Economic Aspects Of Turkey Accession To Eu

ECONOMIC ASPECTS OF TURKEY’S EU ACCESSION Abdullah Akyüz President TUSIAD-US TÜSİAD Washington Representative Office February 10, 2007

TUSIAD: Turkish Industrialists’ and Businessmen’s Association

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FOUNDED IN 1971; VOLUNTARY; 500+ MEMBERS CEOs & EXECUTIVES (Similar to US Business Roundtable) TOTAL SALES OF MEMBERS: 40% of GDP POLICY FOCUSED. NO BUSINESS DEVELOPMENT! RESEARCH, POLICY & ADVOCACY ORIENTED COMMITTED TO DEMOCRACY & MARKET ECONOMY PRIMARY FOCUS: EU ACCESSION ORGANIZES NATIONAL QUALITY, TECHNOLOGY, E-TURKEY & ENTREPRENEURSHIP CONGRESSES & AWARDS PRIZES ORGANIZATION – MEMBER DRIVEN COMMISSIONS – HQ & GENERAL SECRETARIAT IN ISTANBUL – REP. OFFICES: ANKARA, BERLIN, BRUSSELS, PARIS, WASHINGTON, DC 2

MAIN ISSUES on TUSIAD AGENDA •

DEMOCRATIZATION – – –

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Constitution Election laws Political parties law

JUDICIAL REFORM HUMAN RIGHTS EU ACCESSION US-TURKEY RELATIONS CORRUPTION EDUCATION & HEALTH GENDER INEQUALITY PHILOSOPHY, HISTORY & GEOGRAPHY TEXTBOOKS FOR HIGH SCHOOLS

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ECONOMIC LIBERALIZATION PUBLIC SECTOR REFORM TAX REFORM SOCIAL SECURITY INCOME DISTRIBUTION CORPORATE GOVERNANCE COMPETITION ECONOMIC GROWTH – – – – – –

PRODUCTIVITY INNOVATION UNEMPLOYMENT FINANCIAL SYSTEM AGRICULTURE FDIs 3

EU ECONOMICS:101 • The EU started as an economic entity • EU-25 is 460 million people and $12.3 trillion strong economy (=NAFTA) • Single market & currency provide significant economic opportunities • Average per capita GDP $23,400 ( an increase of 54% over the last decade in spite of enlargement)

• Trade within EU accounts for 2/3 of total 4

EU: BACKGROUND • • • • • • • • • • • • •

Search for peace 1951: European Coal and Steel Community (EU6) 1957: Treaty of Rome: EEC ⇒ Common Market 1973: 3 new members ⇒ EU9 1979: First direct elections for EP 1981-95: 6 new members ⇒ EU15 1986: Single European Act 1992: Maastricht Treaty ⇒ European Union 1993: Integration of E. Europe: Copenhagen Criteria 1995: Schengen pact ⇒ Borders come down 2002: EMU ⇒ Euro & European Central Bank 2004: 10 new members ⇒ EU25 2007: 2 new members ⇒ EU27 5

Turkey vs Select Countries (2004) TR • • •

POPULATION* GDP (PPP)** PER CAPITA GDP (PPP)***

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GDP COMPOSITION(%) – AGRICULTURE – INDUSTRY – SERVICES

POL

MEX

GR

EGYPT

USA

70 509 7,400

39 463 12,000

106 1,006 9,600

11 226 21,300

77 316 4,200

296 11,750 40,100

11.7 29.8 58.5

2.9 31.3 65.9

4.0 27.2 68.8

7.0 22.0 71.0

17.2 33.0 49.8

0.9 19.7 79.4

* Millions ** US$ Billions *** US$

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TURKEY Ranks… 37th in size 17th in population 18th in GDP 23rd in # of households • 38th in R&D spending • • • •

• 30th in stock market capitalization • 12th in tourist arrivals • 5th in foreign debt

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IMPRESSIVE PROGRESS: LAST SIX YEARS • • • • • • • • • •

Growth without inflationary pressure Fiscal discipline maintained Inflation: Down from + 65% to < 10% Real interest rates declining Sharp decrease in public sector borrowing Major productivity gains Significant increase in foreign trade Privatizations leading to a surge in FDIs Most of the structural reforms have been completed 4 areas of concern: EU process, current account deficit, global volatility & unemployment 8

TURKEY: Foreign Trade

2005 2000 1995 1990 1980 1970

EXPORTS* IMPORTS* (X+M)/GNP (X) (M) (%) =============================== 73.5 116.8 .53 27.8 54.5 .41 22.0 35.1 .34 13.0 22.3 .23 2.9 7.9 .16 0.6 0.9 .08

*US $ Billions

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TURKEY: Main Economic Partners (2003)

TRADE • Germany • Italy • USA • UK • France • Russia • Spain • Switzerland • Netherlands • China

INVESTMENTS (FDI) • Netherlands • Germany • UK • USA • Switzerland • France • Italy • Japan • Panama • Luxembourg 10

TURKEY: A Major Energy Transport Hub Natural Gas

Oil

A. Existing • Russia-Turkey (2 pipelines) • Iran-Turkey

A. Existing • Baku-Tbilisi-Ceyhan (BTC) • Kirkuk (Iraq)-Ceyhan

B. Under construction • South Caucasus • Turkey-Greece-Italy

B. Projected • Kazakh oil (BTC) • Samsun-Ceyhan

C. Projected • Trans-Caspian • Nabucco • Samsun-Ceyhan-Haifa • Iraq-Turkey 11

OIL PIPELINES

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GAS PIPELINES

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MAIN DRIVING FORCES BEHIND TURKEY’S DYNAMISM • UNSATURATED LOCAL MARKET • YOUNG & INCREASING POPULATION: CHANGES IN LIFESTYLES AND CONSUMPTION PATTERNS • DYNAMISM DUE TO INCREASED COMPETITION (EU PROCESS) • INFORMAL ECONOMY LOW TAX COLLECTION HIGH CONSUMPTION • AGILE PRIVATE SECTOR • EXPORTS TO & INVESTMENTS IN EMERGING REGIONS: RUSSIA, BALKANS, CAUCASUS AND CENTRAL ASIA • ACTIVE PARTICIPATION IN TRADE & RECONSTRUCTION EFFORTS IN IRAQ & AFGHANISTAN 14

CUSTOMS UNION - CU (since 1996)

• The only candidate country entering into CU before becoming a full member • CU has considerably increased TR’s foreign trade deficit • CU has led the TR manufacturing sector to compete with European firms • This competition has created a new dynamism and impulse for the TR economy 15

ONLY 29% OF THE TURKISH ECONOMY ENTERED THE CU WITH THE EU AND OPENED TO GLOBAL COMPETITION

TURKEY’S GNP (2003) Agriculture 12% Services Industry Agriculture Industry 29%

Services 59%

THE REMAINING 71 % IS STILL EXPOSED TO NEITHER EU DISCIPLINE NOR COMPETITION. FULL MEMBERSHIP WILL MAINLY IMPACT THIS SIGNIFICANT PART OF THE TURKISH ECONOMY 16

TURKEY-EU • • • • •

Foreign trade: 60% Investments: 65% Tourist arrivals: 70% Turks in EU: 3.8 million Turkey has been a member of all major EU/Western institutions since their inceptions (NATO, OECD, Council of Europe, …) 17

EU-25 TRADE Top 10 countries (2006) EU EXPORTS

EU IMPORTS

BALANCE

1. USA 2. Switzerland 3. Russia

USA China Russia

USA Switzerland Canada

4. China

Norway

Turkey

5. Turkey 6. Japan

Japan Switzerland

India S. Korea

7. Norway 8. Canada 9. India 10.S. Korea

Turkey

Japan Norway Russia China

S. Korea India Canada

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HOW WOULD TURKEY BENEFIT FROM EU? • Main political benefits – EU has been the main catalyst in this entire transformation process – All previous accession countries have benefited from EU objectives & standards (Copenhagen criteria) – EU represents not only the world’s largest economic bloc, but also a powerful union of democracies promoting stability in both member and accession countries 19

HOW WOULD TURKEY BENEFIT FROM EU? • Main economic benefits – – – – – – – –

Single market Competitive pressures Free movement of capital/FDI Common agricultural policy (CAP) Reduced exchange rate volatility Coordinated monetary policy Overall increase in living standards Financial assistance 20

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WHAT COULD TURKEY BRING INTO THE EU? • EU’s global economic competitiveness – – – – –

Large & unsaturated market Dynamic private sector & flexible labor markets Gateway to the East and South Energy security Significant welfare effects on EU citizens

• Social Europe – Shrinking & aging populations – Sustainable social security

• EU as a global player – Political & military aspects – Contribute to dialogue between West and East – Fighting terrorism

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CONCLUSION • POLITICAL/CULTURAL CONSIDERATIONS DOMINATE THE PROCESS • ECONOMIC COMPONENT OF EU IS MASSIVE DESPITE ITS OFTEN UNDERESTIMATED SIGNIFICANCE • ENLARGEMENT IS A MAJOR DRIVER IN INCREASING WEALTH IN EU • EUROPEAN BUSINESSES SUPPORT TURKEY’S MEMBERSHIP • TURKEY IS A NET BENEFICIARY IN THE SHORT RUN • IN THE MEDIUM/LONG-TERM, TURKEY IS A GREAT ECONOMIC ASSET WITH A SIGNIFICANT CAPABILITY TO CONTRIBUTE TO EU’S ECONOMIC GROWTH • EU LEADERS NEED TO THINK BIG & MAKE THE CASE FOR TURKEY’S INCLUSION

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