Re: the looming Turkish collapse.
The first event that's gonna trigger instability in Turkey's diplomatic ties will be Ariel Sharon's rise to power in Israel and the ensuing hardship for the Palestinians.... Next, in early 2002, the euro will be put into circulation, from Berlin to Lisbon to... Athens. As the following paper shows, such an event will put a severe macro-economic squeeze on the Turkish economy.
4.3. EU enlargement
According to the EIU (2000), "Turkey’s acceptance as an EU candidate should boost confidence, and will attract investment." However, only around 10% of our interview respondents saw the prospect of EU membership as one of Turkey’s key strengths as an FDI location, while almost 30% of respondents cited not joining the EU as a key threat to Turkey’s position (see SWOT analysis in appendix). As with creating a favourable FDI enabling and political-institutional environment, membership of the EU appears to be a pre-condition rather than an advantage if Turkey is to successfully compete for inward investment.
There are two key reasons why Turkey needs to join the EU as soon as possible if it is to become a centre of gravity for inward investment. First, the CEECs [Central & Eastern European Countries] that join the EU first are likely to further divert FDI away from Turkey. Second, Turkish products cannot compete on a level playing field unless Turkey is a member of the EU or Single European Market.
4.3.1.The impact of the CEECs joining the EU before Turkey
According to Eurostat (1997: 39), "it is clear that European companies have a tendency to respond to globalisation pressures by enhancing the division of labour through FDI within the EU rather than to third countries." Membership of the EU therefore makes a country more attractive for FDI from other EU countries. This argument has empirical support in the case of Ireland, Portugal and Spain. For example, Thomsen and Woolcock (1993) show that Ireland’s share of US FDI doubled in first five years following membership and after Portugal joined the EC in 1986, FDI doubled every year 1987-1989. Spain experienced a similar increase in FDI following membership.
Membership of the EU brings access to markets, greater policy certainty, increased growth prospects and stability, access to structural funds, and membership of the Single European Market and the Euro, as well as a change in perceptions with the new member now psychologically part of "Europe."
Brenton (1999) demonstrates that the candidate countries themselves are their own principal competitors. Together with the EU being the most important export market for all of the candidate countries, "the impact of the next enlargement may be felt most heavily in those CEECs not included and in Mediterranean countries, such as Turkey" (Brenton, 1999: 75).
JETRO (2000) states that "leading US and European firms in fields such as auto/auto parts, finance, communications, aviation and energy are rushing to enhance their market position in the region, and FDI flows are expected to continue to grow in 2000." But this is only the case in countries where membership of the EU is a "distinct possibility." Hence, Kaminski and Riboud (1999) and Orlowski and Szczepanska-Maciejuk (1998) argue that the prospects of EU membership have already increased FDI in Hungary and Poland.
Differentiating between fast- and slow-track candidates in accession is therefore likely to divert trade and investment away from Turkey and those CEECs that are less advanced in their negotiations. The slow track countries will also be disadvantaged from their exclusion from structural funds that can be used to improve infrastructure and the business environment in the first wave members (Brenton, 1999).
In our interviews, three-quarters of respondents thought that the prospects of the CEECs joining the EU before Turkey will have at least a "significant" impact on FDI in Turkey, while one-third of respondents thought that joining the EU was important "to a great extent" for attracting FDI to Turkey. Turkey is going to find it harder to compete for FDI as it is excluded from the first wave of new members.
4.3.2. The impact of Turkey not being a member of the Single Market
While Turkey has a customs union with the EU, our research strongly suggests that this is not a substitute for being a member of Single European Market when it comes to attracting FDI. In our interviews, 45% of respondents thought that EU membership will have a major impact on access to markets, perceptions and image, and macro-economic stability in Turkey.
The frequency which respondents cited access to markets is surprising, given the customs union between Turkey and the EU. In fact, only one respondent said that membership of the EU would not lead to greater access to markets because of the pre-existing customs union. There are two key reasons why the customs union is not a substitute for joining the EU and the Single European Market:
The customs union has quotas: Textiles are subject to quotas and the customs union excludes agriculture. Textiles are Turkey’s main export sector and Turkey is the largest exporter to the EU. Turkey’s textiles industry currently enjoys less protection than the EU’s (EIU, 2000: 44). In agriculture, Turkey is one of the few countries in the world that is self-sufficient, and Turkey is the world’s biggest producer of several commodities. The GAP project will dramatically increase Turkey’s agriculture output, but Turkey will face quota restrictions when exporting to the EU.
The customs union has not prevented the use non-tariff barriers (NTBs). This is a significant obstacle to Turkey competing in the EU in goods where it has a comparative advantage. According to Balasubramanyam (1996: 128), Turkey is reported to be cited in more anti-dumping cases by the EU than most other countries. A case in point is the European Commission’s "Notice of initiation of anti-dumping proceedings" lodged in June 2000 concerning colour television receivers originating in or exported from Turkey – a sector which has been one of the major success stories of the customs union for Turkey. The EU also applies local content requirements against Turkey. When Turkey was negotiating to join the customs union, the EC endorsed the view that Japanese transplants in Turkey do not have Turkey as their country of origin and requested Turkey not to export Japanese cars (Duna and Kutay, 1996: 176-177). In the end, Japanese automotive companies producing in Turkey had to have a 60% EU local content for cars to be exported to the EU.
The EU similarly applies NTBs to the CEECs. For example, in 1995 2% of Polish imports to the EU were subject to anti-dumping duties or investigation (CEPS, 1998: 6). The OECD (1995) estimates that the costs of responding to anti-dumping duties in the CEECs are up to 10% of a firm’s annual export revenues (cited in CEPS, 1998: 6). Association agreements with the CEECs also require 60% domestic content for printed circuit boards and automotive sectors products to enter the EU (Moran, 1999: 79). This has meant that auto plants in the CEECs have had to import high cost EU steel preventing utilisation of Hungarian, Polish or Turkish steel (Moran, 1999: 107-8).
Anti-dumping duties and rules of origin have therefore skewed "trade and investment patterns away from what international comparative advantage would otherwise predict" (Moran, 1999: 8). We recommend that Turkey and second wave applicants meet the requirements and negotiate to gain membership of the Single European Market, or at least provisions to avoid anti-dumping duties. This will become all the more urgent when the first wave of CEECs join the EU. As Brenton (1999) points out, the new members may themselves instigate anti-dumping duties against Turkey and other candidate countries.
4.4. Conclusion and policy recommendations
Our discussion of the IMF agreement and EU enlargement suggests that while Turkey is already addressing some of the key obstacles to inward investment, further action is urgently needed.
The $4 billion IMF agreement, if successful, will lead to privatisation and foreign involvement in many of Turkey strategic assets, which should send a positive message to other potential investors that Turkey is entering into a new era of greater policy certainty and less political interference in business. Equally as important is the dis-inflation aspect of the IMF agreement. Reducing inflation to single digit levels is a crucial pre-condition for attracting FDI.
While our research has found EU membership to be vital to Turkey’s competitive position as an inward investment location, candidate status has also led to a greater scrutiny of Turkey’s internal affairs, highlighting issues such as human rights, regional inequalities, and the conflict in the South East. This is likely to have a negative impact on FDI in the short term, but should provide a powerful impetus for change in the longer term. Turkey’s candidate status also generates greater comparison with the CEECs.
While our empirical research in chapter two demonstrated Turkey’s underlying economic competitive strength, much of the comparison between Turkey and the EU is likely to continue to be along the political dimension. At present, with all the candidate countries except Turkey having met the Copenhagen criteria for starting EU accession negotiations, there is definitely a perception that Turkey will be the last to join the EU.
It is almost certain that the leading CEECs will join the EU before Turkey, and our research has found that this will have a major impact on Turkey’s ability to compete for FDI. In fact, we found that not joining the EU and competition from the CEECs were two of the key threats facing Turkey position for attracting FDI (see SWOT analysis in appendix). Other research has also shown that competition within the region for inward investment is intensifying (Oman, 2000; JETRO, 2000; Balasubramanyam, 1996). Membership of the EU is vital for access to markets and funding, economic growth and stability, political stability, policy convergence, and for changing perceptions. We recommend that Turkey takes the necessary steps to meet the Copenhagen criteria as quickly as possible and negotiates for membership of the Single European Market to ensure a level playing field with the leading CEECs that join the EU first.
ceps.be
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"We recommend that..." LOL! That's pure wishful thinking --as if it solely depended on Turkey's willingness to join the EU club! Besides, the economic crisis that will hit Turkey in the first half of 2002 will bring about social unrest and ethnic/religious outbursts throughout the country.... And that's how such a gloomy scenario neatly fits in with the Christian lobby's agenga: as the economy deteriorates, the Turkish junta inevitably will be driven to clamp down on "troublemakers" --making it easier for Europe's sermonizers to cast Turkey as an undemocratic regime that doesn't belong to Europe....
Gus. |
