Trade in goods and services

General statement: Globalisation in terms of trade in goods and services began with the liberalisation of trade through a more export orientated economic strategy (through the 24th January 1980 Decisions). It has currently signed 16 FTAs with 14 in effect. Also, the liberalisation of the import process and the establishment of the Customs Union with the European Union have enabled Turkey to become a dynamic emerging market economy.
p As a result of the 24th January 1980 Decisions and the resulting export orientated strategy, exports increased from 2.9 billion US dollars in 1980 to 11.8 billion US dollars in 1989 in annual terms. Currently at $109.7 billion (2009 est.), ranked 33rd in the world. p The composition of exports also changed within the same period, with the share of industrial products in total exports having increased from 36 percent to 78 percent. p With the gradual liberalization of the import regime during the 1980s, imports started to increase, albeit with a slower pace than exports, from 7.9 billion dollars in 1980 to 15.8 billion dollars in 1989. Currently at $134.6 billion (2009 est.), ranked 25th in the world. p During the 1970s, the composition of exports changed in favour of manufacturing, while agriculture maintained its dominance with a share of over 60 percent on the average. p The 1980 Adjustment Policy Package expanded and consolidated export incentive schemes, improved administrative efficiency, and promoted foreign trade companies. p The ratio of total exports of g + s to GDP has increased from 16% (1990) to 33% (1998). p During 2000-2009, there has been a 268% increase in exports, with exports to countries with a FTA increasing by 524%. p During the same period, imports increased by 158%, with imports to countries with a FTA increasing by 118%.

The trade reform process was facilitated by three main characteristics: p Net foreign lending allowed the resumption of intermediate goods imports and eased pressures on public finance. Because of the low rates of capacity utilization (at around 45-50 percent), industrial firms showed a strong export response to the rapidly altered incentive structure. p Secondly, the exchange rate depreciation was high but sustainable. p Thirdly, domestic absorption was significantly lowered in the first half of the 1980s to provide room for the initial push in export expansion. In this period, real wages and agricultural incomes were decreased substantially. POST 1980 EXPORT INCENTIVE SCHEMES: 1. The exchange rate was maintained on a depreciating path. The government s policy to support exporters was to achieve a real depreciation trend, however stopped in 1988, when the Central Bank slowed down the rate of depreciation of the Lira. 2. Direct payments were made to the exporters with their initial costs being covered by the government s budget and extra budgetary funds. 3. Preferential and subsidized export credits were provided. The Export Promotion Fund, Central Bank, Turkish Development Bank and Turk Eximbank provided subsidized export credits. Rediscount rates for exporters were kept below the commercial interest rates. 4. Tax exemptions were provided on imported inputs. Imported goods, which are used as input in the production of export goods, were exempted from import taxes. Therefore, tax exemptions increased gradually, while the export sector was growing.

5. Corporate tax allowances were provided. IMPORT LIBERILISATION PROCESS

p During the 1970 s, import commodities were classified into 3 lists: the QUOTA LIST (imports subjected to quotas), the LIBERALISED LIST 1 (goods freely imported), and the LIBERALISED LIST 2 (goods require licensing to import). Any other import commodities were prohibited. p Also, the pre-1980 s import regime required importers to pay an advance deposit guarantee to the Central Bank for import activities. p Tariffs and non-tariff charges consisting of municipal tax, stamp duty, wharf charges and production taxes were also imposed on imports. p In 1980, stamp duties on imports were reduced from 25% to 1% p In 1981, the QUOTA LIST was abolished and the many items were transferred from the LIBERALISED LIST 2 to the less restrictive LIBERALISED LIST 2. p In 1984, there was a reform of the import regime and the 3 lists were replaced with the two principle lists replaced with the PROHIBITED LIST, the LIST OF IMPORTS SUBJECT TO LICENSE, and the FUND LIST (covering luxury goods). p In 1985, the PROHIBITED LIST was phased out with the only banned import commodities being narcotics, weapons and ammunition. p In 1990, the import guarantee deposit scheme was dropped along with licensing. p In 1993, all tariffs and non-tariff charges other than customs duty and MHF charges were eliminated due to commitments to the EU.

ESTBLISHMENT OF THE CUSTOMS UNION WITH THE EU. p Turkey established a Customs Union with the EU on January 1st 1996. Turkey agreed to eliminate all the duties and MHF charges imposed on EU and EFTA products, as well as all the quantitative restrictions and impose common customs duties for the third countries. p As a result, after January 1st, 1996, import duties on some specific goods (car, truck, leather, shoes, ceramics, etc.) were decreased gradually. Turkey lowered import duties on these goods in 1997 by 10 percent, in 1998 by 10 percent, in 1999 and 2000 by 15 percent and in 2001 by 50 percent. After January 1st, 2001, import duties on these goods for the third countries decreased to the common customs duties level imposed by the EU.

Economic Development
In June 1961, an integrated fifteen-year plan was announced, consisting of three five-year plans designed to achieve a 7% yearly increase in national income. In March 1963, the first five-year plan was inaugurated; this 196368 program to some extent fell short of its goals, but its average annual increase of6.7% in GNP was still impressive. Two objectives of the second five-year plan (196872) were economic viability and social justice. The role of the public sector under this program was twofold: creation and expansion of the economic and social infrastructure and development of modern manufacturing industries. Economic policy, however, still sought the largest possible active role for private enterprise in the development of industries, and the government sought with limited success to encourage private activity through fiscal concessions, financial assistance, and state participation in mixed enterprises. The third five-year plan was inaugurated in 1973 with the objective of helping Turkey prepare for its future membership in the EC. The long-term goals were to increase the per

capita GNP from $400 in 1972 to $1,500 by 1995, to reduce agriculture's share of the GDP to 12%, and to increase industry's share to 37%. One of the main aims of the third five-year plan, still largely unmet, was to increase the efficiency of the tax-collection service. In agriculture, the objectives were to increase food supplies for export and to feed a growing population through improved irrigation, technical advice to farmers, and the establishment of more cooperative farms. All these efforts required large new investments and massive foreign loans which, coupled with the huge increases in the cost of oil imports after 1973, led to the financial crisis of 197778. Since 1980, Turkey has deliberately pursued a deflationary policy, allowing the international exchange rate of the lira to fluctuate on a daily basis from 1 May 1981. The government also delayed several ambitious development proposals, mainly because new foreign credits were not available. However, a number of smaller projects financed by the IBRD went forward. Meanwhile, the fourth (197983) and fifth (198590) five-year plans continued to stress industrial development, deflationary monetary policy, and export promotion. The creation of free trade zones, in the mid-1980s, was a major step in line with these policies. Long-term economic programs adopted in 1991 and 1994 planned to reform social security and subsidy programs, implement tax reforms and improve tax administration, and restructure state enterprises, transferring certain inefficient ones to the private sector. By 1996, these plans had reduced the government's role in the economy, but huge budget deficits continued to plague the economy and further reforms are needed if Turkey is to solve its economic problems. Turkey's geostrategic significance received a big boost in 1999 when its leaders, along with those of Azerbaijan, and Georgia agreed to the construction of an oil pipeline from the Caspian Sea port of Baku to the Turkish Mediterranean port of Ceyhan. Completion of the pipeline may come as soon as 2004. Full membership in the European Union (EU) constitutes one of Turkey's chief aims. In December 1997 Turkey was effectively removed from the EU's list of candidates for entry. As a result, Turkey suspended its relations with the EU. However, the 1997 decision was reverse at the December 1999 EU summit in Helsinki as Turkey formally became a candidate for accession in the next round of EU enlargement. Turkey's chronic economic problems along with reservations about human rights preclude Turkish entry for at least a decade according to most observers. Nevertheless, Turkey's status as a candidate member provides clear goals for Turkish development.

Unemployment in Turkey has been roughly constant at around 7 to 8 percent since 1970.