size, although this reason is often used in combination with the subjective views. In particular,
population forecasts suggest that the Turkish population will exceed that of Germany by 2020,
implying that Turkey would become the biggest country in the EU. Accordingly, it would obtain
substantial power in EU decision making, at the cost of the powers of existing members. Countries
also fear the economic implications of Turkey’s accession to the EU. In particular, Turkey would
become a net recipient of EU funds, which implies a net cost for existing member states. In
addition, people in Western Europe fear massive immigration flows from Turkey and cheap imports
at the cost of workers and producers in the EU.
A particular attention is to have on the economic implications of the Turkish accession to the EU.
Although these are not official criteria for the decision about its accession, they do play an
important role in the discussion. In particular if the official criteria do not lead to a clear-cut
decision, the economic arguments could become decisive. There are different existing studies that
have assessed the economic effects of economic integration of Turkey with EU. They show that
enlargement will probably yield substantial gains for the States, as Turkey, that want to join Europe.
For EU countries, the effects are typically more modest but still positive.
But, there are several differences between the accession of Turkey and other candidate countries.
First of all, the EU and Turkey already form a Customs Union in manufacturing and services, and a
number of standards and regulations have already been harmonised. Hence, the extent to which
accession of Turkey to the EU will deepen the integration differs from that of the Central and
Eastern European countries. Moreover, the structure of the Turkish economy differs from that of
Central and Eastern European countries, e.g. with respect to its degree of openness, its sectoral
structure, and its level of welfare. These differences can affect the increase in bilateral trade and
GDP of further integration with the EU. Then, in the process of accession Turkey has to comply
with the acquis communautaire. This could act as a catalyst for improving institutions in Turkey.
Many institutional indicators show that these institutions are less market-oriented in Turkey than in
the EU member states or the other accession countries. we do this by deriving the potential trade
between Turkey and other countries if the institutions would be improved.
In exploring these aspects, I consider the story of relations between Turkey and UE and his
development over time stressing the various agreements from Ankara Agreement today.
Then macroeconomic policies for accession to the EU are displayed in various aspects and
considering various sectors: agricultural, industry and utilities.
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The most important part of this work takes into account the economic effects of a possible final
admission of Turkey in Europe especially the effect on budget and its division and trade flows
between Turkey - EU and Turkey – Italy.
At last are considered Turkey’s Foreign Direct Investment Performance.
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1. Relations between Turkey and the European Union
Turkey is the only pluralist secular democracy in the Moslem world and has always attached great
importance to developing its relations with other European countries. Historically, Turkish culture
has had a profound impact over much of Eastern and Southern Europe.
Turkey began "westernising" its economic, political and social structures in the 19th century.
Following the First World War and the proclamation of the Republic in 1923, it chose Western
Europe as the model for its new secular structure.
Turkey has ever since closely aligned itself with the West and has become a founding member of
the United Nations, a member of NATO, the Council of Europe, the OECD and an associate
member of the Western European Union. During the Cold War Turkey was part of the Western
alliance, defending freedom, democracy and human rights. In this respect, Turkey has played and
continues to play a vital role in the defence of the European continent and the principal elements of
its foreign policy have converged with those of its European partners.
Having thus entered into very close cooperation with Western Europe in the political field, it was
therefore only natural for Turkey to complete this in the economic area. Thus, Turkey chose to
begin close cooperation with the fledgling EEC in 1959.
The Ankara Agreement
In July 1959, shortly after the creation of the European Economic Community in 1958, Turkey
made its first application to join. The EEC's response to Turkey's application in 1959 was to suggest
the establishment of an association until Turkey's circumstances permitted its accession. The
ensuing negotiations resulted in the signature of the Agreement Creating An Association Between
The Republic of Turkey and the European Economic Community (the "Ankara Agreement") on 12
September 1963. This agreement, which entered into force on 1 December 1964, aimed at securing
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Turkey's full membership in the EEC through the establishment in three phases of a customs union
which would serve as an instrument to bring about integration between the EEC and Turkey.
The Ankara Agreement envisaged the progressive establishment of a Customs Union which would
bring the Parties closer together in economic and trade matters. In the meantime, the EEC would
offer financial assistance to Turkey. Under the First Financial Protocol which covered the period
1963-1970, the EEC provided Turkey with loans worth 175 million ECU. The trade concessions
which the EEC granted to Turkey under the form of tariff quotas proved, however, not to be as
effective as expected. Yet, the EEC's share in Turkish imports rose from 29% in 1963 to 42% in
1972.
Although the Ankara Agreement envisaged the free circulation not only of goods, but of natural
persons, services and capital between the Parties, it excluded Turkey from the EEC decision-
making mechanisms and precluded Turkey from recourse to the ECJ for dispute settlement.
The Customs Union that was to be established between the Parties went much further than the
abolition of tariff and quantitative barriers to trade between the Parties and the application of a
Common External Tariff to imports from third countries, and envisaged harmonisation with EEC
policies in virtually every field relating to the internal market.
The Ankara Agreement still constitutes the legal basis of the Association between Turkey and the
EU.
The Additional Protocol
The Additional Protocol of 13 November 1970 set out in a detailed fashion how the Customs Union
would be established. It provided that the EEC would abolish tariff and quantitative barriers to its
imports from Turkey (with some exceptions including fabrics) upon the entry into force of the
Protocol, whereas Turkey would do the same in accordance with a timetable containing two
calendars set for 12 and 22 years, and called for the harmonisation of Turkish legislation with that
of the EU in economic matters. Furthermore, the Additional Protocol envisaged the free circulation
of natural persons between the Parties in the next 12 to 22 years.
The Additional Protocol brought significant advantages for Turkey's agricultural exports to the
EEC. 92% of our agricultural exports in 1971 benefited from this regime. Despite other agricultural
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producers such as Greece, Portugal and Spain later becoming member states, and the EEC's
conclusion of preferential trade agreements with certain Mediterranean countries, Turkey preserves
even today its position as one of the EEC's most privileged trading partners.
Had the Additional Protocol been implemented in full, the free circulation of goods and services
and the harmonisation of Turkish legislation with that of the EEC in a multitude of areas would
have been achieved at the end of the 22 year timetable.
Turkey's Application for Full Membership in 1987
On 24 January 1980 Turkey shifted its economic policy from an autarchic import-substitution
model and opened its economy to the operation of market forces. Following this development in the
economic area and the multiparty elections in 1983, the relations between Turkey and the
Community, which had come to a virtual freeze following the military intervention of 12 September
1980 in Turkey, began returning to normality. In the light of these positive developments, Turkey
applied for full membership in 1987, on the basis of the EEC Treaty's article 237 which gave any
European country the right to do so. Turkey's request for accession, filed not under the relevant
provisions of the Ankara Agreement, but those of the Treaty of Rome, underwent the normal
procedures. The Council forwarded Turkey's application to the Commission for the preparation of
an Opinion. This has reconfirmed Turkey's eligibility, given that a similar application by Morocco
was turned down by the Council on the grounds that Morocco is not a European country. The
Commission's Opinion was completed on 18 December 1989 and endorsed by the Council on 5
February 1990. It basically underlined Turkey's eligibility for membership, yet deferred the in-depth
analysis of Turkey's application until the emergence of a more favourable environment. It also
mentioned that Turkey's accession was prevented equally by the EC's own situation on the eve of
the Single Market's completion which prevented the consideration of further enlargement. It went
on to underpin the need for a comprehensive cooperation program aiming at facilitating the
integration of the two sides and added that the Customs Union should be completed in 1995 as
envisaged.
Although it did not attain its basic objective, Turkey's application revived Turkey-EC relations:
efforts to develop relations intensified on both sides, the Association's political and technical
mechanisms started meeting again and measures to complete the Customs Union in time were
resumed. Meanwhile, the Commission's promised cooperation package, known as the "Matutes
Package", was unveiled in 1990, but could not be adopted by the Council due to Greece's objection.
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The Customs Union
a. The Technical Aspects of the Customs Union
Talks to complete the Customs Union with the Community, began in 1994 and were finalised on 6
March 1995 at the Turkey-EU Association Council. The Association Council is the highest ranking
organ of the association and is composed of the Foreign Ministers of Turkey and the 15 EU
Member States. On that day the Association Council adopted its decision 1/95 on the completion of
the Customs Union between Turkey and the EU in industrial and processed agricultural goods by 31
December 1995. At the same meeting, another Resolution on accompanying measures was adopted
and the EU made a declaration on financial cooperation with Turkey as part of the customs union
"package".
With the entry into force of the Customs Union, Turkey abolished all duties and equivalent charges
on imports of industrial goods from the EU. Furthermore, Turkey has been harmonising its tariffs
(for each commodity, the tariff provides tax customs, namely the customs duties and other duties to
which they shall be taxed on import or export) and equivalent charges on the importation of
industrial goods from third countries with the EU's Common External Tariff and progressively
adapting itself to the EU's commercial policy and preferential trade arrangements with specific third
countries. This process is to be completed in 5 years.
As a result of these measures, Turkey's weighted rates of protection for imports of industrial
products originating in EU and EFTA member states have fallen from 5.9% to 0%, and from 10.8%
to 6% for similar goods originating in third countries. The latter rates will further drop to 3.5%
when the EU fulfills its obligations under the WTO negotiations.
Although basic agricultural products have been excluded from the initial package, a preferential
trade regime for these products has been adopted on 1 January 1998. Further efforts are expected to
be made in the same direction. Moreover, Turkey is progressively adopting many aspects of the
Common Agricultural Policy. On the other hand, under the Customs Union Decision, the EU is
expected to take as much account as possible of Turkey's agricultural interests when developing its
agricultural policy.
Turkey's efforts towards harmonising its legislation with that of the EU are under way. These
efforts include, in commercial matters, monitoring and safeguarding measures on imports from both
the EU and third countries, the management of quantitative restrictions and tariff quotas and the
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prevention of dumped and subsidised imports. As to competition rules, subsidies through State
resources in any form whatsoever which distort or threaten to distort competition will be banned. A
special Competition Authority has been set up for this purpose. Assistance to promote economic
development in Turkey's less developed regions and assistance intended to promote cultural
heritage conservation and which does not adversely affect competition will however be allowed.
Furthermore, Turkey is progressively adjusting its legislation regarding state monopolies of a
commercial nature so as to ensure that no discrimination exists in the conditions under which goods
are produced and marketed between nationals of Turkey and EU Member States. Turkey is also in
the process of harmonising its laws with EU legislation eliminating technical barriers to trade
during a transitional period which is expected to last five years, as foreseen in the Customs Union
Decision. Effective cooperation between Turkey and the EU in the fields of standardisation,
calibration, quality, accreditation, testing and certification will be achieved as part of this process.
Harmonisation of Turkish legislation to that of the EU on intellectual, industrial and commercial
property has been realised and laws for consumer protection are now being put in place. It is also
noteworthy that both Parties are banned from using internal taxes as indirect protection mechanisms
and from using tax rebates as export subsidies.
b. The Resolution on Accompanying Measures
Apart from these rather technical provisions related to the establishment and the proper functioning
of the Customs Union, the package also comprised an Association Council Resolution providing for
the intensification of cooperation between Turkey and the EU in such areas not covered by the
Customs Union as industrial cooperation, Trans-European networks, energy, transport,
telecommunications, agriculture, environment, science, statistics, as well as matters relating to
justice and home affairs, consumer protection, cultural cooperation, information etc. These
provisions also aimed at ensuring that the higher degree of integration achieved between Turkey
and the EU through the Customs Union was not limited solely to economic/trade matters and that
the Customs Union did serve its purpose under the Ankara Agreement: constituting an important
cornerstone towards Turkey's accession to the EU.
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c. Financial Cooperation
The third element of the Customs Union package was the statement on financial cooperation which
the EU delivered at the Association Council meeting where Decision 1/95 was adopted. This
financial cooperation, which amounted to 2.22 billion ECU over a five-year period, aimed at
alleviating the burden which the opening up of the economy to EU competition would bring to
Turkish economic operators on the one hand, and improving Turkey's infrastructure and reducing
the economic disparities between the parties on the other hand. Yet, the transfers envisaged within
this framework have so far failed to materialise due to the lack of political will on the part of the
EU.
d. The First Results of the Customs Union
Trade figures after the completion of the Customs Union reveal that, in 1996, our imports from the
EU rose by 34.7% compared to 1995 and reached 22.7 billion dollars, while our exports, amounting
to 11.477 billion dollars, rose by only 3.6%. The EU preserved its place as our biggest trading
partner with a 52.9% share in our imports and 49.5% in our exports. This trend continued in 1997
and 1998. Turkey's exports to the EU rose from 12.2 billion dollars in 1997 to 13.4 billion dollars in
1998 and imports from the EU increased from 24 billion dollars in 1997 to 24.8 billion dollars in
1998. In 1997, the share of Turkish imports from EU in total imports increased further reaching
51.1% and in 1998 52.5%, also the share of EU exports in total exports increased from 46.6% in
1997 to 50% in 1998. According to 1997 figures, Turkey's share in total EU exports is 3.1%
representing the significance of Turkey's potential as a growing market for the EU while Turkey's
share in total EU imports is 1.8%.
Since the EU had already abolished its tariffs for imports from Turkey before the Customs Union,
the only trade barriers being quotas for textiles that could not be filled by Turkey, the Customs
Union did not bring about a significant liberalisation for our exports to the EU. Since 66% of our
exports to the EU consist of consumer goods, they are sensitive to changes in European demand.
The slow growth rate recorded in Germany, our biggest trading partner within the EU, impeded the
growth of our exports to that country in 1996. Our exports to the EU are expected to rise with a
return to higher growth rates in the Union. Our industry has also adapted itself very well to the new
competitive environment, and not a single sector suffered from important problems.
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Turkey's efforts to align itself to the EU's commercial policy towards third countries produced the
Free Trade Agreements with EFTA, Israel, Romania, the Czech and Slovak Republics, Hungary,
Slovenia, Estonia, Lithuania, Latvia and Bulgaria. Negotiations with Poland have been successfully
completed and the agreement will be signed in the near future. The Agreement with Macedonia has
been initialled, and the negotiation processes have been launched with Tunisia, Morocco, Egypt and
the Palestinian National Authority. Preparations for alignment to the EU's GSP are also underway.
Agreement has been reached with the EU to further liberalise trade in agricultural products and a
Free Trade Agreement with the ECSC (European Coal and Steel Community) entered into force on
1 August 1996. The Customs Union constitutes a very important step towards Turkey's full
integration with the EU. It has also demonstrated that, despite predictions to the contrary, the
Turkish economy was able to withstand EU competition.
The European Union's Enlargement Process and Turkey
Turkey attached particular importance to the EU's current enlargement process for two main
reasons. Firstly, having played an active role in the demise of the Soviet bloc, it was only natural for
Turkey to aspire for inclusion in the new European architecture which it helped to build. Second,
the Association between Turkey and the EU aims at Turkey's full membership in the EU, as
underlined once again with the Customs Union whose dynamics aim at bringing about further
integration between the two Parties. This is why Turkey kept the question of inclusion in the EU's
enlargement process on the agenda of Turkey-EU relations. At the last Association Council of 29
April 1997, the EU reconfirmed Turkey's eligibility for membership and asked the Commission to
prepare recommendations to deepen Turkey-EU relations, while claiming that the development of
this relationship depended on a number of factors relating to Greece, Cyprus and human rights.
The Commission, however, excluded Turkey from the enlargement process in its report entitled
"Agenda 2000" which it disclosed on 16 July 1997. While the report conceded that the Customs
Union was functioning satisfactorily and that it had demonstrated Turkey's ability to adapt to the
EU norms in many areas, it repeated the same political and economic arguments against Turkey and
made no reference to Turkey's full membership objective. The Commission unveiled on the same
day as "Agenda 2000", the "Communication" to enhance relations with Turkey, where it
reconfirmed Turkey's eligibility and brought a number of recommendations ranging from
liberalisation of trade in services to consumer protection, that aim at taking Turkey-EU relations
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