TABLE OF CONTENTS

1............ Introduction. 3

1.1......... Preface. 3

1.2......... Context 3

1.3......... Relations between the EU and Turkey. 3

2............ Political criteria and enhanced political dialogue. 5

2.1......... Democracy and the rule of law.. 5

2.2......... Human rights and the protection of minorities. 14

2.3......... Regional issues and international obligations. 18

3............ Economic criteria. 20

3.1......... The existence of a functioning market economy. 20

3.2......... The capacity to cope with competitive pressure and market forces within the Union. 24

4............ Ability to take on the obligations of membership. 25

4.1......... Chapter 1: Free movement of goods. 26

4.2......... Chapter 2: Freedom of movement for workers. 27

4.3......... Chapter 3: Right of establishment and freedom to provide services. 27

4.4......... Chapter 4: Free movement of capital 28

4.5......... Chapter 5: Public procurement 28

4.6......... Chapter 6: Company law.. 29

4.7......... Chapter 7: Intellectual property law.. 30

4.8......... Chapter 8: Competition policy. 31

4.9......... Chapter 9: Financial services. 31

4.10....... Chapter 10: Information society and media. 32

4.11....... Chapter 11: Agriculture and rural development 33

4.12....... Chapter 12: Food safety, veterinary and phytosanitary policy. 34

4.13....... Chapter 13: Fisheries. 35

4.14....... Chapter 14: Transport policy. 35

4.15....... Chapter 15: Energy. 36

4.16....... Chapter 16: Taxation. 38

4.17....... Chapter 17: Economic and monetary policy. 38

4.18....... Chapter 18: Statistics. 39

4.19....... Chapter 19: Social policy and employment 39

4.20....... Chapter 20: Enterprise and industrial policy. 41

4.21....... Chapter 21: Trans-European networks. 42

4.22....... Chapter 22: Regional policy and coordination of structural instruments. 42

4.23....... Chapter 23: Judiciary and fundamental rights. 43

4.24....... Chapter 24: Justice, freedom and security. 62

4.25....... Chapter 25: Science and research. 66

4.26....... Chapter 26: Education and culture. 67

4.27....... Chapter 27: Environment and climate change. 68

4.28....... Chapter 28: Consumer and health protection. 70

4.29....... Chapter 29: Customs union. 71

4.30....... Chapter 30: External relations. 72

4.31....... Chapter 31: Foreign, security and defence policy. 72

4.32....... Chapter 32: Financial control 74

4.33....... Chapter 33: Financial and budgetary provisions. 75

Statistical Annex. 76

1. Introduction 1.1. Preface

This report largely follows the same structure as the Commission’s previous regular reports to the Council and the Parliament on progress made by Turkey in preparing for EU membership. The report:

– briefly describes the relations between Turkey and the European Union;

– analyses the situation in Turkey in terms of the political criteria for membership;

– analyses the situation in Turkey on the basis of the economic criteria for membership;

– reviews Turkey’s capacity to take on the obligations of membership, i.e. the acquis expressed in the Treaties, the secondary legislation, and the policies of the European Union.

This report covers the period from October 2013 to September 2014. Progress is measured on the basis of decisions taken, legislation adopted and measures implemented. As a rule, legislation or measures which are under preparation or awaiting parliamentary approval have not been taken into account. This approach ensures equal treatment across all reports and enables an objective assessment.

The report is based on information gathered and analysed by the Commission. Many sources have been used, including contributions from the government of Turkey, the EU Member States, European Parliament reports[1] and information from various international and non-governmental organisations.

The Commission draws detailed conclusions regarding Turkey in its separate Communication on enlargement,[2] based on the technical analysis contained in this report.

1.2. Context

The European Council granted the status of candidate country to Turkey in December 1999. Accession negotiations were opened in October 2005. The Association Agreement between Turkey and the then European Economic Community entered into force in December 1964. Turkey and the EU formed a customs union in 1995.

1.3. Relations between the EU and Turkey

The Positive Agenda, launched in 2012, continued to support and complement the accession negotiations through enhanced cooperation in a number of areas of joint interest: political reforms; alignment with the acquis; dialogue on foreign policy, visas, mobility and migration, trade, energy, counter-terrorism; and participation in EU programmes. The Commission expressed serious concerns about developments in the area of the rule of law and fundamental rights. It encouraged Turkey to have deeper dialogue with the Commission while preparing new initiatives and legislation and regarding the implementation of existing laws and policies. This was supported by a series of peer assessments aiming at renewed cooperation on Chapter 23 — Judiciary and fundamental rights.

Turkey continued to express its commitment to EU accession. The then Prime Minister and current President Erdoğan declared 2014 to be the ‘Year of the European Union’. In January, he visited Brussels and met with the Presidents of the European Council, the European Commission and the European Parliament. In September, Turkey adopted a ‘European Union Strategy’ intended to re-invigorate its accession process. The Strategy is based on three pillars: political reforms; socio-economic transformation in the accession process; communication strategy. It is expected to be followed up by action plans with concrete actions and timelines.

The EU-Turkey Readmission agreement was signed on 16 December 2013, in parallel with the launching of the visa liberalisation dialogue. A series of peer assessments have been conducted in order to assess the status of Turkey’s implementation of the visa roadmap. The readmission agreement has been ratified by the EU and Turkey and it came into force on 1 October. Full and effective implementation vis-à-vis all Member States is crucial.

Turkey and the EU continued work to improve their cooperation on energy, extending its scope to nuclear and sustainable energy.

Turkey’s readiness to start accession negotiations on individual chapters was assessed on the basis of screening reports. Of a total of 33 reports, nine are pending in the Council. Work on a number of negotiating chapters has been interrupted over the years, due to lack of consensus among Member States.

So far, accession negotiations have been opened on 14 chapters (science and research; enterprise and industry; statistics; financial control; trans-European networks; consumer and health protection; intellectual property law; company law; information society and media; free movement of capital; taxation; environment; food safety, veterinary and phytosanitary policy; and regional policy and coordination of structural instruments). One of these (science and research) was provisionally closed. Chapter 22 — regional policy and coordination of structural instruments, was officially opened in November 2013.

The conclusions on Turkey that were adopted by the Council (General Affairs and External Relations) on 11 December 2006 and endorsed by the European Council on 14/15 December 2006 remain in force. They stipulate that negotiations will not be opened on eight chapters[3] relating to Turkey’s restrictions regarding the Republic of Cyprus and no chapter will be provisionally closed until the Commission confirms that Turkey has fully implemented the Additional Protocol to the Association Agreement. As long as these restrictions remain in place on vessels and aircraft that are registered in Cyprus, vessels of any nationality related to the Republic of Cyprus in terms of ownership or ship management, or whose last port of call was in Cyprus, Turkey will not be in position to fully implement the acquis relating to these eight chapters.

The enhanced political dialogue between the EU and Turkey continued. A political dialogue meeting at ministerial level took place in February, followed by a meeting at political directors’ level in March 2014. In line with the call in the December Council conclusions to further develop dialogue and cooperation on foreign policy issues, regular discussions were also held on, inter alia, Syria, North Africa, the Horn of Africa, the Middle East and the Gulf, the Middle East peace process, Afghanistan, Pakistan, Russia, Ukraine, the South Caucasus, Central Asia, and on counter-terrorism, foreign fighters and non-proliferation. Turkey continues to be actively involved in its wider neighbourhood and is a key regional player. The Council recognised Turkey’s role on Syria, in particular with regard to significant humanitarian support provided to Syrians fleeing violence across the border. A number of high-level visits to the European institutions took place during the reporting period.

Progress on the priorities for reform is encouraged and monitored by the bodies set up under the Association Agreement. The Association Committee and the Association Council met in June 2014.

Turkey participates in multilateral economic dialogue with the Commission and Member States to prepare the country for participation in multilateral surveillance and economic policy coordination as part of the EU’s Economic and Monetary Union.

Upon request of the Commission, the World Bank carried out an evaluation of the EU‑Turkey Customs Union and published its final report in April 2014.[4] The report highlighted the positive economic impact of the customs union on both parties. It also recommended broadening mutual trade relations and addressing a number of issues related to the functioning of the customs union. On this basis, discussions on a possible follow-up of these recommendations have started between the Commission and Turkey.

Turkey continues to be the EU’s sixth largest trading partner, while the EU is Turkey’s largest. Two out of five goods traded by Turkey come from or go to the EU and over 70 % of foreign direct investment in Turkey — with a strong high-technology component — comes from the EU.

The Commission and Turkey established priorities for financial assistance under the new Instrument for Pre-accession Assistance (IPA II), set out in the Indicative Strategy Paper for Turkey for the period 2014-2020. This key document was presented to the IPA committee in July and adopted on 26 August. Reforms relating to the rule of law and fundamental rights, home affairs, and civil society are to receive increased funding compared to IPA I. Other priorities include education, employment and social policies. In the sectors of environment, transport, and energy, IPA II will focus on promoting development towards a resource-efficient, low carbon economy and on increasing inter-connectivity between Turkey and the EU. In the areas of agriculture and rural development, work will focus on food safety, veterinary and phytosanitary policy and agriculture and fisheries. These priorities will be used as the basis for sector programmes promoting structural reforms, allowing more targeted assistance and improving the impact of financial assistance.

Turkey participates in the following EU programmes: the Seventh Research Framework Programme, Customs, Fiscalis, the Competitiveness and Innovation Framework Programme, Progress, Culture, Lifelong Learning and Youth in Action. Turkey has also recently concluded or is in the process of concluding new agreements for a number of programmes, including: Horizon 2020, Erasmus+, Competitiveness of Enterprises and Small and Medium-sized Enterprises, Creative Europe and Employment and Social Innovation. Turkey participates in the European Environmental Agency and in the European Monitoring Centre for Drugs and Drug Addiction.

2. Political criteria and enhanced political dialogue

This section examines progress made by Turkey towards meeting the Copenhagen political criteria, which require stable institutions guaranteeing democracy, the rule of law, human rights, and respect for and the protection of minorities. It also monitors compliance with international obligations, regional cooperation and good neighbourly relations with enlargement countries and Member States.

2.1. Democracy and the rule of law

On 11 June, the Turkish parliament adopted a law to ‘bring a stronger legal foundation to the settlement process’ aiming at a solution of the Kurdish issue. The law was adopted with broad support across political parties. It encompasses measures to eliminate terrorism, strengthen social inclusion, reintegrate those who leave the Kurdistan Workers’ Party (PKK) and lay down their arms, and prepare public opinion for the return of former fighters. It also provides guarantees that those taking part in the settlement process would not be prosecuted for carrying out their duties assigned within the scope of this law. The law entered into force on 1 October 2014. The EU extended its full support to this process and encouraged further engagement by all parties. The law strengthened the basis for the settlement process and makes a positive contribution to stability and protection of human rights in Turkey.

Constitution

The parliamentary Conciliation Committee achieved preliminary consensus on close to 60 of approximately 170 articles for a new constitution. Following persistent lack of consensus, the ruling Justice and Development Party (AKP) pulled out of the committee in November 2013. The committee was formally dissolved in December. Civil society and business organisations called on all parties to act responsibly and continue the process. Minutes of all of the committee’s deliberations, covering almost 300 sessions, were published on parliament’s website.

There was no progress on adopting laws implementing provisions on protection of personal data, military justice, or laws introducing affirmative-action measures to promote gender equality, which have been pending since the relevant 2010 constitutional amendments were adopted.

Overall, constitutional reform process was put on hold. Yet, it would constitute the most credible avenue for advancing further democratisation of Turkey, providing for the separation of powers and adequate checks and balances guaranteeing freedom, democracy, equality, the rule of law and respect for human rights, including the rights of people belonging to minorities. Future work should build on the democratic and inclusive process, involving broad consultation that characterised the work of the parliamentary Conciliation Committee. Active consultation with the Venice Commission should be pursued.

Elections

The first direct presidential elections took place on 10 August. The candidate of the ruling party and outgoing Prime Minister Recep Tayyip Erdoğan was elected President in the first round with 51.79 % of the votes, whereas the consensus candidate of several opposition parties, including Republican’s People Party (CHP) and Nationalist Movement Party (MHP), Ekmeleddin İhsanoğlu came second with 38.44 %, and the candidate of the People’s Democracy Party (HDP), Selahattin Demirtaş, secured 9.76 %. Turnout was at 74.13 %, low compared to other previous elections, and particularly low among expatriate voters (8.31 % -around 2.7 million Turkish voters residing abroad were, for the first time, able to vote in the presidential elections at Turkish diplomatic missions in their country of residence). A joint international observation mission of the OSCE and the Parliamentary Assembly of the Council of Europe found in its preliminary report that candidates were generally able to campaign freely and the right to freedom of assembly and association was respected. However, it voiced concerns over the use by the Prime Minister- presidential candidate of his official position as well as over-biased media coverage, giving him a ‘distinct advantage’ over other candidates. The mission also noted that the legal framework was generally conducive to the conduct of democratic elections, although key areas were in need of improvements, such as campaign finance, comprehensive reporting, and sanctions, which limited the transparency and accountability of the process.

Local elections took place on 30 March 2014, with a turnout of 89 %. Elections were re-run in two provinces on 1 June. AKP won control of municipalities in 48 provinces, CHP in 14, Kurdish Peace and Democracy Party (BDP) in 10, the nationalist MHP in 8 and an independent candidate in 1. The elections were well-organised overall and were held in broadly peaceful circumstances, including in the southeast of the country. However, the campaign was polarised and tense, and allegations of fraud sparked protests in a number of cities. Results of the elections were contested in many municipalities and a high number of appeals were lodged, leading in 13 cases to changes in the results.

The elections took place without adequate legal and institutional framework to audit campaign budgets, donations and candidates’ asset disclosures. Following partial alignment with the 2012 recommendations by the Group of States against Corruption (GRECO) in their third round of evaluation on political funding and incrimination, no further reform of the provisions for political funding has taken place. Shortcomings remained in the political funding rules relating to, inter alia, prohibited funding sources, donation ceilings and obligations on candidates to disclose their assets and submit specified financial information during a campaign.

Three female metropolitan mayors were elected in Aydın (CHP), Diyarbakır (BDP) and Gaziantep (AKP). One female provincial mayor was elected in Hakkari (BDP). However, women’s political representation at local level remained low.

Overall, the presidential elections took place in an orderly fashion, but the campaign period raised concerns over the misuse of state resources to the benefit of the Prime Minister and over insufficient impartiality in media coverage. Turkey needs to take advantage of the recommendations of the Council of Europe and OSCE and remedy remaining shortcomings in the legal framework for presidential elections. The local elections were well-organised and held in broadly peaceful circumstances, including across the southeast. The record number of objections to the preliminary results was symptomatic of a marked polarisation in the country. The shortcomings related to the political funding rules following GRECO recommendations should be addressed.

Parliament

The Constitutional Court ruled that the right to be elected had been violated in the case of six MPs-elect detained pending trial. They were released and took their oath in parliament. Shortcomings in anti-terror legislation and restrictive interpretation of Article 14 of the Constitution continued to pose a risk to MPs’ freedom of expression.

The wide scope of parliamentary immunity in relation to corruption charges remained unchanged. In May, parliament set up a single parliamentary investigation committee into corruption allegations involving former ministers. The committee has been tasked to advise the plenary to authorise or refuse trials for the accused MPs before the Constitutional Court. After two-month delay due to the failure of the AKP to nominate its members, the committee was finally established on 8 July, with 15 members, of whom nine from the AKP, four from the CHP and one each from the MHP and the BDP/HDP. On 14 July, the Chairman of the Committee sent the file back to the prosecutors on the grounds that it lacked an index of the content. One opposition member of the Committee resigned in protest for the delays. At the end of August, the Committee began the examination of the charges.

Nine AKP MPs resigned from the party in protest at the government’s handling of corruption allegations and the closing of the Dershanes.[5] Ten MPs resigned from parliament as a result of their election as mayors in the 30 March local elections. All except one MP from the BDP switched their allegiance to the new pro-Kurdish People’s Democracy Party (HDP). Subsequently, the distribution of seats in parliament was: AKP 313, CHP 130, MHP 52, HDP 27, Independent 14, Democratic Regions Party (DBP former BDP) 1, vacant 13.

On 31 October 2013, following changes in the regulation on the dress code for civil servants, a number of AKP female deputies attended the plenary wearing headscarves, ending a decades-old ban. The change, in turn, triggered an amendment to parliament’s internal rules, allowing female MPs to wear trousers.

A law adopted in March as part of the September 2013 democratisation package made changes to the legal framework in relation to elections and political parties. It permitted political campaigning in languages other than Turkish, legalised party co-chairmanship and eased the rules governing the local organisation of political parties. The expansion of the scope of funding to political parties that attain more than 3 % of votes in parliamentary elections (as opposed to the currently in force two-tire regime with 7 % and 10 % threshold) will apply following the next such elections. However, the new rules will not apply where MPs are elected as independent and subsequently form a political group in parliament, which is currently the case of the pro-Kurdish BDP/HDP.

A debate on the 10 % threshold for representation in parliament, the highest among Council of Europe member countries, was opened following the adoption of September 2013 democratisation package. However, it was decided not to revise the threshold before the next general elections. A 10 % threshold is also still used for elections to municipal and provincial councils.

Major concerns remained relating to transparency and accountability in controlling funding for political parties and election campaigns (see below — Fight against corruption).

Parliament’s ability to perform its key functions of law-making and oversight of the executive were hampered by a persistent lack of dialogue and a lack of a will to compromise among political parties.

The pattern of insufficient preparation and consultation before adopting key legislation continued. Government- and AKP-sponsored legislation amending laws on the internet, the judiciary, the closure of Dershanes and the National Intelligence Service, were adopted without proper parliamentary debate or adequate consultation of stakeholders and civil society.

Parliament has been involved in the settlement process aimed at solving the Kurdish issue. It adopted the law bringing a stronger legal foundation to the process. An ad hoc parliamentary Inquiry Committee for Societal Peace and Assessment of the Settlement Process, established in May 2013 with participation of members from only AKP and BDP, presented a report on 2 December urging the continuation of the settlement process, praising the work of the government and supporting redress in the case of past grievances. However, BDP released a dissenting opinion.

A Security and Intelligence Committee is envisaged to be established in the wake of the adoption of the law revising the functioning and oversight of the National Intelligence Service, however the authority and tasks to be granted to the committee are limited. Besides an advisory function, it will only have the power to review a report prepared by the Prime Ministry on the basis of intelligence agencies’ annual reports.

The absence of a specialised committee within parliament with technical expertise weakened parliamentary follow-up to reports from the Turkish Court of Accounts and oversight of public spending. In addition, there was no progress on improving parliamentary oversight of the executive and public expenditure, most notably military expenditure, a problem exacerbated by weaknesses in the Turkish Court of Accounts’ legal framework.

Work on a comprehensive reform of parliamentary rules and procedures, re-launched in December 2012, was, once again, abandoned due to lack of consensus among the political parties.

The Parliament continued to meet regularly the European Parliament in the framework of the Joint Parliamentary Committee.

Overall, there were welcome improvements to the legal framework on political parties, including use of languages and access to funding. However, full alignment with European standards needs to be ensured. An inclusive and consultative approach to law-making remains the exception rather than the rule. The transparency of the legislative process and consultations with all relevant stakeholders needs to become a regular practice. Political polarisation and a lack of readiness on the part of the government and opposition to work towards consensus on key reforms continued to affect the functioning of parliament.

President

The mandate of the former President, Abdullah Gül, expired on 28 August. During the reporting period he has been stressing the need for political reforms in line with Turkey’s EU accession process. He maintained a conciliatory role, warning against the polarisation of Turkish society.

He was criticised by the opposition for endorsing government- and AKP-sponsored legislation adopted by parliament, notably amendments to laws on the internet, the judiciary, the closure of Dershanes and on the National Intelligence Service. The former President pushed for improvements in legislation on the internet and the High Council for Judges and Prosecutors, explicitly stating that the Constitutional Court must judge the constitutionality of other parts of the legislation. He also criticised the bans on accessing Twitter and YouTube, publicly questioning the proportionality of the measures taken by the authorities.

The new President, Recep Tayyip Erdoğan, took his oath on 28 August. In his inauguration speech he vowed to serve as a President for all people of Turkey, to build a ‘new Turkey’ by bringing forward a new constitution and to continue with ambitious development plans. He also declared that the accession negotiations remain a strategic target for Turkey.

Government

For most of the year, attention was drawn to the 17 and 25 December 2013 corruption allegations targeting the Prime Minister, four ministers, their relatives, the head of the biggest public bank, public officials and businessmen. Ten out of twenty-five ministers were replaced in a Cabinet reshuffle on 25 December. There was a significant delay in submitting requests to parliament to lift the immunity of four former ministers implicated in corruption allegations.

In response to the allegations of corruption, the government alleged that there had been an attempted judicial coup by a ‘parallel structure’ within the state, controlled by the Gülen Movement. Prosecutors and police officers in charge of the original investigations of 17 and 25 December were removed from their posts. A significant number of reassignments and dismissals in the police, civil service and the judiciary followed, accompanied by legal measures in the judiciary. A significant number of police officers were detained. In September, the Istanbul Chief Prosecutor’s Office decided not to prosecute 96 suspects allegedly involved in the December corruption case.

As part of that response, key legislation, including on the High Council of Judges and Prosecutors and on the internet, was drafted and adopted in haste and without consultations.

Following the election and inauguration as President of Mr Erdoğan, a new government was appointed on 29 August, led by Prime Minister Ahmet Davutoğlu who has also succeeded to Mr Erdoğan as leader of the AKP. The 62nd government was confirmed in parliament on 6 September on the basis of a programme that listed the EU accession process, the further democratisation, the constitutional changes and the settlement process as its first priorities, while being also largely dedicated to the socio-economic development of Turkey.

The ministerial Reform Monitoring Group, in which key ministers coordinate policies for EU integration, met twice. A circular aiming at increasing the coordination role of the Ministry of EU Affairs on draft legislation prepared for alignment with the EU legislation was adopted in September.

Elections for local government were conducted on 30 March, for the first time since the 2012 amendment to the Law on Metropolitan Municipalities, which redrew municipal boundaries and extended the scope of municipalities’ competences. There was no progress in devolving power to local governments. Fiscal decentralisation remained very limited. Local governments’ proportion of government revenues and expenditures in 2013 was below 10 %. The government has not taken forward its January 2013 plans to legalise the provision of public services in languages other than Turkish — notably, Kurdish — as recommended by the Council of Europe.

Overall, the government response to corruption allegations, which amounted to interfering of the executive into the independence, impartiality and efficiency of the judiciary, raised serious concerns. This led to further polarisation of political climate. The practice of adopting key policies and proposing legislation with no or insufficient consultation continued.

Public administration

Turkey does not yet have in place a comprehensive strategic framework for public administration reform. A public administration reform strategy has to be adopted and a body responsible for its coordination needs to be set up.

With regard to policy development and coordination, no progress was made on developing regulatory impact assessments to increase the quality of legislation. In particular, no regulatory impact assessment was conducted prior to adopting key legislation. The continuing gap between strategic planning and the budgetary process weakens the implementation of government policies.

With regard to public service and human resources management, following the December 2013 corruption allegations (see above — Government) reassignments of judges, prosecutors, police officers and other civil servants risk further politicising and undermining the efficiency of the public administration. Civil service reforms to improve management of the public sector and its human resources and to ensure merit-based advancement are still needed. Ministerial power over independent regulatory authorities, which runs counter to EU legislation, remained in place.

Service delivery was improved in terms of administrative simplification and the online provision of basic public services (e-government), whereas there was no progress with regard to accountability.

Turkey has engaged in reforms in different parts of the public financial management system, but there is no comprehensive reform programme. Turkey has a medium-term budgetary framework in place, and the government has a track record of taking corrective action when necessary. Turkey continued to implement strategic planning (five-year plans) and performance budgeting (on annual basis) in line with the Framework Law on Public Financial Management and Control. The annual budgeting process is based on transparent rules but sets short deadlines for line ministries. Expenditure from own resources (‘revolving funds’) is outside the scope of the general budget. A clear cash and debt management policy is in place. However, in some cases local administration and state-owned enterprises may borrow without Treasury approval

Overall, limited progress was made with regard to public administration reform. There was significant concern that removals and reassignments of civil servants would threaten the efficiency of the public administration and further politicise it. Public financial management needs to be further strengthened.

Ombudsman

By September 2014 the Ombudsman Institution addressed 2170 out of 3502 received complaints. They related mainly to human rights, the rights of people with disabilities, civil service-related matters, social security, property rights as well as financial, economic and tax issues. Out of the addressed applications approximately 35 % were found inadmissible and 35 % were referred to a relevant administrative/judicial body. The Ombudsman issued 56 recommendations and 60 complaints were finalised through an arbitration procedure. The administration took action on just 5 of the issued recommendations. Amendments covering the right of own initiative, on-the-spot checks and follow-up to the Ombudsman’s recommendations have not been adopted. As regards administrative acts of the Turkish Armed Forces, the Ombudsman considered notably a number of complaints on dismissal and mistreatment during the military service to be admissible.

The Ombudsman’s recommendations referred to relevant European Court of Human Rights (ECtHR) judgments enshrining fundamental democratic principles such as the presumption of innocence, freedom of thought, conscience and religion, freedom of assembly, and prevention of excessive use of force by law enforcement officers.

Following a number of complaints received on use of force by police officers during the Gezi protests, the Ombudsman issued a report in which it found disproportionate use of force. The report also made a number of recommendations related to i.a. the harmonisation of the Turkish legal framework with European standards, the gradual and proportionate use of force, only when it is essential and under supervision, and the continuous training for law enforcement officers.

The Ombudsman Institution’s annual report was submitted to a Joint Committee in parliament. After being presented at the plenary, the annual report is expected to be published in the Official Gazette. The institution joined the European Ombudsman Institute and participated in the European Network of Ombudsmen. The Institution has increased staff level and provided in-house training for the newly recruited personnel.

Overall, the work of the Ombudsman Institution contributed to raising awareness of citizens’ fundamental rights. The Ombudsman delivered recommendations in line with ECtHR rulings on key issues, such as freedom of assembly and preventing disproportionate use of force by law enforcement officers. The institution needs to contribute pro-actively to raising awareness and continue consolidating civil society’s trust in it. Work is needed to ensure that the institution has the right to act upon its own initiative and to conduct on-the-spot checks. Measures to ensure adequate follow-up of recommendations by the national administration should be adopted, as well as parliamentary follow-up.

Civilian oversight of the security forces

The General Staff abstained from commenting on political issues beyond its professional remit, except in one instance as regards the settlement process.

Amendments to the law on the National Intelligence Service, adopted in April 2014, accorded the service exceptionally broad powers. It extended the scope of the service’s duties, increased the already broad immunity of its staff and increased its access to information from all public institutions and banks, without restrictions and without adequate judicial or parliamentary oversight. In February, a law was adopted, requiring authorisation by both the Prime Minister and the Interior Minister for any prosecution of the Chief of General Staff and force commanders for offences related to their duties.

Access to audit reports from the Turkish Court of Accounts on security, defence and intelligence agencies remains restricted. Amendments to the intelligence service law gave the service to access the off-budget Defence Industry Support Fund with the authorisation of the Minister of National Defence and the Prime Minister, further limiting financial transparency in the security sector.

In October, military service was reduced from 15 to 12 months. Awareness of conscripts’ rights increased, with civil initiatives undertaken to prevent maltreatment, forced excessive physical activity and torture. No step was taken to recognise conscientious objection.

Increasing civilian control of the Armed Forces will require legal provisions on the composition and powers of the Supreme Military Council to be amended. The Chief of the General Staff continued to report to the Prime Minister rather than the Minister of Defence. Further reforms are needed to the Law on Provincial Administrations, which is used as the legal basis to involve the Armed Forces in domestic security operations, in order to give civilian authorities broader oversight of military operations. In particular, civilian oversight by governors of the Turkish gendarmerie’s law enforcement activities remained insufficient.

In October, the Sledgehammer trial ended, with the Court of Cassation approving the conviction of 237 defendants for attempting to overthrow the government in 2003. However, in June, the Constitutional Court ruled that the defendants’ rights to a fair trial had been violated and 99 defendants were subsequently released. The judgment of the Court opens the way for a re-trial.

Judicial investigations continued into the 1980 coup and the 28 February ‘postmodern coup’ of 1997. In June, the surviving leaders of the 1980 coup were sentenced to life imprisonment. In December, all suspects on remand were released under judicial supervision in the 28 February ‘postmodern coup’ case.

In April the Istanbul 13th Serious Crimes Court issued a reasoned decision in the Ergenekon case. However, the former chief of staff, sentenced to life imprisonment, had been released in March by decision of the Constitutional Court, on the grounds that he had been ‘unlawfully deprived of his freedom’. As a result of the court’s decision, 52 people convicted in the Ergenekon case were released.

Military and civilian judicial investigations into the December 2011 Uludere/Roboski incident, in which 34 civilians were killed in an air strike conducted by the Turkish military, remained inconclusive. The General Staff Military Prosecutor’s Office ruled that five military suspects should not be prosecuted. The decision acknowledged operational errors by the military hierarchy, but nevertheless concluded that the air strike was legally authorised.

Overall, civilian oversight of the army remained stable and there was no progress regarding civilian oversight of the intelligence service. Judicial scrutiny of intelligence was considerably narrowed and financial transparency of the sector was further limited. Reforms are needed to improve civilian scrutiny of the military, the police, the gendarmerie and the intelligence services. The Constitutional Court rulings highlighted the mishandling of the investigations and subsequent trials in the Ergenekon and Sledgehammer cases. The opportunity to establish the veracity of the initial serious allegations has been missed.

Civil society

The development of an active civil society in Turkey continued. The Ministry of the Interior consulted civil society actors when preparing a law on the collection of aid for associations and other significant reforms. However, apart from such ad hoc consultations, there are no structured participatory mechanisms whereby civil society organisations are able to take an active part in legislative and policymaking process. Government-civil society and parliament-civil society relations should be improved through systematic, permanent and structured consultation mechanisms at policy level, as part of the legislative process and with regard to non-legislative acts at all levels of administration.

Civil society organisations continued to be subject to disproportionate state supervision affecting their operations, in particular through auditing. Other legislation continued to be interpreted restrictively vis-à-vis civil society organisations. Concentrating such functions as the registration of associations, fiscal supervision and prevention of illegal activities in a single department of the Ministry of the Interior may lead to restrictive drafting and interpretation of the relevant legislation.

Instead of encouraging domestic private funding of civil society organisations through measures like tax incentives, Turkey continued to complicate their financial management through often disproportionate accountancy requirements. At the same time, public funding for civil society organisations was not sufficiently transparent and rule-based, as tax exemption and public benefit status were granted to a very limited number of civil society organisations by the Council of Ministers, using unclear criteria. Public funds were allocated to civil society organisations via ministries and through project partnership mechanisms, and rarely through grant allocations or service contracts.

The EU-Turkey Civil Society Dialogue programmes continued, contributing to civil society development and a greater recognition of civil society organisations at local level.

Overall, there is a growing rights-based civil society in Turkey insisting that the citizen is prioritised in policymaking and administration and that the exercise of fundamental rights is guaranteed by law. Government- and parliament-civil society relations should be improved through systematic, permanent and structured consultation mechanisms at policy level, notably as part of the legislative process. The legal, financial and administrative environment for civil society needs to better support an open society, encouraging active citizenship.

Judicial system

The amendments to the Law on High Council of Judges and Prosecutors and the subsequent dismissal of staff and numerous reassignments of judges and prosecutors raised serious concerns over the independence and impartiality of the judiciary and the separation of powers. The Turkish Constitutional Court found a number of provisions unconstitutional and gave the legislature a deadline of three months to adopt revised legislation. Among these provisions were those dismissing staff; however, the decision of the Court had no retroactive effect. In June, parliament adopted legislation to implement the Constitutional Court’s decision. This legislation brought back the legal provisions introduced in 2010, restoring thus the role of the plenary which is a key guarantee of the independence of the judiciary.

The Constitutional Court continued to receive individual applications. The Court ruled on number important cases, such as YouTube and Twitter bans, as well as Hrant Dink’s murder case. These decisions showed the importance of the individual application procedure introduced with the 2010 constitutional amendments. The court also overturned the number of amendments to the Law on the High Council of Judges and Prosecutors. These decisions highlighted the resilience of the Turkish constitutional system.

In February the specially authorised courts were abolished. By abrogating Article 10 of the Anti-Terror Law in its entirety, the law suppressed, together with the Regional Serious Crimes Courts, their special powers and reduced the maximum detention on remand from ten to five years. These reforms were adopted without transitional provisions and risk resulting in affecting the effectiveness of the courts that are already overburdened. The lower statutory maximum limit of five years of detention on remand remains excessive if compared with practice of EU Member States. The frequent changes to the justice system, with no proper stakeholder consultation, risk further reducing the efficiency of the Turkish criminal system. A Law on the National Intelligence Services, adopted in April, allows wiretappings and surveillance to be conducted by Turkish intelligence services without judicial oversight, which goes against European standards.

Concerns about criminal justice legislation and practice remained, in particular on the capacity of prosecutors to lead investigations, poor implementation of cross-examination at trial, the poor quality or lack of reasoning in indictments and the excessive use and duration of pre-trial detention. The scope and quality of legal aid is inadequate and there is no effective monitoring that would help remedy long-standing problems. There was no significant change in the gender balance in the field, with women making up approximately a quarter of the judiciary and being particularly underrepresented in prosecutorial and managerial positions.

For a detailed analysis of the developments in the judicial system, see Chapter 23 — Judiciary and fundamental rights.

Fight against corruption

Corruption allegations played a significant part in the political debate in Turkey, particularly following the anti-corruption investigations launched in December 2013. The handling of these allegations of corruption raised serious concerns that allegations of wrongdoing would not be addressed in a non-discriminatory, transparent and impartial manner. No concrete steps were taken to address deficiencies in rules governing the financing of political parties and election campaigns or the scope of immunity for MPs. Implementation of the 2010-14 national anti-corruption strategy and action plan continued but no information was given to parliament or civil society on the resulting impact. Civil society organisations had very limited opportunities to contribute. Turkey has to decide whether it will adopt an anti-corruption strategy and action plan for the period after 2014. Greater political will and civil society involvement are needed if results are to be achieved on the ground so as to establish a track record of investigations, indictments and convictions.

For a detailed analysis of developments in the area of anti-corruption policy, see Chapter 23 — Judiciary and fundamental rights.

Fight against organised crime

Some progress was made in the fight against organised crime. Turkey improved its programme to counter the financing of terrorism. The Turkish National Police has increased the presence of the witness protection units to cover 77 provinces. Turkey ratified the Council of Europe Convention on Cybercrime, which it had signed in 2010. The newly established General Directorate for Migration Management in the Ministry of Interior has taken over responsibilities relating to trafficking in human beings from the Turkish National Police, which will nonetheless continue to play an active role in the anti-trafficking operational framework. The General Directorate will also take on the provision of financial support to victims’ shelters in Istanbul, Antalya and Ankara and the functioning of the anti-trafficking helpline 157.

For a detailed analysis of developments in the fight against organised crime, see Chapter 24 — Justice, freedom and security.

2.2. Human rights and the protection of minorities

Turkey created a Turkish version of the database of European Court of Human Rights (ECtHR) judgments, and translations of relevant ECtHR judgments are published on the website of the Ministry of Justice. The adoption in March of the Action Plan for Prevention of Violations of the European Convention on Human Rights (ECHR) represents a significant step towards aligning Turkey’s legal framework with ECtHR case-law. Turkey needs to continue its efforts to implement all the judgments of the ECtHR. Work continued on human rights mechanisms and institutions. The National Human Rights Institution (NHRI) was assigned the role of the national preventive mechanism (NPM) under the Optional Protocol to the United Nations Convention on Prevention of Torture. The NHRI/NPM’s autonomy needs to be increased. A body has to be set up to promote equality and combat racism, xenophobia, anti-Semitism and intolerance. Particular attention should also be paid to facilitating the work of human rights defenders.

The government continued its work to ensure compliance with legal safeguards for the prevention of torture and ill-treatment. The downward trend in the incidence and severity of ill-treatment in official detention places continued. However, the frequent use of excessive force during demonstrations and arrests remains a matter of concern. Turkey needs to adopt clear and binding rules on the proportionate use of force in demonstrations, in line with the relevant Council of Europe Committee for the Prevention of Torture (CPT) recommendations and ECtHR case-law. Parliament’s Human Rights Inquiry Committee started monitoring ill-treatment during military service. Instances of ill-treatment of conscripts continued to be reported. Law enforcement bodies continued to launch counter-cases against those alleging torture or ill-treatment. In many instances, these counter-cases were given priority by the courts. The absence of prompt, thorough, independent and effective investigations into all allegations of torture by law enforcement officers remains a concern.

There was a positive trend in prison staff training. However, overcrowding and the human rights situation in prisons remained matters of concern. Monitoring needs to be institutionally strengthened. The situation of juvenile and sick prisoners needs urgent attention.

Positive steps were taken with the adoption of the Action Plan on Violations of the Human Rights and a reduction in the length of pre-trial detention, following which many journalists were released from custody. However, legislation further limiting freedom of expression, including on the Internet, was adopted and the effective exercise of this freedom, and press freedom, was restricted in practice. The blanket bans on YouTube and Twitter raised serious concern, even if later annulled by the Constitutional Court. Intimidating statements by politicians and cases launched against critical journalists, combined with the ownership structure of the media sector, led to widespread self-censorship by media owners and journalists, as well as sacking of journalists.

Turkish legislation and its implementation concerning the right to assembly and regarding intervention by law enforcement officers are still to be brought in line with European standards. The unlawfulness of a demonstration, rather than its non-peaceful nature, is the basic criterion for the use of force to disperse participants, which is not in line with ECtHR case-law. Improvements in the legal framework more strictly regulating the use of force need to be complemented by appropriate training for law enforcement officers. Non-respect of the June and July 2013 circulars from the Ministry of the Interior on the use of tear gas by the riot police and on courses of action in cases of social unrest should be consistently and immediately penalised.

Turkish legislation on the right to association still needs to be improved in order to be brought in line with European standards. Legislative and administrative obstacles hindered the financial sustainability of civil society organisations.

There is a need for comprehensive reform of legislation on freedom of thought, conscience and religion and application of this legislation, in line with ECtHR rulings, Council of Europe recommendations and EU standards. This relates also to issues regarding the indication of religious affiliation on identity cards, conscientious objection, legal personality of religious bodies and institutions, places of worship, and work and residence permits for clergy. Progress on the issue of Cem house recognition would resolve many grievances.

Implementation of the Law on the Protection of Family and Prevention of Violence against Women continued but required additional human resources and coordination. More involvement and participation of women is needed in employment, policymaking and politics. The government needs to take measures to address the issue of early and forced marriages.

A 2013-17 national child rights strategy was adopted in December 2013. It sets out the general framework and actions for promoting services for children in numerous fields such as justice, health, education, private protection services and media. Regional disparities remained in access to education. Children with disabilities and special learning needs, children of seasonal agricultural migrant families and Roma children faced particular difficulties in accessing education. Child labour and child poverty continued to be issues of concern.

Legislation adopted in February 2014 improved the situation of the socially vulnerable and people with disabilities. The principle of non-discrimination on the basis of disability is now explicitly mentioned in the national education law and the labour law. Further work is needed to provide equal access to education opportunities, integrate people with disabilities and bring practice in line with European standards. Further work is also needed to bring anti-discrimination legislation and practice in line with EU acquis, in particular by including reference to discrimination on the basis of sexual orientation and gender identity.

Legislation regarding trade union rights needs to be revised and an environment conducive to the free exercise of these rights needs to be established. The right to organise, to enter into collective bargaining and the right to strike for private sector employees and civil servants have to be aligned with the acquis and international standards.

On property rights, the implementation of the 2008 Law on Foundations, revised in 2011, continued. Under this legislation, 116 minority community foundations applied for the restitution of a total of 1 560 properties. By April, the Foundations Council had approved the return of 318 properties and the payment of compensation for 21 properties. 1 092 applications were found to be ineligible. Assessment of the remaining applications continued.

Dialogue continued between the government and representatives of minorities. There was no change in the legal framework: Turkey considers Turkish citizens as individuals with equal rights and only recognises non-Muslim communities as minorities, in line with its interpretation of the Lausanne Treaty. However, in addition to providing full equality for all citizens, this approach should not prevent Turkey from granting specific rights to citizens on the basis of ethnic origin, religion or language, so that they can preserve their identity. Sustained work is needed to prevent and punish hate speech or crimes targeting minorities or people belonging to minorities.

Regarding cultural rights, there were positive developments regarding using mother tongues and a steady and welcome normalisation of the use of Kurdish in public.

For a detailed analysis of the developments in the area of human rights and the protection of minorities, see Chapter 23 — Judiciary and fundamental rights. For developments in the areas of trade union rights, anti-discrimination and equal opportunities, see also Chapter 19 — Social policy and employment.

Situation in the east and south-east

The settlement process aiming at solving the Kurdish issue continued. Options for a solution were widely and freely discussed. Measures adopted in March allowed for campaigning by political parties and candidates in languages other than Turkish during local and parliamentary elections, extended state funding to political parties that receive more than 3 % of the vote, allowed for private education in children’s mother tongue, and lifted the criminal punishment for the use of non-Turkish letters, addressing primarily problems stemming from the use of Kurdish letters X, Q and W.

On 11 June, parliament adopted a law on eliminating terrorism and strengthening social integration. Its aim is to provide a stronger legal basis for the settlement process. The law grants legal protection to those involved in talks with the PKK, which is on the EU list of terrorist organisations and facilitates the rehabilitation of PKK militants who give up arms. Abdullah Öcalan and the pro-Kurdish BDP and HDP parties welcomed the law (see above 2.1 — Democracy and the rule of law).

A positive atmosphere prevailed in general, including for Newroz. There was continued state engagement with the imprisoned PKK leader Abdullah Öcalan. The April revision of the law on the National Intelligence Service provided legal guarantees for intelligence officials conducting talks with Öcalan.

Sporadic violent incidents occurred, leading to some casualties, in particular in regions where military security installations were constructed or strengthened. The PKK kidnapped several persons throughout the year, including civil servants and soldiers. All kidnapped persons were released after intervention from Kurdish MPs. The PKK withdrawal from Turkey slowed and in January it was announced that it had stopped. Öcalan’s Newroz message did nevertheless express hope for the process. The government-initiated committee of wise persons finalised its reports, containing recommendations for the settlement process. These were not published.

After the abolition of Article 10 of the Anti-Terror Law and the reduction of the maximum pre-trial detention period to five years, most defendants accused in cases relating to the Kurdish issue, including the KCK case, were released. Some remained in prison if they had been convicted on other charges, including under Article 314 of the Turkish Criminal Code on armed organisations.

The clearance of anti-personnel landmines continued. Turkey requested that the 2014 deadline to dispose of all anti-personnel landmines, whose number is estimated at around a million, be extended until 2022. The clearance of mines along the border with Syria stopped in the second half of 2013. Turkey became a party to the ‘Convention on the Prohibition of the Use, Stockpiling, Production and Transfer of Anti-Personnel Mines and on their Destruction’ (Ottawa Convention) in 2003; however it was able to obtain an extension of the deadline until 2022 in order to fulfil its obligation.

The South-East Anatolia Project to improve the socioeconomic development of the region continued, with notable improvements in infrastructure. Dam projects were criticised for destroying or threatening historical heritage, natural habitats and agricultural land.

No steps were taken to abolish the village guard system, a paramilitary force of 46 739 people, paid and armed by the state.

In November 2013 the ECtHR decided (Benzer and Others v. Turkey) that Turkey had violated Article 2 (on right to life, inadequate investigation) and Article 3 (prohibition of inhuman or degrading treatment) of the European Convention on Human Rights in a 1994 incident that included the bombing of civilians by the military in two villages in Şırnak.

In January, the General Staff Military Prosecutor’s Office announced a decision not to prosecute in the case of the 2011 killing of 34 civilians by the military at Uludere/Roboski, on the grounds that the officers involved in the air operation were not at fault. The victims’ families have launched an individual application with the Constitutional Court.

The statute of limitations for cases of missing persons and extrajudicial killings dating from the 1990s remained in force. Several cases were dropped as a result. Twelve court cases were ongoing regarding past crimes, all of which were transferred to western provinces for security reasons. There is an urgent need for effective investigation into these killings, involving forensic scientists, lawyers, victims’ families, human rights organisations, academics, and international cooperation mechanisms.

Overall, the settlement process continued, despite sporadic tensions in the southeast. The law on eliminating terrorism and strengthening social integration provides a stronger legal foundation for the settlement talks. Legislative changes are needed to eliminate the lack of accountability and the statute of limitations in cases of killings from the 1990s, as well as those perpetrated in recent years.

Refugees and internally displaced persons (IDPs)

The entry into force of the Law on Foreigners and International Protection and related implementing legislation represented significant progress in the area of migration, as it introduced a comprehensive legal and institutional framework on migration and asylum with a view to bringing Turkey in line with EU and international standards. (See also Chapter 24 — Justice, freedom and security)

Detailed provisions on managing removal and reception centres are needed, and structured psycho-social services are necessary for the migrants accommodated in such facilities.

Turkey maintained an open border policy and granted temporary protection to more than 1 million Syrian refugees. Some 220 000 Syrians were hosted in temporary protection facilities set up in 22 provinces. The registration of non-camp refugees continued. As of June 2014, approximately 580 000 non-camp Syrian refugees had been registered. A further 140 000 Syrians fled ISIS into Turkey in September.

In addition to Syrian refugees, Turkey hosted asylum-seekers and refugees, including children, from other countries. The non-Syrian asylum applicants amounted to more than 80 000 individuals. Some children received social assistance and healthcare and were able to attend school; others faced difficulties due to poverty, language skills or issues relating to identity documents and compulsory places of residence.

In April, Turkey returned Azeri dissident journalist Rauf Mirgadirov to Azerbaijan without allowing him access to a lawyer or basic due process protection. Azerbaijan detained Mirgadirov upon his arrival at Baku International Airport.

There was no comprehensive national strategy in place to address the situation of internally displaced persons (IDPs) or those who wished to return to their homes. IDPs were not always allowed to return to their point of origin as some villages remain defined as security zones. Some IDPs returned to their villages for only limited periods, given the absence of basic infrastructure. Most IDPs were registered and took part in local elections. However, they often did not have access to basic services. The process of compensating IDPs continued.

Overall, there was significant progress on the legislative framework on refugees and asylum-seekers, with the entry into force of the Law on Foreigners and International Protection and related implementing legislation, which Turkey needs to complete further. A comprehensive national strategy to address the requirements of IDPs is needed to uphold their rights and encourage return.

2.3. Regional issues and international obligations

Cyprus

Turkey supported the resumption of the fully-fledged settlement talks between the leaders of both communities under the good offices of the UN Secretary-General. Turkey granted the Committee on Missing Persons access to one further fenced military zone in the northern part of Cyprus. The process of granting the Committee full access to all relevant archives and military areas needs to be expedited. Turkey and Greece promoted reciprocal visits by the two Chief Negotiators to Ankara and Athens in the context of the ongoing negotiations.

However, Turkey issued statements and engaged in actions challenging the Republic of Cyprus’ right to exploit hydrocarbon resources in Cyprus’ Exclusive Economic Zone for the benefit of all Cypriots. The EU stressed the sovereign rights of EU Member States which include entering into bilateral agreements, and exploring and exploiting their natural resources in accordance with the EU acquis and international law, including the UN Convention on the Law of the Sea. The EU also stressed the need to respect the sovereignty of Member States over their territorial sea.

As emphasised in the Negotiating Framework and Council Declarations, Turkey is expected to actively support the negotiations towards a fair, comprehensive and viable settlement of the Cyprus issue within the UN framework, in accordance with the relevant UN Security Council resolutions and in line with the principles on which the EU is founded. Turkey’s commitment in concrete terms to such a comprehensive settlement remains crucial. Statements that are not conducive to creating a positive atmosphere in the context of the ongoing settlement talks should be avoided.

Despite repeated calls by the Council and the Commission, Turkey has still not complied with its obligations as outlined in the declaration of the European Community and its Member States of 21 September 2005 and in Council conclusions, including those of December 2006 and December 2013.

Turkey has not fulfilled its obligation to ensure full and non-discriminatory implementation of the Additional Protocol to the Association Agreement and has not removed all obstacles to the free movement of goods, including restrictions on direct transport links with Cyprus. There was no progress on normalising bilateral relations with the Republic of Cyprus.

Turkey has not lifted its veto of Cyprus’ membership of several international organisations, such as the OECD.

Peaceful settlement of border disputes

Turkey and Greece continued their exploratory talks to find common ground for the start of negotiations on the delimitation of the continental shelf, holding the 58th meeting since 2002 in September 2014.

Greece continued to object to Turkey’s launch of a tender for offshore oil and gas exploration including part of the continental shelf off the Greek island of Castellorizo.

The threat of casus belli in response to the possible extension of Greek territorial waters, as made in a Turkish Grand National Assembly resolution in 1995, still stands. In line with the Negotiating Framework and previous European Council and Council conclusions, the Council has reiterated that ‘Turkey needs to commit itself unequivocally to good neighbourly relations and to the peaceful settlement of disputes in accordance with the United Nations Charter, having recourse, if necessary, to the International Court of Justice. In this context, the Union expressed once again serious concern, and urges Turkey to avoid any kind of threat or action directed against a Member State, or source of friction or actions, which could damage good neighbourly relations and the peaceful settlement of disputes.’ Greece and Cyprus made formal complaints about repeated and increased violations of their territorial waters and airspace by Turkey, including flights over Greek islands.

Regional cooperation

Relations with other enlargement countries and neighbouring EU Member States have been positive. Turkey has continued its policy of engagement in the Western Balkans. Under the common security and defence policy, Turkey is continuing to contribute to the EU-led military mission in Bosnia and Herzegovina (EUFOR ALTHEA) and to the EULEX mission in Kosovo.* Turkey supports Kosovo’s integration into the international community, European institutions and regional initiatives. Turkey maintained strong ties with Bosnia and Herzegovina and with the former Yugoslav Republic of Macedonia and supported their respective efforts towards joining NATO and the EU.

3. Economic criteria

In examining economic developments in Turkey, the Commission’s approach was guided by the conclusions of the Copenhagen European Council in June 1993, which stated that membership of the Union requires the existence of a functioning market economy and the capacity to cope with competitive pressure and market forces within the Union.

Monitoring of the economic criteria needs to be seen in the context of the increased role for economic governance in the enlargement process, as welcomed by the General Affairs Council of 17 December 2013. To this end, in May, the Economic and Financial Affairs Council adopted targeted policy guidance for Turkey based on its pre-accession economic programme.

3.1. The existence of a functioning market economy

Turkey’s solid growth performance since 2001 confirms the economy’s improved fundamentals and increased resilience to shocks. However, the large structural current account deficit and relatively high inflation indicate the persistence of significant underlying imbalances in the economy. The functioning of market mechanisms has remained appropriate, but Turkey needs to reduce macroeconomic imbalances and take steps to realise its long-term growth potential.

Economic policy essentials

The pre-accession economic programme for 2014-16, submitted to the Commission in February 2013, is based on assumptions of relatively moderate growth, declining inflation, and a reduction of the fiscal and current account deficits. However, even in this optimistic scenario, the external deficit remains large, making Turkey vulnerable to capital flow reversals, either in the context of increasing global risk aversion regarding emerging market assets, or as a result of a rise in perceived country-specific risks. The fragmentation of responsibilities between government bodies continues to complicate the coordination of budgeting and medium-term economic policymaking. It seems that economic policymaking has recently been affected by internal political tensions. Overall, the consensus on economic policy essentials has apparently weakened. Turkey needs to take steps to reduce the macroeconomic imbalances and to realise its long-term growth potential.

Macroeconomic stability

Following a slowdown in 2012, the Turkish economy accelerated to 4.0 % annual growth in 2013 which is somewhat below the long-term average since 2001. Consumer spending was the main driver for the upwards trend, while private capital spending remained subdued. Public expenditure, particularly investment, was a significant support for GDP growth. Net exports, on the other hand, exerted a drag on GDP growth in 2013 as exports of goods and services, corresponding to 25.7 % of GDP, stagnated and imports surged. In the first half of 2014, GDP growth weakened to 3.3 % year-on-year as private domestic demand decelerated in light of tighter financial conditions, macro-prudential measures to rein in household borrowing, and some indirect tax increases. The slowdown in private domestic demand was offset by rebounding exports which benefited from a more competitive exchange rate and some recovery in export markets, while imports declined slightly. GDP per capita based on purchasing power parity amounted to 55 % of the EU average in 2013. Overall, economic growth has been relatively moderate over the past year, with recent growth based on improving net exports.

Turkey’s current account deficit has remained very high by all standards, averaging 7 % of GDP over the past two years. The deficit widened to 7.9 % of GDP in 2013, but this increase was due to volatility in Turkey’s external trade in gold and is largely unrelated to the economy’s underlying international competitiveness. Helped by some normalisation in the gold trade, the current account deficit narrowed in the first half of 2014, lowering the 12-month rolling deficit to 6.6 % of GDP in June. The persistently large current account deficit leaves the Turkish currency vulnerable to a sudden loss of investor confidence, as seen in the period between May 2013 and January 2014, when capital outflows temporarily lowered the value of the Turkish lira by up to 25 % against the euro. Only a relatively small proportion (14.7 %) of the current account deficit was financed with net inflows of foreign direct investment in 2013. Net portfolio investments covered twice as much (28.3 %) of the deficit and most of the remainder (47.0 %) was met by banks’ foreign borrowing. While gross external debt amounted to a still manageable 53 %, its increase by about 15 % in the course of 2013 was comparatively high. Overall, the external deficit has remained very high and its short-term financing makes the country vulnerable to sudden changes in global investor sentiment.

The labour market performance was mixed in 2013. For the population aged 20-64, the annual unemployment rate went up by 0.6 percentage points to 8.8 %, because the size of the labour force increased more than the opportunities for employment. Labour force growth (3.5 %) was mainly driven by demographics, but also by a 1 percentage point rise in the labour force participation rate to 58.4 %. The annual employment rate rose slightly to 53.4 %. In the first five months of 2014, labour force growth continued to outpace employment growth, leaving the unemployment rate half a percentage point higher year-on-year on average. The female employment rate remained very low, at 31.8 % in 2013, although it was up by 1.1 percentage points compared to the preceding year. Despite the low proportion of the female population actively looking for work, the female unemployment rate is higher than the male unemployment rate. In addition, about one third of women who are considered to be employed are unpaid family workers in the agricultural sector. The high proportion (25.5 %) of young people not in employment, education or training remains a concern. The efficient functioning of the labour market continues to be impeded by a lack of flexibility, for example on labour contracts, and undeclared work remains a widespread practice. This calls for a deepening and widening of labour market reforms which needs to be more inclusive, too. Overall, employment has increased at a rate commensurate to output but this has been insufficient to fully absorb the increase in the labour force. The female employment rate has edged higher, but remains at a very low level.

The central bank has continued to conduct monetary policy within an unconventional framework. Although price stability is the primary objective, the central bank is also pursuing macro-financial stability, attaching a reference value of 15 % to credit growth, and dampening exchange rate fluctuations. Between May 2013 and January 2014, Turkey’s financial markets and the lira were under severe downward pressure as a result of changing international monetary conditions, domestic political tensions and regional turmoil. In this period, the lira depreciated by 15.1 % in real effective terms. Fuelled by the depreciating currency, accelerating food prices, and some indirect tax increases, consumer price inflation increased from 6.2 % year-on-year at the end of 2012 to 7.4 % in December 2013, i.e. clearly above the central bank’s target of 5 % and outside the tolerance band of +/- 2 percentage points around the target. Foreign-exchange adjusted credit growth had increased to 25 % by the end of 2013. In mid-2013, the central bank started to move to a less accommodative policy stance and supported the lira by selling foreign exchange reserves. When downward market pressures intensified in December-January, monetary policy was tightened more decisively. Following an extraordinary meeting of its monetary policy committee on 28 January 2014, the central bank raised the overnight lending rate and the one-week repo rate to 12 % and 10 %, respectively, and announced that the tight policy stance would be sustained until the inflation outlook had improved significantly. As part of these decisions, the complex monetary policy framework was simplified somewhat. Subsequently, the downward pressures in Turkey’s financial markets subsided and the lira appreciated by 7.4 % in real effective terms between January and August. Credit growth declined to below 20 % year-on-year, helped by macro-prudential measures introduced in October 2013 to rein in consumer borrowing. The inflation performance, however, deteriorated further with headline inflation fluctuating in the 9‑10 % range between April and August, core goods inflation running above 10 %, and inflation expectations trending upwards. Nevertheless, the central bank again reversed the course of its monetary policy by lowering the one-week repo rate to 8.25 % in three steps between May and July and the overnight lending rate to 11.25 % in August. Overall, inflation has increased noticeably and is now diverging significantly from the central bank’s target. The central bank has continued to pursue multiple objectives within an unconventional and complex monetary policy framework that hampers transparency and predictability. A clear focus on the primary objective of price stability is required to attain the central bank’s inflation target.

Regarding public finances, transparency continues to suffer from the lack of timely information in accordance with international standards on the fiscal account for general government. As far as central government is concerned, the 2013 budget deficit was lower than originally planned. The original unambitious deficit target of 2.2 % of GDP was revised to 1.2 % last October which is estimated to have been met. Revenues increased by a higher-than-planned 17.1 % year-on-year, mainly as a result of changes in indirect taxation and social security premiums, privatisation and dividend receipts, and one-off factors like the payment of VAT arrears by state-owned enterprises. Expenditure increased by 12.7 % compared to 2012, clearly above nominal GDP growth (10.2 %) and with some significant budgetary overruns, not least on capital spending. In the first half of 2014, expenditure increased faster than revenue on a year-on-year basis, but the central government’s 12-month rolling budget deficit stabilised around 1.5 % of GDP. General government debt increased by 10.6 % in absolute terms in 2013, partly because the depreciation of the Turkish lira increased the value of the foreign currency debt in domestic currency terms. Consequently, the downwards trend in the debt-to-GDP ratio came to a halt in 2013 and the ratio edged up by 0.1 percentage point to 36.3 % over the year. Overall, fiscal performance benefited from a temporary surge in revenues, but continued to show budgetary overruns on the expenditure side. The sustainability of public debt was maintained. There was no progress on increasing the transparency of the fiscal framework. Adopting a fiscal rule would provide a significant fiscal anchor, increase credibility and support the envisaged reduction of the structural fiscal deficit.

The ongoing dependence on capital inflows is a macroeconomic vulnerability which makes Turkey prone to boom-bust cycles. The tightening of monetary policy in early 2014 helped to halt the lira’s depreciation trend and to reduce the year-on-year credit growth rate (adjusted for exchange rate effects) from 25 % to 21.5 % over the course of the first quarter. In view of the continued overshooting of the inflation target and the chronically low private saving rate, monetary policy should remain tight. Furthermore, fiscal policy should help to increase domestic saving by pursuing a sufficiently restrictive course. Overall, the Turkish economy remains vulnerable to bouts of financial uncertainty and changes in global risk sentiment and there is scope for adjusting monetary and fiscal policy to lower the macroeconomic imbalances.

Interplay of market forces

The proportion of directly administered prices in the Consumer Price Index (CPI) basket has remained below 5 %. However, food and alcohol prices, which together make up more than 25 % of the consumer basket, are highly sensitive to policy and administrative decisions. For energy (natural gas and electricity), automatic pricing mechanisms are applied in principle which link end-user prices to a cost-based methodology. In practice, however, the government continues to set end-user prices, thereby effectively suspending the automatic pricing mechanisms. There has been no progress in eliminating the cross-subsidisation between consumers in the wholesale and retail electricity markets. The private sector proportion of GDP has remained stable at 86.5 %. Privatisation activity, particularly in the electricity sector, was stepped up, with the total volume of completed deals increasing from € 2.3 billion (0.4 % of GDP) in 2012 to € 9.2 billion (1.5 % of GDP) in 2013. Privatisation tenders continued in early 2014, particularly in the energy sector. Overall, privatisation has accelerated, but there has been no progress on price liberalisation as the government continues to interfere in the price-setting mechanism in key sectors. Competition could be increased by continued liberalisation of product and services markets.

Market entry and exit

The number of newly established businesses increased by 1.6 % in 2013 compared with the previous year. Starting a business in Turkey still requires six separate procedures and takes six days on average. The average cost of starting a business has increased to 12.7 % of per capita income from 10.5 % in the preceding year. Obtaining a construction permit is still very cumbersome and time-consuming. The number of businesses closing down or being liquidated fell by 20.6 % compared with 2012. Closing a business remains expensive and time-consuming. Insolvency procedures last an average of 3.3 years and recovery rates — at 22.3 % on average — remain very low and are falling. Overall, starting a business has become somewhat more expensive and market entry conditions could generally be improved. Market exit remains costly and long, and insolvency proceedings are still heavy and inefficient.

Legal system

A reasonably well-functioning legal system has been in place in the area of property rights for several years. Enforcement of commercial contracts is still a rather lengthy process, partly because commercial court judges are insufficiently specialised. The expert witness system still operates as a parallel judicial system, but does not improve overall quality. Out-of-court dispute settlement mechanisms are seldom used, except in the insurance sector, tax and customs. The judicial system and its administrative capacity could be further improved. A proposal for a new amnesty on interest payments related to tax arrears has been submitted to parliament. The recurrent introduction of such amnesties and restructuring mechanisms discriminates against regular payment and harms the tax and social security administrations’ collection capacity in the long term. Taxpayers or other citizens subject to fines have a clear advantage in delaying their payments, especially in the current inflationary environment. Overall, the legal system continues to function relatively well in the area of property rights, but in general no progress has been observed.

Financial sector development

Banks have continued to dominate the financial sector, with their share of the sector’s total assets remaining stable (87.4 % in June 2013). The relatively small insurance sector’s share (including private pensions) remained unchanged at 4.6 %. The value of banking sector assets increased from 97 % of GDP in 2012 to 111 % in 2013. State-owned banks’ share of total banking sector assets remained roughly stable, at close to 28 % in 2013. The state’s share in Halkbank, the country’s seventh-largest bank by assets, has remained at 51.1 % in 2013 in the absence of a strategy for its further privatisation. Foreign banks’ share increased from 12.7 % in 2012 to 13.9 % in 2013.

Following the switch to a more accommodative monetary policy stance in 2012, banks’ foreign-exchange adjusted loan portfolio accelerated in 2013 and reached 25 % at the end of the year. Macro-prudential measures in October 2013 and the tightening of monetary policy in January 2014 have gradually lowered credit growth in the first eight months of 2014. The banks’ loan-to-deposit ratio increased further and reached 109 % by the end of 2013.

The banking sector has maintained an adequate profitability performance. Net profit increased by 5.1 % in 2013, but was 12.4 % lower year-on-year in the first seven months of 2014. The sector’s capital adequacy ratio increased to 16.3 % in May 2014 which is significantly above the regulatory target of 12 %. Basel II standards have been implemented in capital adequacy calculations since July 2012 and the necessary legislation for the implementation of Basel III was mostly completed in 2013. The proportion of non-performing loans in total banking sector loans has remained broadly stable at just below 3 %. Overall, the financial sector has performed well and has continued to demonstrate resilience.

3.2. The capacity to cope with competitive pressure and market forces within the Union

Human and physical capital

According to the OECD’s regular assessment of educational performance for 15-year-old students (PISA), the mean score of Turkish students improved in the three categories of science (9 points), mathematics (3 points) and reading (11 points) between 2009 and 2012. The average improvement of 8 points was, however, below the 23 point improvement seen between 2006 and 2009 and Turkey remains 48 points below the OECD average. Schooling ratios have increased at all levels of education between 2011/12 and 2012/13 reaching 99 % for the first four years and 93 % for the second four years of primary school and 70 % for secondary school. However, sizeable gaps persist regarding the schooling ratios for girls, especially in secondary school. Participation in higher education remains low by international standards, although the percentage of the population aged 30-34 with tertiary education qualifications increased from 18 % in 2012 to 19.5 % in 2013. Overall, reforms and increased spending on education have so far generated a positive impact on educational attainment and schooling rates, but significant problems remain with regard to gender equality and the quality of education. Deepening and widening of labour market reforms would help to upgrade and make better use of Turkey’s human capital.

Total investment remained unchanged at 20.3 % of GDP between 2012 and 2013, but there was a shift from private to public investment. While private investment continued to decline as a proportion of GDP (from 16.4 % to 15.6 %), public investment continued to increase (from 3.9 % to 4.7 %). Gross foreign direct investment (FDI) inflows to Turkey decreased from 1.7 % of GDP to 1.6 % of GDP and the FDI stock as a proportion of GDP fell from 23.6 % to 19.9 % over the year. R&D expenditure (both public and private) edged higher from 0.86 % of GDP (2011) to 0.92 % (2012), far below the government’s current target of 1.8 % by 2018. Little progress was made in upgrading the transport infrastructure in 2012: the length of the railway network remained unchanged, the motorway network was only extended slightly, and the total length of other roads increased by 4.2 %. Overall, improvements in the country’s physical capital have been modest.

Sectoral and enterprise structure

In 2013, GDP growth of 4 % was achieved with 2.8 % employment growth, indicating rising labour productivity in the overall economy. The sectoral breakdown of employment growth shows a continued shift towards the services sector whose share of total employment went up by 0.7 percentage points to 50.9 %. Industry gained 0.2 percentage points to 20.7 %, construction remained unchanged at 7.2 %, while agriculture lost 0.9 percentage points to 21.2 %. In terms of proportion of GDP, agriculture declined by 0.5 percentage points to 7.2 %.

There has been continued progress in the liberalisation of the network industries. Following the entering into force of a new electricity market law in March 2013, an estimated 85 % of the market has been opened for competition with the aim of achieving 100 % by 2015. The transfer of distribution assets to private companies was completed, but progress in the privatisation of electricity-generating assets remained limited due to difficulties for potential investors in securing necessary financing. Further progress is needed to liberalise the natural gas market by reducing the monopolistic market share of state-owned BOTAŞ. A draft law to amend the Natural Gas Market Law has yet to be adopted by parliament. A transparent and cost-based pricing mechanism for electricity and gas remains to be properly implemented. Overall, the liberalisation of the electricity market made significant advances, but there was little progress in other network industries.

State influence on competitiveness

Legislation to implement the State Aid Law, originally scheduled to be enacted by September 2011, has been postponed until the end of 2014. The State Aid Authority has still not formally set up a comprehensive state aid inventory or adopted an action plan to align all state aid schemes, including the 2012 incentives package, with the acquis. Amendments to the legal framework for public procurement (see Chapter 5 — Public procurement) brought this further out of line with the EU acquis. Overall, there has been no progress in improving the transparency of state aid and there has been some backsliding in public procurement.

Economic integration with the EU

The openness of the economy, as measured by the value of exports and imports of goods and services as a percentage of GDP, increased between 2012 and 2013 from 57.8 % to 58.0 %. The proportion of trade with the EU out of Turkey’s total trade increased from 37.8 % to 38.5 %. The EU proportion of Turkey’s exports increased from 39.0 % to 41.5 %, while its proportion of Turkey’s imports decreased slightly from 37.1 % to 36.7 %. The EU remained the largest source of FDI flows into Turkey although its proportion declined from 67.9 % of the total to 51.8 %. The Turkish lira depreciated by 5.0 % in CPI-based real effective terms between June 2013 and June 2014, which has improved Turkey’s international price competitiveness. Overall, trade and economic integration with the EU has remained high and Turkey has gained international price competitiveness from currency depreciation.

4. Ability to take on the obligations of membership

This section examines Turkey’s ability to take on the obligations of membership — that is, the acquis as expressed in the Treaties, the secondary legislation and the policies of the Union. It also analyses the country’s administrative capacity to implement the acquis. The analysis is structured according to the list of 33 acquis chapters. In each sector, the Commission’s assessment covers the progress achieved during the reporting period, and summarises the country’s overall level of preparation.

4.1. Chapter 1: Free movement of goods

Regarding the general principles applicable to the free movement of goods, the Ministry of Economy continued its implementation of a risk-based electronic import control system, ‘TAREKS’, enabling the free circulation of products. TAREKS mainly covers products in the ‘New Approach’ area, the non-harmonised area and some other limited categories such as batteries and shoes. Second-hand and renovated goods have been processed through TAREKS for the first time, while maintaining licensing procedures. Products in the ‘Old Approach’ area, particularly textiles, chemicals and foodstuffs, are subject to prior approval and licensing, while EU type approvals are accepted in the area of motor vehicles.

The mutual recognition principle, introduced in Turkey for the non-harmonised area in 2012, is operational. In addition, in July 2014 Turkey introduced mutual recognition articles on its legislation regarding agricultural and forestry tractors and the manufacturing, renovation and assembly of vehicles.

There are technical barriers to trade that prevent the free circulation of goods in areas such as textiles, second-hand goods and alcoholic beverages. Registration requirements for importing textiles and clothing remain in effect. The surveillance regime for imports is still in place and its scope has been enlarged. Licences are still required for old goods, including second-hand ones, and for those considered renovated or faulty. Although the licensing requirements for alcoholic beverages have been reduced, new barriers concerning labelling have been introduced. Exports of aluminium, paper and copper scrap are subject to restrictions which constitute a de facto ban, contrary to customs union provisions.

Alignment of horizontal measures is advanced. Full alignment with the General Product Safety Directive, to be replaced by the new Consumer Product Safety Regulation, has not yet been achieved.

In the area of standardisation, the Turkish Standards Institute has to date adopted 22 266 standards set by the European Committee for Standardisation (CEN) and the European Committee for Electro-technical Standardisation (CENELEC) and 391 standards set by the European Telecommunication Standards Institute (ETSI). The overall rate of harmonisation with European standards stands at 98.6 %. Turkey, however, has continued to adopt new mandatory specifications and replace existing ones, mostly in the non-harmonised area.

In terms of conformity assessment, there are currently 32 Turkish notified bodies. The number of accreditations provided by the Turkish Accreditation Agency increased by 18 % since last year, reaching 954.

The National Metrology Institute of Turkey maintains an advanced level of scientific metrology. The institute has upgraded its skills in chemical metrology. There are a sufficient number of industrial metrology providers in the country. As regards legal metrology, Turkey adopted two pieces of legislation on the inspection of taximeters and weighing instruments.

Turkey amended its market surveillance regulation in February, further clarifying the scope of surveillance activities and obligations for manufacturers and distributors. New legislation was issued on market surveillance for personal protective equipment, various consumer goods, agricultural and forestry tractors and fertilisers. The national market surveillance database from the Ministry of Economy is operational, allowing for information on non-compliant products to be exchanged among market surveillance authorities and authorities in charge of border controls. Effective implementation of market surveillance is yet to be achieved.

As regards ‘Old Approach’ product legislation, new and amending legislation was adopted on motor vehicles and agricultural and forestry tractors. Turkey issued an amending regulation on biocidal products and updated its legislation relating to their use. A new regulation was issued on fertilisers for organic agriculture. Turkey issued legislation on the classification, labelling and packaging of substances and mixtures. New legislation was transposed concerning the energy labelling of air conditioners.

In the already advanced area of ‘New and Global Approach’ product legislation, Turkey adopted legislation on toy safety aiming to transpose the latest acquis.

As regards procedural measures, steps were taken to increase notifications of technical legislation under the Directive 98/34/EC, although there is still a large shortfall in notifications. There has been no progress on cultural goods and firearms.

Conclusion

There was some progress in this chapter. However, some technical barriers to trade continue to prevent the free movement of goods, in violation of Turkey’s obligations under the customs union. Free movement of goods in the ‘Old Approach’ area needs to be improved to exploit the full potential of the customs union. Overall, alignment in this chapter is advanced.

4.2. Chapter 2: Freedom of movement for workers

There were no major developments in the area of freedom of movement of workers. So far, Turkey has concluded 13 bilateral social security agreements with EU Member States.

Conclusion

There has been no progress in the area of freedom of movement for workers. Turkey is encouraged to conclude bilateral social security agreements. Overall, preparations in this area are at an early stage.

4.3. Chapter 3: Right of establishment and freedom to provide services

As regards the right of establishment and the freedom to provide cross-border services, many requirements still restrict the right of establishment. Registration, licensing and authorisation requirements continue to be in place for service providers registered in the EU. Turkey still needs to align with the Services Directive and to set up a ‘Point of Single Contact’. The Foreigners and International Protection Law came into force in April 2014, eliminating the residence permit requirement for people with a valid work permit (or a permit exemption certificate). Alignment in this area, and in that of the mutual recognition of professional qualifications, will be facilitated by an EU-funded project, which will particularly help Turkey producing a long-term alignment strategy.

In the area of postal services, the regulator adopted key implementing legislation concerning issues such as authorisation, administrative sanctions, tariffs and quality of service. Further clarification is needed on certain issues, such as the categories of operators required to obtain a license and pay a universal service fee, and the extent of price regulation. Implementing legislation on cost accounting requirements has not yet been adopted. The priority is now to minimise discrepancies with the relevant acquis.

The mutual recognition of professional qualifications and academic qualifications require differentiation. Some regulated professions are still subject to reciprocal recognition, and nationality and language requirements remain. On the positive side, Turkey liberalised access to the profession of midwife by repealing the nationality requirement. The Vocational Qualifications Authority continued to issue occupational standards.

Conclusion

Overall, some progress was made in this chapter. Work needs to continue on the alignment strategy with regard to the right of establishment and the freedom to provide services. Overall, alignment remains at an early stage.

4.4. Chapter 4: Free movement of capital

In the area of capital movements and payments, Turkey’s legislative framework on the acquisition of real estate by foreigners remains yet to be aligned with Article 63 of the Treaty on the Functioning of the European Union. The legal framework is not transparent, since the list of countries whose citizens are allowed to purchase real estate is not public. This list is based on a subjective assessment of ‘national interests and bilateral relations’ with the respective country. Additional restrictions apply to Greek, Bulgarian and Cypriot citizens. Turkey needs to adopt and implement an action plan for the gradual liberalisation of the acquisition of real estate by foreigners, in line with the acquis. Sectoral restrictions apply to foreign ownership in radio and TV broadcasting, transport, education and in the privatisation of electricity distribution and generation assets.

As regards payment systems, the banking regulator adopted the implementing regulation laying down the rules for the establishment and operation of electronic money institutions and payment service providers, with the aim to increase alignment with the Payment Services, Electronic Money and Settlement Finality Directives.

As regards the fight against money laundering and terrorism financing, Turkey has made significant progress towards improving its regime of countering the financing of terrorism. In its plenary meeting in June the Financial Action Task Force recognised that Turkey has largely addressed its previously identified deficiencies including by appropriately criminalising terrorist financing and establishing procedures to identify, freeze and confiscate terrorist assets. As a result, the task force removed Turkey from the list of jurisdictions with st