TURKEY CORRUPT BETWEEN GLOBALIZATION AND PROTECTION

Remzi AKÇİN
UGM Board of Directors Chairman

When we look at Turkey's last half-century, there have been two turning points in its approach to globalization. The first is the Decision of January 24, 1980, when it switched from an import substitution growth strategy to an export-based open growth strategy. The second is the Customs Union, which was put into practice in 1996, the last stage of Turkey's EU membership, which started its journey in 1963 but still does not seem to have any hope on the horizon.

The 2024 action plan of the Coordination Board for the Improvement of the Investment Environment (YOİKK) includes the article "Continuing the work on the current legislative infrastructure with the relevant stakeholders to harmonize it with the new Customs Code of the EU." In this case, we can say that there is at least political will to revise the Customs Law by the EU Customs Code.

The most important economic theory that all economics students learn is the “Theory of Comparative Advantage” by David Ricardo, an English economist who lived between 1772 and 1823. According to this theory, a country that produces a product with less labor should produce this product in which it is specialized and should give up the production of more expensive products. If every country only offers the products it produces cheaply to the international market, world welfare will increase since all products subject to foreign trade are obtained with the least labor. This simple explanation lies at the basis of the concept of globalism or globalization.

The World Trade Organization aims to eliminate non-tariff (non-tax) barriers of countries in international trade, minimize tax rates, and eliminate them over time. Again, in the simplest terms, to pave the way for globalization.

The opposite of globalization is what we call a closed economy, where a country is closed to foreign trade and all needs are produced within the country. The most obvious example of this is the economic policies implemented by socialist countries.

If we say the last sentence from the beginning, both situations are incompatible with the realities of life. Just as it is not possible for all countries to abandon protectionism, remove tariff and non-tariff barriers, and surrender to globalization, it is also not possible for a country to continue its life without importing any products. In other words, there is no black and white, but there are historical periods when the shade of gray approaches white or black. Of course, international conjunctures are as effective as the preferences of countries in this process.

PERIODS WHERE WE APPROACHED GLOBALIZATION

When we look at the last half-century of Turkey, there are two turning points where it approached globalization. The first is the January 24, 1980 Decisions, which transitioned from an import substitution growth strategy to an export-based, open growth strategy. The second is the Customs Union, which was implemented in 1996, the final stage of Turkey's EU membership, which began its journey in 1963 but still did not seem to have any hope on the horizon.

Before the January 24 Decisions, Turkey followed a closed, self-sufficiency-based foreign trade policy; to ensure this, it continued to protect domestic production with high customs duty rates. However, as Turkey was unable to find even foreign currency to cover its energy imports in the process, it switched to an export-based, open growth strategy that prioritized exports; In the 19 years between these Decisions and the Customs Union, Turkey's exports increased from $2.26 billion to $27.78 billion.

A Customs Union was established between Turkey and the European Union in 1996 with the 1/95 Association Council Decision. As a result of the Customs Union, customs duties between Turkey and the EU were abolished, the same customs duty rate was applied to third countries, and a significant part of Turkish legislation, especially customs legislation, was harmonized with EU legislation. The Customs Law came into force in 2000. In the 24 years between 2000 and 2023, our exports increased from $27.78 billion to $255.8 billion.

These two data show us that Turkey's gray has approached white on the path to globalization in these two periods. It should not be forgotten that not only the decisions themselves but also the reforms made in many economic and social areas, such as the improvement of international relations, the establishment of international trust, the improvement of democratic structures and transparency, and the rule of law, have an impact on these decisions.

CURRENT EVALUATING

After the Customs Union; we can say that Turkey achieved a historic growth when the reforms, political and monetary stability, inflation control, improvements in logistics infrastructures, and the market expansion resulting from the Customs Union were combined. As a natural result of the Customs Union, the necessity of harmonizing the country's legislation with the EU legislation resulted in the implementation of EU norms in Turkey. This situation automatically provided progress toward globalization.

However, despite the increase in exports resulting from globalization and the Customs Union, imports increased at a higher rate and the current account deficit grew larger. Factors such as Turkey's lack of authority to determine customs duties on industrial products, the generally low EU tax rate, the failure to take into account Turkish conditions in determining tax rates, and easier trade due to harmonization with EU legislation were effective in the increase in imports.

On the other hand, the low production costs in Asian countries, especially China, increased Turkey's imports on the one hand and threatened domestic production, while on the other hand, it began to take away Turkey's export markets.

The fact that Turkey could not sign some of the free trade agreements signed by the European Union, that some of the concessions given unilaterally in the generalized preference system worked against the country, and that both situations caused trade diversions forced Turkey to take new measures. The fact that EU membership has become a dream and that the update that would eliminate the deficiencies of the Customs Union could not be realized has ossified this situation. The Covid-19 pandemic has made this situation even more difficult. As a result, Turkey has started to follow a protectionist economic policy instead of globalization. It has started to use protection tools such as protection, surveillance, additional customs duty, and additional financial liability very frequently and at high rates. In addition to these, it is also effectively using all non-tax tools, especially product safety.

EXPECTATIONS…

We can say that it is the general expectation of our foreign traders that Turkey abandons its protectionist foreign trade policy, which we can call strict. Everyone wants their exports to increase and the current account deficit to decrease, but exporters are also importers and must also import to export. It should not be forgotten that excessive pressure on imports increases production costs, and therefore exports are also negatively affected.

One of the problems, the updating of the Customs Union, is constantly on Turkey's agenda; however, it is difficult to bring the EU to the table. There is no sign that they will come to the table together.

However, the 2024 action plan of the Coordination Board for the Improvement of the Investment Environment (YOİKK) includes the article "Continuing the work on the current legislative infrastructure with the relevant stakeholders to harmonize it with the new Customs Code of the EU". In this case, we can say that there is at least political will to revise the Customs Law in accordance with the EU Customs Code.

Finally, from the statements reflected in the press as of the end of May 2024, it is understood that work has been initiated to “implement reforms for the benefit of Turkey, which is in the EU acquis.” All these developments give us a signal of a turn from protectionism to globalization in the coming period.