Turkey-Regional Economic Integration

After 1980 Turkey's need for foreign markets led the country to try to strengthen cooperation with trading partners worldwide. Trade ties with the Middle East received particular attention under Özal, but Turkish businesspeople also worked to improve trade with countries in North America, East Asia, and Eastern Europe. In the protectionist climate of the mid- and late 1980s, policy makers also took up proposals for regional integration with the economies of Turkey's West European and Middle Eastern neighbors.

For many years, Turkish policy makers and politicians had expressed interest in closer multilateral cooperation with other Islamic countries, especially with oil-producing Middle Eastern states. Starting in the late 1970s, Turkey's increased attention to Middle Eastern markets boosted exports of manufactured goods and construction services, attracted tourists from Middle Eastern countries, and provided additional sources of foreign direct investment and commercial financing. During the early 1980s, exports to Iran, Iraq, Libya, and Saudi Arabia grew rapidly but then declined again after 1982 as oil revenues fell. In the mid-1980s, Turkey served as a conduit for West European exports to Iran under a countertrade arrangement according to which Turkey received oil and other commodities in exchange for manufactures. Trade with Iraq was reduced after the latter announced in late 1985 that it could not make more than US$1.2 billion in payments, thereby forcing credit from Turkey. Although the Turks remained open to discussions of an "Islamic common market," disappointment with Middle Eastern markets in the mid-1980s refocused their attention on upgrading economic ties with Western Europe.

During the early 1970s, both European countries and Turkey adhered to the terms of a 1973 protocol for reducing trade barriers. The EC began granting preferential treatment to most Turkish agricultural imports, and Turkey was given a period of twenty-two years to align its agricultural policies with the EC's Common Agricultural Policy (see Glossary). In 1977, however, Turkey stopped reducing tariffs on EC goods because of the deterioration of the domestic economy. By the late 1970s, relations had deteriorated between Turkey and the EC. The EC imposed quotas and other restrictions on certain Turkish imports, including cotton yarn and T-shirts; in retaliation, Turkey applied levies on imports of European iron and steel. In 1980 the military coup froze relations between Turkey and the EC, although the EC continued to apply the commercial provisions of the association agreement. After 1981 the EC suspended financial assistance in the amount of 600 million European Currency Units (see Glossary) because of reservations concerning human rights violations under Turkey's military government.

After Turkey's return to civilian government in 1983, political relations between Turkey and the EC countries began to improve, and in September 1986 the EC-Turkey Association Council held its first meeting since the 1980 coup. In early 1987, West European diplomats seemed to be united in urging Turkey to pursue the advantages offered by the association agreement, including the provision for a customs union by 1995, before making an application for membership. In April 1987, the Özal government overrode both Turkish hesitation and European misgivings and made a formal application for EC membership. The European Commission issued an official opinion on the Turkish application in December 1989, which was later adopted unchanged by the community's Council of Ministers. In this opinion, the commission proposed that negotiations should not begin until 1993. Negotiations thereafter led the EU to vote for Turkey's inclusion in the free-trade area in 1995.

Some observers have postulated that the EU will never admit Turkey. In addition to criticizing Turkey's human rights policies, they cite three main reasons. First, the level of industrialization in Turkey lags behind that of the European economies. Second, the degree of budgetary transfers from the EU necessary to lift Turkey to the levels of even the poorest European countries would place a huge burden on Europe's resources. Third, given that entry into the union permits labor mobility, Turkey's economic structure, relatively high unemployment, and low wages particularly discourage Europeans at a time when violence in Europe against foreigners has increased dramatically, mainly as a result of high levels of joblessness there.

Since the fall of the Soviet Union, Turkey has shown a keen interest in developing strong economic ties with the states of Central Asia, the Caucasus, and the Black Sea region. In 1990 Turkey and the other states--Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, and Ukraine--surrounding the Black Sea initiated the Black Sea Economic Cooperation (BSEC) project to broaden and deepen cooperation and trade relations among themselves, nonmember states, and other regional structures. Despite obstacles, on June 24, 1992, a basic structure, including concrete plans for integration, was articulated. The most ambitious aspect of the BSEC is an attempt to create a free-trade area to promote easy movement of capital, labor, and goods. The wide range of generally complementary economies in the BSEC area is seen as a factor encouraging integration. Nonetheless, one important difference among the economies--particularly between the Turkish economy and those of the republics of the former Soviet Union--is that many of them are only in the early stages of transition from statist structures. Some observers consider this an impediment to smooth integration. Another major project of the BSEC is the creation of a development bank to finance projects in the region. Some observers, however, have noted that in a capital-poor area the ability of such an institution to mobilize sufficient funds from within the region must be doubted.

Outlook

Regionally, Turkey faces a host of potential political and security threats, largely as a consequence of the end of the Cold War and conflicts in the Middle East, which have forced the government to devote extensive resources to the military. Also, Turkey's attempts to forge regional cooperation arrangements and exploit economic opportunities have been largely stillborn. Strong nationalist sentiment at home, combined with a poor human rights record, also contributes to an uncertain domestic economic future. The Kurdish insurgency has taken its toll on government resources and foreign confidence. Turkey's long-standing attempt to integrate its economy into that of Europe has been jeopardized by the opposition of European governments to Turkey's incursion into Iraq in late 1994 and its repression of its Kurdish population.

Despite setbacks, the steady liberalization of the economy and integration into the world economy begun by former President Özal has continued without interruption. Turkey's trade sector accounts for a growing proportion of GDP, and foreign funds are a major source of investment. Despite crises in mid-1994 such as the devaluation of the currency, the stock market crash, and a number of bank failures, Turkey has been designated a major emerging market by the main international financial centers. And because a large proportion of foreign investments has gone into industrialization, most observers have expressed confidence in the economy and the government's ability to steer it carefully toward the objective of making Turkey a major regional and international industrial power.

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The OECD's annual economic survey, Turkey , is an authoritative and readily available summary of the Turkish economy that includes up-to-date statistical tables. The International Energy Agency's Energy Statistics and Balances of OECD Countries provides energy sector data on Turkey. Economic data on Turkey can also be found in the publications of the World Bank and the International Monetary Fund.

The Turkish weekly journal Briefing provides insightful, lively, and independent analysis of the Turkish economy. Among non-Turkish journals, regular economic and political coverage can be found in the Financial Times , Middle East Economic Digest , and the Economist Intelligence Unit's annual Country Profile: Turkey . The Middle East Journal and Middle East Report offer in-depth articles on Turkey. Three excellent books on Turkey that include discussion of the economic and political consequences of structural adjustment are Ziya Onis and James Riedel's Economic Crises and Long-Term Growth in Turkey , F.T. Nas and Mehmet Odekon's Liberalization and the Turkish Economy , and The Political and Socioeconomic Transformation of Turkey by Atila Eralp et al. (For further information and complete citations, see Bibliography.)

Data as of January 1995