SPRINGER BRIEFS IN ECONOMICS

Angelo Arcuri

The Rise of a New Superpower Turkeys Key Role in the World Economy and Energy Market

SpringerBriefs in Economics

For further volumes: http://www.springer.com/series/8876

Angelo Arcuri

The Rise of a New Superpower

Turkeys Key Role in the World Economy and Energy Market

13

Angelo Arcuri Conndustria Firenze Florence Italy

ISSN 2191-5504 ISSN 2191-5512 (electronic) ISBN 978-3-319-00430-3 ISBN 978-3-319-00431-0 (eBook) DOI 10.1007/978-3-319-00431-0
Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: 2013937193 The Author(s) 2013 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microlms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publishers location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specic statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)

Contents

1 Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 Economic Scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.1 Booming Economy: Growth Factors and Potential Risks. . . . . . . . . 3 2.2 Improvement of Investment Climate and Innovation Technology as New Development Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2.3 The Economic and Financial Framework. . . . . . . . . . . . . . . . . . . . . . 8 2.4 Industrial Policies and Business System Evolution. . . . . . . . . . . . . . 11 2.5 Infrastructure Modernisation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.6 Turkey as a Target Market for International Exporters . . . . . . . . . . . 15 2.7 A Success Business Story: Turkish Airlines. . . . . . . . . . . . . . . . . . . . 16 2.8 SMEs and ABIGEMs Experience. . . . . . . . . . . . . . . . . . . . . . . . . . . 18 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3 Energy Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 3.1 Energy Industry and Turkeys Strategic Role. . . . . . . . . . . . . . . . . . . 23 3.2 Oil and Gas: Limits and Opportunities . . . . . . . . . . . . . . . . . . . . . . . 24 3.3 Electricity Sector and Renewable Energy Development. . . . . . . . . . 29 3.4 Nuclear Energy: A New Challenge for Turkey . . . . . . . . . . . . . . . . . 31 3.5 Enhancement of Cooperation with the EU and USA. . . . . . . . . . . . . 33 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 4 Relations with Europe. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 4.1 Europe and Turkey: Ancient Rivalries and New Prospects . . . . . . . . 37 4.2 Toward EU Accession . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 4.3 Turkey from the European Commissions Perspective. . . . . . . . . . . . 43 4.3.1 General Overview of Bilateral Relations. . . . . . . . . . . . . . . . 44 4.3.2 Conclusions on Turkey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 4.4 Turkey and the European Identity . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 References. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

Chapter 1

Introduction

In the last years, global economic scenario underwent a radical transformation, characterised by the downfall of the West and by the emergence of new powers. Countries with great potentialities, unexpressed for a long time, experienced a buoyant economic expansion, made a growing contribution to world GDP and took an important place in the main international organisations. Therefore, a new era has begun and its protagonists are BRICS1 and Turkey. Ankara has always been an important player in the international arena, for the strength of its institutional and military apparatus and for its strategic position, at the crossroads between East and West. However, the country has become a leading country only recently, thanks to its extraordinary economic development and its involvement in some crucial energy projects. This book aims to explain Turkeys new central role within the international community, by analysing the two main drivers of change: the economic growth, in its various aspects, and the evolution of the energy sector. These topics are deepen through the personal contribution of professionals working for some institutional and business players: SACE, an Italian insurance group operating in the eld of export credit, and ABIGEM, a business centre supporting SMEs in Turkey. Furthermore, Turkish Airlines, awarded as the best European airline company in 2012, provided useful information through its press ofce. Finally, a chapter is dedicated to the difcult Turkey-EU relations and to Ankaras application for membership in the European Union. Turkeys candidacy stimulated a lively debate, fascinating and dividing the Old Continent and pointing out political, economic and cultural issues, such as the enlargement of the European Union in the Mediterranean basin, the integration of the European economy with the Turkish one and the relationship between Europe and Islam.

Brazil, Russia, India, China and South Africa.

A. Arcuri, The Rise of a New Superpower, SpringerBriefs in Economics, DOI: 10.1007/978-3-319-00431-0_1, The Author(s) 2013

1Introduction

Not only politicians and academics, but also common citizens deal with these subjects, representing a good occasion to express, and sometimes to oppose, different points of view. Debating on Turkeys possible accession to the EU is a way to bring out the doubts, fears and hopes of European people in a very critical moment for Europe, in which its institutions seem to be fragile and without a long-term vision. The text analyses bilateral relations and tries to explain the arguments supporting and contrasting Turkeys entry into the EU, in order to give an understanding to the reader and let him develop his own opinion.

Chapter 2

Economic Scenario

AbstractTurkey showed a sharp and steady economic expansion over the past decade, thus becoming one of the most important emerging countries in the world. The chapter analyses the factors that made this growth process possible, along with the potential downturn risks arising from internal and external threats. Attention is notably focused on topics such as the national industrial policy, the infrastructure development and the investment promotion activities. Some crucial issues, like the nancial framework and the role of SMEs in Turkey, are further deepen through the precious contribution of high-skilled professionals, provided with specic knowledge about Turkish economy. Turkish Airlines case study is nally examined. The ag carrier is a positive exception within the air transport sector, affected by a long and deep crisis, and represents symbolically the Turkish companies facing new markets and Turkeys new central role in the world. The ultimate goal of such dissertations is giving an overview of the overall economic situation in Turkey and presenting its future prospects. Keywords Economy Growth Threats Export Import Production Investment Innovation

2.1 Booming Economy: Growth Factors and Potential Risks

Turkey experienced such an extraordinary economic growth in the last decade, that it became a major emerging power at the global level and earned the nickname Bosphorus Tiger. Ankaras brilliant performances impressed the economic and nancial environment and the world public opinion, because they showed the countrys ability to ride out the frequent and serious crises faced in the past and to become a development model.

A. Arcuri, The Rise of a New Superpower, SpringerBriefs in Economics, DOI: 10.1007/978-3-319-00431-0_2, The Author(s) 2013

4
15 10 5 0 -5 -10 -15 2004 2005 2006 2007 2008 2009 2010

2 Economic Scenario

2011

2012

Fig.2.1Real GDP growth (%) (Source authors elaboration on Eurostat data)

One of the main growth factors in Turkey was and still is the domestic demand, fuelled by an expansionary banking policy. Banks nanced massively private consumption, and investment spending, thus making GDP increase at a Chinese pace (Fig.2.1). The government played a leading role for the beginning of this positive trend, through the restructuring of the banking system, the improvement of the infrastructure and a challenging economic reforms plan, supported by the International Monetary Fund and aiming to improve the fundamentals of economy and to create the conditions for a rapid and constant development [1]. Thanks to its efforts, Turkey grew at high rates until the global nancial crisis in late 2008, which produced rst a slow and then a sharp contraction in the Turkish economy. The GDP recorded a growth of 1.1% that year, and a drop of 4.8% in 2009 [2]. The international crisis highlighted some weakness points of Turkey, such as over-dependence on European demand and focus of industrial system on low value-added productions. These shortcomings were counterbalanced by the dynamism and responsiveness of the economy, that was able to recover quickly from shock and to get a growth of 9% in 2010 and less than half a percentage point the following year. These data are extraordinary, especially when compared with those ones of the Eurozone countries, that were heavily affected by the crisis and unable, with some exceptions, to have an effective and convincing reaction. In the Medium Term Plan for the period 20122014, the Turkish government envisaged a slowdown of economic growth and estimated a GDP growth of 4% in 2012 and 5% the next two years. In addition, the government laid down the guidelines of its economic policy for three years, by trying to increase employment, reduce the trade decit with foreign countries, support the development and ensure an increasing economic and nancial stability to the country. In order to achieve these objectives, it committed itself to fostering the production and export of high added value goods, to ght the underground economy, make the public administration more streamlined and efcient, improve the investment climate, etc.

2.1 Booming Economy: Growth Factors and Potential Risks

The implementation of the measures chosen by the government is as complex as necessary for the country to continue the virtuous cycle undertaken. Some important reforms have recently been implemented, thereby demonstrating the governments willingness to translate its intentions into actual deeds. In this respect, it is particularly signicant the entry into force of the Turkish Commercial Code in July 2012. The new legislation contains a series of measures making trade practices more transparent and providing some specic obligations for companies. According to the code, for example, companies must create a website to provide information on the share capital and an independent audit must be carried out on such capital. In summer 2012, Turkish authorities issued a decree on incentives for foreign investment, aiming to reduce the development gap among the various areas of the country, promote the creation of industrial districts on the Italian model and encourage the production of high technology goods [3]. To this end, the decree provides some incentives whose intensity is related to the geographic areas where companies want to invest, the type of investment and the business sector. Furthermore, the wide privatisation plan started by the government in the midEighties has been providing the Treasury with huge resources and helping to make the economy more competitive and dynamic. The state left some important sectors and began to divest its shares in other sectors, such as tourism, iron and steel. The excellent performances of the Turkish economy did not overcome the scepticism of some international analysts who see the danger of a new crisis on the horizon for the Anatolian country. Such worries come from the structural weaknesses of Turkey, like the large current account decit, amounting to about 10% of GDP in 2011. The government is trying to reduce this imbalance, by fostering the attraction of foreign investment and supporting exports, especially of high added value goods. Trade decit was reduced signicantly in 2012, thanks to a wide range of factors, such as the increase in revenue generated by the services, the oil price downturn and the good performance of the national currency. Nevertheless, there is still much to do to redress the trade balance. Another critical point is the high rate of unemployment and ination, that made Turkish economic crises dramatic in the past (Figs.2.2 and 2.3). These two indicators showed signicant improvements in recent times, but a possible deterioration of the international economic scenario creates some concern in the medium term. A serious threat is the underground economy, bereaving the state of huge economic resources and exposing the country to higher direct taxes, with negative repercussions on the entire economic system. The government is aware of this serious problem and has been trying to improve the coordination and the exchange of information among the various bodies committed to ghting such problem. Finally, it is possible to say that the short-term outlook of the Turkish economy is positive, although the expected growth rates are lower than those ones of

6 Fig.2.2Unemployment (%) (Source authors elaboration on Eurostat data)

2 Economic Scenario

12
10

8 6 4 2 0 2010 2011 2012

Fig.2.3Ination (%) (Source authors elaboration on Eurostat data)

10 8 6 4 2 0 2010 2011 2012

the recent past. However, it is more difcult to make predictions in a long-term perspective, because there is still some uncertainty due to the evolution of both external phenomena, such as the sovereign debt crisis in the euro area, and internal ones, such as the macroeconomic imbalances previously analysed.

2.2 Improvement of Investment Climate and Innovation Technology as New Development Factors
The biggest challenge that Turkey will have to face next years is to continue growing and maintain stability gained in the last decade, in order to keep and enhance its position among the major economic powers in the world. To this purpose, the state acted on several fronts through many reforms, especially focused on the improvement of investment climate and on innovation technology. The creation of a modern and competitive investment climate was identied as an essential tool to attract capital and boost entrepreneurship within the national development policies. Given this assumption, great efforts were made to simplify procedures and reduce bureaucracy, which always represents a heavy burden for citizens and businesses and a loss of competitiveness for the country as a whole.

2.2 Improvement of Investment Climate and Innovation

Some public bodies were established to implement government policies in the eld of investment and each of them was charged with specic tasks. In particular, the Coordination Council for the Improvement of the Investment Environment in Turkey (YOIKK) is appointed to streamline regulations on investment, nd solutions to administrative barriers faced by domestic and foreign investors and develop publicprivate collaboration in this sphere. The Investment Advisory Council (IAC) is then in charge of receiving recommendations from multinational corporations managers and international institutions about Turkish economic environment. Finally, the Investment Support and Promotion Agency of Turkey (ISPAT) is committed to promoting investment opportunities in the country and to providing investors with assistance before, during and after their entry into Turkey. In order to offer the best conditions to domestic and foreign investors interested in developing business activities in Turkey, some dedicated areas, named Special Investment Zones, were established [4]. They include the so-called Technoparks or Technology Development Zones (TDZ), sites grouping academic, economic and social subjects and aiming to encourage investment in high technology and give support to research and development. Currently, there are 39 technoparks, of which 27 are operational and 12 under construction. These centres offer various tax benets to companies operating inside them and have a positive impact on the economic and social context, because they generate jobs, attract domestic and foreign capital and enable companies to develop new technologies. The establishment of technoparks shows another cornerstone of Turkish policy: innovation technology, perceived by authorities and companies as an essential element to increase the countrys ability to compete in international markets. Indeed, the most advanced countries challenge each other on the high-tech sectors, by funding scientic research and promoting a greater interaction between the scienticacademic world and the business one. This networking logic, putting together enterprises, public institutions and other private entities, is put into practice within technoparks, where different skills and competencies are shared and used to turn inventions into concrete products, services and methods. The other two types of Special Investment Zones, called Free Zones and Organised Industrial Zones (OIZ), also experienced a strong expansion in the last years. OIZs not only provide enterprises with tax benets and lower costs for utilities, but also offer ready to use areas to investors, namely places equipped with all the necessary infrastructure to carry out business activities. There are 263 Organised Industrial Zones within Turkish territory. 148 of them are already in operation and 115 under construction. It is interesting to note that, despite the difculties of the international economy, investments in the OIZs are growing hugely, fostered by recent incentive measures granting more benets to companies located in these areas. Some incentives have a higher value and a longer duration for companies operating in OIZs located in less developed areas. Thanks to these different forms of economic support, the eastern provinces, notoriously less advanced, are showing excellent performances on the investment front, by reducing the development gap with the rest of the country.

8 Fig.2.4FDI inow to Turkey (bln $) (Source authors elaboration on Turkish Ministry of Economy data)

2 Economic Scenario

June 2012

2011

2010

10

15

20

OIZs represent an important part of the present and future growth process of Turkey, because the concentration of rms in an area creates economies of scale, facilitates the exchange of information and the specialisation of production and labour. Such forms of collaboration and integration among enterprises fostered by OIZs are necessary but not sufcient, because companies also need to interact quickly and protably with the institutional apparatus. For this reason, the common aim of several legislative measures in the eld of investment is trying to improve and enhance relations between institutions and enterprises. The great business opportunities offered by Turkey, together with the instruments adopted to support investors, enabled the country to rank thirteenth in the world in 2012 for attraction of foreign direct investment (FDI), according to AT Kearney Condence Index. In the last years, FDI came mainly from the European Union, followed by North America and the Gulf countries, and were concentrated especially in the manufacturing sector and in nancial intermediation (Fig.2.4). If Turkey continues on its path of administrative simplication and focuses on the development of special areas of investment, it is reasonable to expect a further increase of FDI in the near future.

2.3 The Economic and Financial Framework

Mr. Mario Bruni, SACEs senior account manager and coordinator in Florence, was asked to contribute to this volume and, in particular, to draw a brief overview of the economic and nancial situation of Turkey, by answering a few questions.1 SACE is an Italian insurance and nancial group offering a wide range of instruments for credit insurance, investment protection, nancial guarantees, sureties, etc.
1 The information and views set out in this interview are provided by Mario Bruni. They do not necessarily reect the ofcial opinion of SACE, that cannot be held responsible for them.

2.3 The Economic and Financial Framework

The group is 100% controlled by Cassa Depositi e Prestiti (CDP), an Italian joint-stock company under public control. SACE provides with assistance more than 25000 companies in 180 countries, thus contributing to the process of internationalisation of the Italian entrepreneurial system. Studies and analysis on foreign markets play an important role within the SACEs activities, as they give technical and practical information, enabling enterprises to understand the opportunities and risks related to each market and to identify the best solutions to approach it. Turkey attracts investment from all over the world and a is major commercial destination, thus representing a reference point for international economic operators. What role does the country play in SACE strategies? Italy is the fourth largest trading partner of Turkey after Germany, Russia and China. Imports from Turkey amounted to 6 billion, while Italian exports to the country exceeded 9.6 billion in 2011. Turkish market requested especially goods belonging to the following sectors: mechanical engineering (24% of total exports), motor vehicles and other transport equipment (12%), metals and metal products (12%). Positive results were also recorded in the rst nine months of 2012, in which Italian exports reached an increase of 12% compared to the same period of 2011, while imports fell by 17%. Italian direct investment in Turkey amounted to 2.9 billion in 2011 (approximately 2.2% of total FDI in the country). Italian FDI are still low but they are increasing fast. In the rst nine months of 2012, Italian investment in the country increased by over 75% compared to the same period of the previous year, thus reaching $149 million. The number of Italian companies operating in Turkey (945 companies at the end of September 2012) is also growing. SACEs activities in Turkey reect the increasing importance of Turkish market for Italy. Indeed, Turkey is SACEs fth foreign country for exposure, with more than 1,479 million in terms of guarantees approved, concentrated in the elds of oil and gas, infrastructure, construction and automotive. SACEs attention towards the country is also highlighted by the opening of an international ofce in Istanbul, acting as a regional hub. The presence of a permanent representation of SACE in Turkey improves our ability to effectively reach and help the Italian companies and their local counterparts, also through cooperation agreements with strategic actors, such as the Investment Support and Promotion Agency of Turkey (ISPAT). Can you briey outline the framework of the actions undertaken by SACE to support Italian entrepreneurship in Turkey? In the rst nine months of 2012, despite the persistence of a difcult economic situation, SACE conrmed its role in support of Italian businesses and banks operating in Turkey, by expanding its portfolio with 24 new insurance operations in the country. The new guarantees approved during the reporting period totalled 23.5 million. SACE offered support both for low-value operations, such as the construction of a wastewater treatment plant ( 1.1 million), and major projects in the country.

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2 Economic Scenario

It is important to mention among these ones the guarantee related to the loan granted by Crdit Agricole and Banco Bilbao Vizcaya Argentaria in favour of the Italian company Astaldi, for preparing and executing some contracts and supporting some investment made in the sector of concessions abroad. Given the information at your disposal, do Italian companies, and in general the European ones, use Turkey as a gateway to the Middle East and the Caucasus? More and more Italian companies see Turkey not only as a growing market but also as a bridgehead to approach the neighbouring areas, such as Middle East, Russia and Turkic markets of Central Asia, thanks to its geographical proximity and the strategic benets arising from free trade agreements with such countries. How do you assess the Turkish economic environment and, in particular, the conditions for foreign operators? Overall, Turkey has an attitude of openness to foreign investment. With the Law on foreign investment of 2003, foreign investors were made equivalent to the national ones in terms of legal rights and protections, but restrictions remain, particularly with regard to strategic sectors (e.g. Defense, telecommunications and energy). In the past decade, also driven by accession negotiations to the EU, the country introduced important reforms and measures to improve the business climate, ght corruption, reduce the weight of the informal economy and continue the privatisation process. In this perspective, a new Commercial Code was issued and entered into force in July 2012. It includes measures aimed at strengthening governance practices and introduces international accounting and transparency standards. The new code also provides the opportunity for companies to set up Economic Interest Groupings, thus encouraging the participation of SMEs in large-scale projects. However, there are still some difculties for economic actors operating in the country. The slowness of the judicial system, an excessive bureaucracy, the corporate governances weaknesses, the frequent changes in the legal and regulatory framework can represent a brake on inward investment. SACE is a vantage point for understanding the dynamics of international markets and learning about the opportunities and risks related to each country. According to SACEs forecasts, what are the economic prospects for Turkey? In the past decade, Turkey consolidated progressively its position internationally, thereby becoming the 6th economy in Europe and 18th in the world. After two years of sharp growth (GDP: 9.2% in 2010 and 8.5% in 2011, in line with that one of the BRIC countries), the country is undergoing an economic slowdown; growth rates are positive but lower and more sustainable than in previous years (3.0% in 2012 and 3.5% in 2013). Growth is still focused on private consumption, with a negative impact on the trade balance, and on foreign investment. Export plays a positive role as well, due to the increasing capacity

2.3 The Economic and Financial Framework

11

of Turkish enterprises to diversify their target markets and to the closer relations among Turkey and other states, notably North African, Middle East and Asian countries, thus mitigating the slowdown in European trading partners. The rating agency Fitch has recently expressed a more positive assessment about Turkeys creditworthiness (from BB+to BBB-stable outlook, by passing the country to investment grade, on account of the progress made in terms of more sustainable growth and trade decit reduction. This recognition could enable the country to attract a greater volume of capital from institutional investors. However, some critical factors still persist. They are related to the current account decit (equal to 10% of GDP in 2011) and to the heavy dependence on foreign capital in the short term, which makes the economy susceptible to changes in market sentiment.

2.4 Industrial Policies and Business System Evolution

Turkish business system is undergoing deep changes, driven by the dynamics of international markets and by the government policies, outlined in a document issued by the Ministry of Industry and Trade, entitled Turkish Industrial Strategy [5]. The text, covering the period 20112014, is of particular interest because it shows what goals Turkish authorities prioritise and what tools and methods they intend to use to achieve them. The underlying purpose of the strategy is increasing the level of competitiveness and efciency of industry and is made up of some specic objectives. Turkey has a good specialisation in traditional sectors of industry, but it still shows gaps in the eld of high technology. The awareness of this critical element generated a fundamental objective of the national industrial strategy: to increase the weight of medium and high technology sectors in production and exports. To this end, some public interventions aim to support research and development and to foster investment in the production of precision instruments, medical equipment, electronic devices, etc., because such products are technologically advanced and may enable Turkey and its industrial system to become more innovative. Aligning with the most advanced countries in this eld requires huge efforts, that cannot be implemented in a short period of time. However, Turkey seems to have chosen the right path. Indeed, the weight of goods such as motor vehicles, machinery and electronic products increased on the total manufacturing output in the last years. On the contrary, the weight of more traditional products, such as clothing, textiles and food decreased. Nevertheless, these sectors are still an important part of Turkish industry in terms of production, employment and know-how, therefore the government means to implement policies aiming to promote them. In particular, governments aim is to incentive the transition of low-technology sectors towards high added value products through actions in support of design, branding and logistics.

12

2 Economic Scenario

In addition, the state aims to support the development of enterprises that can continually improve and grow in the current competitive environment, by supporting their efforts to innovate and take on qualied personnel. The purposes described are perfectly in line with the needs expressed by key industries, like automotive, where factors such as the availability of skilled manpower and research and development are essential to continue the positive trend shown in recent times. Indeed, the Turkish automotive industry showed a growing level of investment and employment, unlike what happened in Europe, where the general economic downturn and the sector related difculties resulted in staff reductions and postponement of investment by some companies. The automotive industry is concentrated mainly in the Marmara Region (Istanbul, Bursa, Kocaeli, Sakarya), where there are some European and Asian industrial groups and thousands of small and medium enterprises. Promoting a greater integration among these subjects and supporting SMEs in accessing to credit and to new technologies is crucial to keep the system competitive and make it further expand. The domestic market has a huge growth potential, as the per capita income shows a rise and the number of circulating motor vehicles is still low compared to the European average. Moreover, the export prospects are good, given that the major automakers have recently carried out or planned investments to increase the efciency and competitiveness of production sites in Turkey. However, some dynamics, primarily the continuation or worsening of the European economic crisis, may have a negative impact on the sector, given the countrys dependence on EU markets. The textile and clothing industry is particularly important because it marked the beginning of the Turkish industrial development and even today retains a leading position in the manufacturing sector by number of employees and companies, mainly concentrated in three geographical areas: Marmara region, Aegean and ukurova. As mentioned above, the contribution of the textile and clothing industry to GDP declined progressively, both for the emergence of other types of productions, and for sector-specic issues, such as the erce competition from India and China, which are capable of producing at lower costs. At this point, the question is: can textile-clothing sector may have a future in Turkey? The answer to this question depends largely on the capacity that Turkish companies will have to carry out an internal renewal process to adapt to changing market needs. Focusing on eco-friendly products, updating technology continuously and, in general, making investments leading to high added value productions, in accordance with the governments strategic objectives, are the only way to keep current market share and eventually to increase it in a long term perspective. Turkish companies are currently focused on low and medium technology products in the eld of machinery. Therefore, they are in direct competition with companies from emerging countries, whose main weapon is offering low prices. Turkey has to position itself on a higher market segment, by following the example of the United States and Japan and, more recently, of EU countries. Such transformation process is particularly difcult, because this industrial sector is made up mainly of small and medium enterprises, generally characterised by limited

2.4 Industrial Policies and Business System Evolution

13

nancial and organisational resources. Institutions can play a key role for a change of pace, through policies aiming to foster research and development and to promote forms of aggregation and inter-rm collaboration. If it happens, the Turkish machinery industry will continue the development process started after the nancial crisis of 2001 and will become one of the leading sectors of the national economy. The so called consumer electronics2 sector is also expected to boom, thanks to domestic demand, fuelled by a young and dynamic population, and to a series of government initiatives aiming to attract young people to technology, such as the IT for Education, a plan that will provide forty thousand schools with the latest information technology products within three years. Finally, it is possible to conclude that the Turkish industry, both in its traditional components, and in the most innovative ones, has an interesting development potential, on domestic and foreign markets, that can be fully exploited only if the government industrial policies are quickly and factually implemented and if the private sector takes the necessary corrective actions to reach the levels of the most advanced industrial systems.

2.5Infrastructure Modernisation
One of the most tangible signs of a countrys economic growth and also one of its major driving forces is the expansion and modernisation of the infrastructure in the broad sense: transport networks, telecommunications, energy, etc. Turkey is by far the most advanced nation in its regional context in terms of infrastructure and still has plenty of room for improvement, thanks to the efforts of the authorities, intending to implement by 2023, which marks the centenary of the foundation of the Turkish Republic, a series of strategic projects for the country, including roads, ports, airports, railways, hospitals and telecommunication systems [6]. Such development plan is characterised by an increasing involvement of the private sector, asked for carrying out projects in partnership with the public institutions (publicprivate partnership), in line with the government policy, aimed at encouraging investment in infrastructure and at reducing the presence of the state in the economy. The Turkish road network shows an impressive construction speed: roads with separated carriageways increased from 6,100 to 21,300km from 2003 to 2011, thus enabling many towns and villages to grow and to ride out the past difculties coming from poor connections.

2 It

encompasses information technology equipment, mobile phones, audio and devices, electronic games.

14

2 Economic Scenario

It is interesting to note that the construction of such type of roads has positive effects, both economically and socially, because it supports the expansion of the business system and results in a drastic reduction of car accidents and victims. In order to create some alternatives to road transport and to reduce the trafc and pollution related problems, huge investments were made in the rail sector and further ones will be made in the incoming years. Turkey currently ranks sixth in Europe and eighth in the world for the extension of the high-speed rail line, representing a priority for the government. In addition, some important works are under planning or construction, such as the Marmaray tunnel, designed to connect the Asian side of Istanbul with the European one, by passing under the Bosphorus. Once completed, it will host a line for long-distance and high-speed trains, two light rail lines and a subway, with a total capacity of 75,000 passengers per hour. Strengthening the maritime transport infrastructure is equally important in the government strategies. This form of transport is the most used for import and export operations, therefore supporting the sector means giving impetus to the countrys foreign trade and, ultimately, to the national economy as a whole. The authorities promote both small initiatives, such as projects aimed at increasing the capacity of certain ports, and large-scale works, requiring huge nancial resources and a medium-long term implementation. The most ambitious project is certainly the construction of Kanal Istanbul, a channel that will connect the Black Sea to the Sea of Marmara. The work is still under planning, but the government hopes to complete it by 2023, thereby relieving trafc congestion in the Bosphorus Strait. Turkey made some signicant progress also in the eld of air transport, by modernising some airports and building new ones in a very short time. For example, Zafer Airport, the fourth-largest in the country, was built in just 18months. The number of domestic and international connections increased hugely, thus making a precious contribution to tourism and enabling Turkey to rank seventh among the worlds top 20 tourist destinations in terms of arrivals. Indeed, it is well known that the factors inuencing the choice of a tourist destination include the quality and the speed of the air transfer. The Turkish authorities became aware of that and acted not only on the infrastructure side, but also on the bureaucratic one, through a series of bilateral agreements with several states, that facilitated the issuance of visas. Turkey has a good telecommunications infrastructure, that can further improve in the near future through the implementation of a wide range of projects, sometimes nanced by international organisations. In this regard, one of the most important initiative is about broadband. In 2011, Turk Telecom received a grant of 250 million from the European Investment Bank to develop broadband in rural areas and to modernise the existing infrastructure. The health sector developed as well in the last years, with the construction of new hospitals in various Turkish cities, and interesting business opportunities arose not only for construction companies, but also for biomedical, hospital supplies and furniture industry.

2.5 Infrastructure Modernisation

15

Foreign operators grasped the importance of this growth process and entered the Turkish market by making huge investments and signing important contracts. For example, the Italian group Astaldi awarded the concession for the design, construction and operation of the Etlik Hospital complex in Ankara.

2.6 Turkey as a Target Market for International Exporters

Turkey has always been considered an ideal production base, thanks to its strategic geographic location, the high specialisation and low cost of its labour force and its wide range of incentives. For these reasons, businesses from all over world invested and continue investing hugely in the country, with production activities in all sectors. As well as being one of the most interesting and dynamic manufacturing actors on the world stage, Turkey is also an important target market, because the growth of the gross domestic product strengthened the middle class over the last decade, thus enabling a wide part of population to access to goods and services previously considered inaccessible. The Turkish middle class, about 59% of the total population, became consumer of a wide range of high and mediumhigh level products, along with the upper classes. Therefore, European, American and Japanese companies increased their commercial expansion actions, in order to seize the opportunities offered by the Turkish development and to nd alternatives to traditional markets, characterised by a persistent slump in consumer spending. Foreign rms focused rst on the most populous and developed areas, concentrated in the western part of the country, and more recently on the peripheral ones, that are expanding rapidly and showing a considerable unexploited potential. This growing interest in Turkey resulted in the proliferation of representative ofces, subsidiaries and other forms of direct presence on the local market, designed to better assist the Turkish customers and to devise ad hoc solutions to meet their specic needs. The Turkish middle class expressed the need to show the improvement of its social status and to adopt a Western lifestyle during the economic boom years. To meet this need, it increased considerably the purchase of high quality furniture, fashion and food products, thereby offering great business opportunities to countries like Italy, which are traditionally specialised in these sectors. The positive trend of Turkish economy led not only to the strengthening of the middle class, but also to the expansion of the upper classes, thus giving impetus to the luxury market. It is estimated that the number of rich people in Turkey will double in 2014 compared to three years before, like in the BRICS countries, and will produce a fast and strong increase in the purchase of certain goods and services, primarily travels, cars and luxury accessories. Therefore, Turkey became, along with other emerging countries, a primary target for the major international brands. Most of them are in Turkey for a long time

16

2 Economic Scenario

and plan to further expand next years, through the opening of new stores in key areas of the country. The rising purchasing power is not the only factor making Turkey an attractive market. The country also has a very young population, with a low median age (less than thirty years) and a high propensity to consume. Many sectors, especially the most innovative ones, such as ICT, benet from this situation, because their main clients are usually young people. Furthermore, some business opportunities arise from the development of the Turkish industrial system, trying to increase its competitiveness level through a series of actions, including the import of technologically advanced goods from other countries. This need for technological upgrading is felt especially in textileclothing and automotive industry, as the country has to face an increasing foreign competition and the efciency of production facilities often makes a difference in these sectors.

2.7 A Success Business Story: Turkish Airlines

Turkeys booming economic growth recorded over the past decade coincided with the extraordinary development of Turkish Airlines (THY), the ag air carrier. It can be considered the symbol of the Turkish vitality and dynamism and one of the key factors of the countrys expansion in foreign markets. The company is owned by 49.12% by the Republic of Turkey and by 50.88% by other shareholders and shows a wide range of subsidiaries and afliates [7]. The group has a eet of 211 airplanes and 234 destinations in 2013, on steady rise compared to the previous years. Turkish Airlines, founded in 1933 as State Airlines Administration, was for a long time a small airline company, with a limited number of routes and passengers. The turning point came in 2001, when it started increasing year in and year out and gaining positions in the international rankings. Some data can better explain this evolution: passengers transported were 10.3 million in 2001 and became 40 million in 2012, with a corresponding increase in operating revenues and prot [8]. It is interesting to note that this positive trend continued even after the 2008 nancial crisis and the recent difculties affecting the global economy and air transport. When the other air carriers had large losses, Turkish Airlines continued growing and earning. Its success arises from a complex business strategy, exploiting the main companys strengths [9]. First of all, THY can benet from the strategic geographical position of Istanbul, at the crossroads between Europe and Asia. It enables an aircraft to reach 55 countries within three hours and a half, thus representing a worldwide hub. An important Turkish Airlines strong point is its ability to keep operating costs low, thanks to a number of strategic choices and cost-cutting policies. In this regard, it can be observed that the eet is made up mainly of quite young and

2.7 A Success Business Story: Turkish Airlines

17

narrow-body aircrafts, whose purchase and operation costs are low, unlike other airline companies, using larger and more expensive jets, that are also difcult to ll. In addition, the Turkish carrier adopts various measures aimed at reducing fuel consumption and increasing direct sales channels, thereby improving its protability. As shown before, THY has a very high number of destinations, that are focused not only on the traditional markets of Europe and North America, but also include many emerging countries. Indeed, it works intensively in countries such as Brazil, China and India, thus proting from the economic growth of these countries and the consequent trafc increase to and from them. The focal point of the business strategy is providing the customer with a high quality service, though keeping costs under control. In order to achieve this goal, Turkish Airlines gives special attention to some aspects inuencing customer satisfaction, such as the meals served on board and the in-ight entertainment equipment. These customer-oriented policies make an important contribution to the companys brand promotion and foster its expansion in the world. In order to further increase its popularity, THY carries out various promotional initiatives, such as advertising campaigns involving celebrities and sponsorship agreements with famous sports players. Furthermore, it makes use of social networks to establish a constant and interactive relationship with its passengers. Such activities arise from huge investments in marketing strategy and technology and are expected to continue in the near future, to let Turkish Airlines cope with its major international competitors. The companys image benets not only from the media campaigns, but also from the international awards it received in 2011 and 2012: Skytrax, a prestigious aviation research organisation, awarded Turkish Airlines as the best airline in Europe. THYs brilliant performances also depend on the efcient management of its subsidiaries. They carry out a wide range of activities, such as technical maintenance, on board catering and ground handling and contribute to the groups success both providing Turkish Airlines with complementary services and making a prot. In order to do that, they supply products and services to external customers. For example, Turkish Technic, a subsidiary offering aircraft maintenance, repair and overhaul (MRO) services, provides several foreign airlines with technical assistance. In order to pursue its international growth strategy, Turkish Airlines cooperates actively with other airline companies in some target markets, where the local carriers support is sometimes a fundamental competitive advantage. It is also member of Star Alliance, the leading global airline network encompassing a wide number of international airline companies. A careful analysis about Turkish Airlines performances reveals that cargo transport contributed considerably to the companys expansion. Indeed, posted cargo revenue reached 491 million US dollars in the rst nine months of 2012, with a 12% increase compared to the same period of the previous year. Such results are of utmost importance not only for the carrier, but for Turkey as a whole,

18

2 Economic Scenario

because Turkish enterprises need an efcient air transportation system to enhance their presence on the international markets. In this regard, it is possible to say that the national carriers good performances had and still have a positive impact on the countrys economic growth and vice versa. This mutual benet relationship does not involve only manufacturing companies, but also tourist sector ones. The sharp increase in the number of international destinations offered by THY boosted the arrival of millions of tourists, thus creating new business opportunities for various areas of the country. The questions that frequently come up are: can other airline companies follow Turkish Airlines example? Can the Turkish carrier become a business model? The previous observations show that the companys success does not come only from some peculiar advantages, such as the strategic position of the logistics base, but also from an efcient business strategy, involving staff, subsidiaries, customer satisfaction, etc. The management principles applied to these business aspects can be followed by other enterprises, even out of the air transport sector. The investments planned for the future, along with the strategies described, should enable Turkish Airlines to keep on growing, even if the persistent economic downturn in Europe and the political instability in Middle East can represent a risk for the air transport sector as a whole. As for the specic company issues, the Turkish carrier needs to have the new airport of Istanbul as soon as possible, in order to keep its competitiveness, because the current airport is not sufcient anymore to meet the increasing air trafc demand.

2.8 SMEs and ABIGEMs Experience

Small and medium enterprises are the backbone of the business system in Turkey and one of the key factors of development, therefore any attempt to understand the Turkish economic reality cannot leave SMEs out of consideration. They represent more than 99% of all enterprises and absorb the main part of the labour force employed in the business sector. These data put Turkey in line with the EU countries, but Turkish small and medium enterprises are smaller than the European ones by number of employees: Three by company compared to the EU average of 4.2. The number of Turkish SMEs grew considerably in the last years, as well as their contribution to the gross domestic product and employment. Education played an important role in this expansion process, through specic initiatives aimed at spreading the entrepreneurial culture and providing practical information to start and manage business activities. Several institutions, such as the Organisation for the Development of Small and Medium Enterprises (KOSGEB), the Turkish Employment Agency (ISKUR) and chambers of commerce made great efforts on the educational front and addressed a very wide audience, including students, unemployed and various categories of entrepreneurs (young people, women, disabled, etc.).

2.8 SMEs and ABIGEMs Experience

19

Despite the progress made, Turkish SMEs still stand below the EU average for innovation level, as showed by specic studies of the European Commission aimed at understanding how companies meet a number of parameters, such as the introduction of product or process innovations and the number of online purchases and sales. To ll this gap, KOSGEB developed a support model acting on some cost items related to research and development, in accordance with the general objective of the government to make innovation a driver of the economic growth. Turkish small and medium enterprises lag behind European competitors also in the eld of internationalisation. It is well known that Turkey has a urgent need to increase its exports, so it is essential for it to provide companies, especially the smallest ones, with the necessary tools to start operating or to expand into foreign markets. To this end, the Turkish Export Promotion Centre (IGEME), headed by the Undersecretariat of Foreign Trade, launched a programme helping small and medium enterprises internationalise themselves through training and counselling activities and nancial aid. Many of the initiatives in support of Turkish SMEs were boosted by a series of international agreements signed by the government, such as the Bologna Charter on SME Policies, the European Charter for Small Enterprises, the Multiannual Programme for Enterprise and Entrepreneurship and the Small Business Act for Europe (SBA). The latter, approved by the European Council in 2008, sets out the guidelines that the EU intends to follow to help SMEs grow and create jobs [10]. A new document was issued in 2011: the review of the Small Business Act for Europe, aiming to make an assessment on the implementation of the planned actions and to identify the measures to tackle the economic crisis. According to a report published by the OECD in 2012 on the progress made in the implementation of SBA in the Western Balkans and Turkey, Ankara seems to have developed an effective policy for SMEs, supported by a wide and strong institutional apparatus [11]. The report recommends to improve the business environment, by taking actions aimed at reducing the administrative barriers and streamlining the regulatory system. It also urges the introduction of a continuous monitoring and evaluation system, designed to ensure that resources supporting SMEs are well spent. In order to know better Turkish SMEs, it may be useful the testimony of an institution that works daily with them and tries to increase their skills and to improve their organisation. The institution at issue is ABIGEM, established by the European Union and the Turkish government to provide SMEs with consulting and training services. Its ofces are located in various parts of Turkey and play a very important role in the central and eastern part of the country, where the production system is not developed yet and therefore needs a strong support. The following interview was released by Ertan Uzay, director of the ABIGEM centre of Sivas, a city located in the region of Central Anatolia and in subregion TR72, along with the provinces of Kayseri and Yozgat.

20

2 Economic Scenario

Uzays answers are focused on Sivas and neighbouring areas, thereby offering a glimpse of the Turkish periphery and its production system.3 In order to operate successfully in foreign markets, you need to have specic knowledge and skills. What do Turkish small and medium enterprises need to increase their international competitiveness, in your opinion? Small and medium enterprises play a very important role in the Turkish economy, both for their huge number, and the large labour force employed. However, they have some weak points, limiting their level of competitiveness. In particular, they are weak in the eld of technology, innovation and research and development. Furthermore, they show a limited usage of bank loans, an insufcient credit guarantee system, a low usage of modern marketing strategies, a lack of consciousness of quality and brand concepts, etc. The central and eastern part of Turkey is developing very fast, could you briey describe the growth of the business system in your province and its future prospects? The number of new businesses registered with the StSO (Sivas Chamber of Commerce and Industry) has been steadily increasing year on year. The key growth sectors for new business entrants in Sivas are clearly: construction, food & food distribution, and other. Sivas and Tokat province does not have a business incubator zone, however Yozgat does. Yozgat Incubator Zone was founded in 2007 and began operating in 2008. The site is 3500m2 and can house 21 workshops, plus a managerial (ofce) area of 150m2 and a joint use area of 25m2. As at July 2012, there are 14 start-ups producing the following items: clothing, bags, socks, detergents, furniture, plastics, glass, paper and dried fruit. TR72 region ranks 20th on GDP and 15th on GVA, out of 26 Level-2 Regions. This means the region lies within somewhat poorer part of Turkey. In terms of Socio-economic development, the region ranks 16th. This is slightly worse than the mid-point of the 26 Level-2 regions. Similar rankings hold for the regions Manufacturing industry development and Population gures. When compared to 81 provinces in Turkey, the three provinces in the region rank quite differently compared to each other. Kayseri fares signicantly better than the other two provinces on all indicators (9th out of 81 provinces for Competitiveness, 18th for Manufacturing industry development, 13th for Export and Import and 16th for Population). These indicators place Kayseri as a leading province in Turkey, contrasting dramatically with Yozgat at the other end of the spectrum, and Sivas, that is marginally better than Yozgat on Exporting (74th Yozgat vs. 55th Sivas), Socio-Economic Development (64th Yozgat vs. 53rd Sivas) and Population (41st Yozgat vs. 32nd Sivas). However, for Competitiveness Index, 20082009, Sivas (20th) ranks far better than Yozgat (73rd), aligning Sivas more with Kayseri (9th).
3 The information and views set out in this interview are provided by Ertan Uzay. They do not necessarily reect the ofcial opinion of ABIGEM, that cannot be held responsible for them.

2.8 SMEs and ABIGEMs Experience

21

Kayseri province underpins the export capacity of the TR72 region, with its 95% share of the regions exports. Sivas province exports account for around 5% of TR72 overall exports, whilst Yozgat is less than 1%. However, Sivas province saw the largest percent increase in exports between 2009 and 2011 showing healthy growth at 97%. Sivas region has experienced a population decline over recent years due to people (notably young people) moving to Istanbul, Ankara or other bigger cities. The region has also experienced difculties in promoting and encouraging young people to force a career in business. Population growth rate, health consciousness and outwards migration all impact on growth of the SME sector. The decline in Sivas population over the last ve years may have a negative impact on the available labour force. It will be crucial for the ABIGEM to provide SMEs with relevant training and support to develop appropriate HR strategies and to meet their stafng needs. On paper there is a relatively good level of women entrepreneurs registered with Sivas CCI as SME owners/shareholders. However, many of such registrations are made to meet the requirement for a minimum number of shareholders for an enterprise to be registered. In reality, the women are not active in managing business operations. The ABIGEM will place special emphasis on promoting womens entrepreneurship by leveraging on the experience of local female entrepreneur champions to demonstrate what is achievable within realms of acceptable social and cultural norms. R&D in Sivas is at a low level with a limited focus on innovation. Through establishing a database of local company proles and fostering cyber-links to enterprises through its BC networks, the ABIGEM will support local SMEs to access to information and technology at a national and European level. Having access to their national and international counterparts through ABIGEMs networks should provide local SMEs with a new source of ideas and information and technological updates. ABIGEM can be dened as a joint initiative of the European Union and the Turkish government, what are the main results of this cooperation and its future steps? GEMs, During the four-year period between 2002 and 2006, the rst ABI which were established thanks to EUs nancial support in an effort to provide zmir and Kocaeli. The SMEs with services, started operating in Gaziantep, I economy of these regions gained nearly 55 million euros throughout this project thanks to the establishment of such centres. Moreover, during the expanGEM project, 12 new provinces started getting support sion process of the ABI with EU funds. These provinces are Adana, Afyon, orum, Denizli, Eskis ehir, Erzurum, Kayseri, Konya, Malatya, Tekirdag , Trabzon and Us ak. The total value of the project in 2009 was more than 32.5 million euros and the total amount of funds provided by EU exceeded 50 million euros, including the rst project. In the upcoming period, four new provinces started being supported: Sivas, Hatay, Batman and Van.

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2 Economic Scenario

Does ABIGEM cooperate with other public and private subjects, like business associations and chambers of commerce, to support local enterprises? If so, how? ABIGEM cooperates with local chambers of commerce and some institutions, like: municipality, governors ofce, universities, funding institutions (such as KOSGEBSME Development Organisation, Regional Development Agencies (RDAs), TKDKAgriculture and Rural Development Support Institution) etc., TESKConfederation of Turkish Craftsmen and Tradesmen), KGKAssociation of Women Entrepreneurs, KGFCredit Guarantee Fund, ISKURTurkish Employment Service and EU Info Centre. Local chambers of commerce are the hosts of ABIGEMs; they provide ABIGEMs with working space and support their daily activities. ABIGEM cooperates with other public and private institutions as well, mostly to serve SMEs better in different areas when necessary.

References
1. CIA (2012) The World FactbookTurkey. https://www.cia.gov/library/publications/theworld-factbook/geos/tu.html. Accessed 11 Oct 2012 2. Ministero degli Affari Esteri, Ministero dello Sviluppo Economico (2011) Rapporti Paese CongiuntiTurchia, 2 semestre 2011. http://www.rapportipaesecongiunti.it/rapporto-congi unto.php?idpaese=47. Accessed 16 Oct 2012 3. Ambasciata dItalia in Ankara, Ufcio Commerciale (2012) Cronache Economiche n.20. http://www.ambankara.esteri.it/Ambasciata_Ankara. Accessed 31 Aug 2012 4. ISPAT, Zone Speciali dInvestimento (2012) http://www.invest.gov.tr/itit/investmentguide/in vestorsguide/Pages/SpecialInvestmentZones.aspx. Accessed 20 Oct 2012 5. Republic of Turkey, Ministry of Industry and Trade (2010) Turkish Industrial Strategy Document 20112014. http://www.sanayi.gov.tr/Files/Documents/TurkiyeSanayiStratejisiIng ilizce.pdf. Accessed 10 Oct 2012 6. Republic of Turkey, Ministry of Transport and Communications (2011) Transportation in TurkeyCountry Report. http://www.comcec.org/UserFiles/File/ulastirma/%C3%9CLKE%20 RAPORLARI/Turkey.pdf. Accessed 3 Nov 2012 7. Turkish Airlines (2012) Organization. http://www.turkishairlines.com/en-it/corporate/investor-relation/organization. Accessed 9 March 2013 8. Turkish Airlines (2012), PresentationDec 2012 9. Turkish Airlines (2011) Annual Report 2011. http://www.turkishairlines.com/trTR/kurumsal/faaliyet-raporu/2011/en/index.html. Accessed 9 March 2013 10. European Commission (2012), SBA Fact Sheet 2012- Turkey. http://ec.europa.eu/enterprise/ policies/sme/facts-gures-analysis/performance-review/les/countries-sheets/2012/turkey_ en.pdf. Accessed 12 Oct 2012 11. OECD et al (2012) SME policy index: Western Balkans and Turkey 2012: Progress in the implementation of the Small Business Act for Europe, OECD Publishing. http://dx. doi.org/10.1787/9789264178861-en. Accessed 15 Dec 2012

Chapter 3

Energy Market

AbstractTurkey is not only a leading economic power, but also an important energy player, thanks to its geographical position. Indeed, the country is located between the Middle East and Caspian areas, oil and natural gas suppliers, and the Western Europe countries, large importers of such resources. This strong point is counterbalanced by a traditional weakness: a limited availability of domestic energy sources, resulting in massive imports of oil and gas from abroad and in a heavy dependence on Russia. The chapter explains how Turkey exploits its strategic position and tries to ride out its energy vulnerability. The specic problems and opportunities related to each energy sector, notably electricity, oil and gas, renewable energies, and nuclear power, are analysed as well. Finally, special attention is dedicated to some initiatives and projects that Turkey put in place over the last years to enhance its bilateral cooperation with the European Union and the United States in matter of energy. Keywords Energy Electricity Nuclear Oil Gas Renewable Pipeline Power plant

3.1 Energy Industry and Turkeys Strategic Role

Energy supply has always been a matter of serious concern for Europe and in particular for countries like Italy, meeting only a small part of their demand with domestic resources. The Russian-Ukrainian gas crisis broken out in 2006 showed clearly the vulnerability of Europe, appeared unprepared for the drastic fall in supplies from Russia. The difculties experienced that time made the European countries more aware of the need to diversify rapidly the sources and routes of energy and stressed the strategic role of Turkey, that can make a signicant contribution to enhancing European energy security. Indeed, the country is a natural bridge between the Middle East area and the Caspian region, producing oil and natural gas, and the states of Western Europe,

A. Arcuri, The Rise of a New Superpower, SpringerBriefs in Economics, DOI: 10.1007/978-3-319-00431-0_3, The Author(s) 2013

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3 Energy Market

large consumers of these resources. The geographical position explains why Turkey was chosen as a transition point of important gas and oil pipelines, completed or under construction, thereby becoming an important energy hub of the Eurasian platform [1]. In addition, Turkey has interesting prospects in the eld of renewable energies [2]. They attract huge public investments aimed at creating viable alternatives to traditional sources and generating growth and employment. In the geothermal sector, for example, the government aims to make better use of the countrys sizeable resources to multiply megawatts installed over the next few years. These investments are necessary especially in the light of the last decade economic growth, that produced a stunning increase in fuels import and contributed to widening the current account decit. To prevent these dynamics from triggering a vicious cycle, thus negatively affecting competitiveness and economic development, the Turkish government has to fully implement the national energy policy set in the last years. It is focused on following guidelines: increasing energy efciency; encouraging the usage of low environmental impact technologies; diversifying the energy sources; optimising the usage of domestic energy resources; stimulating private investment. The rst results of the new Turkish energy path are tangible: the government incentives for renewable energies made private investments grow considerably and a further increase is expected in the near future, thus improving the countrys production capacity. In this regard, it is very important the development of the wind industry, giving Turkey a leadership position for the construction of new plants.

3.2 Oil and Gas: Limits and Opportunities

Turkeys energy prole shows a series of weak and strong points. The rst ones include primarily the over-dependence on oil and gas, accounting for over 60% of total energy demand. In addition, the country has a very limited availability of these hydrocarbons on its territory and is consequently forced to make massive imports from the former Soviet bloc area and the Middle East (Fig.3.1). Paradoxically, gas and oil emphasise the major strength of Turkey, namely its role as an energy crossroads. Indeed, a large number of oil tankers and LNG carriers passes through the Bosporus and Dardanelles Straits, to transport raw materials to major world markets. The passage of tankers through the Turkish waters showed a strong and steady increase in recent years, to meet the growing global demand for energy. This trend had a positive impact on the Turkish economy, but at the same time created many problems, rst of all the risk of accident and possible environmental

3.2 Oil and Gas: Limits and Opportunities Fig.3.1Turkeys crude oil imports by country (JanuarySeptember 2012) (Source authors elaboration on Eurostat data, U.S. Energy Information Administrations website, February 2013)

25

Kazakhstan
Russia

Other Iran

Saudi Arabia Iraq

disaster. If such event should occur, it would signicantly reduce or interrupt the regular oil ow through the straits of Turkey. On account of such problems, some of the worlds leading energy companies launched, in cooperation with the government of Ankara, the construction of new pipelines to bypass the Turkish Straits. To this purpose, it was decided to construct the Samsun-Ceyhan oil pipeline, a conduit that will link the Turkish port of Samsun, on the shores of the Black Sea, to the Ceyhan terminal, on the Mediterranean coast. The work, once completed, will offer considerable advantages, such as the creation of an alternative route for oil from Russia and Kazakhstan, the reduction of carriage by sea, thanks to the proximity of Samsun to supply areas, and the possibility of using the destination terminal existing infrastructure, with a positive impact on the environment and the expenditure for the completion of the investment. Currently, one of the pillars of the EastWest energy corridor is the BakuTbilisi-Ceyhan (BTC) pipeline, a 1,768km long infrastructure connecting the Caspian oil elds with Ceyhan, by passing through the territories of Azerbaijan, Georgia and Turkey. It is a strategic work, as it makes the Caspian oil reach the Turkish coast without passing through Russia, thereby making a signicant contribution to energy security not only of the Anatolian country, but of the West as a whole. Another important crude oil supply channel is the Kirkuk-Ceyhan pipeline, connecting Iraq with the Turkish Mediterranean shore, by passing through Iraqi Kurdistan. The pipeline has a remarkable capacity of approximately 1.6 million barrels per day, but also a high vulnerability, because of the frequent sabotage actions carried out by Kurdish rebels. The Turkish Petroleum Corporation (TPAO), the state oil company producing over 70% of domestic oil, played in the past and still plays a central role for the development of such infrastructure [2]. The company is committed to a wide range of activities in the oil and gas sector, such as exploration, drilling and production, both in Turkey and abroad, by often working in collaboration with worlds leading companies [3]. In 2012, for example, TPAO started, together with Shell (the AngloDutch multinational oil and gas company) some explorations in search of shale gas

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3 Energy Market

in the southeastern part of the country, near Diyarbakir, and should start soon a prospection in the Black Sea to nd oil and gas elds. Such activities show the dynamism of Turkey and its willingness to quickly nd the resources meeting its growing energy demand, by developing partnerships with foreign operators having an extensive know-how and advanced technologies. In the last years, the Turkish oil industry allowed the entry of private operators, but the state keeps a dominant position, as a series of preferential rights belongs to TPAO and foreign companies have to form joint ventures with it to carry out upstream activities.1 A similar process of liberalisation began in the Nineties in the gas sector and allowed private companies to enter the distribution sector. However, the turning point came in 2001, with the enactment of the Natural Gas Market Law (NGML), which abolished the monopoly of the state company Botas and granted licenses for carrying out the various sector activities: import, export, wholesale, storage, etc. [4]. The law gave to BOTAS ownership of the national gas transmission lines, both completed and planned, and enabled private operators to create their own transmission networks, to connect to the existing one. This measure also established an independent energy authority, the Energy Market Regulatory Authority (EMRA), tasked to regulate and monitor the energy market and thereby to ensure its fairness, transparency and competitiveness. The new regulations and infrastructure projects in the eld of gas are very important, not only because this resource is widely used as fuel for domestic and industrial use, but also because it is the main source for the production of electricity. Turkish authorities decided to focus so strongly on gas for various reasons: the countrys geographical proximity to the gas elds in the Caspian area and in Central Asia, the lower pollution emissions of natural gas compared to other fossil fuels such as oil and coal, the resource purchase conditions, that are particularly advantageous thanks to Turkeys ability to exploit its role as a bridge between production and consumption markets. Although these reasons have their own rationale, the Turkish energy policy regarding the gas sector is a matter of political and economic concern. First, the global gas consumption increased considerably in the past decades and is expected to continue growing, with unavoidable repercussions on the price of the resource and on the energy bill of the major importing countries, Turkey included. The Anatolian country produces only 2% of the natural gas used and imports the remaining 98% from Russia, Iran, Azerbaijan, Algeria and Nigeria (Fig. 3.2). Russia is by far the largest supplier among these states, by meeting almost 60% of Turkeys gas demand. Depending so strongly on a single country is obviously a serious critical factor for Turkey. Moreover, Russia-Turkey relations should become even closer in the future, because the Russian gas import is expected to increase and some

Oil and Hydrocarbons exploration and production.

3.2 Oil and Gas: Limits and Opportunities

27

Russian companies have been trying to enter the Turkish energy market, gas sector included, through acquisitions and investments. Turkey currently imports large amounts of gas from Russia through the Blue Stream pipeline, extending from Siberia to the Black Sea and reaching the Turkish port of Samsun. Such situation explains why the need to reduce dependence on Russia is a priority issue for Turkey and inuences so much its foreign policy. The government has been seeking to strengthen relations with the states of the Caspian region and of the Middle East to better exploit their gas elds and have a more balanced range of suppliers. To this end, it has been currently implementing a complex strategy, based on the establishment of a wide political and economic collaboration with such countries. The development of synergies in the eld of energy is the most important part of this collaboration and is implemented through a series of important projects, such as the pipeline called Nabucco. According to the original plan, the conduct would transport gas from eastern Turkey to Baumgarten hub, in Austria, via Bulgaria, Romania and Hungary. In 2012, Nabucco Consortium,2 in charge with the work, proposed to build the so-called Nabucco West, to transport Azerbaijani gas, located in Shah Deniz II gas eld, from Turkish-Bulgarian border to Baumgarten and from there to other European countries. The Consortium Shah Deniz II, which operates the eld, chose Nabucco West as an option for the gas export to Central Europe [5]. This decision arouse from the intergovernmental agreement signed in June 2012 by Azerbaijan and Turkey to build the Trans Anatolian Gas Pipeline (TANAP), that will extend from the Turkish eastern border to the western one and will connect with Nabucco West, according to schedule. TANAP is not in competition with Nabucco, as it might appear at rst sight, but rather complementary to it, by reducing considerably Nabuccos construction costs. Indeed, TANAP replaces Nabucco within the Turkish territory and its construction is supported by Azerbaijan and other subjects. Although the initial scenario changed, Turkey is therefore an essential transit point for gas and keeps a leading role in the energy market. Putting Nabucco into operation would be important not only for the countries directly involved, but also for Europe as a whole, because it would transport Caspian gas, and the Middle Eastern one in the future, to the Old Continent, thus creating an alternative to Russian gas, similarly to what already happens with oil, transported by BTC pipeline. The European Union acknowledged the strategic value of this initiative from the beginning, by funding the 50% of the feasibility study and including the work in the Community Trans European Energy Networks.
2 The Nabucco consortium is made up of the gas companies belonging to the countries crossed by the pipeline, according to the original plan: Botas (Turkey), Bulgargaz (Bulgaria), Transgaz (Romania), MOL (Hungary) and OMV (Austria). The German company RWE joined them later, while the entry of the French company Gaz de France was stopped by Turkey, angered by French law recognising the Armenian genocide.

28 Fig.3.2Turkeys natural gas imports by country, 2011 (Source authors elaboration on EMRA data)
Algeria Nigeria Azerbaijan Spot LNG

3 Energy Market

Russia

Iran

Two other ambitious infrastructure projects in the gas sector received the Unions support, as they were deemed t for ensuring new supplies to the member countries and therefore useful to strengthen Europes energy security. The abovementioned projects are the Trans Anatolian Pipeline (TAP) and the Interconnector Turkey-Greece-Italy (ITGI), both aimed at creating an energy corridor between southern Italy and the Caspian Sea. The rst one should extend from Greece to Puglia, by crossing from east to west Albania and the Adriatic Sea. Then it would connect with the Greek pipelines network (DESFA), in turn connected with the Turkish one. The TAP is endorsed not only by the European Union, but also by the governments of Italy, Greece and Albania, that signed a memorandum of understanding in September 2012, in order to give the necessary political support to the project. The ITGI, recognised as a Project of European Interest and included among the projects of the Southern Corridor of the European Recovery Plan, aims at connecting the Caspian Sea and the Middle East with southern Italy via Turkey and Greece [6]. Much of the infrastructure required by the ITGI project already exists, as the rst part of the work consists of the Turkish national pipelines network, which only needs to be enhanced, while the interconnection between Greece and Turkey was completed in 2007. Therefore, it would be necessary to create a connection between Greece and Italy, made up of two parts: an onshore section,3 within the Greek territory (IGI Onshore), and an offshore one,4 in the Ionian Sea (IGI Poseidon). The infrastructure should also connect with Bulgaria by means of a gas pipeline between the Greek town of Komotini and the Bulgarian terminal of Stara Zagora. The Shah Deniz II consortium identied the TAP as a potential channel for exporting Azerbaijani gas to Italy. The consortium should then choose between Nabucco West and TAP.

3 4

600km long. 200km long.

3.3 Electricity Sector and Renewable Energy Development

29

3.3 Electricity Sector and Renewable Energy Development

Turkey is one of the most dynamic and promising electricity markets on the international scene, as evidenced by the steady increase in electrical energy demand recorded in the last years and by the growth prospects for the next decade, which require great efforts to strengthen the infrastructure system and the organisation model, from generation to distribution of electricity. To understand the current trend, one need only consider that the installed power in Turkey reached 53GW at the end of 2011, with an increase of 11GW in just three years, and should reach 66GW in 2015, according to estimates. The growth in demand and the need to modernise the sector also led to a deep transformation of the regulatory framework, by stimulating the launch of a privatisation process and of a market liberalisation. The breakthrough in this sector came in 2001, with the enactment of the Law on Electricity Market,5 which ended the state monopoly and allowed private operators to access to the activities of generation, distribution and sale of electricity. This important result was reached after a long path, characterised by the gradual multiplication of operators. The state-owned TEK, founded in 1970, held an absolute monopoly of electricity at the beginning. In 1993, it was divided into two companies: TEAS, appointed to electricity generation, transmission and wholesale, and TEDAS, which took control of distribution. In 2001, TEAS was further split into three companies: EUAS, TEIAS and TETAS, that respectively became responsible for the activities of generation, transmission and trading. EMRA, the Energy Market Regulatory Authority, was set up in the same year and charged with issuing licenses, setting tariffs and ensuring the market competitiveness [7]. The private operators gained growing importance in the production of electricity thanks to the sector reform and the percentage of state-owned plants decreased from 81 to 45% from 2001 to 2011. The privatisation process is still ongoing and at the moment it is difcult to say when it can be completed, but it is possible to give a general overview of the effects it had and could have in the future on economy and society. First, privatisation process had a positive impact on the national economy, by creating jobs and new business opportunities for private companies, thanks to massive investment, that is expected to further grow and to reach $130 billion by 2023, in order to meet the domestic energy demand [8]. Privatisation also made an important contribution to improving the capacity and efciency of the energy system, in turn necessary to meet the market needs and to offer the consumer a high quality service at competitive prices. Finally, it is remarkable that such process enriched the state coffers, which beneted directly from the various operations carried out to involve the private sector.

Law No. 4628 enacted in 2001.

30

3 Energy Market

Gas is widely used to generate electricity, but the increasing price of such resource and the geopolitical issues related to its supply persuaded the Turkish government to promote policies aimed at reducing the amount of gas used. To this purpose, it decided to grant incentives for the use of local coal and to construct some nuclear power plants by 2030. Turkey reached an agreement with the Russian state-owned company Rosatom for the construction of a nuclear power plant in Akkuyu, a village located on the Mediterranean coast, and reafrmed its intention to continue its nuclear development, even after the accident at Fukushima nuclear power plant, that aroused public concern in Turkey, just as it did in every other part of the world. The Turkish authorities are actively committed to developing renewable energy sources, which are still largely underutilised. For example, it is argued that wind energy is exploited only for 15% of its potential and can take an important place within the energy sources of the country through numerous projects aimed at increasing the installed capacity. Geothermal and solar sectors, taking advantage from the natural features of the Turkish territory, have also been expanding rapidly. Indeed, Turkey ranks rst in Europe and seventh in the world for geothermal resources and shows very high solar radiation levels. To better exploit these resources, the public and private sector made huge investments and will make further ones in the incoming years, in some cases with the involvement of foreign operators provided with specic technical knowledge. For example, the Italian company Enel Green Power and the Turkish group Uzun started a collaboration, by forming a company operating in the eld of geothermal exploration and research to examine sites located in the western part of the country and to produce electricity and heat. In addition, new projects were promoted in order to increase the specialisation of the local production system in the energy sector and, in particular, in the eld of renewable energy. In this regard, it is important the project providing the creation of an energy district in Karapinar, in central Anatolia, in order to attract investment in solar technologies: solar power plants, manufacturers of panels, inverters, batteries. The electricity currently consumed in Turkey is mainly due to thermal and hydroelectric plants and, to a small extent, to geothermal power plants and wind farms. The so called Renewable Energy Support Mechanism became operational in December 2011 to promote the use of renewable energy. Accordingly, plants powered by renewable sources that came into operation between 2005 and 2015 will be eligible to receive special tariffs for the energy produced and fed into the grid in the rst ten years of their operation. The mechanism affects hydroelectric, wind, geothermal, biomass and solar plants and provides different tariffs, depending on the power source. Plants whose mechanical or electromechanical equipment is produced locally receive an additional prize for the rst ve years of operation [9]. The Turkish energy policy works on several fronts, by trying to encourage the growth of renewable energy and, at the same time, to optimise the use of the available energy, in order to reduce costs and protect the environment. In this

3.3 Electricity Sector and Renewable Energy Development

31

regard, it is of utmost importance the Law on Energy Efciency, which came into force in 2007 and introduced a legal framework, establishing requirements and responsibilities for energy management, minimum energy efciency standards, monitoring activities etc. Following the issue of this and other measures, Turkey embarked on a virtuous path of correct and rational use of resources, which can and should continue, especially given the expected increase in domestic energy demand.

3.4 Nuclear Energy: A New Challenge for Turkey

Nuclear energy is a primary importance goal for Turkey, that is traditionally dependent on fossil fuels imported from abroad. The Turkish government decided to embark on the nuclear power path since the Sixties, but the attempts made during the following decades were all unsuccessful. Despite the difculties encountered, Turkey did not give up but, on the contrary, increased its efforts to meet this challenge and thereby support its economic growth, which requires an everincreasing availability of energy. In the past decade, the Turkish authorities provided the country with a specic legislation on nuclear energy. In particular, in 2007 the Parliament passed a bill, then approved by the President, about the construction and operation of nuclear power plants and the sale of the energy produced by them. This act tasked the Turkish Atomic Energy Authority (TAEK) to set the criteria for the construction and operation of power plants, and charged TETAS with buying electricity through 15-year contracts. It also introduced a number of provisions related to waste management and plants decommissioning. Furthermore, Turkey signed a series of bilateral cooperation agreements in matter of nuclear energy with some of the worlds major powers, in order to receive the necessary support to acquire specic skills and knowledge and to construct power plants. The government chose to build in Akkuyu, a village located on the southern coast of the country, the rst nuclear power plant. The rst attempts were made in the Seventies and continued in the following years, but resulted in a continuous series of setbacks and culminated in 2009 with the cancellation of the public tender issued by TETAS a few years before, due to a ruling by the Supreme Administrative Court. Subsequently, Turkey and Russia launched an intense dialogue on the nuclear issue, that gave rise to the signing of a treaty in 2010. It provides the construction in Akkuyu of a nuclear power plant having four units of 1200MW each. The document commits Rosatom, the Russian state-owned nuclear energy company, to form a project company, that will build, own and operate the plant.6 The ownership

It is BOO project (Build, own, operate).

32

3 Energy Market

structure of the company may change in the future as a result of an agreement between the parties but, according to the treaty, Russia will own at least 51%. TETAS will buy a xed percentage of energy at a xed price7 for fteen years or until 2030. According to forecasts, the plant should be delivered in 2021. The Turkish authorities planned the construction of a second nuclear power plant in Sinop, on the Black Sea. To this purpose, they started negotiations with South Korea, resulted in March 2010 in the signing of a memorandum of understanding about the construction of the plant. The relations between the parties carried on with visits of Turkish technicians and politicians to Korea and with surveys of Korean experts in Turkey, but in the end the negotiations were suspended for a disagreement between the two countries about some points of the project. After Korea, Japan came forward, by expressing its willingness to negotiate the construction of a 5600MW power plant in Sinop. The Turkish Minister of Energy and Natural Resources then visited some Japanese nuclear power plants to meet Toshiba, JICA and TEPCO, but the latter withdrew from the initiative following Fukushima disaster, thus prompting Japan to ask for the suspension of negotiations. Sinop project aroused interest also in other countries, such as France, China and Canada, with which the Turkish government then started negotiations. In order to have a greater nuclear power and to meet its energy needs, Turkey planned to build a third power plant, but did not identify the site where to construct it. The country also established a close cooperation with the International Atomic Energy Agency (IAEA) on the development of national infrastructure laid down in its nuclear programme. Ankaras nuclear plans open new scenarios in the regional and international energy market and induce political-economic and environmental thoughts. As for the rst point, it is clear Turkeys attempt to diversify its energy mix and to reduce imports of oil and gas. Akkuyu project meets these needs on the one hand, but could further increase the countrys energy dependence on Russia on the other hand. Moscow is one of the largest suppliers of fossil fuels and is set to become a reference partner in the eld of nuclear energy, thanks to its know-how and the technologies it developed in the sector. In general, Turkeys decision to construct nuclear power plants is likely to give concrete answers to the national growing energy demand and to support economic development expected in the coming years, thereby reducing supply costs for citizens and businesses. The nuclear option raises many concerns from an environmental point of view, on account of the serious risks of accidents and problems related to the storage of nuclear waste.

12.35 US Dollars per KWh.

3.5 Enhancement of Cooperation with the EU and USA

33

3.5 Enhancement of Cooperation with the EU and USA

In order to implement its energy policies and reach related goals, Turkey is committed to enhancing cooperation with a wide range of foreign players, both public and private, provided with a high level expertise in specic sectors. In this regard, it is particularly important the development of common activities and projects with two protagonists of the world scene: the European Union and the United States. On occasion of a meeting held on 14th of June 2012 in Stuttgart [10], Turkey and the EU agreed to enhance their energy cooperation and focus on ve topics of mutual interest: 1. long-term perspectives on energy scenarios and energy mix; 2. market integration and development of infrastructures of common interest; 3. global and regional energy cooperation; 4. promotion of renewable energy, energy efciency and clean energy technologies; 5. nuclear safety and radiation protection. As for the rst point, a common understanding on long-term perspectives can be reached through a closer and deeper consultation about projects, plans and other initiatives planned for the future. The market integration and the infrastructural development are of utmost importance and encompass specic issues related to gas, electricity and oil. In the gas sector, the key topics are: the reciprocal opening of the Turkish and European market, the integration of the Turkish market into the EUs internal one, the development of bidirectional pipeline connections through the Southern Black Sea. In the eld of electricity, the possibility of establishing a closer link between Turkey and the European Network of Transmission System Operators for Electricity (ENTSO-E)8 upon full synchronous interconnection will be evaluated. The possibility of giving TEIAS an observer role within ENTSO-E will be assessed as well. In regards to oil, the joint development of infrastructure and the promotion of common initiatives to face eventual energy emergencies seem to be the main issues to work on. The global and regional cooperation can be developed through a closer exchange of information, while the promotion of renewable energy, energy efciency and clean energy technologies can be implemented by various actions. For instance, the two parties can promote together the sustainable usage of resources, such as the coal, and the EU can help Turkey develop the legal and administrative framework concerning energy efciency. The European Union can offer the same support in the eld of nuclear safety and put at disposal its expertise in specic activities, such as the radioactive waste management.
8

It is an association representing the electric transmission system operators in the EU and others connected to their networks.

34

3 Energy Market

The possible forms of cooperation identied during the above-mentioned meeting can make a very important contribution to ensuring a safe, secure and innovative energy system to both parties, as long as they adopt concrete measures to turn ideas into action. Turkey also opened an intense and protable dialogue with the United States in matter of energy. On occasion of various bilateral meetings, delegations from the two countries discussed possible joint initiatives related to energy research and efciency, promotion of U.S. private investment in Turkish energy sector, support of U.S. government to Turkeys energy agencies, etc. The so-called Near Zero Project [11] is a concrete example of the Turkey-USA energy cooperation. The U.S. Department of Energy (DOE) launched the initiative in 2011, in partnership with U.S. and Turkish government agencies and other public and private subjects, to create a replicable model for industrial energy efciency in Turkey. The project, involving about 20 companies located in the Ataturk Organised Industrial Zone (IAOSB) in Izmir, provided the following activities: 1. making an energy audit by U.S. experts, to evaluate the current energy consumption by companies taking part in the initiative; 2. identifying through experts energy efciency solutions for each company and analysing related costs, savings expected and impact on protability; 3. enabling companies involved to choose the energy efciency investment to implement, on account of the experts evaluations; 4. disseminating results through Turkish business associations. On occasion of a meeting held in November 2012 [12], the parties issued a joint statement, citing Near Zero Project as a successful initiative, to be followed by additional forms of cooperation.

References
1. Colonnella C (2010) Consolato Generale dItalia ad IstanbulUfcio Commerciale, Il settore energetico turco. http://www.varesexport.it/les/missioni/2012/DOSSIER_ENERGIA.pdf. Accessed 20 Nov 2012 2. Republic of Turkey Prime Ministry (2010) Turkish Energy Industry Report. http://www. invest.gov.tr/en-US/infocenter/publications/Documents/ENERGY.INDUSTRY.PDF. Accessed 20 Nov 2012 3. Turkish Petroleum Corporation (2012) http://www.tpao.gov.tr/tp2/sub_en/sub_content.aspx?id=81. Accessed 25 Nov 2012 4. Deloitte (2012) Turkeys natural gas market, expectations and developments 2012. http://ww w.deloitte.com/assets/Dcom-Turkey/Local%20Assets/Documents/turkey_tr_energy_naturalg as_030512.pdf. Accessed 25 Nov 2012 5. Nabucco Gas Pipeline International GmbH. http://www.nabucco-pipeline.com/portal/page/ portal/en/press/press_release. Accessed 26 Nov 2012 6. Edison (2012) http://www.edison.it/it/azienda/infrastrutture-gas/itgi.shtml. Accessed 25 Nov 2012 7. Kerim Gokoz (2012) Garanti Securities Research Department. Turkish Electricity Sector. http://www.cleantech-switzerland.com/en/index.php?section=downloads&cmd=13_subfull &download=110. Accessed 28 Nov 2012

References

35

8. ANIE (2012) Scheda Paese Turchia. http://www.slideshare.net/canaleenergia/anie-schedapaese-turchia-2012-12861086. Accessed 18 Nov 2012 9. PWC (2012) Turkeys renewable energy from a global perspective. http://www.pwc.com.tr/tr_TR/tr/ publications/industrial/energy/assets/Renewable-report-11-April-2012.pdf. Accessed 1 Dec 2012 10. European Union (2012) Press releaseenhanced EU-Turkey energy cooperation. http:// europa.eu/rapid/press-release_MEMO-12-434_en.htm#PR_metaPressRelease_bottom 11. Export.gov (2011) Near zero zone Project. Showcasing the power of industrial energy efciency. http://export.gov/california/kern/trademissions/eg_us_ca_036184.asp. Accessed 11 March 2013 12. U.S. Department of State (2012) U.S. Turkey economic partnership commission holds its 9th meeting on Nov 28, 2012 in Washington, DC. http://www.state.gov/r/pa/prs/ps/2012/ 11/201171.htm. Accessed 11 March 2013

Chapter 4

Relations with Europe

Abstract Turkey strengthened progressively its political and economic ties with the European Union, until the opening of accession negotiations. This historical event seemed to be the deciding step for the entry of Ankara into the EU, but it was followed by a wide series of problems and strains between the parties. The chapter retraces the stages of Turkeys European path and investigates the deepest reasons underlying the hostility showed by a part of Europe towards Turkey. A central issue within the debate about Turkeys possible membership is the European identity, because many observers argue that the country is not European and cannot therefore join the Union. In order to clarify this important point, the historical evolution of the idea of Europe is specically described and analysed. Such dissertation about bilateral relations is completed by some excerpts from a European Commissions communication in matter of enlargement. Keywords Europe Negotiations Application Accession Membership Identity

4.1 Europe and Turkey: Ancient Rivalries and New Prospects

Turkeys European aspirations are rooted in Kemalism, in Mustafa Kemals choice to take the secular and liberal Western Europe as a reference model. It was a difcult and courageous decision, especially in light of the early twentieth century context, when the socialist doctrine was very popular and the Arab-Islamic model was an easy alternative for a Muslim country [1]. Turkey continued on the path chosen by its leader, by starting a process of internal renewal aimed at strengthening democracy and the market economy. As for foreign policy, the pro-western orientation followed by the Turkish ruling class led to the introduction of a close economic and political-military cooperation with Europe

A. Arcuri, The Rise of a New Superpower, SpringerBriefs in Economics, DOI: 10.1007/978-3-319-00431-0_4, The Author(s) 2013

37

38

4 Relations with Europe

and the United States, as evidenced by the countrys accession to the Atlantic Alliance and to the Organisation for European Economic Cooperation (OEEC, then reformed into the Organisation for Economic Cooperation and Development OECD). Turkey also showed an interest in the European Community project from the beginning and expressed its intention to be part of it one day. The EU institutions encouraged Turkey to get closer to Europe through a long and difcult integration policy, which marked the last fty years of European history and found its dening moment with the opening of accession negotiations, decided by the Union in 2004 [2]. From then on, many European countries showed a growing hostility towards Turkey and put in place a number of initiatives aimed at blocking or slowing its entry into the Union. The most conservative and eurosceptic political circles used instrumentally the referendum on the European Constitution in France and the Netherlands to launch a media campaign against the Turks and to call into question the negotiating framework agreed. The actions promoted by these political parties tried to persuade the public opinion that approving the Constitutional Treaty meant denying the European identity and opening the door to a stranger, thus endorsing a dangerous and destabilising enlargement process. The negative outcome of referendum stimulated alternative proposals to full membership of Turkey, such as the creation of a special statute or a privileged partnership. It is quite difcult to envisage the possible content of a new special relationship, especially given the Association Agreement signed in the Sixties and the Customs Union come into force in 1996 [3]. It is easier to understand the goal underlying such position: preventing a full inclusion of Turkey into Europe. It stands to reason that denying prejudicially to Turkey the right to aspire to membership contrasts not only with the ofcial commitment that the EU took on during negotiations, but also with the founding principles of the European Union. Indeed, according to the Treaty on European Union (art. 21), the Unions action on the international scene shall be guided by the principles which have inspired its own creation, development and enlargement. Equality is specically mentioned among these principles. The obstacles encountered so far by Turkey on its European path clash with such principle and prompt serious reection on the uncertainties and mistakes made in the bilateral relations. Ensuring equal treatment for all candidate countries is an EUs duty. It is also necessary so that Union can preserve its credibility and international prestige. The ostracism showed by a part of Europe toward Turkey is due to a series of factors. First, it is argued that the country is not European, because it would not belong geographically and culturally to Europe. The identity issue is particularly complex and deserves a specic analysis, it can be observed preliminarily that who denies European membership to Ankara on the basis of identity does not provide any element drawing a clear line of demarcation between Turkey and Europe.

4.1 Europe and Turkey: Ancient Rivalries and New Prospects

39

Some European politicians argue that Europe would run a serious risk of Islamisation and mass migration, that would create law and order problems and social unrest. Actually, such arguments often hide much more pragmatic and concrete aims, such as the search for consensus, especially before political elections. In such a difcult time, showing the European economys troubles and the inability of the EU institutions to solve tough problems, evoking the Turkish invader in the popular consciousness is an attempt to distract the attention of the public opinion from the thorniest domestic issues. The recent anti-Turkish propaganda poses serious difculties for the EU, as it risks compromising bilateral relations and undermining Turkeys extraordinary efforts made to get the status of EU country. EU accession prospect led the state to carry out a remarkable reform process, which raised the aspirations and hopes of Turkish people and presented the Union as a plural subject, that can look beyond religious differences and become an integration and democratic progress factor. Criticising negotiations continuously and opposing their successful conclusion means betraying those hopes and dampening that enthusiasm, thereby slowing the compliance of the Turkish legal and institutional system with the EU standards. Due to the hostility of some European countries and the difculties of negotiation, the feelings of integration and openness towards Europe gradually gave way to disappointment and bitterness in Turkey, thus swelling the ranks of eurosceptics and giving new life to isolationist theories. The buoyant expansion of the Turkish economy recorded in the second half of the past decade contributed to widening the distance between the two shores of the Mediterranean Sea, because Turks saw their country growing much more than the European states, included the new EU members. Turkey thus became aware of its own potential and started persuading itself that it could do without Europe. In other words, Turkey understood that it could play a leading role on the political and economic world scene though remaining outside the Union. The Arab Spring redesigned the institutional structure of the southern Mediterranean shores and offered Turkey a valuable opportunity to establish itself as a geopolitical power and point of reference for all the region. The diplomatic and media initiatives promoted by the Turkish government in Tunisia, Libya and Egypt in the aftermath of the revolutions left their mark, by leading the ruling class and the local population to look with increasing interest at Turkey, to consider it as a development model, that combines Islamic tradition with modernity and economic progress. In this context, Europe seemed to be absent and unable to understand the new scenario. Indeed, on the one hand it did not change its approach toward Turkey, on the other hand it focused on limiting migration ows from North Africa, instead of promoting policies aimed at helping those territories to ride out the economic and social crisis following the collapse of regimes. Europe gave a negative image of itself through such restrictive position and indirectly allowed Turkey to strengthen its sphere of inuence in the Mediterranean basin. The North Africa and Middle East countries play a primary importance role for Europe, because their economic and political situation affects signicantly the

40

4 Relations with Europe

safety and welfare of the Old Continent. Therefore, it is essential for Europe to recover lost ground through a new policy for the Mediterranean, which can enable it to reafrm its central role in the region. The rst step that the Union has to take is restoring trust in its relationship with Turkey and re-launching the negotiation process [4]. Integrating the country into the EU would represent an important openness to the countries of southern and eastern Mediterranean and, in general, to the Islamic world. Also, it would give Europe the chance to draw the strategic countries of the Caucasus and Central Asia into its orbit, because Turkey has an historical friendship with them, as well as a close linguistic and cultural afnity. Some of these states, such as Azerbaijan, Turkmenistan and Kazakhstan, took an important place within the international energy scenario, as they are gas extraction and transit places and, overall, they play a key role for the main natural resources supply. Their political and economic weight is expected to grow further in the near future, due to the increase in the global energy demand; therefore Europe has to enter into closer cooperation with such areas, possibly by using Turkey as a gateway.

4.2Toward EU Accession
Turkeys accession process to the European Union is an extremely important challenge for both parties involved and an integration attempt producing signicant political and cultural effects. As it emerges from the previous observations about bilateral relations, this process underwent numerous delays and setbacks over the years, due to ill-concealed political interests and old ideological prejudices, thereby turning into a bumpy ride, that is still far from being completed. Turkeys European path began in 1959, with the submission of the application to the European Economic Community, which in 1963 was followed by the signing of an association agreement, known as the Ankara Agreement, and a rst nancial protocol. The agreement was signed to promote the strengthening of bilateral relations in economic and commercial matters and to foster the socio-economic development of Turkey. To this purpose, the parties agreed the progressive establishment of a customs union and drew up a cooperation programme divided in three phases: a ve-year preparatory phase, aimed at strengthening the Turkish economy through the Community support, thus creating the conditions for the start of the subsequent ones; a transitional phase, designed to implement the Customs Union within a twelve-year period; a nal phase, based on the Customs Union and providing a closer coordination of the economic policies between the parties. EEC and Turkey also set up a specic Association Council to monitor the implementation of the association agreement. In addition, the Ankara Agreement envisaged for the rst time, albeit with much caution, a possible entry of Turkey into the European Union, by stating textually: As soon as the operation of this Agreement has advanced far enough to justify envisaging full acceptance by Turkey of the obligations arising out of the

4.2 Toward EU Accession

41

Treaty establishing the Community, the Contracting Parties shall examine the possibility of the accession of Turkey to the Community.1 It was taken a further step forward in the following decade, with the signing of an additional protocol, which identied a set of rules for the implementation of the Customs Union. This protocol, signed in 1970, was a source of polemics and dissentions in Turkey, which led the Turkish government to stop the process of removal of customs barriers. Ankaras policy, contrasting with the governments ofcial commitment, aroused the reaction of the European Community, which resulted in new restrictions on imports of textile products from Turkey and led to a stalemate in bilateral relations. The Seventies and early Eighties were very difcult for Turkey, due to a strong social unrest and coups, which had a negative impact on relations with the European Community. Turkey started a democratic normalisation process with the elections of 1983 and the victory of Ozal and adopted measures aimed at implementing the Association Agreement. Following such reforms, the country applied ofcially for the EEC membership in 1987. Two years later, the European Commission delivered a negative opinion on the opening of negotiations, on account both of the great changes taking place in Europe, which made a further Community enlargement inappropriate, and of the political and economic situation in Turkey. However, the Commission reafrmed the Communitys willingness and interest in enhancing bilateral relations and Turkeys eligibility for EEC membership. In order to facilitate the integration process, the Commission recommended the parties to take measures focused on four essential points: the completion of the Customs Union, the enhancement of nancial cooperation, the promotion of industrial and technological cooperation and the strengthening of the political and cultural ties. Europes rejection aroused feelings of irritation and frustration in Turkey and fuelled tensions in bilateral relations, but did not prevent the achievement of an important objective set out in the Ankara Agreement: the implementation of the Customs Union, which took place in 1996, following a Council Associations decision. This act provided the total abolition of customs duties and quantitative restrictions on imports and exports and introduced a series of measures aimed at: harmonising the Turkish and the EU trade policy; ensuring the free movement of agricultural products; aligning Turkish legislation with that one of the member countries in the eld of competition and protection of intellectual, industrial and commercial property. The implementation of the Customs Union resulted in a signicant increase of trade between the Community and Turkey, thus demonstrating that the efforts made were able to strengthen bilateral cooperation. It also led the parties to continue on this path.

1 Ankara Agreement,

art. 28.

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4 Relations with Europe

Despite the achievement of this important result, Europes distrust towards Turkey grew in the last years of the past century, because of various factors. In particular, concern arose from the political turmoil in the country, its inability to solve the Cyprus and Kurdish issues and its traditional economic problems, exacerbated by a soaring increase in ination and unemployment rates. Ecevits government reacted to difculties by launching political and economic structural reforms, that enabled the state to regain its credibility and led to a thaw in bilateral relations with Europe. The Community appreciated the progress made and rewarded them at the Helsinki European Council held in 1999, through the recognition of Turkey as a candidate state destined to join the Union on the basis of the same criteria as applied to the other candidate states. The Councils position marked a turning point in the EU-Turkey relations and made Turkey believe that the compliance with the accession conditions could in itself let it join the Union in a few years. This legitimate expectation was reinforced by a decision taken unanimously by the European Council in December 2004, that provided the opening of accession negotiations, as the country met the Copenhagen political criteria.2 The Parliament overwhelmingly approved the decision of the European Council in the same month. To facilitate the entry of Ankara into the Union, the Council adopted the socalled Accession Partnership,3 which constitutes the framework for the reforms to be implemented and the basis for activating a wide range of nancial support instruments. As shown before, the opening of negotiations aroused bad feelings and concerns in Europe and led to anti-Turkish political actions and media campaigns. The road towards accession became more difcult for Turkey because of such hostility and persuaded the country that it was not well accepted inside the European Union. The difculties between the parties came out clearly during the negotiation process. In this respect, it was important the Councils decision stating that some important chapters4 would not be opened and no chapter would be provisionally
order to join the EU, candidate states have to comply with certain criteria set out at the Copenhagen European Council in 1993 and revised at the Madrid European Council in 1995. The criteria in question are as follows: political criteria: the presence of stable institutions guaranteeing democracy, the rule of law, human rights, respect for minorities and their protection; economic criteria: the existence of a functioning market economy and capacity to cope with market forces and competitive pressures within the Union; criterion of acquis communautaire: the ability to take on the obligations of membership and, in particular, the aims of political, economic and monetary union. So that the European Council may decide to open negotiations, political criteria have to be met. 3 The Accession Partnership with Turkey was established in 2001 and revised in 2003, 2006 and 2008. 4 The decision was taken in 2006 and covers the following chapters: free movement of goods, right of establishment and freedom to provide services, nancial services, agriculture and rural development, sheries, transport policy, customs union and external relations.
2 In

4.2 Toward EU Accession

43

closed until Turkey agreed to apply to Cyprus the Additional Protocol to the Ankara Agreement. The annual report on Turkey issued by the European Commission in October 2012 can be a useful reference point to get an overview of the progress made by Ankara towards EU membership [5]. The Commission expressed satisfaction for the launch of the so-called Positive Agenda, a programme designed to give new impetus to the accession negotiations, through enhanced cooperation between Turkey and the EU in some areas of common interest: foreign policy, energy, immigration, ght against terrorism, etc. In terms of political reforms, the Commission welcomed the countrys efforts for the launch of a new constitution, the introduction of the Ombudsmans ofce and the improvement of the criminal justice system, but expressed concern over the extensive application of rules on terrorism and organised crime, because it considered that in conict with the right to freedom and security and highlighted the persistent critical relations with Cyprus. From an economic perspective, the report remarked the positive current situation in Turkey, showing a high GDP growth rate and a sharp reduction of the current account decit. It also forecasted a soft landing of the Anatolian economy in the near future, that is a moderate and gradual slowdown, as long as the global nancial environment does not worsen further. Finally, the report recorded the signicant progress made by Turkey in aligning its legislation with that one of the European Union, in particular in the eld of company law, science, research and Customs Union rules. In such areas, Ankara has to continue the reform process started. In order to make an assessment of negotiations held so far, it is possible to say that the road ahead is still long, only 13 out of 33 chapters were opened and one was provisionally closed. It will take time and especially good will on both sides to overcome the technical and political obstacles encountered in the negotiations.

4.3 Turkey from the European Commissions Perspective

The Communication from the Commission to the European Parliament and the Council Enlargement Strategy and Main Challenges 20122013 outlines the current state and the future prospects of the enlargement process and deals with the main political, economic and social issues concerning the present and potential candidate countries [6]. Some parts of the document are specically focused on Turkey and give an overview of the country from the European Commissions perspective. Shawn below are two excerpts from this communication. The rst one can be considered a general analysis about the countrys overall situation and the EU-Turkey relations. The second one shows the progress that Turkey made and has still to make in every single eld to meet the European Union memberships conditions.

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4.3.1 General Overview of Bilateral Relations

Turkey is a key country for the EU, considering its dynamic economy, its strategic location and its important regional role which contribute to the EUs foreign policy and energy security. Turkey is already integrated to a large extent into the EU through the Customs Union and has become a valuable component of Europes competitiveness. Conversely, the EU remains the key anchor for Turkeys economic and political modernisation. Both sides would benet from further development of these links. The potential of the EU-Turkey relationship can be fully tapped only within the framework of an active and credible accession process. The accession process remains the most suitable framework for promoting EU-related reforms, developing dialogue on foreign and security policy issues, strengthening economic competitiveness and increasing cooperation in the eld of energy and justice and home affairs. This process must respect the EUs commitments and the established conditionality. In this context, a positive agenda in the relations with Turkey was launched by the Commission in May 2012 to revive the accession process after a period of stagnation and bring fresh dynamism to the EU-Turkey relations. The positive agenda is not an alternative to the accession negotiations but rather a way of supporting them. It focuses efforts on areas of common interest such as legislative alignment, enhanced energy cooperation, visa, mobility and migration, Customs Union, foreign policy, political reform, counter terrorism and increased participation in people-to-people programmes. Six of the eight working groups, which have been established under the positive agenda to support alignment with the acquis, have come together for their rst meeting. Turkeys active support to the positive agenda and its European perspective remains essential. It is in the interest of both the EU and Turkey that accession negotiations regain their momentum, not least to ensure the EU remains the benchmark for reforms in Turkey. Moreover, the Council invited the Commission to establish a broader dialogue and cooperation framework between the EU and Turkey to address the full range of Justice and Home Affairs policy elds. The Council also invited the Commission to take steps towards visa liberalisation as a gradual and long term perspective, in parallel with the signature of the readmission agreement between Turkey and the EU. After it was initialled in June, it is now crucial that Turkey signs the readmission agreement to allow for implementation of the visa liberalisation roadmap to start. Given Turkeys further development as potential energy hub and the common challenges it shares with the EU, the Commission and Turkey also decided to enhance their cooperation on a number of important energy issues. The political dialogue with the EU on foreign and security policy intensied signicantly. Developments in Turkeys and the EUs joint neighbourhood conrmed the important role and valuable contribution of Turkey to the EUs foreign policy and energy security. Turkey continued to play a positive role supporting

4.3 Turkey from the European Commissions Perspective

45

reform movements in countries in North Africa and the Middle East. Cooperation on Syria is intense. Political dialogue meetings, including at Ministerial level, addressed foreign policy issues of common interest to the EU and Turkey, such as North Africa, the Middle East, Western Balkans Afghanistan/Pakistan and the Southern Caucasus. The Turkish economy continues growing strongly but sizeable external imbalances and signicant inationary pressures remain the largest threats to macroeconomic stability. The high incidence of informal employment, segmented labour markets and the completion of the reform of trade union legislation remain a challenge. The Commission is examining ways to address Turkeys concerns under the Customs Union, including on the Free Trade Agreements concluded by the EU with third countries. At the same time it underlines the desirability to modernise the Customs Union and the need to resolve the irritants which impede trade between Turkey and the EU. The Commission has asked the World Bank to carry out an assessment of the functioning of the Customs Unionwith the ultimate objective to modernise it. The Commission will continue work to implement the positive agenda to lend new dynamism to the accession process and enable a more constructive relationship. Concerns are growing regarding Turkeys lack of substantial progress towards fully meeting the political criteria. The situation regarding the respect of fundamental rights on the ground continues to be the source of serious preoccupation despite recent improvements to various legal provisions in this area. There are recurring infringements of the right to liberty and security and to a fair trial, as well as of the freedom of expression, assembly and association, through the disproportionate application of the legislation on terrorism and organised crime. It is important that Turkey addresses all issues regarding the independence, impartiality and efciency of the judiciary. Further restriction of the freedom of the media in practice and the growing number of court cases against writers and journalists remain serious issues. As a consequence, self-censorship is increasingly widespread. The Commission welcomes the commitment of the Turkish government to present swiftly the fourth judicial reform package and calls for it to address all the core issues which are presently affecting the exercise of freedom of expression in practice. In addition, the Kurdish issue remains a key challenge for Turkeys democracy and a political solution is urgently required. Overall, Turkey still needs to devote signicant further efforts to reach the highest standards of democracy and human rights. The on-going work on a new Constitution provides an important opportunity in this respect. Terrorist attacks by the PKK, which is on the EU list of terrorist organisations, intensied signicantly, in particular over the past few months. Terrorist attacks were strongly and repeatedly condemned by the EU. The EU and Turkey maintain an active counter-terrorism dialogue, and the ght against terrorism is an important aspect of the positive agenda for Turkey.

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Turkey has frozen its relations with the rotating Presidency of the Council of the EU during the second half of 2012, including by refusing to attend any meeting chaired by the Cyprus Presidency. The Commission reiterates its serious concerns with regard to Turkish statements and threats and calls for full respect of the role of the Presidency of the Council, which is a fundamental institutional feature of the EU provided for in the Treaty. Talks under the auspices of the UN Secretary General to nd a comprehensive settlement to the Cyprus issue reached a deadlock in spring 2012. A comprehensive settlement is in the interest of all sides since it would enhance stability in the Southeast Mediterranean, offer new economic opportunities to Member States and Turkey and give a strong boost to Turkeys EU accession negotiations. Turkey is therefore called upon to engage positively with all parties in order to facilitate a successful completion of the process. The EU has also stressed all the sovereign rights of EU Member States which include entering into bilateral agreements, and exploring and exploiting their natural resources, in accordance with the EU acquis and international law, including the UN Convention on the Law of the Sea. In line with the repeated Council and Commission positions from previous years, the Commission reiterates that it is urgent that Turkey fulls its obligation of fully implementing the Additional Protocol and makes progress towards normalisation of bilateral relations with the Republic of Cyprus. It also urges the avoidance of any kind of threat, source of friction or action that could damage good neighbourly relations and the peaceful settlement of disputes. The EU will continue to follow up and review progress made on these issues in accordance with the relevant Council decisions. Turkey needs to step up efforts to solve open bilateral issues, including border disputes, with its neighbours. A substantial number of formal complaints about violations of territorial waters and airspace by Turkey were made by Greece and Cyprus.

4.3.2 Conclusions on Turkey

The positive agenda was launched in May to support and to complement the accession negotiations, through enhanced cooperation in a number of areas of joint interest: political reforms, alignment with the acquis, dialogue on foreign policy, visa, mobility and migration, trade, energy, counter terrorism and participation in Community programs. Six of eight working groups, which have been established to encourage alignment with the acquis, had their rst meeting. Work on a new constitution started via a relatively democratic and participatory process. However, concerns are growing regarding Turkeys lack of substantial progress towards fully meeting the political criteria. The situation regarding the respect for fundamental rights continues to be the source of serious preoccupation. This stems, in particular, from the wide application of the legal framework on terrorism and organised crime, which leads to recurring infringements of the right

4.3 Turkey from the European Commissions Perspective

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to liberty and security, of the right to a fair trial and of the freedom of expression, assembly and association. While debates continue on topics perceived as sensitive, such as the Armenian issue or the role of the military, restrictions on freedom of the media in practice and numerous court cases against writers and journalists remain serious issues. As a consequence, self-censorship is widespread. Regarding democracy and the rule of law, positive steps have been taken in terms of participative work on a new Constitution, but overall there was a recurrent lack of consultation in the legislative process. Offering a chance to strengthen condence in the proper functioning of Turkeys democratic institutions and the rule of law, investigations into alleged coup plans have been overshadowed by real concerns about their wide scope and the shortcomings in judicial proceedings. The Kurdish issue remains a key challenge for Turkeys democracy; the 2009 democratic opening, aimed at addressing amongst others the Kurdish issue, was not followed through. Local government in the South-East suffered from the detention of numerous local politicians. There was a signicant increase in PKK terrorist attacks. Regarding public administration reform, progress has been made in legislative reform. The establishment of an Ombudsman institution is an important step in safeguarding the rights of citizens and ensuring accountability of the public administration. Increased political support is needed for public administration reform and there was no progress on administrative decentralisation. The civilian oversight of the security forces was further consolidated. The introduction of parliamentary oversight of the defence budget was a positive development, but remained limited in scope. The General Staff generally refrained from exerting direct or indirect pressure on political issues. Several symbolic steps have been taken toward further democratisation of civil-military relations. Further reforms, particularly of the military justice system and civilian oversight of the Gendarmerie are needed. Some progress has been made in the area of the judiciary following the adoption of the third judicial reform package, which introduces a number of improvements into the Turkish criminal justice system, including the easing of restrictions on the media to report on criminal investigations and the deletion of the provision allowing the prosecutor to ban publications. A number of detainees were released from remand detention following the entry into force of the legal changes. However, legal reforms failed to address core shortcomings which are the main reasons for continuing condemnations of Turkey by the European Court of Human Rights. The incidence and length of pre-trial detention continue to be a serious concern. Further steps are needed on the independence, impartiality and efciency of the judiciary, including the criminal justice system and the large backlog of pending serious criminal cases. Further steps are also needed to increase the participation rate of women in the judiciary. The judicial reform strategy needs to be revised with the participation of all stakeholders, including the Turkish legal community and civil society. Limited progress was made on ghting corruption, with some developments on incriminations and transparency in the nancing of political parties. Transparency of political nancing needs to be increased. The broad scope of immunities remains

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a shortcoming in this area. A track record of investigations, indictments or convictions related to corruption cases remains to be established. There are concerns about impartiality in the processing of anti-corruption cases. The implementation of the National Anti-Corruption Strategy requires greater political engagement. Uneven progress has been achieved in the ght against organised crime. While Turkey is a party to the main international conventions, the lack of a data protection law continues to limit police cooperation at international level and hinders the conclusion of an operational cooperation agreement with Europol. The assignment of a police liaison ofcer to Europol would contribute to improving bilateral cooperation. No signicant progress was noted in the area of addressing trafcking in human beings. Concerning human rights and the protection of minorities, signicant efforts are needed in most areas, in particular freedom of expression, freedom of association and assembly and freedom of religion. Although some progress was made regarding the observance of international human rights law, important reforms to strengthen human rights structures remain outstanding and the number of criminal proceedings launched against human rights defenders is a matter of concern. The downward trend in torture and ill-treatment in places of detention continued. However, excessive use of force continues to be a matter of concern, and there has been little progress on tackling impunity. There is a signicant backlog of judicial proceedings, with priority given to counter-allegations lodged by the security forces. As regards prisons, the continued increase in the prison population is leading to serious overcrowding, with a signicant impact on sanitation and other physical conditions. Detention conditions, in particular for juveniles, continue to be a serious concern. An overhaul of the complaints system in prisons is overdue. Medical services for inmates, as well as the conditions for the detention of juveniles, are matters requiring special efforts. Limited progress has been made on access to justice. The scope and quality of legal aid is inadequate. There is no effective monitoring mechanism that would remedy long-standing problems. With regard to freedom of expression, following the adoption of the third judicial reform package a number of journalists were released pending trial, restrictions on the media to report on criminal investigations were eased and the seizure of written work before publication was prohibited. However, the increase in violations of freedom of expression raises serious concerns, and freedom of the media continued to be further restricted in practice. The legal framework, especially as regards organised crime and terrorism, and its interpretation by the courts, leads to abuses. Combined with a high concentration of the media in industrial conglomerates with interests going far beyond the free circulation of information and ideas, this has led to widespread self-censorship. Frequent website bans are a cause for serious concern and there is a need to revise the law on internet. As regards freedom of assembly and association, while one May demonstrations and activities such as the Armenian Genocide Commemoration Day took

4.3 Turkey from the European Commissions Perspective

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place in a peaceful atmosphere, cases of violence and disproportionate use of force by the security forces occurred during demonstrations that had not received prior authorization. This concerned especially, but not only, demonstrations in relation to the Kurdish issue. The constitutional right to freedom of assembly and association is at times interpreted in an overly-restrictive manner. The law on demonstrations and meetings needs to be revised, allegations regarding the use of excessive force by the security forces need to be investigated and prosecuted where appropriate. Fundraising rules remain restrictive and discretionary. There was no development regarding legislation on political parties. There was limited progress on freedom of thought, conscience and religion. Some progress on conscientious objection in terms of application of the case law of the European Court of Human Rights (ECtHR) was registered. Dialogue with the non-Muslim religious communities continued. However, persons professing faith in minority religions or indeed no faith were subject to threats from extremists. A legal framework in line with the ECHR has yet to be established, so that all non-Muslim religious communities and the Alevi community can function without undue constraints. In legal terms, there has been progress regarding the respect for womens rights and gender equality. The government established an action plan to address issues raised in the European Parliament report A 2020 perspective for women in Turkey. The Law on the Protection of Family and Prevention of Violence against Women aims at protecting family members and those in relationships outside marriage from violence. The procedures foreseen in cases of urgency are generally positive, as was the inclusive consultation exercise undertaken by the authorities with civil society. Also, substantial efforts are needed to turn this new law, together with the already existing legislation into political, social and economic reality. Legislation needs to be implemented consistently across the country. There is need for more involvement and participation of women in employment, policy making and politics. A law on caesarean sections was adopted with insufcient preparation and consultation with civil society. The debate that preceded this law and a similar debate on abortion were characterised by a polarizing stance. The issue of early and forced marriages remains a serious concern. With respect to childrens rights, efforts are needed in all areas, including education, combatting child labour, health, administrative capacity and coordination. In general, more preventive and rehabilitative measures need to be taken for juveniles. Detention of children does not take place in appropriate conditions and additional juvenile courts need to be established in line with the legislation in force. As regards socially vulnerable persons and/or persons with disabilities further measures are still required in order to increase the participation of those persons in social and economic life. Further efforts are required in the ght against discrimination. Comprehensive anti-discrimination legislation is lacking and substantial efforts by the government are still needed to effectively protect vulnerable population, including women, children, lesbian, gay, bisexual and transgender individuals from societal abuse, discrimination and violence.

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There was limited progress in the areas of labour and trade unions rights. The legislation on civil servants trade unions rights has been amended but is still not in line with the EU and ILO standards. Collective actions by trade unions suffer numerous restrictions. As regards property rights, there has been progress with the adoption of legislation amending the 2008 Law on foundations. Implementation continues. However, the existing legislation still does not cover fused foundations, i.e. foundations whose management has been taken over by the Directorate General for Foundations, or properties conscated from Alevi foundations. The on-going cases, some of which were initiated by the government, against the Mor Gabriel Syriac Orthodox monastery raise concerns. Turkey needs to ensure full respect of the property rights of all non-Muslim religious communities and others. Turkeys approach to minorities remains restrictive, although for the rst time representatives of minority groups, not limited to those minorities ofcially recognised by Turkey, were invited to parliament to express their views on a new Constitution. Full respect for and protection of language, culture and fundamental rights in accordance with European standards has yet to be achieved. Turkey needs to take a comprehensive approach and make further efforts to enhance tolerance, security and promote inclusiveness vis--vis minorities. Existing legislation needs to be revised, comprehensive legislation to combat discrimination needs to be introduced and protection mechanisms or specic bodies to combat racism, xenophobia, anti-Semitism and intolerance need to be established. Relevant Covenants and Conventions should be applied. Turkey made progress on cultural rights, and fewer restrictions on the use of Kurdish in prisons during visits and exchanges of letters were reported. However, legislation still restricts the use of languages other than Turkish, including the Constitution and the Political Parties Law. Also, the judiciary took a number of restrictive decisions on the use of languages other than Turkish, including the use of Kurdish in court cases concerning Kurdish politicians and human rights defenders. There has been some progress, but a systematic approach is needed to tackle the problems of Roma. A comprehensive strategy needs to be established and the issue needs to be reected and mainstreamed in main policy documents. There is lack of quantitative data on the situation of Roma, which prevents informed policy making. As regards the East and Southeast, there was a considerable debate on the Kurdish issue but no progress towards a solution. Terrorist attacks intensied as did military operations. All terrorist attacks were condemned by the EU. The detention of elected politicians and human rights defenders raises concerns. In incidents such as the Uludere killings of civilians, calls on the authorities for effective and swift investigation and a transparent public inquiry have not been met. The truth about extra-judicial killings and torture in the south-east in the 1980 and 1990s has yet to be established in line with the due process of law. The statute of limitations deadline will soon bring an end to judicial investigations on past crimes, without result. Landmines and the village guard system are still causes for concern.

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The process of compensating internally displaced persons (IDP) has continued but the effectiveness of the system has yet to be assessed. As regards refugees and asylum-seekers, some improvements can be reported in detention conditions in the removal centres. However, there is still no national strategy to better address IDPs needs or a comprehensive legal framework for refugees and asylum seekers. Further improvements are needed in detention and deportation practices. With regard to regional issues and international obligations, Turkey reiterated its support for the negotiations between the leaders of the two communities under the good ofces of the UN Secretary-General to nd a comprehensive settlement to the Cyprus problem. Despite repeated calls by the Council and the Commission, Turkey has still not complied with its obligation of full non-discriminatory implementation of the Additional Protocol to the Association Agreement and has not removed all obstacles to the free movement of goods, as outlined in the declaration of the European Community and its Member States of 21 September 2005 and in the Council conclusions, including the December 2006 and December 2010 conclusions. There is no progress towards normalisation of bilateral relations with the Republic of Cyprus. Moreover, Turkey decided to freeze its relations with the Cyprus EU Presidency during the second half of 2012, including abstaining from meetings chaired by the Cyprus EU Presidency. The European Council expressed its serious concerns with regard to Turkish statements and threats and called for full respect of the role of the Presidency of the Council, which is a fundamental institutional feature of the EU provided for in the Treaty. Turkey continued to issue statements objecting to drilling operations carried out by the Republic of Cyprus and expressing threats of retaliation against oil companies that would participate in the Cypriot explorations. The EU stressed the sovereign rights of all EU Member States, which include, inter alia, entering into bilateral agreements, and to explore and exploit their natural resources, in accordance with the EU acquis and international law, including the UN Convention on the Law of the Sea. After the last round of exploratory talks in July 2011, discussions are on-going between Greece and Turkey to set a date for the next round. A substantial number of formal complaints were made by Greece and Cyprus about continued violations of their territorial waters and airspace, including ights over Greek islands. As regards regional cooperation, Turkey remains involved in regional initiatives, including the South-East European Cooperation Process (SEECP) and the Regional Cooperation Council (RCC). Turkey supports the European integration of all countries in the region and has intensied contacts with the Western Balkans, expressing a rm commitment to promoting peace and stability. Relations with the neighbouring EU Member State Bulgaria remained positive. The economy of Turkey continued growing strongly, thus reaping the rewards of the stability and growth oriented policies implemented in most of the previous decade. Since mid-2011, the pace of growth has been falling gradually in line with the slowdown in domestic demand, accompanied by an improvement in the trade and current account balances. However, the still sizeable external imbalances and signicant inationary pressures continue to pose a threat to macroeconomic stability.

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As regards the economic criteria, Turkey is a functioning market economy. It should be able to cope with competitive pressure and market forces within the Union in the medium term, provided that it accelerates the implementation of its comprehensive structural reform programme. In 2011, the Turkish economy grew by 8.5%, only slightly down from 9.2% in 2010. Growth was largely driven by domestic demand, in particular stemming from the private sector. A major growth deceleration was observed in the rst half of 2012, to 3.1% year-on-year. The slowdown in domestic demand is accompanied by an improvement in the trade and current account decits, albeit from very high levels (10% of GDP in 2011). The robust economic expansion also allowed strong employment growth and a drop in unemployment from about 11% in mid2011 to less than 9% a year later. Monetary policy has become more instrumental and has been successful in curbing the growth of credit, and reducing the current account decit. The budget performed better than expected in 2011, and public debt fell to about 39% of GDP by mid-2012. Reforms and increased spending on education have generated some positive impact on educational attainment and schooling rates. Trade and economic integration with the EU remained high. At the same time, the soft landing scenario is challenged by bouts of nancial uncertainty and the global risk sentiment and more may need to be done to better coordinate the policy mix. The current account decit is still sizeable. Ination has been falling, but remains high. These imbalances signal competitiveness problems and a lack of domestic savings, and call for further structural reforms. No efforts were made to increase scal transparency and better anchor scal policy, which would also contribute to enhance Turkeys credibility in the markets. Market exit remains costly and long and bankruptcy proceedings are still relatively cumbersome. To improve business competitiveness, the law on State Aid should be fully implemented. While there were some improvements in the countrys human capital, improvements on physical capital have been modest. Turkey continued to improve its ability to take on the obligations of membership. Progress was made in most areas, in particular on company law, statistics, science and research and Customs Union acquis. Efforts need to continue towards further alignment in most elds. The administrative capacity to cope with the acquis in terms of effectiveness and efciency needs to be strengthened. Enforcement capacity also needs to be strengthened in certain areas. Efforts on the alignment were monitored by the bodies set up under the Association Agreement and by the working groups established in the context of the positive agenda. Some progress was made in the area of free movement of goods. Turkey introduced the mutual recognition principle into its legal order for the non-harmonised area. Turkey has become a full member of CEN and CENELEC. However, technical barriers to trade continue to exist and prevent free movement of goods in some areas in violation of Turkeys obligations under the Customs Union. The alignment in this area is advanced. There has been little progress in the area of freedom of movement for workers. Turkey increased its capacity with a view to future participation in the EURES and coordination of social security systems. Preparations in this area have been launched. Very little progress can be reported on the right of

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establishment and freedom to provide services and further efforts are needed in this area. Overall, alignment is at an early stage. There has been limited progress on free movement of capital. Restrictions on capital movements remain in place in a number of sectors. Enforcement capacity against money laundering and nancing of terrorism needs to be improved. Further efforts are needed as regards alignment with the acquis and the relevant FATF recommendations. Preparations in this area remain at an early stage. Limited progress can be reported in the area of public procurement. The institutions are in place and administrative capacity has improved. The draft alignment strategy, comprising a time-bound action plan, needs to be adopted. Turkey needs to repeal derogations that are not in line with the acquis and align further its legislation, particularly on utilities, concessions and publicprivate partnerships. The organisation of the remedies system remains to be reviewed. Preparations in this area are moderately advanced. Good progress was made on company law. The legal and institutional framework improved with the establishment of the Turkish Accounting and Auditing Standards Authority. However, the capacity of the commercial judiciary and business organisations need strengthening in order to deal with the new Turkish Commercial Code. Overall, Turkey is advanced in this area. Some progress can be reported in the area of intellectual property law. Updated laws in line with the acquis need to be adopted. Increasing the capacity of the judiciary and of the customs administration towards more effective IPR enforcement is crucial. Combating counterfeit goods also needs to be improved. Closer coordination and cooperation among IPR stakeholders and public bodies is essential, as much as general awareness campaigns on the risks of IPR infringements. Turkey only partly addresses the priorities in this area. Limited progress can be reported on competition policy. Turkey enforced antitrust and merger rules effectively. However, recent legal developments raise concerns as to the Competition Authoritys ability to continue carrying out its operations independently. No progress has been made in the area of State aid, while a number of existing State aid practices conict with Customs Union rules. The State Aid Law remains ineffective in the absence of implementing legislation. Alignment is advanced in the area of mergers. In the eld of State aid, the country is not yet sufciently prepared. There has been some progress in the area of nancial services. Basel II standards have become obligatory for the banking sector. More efforts are needed, particularly in the areas of securities markets and investment services, and in the insurance sector. Preparations in this area are well on track. Progress can be reported in the area of information society and media. However, alignment with the EU framework on electronic communications remains limited, in particular on authorisation and market access. Continued efforts are required for further alignment of legislation on information society services. The provisions of internet content that might potentially limit the freedom of expression and a too broad interpretation of certain legal provisions, especially as regards sanctions against broadcasters, raise concerns. Preparations in this area are moderately advanced. Limited progress has been made on alignment in the area of agriculture and rural development. The capacities relating to agricultural statistics and farm

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accountancy data network have increased. Implementation of the pre-accession rural development programme has improved but intensive efforts are required to ensure adequate absorption of the funds. The de facto import ban on live cattle, beef meat and derivative products has not been fully lifted and there remain no strategies in place for the reorientation of agricultural support, nor for agricultural statistics. Preparations in this area are not very advanced. Some progress has been made in the eld of food safety, veterinary and phytosanitary policy. Further efforts are required to advance towards full alignment with the acquis. Signicant efforts are needed on upgrading the agri-food establishments to EU standards, control of animal movements, animal health, especially ght against foot and mouth disease, and on animal by-products. Preparations in this area are at an early stage. Some progress can be reported on sheries, in particular on administrative capacity, resource and eet management, inspection and control, and international agreements. However, additional efforts are needed on legislative alignment, structural action, market policy and State aid. Alignment in this area is not very advanced. There is some progress in alignment of the transport sector, which is, overall, moderately advanced. Turkey needs to align to the recent EU legislative packages in maritime and rail transport. Further efforts are needed in the areas of human resources and technical capacity to apply the acquis, especially in the areas of dangerous goods and emergency response preparedness in maritime transport. The lack of communication between air trafc control centres in Turkey and the Republic of Cyprus is seriously compromising air safety. Some progress can be reported in the energy sector, especially as regards renewable energy and energy efciency. Further efforts are needed in the areas of natural gas, nuclear safety and radiation protection, including responsible management of spent fuel and radioactive waste. Competition remains limited in the gas sector. The functioning of the cost-based pricing mechanism in the electricity market needs to be improved whereas it remains to be established in the gas markets. The independence and institutional capacity of the regulatory authority need strengthening. Overall, Turkey is at a moderately advanced stage of alignment. On taxation, limited progress has been made on legislative alignment. There have been positive steps towards eliminating discriminatory practices in the taxation of tobacco and on administrative cooperation and operational capacity. However, discrepancies with the acquis continue to exist. Further efforts are needed regarding excise duties on spirits to comply with the Action Plan in reducing the differentials between imported and domestic products. Gradual elimination of discriminatory practices is key to further progress. No progress can be reported on direct taxation. Overall, alignment in this area is moderately advanced. There has been some progress on economic and monetary policy. The Central Bank actively employed different instruments to ensure price and nancial stability, albeit with mixed results. Alignment with the acquis remains incomplete, particularly regarding the full independence of the Central Bank and the prohibition of privileged access of the public sector to nancial institutions. The capacity for economic policy formulation and coordination is adequate. Overall, Turkeys level of preparedness is advanced.

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Good progress has been made in the area of statistics, particularly in classications and registers, in population statistics and in other sectoral statistics. Further progress is needed, especially in national accounts, business statistics and in agriculture statistics. There is a good overall level of alignment with the acquis. Some progress, but uneven, has been achieved in the eld of social policy and employment, in particular by improving administrative capacity, extending social security coverage and adopting new legislation on health and safety at work, and trade union legislation for public servants. However, trade union rights for workers and public servants still fall short of meeting the EU and ILO standards. Further efforts are needed to put in place a clear policy framework on poverty reduction, reduce labour market segmentation, combat undeclared work and increase employment rates of women and people with disabilities. Overall, legal alignment is moderately advanced. Turkey has made progress in the area of enterprise and industrial policy principles and instruments and in the adoption of sectoral strategies. Turkey has a sufcient level of alignment in this area. Turkey has made some progress in the area of Trans-European networks, where alignment is advanced. Some progress can be reported on transport and electricity energy networks. Continued efforts are needed for gas interconnections and the implementation of the Southern Gas Corridor. Some progress was made in the eld of regional policy and coordination of structural instruments. The institutional framework for implementing of IPA regional development and human resources development components has been strengthened and the Operating Structures for the Regional Competitiveness, Environment and Human Resources Development operational programmes have obtained accreditation for the tendering, contracting and nancial management functions. However, there is still a need for further strengthening of the administrative capacity of the IPA institutions. Preparations in this area are not very advanced. Some progress has been made in the area of the judiciary following the adoption of the third judicial reform package, which introduces a number of improvements into the Turkish criminal justice system. However, further efforts are needed with regard to the independence, impartiality and efciency of the judiciary, including the criminal justice system and the large backlog of serious criminal cases. The participation rate of women in the judiciary needs to be improved. Limited progress was made on anti-corruption, with some developments on incriminations and transparency in the nancing of political parties. The implementation of the National Anti-Corruption Strategy requires greater political engagement. The situation regarding the respect for fundamental rights continues to be the source of serious preoccupation, notably stemming from the wide application of the legal framework on terrorism and organised crime, which leads to recurring infringements of the right to liberty and security, of the right to a fair trial and of the freedom of expression, assembly and association. Limited progress can be reported in the area of justice, freedom and security. Turkey is successfully providing humanitarian assistance to the Syrian refugees;

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however, its asylum system is far from the EU standards. Turkey needs to increase its capacity to prevent irregular migration. After having been initialled in June the swift conclusion and the effective implementation of the EU-Turkey Readmission Agreement as well as the full implementation of the existing readmission obligations are of crucial importance. Adoption of the Law on Foreigners and International Protection as well as reforms in border management also continue to be a priority. Only limited progress could be reported in aligning the visa legislation. The lack of adequate data protection legislation prevents progress. Reforms are needed in the area of ght against terrorism and organised crime. Overall, alignment is at an early stage in this area. Good progress has been made in the eld of science and research. Turkey took steps to further reinforce its capacity and its integration into the European Research Area. Turkeys participation and success rate in the EU Research Framework Programme (FP7) have increased but further efforts are needed to strengthen the quality of submissions and improve the quality of researchers. Overall, Turkey is well prepared in this area. Some progress was made in the area of education and culture. Popular interest in EU Programmes continued to grow. Turkey extended its compulsory education from 8 to 12years. There has been little progress in the area of culture, and no progress on legislative alignment. Overall, Turkey is moderately advanced in this area. Uneven progress was made towards further alignment in the area of environment and climate change. Turkey has made good progress on water, there was some progress in waste management and industrial pollution and limited progress on air quality and nature protection. There was hardly any progress on horizontal environment legislation and no progress on nature protection and chemicals. Special attention is to be paid to the sustainability of existing protected areas and potential Natura 2000 sites. Regarding climate change, a more ambitious and coordinated climate policy still needs to be established and implemented, both domestically and internationally. No further progress was made on administrative capacity. The environmental agenda of the Ministry of Environment and Urbanization needs strengthening, as well as coordination and cooperation between relevant authorities at all levels. Preparations in this area are at an early stage. Some progress can be reported on consumer and health protection. Key legislation related to consumer protection is still to be adopted and the consumer movement remains weak. Turkey has established new administrative structures in the area of public health. Their functioning needs to be monitored closely. Overall, preparations in this area are on track. Good progress was made in the eld of customs union. The EU-Turkey Customs Union has enabled Turkey to reach a high level of alignment with the acquis in this area. Further alignment is needed on duty relief, free zones, surveillance, tariff quotas and IPR. Preparations in the area of customs IT systems need to continue. Additional efforts are required to improve risk-based controls and simplied procedures to facilitate legitimate trade while ensuring security

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and safety. Some progress was made on external relations. Further alignment is required in areas such as the general system of preferences and control of dualuse goods. Intensive use of safeguard measures is a cause of concern. Overall, the level of alignment in this area remains high. The political dialogue with the EU on foreign and security policy intensied signicantly, also given Turkeys inuential regional role in supporting security, economic transition and democratic reform, including with regard to recent developments in Northern Africa. Turkey strongly and repeatedly condemned the Syrian regimes violence against civilians, maintained an open border policy with Syria and is providing humanitarian assistance to nearly 100,000 eeing Syrians. During the reporting period, Turkish alignment with CFSP declarations continued to be low when compared to earlier periods. No progress was made in the normalisation of relations with Armenia. Diplomatic relations with Israel remained downgraded. Overall, preparations in the area of foreign, security and defence policy are moderately advanced. Some progress can be reported in the area of nancial control, in particular as concerns the protection of the euro. Additional efforts are still required, especially as regards the scope of the forthcoming revision of the policy paper on public internal nancial control, reinforcement of internal audit function in the public administration and reinforcement of the Turkish Anti-Fraud Coordination Service. Recent amendments to the Law on the Court of Accounts jeopardise previous developments in the area of external audit. Overall, preparations in this area are moderately advanced. There has been no particular progress in the area of nancial and budgetary provisions, where preparations are at an early stage. Sound coordination structures, administrative capacity and implementing rules will need to be established in due course.

4.4 Turkey and the European Identity

The identity, as a combination of peculiar features and as a distinguishing factor, has a very high symbolic value and is a central issue in the integration processes involving different peoples, such as the construction of a common European home. The identity issue raises two key questions within the debate on Turkeys application for membership: what are the historical, geographical and cultural elements distinguishing Europe? Does Turkey share them? To answer these questions, it is necessary to retrace the evolution of the idea of Europe and to analyse the role played by Turkey in the formation of a common European consciousness. The word Europe has its roots in ancient Greece, where it was used in a double sense: mythological and geographical. Europe was the name of a female character, mentioned in several legendary tales. It was also the name of a territory whose boundaries changed meaningfully over time, following the geographical

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knowledge increase. In the Hymn to Apollo, attributed to Homer and dating from the seventh century BC, Europe was the northern part of the Greek mainland, while just two centuries after, Herodotus used this word to indicate the western end of the Euro-Asian continent, bounded to the north by the North Sea, to the east by the Don, the Bosphorus and the Sea of Azov [7]. In Roman times, the term Europe, still far from getting a political value, continued standing for a geographic area, but its borders were still uncertain [8]. The disintegration of the Roman Empire created the conditions for the formation of a common European identity: the Germanic peoples mingled with the Latin submitted ones, thus giving rise to the Roman-Barbarian kingdoms. These peoples were very heterogeneous, both ethnically and culturally, but Christian religion reduced conicts and tensions among them. In such a fragmented and conicting society, the Christian religion was an extraordinary cohesion factor for the peoples of Europe, so much so that Christianity and Europe became an inseparable pair in the Middle Ages. The European unication process made signicant progress in that period also in terms of culture. A fundamental step in this process was the rise of the Carolingian Empire in the ninth century AC. Indeed, intellectuals from all over the continent ocked to Charlemagnes court and many initiatives were promoted to facilitate oral and written communication among Europeans, such as the adoption of a clearer and more correct Latin and the replacement of the various writings in use within the empire with the so-called Carolingian minuscule [9]. It is important to note that the Carolingian Empires extension was much shorter than that one of contemporary Europe. Moreover, the empire was a political entity closely related to its founders gure. Therefore, it seems to be excessive considering Charlemagne father of Europe and arguing that there is a kind of continuity between his empire and the European Union. A new way of thinking about Europe began to take shape between the end of the thirteenth century and the beginning of the fourteenth century. It reected the deep political transformations happening in the continent and the evolution of the military and religious situation in the Middle East. In such region, the Christian community decreased gradually due to the arrival of the Muslim militias, that stormed St. John of Acre, the last Christian stronghold in Palestine, in 1291. These losses prompted European governments and intellectuals to consider whether to end the fratricidal wars and to form a common front for the reconquest of the Holy Land. One of the most passionate supporters of European unity was the French jurist Pierre Dubois,5 who aimed to pacify the Christian West through a confederation [10]. His plan provided the establishment of a council, meeting the political needs of all European countries, and the recourse to international arbitration to solve eventual disputes among member states. Dubois plan, although never found

Pierre Dubois (Normandy, 12501321) was a jurist in the service of Philip IV the Fair, King of France. He explained his project of European unication in De Recuperatione Terrae Sanctae, a political treatise dating from 1305.

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concrete implementation, was very interesting and innovative, because it expressed for the rst time the need to create a community of primi inter pares.6 A turning point in the evolution of the idea of Europe was the Turkish conquest of Constantinople in 1453. The downfall of this Christianity bastion raised a stir in the West and aroused feelings of brotherhood and solidarity in the population. In such a difcult time, Christian Europe discovered itself, became aware of its own identity and felt the need to protect it against the impending danger.7 One of the best interpreters of the Europeans desire for revenge against the Turkish invader was Pope Pius II, who committed himself to organising a new crusade. The Pope announced a conference in Mantua in 1459, to persuade Christian princes to support the initiative, but most of them missed the appointment and his attempt failed. The papal bull which proclaimed a holy war in 1463 and the subsequent Ancona Meeting were likewise unsuccessful. Despite the failure of these initiatives, due to the conicting interests of the various states, the efforts made by Pius II were not vain; he aroused European peoples conscience through his calls for mobilisation against the enemy and introduced meaningful elements of innovation: he used for the rst time the term europaeus and presented Europe as the common homeland to defend, thereby giving it a high political and symbolic value. The possible expansion of the Turkish domain to the Eastern Europe states fostered the proliferation of strategies aiming to join together the nations of the continent. The plan drawn up by Georg von Podebrad, King of Bohemia, and his French adviser Antoine Marine, envisaged the creation of an alliance among the European states and the establishment of a consistory, intended as a permanent tribunal appointed to settle the disputes among the member countries. Podebrad and Marines plan was not supported by the other states and failed, but it showed that the aspiration for a united continent had become a widespread feeling among Europeans. The transition from the Middle Ages to the Modern Era marked the decline of a society and its transcendent vision of the world and the emergence of a new reality, giving a central role to man and his spirit of renewal. The idea of Europe changed radically in such historical context, it ceased to be identied with Christianity and took a secular meaning. Niccol Machiavelli was the rst intellectual who called into question the Christian religion as the basis of the European civilisation [9]. He thought that the political organisation based on freedom and dynamism was the hallmark of Europe. He chose the Monarchy of the Turkish as a symbol of Asiatic despotism and placed it in opposition to the Kingdom of France, where the sovereigns power was limited by that one of the nobility. The great Tuscan intellectual also noted that Europe, unlike Africa and Asia, had

It is a Latin expression meaning rst among peers/equals. It is used in this context to indicate states on the same footing. 7 The European consciousness can be compared to the Ideologuesego, that becomes aware of itself when clashes with the non-ego. The comparison between the European consciousness and the ego is made by Chabod [11], who recalls the words used by Carlo Cattaneo with reference to the national consciousness.

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enabled many valuable men to emerge and show their qualities, because it was ruled by a few authoritarian regimes and several republics [12]. In the seventeenth century, the continuous conicts among European states pushed thinkers and political leaders to develop various theories to appease the continent. The Duke of Sully, the nance minister of Henry IV, proposed the creation of a European confederation with the aim of ensuring a balance among the states, the common defence of the territory and the freedom of trade through the removal of trade barriers. The French Minister expressed the need to reinforce the border states to protect the boundaries of Europe and identied the Kingdom of Hungary as a possible bulwark against the Turks, considered potential invaders, like the Muscovites and Tartars. At the beginning of the eighteenth century, the abbot of Saint Pierre outlined the idea of a united Europe more clearly and concretely than his predecessors. He envisaged a timeless alliance among the European sovereigns, based on a treaty both preserving the sovereignty of the single states and ensuring peace through the introduction of shared international rules. These views were expressed in a memorable work entitled Project for Perpetual Peace. Montesquieu and Voltaire echoed the principle of freedom as a Europes peculiar feature. In particular, Voltaire described Europe as a republic consisting of different states, sharing the Christian religion and the same political and public law principles. It is interesting to note that Voltaire, like many other intellectuals of that age, referred to Turkey as a separate entity from Europe, mentioned it as terms for comparison, to distinguish what was European from what was not. A new current of thought came out with Rousseau, showing several common points with the Enlightenment Europeanism, but also important elements of discontinuity, such as the rise of the idea of nation, destined to permeate the thinking and political history of Europe until today. The French philosopher, though hoping a kind of European federalism to avoid tensions and conicts among states, expressed the need to safeguard the identity and specicity of each people. In the nineteenth century, Europeanism was in crisis due to the strengthening of the sovereign states and the idea of Europe gave way to that one of nation. The nationalist drift of the European countries and the risk of fratricidal wars favoured the emergence of new proposals for unication, as the project of the United States of Europe by Carlo Cattaneo [13]. The Crimean War, fought in that period, gave an important and unexpected boost to Turkeys integration into Europe. Indeed, the Treaty of Paris of 1856 admitted formally the then Ottoman Empire to participate in the European concert, thanks to the valuable contribution it made to France, Great Britain and the Kingdom of Sardinia in the victorious war against Russia. Therefore, the Ottomans made their ofcial entry into the European family, even if doubts and perplexities against them did not cease, then as now. The First World War showed to rulers and intellectuals that it was absolutely necessary to have a more pragmatic approach in order to build a common European home.

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One of the greatest representatives of this renewed Europeanism was Count Coudenhove Kalergi, author of a book entitled Pan-Europe and founder of the European Federation. There was an attempt to do something concrete nally, to turn ideas into action. However, the deciding step forward was taken during and after the Second World War, with the planning of strategies that the governments should put in place to create quickly a European federation. The boundaries of the new European political subject were also debated, but opinions were different on many important issues, including the opportunity to extend the project of unication to the USSR and Turkey. Two schools of thought rose inside the federalist movement: the Institutional Federalism, which proposed to establish a European federation by means of a constituent assembly, and the Integral Federalism, inspired by Proudhon, suggesting to minimise the power of the central authorities and to enhance the role of the local ones, as they were much closer to the citizens, and to apply the federalist principle also to the economy and society. In the end, a third Europeanist current of thought, named Functionalism, spread in the Old Continent and was crucial for the rise of the European Communities. It had prestigious representatives, like the French statesman Jean Monnet, and argued that European integration could be reached through a gradual transfer of tasks and functions, sector by sector, from the single states to independent institutions. Under the inuence of this conception, the European Coal and Steel Community (ECSC) was founded in 1950 and, gradually, the collaboration between the states expanded and strengthened, until the establishment of the European Union. Turkey, though remaining outside the European palace, strengthened its ties with Europe, by signing with it a series of strategic agreements and continuing along the path of internal reforms, to become an integral part of the Union. The previous reections about the idea of Europe and its evolution show that Turkey contributed for a long time to the formation of a European consciousness in a negative sense, because the country was considered antithetical to Europe, represented a threat pushing the Europeans, always ghting each other, to join together. However, the framework of the Turkey-Europe relations changed dramatically over the centuries, as shown by the Ottoman Empires accession to the European concert and, above all, the westernisation process promoted by Ataturk and the following start of a privileged relationship with the European institutions. In the light of these considerations, it is possible to say that Turkey, even if quite recently, joined the European family, decided to assimilate Europes rules and models, and cannot therefore be regarded as a foreign body for its culture and history. Some observers often argue that the country cannot be considered European for its geographical location. Upon closer examination, it is still impossible to give a precise denition of the European territory, because its eastern boundary is matter of endless disputes, not only referring to Turkey, but also to some countries of the former Soviet bloc. Choosing the geographical criterion to exclude the European identity of Turkey is therefore misleading.

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Perhaps, the main factor arousing feelings of hostility and difdence towards Turkey and leading to consider it a non-European country is Islam. A part of the European public opinion thinks that this religion is extraneous to European and Western civilisation, if not in contradiction with it. It is undeniable that Christianity represented for centuries in Europe an extraordinary binding agent, a necessary cohesion factor for a highly fragmented society. It is also true, however, that Europe gradually freed itself from religion, decided to take a secular structure and, albeit with great efforts, managed to achieve political unity. In addition, the European Union ensures equal treatment for all religions, thereby excluding any discrimination based on religion. At this point, it is important to understand the meaning of European identity and to identify its peculiar features, given that the geographical criterion and the religious one cannot be considered deciding. Granted that any denition is partial and open to criticisms, the deepest nature of the European spirit and identity can be identied with the complex of values and principles underlying the Union. From this perspective, it can be argued that Turkey is part of Europe because it shares in a coherent and convinced manner the European values.

References
1. Fiorani Piacentini V (2005) (a cura di), Turchia e Mediterraneo allargato. Democrazia e democrazie. Franco Angeli, Milan 2. Commissione EuropeaDirezione Generale per lAllargamento (2010) EU-Turkey relations. http://ec.europa.eu/enlargement/candidate-countries/turkey/eu_turkey_relations_en.htm. Accessed 15 Dec 2012 3. Commissione Indipendente sulla Turchia (2009) Turchia in Europa. Rompere il circolo vizioso. http://www.independentcommissiononturkey.org/pdfs/2009_italian.pdf. Accessed 16 Dec 2012 4. Commissione Europea (2011) Comunicazione della Commissione al Parlamento Europeo ed al Consiglio. Strategia di allargamento e sde principali per il periodo 2011-2012. Bruxelles. http://ec.europa.eu/enlargement/pdf/key_documents/2011/package/strategy_paper_2011_ it.pdf. Accessed 16 Dec 2012 5. European Commission (2012) Turkey 2012 Progress Report. http://ec.europa.eu/ enlargement/pdf/key_documents/2012/package/tr_rapport_2012_en.pdf 6. European Commission (2012) Communication from the Commission to the European Parliament and the Council, Enlargement Strategies and Main Challenges 2012-2013. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri= COM:2012:0600:FIN:EN:PDF. Accessed 16 Dec 2012 7. Mikkeli H (2002) Europa, storia di unidea e di unidentit. Il Mulino, Bologna 8. Pozzioli F (1999) Europa la pi nobile la pi bella. Idee e ideali dellEuropa dalle origini ai giorni nostri. Bompiani, Milan 9. Giardina A, Sabbatucci G, Vidotto C (1995) Let medievale. Laterza, Bari 10. Dubois P (1306) De Recuperatione Terrae Sanctae 11. Chabod F (1961) Storia dellidea dEuropa. Laterza, Bari 12. Machiavelli N (1985) Il Principe. Garzanti, Milan 13. Cattaneo C (1942) Considerazioni sulle cose dItalia nel 1848, 1st edn. Spellanzon, Turin