Turkey In The North Atlantic Marketplace - Transatlantic Relations

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page ixList of ARo-RoRokETSANRTASCMSEEsSGCInformation TechnologyTurkish Textile and Apparel Exporters’ AssociationIntelligent Transportation SystemsJob and Growth AgreementsSmall and Medium Enterprises Development organizationlogistics Associationlocal Content Requirementsliquefied Natural GasMergers and AcquisitionsMiddle East and North AfricaCommon Market of South AmericaTurkish Employers’ Associations of Metal IndustriesMiddle East Technical UniversityMost-Favored NationAssociation of Turkish Machine ManufacturersIndependent Industrialists and Businessmen’s AssociationNorth America Free Trade AreaNorth Atlantic MarketplaceNational Aeronautics and Space AdministrationNorth Atlantic Treaty organizationNon-Tariff Barriers to Tradeorganization for Economic Cooperation and Developmentpermanent Structured CooperationDoctor of philosophypolicy-Induced BarriersTurkish pump & Valve Manufacturers' Associationpurchasing power paritypublic-private partnershipsproducer Subsidy Estimatespreferential Trade AgreementRegional Comprehensive Economic partnershipResearch and DevelopmentRolling RoadRoll on/Roll off ShipsRocket IndustryRegional Trade AgreementSynthetic Control MethodState Economic EnterprisesSouthern Gas Corridorix

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xxTURKEY IN THE NoRTH ATlANTIC TTIpTTSISSmall and Medium Size EnterprisesState oil Company of the Azerbaijan RepublicSanitary and phytosanitarySub-Saharan AfricaServices Trade BarriersScience, Technology, Engineering, and MathServices Trade Restrictiveness IndexTurkish American Business AssociationTransatlantic Business DialogueTurkish American Chamber of Commerce and IndustryTurkish Aerospace IndustriesTrans-Anatolian pipelineTrans-Adriatic pipelineTechnical Barriers to TradeTürkiye Cumhuriyeti Devlet Demiryolları(The State Railways of the Turkish Republic)Turkish G-Class frigateTurkish Cement Manufacturers’ AssociationAircraft Motor IndustryTrans-European Transport NetworkConfederation of Turkish Tradesmen and CraftsmenTreaty on the Functioning of European UnionTurkish AirlinesTrade & Investment Framework AgreementTurkish Exporters’ AssemblyTrade in Services AgreementTurkish Confederation of Employer AssociationsTurkish Chemical Manufacturers AssociationTurkish lirasTurkish Contractors AssociationTurkish Grain BoardTransnational CorporationsTrans pacific partnershipTransport Corridor Europe-Caucasus-AsiaTrade-related Investment MeasuresTrade-Related Intellectual property RightsTotal Support EstimateTransatlantic Trade and Investment partnershipTurkish Textile Employers

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xiList of ientific and Technologic Research Council of TurkeyTurkish Statistics InstitutionTurkish Industry and Business AssociationUnited Arab EmiratesUnited kingdomUnited NationsUnited Nations Commission on International Trade lawUnited Nations Franework Convention on Climate ChangeInternational Transporters AssociationUnited States of AmericaU.S. Chamber of CommerceUS DollarU.S.-Turkey Business CouncilWorld Input output DatabaseWorld Trade organizationSecond World WarTurkey’s International Investors AssociationMicroelectronic IndustryCoordination Council for the Improvement of InvestmentEnvironmentxi

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00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xiiiList of Tables, Figures, and MapsChapter FourTable 1.External Trade Value and percentage by Mode of Transport in 2002Map 1.TRACECA IDEA I-Transport Dialogue and Interoperabilitybetween the EU and its Neighboring Countries and Central AsianCountriesMap 2.Middle Corridor-Baku-Tbilisi-kars (BTk) RailwayMap 3.Belt and Road Initiative (BRI)-Silk Road Economic Belt, MaritimeSilk Road, RailroadChapter FiveMap 1.The Belt and Road Initiative: Six Economic Corridors SpanningAsia, Europe, and AfricaTable 1.percentage Distribution of Average Exports 2015–2017Chapter SixFigure 1.Turkish FDI Inf lows and outf lows and the Share of the U.S. andthe EUFigure 2.Sectoral Composition of Turkish FDI Inf lows and outf lowsFigure 3.Turkish FDI Inf lows and outf lows and the Share of the U.S. andthe EUTable 1.Top Senders of FDI to Turkey and Top FDI Destinations for Turkish Investors (Average of last Five Years’ FDI Figures in Million,2013-2017)Table 2.Comparison of Turkey’s Restrictiveness for FDI with SelectedEconomiesFigure 4.openness of Turkish Services Sectors to Foreign TradeTable 3.Turkey’s BITs with North Atlantic EconomiesChapter SevenFigure 1.Services output as a Share of Manufacturing output, 2003-2015Figure 2a. output of Manufacturing and Services Sectors, 2003-2015Figure 2b. Value Added of Manufacturing and Services Sectors, 2003-2015Figure 3.Employment in Manufacturing and Services Sectors, 2003-2015Figure 4.Share of Services Trade in Total Trade, 2003-2015xiii

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xivxivTURKEY IN THE NoRTH ATlANTIC MARkETplACEFigure 5a.Figure 5b.Figure 6.Figure 7a.Figure 7b.Figure 8a.Figure 8b.Figure 9.Figure 10.Table 1.Table 2.Table 3.Figure 11.Figure 12.Figure 13.Annex.Exports of Turkey in 2014, by RegionImports of Turkey in 2014, by RegionServices Trade Balance of Turkey in 2014, by Sector (millions of )Services Exports of Turkey to EU in 2014, by SectorServices Exports of Turkey to the U.S. in 2014, by SectorServices Imports of Turkey from EU in 2014, by SectorServices Imports of Turkey from the U.S. in 2014, by SectorServices Exports of Turkey by Foreign Use, %Services Imports of Turkey by Domestic Use, %Regional Shares of Turkey’s Services Exports by Sector and ForeignUseRegional Shares of Services Imports of Turkey by Sector andDomestic UseServices Trade Restrictiveness Index (STRI), 2007pIBs in Services of Turkey with the EU and the the U.S.Sectoral Decomposition of pIBs of Turkey with the EU and the theU.S.pIBs in Services Trade of Turkey with other Countries by Sector,2014Services SectorsChapter EightTable 1.Selected Macro and Agri-Food Indicators, 1998-2017Figure 1.Transfers to the Farmers – pSE (%), 1986-2016Figure 2.percentage Total Support Estimate by Country, 1995-97 and 201416Figure 3.Tariff profile of Turkey in Agri-Food products, 2017Table 2.Budgetary payments to Farmers, 2003-2017Table 3Agri-food Trade of Turkey, 1999-2017Figure 4.Net Agri-Food Exports of Turkey According to product Categories,1996-2017 ( billion)Table 4.Major FDI Transactions in the Food and Beverage Sector, 2011-17Chapter TenFigure 1.Evolution of Global Value Chain DeterminantsTable 1.Wind Energy potential in TurkeyTable 2.Incentives for the Renewable Energy power plants Using DomesticManufacturesFigure 2.Diversification of Manufacturing, 2015Table 3.High and Middle High Tech Industries in Manufacturing in Turkey,2015

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xvList of Tables, Figures and MapsTable 4.Figure 3.Figure 4.Figure 5.Figure 6.Figure 7.Figure 8.Figure 9.Figure 10.participation in Formal or Non-formal Education, %Graduates by Discipline, ThousandsphD Degrees by Disciplines, %R&D personnelScientific publicationsRate of Innovative Firms, %Innovative Enterprises, 2014-2016, %patentsCumulative Number of patents by Fields, 1998-2017Appendix.High and Middle High Tech Investments Eligible forState Incentivesxv

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00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xviiIntroductionDaniel S. Hamilton, Aylin Ünver Noi, and Serdar Altayhe post-war liberal economic order was a product of transatlanticleadership. This particular order has often been described as “embedded liberalism”1 since it gave governments discretion to regulate theireconomies while keeping a liberal vision in its center. Embedded liberalismallowed states to reconcile free trade with economic stability and pursuekeynesian policies toward ensuring full employment. It expanded acrossthe globe, turning into neo-liberalism from the 1970s onward. As theInformation Revolution gathered speed, the world economic order beganto lose its embedded, protective qualities.2 The positive benefit of globalization had been the unprecedented rapid economic growth in trade ingoods and services.3 This economic growth lasted for three decades untilthe global crash in financial markets in 2008. While the liberal order andmarket economy have survived and evolved in one form or another formore than six decades, it has been challenged by a phase of neo- mercantilism since the 2008 crisis.TThe global policy context following the 2008 economic crisis has beenshaped by concerns about protecting domestic industries, creating jobs,and revitalizing economic growth. In addition to bail-out programs torescue sinking industries, governments applied new forms of trade protection to save domestic producers from the impact of the economic downturn and international competition. Almost all G-20 governments utilizedone form of local content rules/requirements (lCRs) to favor domesticplayers by discriminating against foreign commercial interests.4 lCRsusually served the purpose of localizing production, jobs, skills, and tech-1234See John G. Ruggie, “International Regimes, Transactions, and Change: Embedded liberalism in the postwar Economic order,” International Organization, 36 (Spring 1982), pp.195-231.G. John Ikenberry, “The plot Against American Foreign policy,” Foreign Policy, May/June2017, 96 (3), p. 9.See Thomas l. Friedman, Understanding Globalization: The Lexus and the Olive Tree, (NewYork: Farrar, 1999).See for instance Global Trade Alert database for trade protections: https://www.globaltradealert.org/.

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xviiixviiiTURKEY IN THE NORTH ATLANTIC MARKETPLACEnologies, and were implemented as part of “buy national,” “hire national”programs.5 New protectionist measures were adopted by governmentswithin the policy leeway provided by the WTo.With the emergence of a world of more diffuse power, transatlanticleadership has been increasingly unable to advance a market-oriented liberalization agenda through multilateral channels such as the Doha talksof the WTo.6 In the absence of new rules and broad market liberalizationinitiatives, emerging markets have become challengers, even as they provide lucrative opportunities for transatlantic businesses. U.S. and EU corporations have long moved their production lines toward those markets,where they increasingly encounter state-driven economic policies andnew forms of non-tariff barriers to the detriment of fair competition.7The perception has grown that the Western liberal order has been threatened by policies of rising powers, which have promoted alternative economic models favoring local industry and companies, and thus createdunfair market conditions for transatlantic corporations.8 Facing commondomestic and global challenges, both the EU and the United States duringthe obama administration adopted strategies to reinvigorate sustainableand balanced economic growth, and a competitiveness-driven and surplus-oriented jobs and growth agenda, together with more equitable international burden-sharing in global governance.9In this context, the Transatlantic Trade and Investment partnership(TTIp) initiative was launched as a joint response of the transatlanticpowers to the global transformation to a multipolar system that has been56789G. Hufbauer, J. Schott, & C. Cimino-Isaacs (2013), Local Content Requirements: A GlobalProblem. https://www.google.com/books?hl en&lr &id pzzEDQAAQBAJ&oi fnd&pg pp1&dq hufbauer schott local&ots zYHHT8Qa77&sig -V0j6CTgJuDh9MaQGMsTnl9ppf4.Transatlantic Task Force, A New Era for Transatlantic Trade Leadership: A Report from theTransatlantic Task Force on Trade and Investment (Washington, D.C.: GMF, ECIpE, 2012).p. 8-10.Raymond J. Ahearn, “Rising Economic powers and U.S. Trade policy,” CongressionalResearch Service, 7-5700, R42864, December 3, 2012.Charles A. kupchan, “Reordering order: Global Change and the Need for a New Normative Consensus,” in Flockhart, T., kupchan, C.A., lin, C., Nowak, B.E., Quirk, p.W.,Xiang, l., Liberal Order in a Post-Western World (Washington, D.C.: Transatlantic Academy,2014), pp.1-12.See Roberto Bendini, In-depth Analysis: The European Union’s trade policy, five years after theLisbon Treaty, European parliament, Directorate-General for External policies policy Department, DG EXpo/B/polDep/Note/2014 76, March 2014, p. 10-7; National ExportInitiative (NEI), Report to the President on the National Export Initiative: The Export PromotionCabinet’s Plan for Doubling U.S. Exports in Five Years, Washington, D.C. (2010).

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xixIntroductionxixshaped around “rising powers” such as China.10 For both Americans andEuropeans, “mega-regionals” such as TTIp and the Trans-pacific partnership (Tpp) became the central instruments of a competitiveness-drivenand surplus-oriented jobs and growth agenda. The TTIp initiative arose,in Charles A. kupchan’s words, to “advance the prospects for the West’sreclamation of political and strategic purpose.”11 The transatlantic consensus over an unprecedentedly broad content and more stringent enforcement agenda demonstrated a mutual desire to create a new global tradeconstitution that would repress any alternative models, contain potentialchallengers, and reinforce joint transatlantic “regulatory hegemony.”12Nevertheless, even before Donald Trump was elected, U.S. negotiationswith the European Union on an ambitious TTIp were struggling. TheUnited States was unwilling (and largely unable) to open public procurement or compromise on geographical indications, two primary goals forthe Europeans. The EU was unwilling to compromise on geneticallymodified organisms and food safety standards, which meant that the agreement had little to offer U.S. agricultural interests. The initiative was putin the deep freeze after president Trump came to power in January 2017.Currently, incentives for a revived transatlantic negotiation are low. TheTrump administration is preoccupied with other priorities, particularlyChina and NAFTA. European officials are watching with trepidation theTrump Administration’s take-no-prisoners approach to the NAFTA renegotiation as well as the new wave of protections in the form of tariffs onsteel and other metallic products. As of this writing, the transatlantic partners are dangerously close to moving from trade spat to trade war.Today transatlantic economies are facing escalating nationalism andpopulism, which feed public distrust in established institutions. A 2015pew Research Center study revealed the fact that the size of the U.S.middle class and its share of the country’s income and wealth are shrinking.13 Many countries, including those that championed globalization andrules-based liberal trade, started to focus on concerns about job losses and10111213Charles A. kupchan, The Geopolitical Implications of the Transatlantic Trade and InvestmentPartnership, (Washington, D.C.: Transatlantic Academy, 2014).Ibid. pp. 1-2.peter Van Ham, TTIP and the Renaissance of Transatlanticism: Regulatory Power in the Age ofRising Regions, Netherlands Institute of International Relations Clingendael, 2014, pp.7-8.Nancy Birdsall, “Middle-Class Heroes: The Best Guarantee of Good Governance,” ForeignPolicy, March/April 2016, 95 (2), pp. 25-32.

00-frontmatter.qxp CTR 6x9 7/17/18 4:35 PM Page xxxxTURKEY IN THE NORTH ATLANTIC MARKETPLACEinequality.14 There is urgent need to address these issues, including thechurn of the economy due to rapid technological change.Today, the cohesion and strength of the transatlantic economic relationship is being tested by the renewal of protectionism on each side ofthe Atlantic, debates over trade deficits and security burden-sharing, differences over sanctions imposed on Iran and on Russia, and differentresponses to climate change.Having a Customs Union with the EU since 1996, and as a candidatefor full EU membership since 2004, Turkey has undertaken dramaticreforms to establish a sound market economy in the context of its journeyto become an EU member. However, growing political tensions and diminishing public support have dimmed Turkey’s membership prospects. TheTurkish government has not only adopted a more assertive foreign policyindependent from Western allies,15 it has also developed a new economicpolicy and approaches since the 2008 crisis. Öniş and kutlay defineAnkara’s new policy orientation as a “neo-developmentalist turn” becausethe government has been inspired by the BRICs and other catch-upeconomies through proactive state interventions dedicated to industrialdevelopment.16 The government has embraced through its “Vision 2023”policies to make Turkey one of the top 10 economies globally with a 2trillion GDp by the year 2023, the centennial of the Turkish republic.Ankara has initiated a sophisticated localization program towards constructing a more competitive export capacity and addressing chronic technology and current account deficits. launching a “Buy Turkish” agenda,the government has attributed a more inf luential role to public procurement instruments, discriminating against transatlantic goods and services.17U.S. and European traders and investors also encounter challenges, including higher Turkish tariffs (especially in agriculture), non-tariff barriers(NTBs), issues about the business climate, and the recent rise of government interventionism in Turkish markets.14151617lend and Tyson, op. cit., p. 130.kemal kirişci, “The Transformation of Turkish Foreign policy: The Rise of the TradingState,” New Perspectives on Turkey, no. 40 (2009), pp. 34-7.Z. Öniş, and M. kutlay, “Rising powers in a Changing Global order: the political economyof Turkey in the age of BRICs,” Third World Quarterly, 34,8 (2013), pp. 1420-23.Serder Altay, “public procurement In Turkey: ‘Buy Turkish’ In The Nexus of Trade AndIndustrial policies,” The World Economy, 2018 forthcoming.

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of the North Atlantic Marketplace would include non-EU European countries in a broad North Atlantic commercial architecture. Turkey's evolving commercial ties to the EU and the United States are central to such considerations. In this book, leading experts develop possible ways forward to anchor Turkey in the West by further deepening .