tebd workshop in athens, greece
TRANSCRIPT
This Project is co-funded by the European Union
and the Republic of Turkey
TEBD workshop in Athens, Greece24 June 2019
tepavThe Economic Policy Research Foundation of Turkey
Turkey-EU Business Dialogue
EU-Turkey Trade and Investments: opportunities , rules and requirements
M. Sait AKMAN, PhD
June 24, 2019 Athens
Outline
◼ Turkey – EU Customs Union: benefits & challenges, and the need for updating
◼ Turkey-Greece bilateral trade & investments
◼ Impact on SMEs
Slide 3
Turkey’s Exports to the EU: Product Composition ($ millions) UN Comtrade(2014)
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5.000
10.000
15.000
20.000
25.000
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US$ M
illions
Foodstuffs Vegetable Products Fruit Products Textiles
Machinery Metals Vehicles
post-CU period
Slide 4
TUR – GRE economic positions in the region
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n’s
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ctu
rin
g
ex
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%)
Share of manufacturing in country’s total export (%)
1996
Source: UN Comtrade, World Bank, TEPAV calculationsNote: Bubble sizes represent volume of manufacturing exports in 1996.
3020
35
0
40
20
10 60 100
30
40 50 70 80 90
10
25
0
5
15
Georgia
Suudi A. Bulgaria
Azerbaijan
Romania
Cyprus
Russia
Israel
Kazakhstan
Jordan Malta
Greece
Tunusia
Turkey
ArmeniaQatar
Slide 5
30
0 30 8020
5
20
10
25
35
40
40 50 60 9070 1000
10
15
CyprusArmenia
Azerbaijan
BulgariaKazakhstan
Romania
Greece
Israel
JordanGeorgia
Turkey
Malta
Russia
Suudi A.
Tunusia
Turkey and Greece after the EU process
Sh
are
in
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gio
n’s
to
tal m
an
ufa
ctu
rin
g
ex
po
rt (
%)
2017
Source: UN Comtrade, World Bank, TEPAV calculations
Note: Bubble sizes represent volume of manufacturing exports in 2017.
Slide 6
Share of manufacturing in country’s total export (%)
More sophisticated Turkish exports to the EU (100% = 1)
Source : Felbermayr, Aichele and Yalcin (2016)
Slide 7
The CU, then and now…
◼ CU 23 years-old, with expectations and realities of 1990s.
◼ ……things changed:
➔Emerging Economies (China et.al.)➔Globalisation (global production networks-GVCs)➔Global crisis➔Doha Round is “deadlocked”➔New generation FTAs (DCFTAs; mega-deals –TTIP)➔Trade protectionism
inducing a need to revise the CU.
Slide 8
World Bank proposes:(World Bank Report, 2014)
◼ Not designed as a well-equipped regimeto deal with modern day challenges
◼ CU has not fulfilled its potential:
◼ Formalize parallel negotiations for FTAs
◼ Reduce asymmetries in consultation and decision makingmechanisms under CU.
◼ Widen preferential trade to primary agriculture and services.
◼ First-best solution: progress in accession negotiations
Slide 9
Updating the CU (Ministry of Trade, Turkey)
1. Eradicating structural problems: asymmetries –FTAs / Decision making
2. Modernising the customs union
3. Deepening the customs union
Slide 10
Challenge: asymmetry in structure
TR has to align itself with EU policy andacquis, but cannot participate in decision-making in EU, in areas pertinent to CU.
Turkey is a ‘rule-taker’
Slide 11
EU trade agreements
Slide 12
Asymmetry: EU’s FTAs
◼ Turkish exporters cannot haveautomatic reciprocal access to FTA-partners market while the opposite is possible due to CCT
Slide 13
2. Modernising the customs union:
◼ Technical barriers to trade
◼ Intellectual property rights (IPRs)
◼ Trade facilitation and customs matters
◼ Trade defense instruments
◼ Dispute settlement mechanism
Slide 14
3. Deepening the customs union:
Agriculture
Trade in services
Public procurement
Slide 15
Progress to upgrade the CU
◼ 2014 World Bank study (Evolution of EU-TurkeyCU)
◼ 2015-May Memorandum of Understanding tomodernise and extend the CU
◼ 2016 Domestic procedures and impact assessmentreports
◼ 2016-Commisison proposal to Council to launch negot.
◼ 2017 political blocking of CU upgrading process
◼ 2019 still no progress, but full of trade barriers…
Slide 16
Effect on Turkey/EU: upgraded CU(E. Commission impact assessment study)
Slide 17
Bilateral exports(EUR million)
Welfare(EUR millions)
GDP (%)
EU
Upgrade CU 27,062 5,388 0.007
TURKEY
Upgrade CU 4,960 12,522 1.44
The challenges in upgrading CU
political
economic
Slide 18
Challenges
◼ EU:➔Domestic resistance (remember CETA, TTIP…)
➔Not all Member States like ‘Turkish delight’
➔European Parliament resolution to ‘suspend negotiations’
• stressed that suspending work on upgrading the customs union would have serious economic consequences for Turkey.
➔Political resistance in the Council (“Germany’s effect”)
◼ TURKEY:➔Is Turkey ready for reforms (public procurement,
agriculture so on)?
➔Rising anti-European discourse
Slide 19
Slide 20
Bilateral trade between Turkey and Greece, billion $
Source: UN Comtrade, BACI, TEPAV calculations
000 000
001
002002
000
001
003
001
002
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01
01
02
02
03
03
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Export from Greece to Turkey Export from Turkey to Greece
Slide 21
Turkey’s bilateral trade with Greece, billion USD $, 1995-2017
Source: UN Comtrade, BACI, TEPAV calculations
Export
Import
0
1
2
3
4
5
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Slide 22
Share of Turkey in Greece’s trade, %, 1995-2017
Source: UN Comtrade, BACI, TEPAV calculations
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2
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8
10
12
14
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Share of Turkey in Greece's export Share of Turkey in Greece's import
Slide 23
Share of Greece in Turkey’s trade, %, 1995-2017
Source: UN Comtrade, BACI, TEPAV calculations
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Share of Greece in Turkey's export Share of Greece in Turkey's import
Source: UN Comtrade, Lall (2000), TEPAV calculations
Technology breakdown of Turkey’s exports to Greece, EU-28 and MENA, 1990-2017
39%
9%19%
7%
28%
7%
24%
21%12%
10%
16%
24%
16%
36%
55%
34%
35%
40%
19%
27%
10%
44%
20%25%
7%2%
EU-28_2017GRC_1990
1%
GRC_2017
3%
EU-28_1990
4%
MENA_1990
4%
MENA_2017
High tech
Medium tech
Low tech
Resource Based
Primary Products
Slide 24
Slide 25
Source: UN Comtrade, BACI, TEPAV calculations
Turkey’s export to Greeceby major sectors millionUSD $, 2017
Share
278
243
210
206
185
Machinery, electronics
Textile
Metals (iron&steel)
Mineral
Transportation
Turkey’s import from Greece by major sectors million USD $, 2017
1103,710
240,765
180,873
149,763
135,085
Textile
Metals
Mineral
Plastics
Machinery, electronics
16.5
14.4
12.4
12.2
11.0
Share
53.0
11.6
8.7
7.2
6.5
0
5
10
15
20
25
0 5 10 15 20 25
Other tubes and pipes
Wheat or flour
Steam generating boilers
Sunflower seeds
Vegetables
Auxiliary plant for use with boilers
Electric generating sets
Food
Plastics
Chemicals
Textile
Wood
Metals
Machinery, electronics
Instruments, furniture, others
GROWTH / COMPETITIVENESS MATCHING
Growth rate of Greece’s import CAGR, %, 2007-2017
Turkey’s competitiveness RCA, 2017
Bubble sizes represnt
Greece’s import volume,
2017
Major sectors
breakdown
Source: UN Comtrade, BACI, TEPAV calculations
Slide 26
100 million$
0
5
10
15
20
25
30
35
0 2 4 6 8 10 12 14 16 18 20 22
Semi-finished products of iron/non-alloy steel
Unmanufactured tobacco
Yachts
Other oil seeds
aluminium
Electric accumulators
Vessels
Food
Mineral
Wood
Plastics
Chemicals
Transportation
Textile
Metals
Machinery, electronics
Instruments, furniture, others
GROWTH / COMPETITIVENESS MATCHING
Growth rate of Turkey’s import CAGR, %, 2007-2017
Greece’s competitiveness RCA, 2017
Bubble sizes represnt
Turkey’s import volume,
2017
Major sectors
breakdown
Source: UN Comtrade, BACI, TEPAV calculations
Slide 27
1.000 million $
Turkey’s FDI inflows, top 10 countries, cumulative, 2003-2019*
Source: FDI Markets, TEPAV calculationsNot: First three months of 2019.
Rank Country Billion $ Share
1 Azerbaijan 28.79 18.6%
2 Germany 18.04 11.7%
3 United States 16.34 10.6%
4 Netherlands 8.52 5.5%
5 China 8.14 5.3%
6 India 7.41 4.8%
7 France 6.45 4.2%
8 Japan 6.30 4.1%
9 Saudi Arabia 5.93 3.8%
10 UK 5.90 3.8%
29 Greece 0.41 0.3%
Slide 28
Turkey’s FDI outflows, top 10 countries, cumulative, 2003-2019*
Source: FDI Markets, TEPAV calculationsNot: First three months of 2019.
Rank Country Billion $ Share
1 Russia 8.82 16.9%
2 Pakistan 3.66 7.0%
3 Romania 3.49 6.7%
4 Bulgaria 3.19 6.1%
5 Algeria 3.12 6.0%
6 Azerbaijan 2.14 4.1%
7 Kazakhstan 1.91 3.7%
8 Rwanda 1.51 2.9%
9 Serbia 1.32 2.5%
10 Macedonia FYR 1.26 2.4%
38 Greece 0.24 0.5%
Slide 29
Technological classification of Turkey's FDI inflows from Greece, cumulative, 2003-2019*
Slide 30
Source: FDI Markets, TEPAV calculationsNot: First three months of 2019.
78,315%
9,638%
8,500%
3,548%
Services
Low technology
Medium-high echnology
Medium-low technology
Conclusions
◼ Bilateral trade and investment level is too low
◼ Growth rate / competitiveness matching in mutualtrade needs attention
◼ Exports need diversification and sophistication
◼ Better regulation and liberalkisation in agricultureand services trade
Slide 31
SMEs matter…
◼ SMEs are the main pillar of nearly all national economiesin the world.
◼ They generate more than a half of jobs and income as well as value added.
◼ SMEs contribute to economic growth and innovation.
◼ They are increasingly integrated in global value chains, and form a working ecosystem with larger enterprises.
◼ They are engaged in and deeply affected by the tradingand investment environment (i.e. doing business andtrade protectionism).
Slide 32
Slide 33
Challenges for the SMEs
◼ Limited access to finance
◼ Lower R&D, low intensity of technology use
◼ Limited internationalization and global supply chain (GVC) integration
◼ Regulatory environment
◼ Market access problems
◼ Limited skilled labor and productivity
SMEs in Turkey’s economy, 2014-2016
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The number ofenterprises
Number ofemployees
Salary and wages Turnover Value added withfactor cost
1-249(SME)
250+
Slide 34
Sound business environment is essential for SME competitiveness and growth
Slide 35
Why supply chains are essential for SMEs
◼ Trade, and Global Value Chain (GVCs) create opportunities for SMEs:
➔to absorb spillovers of technology, managerialknowledge
➔to innovate
➔to enhance productivity
➔welfare gains from SME internationalization.
OECD (2018), Fostering greater SME participation in a globally integrated economy.
Slide 36
SME integration to GVCs: Turkey
◼ Several important factors to boost SME competitiveness and GVC integration:
➔to improve access to finance
➔to cope with the digital transformation
➔to live in better regulatory environment and therule of law
➔to better integrate into the trading system, andto boost trade capacity.
Slide 37
Access to finance
◼ Strenghten financial market infrastructure forSMEs
➔G20/OECD High Level Principles* on SME financing
➔impact assessment on financial regulation aboutSME lending, insolvency rules…
◼ Facilitate access to financial instruments
➔Boosting financial literacy of SMEs
◼ Enhance digital financial inclusion
➔Boosting SMEs for digital finance, electronicinvoicing…
Slide 38
* The G20/OECD High Level Principles on SME Financing (in, 2015 Turkey presidency)
1. Identify SME financing needs and gaps.
2. Strengthen SME access to traditional bank financing.
3. Enable SMEs to access diverse non-traditional financing instruments.
4. Promote financial inclusion for SMEs and ease access to formal financial services, including for informal firms.
5. Design regulation that supports a range of financing instruments for SMEs, while ensuring financial stability and investor protection.
6. Improve transparency in SME finance markets.
7. Enhance SME financial skills and strategic vision.
8. Adopt principles of risk sharing for publicly supported SME finance instruments.
9. Encourage timely payments in commercial transactions & public procurement.
10. Design public programmes for SME finance which ensure cost effectiveness
11. Monitor and evaluate public programmes to enhance SME finance.
Slide 39
Financial inclusion: Shares of the credit provided to SMEs in selected countries, (2016)
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Japan SouthKorea
France USA Germany Italy England India Grecee Turkey
Slide 40
Digitalization and SMEsPotential Benefits of Digitalization for SMEs:
◼ Greater access to markets: E-Commerce and theInternet lower costs for transaction while reducing theneed for physical infrastructure/presence in foreign market
◼ More access to financing: new opportunities for SMEsto obtain funding.
◼ Greater access to technology and applications: Through cloud services (improved ICT) SMEs can access a wide range of technologies and applications.
Slide 41
SMEs use internet less intensively
Slide 42
SMEs lag behind in adopting digital technologies
Slide 43
Regulatory environment and the rule of law
◼ For SMEs to take part in supply chains weneed FDI which seeks a better investmentenvironment:
◼ Doing Business in Turkey
◼ Rule of Law index
◼ World Governance Indicators
◼ …..
Slide 44
Turkey ranked 60-70 for years
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Doing Business Index, World ranking, 2009-2019
Best performance achieved by Turkey in the last decade, 2019
Turkey is among the 10 most improved economy in DB
Getting better in Doing Business indexDB 2018 DB 2019 Change
Starting a business 80 78 +2
Dealing with construction permits 96 59 +37
Getting electricity 55 60 -5
Registering property 46 39 +7
Getting credit 77 32 +45
Protecting minority investors 20 26 -6
Paying taxes 88 80 +8
Trading accross borders 71 42 +29
Enforcing contracts 30 19 +11
Resolving insolvency 139 109 +30
Overall ranking 60 43 +17
Slide 46
Rule of Law
◼ High tech FDI is needed to bring positivespillovers for productivity, technology.
◼ For Turkish SMEs to integrate into GVCs.
◼…. but this is possible by means of
more stability.
Slide 47
Needs to improve in Rule of Law index
Slide 48
Turkey’s Rule of Law Index indicators, 2012 & 2019
WJP Rule Of Law Index Factors
Ranking, 2019
Constraints on Government Powers
123/126
Absence of Corruption 57/126
Open Government 94/126
Fundamental Rights 122/126
Order and Security 96/126
Regulatory Enforcement 106/126
Civil Justice 96/126
Criminal Justice 85/126
Constraints onGovernment…
Absence ofCorruption
Open Government
FundamentalRights
Order and Security
RegulatoryEnforcement
Civil Justice
Criminal Justice
Turkey 2019 Sweden 2019 Turkey 2012-2013
Source: World Justice Project, TEPAV calculations (unweighted average)Note: Outer side represents higher score
Turkey needs to decide where it stands…
Slide 49
Source: World Governance Indicators, TEPAV calculations (unweighted average)Note: Outer side represents higher score
WB World Governance Indicators, percentile rankings of EU-28, MENA and Turkey, 2017
Voice and Accountability
Political Stability andAbsence of
Violence/Terrorism
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Turkey MENA EU
SMEs and trade barriers◼ Barriers to SMEs access to global markets:
➔(i) limited information about the working of the foreign markets, difficulties in accessing export distribution channels;
➔(ii) costly product standards and certification procedures,
➔(iii) burdensome customs regulations/procedures;
➔(iv) poor access to finance and slow payment mechanisms.
WTO World Trade Report,2016
Slide 50
Industrial firms engaged in exports,as % of total firms by size, 2013
Slide 51
SMEs voice in CU process
◼ More attention to the specific needs of SMEs in EU-TR customsunion.
➔Specific SME-friendly chapter
• Database listing all regulatory requirements for compliance
• trade facilitation (how to reform cumbersome procedures)-TFA
• Ellimination of unnecessary hurdles and simplify RoO
• capacity building in digital trade and e-commerce (Alibaba/Kompass)
• SME committee to follow up implementation
➔Deepening CU into agriculture and trade in services
• to promote productivity in services and agricultural enterprises
• Service trade restrictions represent 10-20 % of tariff equivalence
• to reduce farm prices that can minimize labour costs in urban areas(working mostly in SMEs)
Slide 52
Opportunities are mutual for EU and TR SMEs: if trading framework between the EU and TR is enhanced
EU SMEs
➔ Dairy products
➔ Processed foods
➔ Fruit and vegetables
➔ Basic chemicals and plastics(value chain integration forintermediate products)
➔ Auto, machinary andelectrical equipment
➔ Business and professionalservices- and trade services(wholesale and retailing)
Turkey’s SMEs
➔ Processed foods
➔ Fruit and vegetables
➔ Textile, clothing and footwear(also to third markets)
➔ Trade, construction andtransport services, recreational services, logistics
Source: BKP (2016) for the European Commission.
Slide 53
Customs Union and SMEs
◼ Opening negotiations for an upgraded CU can help
European (incl. Greek) and Turkish SMEs tobenefit mutually as well as in third countrymarkets.
◼ CU is a technical issue, which should not be politicized.
Slide 54
The EU acquis directly relevant to SMEs
Chapter not closed/not yet opened:
◼ Public procurement
◼ Company law
◼ Intellectual property law
◼ Competition
◼ Information society &media
◼ Food security, veterinary& phytosanitary policy
◼ Taxation
◼ Social policy and employm.
◼ Enterprise and industrial p.
◼ Regional policy…
◼ Environment
◼ Consumer&health protection
Chapter subject topolitical blockage:
◼ Free movement of goods
◼ Financial services
◼ Agriculture and ruraldevelopment
◼ Customs union
◼ Freedom to provideservices
◼ Education&culture
◼ Energy
Slide 55
Conclusions◼ Need for a new approach to internationalize SMEs
and their linkage with the GVCs
◼ Strong and credible program with a new SME-driven narrative
➔Turkey transformed itself from low-tech to mid-tech industrial country through EU engagement
➔Now is the time for the next jump (especially for its SMEs)
◼ Choosing priorities is a good starting point
➔Customs Union is an area of opportunity (should not be politicized)
➔Building digital capacity, integration with EU digital single market
➔ financial inclusion and level-playing field for SMEs
Slide 56
This Project is co-funded by the European Union
and the Republic of Turkey