungary, Romania, Slovak
Republic and Slovenia) and Israel.
As bilateral barriers have been lifted, trad e between Turkey and the EU has grown.  Imports
from the EU increased from US$17 billion in 1995 to US$25 billion in 1997, amounting to about half
of Turkey's imports.  However, exports to the EU  increased only marginally, as most manufactured
exports have been traded duty-free since the early 1970s and agriculture is yet to be liberalized.  While
there may be concern about trade diversion, third countries should generally benefit from the
alignment of Turkey's tariffs with the EU CET.  Since 1 January 1996, Turkey has been applying the
same rules of origin as the EU with respect to  imports from third countries, in terms of both
preferential and non-preferential rules.
In most areas, Turkey's commitments towards the EU involve obligations exceeding those of
the WTO Agreements.  However, some legislative changes introduced since the previous Review have
also been induced by WTO commitments including on trade-related aspects of intellectual propertyrights (TRIPS) and safeguards.  As a result of  the Uruguay Round, the share of bound tariff lines
increased from 31 to 46%, with all agricultural lines bound.  While nominal bindings in industry are
generally well above applied rates, the CUD obliges Turkey not to impose higher tariffs than the EU
common external tariff (except in areas where the C UD does not apply, mainly in agriculture) with the
consequence that Turkey's tariff is, in practical terms, bound at EU rates.  Turkey also made extensivePRESS/TPRB/83
Page 7
MOREcommitments under the General Agreement on Trade in Services (GATS); its schedule covers 72
activities out of a total of 161 in nine sectors.  Since then, Turkey has become a party to the 1995Interim Agreement on Financial Services, the 1997 Agreement on Telecommunications Services, the
1997 Information Technology Agreement (ITA), and the 1997 Agreement on Financial Services.
Turkey ceased to apply Articl e XVIII:B ("balance-of -payments" article) of GATT in 1997.
Specific Trade and Trade-Related  Measures
Tariff and non-tariff border measures
Since the previous Trade Policy Review in 1994, Turkey has further opened its economy to
foreign competition.  The Mass Housing Fund (MHF) levy has been virtually eliminated, thus
simplifying taxes payable on imports and improving transparency.  In 1998 the levy covered 3% of the
tariff lines, compared with 87% in 1993.  In addition, in January 1996, Turkey adopted the EU
common external tariff (CET) on most industrial imports (except for 290 "sensitive" items at thetwelve-digit level on which tariffs will remain above the CET until 1 January 2001) and on the
industrial component of processed agricultural goods.  As a result of these actions, the average level of
border taxation (including the MHF) was cut by more than half from 27% in 1993 to 13% in 1998.  On
the other hand, substantial tariff dispersion continues to exist and there is a large number of tariff rates
(242 distinct rates, excluding ad valorem equivalents) with the greatest variations seen in agriculture.
Turkey ranks sixth among WTO Members for the number of final anti-dumping measures
imposed between 1989 and 1996; however, the number of new cases initiated has declined in recent
years and no new final measures have been introduced since 1995.  Turkey is not obliged under the
CUD to adopt the EU's anti-dumping measures, and the two parties retain their mutual rights in thisarea.  Import certificates were abolished in 1996, but a number of goods remain subject to prior import
licensing, partly related to the enforcement of standards.  Examples include certain
telecommunications equipment, machinery, motor vehicles, transmission apparatus, chemicals and
civil aircraft related products.
Turkey has eliminated many of its export incentive programmes, including the energy
incentive (providing discounted prices on electricity, natural gas and liquified petroleum consumed in
the production of exported products); free wheat (supply of wheat without payment to certain
companies subject to export performance); and the transportation subsidy (for exports of some
agricultural products).  Instead, Turkey now relies  on a wide range of indirect measures, including
duty concessions and preferential credit allocation to exporters.  Within the framework of the CUD,
the OECD Consensus principles on officially suppor ted export credits with a repayment term of two or
more years have been adopted.  Nevertheless, the Turk Eximbank incurs substantial negative net
operating cash flows associated with its export and credit guarantee programmes.  Since Turkey's
previous review, the number of items prohibited for exports, by broad categories, has increased from
seven to 14, while the items affected by export taxes has fallen from seven to two (hazelnuts and semi-
processed leather).
Internal measures
Turkey's state-aid system of tax exemptions and concessional credit is complex, non-
transparent and generous, amounting to 7.5% of GDP in agriculture alone.  The wide range of factorsdetermining the value of incentives poses difficulties in evaluating the impact of the schemes.  Studies
have emphasized the distortionary resource allocation effect of these measures.
State economic enterprises increased their share of GDP (at constant prices) from 8% in 1991
to 11% in 1994 (latest available data), but evidence suggests that this role may have diminished sincethen.  Moreover, the financial position of the enterprises has improved, largely because of the adoptionPRESS/TPRB/83
Page 8
MOREof more realistic, market-based pricing policies.  Nevertheless, the demarcation between the private
and the public sector is not always clearly defined.  In this regard, the comprehensive privatization law
of 1994 provides a framework for progress, but the privatization process has so far been slow and
marred by legal disputes.
The private sector environment has improved with the enactment of a modern and
comprehensive legal framework in the area of intellectual property and the establishment of a
competition board.  However, enforcement capacity is lagging behind the legislative progress.
Sectoral policies
Since Turkey's previous Review, the already heavily supported agricultural sector has received
increased assistance, while the manufacturing sector has opened up to foreign competition through
lower border protection.
The agriculture sector accounts for 14% of GDP and employs about half of the labour force.
The sector, which is largely excluded from the customs union, continues to be subject to extensive and
costly government intervention.  Support to the se ctor has increased in recent years.  According to
OECD estimates, total transfers (expressed in U. S. dollars) almost doubled in the period 1994 to 1997,
reaching the equivalent of 7.5% of GDP.  Support price interventions and the fertilizer subsidycontinue to be serious drains on the budget.
Tariff protection in the agriculture sector constitutes a significant barrier to imports, and has
increased since the previous review;  using the Uruguay Round definition, the average MFN tariff
increased from 35% in 1993 to 43% in 1998.  The food, beverage and tobacco subsectors are alsocharacterized by strong tariff escalation, thereby maintaining higher levels of effective protection than
is evident from the nominal rates.  A ban on imports of live animals and meat has been in force since
May 1996 to prevent the expansion of epidemic diseases (including bovine spongiform
encephalopathy (BSE)).
While agriculture (other than the industrial element of processed items) is excluded from the
customs union agreement, Turkey undertook important agricultural commitments in the Uruguay
Round.  All agricultural tariff lines were bound at levels equal to or above the sum of applied MFN
rates and MHF levies.  Unlike many WTO Members, however, Turkey did not undertake any
"tariffication" for agricultural products.  Turkey also undertook to reduce its budgetary outlays forexport subsidies for 46 products by 24% and the volume of subsidized exports by 14%, in equal
instalments over a ten-year period starting in 1995.  However, it made no commitment to cutting
financial support for agricultural producers, as the level of support computed by the Government was
below the de minimis level of 10%.
As a result of the customs union and the phasing out of the MHF, Turkey's average MFN tariff
on imports of manufactures (ISIC 3) more than halved from 27% in 1993 to 12% in 1998.  Excludingfood, beverages and tobacco manufacturing (ISIC 31), the average MFN rate for manufactures
dropped from 25% to 5.5% over the same period.  Trade between the EU a nd Turkey, with a few
exceptions, is duty free.  In the automobile sector, foreign investors have accepted as a "gentlemen's
agreement", without any legal obligation, to incorporate a certain share of local content.
State economic enterprises dominate the energy sector (some 90% of the market is state-
owned) and many prices are influenced by Governme nt policies.  In order to improve the functioning
of the sector and to meet the projected energy demand, the sector is a primary target for privatization.
However, progress has so far been slow, w ith court rulings overturning many decisions.PRESS/TPRB/83
Page 9
MORESince the previous review, several services areas are beginning to open up.  However, investors in
certain sectors, particularly finance and banking, require special government approval before settingup business.  Privatization of dominant state economic enterprises in areas such as air transport and
basic telecommunications was initiated with the enactment of the 1994 law on privatization, but, as
with other sectors, progress has been slow.  Five ports have so far been transferred to the private
sector, while the main ports are owned and operated by state economic enterprises.
The banking sector suffers from a number of weaknesses.  Preferential lending to favoured
sectors, which accounts for about half of the loans to the state banks, not only introduces distortions
but also has a high direct financial cost.  Supervision and accounting standards need to be
strengthened, while cross-ownership between banks and industrial companies may also imply that
market principles for extending credits are not fully applied.
Outlook
While Turkey's overall economic performance is strong, the budget deficit continues to be a
drag on the economy, causing high inflation and elevated real interest rates to the detriment of private
investment. Moreover, the slow progress in the implementation of key structural reforms, such as
reform of the social security system, may hinder improvement of the fiscal position.  The efficiency ofthe economy would also benefit from moving ah ead with the privatization of state economic
enterprises and reform of the financial sector.
The reforms induced by the customs union between EU and Turkey are expected to have
significant economic benefits, especially in terms of restructuring and modernization of themanufacturing sector;  by and large, other countries should also benefit from the market-opening in
manufactures and greater security in the trade re gime and business environment.  However, the
agreement with the EU does not cover agricultural products, and the current trend of increasing
support in this sector is contrary to the liberalization seen elsewhere in the economy.  This sectoral
imbalance could be a tax not just on consumer welfare but also implicitly on manufacturing andservices that compete with agriculture for production factors.PRESS/TPRB/83
Page 10
MORETRADE POLICY REVIEW BODY
TURKEY
Report by the Government
ECONOMIC ENVIRONMENT
Macroeconomic Developments
The past decades have witnessed  a significant transformation of the Turkish economy, from a
highly protected state-directed system to a market -oriented free enterprise system.  During the 1970s
Turkey concentrated on domestic growth fuelled by  foreign borrowing, which culminated in a period
of financial distress and a rescheduling of its external debt.  Reforms initiated since 1980 have, among
other things, largely removed price controls and reduced subsidies;  reduced the role of the public
sector in the economy;  emphasized growth in the industrial and service sectors;  encouraged private
investment and savings;  liberalized foreign trade, reduced tariffs and promoted export growth;  eased
capital transfer and exchange controls and enco uraged foreign investment;  strengthened the
independence of the Central Bank and moved to full convertibility of the Turkish Lira;  and reformed
the tax system.
The Turkish economy has responded well to these reforms.  Turkey’s real GNP growth rate
averaged 5.5% during the period from 1984 through 1993.  In particular, the industrial base has been
significantly broadened, and exports of goods and se rvices have grown rapidly.  Financial markets
have become broader and more sophisticated.  Although Turkey’s external debt in relation to GNP
increased from 1991 through 1994, Turkey continued to service its external debt.
These reforms contributed significantly to  the dynamism of private sector and underpinned
the flexibility of Turkish economy to adapt to both internal and external shocks.  These have been
reflected also by the strong growth performance of Turkish economy in the last decade despite someyears of unfavorable international environment and internal imbalances.
The principal source of economic growth during the 1980s and 1990s was the expansion of
exports, which increased at an average of 4.41% per annum during the period from 1988 to 1995.  A
key contributor to GNP growth during this period  was fixed investment, which rose 78.2% per annum
on average during the period from 1988 to 1995.
Real GNP growth returned to higher levels in 1992 and 1993, with real GNP growing at a rate
of 6.4% in 1992 and 8.1% in 1993.  The economic growth was attributable in part to private sector
consumption (due to increases in real wages and ag ricultural income in previous year, the increased
use of consumer credit and lower effective import prices) and private investment (due to strong
domestic demand and increased industrial capacity utilization rates, among others).
In 1994, due to the foreign exchange crisis and the Stabilization Program (see Section (ii)
below), real GNP declined by 6.1%.  In 1995, real GNP grew by 8.0%.  The increase in GNP is mainly
attributable to the growth in industry and trade sectors which grew by 12.1% and 11.6%, respectively,
in 1995.  Capacity utilization ratios and industrial production data indicate that the economic growth
continued in 1996 and GNP growth was better than expected at 7.4% for 1996.  This growth was
largely due to an increase in domestic demand, particularly in consumer durables and automobile
sales.
Real GNP growth registered as 8% for 1997 as a whole.  In 1997, the value added in
agricultural sector declined by 2.0% whereas industrial and service sectors grew by 10.0% and 8.0%,
respectively.  The high growth of industrial sect or mainly stemmed from the rise in private sectorPRESS/TPRB/83
Page 11
MOREmanufacturing production which increased by 14.2%.  The government’s initial economic program
forecasts 3% real economic growth in 1998, compared to 8% in 1997.
Stabilization Program and Aftermath
The combination of high public sector deficits, a high current account deficit and a sharp
increase in external indebtedness led to a serious financial crisis in the beginning of 1994.  The results
were a marked increase in domestic borrowing rates and a sharp depreciation of the Turkish Liraagainst major currencies.  The sharp depreciation of the Turkish Lira also adversely effected the
banking sector.
On 5 April 1994, the Government announced the "Stabilization Program", designed to achieve
a comprehensive macroeconomic stabilization and structural reform and to reduce the macroeconomic
imbalances in the economy and re-establish the conditions for sustainable growth.
In particular, the Stabilization Program aimed to reduce the rate of inflation, improve the
external balance and restore stability to the foreign exchange market.  The core of the StabilizationProgram consisted of measures to reduce the public sector deficit, supported by a restrained monetary
and credit policy.
Efforts to restrain public expenditure and boost tax receipts were supported by structural
reforms which included privatization, tax reform, a change in agricultural support policy and structural
reforms in banking sector.  In addition, the Government initiated consultation meetings with the IMFand the new macroeconomic program was supporte d by an IMF stand-by-programme designed to
reduce the macroeconomic imbalances in the economy.
Implementation of the Stabilization Program has been broadly successful.  Recovery in
Turkey’s external balances was better than envisage d with the current account swinging into surplus in
1994.  In addition, official foreign currency reserves increased and exceeded pre-crisis levels, thepublic sector borrowing requirement (PSBR) was reduced from 12.2% of GNP in 1993 to 8.1% of
GNP in 1994  and stability in the foreign exchange market was restored.
The improvement in the public deficit mainly derived from the consolidated budget.  The ratio
of consolidated budget deficit to GNP declined from 6.7% in 1993 to 3.9% in 1994.  The main
obstacle to a further reduction in the budget deficit was high domestic interest payments.  This isindicated by the improvement in the non-interest budget balance from a deficit of 0.6% of GNP
in 1993 to a surplus of 3.8% of GNP in 1994.
In the external sector, the 1994 recovery was better than forecast.  Exports, which had
stagnated in the first five months of 1994, began to increase as a result of the trade weighted effective
real exchange rate for Turkish Lira having depreciated, thus making Turkish exports much morecompetitive, and improving the macroeconomic envi ronment in general.  The increase in exports,
combined with a decline in imports due to economic recession, resulted in a substantial decline in the
trade deficit from U.S. Dollars 14.2 billion in 1993 to U.S. Dollars 4.2 billion in 1994.  Parallel to this
development, the current account balance recorded a surplus of U.S. Dollars 2.6 billion in 1994, in
contrast to current account deficit of U.S. Dollars 6.4 billion in 1993.
Stability in the foreign exchange rate was one of the main targets of the Stabilization Program
and the rapid depreciation and wide exchange rate fluctuations experienced in the first four months of1994 slowed substantially from the end of April 1994.  The exchange rate with the U.S. dollar, which
had depreciated by 131% during the first four months of 1994, depreciated by only 16% during the
remainder of the year.PRESS/TPRB/83
Page 12
MOREHowever, the inflation resulting under the Stabilization Program was disappointing and
contraction in the real economy was sharper than envisaged.  The monthly rate of inflation, which
declined sharply after the price adjustments of April 1994, began to rise again from September.  Theannual rates of inflation, reflected in the wholesale price index (WPI) and the consumer price index
(CPI), were 149.6% and 125,5%, respectively, in December 1994.  Rapid reserve accumulation due to
strong recovery in the external sector led to an increase in liquidity and caused aggregate demand to
increase in nominal terms.
The surge in exports was also a factor that contributed to the increase in aggregate demand.
On the supply side, a sharp decline in industrial  production and a poor harvest caused aggregate
supply to decline.  As a result, inflationary pressu re in the economy increased, causing inflation to rise
despite substantial fiscal restraint.
It was inevitable that the austerity measures would cause economic activity to decline.
Although GNP increased by 3.5% in the first quarter of 1994, this was due to in part to a continuation
of the high growth rate of the previous year, as stated GNP declined by 6.1% in real terms overall
in 1994.
In order to address the underlying causes of macroeconomic imbalances and to ensure the
sustainability of growth in a stable environment,  various structural measures were taken in 1994,
including the enactment of a new privatization law in November 1994.  Cash proceeds from
privatization in 1994 including collections of instalments from the previous year were
U.S. Dollars 565 million.
Under these circumstances, the economy entered 1995 with a more stable picture in both the
financial and real sectors.  A major aim of monetary policy in 1995 was to reduce inflation but allow
sufficient room for economic recovery.  Tight fiscal and monetary policies have initially been
continued to be pursued.  These policies were intended to cause the WPI to fall from its level
of 149.6% in year-on-year terms at the end of 1994, and by the end of 1995 WPI had realizedas 64.9%.Box I.1: Current  Account
Turkey has maintained relatively balanced external accounts throughout a roughly 20 year period of
strong economic growth and increasing openness to trade  Turkey’s economy has been opened at a
rapid rate, beginning with the liberalization program of the early 1980’s.  Turkey’s combined
exports and imports of goods and services amounted to 50% of GDP in 1997, up from a mere 14%
in 1978.  During this period, Turkey’s merchandise exports and imports grew tenfold while, notably
Turkey’s current account deficit averaged only 1.7% of GDP since 1981, and it has never exceeded
3.7%.
This strength derives from a diversity of sources of foreign exchange revenues, a very dynamic and
consistent expansion of the country’s export sectors and supportive foreign exchange policy by the
Central Bank,
The diversity of Turkey’s foreign exchange earnings is an important and continuing pillar to the
country’s strong external position.  An important contributor to Turkish current account inflows is
Turkey’s strong balance on services and transfers.  Services and transfers are the basic reason that
Turkey’s trade deficit of nearly 10% of GDP in 1997, resulted in a current account deficit of only
about 2.3% of GDP.PRESS/TPRB/83
Page 13
MOREAs far as the 1995 figures are concerned, GNP grew by 8.0%, the industry sector increased
by 12.1%, the services sector grew by 6.4% and the agricultural sector grew by 2.6%.
In 1996, the Turkish economy grew far more than expected.  The growth rate highly exceeded
the official target of 4.5% and equaled to 7.1%.  The expected growth rate was relatively lower mainly
due to two factors.  First, it was opposed that the introduction of the Customs Union with the EU
would slow down the grow th rate by means of increasing competitive imports.  Second and more
importantly, general elections at the end of 1995 increased the possibility of putting the long-awaitedstabilization policies into effect via a new Government.  However, though competitive imports in
general, and consumer goods imports in particular, showed a remarkable increase, the real growth rate
remained high.
In 1996, the GNP increased by 7.1%.  Regarding the sub-sectors, trade was the best
performing sector with a growth rate of 8.9%.  Th e transportation sector followed the trade sector with
a growth rate of 7.6%.  The industrial sector grew  by 7.1% whereas the agricultural sector went up by
4.4%.  On a year-on year basis, consumer price in flation was 79.8% at the end of 1996 and wholesale
price inflation was 84.9%.
Industrial output showed an increase of 7.1% in 1996 over 1995.  The trade deficit increased
from U.S. Dollars 13.2 billion in 1995 to U.S. Dollars 18.5 billion in 1996.  Besides, when the
adjustment for shuttle trade is added to the foreign trade figures, the current account deficit declines
to U.S. Dollars 1.8 billion for 1996.  However, the current account deficit rose to 2.4 billion dollars in1997 as a result of sharp decline in shuttle trade.
In 1997, the budget was prepared as a balanced budget based on the expected revenues from
"resource packages".  Revenues were targeted to increase by 6.8 percentage points over 1996 and
reach 24.7% of GNP.  Expenditures on the other hand were budgeted to decline by 2.0 percentage
points to 24.7% of GNP mainly due to the sharp drop in interest expenditures.  However, expectedrevenues from resource packages fell significantly short of the targets, while non-interest expenditures
rose sharply during the first half of the year.  Hence, an additional budget was approved by the
Parliament.  The bulk of the additional budget was allocated to the personnel expenditures, social
security transfers, interest payments, and state participation to public banks and payments for duty
losses.
During the preparation of 1998 Budget in October 1997, budget deficit was estimated to
be 2.625 trillion TL for 1997 as a whole representing 9.0% of  GNP.  However, thanks to the strong
performance of tax revenues in the last quarter and control in investment expenditures and non-interest
transfers, budget deficit for 1997 was realized lower than projected in early October. Budget deficit for
1997 was realized as 2.232 trillion TL representing 7.5% of GNP.  Primary balance, on the other hand,yielded a surplus of 0.2% of GNP.
In the last years, despite the significant gains in GNP growth and the establishment of an
outward oriented economic structure, progress in fiscal consolidation and in controlling inflation fell
short of the targets.
Growing public sector deficit became the major concern on the agenda and remained to be the
main problem facing the economy.  As stated below, PSBR/GNP ratio fell to 7.9% in 1994 and further
to 5.2% in 1995.  Fiscal stance became moderately expansionary in the last quarter of 1995 before theearly election and public sector borrowing requirement rose by 3.8 percentage points over 1995 and
reached 9.0% in 1996 and stood around 8.2% in 1997.
The  increasing pressure of the public sector on the financial system and the rise of interest
rates led to the shortening of the term structure and persistence of inflationary expectations.PRESS/TPRB/83
Page 14
MOREIn sum, the macroeconomic performance of the Turkish economy in recent years can be best
described as strong output growth backed with fiscal expansion and an accommodating monetary
policy.  In this process, price increases tended to accelerate significantly, while primary public balanceturned into a deficit in 1997 following the surpluses in 1995 and 1996.
Taking into account these unsustainable developments the government formed in June 1997
has decided to embark upon a three year structural adjustment and stabilization program beginning
from 1998.  The primary objective of the medium-term program is to pave the way for a "catching up"
period to narrow income and productivity differentials with our partners and to set a sound basis for anhealthy integration with EU countries.  To this e nd, macroeconomic  stability needs to be restored and
a structural change is to be achieved.
In the way to  achieve macroeconomic stability, the major challenge is to bring fiscal deficit
onto a sustainable basis in the next few years.  The program attributes great importance to maintain a
primary budget surplus for a sustained reduction in inflation.Box I.2: Privatization
The Privatization Program, which constitutes one of the most integral parts of the irreversible
transformation process of Turkey, aims to minimize state’s involvement in the economy, while
increasing the levels of productivity and efficiency of production in general, to even further increase
the levels of employment and also targeting deepen  the existing capital market by promoting wider
ownership.
Although Turkey embarked on a plan to privatize a large part of its public sector, the progress has
been slow mainly due to legal obstacles for m any years. Upon formation of a political and social
consensus on the needs for privatization, the new privatization law has been enacted in
November 1994 with the Law No. 4046.  Since 1985 a total of 173 companies have been taken into the
privatization portfolio and 128 of them were fully or partially privatized either via sale of shares or
asset sale, in 100 of them no state shares were left.
Since the inception of the new government in June 1997 the privatization efforts have been
accelerated.  Currently there are 43 enterprises slated for privatization covering a variety of sectors
including among others textiles, petrochemicals, oil and petroleum refining, agro-industry, shipping
and ship building, maritime, airlines, tourism, iron and steel, pulp and paper industry, insurance,
mining and banking companies and some real esta tes and 28 of them have more than 50% state
shares.
The 1998 privatization programme targets gross sales of US Dollars 12.2 billion, including US
Dollars 7.6 billion earmarked for the budget.  About US Dollars 4.6 billion is expected to be
generated from the privatization im plementations by Privatization Administration. This amount will be
used for the financing the  companies in the privatization portfolio in the form of capital increase,
loans and transfer to Treasury.PRESS/TPRB/83
Page 15
MOREWithin the medium term program it is targeted that GNP growth will be around its long run
growth rate of 4.0% on average during 1998-2000.  Fiscal adjustment will continue to maintain aBox I. 3: Exchange Rate and Monetary Policies
As a result of the implementation of the new program, an exchange rate policy which aims at
maintaining exchange rates in conformity with the targeted inflation rate started to be followed.
Turkey follows a flexible exchange rate policy under which the exchange rate for the Turkish lira is
market-determined.  On each business day, Central Bank of Turkey  announces an indicative exchange
rate which is freely determined by taking into account the developments in the international as well as
domestic markets.
Additionally, Central Bank’s exchange rate policy is conducted by taking into account the
sustainability of the current account balance and inflation.  The interest rates are also modified in
response to inflationary expectations.
The pressure of public deficit, which grew rapidly during the recent years, has made it difficult to
implement monetary policies effectively. In orde r to enhance the Central Bank’s ability to control
monetary aggregates and establish lasting stability in the financial markets, some measures have been
taken under the Stability Program.  Within this fr amework, a restriction is imposed upon the Central
Bank credits to the Treasury and to the other public agencies.  In this context, short-term advances to
be made to the Treasury has been limited to 12% of the difference between the general budget
appropriations of the current and the previous fiscal year for 1995.  This ratio was 10% for 1996, 6%
for 1997, and will be 3% for 1998 and the following years.
After forming of the new governmen t, in 1997, the Treasury and the Central Bank signed a Protocol in
order to cooperate in fighting inflation.  The official aim of this accord is to give the Central Bank
more freedom by allowing it to determine interest  rates and monetary policy.  The Treasury will
conduct its monetary relations with the Central Bank, including the use of short-term advances, in
coherence with the monetary program.  This will give a guarantee to the Central Bank to implement
the monetary program in an efficient way.  All credits extended to the public sector by the Central
Bank will be under full information of the Treasury and utmost care will be taken in order not to cause
a derogation from the monetary program.
Based on this accord, the monetary program was prepared by the Central Bank and was announced to
the public in January 1998.  This monetary program was planned to be a part of a more
comprehensive medium-term program to reduce the inflation.
According to the program the main goal of the Central Bank was to support the implementation of
measures aimed at decreasing the annual inflation rate to 70% during the first half of 1998 in
accordance with the macroeconomic targets . Reserve money was targeted to increase in the 18-20%
band during the first quarter of 1998.  Central Bank aimed to continue to limit increase in net
domestic assets and create money against the incr ease in net foreign assets in the first quarter
of 1998.  On the other hand exchange rate policy was aimed at being implemented in consistency with
the inflation rate.  The short-term interest rate policy of the Central Bank was also aimed at being
consistent with the tight monetary policy.
It was observed that, as of 1 April 1998, the conduct of the monetary program in the first quarter has
been consistent with the anticipated framework.
The monetary policy pursued during the first quarter of 1998 has generally continued in the second
quarter of the year.
With the implementation of  the monetary program,
- The increase of wholesale price index with respect to the previous month’s value was 1.6% in
June 1998, while this rate was equal to 3.4% in June 1997.
- The wholesale price index increased by 26.4% within the first six months of 1998, while this rate was
36.6% in the same period of previous year.PRESS/TPRB/83
Page 16
MOREsurplus of 4% of GNP and at the end of the program budget deficit-GNP ratio is estimated to decline
to 2.1%.  This fiscal adjustment coupled with forward indexation of wages and salaries is expected to
lower inflation rate to single digit levels at 2000.
In this context, Turkey has signed a staff monitored program with IMF and announced in
June 1998.  The program will last for 18 months and be monitored by IMF staff on a quarterly basis.
The aim of the program is to provide support for the Turkish Government in decreasing inflation rate
to the target levels of the medium term program.
TRADE POLICIES-DYNAMICS OF TRADE POLICIES
Turkey has strongly been committed to following the path to free trade with rest of the world.
In this line, two main factors greatly contributed to pursue a liberal foreign trade system based on the
principles of free and fair competition, non-discrimination and elimination of barriers to trade.  The
first is the obligations to be fulfilled under the World Trade Organization and the second is the
relations with the European Union aiming at full membership of Turkey.
It is interesting to note that the completion of the Customs Union between the European Union
and Turkey had been realized in the same period as the commencement of the implementation of the
Uruguay Round outcomes and the establishment of World Trade Organization.
Within the wider WTO framework, the Customs Union has been continuing to be the main
determinant formulating foreign trade policies of Tu rkey.  The steps that Turkey has taken, or will
take, in compliance with its commitments for the proper functioning of the Customs Union are parallel
to its commitments vis-à-vis  the World Trade Organization.  This situation certainly facilitates
Turkey’s implementation of the provisions of the Uruguay Round Final Act.
In this respect, Turkey has been implemen ting the provisions of the Final Act without
encountering serious difficulties since they closely follow the EU legislation.
On the other hand, in order to meet its commitment of harmonizing its trade regime in line
with that of EU, Turkey has signed free trade agr eements with many countries and negotiations with
some other are continuing.
The regional trade arrangements are other factors which occupy significant place in the
formation of Turkey’s trade relations.  Consid ering them as complementary elements to the
multilateral trading system, Turkey has followed ac tive policies in promoting regional co-operation
schemes in adjacent regions.  The Black Sea Economic Cooperation, recently turned into a regional
economic organization in June 1998, and the Economic Cooperation Organization (ECO) illustrates
the intention of Turkey in this direction.
Owing to its unique geographical position which makes it a country with European,
Middle Eastern, Balkan, Caucasian, Mediterranean and Black Sea identities, Turkey is obliged to have
a wide spectrum of bilateral economic relations with countries from all over the world in different
fora.  In this regard, Turkey has established a solid economic basis for stable and fruitful cooperation
with many countries, especially with her neighbours  through bilateral trade and economic agreements.
Uruguay Round and WTO  Implementation
Turkey acceded to the GATT in 1951 under the Torquay Protocol as a developing country and
has participated in all rounds of multilateral trade negotiations actively including the Uruguay Round
With the single undertaking signed in Marrakesh on 15 April 1994, Turkey became an originalPRESS/TPRB/83
Page 17
MOREMember of WTO on 26 March 1995 and bound by the obligations of all Uruguay Round Agreements
excluding the Plurilateral Agreements
In this regard, Turkey has assumed new rights and fulfilled its obligations both in areas
covered by GATT disciplines and in new areas such as Agreement on Trade in Services, TRIPS and
TRIMs.
Industry
In her Uruguay Round list for the industrial goods, Turkey provided 29% tariff reduction in
compliance with the Marrakesh Protocol.  But apart from this commitment, Turkey, with formation of
a customs union with the EU in 1996, adopted the EU’s Common Customs Tariff against imports from
third countries.  Thus, Turkey provided one of the most generous reductions with respect to average
rate of protection applicable in 1986, which is the date when the negotiations were launched (see
Chapter II(2)).
On the other hand, in compliance with the Textiles and Clothing Agreement, at the beginning
of the second phase, on 1 January 1998, Turkey has integrated the products which accounted
for 18,03% of total volume of her imports of 1990.  Furthermore, the products in category 124 have
been integrated into the GATT on 1 January 1998.  It represents 29.07% of 1990 imports into Turkey
by volume.
Information Technology Products
As one of the participant countries to The Mi nisterial Declaration on Trade in Information
Technology Products (ITA) which was signed on 13 December 1996 in Singapore at the conclusion of
the first WTO Ministerial Conference, Turkey committed to phase out customs duties on information
technology products as of 1 January 2000.
In compliance with this commitment the first two stages of reduction were put into force due
to the completion of domestic procedural requirements and appended to the 1998 Import Regime as
of 1 January 1998.
Since then, Turkey actively participated to the works carried out within the framework of
Committee of Participants on the Expansion of Trade in Information Technology Products (ITACommittee).
Agriculture
In accordance with the Agreement on Agriculture, Turkey bound 100% of duties on
agricultural products and undertook to reduce the agricultural tariffs by 24% on a simple averagebasis, with a minimum reduction rate of 10% for each tariff line over a 10 year period (by the
year 2004).
Since the domestic support implementation of Turkey was well below the "de minimis level"
no reduction commitment had been assumed in this area.
For export subsidies, Turkey committed the value of the export subsidies between 1986-1990
and 1991-92 would be reduced by 24% in the 10 year period and the quantity of subsidized exportsby 14% over the same period.PRESS/TPRB/83
Page 18
MOREAnti-Dumping and Subsidies
Turkey revised her existing legislation on subsidies and countervailing measures and
anti-dumping measures in conformity with the new rules and disciplines.  Furthermore, Turkey also
revised her incentive system in compliance with the Agreement on Subsidies and Countervailing
Measures (see Chapter II(2)(iii)).
Technical Barriers to Trade
The Agreement on Technical Barriers to Trade of the WTO has been implemented in Turkey
since 1 January 1995.  In this line, TBT Enquiry Point has been set up in Turkey.
On the other hand, as a result of the Customs Union, Turkey has integrated its legislation into
the legislation of European Union concerning the removal of technical barriers to trade (See Box II.2).
Investment Measures
Trade and Investment liberalization has gained weight in the globalizing world economy in the
last decades.  In this line, Turkey attributed c onsiderable importance to the foreign investment and
pursued liberal foreign policies since 1980’s.  "The Law Concerning the Encouragement of ForeignCapital" provides foreign capital the same rights and obligations as the domestic capital and
guarantees the transfer of profits, fees and roya lties and the repatriation of capital in the event of
liquidation or sale.
In this context, Turkey has faced no difficulty to harmonize its legislation with the new rules
set forth in the Trade Related Investment Measures (TRIMs) Agreement.
Services
Turkey recognizes the growing importance of trade in services for the growth and
development of the world economy and believes that by the effective application of GATS, theefficiency and competitiveness of the services sectors of the developing countries will increase and the
expansion of the services exports of them will also be achieved.
Turkey actively participated in the Uruguay Round services negotiations and the negotiations
taken place after the Round, such as negotiations on telecommunication and financial services.  Forthe time being, Turkey’s schedule of commitments covers most of the services listed in "Services
Sectoral Classification List" (MTN.GNS/W/120) and has the same liberalization level as in the
schedules provided by most of the developed countries.PRESS/TPRB/83
Page 19
MOREIntellectual Property Rights
It is important to note that intellectual property protection is one of the core factors to ensure
fair competition in global economy.  Thus, Turkey has made considerable progress towards updatingand harmonizing its legislation with universally acclaimed principles.  In this context, Turkey attaches
great importance to the full implementation of the TRIPS Agreement.
Although having totally five year transition period until the year 2000, Turkey has adopted her
national industrial and intellectual property legislation for patents, trademarks, industrial designs andgeographical indications in June 1995.  All elements of this legislation are not only compatible with
TRIPS standards but also contain much better and more effective provisions.  This progress shows that
Turkey is the first developing country that amended her national legislation according to TRIPS
Agreement.
Considering the coverage and age of the previous legislation, the progress made especially in
the field of industrial property protection can be called as revolution.  In this regard, Turkey hasestablished a special government authority having administrative and financial autonomy named
Turkish Patent Institute for administration of Industrial Property Rights and to establish an efficient
and contemporary industrial property system with the Decree Law 544 on 24 June 1994.Box II.1: Services
Telecommunication Services
Turkey signed the 4th Protocol on Telecommunication Services on 17 November 1997.  In the voice
telephone services part of Turkey’s current offer; it is stated that "Türk Telekomünikasyon A.Þ. is the
exclusive operator and its exclusive right will end by 31.12.2005, subject to adoption of the relevant
legislation by the Parliament".  It means that, by 1.1.2006 the voice telephone services market in
Turkey will be open to both domestic and foreign investors and Turkey is also trying to establish an
independent "Regulatory Body" to rule and supervise the domestic market.
Financial Services
In 1997, Turkey had negotiations with some of the member countries on financial services and
submitted the final version of its list to the Committee on Trade in Financial Services
on 12 December 1997. Within a very short period of time, Turkey is planning to sign the 5th Protocol
on financial services.
Maritime Transport Services
Negotiations on maritime transport services will begin by 2000 within the new WTO round and Turkey
is planning to be an active party in these negotiations by taking into account of its current offer list on
maritime transport services as a starting point.
Movement of Natural Persons
Initially, Turkey submitted an offer list on movement of natural persons which has the same
liberalization level as developed countries provided.  Therefore, Turkey did not sign the 3rd Protocol.
Her position is at stand-still towards the new negotiations which will begin in 2000.
Professional Services
Turkey’s current offer list contains most of the professional services like "Engineering and
Architectural Services" and "Accounting, Auditing and Bookkeeping Services".  Turkey is actively
participating the Committee meet ings on professional services.PRESS/TPRB/83
Page 20
MOREEnforcement of Intellectual Property Rights
The Commercial Courts and General Civil Courts have been given the material jurisdiction on
civil infringement actions.  The complaint of the right owner is a requirement to bring a criminal
action.  The Court has the power to grant injunctions for cessation and prevention of the infringing
acts, and for the provisional seizure of the infringing goods and devices.
Accession Negotiations
Liberalized international trading system based on clear and transparent principles of free and
fair competition will contribute to the improvement of the global welfare.  Therefore, WTO
membership constitutes an important step for the countries willing to integrate to the world economic
system.
In this framework, Turkey  has constantly b een supporting especially the countries of BSEC
and ECO to become WTO members sharing her experience, including necessary legislation directed to
promotion and liberalization of trade with all countries in accordance with the WTO rules and
disciplines.
Preferential Treatment for the LLCD’s
Being aware of the importance of integrating the least-developed countries to the world
economic system and preventing their marginalization, Turkey supported the initiatives launched
within the framework of High Level Meeting fo r the LLCD’s held in Geneva on 27-28 October 1997
in line with the relevant provisions of the Singapore Ministerial Declaration.  Within this context,Turkey assumed to grant additional tariff preferences to the export products of these countries.
The list including the products subject to preferential treatment was promulgated in the
Official Gazette and put into effect under the Import Regime of Turkey as effective of 1 January 1998.
This unilateral preferential treatment envisages 556 products originating in the least developed
countries to be imported into Turkey as duty-free, except two products.
Customs Union
In 1963, the Treaty of Ankara, which envisages the eligibility of Turkey to become a full
member of the EC was concluded.  The Treaty provided for several stages in order to enable Turkey to
prepare itself for full membership.
Turkish-EU relations culminated in 1996 with the establishment of the Customs Union which
is the most important development affecting Tu rkish economy since the adoption of liberalization
measures by the 1980s.  The framework of the Cu stoms Union was drawn by the Additional Protocol
to the Ankara Agreement signed in 1970.  After a transition stage of 22 years, the parties established
the Customs Union as of 1 January 1996, in accordance with the provisions of the Turkey-EU
Customs Union Decision No. 1/95 (CUD) (WT/REG22/1).
Customs Union constitutes an advanced form of integration with its far-reaching perspective
and comprehensive context covering a wide range of policies.  It should be borne in mind that Turkey
is the first and only country to enter into such an advanced form of economic integration without being
a full member.  As it is a unique case for the EU, there are several issues other than tariff reductions
where Turkey and the EU agree to cooperate.PRESS/TPRB/83
Page 21
MOREIn this regard, apart from the elimination of customs duties on EU imports and the adoption of
the common customs tariff for imports from third countries, the Customs Union Decision necessitates
of a wide range of legislation covering all aspects of trade, participation in several conventions on
intellectual, industrial and commercial property rights and harmonization to the technical standards of
the EU.
The Customs Union initially covers industrial and processed agricultural products.  Traditional
agricultural products will be included in the Customs Union following Turkey’s adaptation to the
Community’s Common Agricultural Policy.
In this context:
- Turkey eliminated all customs duties and charges having equivalent effect applied to
imports of industrial products from the EU;
- Turkey started to apply the Community’s Common Customs Tariff (CCT) for imports
from third countries with the exception of a limited number of products listed in
Turkey-EU Association Council Decision No. 2/95 (WT/REG22/2) for which Turkey
may retain customs duties higher than the Common Customs Tariff for further
5 years;
- Turkey and the EU established a system for processed agricultural products, in which
parties differentiate between the agricultural and industrial components, for the duties
applicable to those products and abolished the duties for the industrial component.
- Consequently, as of 1 January 1996, free circulation of goods between Turkey and the
EU has been established.  The following products can benefit from free circulation:
(a) Goods produced in the EU or in Turkey, including those obtained from third
country products in free circulation in the  EU or Turkey;
(b) Third country goods which are in free circulation in the EU or in Turkey;
(c) Goods obtained in the EU or in Turkey and incorporating third country
products not in free circulation in the EU or in Turkey, provided that import
formalities in respect  of the third country components are completed in theexporting country and the relevant customs duties or taxes having equivalent
effect collected.
- Turkey’s weighted average rates of protection through customs duties including Mass
Housing Fund Levy on industrial imports from the EU and EFTA countries droppedfrom approximately 10 % to 0.  For products imported from the third countries, these
rates declined from approximately 15% to 5.6%.  It is projected that when reductions
are made under the Uruguay Round commitments, Turkey’s average rates will be
lowered to 3. 5% by the year 2001.
Adaptation to the EU’s Common Commercial and Competition Policies
Developments in the world trade as well as the present degree of integration in Europe
changed the previous definition of the Turkey-EU Cu stoms Union in a broader context so as to include
implementation of identical commercial and competition rules applicable to both in bilateral trade and
in trade with third countries.  In order to prevent trade diversion and facilitate proper functioning ofPRESS/TPRB/83
Page 22
MOREthe Customs Union, Decision No. 1/95 obliges Tu rkey to adopt EU’s Common Commercial and
Competition Policies.
In accordance with the relevant provisions of the Customs Union Decision, Turkey adopted
measures which are substantially similar to those of the Community’s commercial policy in the
following fields (see Table I):
- - Common rules for imports,
- Administration of quotas,- Protection against dumped or subsidized imports,
- New Commercial Policy Instrument,
- Common rules for imports from certain third countries,
- Common rules on textile imports,
- Common rules for exports,
- Officially supported export credits,
- Autonomous arrangements on textile imports,- Standardization on foreign trade,
- Preferential regime of the Community,
- Inward processing regime,
- Outward processing regime.
Textiles and Clothing
One of the most important aspects of the Customs Union between Turkey and the European
Union is the Turkey’s adoption of the EU’s textiles and clothing restraints included in the CommonCommercial Policy measures, in conformity with  the Article XXIV of GATT 1994.  The quantitative
restrictions and surveillance measures applied by the EU on some textiles and clothing products
originating in certain third countries are the integral part of this Policy.
Article 12 of the Decision No. 1/95 of the Turk ey-EEC Association Council concerning the
textile products, stipulates that:
"In conformity with the requirements of Article XXIV of the GATT, Turkey will apply as
from the date of entry into force of this Decision, substantially the same commercial
policy as the Community in the textile sector including the agreements or arrangements
on trade in textile and clothing."
In this context, after inviting countries concerned to enter into consultations, as
of 1 January 1996, all restrictions and surveillance measures were put into force and Turkey started to
apply exactly the same measures against 52 countries, as of those of the EU.
Unless these measures had been put into force by Turkey, trade diversion would have occurred
between the Parties and this could have prevented the proper functioning of the Customs Union.
Turkey is continuously making necessary changes in the measures regarding the imports of textile andclothing products in line with the changes in the European Union's textile policy.  At the beginning of
the 1998, quantitative restrictions on textile products originating in Central and Eastern European
Countries and some Mediterranean countries were ab olished, in parallel to the EU’s implementation.
In order to control textile and clothing imports originating in the countries concerned under
double checking system, it is necessary to have agreements for administrative arrangements.  UntilPRESS/TPRB/83
Page 23
MOREnow, Memorandum of Understandings (MOU) have been initialed or signed with 24 countries,
including important suppliers for the Turkish market; such as Pakistan, Malaysia, China, South Koreaand Indonesia.
By these agreements, the quota levels are determ ined bilaterally and the control of the trade
flow is given to the authorities of the exporting countries through the issuance of the export licenses.
These arrangements are based on the provisions of the agreements on trade in textile products
between the European Union and the related countries.  MOUs contain similar provisions on rules oforigin, classification of goods, import and export procedures, inward processing and  outward
processing trade.
Since the trade volume of the previous years and the trade potential between the Parties were
fully taken into account in determining the levels of  the quantitative restrictions, either the conclusion
of the Memorandum of Understandings or the restraints applied without an agreement do not
negatively affect traditional trade flows between the Parties.  On the other hand, the surveillance
measures, which aim only to follow the trade statistics do not foresee any quantitative restrictions.
In the single checking system, the quotas are distributed among importers in accordance with
the past performance criteria by the Undersecretariat of Foreign Trade.  For the new importers in the
market, a share is also provided on the first come-first served basis.
All these measures and the latest developments with respect to the abolishment of the
restraints were already notified to the appropriate WTO bodies.
Approximation of the Turkish legislation to the Common Competition Policy of the EU
A great progress is achieved with entry into force of the laws on protection of competition and
protection of consumers, as well as Laws on patent s, copyrights, trade marks and industrial designs,
ensuring the internationally recognized norms of competition in Turkey (see Table II).
A Decree on state aids compatible with the system in force in the EU and the relevant
provisions of the WTO Agreement subsidies and countervailing duties has entered into force.  This
Decree limits the scope of state aid to research and development, protection of environment, market
research and promotion activities abroad.
"Law on the Protection of Competition" entered into force in December 1994.  The
Constitution has already, by virtue of its Article 167/1, put the state authorities under the obligation to
take measures to ensure and promote sound, orderly functioning of markets and to prevent the
formation, in practice or by agreement of monopolies and cartels.  For this reason, adoption of the newcompetition code has been an important step not only for the achievement of a stipulation of the
Customs Union but also for the fulfilment of the above-mentioned constitutional order.
The Competition Code provides a general prohibition of competition-restricting practices and
indicates examples of prohibited agreements; it also contains a general prohibition for abuses of
dominant position, and finally regulates merger control.  In 1997, the Board of Competition has been
established to enforce the Competition Law.PRESS/TPRB/83
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MOREPan-European Cumulation System
Turkey will be a part of the Pan-European Cumulation System starting from 1 January  1999,
which facilitates the free flow of trade without origin barriers between the EU, EFTA and Central andEastern European Countries.  The system enables the Parties to benefit from production facilities all
over the Europe and provide them with cheaper production possibilities.
ECSC products
The Customs Union is reinforced with a free trade agreement signed on 26 July 1996 on
products covered by the European Coal and Steel Community.  Since the entry into force
on 1 August 1996 (WT/REG 22/1/ Add.1), EU has removed immediately all the tariffs on ECSC
products of Turkish origin.
On the other hand, with an exception of 142 items, which include long steel and alloy steel
products, tariffs are removed immediately on all ECSC pr oducts of the EU origin by Turkey too.  The
above mentioned 142 items are subject to a transitional period of 3 years, for which tariffs will be
reduced gradually and shall be totally eliminated by the end of 1998.
Basic Agricultural Products
For basic agricultural products Turkey and the EU have agreed to develop the existing
preferential trade regime in agricultural sector so as to allow Turkey to adapt its agricultural policy to
that of the EC.  In that respect, consecutive negotiations on better market access possibilities for
agricultural products have been held between the parties within the period of 1993-97.
As a result of these negotiations, Turkey acquired concessions as tariff quotas and/or duty
reductions in a number of products namely tomato paste, poultry meat, sheep and goat meat, olive oil,
cheese, certain fresh fruits and vegetables, hazelnuts, fruit juices, marmalade and jams on a
product/product group basis.
In that respect, concessions have been gran ted to the Community side on live bovine animals,
frozen meat, butter, cheese, seeds of vegetable and flower, flower bulbs, apples, peaches, potato,Box II.2: Technical Legislation Harmonization
The Articles 8-11 of the CUD sets the genera l framework of technical harmonization, such as
standardization, conformity assessment, measurement, calibration, quality, accreditation, testing and
certification.  The detailed list of the legislat ion to be harmonized was determined by Turkey-EC
Association Council Decision No. 2/97, on 21 May 1997.
In this line, initial steps towards adaptation to th e EU’s industrial standards have been realized with
the adoption of the "Regime on Standardization in Foreign Trade" which aims at controlling the
practices of standardization and conformity asse ssment under a single legislation.  The Regime
provides transparency in the implementations, assembling all the dispersed regulations regarding
standardization policies in Turkey and establishing a legal base for harmonization of the Turkish
legislation with legislation of the Community.  The Regime is also in conformity with the requirements
laid down in the Agreement on Technical Barriers to Trade of the World Trade Organization.
On the other hand, the Regulation on "The Type Approval for Motor Vehicles" has been prepared and
put into force. The harmonization work on the Community Directives and Regulations has been
continuing.  According to Customs Union Decision No 1/95, the final date for the harmonization of
technical legislation with that of EU is 31 December 2000.PRESS/TPRB/83
Page 25
MOREcereals, refined or raw  vegetable oil, sugar, tomato paste, some alcoholic beverages and animal
feedstuff.
In this framework, the Protocol texts and the concession lists have been initialed, and the
related Decree concerning the above mentioned concessions was published in the TR Official Gazette
No. 23225 of 9 January 1998.  Following the entry into force as of 1 January 1998 of the Turkey-EU
Association Council Decision No. 1/98 regarding the reciprocal concessions, the relevantCommuniqué was published in May 1998.
Free Trade Agreements
According to the Article 16 of the Associati on Council Decision establishing the Customs
Union, Turkey shall align itself progressively with the preferential customs regime of the EU, which
rests on the sets of autonomous regimes and preferential agreements, within five years startingfrom 1 January 1996.  Article 16 of the Association Council Decision No:1/95 and its Annex 10 set
the rules and modalities of the alignment and also provide that Turkey will take the necessary
measures and negotiate agreements on a mutually advantageous basis with the countries concerned.
Turkey gives priority to the adaptation of preferential agreements concluded between the EU and the
third countries in which reciprocal trade provisions have been sought.  Within the context of theAssociation Council Decision, Turkey stated that  the priority will be given to the following
preferential agreements:  Israel, Hungary, Bulgaria, Poland, Romania, Slovakia, Czech Republic,
Estonia, Latvia, Lithuania, Morocco, Tunisia, and Egypt.
In this respect, the Free Trade Agreement (FTA) between Turkey and the EFTA States which
was signed in 1991 was the first step on the way to the adoption of the preferential regimes of the EU.
Turkey concluded FTA Agreements with Israel in March 1996, with Hungary in January 1997, with
Romania in April 1997, with Lithuania and Estonia in June 1997, with the Czech and the Slovak
Republics in July 1997, with Slovenia in May 1998, with Latvia in June 1998 and finally with
Bulgaria in July 1998.
Free Trade Agreements entered into force on  1 May 1997 with Israel, on 1 February 1998 with
Romania, on 1 March 1998 with Lithuania and on 1 April 1998 with Hungary.  The FTAs with Czech
and Slovak Republics and Estonia were ratified by the National Assembly and will be put into force
before the end of 1998.
On the other hand, FTA negotiations still continue with Poland, and exploratory talks will be
initiated with Tunisia, Morocco, Egypt, Malta, and Palestine.
General objectives of these Free Trade Agreements are to align with the EU’s Preferential
Trade
Policy, to establish free trade area between the parties through gradual reduction of trade
barriers, to increase the trade volume between the pa rties, to improve the parties’ competitiveness with
cheaper inputs from the other party, to create joint investment possibilities in and out of European
markets and to improve cooperation among the parties’ businessmen.
Functioning of the Customs Union
The Customs Union expanded trade between Turkey and the EU in 1996 and this trend
continued in 1997.  Although the EU exports to Turkey expanded significantly and Turkey’s trade
deficit with the EU doubled from $5 billion to $10 billion, Turkish industries have managed to adjustthemselves to the new competitive environment without excessive damage in most cases.  Turkey’sPRESS/TPRB/83
Page 26
MOREentry into customs union with the EU without receiving economic and financial assistance indicates
the resilience of the Turkish economy and its leading industries.
In the first year of the Customs Union, the EU exports to Turkey rose sharply while Turkey’s
exports to the EU have been stagnating.  The figures for 1996 indicate a slight increase of 4.2 % for
Turkish exports as compared to the previous year, whereas Turkish imports showed an extraordinary
increase of 37.2% during the same period.  Similarly, the share of the EU in Turkey’s total exports
which was 51.2 % in 1995 was reduced to 49.7 % in 1996 and to 46.7 % in 1997.  Meanwhile, theshare of the EU in Turkey’s imports shifted from 47.2 % to 53 % in 1996 and to 51.2 in 1997.
Turkey’s main partners in the EU were Germany, Italy, UK and France.
In 1996, Turkey’s total exports and imports were 23.2 billion dollars and 43.6 billion dollars
respectively which, in turn, correspond to a trade deficit of 20.4 billion dollars.  11.6 billion dollars of
this deficit was with the member countries of the EU.  In 1997, Turkey’s total exports
were 26.2 billion dollars while its imports were 48.5 billion dollars.
Even though a portion of this trend is attributable to overheating of the Turkish economy
in 1996 and to heavy investment in machinery, it seem s that the EU exporters are enjoying the benefits
of the Customs Union far beyond the initial expectations.  The moderate increase in Turkey’s exports
to the EU during 1996 and 1997 was far below of any anticipation.
BILATERAL RELATIONS
North America
U.S.A.
By the significant increase in the volume of trade between Turkey and the U.S.A. over the last
decade, Turkish imports from the U.S.A. reached approximately U.S Dollars 4 billion in 1997, while
Turkish exports to the U.S.A. were of  U.S. Dollars 2 billion in the same year.  The bilateral trade
figures indicate a sizable trade deficit against Turkey.
The U.S.A. has been applying quantitative restrictions on a large range of textiles and clothing
categories imported from Turkey under the Multi-Fibre Arrangement (MFA) since 1984, and under
the World Trade Organization Agreement on Textiles and Clothing (ATC) since 1995.  The U.S.A.
imposes countervailing duties on steel tubes and non-egg dry pasta imports of Turkish origin. In
addition, antidumping duties have been put into effect by the U.S. on Turkish exports of non-egg dry
pasta and rebar exports.
Canada
The bilateral trade between Turkey and Canada ha s shown an increasing trend in the last five
years’ period.  In 1997, Turkey’s imports from Canada  were registered as U.S. Dollars 311 million,
and Turkey’s exports to Canada were realized as U.S. Dollars 117  million.  The trade deficit against
Turkey reached U.S. Dollars 194 million.  Canada applies quantitative restrictions on some textilesand clothing products imported from Turkey.
Commonwealth of Independent States (CIS)
After dissolution of the Soviet Union, a new market for the Turkish exports has appeared
which also brought about a great opportunity to Turkey regarding the supply of its basic needs of
economy.  For that reason, the trade volume with C.I.S. increased on the annual average rate of 30.2%
during the period of 1992-1997 from U.S Dollars 1.9 billion to U.S. Dollars 7.1 billion in 1997.PRESS/TPRB/83
Page 27
MOREThe main trade partner in this group is the Russian Federation, representing  a share of 59 % in
total.  In 1997 the Turkish exports to Russia is U.S. Dollars 2.1 billion and imports from Russia is U.S.Dollars 2.2 billion reaching the trade volume of U.S. Dollars 4,2 billion.  Besides these figures, the
shuttle trade which is estimated approximately 5-6 billion US$, brings Russia to the top position in
Turkish foreign trade.  It is certain that as the new natural gas pipeline projects foreseeing the delivery
of the Russian gas to Turkey in coming years are realised, bilateral trade will rise sharply.
Balkans
Since 1992, trade with Balkan countries has been increasing.  It reached to
U.S Dollars 1.7 billion in 1997 indicating an annual average increase of 16.8 %.  In this region,
Romania and Bulgaria are the main partners of Turkey and it is very likely that the trade volume will
rise accordingly as the free trade agreements with those are put into force.
Central European and Baltic States
Turkey gives special importance to the development of trade and economic relations with
these countries.  The trade volume has risen to U.S. Dollars 814 million in 1997 from U.S. Dollars 633
million in 1992.
In addition, finalisation of the free trade agreements with Hungary, Czech Republic, Slovakia
and all the Baltic States will surely contribute to the bilateral trade relations.
Middle East Countries
Turkey’s exports to the Middle East Countries realised as U.S. Dollars 2.68 billion (10.2% of
total) in 1997, while imports from these countries stood at U.S. Dollars 3.12 billion.
Turkey’s main export items to the countries in this region are iron and steel products, foodstuff, textile
products and machinery products.  On the other hand, imports from the region is concentrated oncrude oil and petroleum products.
Compared with 1980’s, it is observed that th e volume of trade between Turkey and the Middle
East Countries has decreased in 1990’s.  Main reasons of this can be summarised as the embargo
imposed on Iraq by the UN, negative effects of the Gulf Crisis, falling of the world crude oil prices.
However, taking into consideration the alleviating of the embargo imposed on Iraq, middle
east peace process, Turkey’s increasing energy demand and liberalisation activities in the region,
bilateral trade is expected to increase in coming years.
Asia
The rise in the share of Asian in world trade also stimulates Turkey’s trade relations with
them.  The total trade which had been approximately U.S. Dollars 3.7 billion in 1992 reached to U.S.
Dollars 7.7 billion in 1997 with an increase of 108%.  While Singapore, Hong Kong and Japan hold
the lead in Turkey’s exports to the region, Japan is the main source of imports.
In the last decade, Turkish exports to Japan has shown a decreasing trend, while Turkish
imports from Japan has increased sharply.  In 1997, Turkey’s imports from Japan were realized as
U.S. Dollars 2.04 billion and Turkish exports to Japan were registered as U.S. Dollars 144 million.
Thus, the trade deficit against Turkey reached U.S. Dollars 1.9 billion in the same year.PRESS/TPRB/83
Page 28
MORETurkey’s imports from China have been increasing steadily since 1992 (U.S.
Dollars 539 million, U.S. Dollars 556,5 million and U.S. Dollars 787.5 million in 1995, 1996 and 1997
respectively), whereas its exports to this country that reached its peak in 1993 with  U.S. Dollars 512million, displayed sharp decreases in 1994 and 1995 resulting in U.S. Dollars 355 million  and U.S.
Dollars 67 million respectively.  By 1997, Turkish exports to China have been realized as U.S. Dollars
44.4 million.
Within this context, taking into account the great potential of China, Turkish Government has
embarked on a comprehensive program aiming at increasing Turkey’s exports to China and
overcoming the huge trade deficit against Turkey.
Besides, with the aim to diversify the orientation of Turkish exports in Asia-Pacific region,
Turkey has been trying to establish comprehensive commercial and economic relations with countries
in the region like Vietnam, a country which owns a great potential.
Central Asia and Caucasus
Turkey’s trade relations have been increasing with Newly Independent States of Central Asia
(Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan a nd Uzbekistan) and of Caucasus (Azerbaijan and
Georgia).  Total exports of Turkey to these countries were U.S. Dollars 196 million in 1992 andreached U.S. Dollars 1.081 million in 1997, Turkey’s imports realized as U.S. Dollars 95 million and
U.S. Dollars 465 million respectively for the same years.
Turkey’s main export commodities in 1997 to the countries in the region are foodstuffs (U.S
Dollars 330 million, 30.5% of the total), machines (U.S. Dollars 110 million, 10.1% of the total),textile products (U.S. Dollars 101 million, 9,3% of the total) and chemical industry products (U.S.
Dollars 93 million, 8.6% of the total).
The composition of Turkey’s imports from the region depends on the natural resources of each
country, in 1997 non-ferrous metals comprised 60% and iron-steel 30% of Turkey’s total imports fromKazakhstan; cotton 80% of Turkey’s total imports from Uzbekistan; cotton 65% of Turkey’s total
imports from Turkmenistan; cotton 26% and leather 24% of Turkey’s total imports from Azerbaijan;
iron-steel 30% of Turkey’s total imports from Georgia and cotton 35% and leather 30% of Turkey’s
total imports from Kyrgyzstan.
REGIONAL TRADE ARRANGEMENTS AND  COMCEC
Economic Cooperation Organization (ECO)
The Economic Cooperation Organization (ECO) was established in 1985 as a trilateral
organization among Iran, Pakistan and Turkey to  promote regional cooperation.  Its aim 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.
The ECO covers vast areas of cooperation in the fields of economic and infrastructure
development, agriculture, science, education, culture, public works and the transfer of technology.
In February 1992, the ECO was expanded to include those six Central Asian republics, as well
as Afghanistan. With the adhesion of these countries ECO became a major regional organization
encompassing an area of 7 million sq. kilometres, inhabited by nearly 300 million people.PRESS/TPRB/83
Page 29
MOREThere are many ongoing projects aiming for the promotion of trade and economic cooperation
among the member countries of ECO;
- ECO Trade and Development Bank
- ECO Reinsurance Company
- ECO Shipping Company
-E C O  A i r  C o m p a n y
- ECO Science Foundation- ECO Cultural Institute
- Agreement on Simplification  of VISA Procedures for Businessmen of ECO Countries
- ECO Transit Trade Agreement
- The Protocol on Preferential Tariffs Among ECO Members
The Black Sea Economic Cooperation (BSEC)
The Black Sea Economic Cooperation (BSEC) project is a regional economic co-operation
arrangement, established on 25 June 1992 by 11 st ates Albania, Armenia,  Azerbaijan, Bulgaria,
Georgia, Greece, Moldova, Romania, the Russian Federation, Turkey and Ukraine covering a vast
economic area from the Adriatic to the Pacific with a total population of 325 million.  The member
states signed the "Charter of the Organization of the Black Sea Economic Cooperation" on June 1998in Yalta, which transforms the Cooperation into a Regional Economic Cooperation.
The main objective of the Cooperation is to develop and diversify existing economic relations
among its members by making efficient use of the advantages arising from their geographical
proximity, their traditional ties, the complementary nature of their economies and large economicspace and market.
The establishment of a BSEC Free Trade Area covering the BSEC region and further
integrating its member countries into the New European Architecture has been a major goal since the
very inception of the BSEC.
In this context, the BSEC Special meeting with the participation of the Ministers responsible
for Economic Affairs on 7 February 1997 in Istanbul adopted the Declaration Of Intent For The
Establishment Of The BSEC Free Trade Area.
The project of the BSEC Free Trade Area is not only important for the direct economic
benefits to be acquired by the member countries (increased intra-regional trade, increased foreign
investment, increased efficiency among the productive sectors of the BSEC countries) but also as the
step that will prepare BSEC to become an integral part in a larger European economic space.
Taking into account the legal commitments of some BSEC member states with  the EU and
the aspirations of the majority of them to become fu ll members, it is clear that any effort to create a
BSEC FTA will be possible only through exte nsive discussions between BSEC and the EU.
Standing Committee For Economic and Commercial Cooperation (COMCEC)
COMCEC is one of the three standing Committees established by the Third  Islamic Summit
Conference held in Mecca and Taif in 1981.  Since its First Session in November 1984, COMCEC
adopted the document entitled "Action Plan to Strengthen Economic Cooperation among member
States", as the basic starting point of its activities approved at the Third Islamic Summit and
comprising suggestions for the development of cooperation in the different fields of activity.  A new
Action Plan was adopted by the COMCEC in 1994, updating the Action Plan adopted in 1981.PRESS/TPRB/83
Page 30
MOREThe new strategy handles economic cooperation among the member countries with an
approach different from that of the previous period.  Under this different approach, the principle of"collective self-sufficiency" is replaced by the concept of integration with the world economy, and in
this connection, the importance of economic liberalization and the private sector is stressed.  One new
element of the strategy, with a view to carry on cooperation within a more realistic and flexible
structure, is to have voluntary participation and to form regional sub-groups among countries with
common interests, for cooperation.
FUTURE DIRECTION OF TURKEY'S FOREIGN TRADE
Since the structural adjustment program of 1980, Turkey has been pursuing liberal economic
and trade policies with the objective of establishing a free market economy and integrating with the
world economic system.
Undoubtedly, Turkey will continue to pursue liberal economic and trade policies based on the
principles of free and fair competition, non-discrimi nation and elimination of technical barriers.  In
this context, Turkey’s foreign trade policy will  be conducted in compliance with its commitments
arising from the WTO and the customs union with the EU.  The customs union is the most
comprehensive and far reaching element that contributes to strengthening Turkey’s expanding role inthe world economic system.  However, emphasis must be given to the fact that the customs union
could not be regarded as the ultimate stage in Turkish-EU relations, rather it should be completed by
full membership.
Turkey, committed to the expansion of world trade, will further strengthen its bilateral
relations with all countries, including those which are not yet integrated into the multilateral trading
system established under the WTO system.
Considering their positive overall impact on international trade as well as on the multilateral
trading system and its regulatory framework, regional integration arrangements will also be the key
elements in Turkey’s future agenda.
Table I
Adaptation of common commercial policy instruments of the EU
AREA EU LEGISLATION CORRESPONDING LEGISLATION ENACTED BY TURKEY
Common Rules for
ImportsCouncil Reg. (EC) No. 3285/94 Decree No. 95/6814 on Surveillance and Safeguard Measures for Imports
and the Administration of Quotas and Tariff Quotas, and Implementing
Regulation on Surveillance and Safeguard Measures for Imports (Official
Gazette dated June 1, 1995, 22300).
Common Rules forImports from Certain
Third CountriesCouncil Reg. (EC) No.  519/94 Decree No. 95/7348 on Surveillance and Safeguard Measures for Imports
of Products Originating in Certain Countries (Official Gazette dated
October 19, 1995, 22438) and Implementation Regulation (OfficialGazette dated November 1, 1995, 22450).
Administration ofQuotasCouncil Reg. (EC) No. 520/94
Com.  Reg. (EC) No. 738/94Decree No. 95/6814 on Surveillance and Safeguard Measures for Imports
and the Administration of Quotas and Tariff Quotas, and Implementing
Regulation on Surveillance and Safeguard Measures for Imports (Official
Gazette dated June 1, 1995, 22300).
Decree No.95/7616 on Quota and Tariff Quota Administration on
Exports (Official Gazette dated December 31, 1995, 22510)
Protection AgainstDumped or SubsidizedImportsCouncil Reg. (EC) No 384/96
Council Reg. (EC)No. 3284/94Law No 3577 on Prevention of Unfair Competition on Imports will be
amended in accordance with new EU legislation and  the UR Final Act.
Draft legislation has been  presented to the Parliament.
New  CommercialPolicy InstrumentCouncil Reg. (EC) No.3286/94
(amended by Council Reg.No. 356/95 (EC))Decree No: 95/7608 on the Protection of  Commercial Rights of Turkey
and relevant Regulation (Official Gazette dated December 31, 1995,
22510).
Common Rules forExportsCouncil Reg. (EEC) No 2603/69 Export Regime Decree and Regulation (Official Gazette dated January 6,
1996, 22515).
Officially Supported Council Dec. (EEC) 112/93 Communication (Export 96/12) (Official Gazette dated January 23, 1996,PRESS/TPRB/83
Page 31
MOREAREA EU LEGISLATION CORRESPONDING LEGISLATION ENACTED BY TURKEY
Export Credits 22532)
Common Rules on
Textile ImportsCouncil Reg. (EEC) No. 3030/93 Decree No. 95/6815  on Surveillance and Safeguard Measures on Imports
of Certain Textile Products, and Implementing Regulation on
Surveillance and Safeguard Measures on Imports of Certain Textile
Products (Official Gazette dated June 1, 1995, 22300)
Autonomous
Arrangements on Textile
ImportsCouncil Reg. (EC) No. 517/94 Decree No. 95/6816 and Implementing Regulation on Surveillance and
Safeguard Measures on Importation of Textile Products from Certain
Third Countries Not Covered by Bilateral Agreements, Protocols orOther Arrangements, or by Other Specific Import Rules (Official Gazette
dated June 1, 1995, 22300)
Standardization on
Foreign TradeThe Standardization Regime was renewed by Decree No. 96/7794 on
Technical Arrangements and Standardization on Foreign Trade (Official
Gazette dated February 1, 1996, 22541)
Preferential Regime of
the CommunityFTAs have been signed with EFTA States, Israel, Hungary, Romania,
Estonia, Lithuania, Latvia, Czech and Slovak Republics, Slovenia and
Bulgaria.
Negotiations are continuing with Poland.Preliminary works with Morocco, Tunisia, Egypt.
In order to adopt the preferential regimes (Lomé Convention, GSP) of the
EU, Turkey has started the preparatory works.
Inward Processing
RegimeCouncil Reg. (EEC) No. 2913/92
Commission  Reg. (EEC)
No. 2454/93Decree No. 95/7615 on Inward Processing Regime (Official Gazette
dated December 31, 1995, 22510)
Communication (Official Gazette dated January 5, 1996, 22514).
Outward Processing
RegimeCouncil Reg. (EEC) No. 2913/92
Commission  Reg. (EEC)No. 2454/93Decree No. 95/7617 on Outward Processing Regime (Official Gazette
dated December 31, 1995, 22510)
Communication (Official Gazette dated January 24, 1996, 22533).
Outward Processing
regime for textile and
clothing products
(economic OPT regime)Council Reg. (EC) 3036/94
Commission Reg. (EC) 3017/95Decree No. 96/8703 on  Economic Outward  Processing Arrangements
Applicable to Certain Textiles and Clothing Products Reimported into
Turkey After Processing in Certain Third Countries (Official Gazette
dated December 29, 1996)
Implementation Regulation (Official Gazette  dated January 3, 1997)PRESS/TPRB/83
Page 32
Table II.
adaptation of the competition policy of the EU
AREA EU LEGISLATION LEGISLATION ENACTED BY TURKEY SO FAR
(CORRESPONDING TURKISH LEGISLATION)
Competition
(The prevention of unfair
competition)Rome Treaty
Articles 85- 91Law No. 4054 on Protection of Competition (Official Gazette 22140,  dated
December 13, 1994)
Law No. 97/9090 on Appointment of the Competition Board (Official Gazette
22918, dated February 27, 1997)
State Aid Rome Treaty
Articles 92-94Turkey has two years in order to adopt the related provisions of the EU legislation,
with the exception of textiles sector in which Turkey has accepted the
harmonization before the entry into force of the Decision No.1/95. In this context,
Decree No. 94/6401 Concerning State Aid on Exports was issued in 1995.(Official Gazette dated January 11, 1995)
A Declaration was given to Commission regarding the state aids to the textiles
sector in September 1995. This Declaration was accepted by the European
Commission. In accordance with its commitment, Turkey has adopted the state aid
programs of the EU in this sector from 1.1.1996 onwards.
The Protection ofIntellectual, Industrial and
Commercial Property
RightsSeveral Agreements
and Council
Regulations
and DirectivesDecree No. 95/544 on the Establishment of the Turkish Patent Instýtute (Official
Gazette dated June 24, 1995)
Law  No. 4117 on adoption to the Paris Act (1971) related to  Bern Convention.
(Official Gazette July 12, 1995)
Law No. 4116 on adoption to Rome Convention (1961) (Official Gazette July 12,
1995)Decree No. 95/7094 on adoption to Nice Agreement
Law No. 4115 on adoption to Patent Cooperation Treaty (1970, including the
amendments)Decree No.95/7094 on adoption to Vienna Agreement on figurative elements of
Trademarks (Official Gazette dated August 13, 1995, 22373)
Decree No. 5903 on adoption of Stockholm Text of the Paris Agreement on the
Protection of Industrial Property
Law No. 4128 on the Arrangement of the Penalty Provisions Related to Industrial
Property Rights.Law No. 4110 amending Several Provisions of the Law No.5848 on Intellectual
and Artistic Works. (Official Gazette
dated June 27, 1995, 22311)
Decree No. 95/551 on the Protection of Patent Rights (Official Gazette dated June
27, 1995, 22326)
Decree No. 556 on the Protection of Trademarks (Official Gazette dated 27, June
1995, 22326)
Decree No. 554 on the Protection of Industrial Designs (Official Gazette dated 27,
June 1995, 22326)Decree No.555 on the Protection of Geographical Indicators (Official Gazette
dated 27, June 1995, 22326)
Decree No.97/9731 on adoption to the "Protocol Relating to the Madrid
Agreement Concerning the International Registration of Marks", "Locarno
Agreement Establishing an International Classification for Industrial Designs" and
"Budapest Treaty on the International Recognition of the Deposit of
Microorganisms for the purposes of Patent Procedure". (Official Gazette datedAugust 22, 1997, 23088)
The Protection ofConsumersLaw No. 4077 on the Protection of Consumers (Official Gazette dated March 8,
1995, 22221)
 Implementation Regulations (Official Gazette dated August 15,1995,22375)
__________
END