Current trading problems in Turkey

¶ … trading problems in Turkey

In 2006, Turkey's exports amounted to $95.2 billion, while its imports were in value of $120.9 billion, leading to an overall negative balance of $26 billion. Although necessarily not a significant problem at this point, the current account deficit is something that the Turkish government will have to watch in the future so as not to destabilize the Turkish macroeconomy.

Turkey's trade is currently concentrated on its relationship with the European Union, following the country's aspiration to become a full member of the EU in the 21st century. The statistics are relevant in this sense, with the EU ranking first in both Turkey's exports and imports as the most important trade partner. At the same time, Turkey is also an important partner for the EU, ranking 7th in EU's imports and 5th in its export markets ranking.

Turkey and the EU have established a customs union in 1995, which means that they have eliminated internal tariffs on products and services, while at the same time practicing a common customs tariff for third countries outside the customs union. The customs union with the EU partially explains the fact that most of Turkey's trade is directed towards this economic block.

At the same time, Turkey is member of the World Trade Organization (WTO) and the U.S. is an important trade partner. In figure, this translates into imports from the U.S. amounting $2.9 billion (2003) and exports of $3.8 billion, a clear surplus in the trade relationship with the U.S. The country has also signed free trade agreements with has EFTA, Israel, the former Yugoslav Republic of Macedonia, Croatia, Bosnia-Herzegovina, Tunisia, Morocco, the Palestinian Authority, Syria, Egypt and Albania, thus bolstering trade with these nations as well.

One of the potential trading problems in the case of Turkey is the necessity of the government to offer protection to local producers, which will lead to particular measures in terms of tariff and trade restrictions. The most important sector where this is shown is in the agricultural products sector. The need to protect local producers from foreign exports that could takeover their market share induced the Turkish government to increase ad valorem tariff rates on imports of animal products to 227.5%, while in 2003, the government increased the import tariff practiced on corn imports from 20% to 70%.

With Turkey a predominantly Muslim country, the duty on alcoholic beverages is also very high.

The non-tariff barriers are however much more used than the simple tariff ones. For example, import licenses are used in some of the industrial products imports and this in fact leads to the possibility of using administrative barriers and delays to hamper the natural trade flow. In general, this is shown through an increased number of bureaucratic formalities that need to be handled, which lead to an increased lag time and cost for the exporter on the Turkish market.

The problems that appear in terms of service trade with Turkey and barriers that the government lays out in this area are much more complex. Up to 2005, Turk Telecom benefited from a virtual monopoly, which delayed or made more difficult the apparition of new competitors on the market. While negotiations with the WTO implied a gradual liberalization of the telecommunications market, there are several complaints that there is still a lack of transparency in the way that licenses are awarded and that, virtually, foreign company access to this market is still generally made more difficult.

Besides the telecommunications sector, several other economic segments are deemed of strategic importance and, as such, require a special governmental permission for foreign companies. Such industries are the financial and petroleum sectors, for example. On the other hand, in other economic segments, foreign participation is limited to under 50%, depending on the industry.

The problems that these trade measures that the Turkish government tends to impose bring about are related to the capacity of foreign exporters to penetrate the local Turkish market. First of all, it is a matter of competitiveness. If the exporting company needs to pay additional taxes in the form of import taxes on the Turkish border, then its overall costs of production and transport will increase with the same amount. This means that the breakeven value for the foreign company for that respective trade will be higher than if the import duty was not applied. In order to remain profitable (on that respective trade) the company will need to increase the final revenue and this can only be done by increasing the price at which that product is sold on the local market to the Turkish customers.

The problem at this point is that on the local market, the foreign product, which was imported to Turkey, will be competing in terms of customer preference with the locally produced good or service. As the local producer will have not paid an import tax (in some situations, the producer might have even benefited from a governmental subsidy, thus further lowering its overall production cost), he will be able to afford to sell the product on the local market at a much lower price than the foreign producer, because he will be able to afford a lower breakeven point. This will make locally produced goods and service more competitive for local customers and easier to be sold. The higher the important taxes and tariffs, the lower the chances of a company remaining profitable with its products on the market.

At the same time, there are several other non-tariff barriers to be considered, as previously pointed out. These play a significant role as well. For example, in the case of agricultural products, non-tariffs barriers often come in the form of licenses or specific requirements to which the products must adhere if they are to be imported on the local market. Due to the fact that extra requirements must be fulfilled, the overall cost of production will also increase, in the same manner as previously shown in the case of import taxes.