EX-99.(D) 2 d778146dex99d.htm EX-99.(D) EX-99.(D)

Exhibit D

THE REPUBLIC OF TURKEY

 

 

LOGO

This description of the Republic of Turkey is dated as of August 27, 2014 and appears as Exhibit D to the Republic of Turkey’s Annual Report on Form 18-K to the U.S. Securities and Exchange Commission for the fiscal year ended December 31, 2013.


FORWARD-LOOKING STATEMENTS

Turkey has made forward-looking statements in this Annual Report on Form 18-K. Statements that are not historical facts are forward-looking statements. These statements are based on Turkey’s current plans, estimates, assumptions and projections. Therefore, you should not place undue reliance on them. Forward-looking statements speak only as of the date they are made. Turkey undertakes no obligation to update any of them in light of new information or future events.

Forward-looking statements involve inherent risks. Turkey cautions you that a number of factors could cause actual results to differ materially from those contained in any forward-looking statements. These factors include, but are not limited to:

 

  External factors, such as:

 

    interest rates in financial markets outside Turkey;

 

    the impact of changes in the credit rating of Turkey;

 

    the impact of changes in the international prices of commodities;

 

    economic conditions in Turkey’s major export markets;

 

    the decisions of international financial institutions regarding the terms of their financial arrangements with Turkey;

 

    the impact of any delays or other adverse developments in Turkey’s accession to the European Union; and

 

    the impact of adverse developments in the region where Turkey is located.

 

  Internal factors, such as:

 

    general economic and business conditions in Turkey;

 

    present and future exchange rates of the Turkish currency;

 

    foreign currency reserves;

 

    the level of domestic debt;

 

    domestic inflation;

 

    the ability of Turkey to effect key economic reforms;

 

    the level of foreign direct and portfolio investment; and

 

    the level of Turkish domestic interest rates.

 

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RECENT DEVELOPMENTS

GENERAL

Turkey’s economy was impacted by the 2008-2009 global financial crisis but has been recovering from such crisis since the last quarter of 2009. Turkey’s GDP increased by 4.3% in the first quarter of 2014 as compared to the first quarter of 2013. See “Recent Developments — Key Economic Indicators”.

From August 14, 2013 to August 13, 2014, the Istanbul Stock Exchange National 100 Index (since April 5, 2013 the Istanbul Stock Exchange has carried out its operations under the title of “Borsa Istanbul) increased by 2.79%.

In the run up to the municipal elections held on March 30, 2014, following a number of leaked recordings of senior government officials suggesting corruption appeared on the micro-blogging media platform, Twitter, and leaked recordings of senior government officials discussing military matters appeared on YouTube, the Turkish telecommunications authority (TIB) restricted access to Twitter for not implementing the rulings of Turkish courts. On March 27, 2014, the TIB blocked access to YouTube as a precautionary administrative measure on the basis of a ruling by the Gölbaşı Court of Peace from March 27 made over a violation of Paragraph 1/b of Article 8 of Law No. 5651 on internet publications, which was reported was for national security reasons. On April 3, 2014, Turkey’s constitutional court lifted the ban on Twitter after the constitutional court ruled on April 2, 2014 that the measure breached freedom of expression laws. On April 4, 2014, an Ankara court ordered the ban on YouTube to be lifted, saying the ban was too broad, but allowed the blockage of 15 specific videos to remain in place.

On May 13, 2014, an explosion at a coal mine in Soma, Manisa, caused an underground mine fire. 301 people were killed in that disaster. Following the incident, an investigation was initiated and 24 people were taken into custody.

Turkey is continuing its humanitarian efforts to provide shelter to refugees fleeing the conflict in Syria. As of July 18, 2014, approximately 218,847 Syrian refugees are in Turkey.

POLITICAL CONDITIONS

The following table sets forth the composition of the Assembly by total number of seats as of August 25, 2014:

 

Political Party

   Number
of Seats
 

Justice and Development Party (AKP)

     313   

Republican People’s Party (CHP)

     130   

Nationalist Action Party (MHP)

     52   

Peace and Democracy Party (BDP)

     27   

Independents

     14   

Democratic Regions Party (DBP)*

     1   

Total

     537   

Source: The Grand National Assembly of Turkey

*: Former People’s Democratic Party (HDP)

On July 11, 2014, the People’s Democratic Party changed its name to the Democratic Regions Party.

On August 10, 2014 the presidential elections were held. According to the unofficial results, Turkey’s outgoing Prime Minister Recep Tayyip Erdogan has been elected by absolute majority vote to a five-year term as president. Recep Tayyip Erdoğan received 51.96% of total votes, whereas Ekmeleddin Ihsanoglu, the joint candidate of Turkey’s two largest opposition parties, claimed 38.33% and Selahattin Demirtas, candidate of the pro-Kurdish Democratic Regions Party (Peoples’ Democracy Party), won 9.71%.

 

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KEY ECONOMIC INDICATORS

The following table sets forth increases or decreases in GDP by economic sector (at current prices and expressed in percentages) for the periods indicated:

 

GDP by Economic Sector

   2013      2014
Q1
 

1.      Agriculture, forestry and fishing

     7.42         3.72   

2.      Mining and quarrying

     1.40         1.27   

3.      Manufacturing

     15.31         16.47   

4.      Electricity, gas, steam and air conditioning supply

     1.75         1.62   

5.      Water supply, sewerage, waste management and remediation

     0.66         0.64   

6.      Construction

     4.41         4.66   

7.      Wholesale and retail trade

     12.02         12.30   

8.      Information and communication

     11.93         11.21   

9.      Accommodation and food service activities

     2.52         1.95   

10.    Information and communication

     2.00         2.02   

11.    Financial and insurance activities

     3.36         3.15   

12.    Real Estate activities

     9.90         10.17   

13.    Professional, scientific and technical activities

     3.13         4.06   

14.    Administrative and support service activities

     2.04         2.37   

15.    Public administration and defense; compulsory social security

     4.23         5.16   

16.    Education

     3.56         4.48   

17.    Human health and social work activities

     1.49         1.64   

18.    Arts, entertainment and recreation

     0.21         0.27   

19.    Other service activities

     1.06         1.06   

20.    Activities of household as employers

     0.20         0.26   

21.    Sectoral total

     88.61         88.49   

22.    Financial intermediation services indirectly measured

     1.61         1.37   

23.    Taxes-Subsidies

     13.00         12.88   

24.    Gross Domestic Product (Purchaser’s Price)

     100.00         100.00   

Source: TURKSTAT

The following table sets forth increases or decreases in GDP (at constant prices and expressed in percentages) for the periods indicated:

 

GDP growth rates

   Q1     Q2     Q3     Q4     Annual  

2013

     2.9     4.5     4.3     4.4     4.0

2014

     4.3        

For the month of July 2014, CPI increased by 0.45% and PPI increased by 0.73% as compared to the previous month.

The Republic’s annual CPI and PPI increased by 9.32% and 9.46%, respectively, in July 2014 as compared to the same month of the previous year. The Republic’s CPI and PPI were 7.40% and 6.97% respectively, in the year 2013.

The Central Bank set the annual inflation target rates for 2014 at 5%. The following table sets forth the quarterly inflation path and uncertainty band for 2014:

Inflation Path Consistent with the Year-End Inflation Target and the Uncertainty Band for 2014

 

     March      June      September      December  

Uncertainty Band (Upper Limit)

     7.0         7.0         7.0         7.0   

Path Consistent with the Target

     5.0         5.0         5.0         5.0   

Uncertainty Band (Lower Limit)

     3.0         3.0         3.0         3.0   

Source: Central Bank

 

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In February 2014, CBRT revised its year-end inflation expectation as 6.7% - 8.5% (7.6% mid-level).

On August 8, 2014, the Central Bank foreign exchange buying rate for U.S. dollars was TL2.1683 per U.S. dollar, compared to an exchange buying rate of TL1.9292 per U.S. dollar on August 6, 2013. On July 10, 2013, the Turkish central bank sold U.S.$1.3 billion, in additional to the U.S.$2.25 billion sold on July 8, 2013, in an effort to stabilize the volatility in the exchange rate.

On August 6, 2014, the Government offered an interest rate of 9.12% for its 23-month Government Bond, compared to an interest rate of 9.02% for its 21-month Government Bond on August 14, 2013.

The calendar adjusted industrial production index increased by 1.4%% in June 2014 compared to June 2013 (year on year).

The following table indicates unemployment figures for the first four months of 2014:

 

2014              

January

     10.3         2,572,000   

February

     10.2         2,571,000   

March

     9.7         2,597,000   

April

     9.0         2,608,000   

Source: TURKSTAT

On July 17, 2014, the Central Bank’s Monetary Policy Committee (the “MPC”) held an interim meeting at which it kept short-term interest rates constant as follows:

a) Overnight Interest Rates: Marginal Funding Rate has been kept at 12%, the interest rate on borrowing facilities provided for primary dealers via repo transactions has been kept at 11.5%, and borrowing rate has been reduced from 8% to 7.50%.

b) One-week repo rate has been reduced from 8.75% to 8.25%.

c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): Borrowing rate has been kept at 0%, and lending rate has been kept at 13.5%.

MPC stated that loan growth continues at reasonable levels in response to the tight monetary policy stance and macroprudential measures. In line with these developments, recent data point to a modest course in private final domestic demand. MPC also noted that with the help of the recovery in foreign demand, exports contribute positively to economic growth. The Committee expects that such a demand composition will support disinflation and will lead to a significant improvement in the current account balance in 2014.

The MPC decided to deliver a measured cut in the one-week repo rate. Inflation expectations, pricing behavior and other factors that affect inflation will be closely monitored and the tight monetary policy stance will be maintained, by keeping a flat yield curve, until there is a significant improvement in the inflation outlook.

As of August 11, 2014, the one-week repo auction rate of the Central Bank was 8.25%, the Central Bank overnight borrowing interest rate was 7.5% and the Central Bank overnight lending interest rate was 12.0%.

TOURISM

In June 2014, the number of foreign visitors visiting the Republic increased by approximately 6.41% to 4,335,075 as compared to the same month of 2013. According to the balance of payments presentation, in May 2014, tourism revenues increased by 3.91% compared to the same month of 2013.

FOREIGN TRADE AND BALANCE OF PAYMENTS

In June 2014, the trade balance (according to the provisional data) posted a deficit of U.S.$7.853 billion as compared to a deficit of U.S.$8.613 billion in the same period in 2013. In June 2014, total goods imported (c.i.f.)1, including gold imports, decreased by 1.1% to approximately U.S.$20.776 billion, as compared to

 

 

1 

c.i.f. means cost, insurance and freight; when a price is quoted c.i.f., it means that the selling price includes the cost of the goods, the freight or transport costs and also the cost of marine insurance. c.i.f. is an international commerce term.

 

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approximately U.S.$21.013 billion during the same period in 2013. In June 2014, the import of capital goods, which are used in the production of physical capital, decreased by approximately 5.1% over the same period in 2013; the import of intermediate goods such as partly finished goods and raw materials, which are used in the production of other goods, decreased by approximately 0.5% over the same period in 2013 and the import of consumption goods decreased by approximately 1.3% over the same period in 2013. In June 2014, total goods exported (f.o.b.)2, increased by 4.2% to approximately U.S.$12.923 billion, as compared to approximately U.S.$12.400 billion during the same period of 2013. In May 2014, the current account produced a deficit of approximately U.S.$3.434 billion, as compared to a deficit of approximately U.S.$7.611 billion in the same period of 2013. According to the Medium Term Program for the 2014-2016 period that was announced on October 8, 2013 (the “2014 Medium Term Program”), the current account deficit was projected to be U.S.$58.8 billion in 2013 and U.S.$55.5 billion in 2014. In January-December 2011, the current account deficit was U.S.$75.1 billion. In January-December 2012, the current account deficit was U.S.$47.8 billion. In January-December 2013, the current account deficit was U.S.$65.1 billion.

As of May 2014, total gross international reserves of the Central Bank were approximately U.S.$145.091 billion (compared to U.S.$144.339 billion as of May 2013), as of August 1, 2014, gold reserves were approximately U.S.$21.100 billion (compared to U.S.$20.986 billion as of August 2, 2013) and the Central Bank gross foreign exchange reserves were approximately U.S.$112.398 billion as of August 1, 2014 (compared to approximately U.S.$107.867 billion as of August 2, 2013).

As of August 8, 2014, the Central Bank held approximately TL17.2 billion in public sector deposits.

PUBLIC FINANCE AND BUDGET

During the period from January – June in 2014, the central government consolidated budget expenditures were approximately TL213.9 billion and the central government consolidated budget revenues were approximately TL210.5 billion, compared to central government consolidated budget expenditures of approximately TL187.9 billion and consolidated budget revenues of approximately TL190.9 billion during the same period in 2013.

During the period from January – June in 2014, the central government consolidated budget deficit was approximately TL3.4 billion, compared to a central government consolidated budget surplus of approximately TL3.1 billion during the same period in 2013.

During the period from January – June in 2014, the central government consolidated budget primary surplus reached approximately TL23.1 billion, compared to the central government consolidated budget primary surplus of approximately TL26.4 billion during the same period in 2013.

In June 2014, the central government consolidated budget expenditures were approximately TL35.2 billion and the central government consolidated budget revenues were approximately TL34.6 billion, compared to central government consolidated budget expenditures of approximately TL32.6 billion and consolidated central government budget revenues of approximately TL31.4 billion during the same period in 2013.

In June 2014, the central government consolidated budget deficit was approximately TL613 million, compared to a central government consolidated budget deficit of approximately TL1.2 billion during the same period in 2013.

In June 2014, the central government consolidated budget primary surplus reached approximately TL959 million, compared to a central government consolidated budget primary surplus of approximately TL335 million during the same period in 2013.

The following table sets forth the details of the central government budget for the period from January-June 2014 and for June 2014.

 

Central Government Budget (Thousand TL)

   January – June 2014
(cumulative)
     June 2014  

Budget Expenditures

     213,856,719         35,170,454   

1-Excluding Interest

     187,393,675         33,598,707   

Compensation of Employees

     57,039,091         9,178,671   

Social Security Contributions

     9,586,311         1,522,132   

 

 

2  f.o.b. means free on board; when a price is quoted f.o.b., it means that the selling price includes the cost of the goods, but not the freight or transport costs and the cost of marine insurance. F.o.b. is an international commerce term.

 

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Central Government Budget (Thousand TL)

   January – June 2014
(cumulative)
     June 2014  

Purchase of Goods and Services

     15,206,278         2,865,906   

Current Transfers

     82,962,177         15,080,619   

Capital Expenditures

     13,908,449         3,499,921   

Capital Transfers

     2,706,339         729,352   

Lending

     5,985,030         722,106   

Reserve Appropriation

     

2-Interest

     26,463,044         1,571,747   

Budget Revenues

     210,481,432         34,557,440   

1-General Budget Revenues

     202,203,459         33,044,886   

Taxes

     168,095,251         24,757,831   

Property Income

     8,772,042         1,503,885   

Grants and Aids and Special Revenues

     1,165,789         270,523   

Interest, Shares and Fines

     17,047,808         3,382,326   

Capital Revenues

     6,373,470         3,114,779   

Collections from Loans

     749,099         15,542   

2-Special Budget Institutions

     6,284,893         1,323,368   

3-Regularity & Supervisory Institutions

     1,993,080         189,186   

Budget Balance

     -3,375,287         -613,014   

Balance Excluding Interest

     23,087,757         958,733   

Source: Ministry of Finance

BANKING SYSTEM

Turkey has a relatively strong, well capitalized and profitable banking system. The banking system in Turkey had a capital adequacy ratio3 of 16.30% and a relatively low non-performing loan ratio4 of 2.78% as of June 2014. As of August 12, 2014, the reserve requirement ratios (the “RRRs” and each, an “RRR”) for FX demand deposits, notice deposits and personal current accounts and FX deposits/participation accounts were 13.0% for maturities less than 1 year and 9% for maturities of 1 year and more. In addition, the RRR for other FX liabilities up to 1-year maturity (including 1-year) were 13.0%, for FX liabilities up to 3-year maturity (including 3-year) were 11.0% and for other FX liabilities longer than 3-year maturity were 6%. As of August 12, 2014, the RRRs for Turkish Lira deposits/participation accounts were between 5% and 11.5% depending on maturity. Furthermore, RRRs were 11.5% for Turkish Lira demand deposits, deposits at notice and personal current accounts.

DEBT

The Central Government’s total domestic debt stock was approximately TL408.4 billion as of the end of June 2014, compared to approximately TL395.8 billion as of June 2013. In June 2014, the average maturity of Turkey’s domestic borrowing was 74.5 months, as compared to 78.2 months as of June 2013. The average annual interest rate on domestic borrowing in local currency (including discounted treasury bills/government bonds) on a compounded basis was 8.7% in June 2014, compared to 8.4% in June 2013.

The total gross outstanding external debt of the Republic was approximately U.S.$386.79 billion (at then-current exchange rates) at the end of the first quarter of 2014. The table below summarizes the gross external debt profile of the Republic (at period end).

 

 

3  Regulatory capital/Total risk weighted items
4  Gross non-performing loans/Total cash loans

 

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Gross External Debt Profile

(Million U.S.$)

   2013
Q1
     2013
Q2
     2013
Q3
     2013
Q4
    

2014

Q1

 

GROSS EXTERNAL DEBT

     350,834         366,238         372,236         388,137         386,786   

SHORT TERM

     114,003         124,304         124,597         129,304         124,681   

Public Sector

     12,598         15,382         16,606         17,605         17,843   

Central Bank

     980         963         905         833         762   

Private Sector

     100,425         107,959         107,086         110,866         106,076   

LONG TERM

     236,831         241,934         247,639         258,833         262,105   

Public Sector

     92,002         93,009         95,067         98,206         99,191   

Central Bank

     5,657         5,432         4,744         4,401         4,100   

Private Sector

     139,172         143,493         148,828         156,226         158,814   

Source: Undersecretariat of Treasury

 

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DESCRIPTION OF THE REPUBLIC

Turkey has a democratically elected parliamentary form of government. Since its founding in 1923, Turkey has aligned itself with the west and is a member of numerous international organizations, including the North Atlantic Treaty Organization (NATO), the Council of Europe, the World Bank, the IMF and the Organization for Economic Cooperation and Development (the “OECD”). Turkey is also an associate member of the EU and a founding member of the European Bank for Reconstruction and Development (the “EBRD”).

Since 1980, the Turkish Government has embarked upon a series of market-oriented reforms which, among other things, were designed to remove price controls and reduce subsidies, reduce the role of the public sector in the economy, emphasize growth in the industrial and service sectors, encourage private investment and savings, liberalize foreign trade, reduce tariffs and promote export growth, ease capital transfer and exchange controls and encourage foreign investment, increase the independence of the Central Bank and reform the tax system. Turkey moved towards full convertibility of the Turkish Lira by accepting the obligations of Article VIII of the International Monetary Fund (IMF) Articles of Agreement in March 1990. Turkey has developed a market-oriented, highly diversified economy with growing industrial and service sectors, while retaining a prominent agricultural sector that makes the country largely self-sufficient in foodstuffs. According to the Ministry of Development, in 2013, agriculture, industrial sector and services sector accounted for 8.2%, 21.6% and 70.2% of GDP respectively. The average GDP growth rate during the 2009-2013 period was 3.7%. See “Economy-Services,” “Economy-Industry” and “Economy-Agriculture.”

LOCATION, AREA AND TOPOGRAPHY

 

LOGO

Turkey, situated at the junction of Europe and Asia, is an important crossroads between Western Europe, the Middle East and Asia. Turkey’s location has been a central feature of its history, culture and politics. Turkey’s land borders extend for more than 2,600 kilometers and are shared with eight countries: Greece and Bulgaria in the west and northwest, Iran in the east, Armenia, Georgia and Azerbaijan in the northeast, and Iraq and Syria in the south.

 

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Turkey’s coastline extends for approximately 7,200 kilometers along the Black Sea in the north, the Aegean Sea in the southwest and the Mediterranean Sea in the south, all of which are connected by the Bosphorus, the Sea of Marmara and the Dardanelles.

Turkey has an area of approximately 814,578 square kilometers (inclusive of its lakes), and its topography is varied. Most of the country consists of highland plateau surrounded by mountainous areas which rise toward the east. Climatic conditions differ widely among the regions.

POPULATION

According to estimates of the Turkish Statistical Institute (TURKSTAT) and the Ministry of Development, the population of Turkey was 76,667,864 on December 31, 2013. The annual population growth rate for Turkey in 2013 was 1.2%, compared to an annual growth rate of 1.3% in 2012. Turkey’s population is relatively young compared to other European countries, and the transformation of Turkey’s economy from a largely agricultural economy to an industrial and service-oriented economy has led to an increasingly urban population. According to TURKSTAT and the Ministry of Development, in 2012, 77.3% of the population lived in urban areas and 22.7% lived in rural areas. In 2012, the median age of the population in Turkey was 30.1, with a median age of 29.5 for males and 30.6 for females. Persons of working age, the age group of 15-64, constituted 67.7% of the total population in 2013.

The largest city in Turkey, with a population of about 13.9 million, is Istanbul, the country’s commercial center. Its history and heritage has allowed the city to be named the European Capital of Culture in 2010. Ankara, the capital city of Turkey, with a population of about 4.97 million is the second largest city. Izmir, with a population of about 4.0 million, comes in third in terms of population level. Other cities with populations in excess of one million are (in alphabetical order) Adana, Antalya, Aydın, Balikesir, Bursa, Diyarbakir, Gaziantep, Hatay, Kahramanmaraş, Kayseri, Kocaeli, Konya, Manisa, Mersin, Samsun, Sanliurfa and Van.

In 2013, total employment was 24.601 million, with approximately 21.2% employed in agriculture, 20.7% in industry and 58.1% in services (including construction). See “Economy-Employment and Wages.” The unemployment rate was 9.0% in 2013.

According to the Ministry of Development, Turkey has made significant progress in improving social welfare over the last decade. Life expectancy increased from an average of 67.4 years in 1990 to an average of 76.9 years in 2013. The infant mortality rate decreased from 51.5 per thousand live births for the year 1990 to 10.8 per thousand live births for the year 2013. According to the Address Based Population Registration System, the adult literacy rate (25–64 age group) increased sharply from 80.5% in 1990 to 94.3 in 2013.

Turkey is constitutionally a secular state. The vast majority of the Turkish population is Muslim. There are very small numbers of non-Muslims in Turkey, including Greek Orthodox, Armenian Christians and Jews. The official language of Turkey is Turkish.

GOVERNMENT ORGANIZATION AND POLITICAL BACKGROUND

A popular nationalist movement began in Turkey before the turn of the 20th century and gathered momentum in the aftermath of World War I. Turkey was declared a republic on October 29, 1923, upon the abolition of the Sultanate. Mustafa Kemal Ataturk was elected as Turkey’s first President. Ataturk instituted a series of sweeping social reforms that have played a central role in the development of modern Turkey. The Constitution of Turkey (the “Constitution”) was adopted in 1924 and provided for an elected Grand National Assembly (the “Assembly”) to be the repository of sovereign power. Executive authority was vested in the Prime Minister and the Council of Ministers (the “Cabinet”). Changes were made in the legal, political, social and economic structure of Turkey, and Islamic legal codes were replaced by Western ones. Ataturk’s reforms and Western orientation continue to be the dominant ideological element in Turkey today.

The Turkish military establishment has historically been an important factor in Turkish government and politics, interfering with civilian authority three times since 1959 (in 1960, 1971 and 1980). Each time, the military withdrew after the election of a new civilian government and the introduction of changes to the legal and political systems.

Turkey’s current Constitution, which was revised and ratified by popular referendum in 1982, contains a system of checks and balances aimed at ensuring a strong central government and reducing factionalism in the Assembly. The Constitution provides for the Assembly, a President and a Prime Minister. Pursuant to a 2007 amendment to the Constitution, the President is elected by the absolute majority vote of the public. Prior to this amendment, the President was elected by the Assembly. The President is elected for a five-year term, and can serve a maximum of two terms. The Prime Minister is appointed by the President from the Assembly. The Prime Minister, in turn, nominates other members of the Cabinet, who are then approved by the President. The Cabinet, chaired by the Prime Minister, exercises the executive powers of the Government.

 

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The members of the Assembly are elected for four-year terms. The Constitution provides for a system of proportional representation and forbids the formation of political parties on the basis of class, religion or ethnic identity. The Election Law (Law No. 298) provides that parties whose nationwide vote in general elections is less than 10% are not eligible for seats in the Assembly. On the other hand, a party must have at least 35% of the nationwide vote in order to have a simple majority in the Assembly.

Judicial power in Turkey is exercised by courts whose independence is guaranteed by the Constitution. The Constitutional Court (the “Constitutional Court”) decides issues relating to the form and substance of laws, decrees and rules of the Assembly and matters relating to public officials and political parties. The Court of Appeal is the court of last resort for most civil and criminal matters, while military matters are referred to a separate system of courts.

On March 29, 2009, local elections for municipalities were held. The Justice and Development Party (AKP) received 38.16% of the votes cast for the seats in councils of the municipalities. The Republican People’s Party (CHP), the Nationalist Action Party (MHP) and the Democratic Society Party (DTP) received 24.84%, 16.64% and 5.26% of the votes, respectively.

On December 11, 2009, the Constitutional Court shut down the DTP on charges that it had ties with a terrorist organization and involved in activities aimed at damaging the integrity of the state. The Constitutional Court also banned 37 members of the DTP from politics for five years, including two members of parliaments of DTP. The Constitutional Court’s decision was published in the Official Gazette on December 31, 2009 (No. 27449).

On July 25, 2008, the 13th Penal Court of Istanbul agreed to hear a case against 86 people (including two senior retired army officials, one political party leader and a number of journalists and non-governmental organization members) accused of, among other things, inciting an armed insurrection, aiding a terrorist group and plotting to overthrow the government. Over time, the investigation continued and additional defendants were charged. On August 5, 2013, 254 of the 275 defendants were convicted. The Supreme Court of Appeals will handle any appeals.

On September 21, 2012, in a separate case involving a plot to overthrow the government in 2003, over 300 military officials were sentenced to prison terms ranging from six years to twenty years. On October 9, 2013, the Supreme Court of Appeals ordered the retrial of 88 convicted suspects, while approving the convictions of 237 suspects in the case. After merging 230 separate individual appeals that were filed by the convicts, on June 18, 2014, the Constitutional Court ruled that the convicted suspects’ rights were violated concerning “digital data and defendants’ testimony,” requiring the cases of the suspects to be retried in local courts in order to eliminate the violations.

The AKP won the latest general elections held on June 12, 2011 with 49.8% of the eligible votes and formed the 61st Government of the Republic. CHP and MHP received 25.98% and 13.01% of the votes respectively. The following table sets forth the composition of the Assembly by total number of seats as of December 31, 2013:

 

Political Party

   Number of Seats  

Justice and Development Party (AKP)

     320   

Republican People’s Party (CHP)

     134   

Nationalist Action Party (MHP)

     52   

People’s Democratic Party(HDP)

     26   

Independents

     12   

Peace and Democracy Party (BDP)

     4   

Source: The Grand National Assembly of Turkey

The most recent local elections for municipalities were held on March 30, 2014. The AKP received 42.87% of the votes cast for the seats in councils of the municipalities. The CHP, the MHP and the Peace and Democracy Party (BDP) received 26.34%, 17.82% and 4.16% of the votes, respectively.

FOREIGN POLICY

Since the foundation of the Republic, Turkey’s foreign policy has been guided by the principle of “peace at home, peace in the world”. Over the years, its foreign policy has developed, always on the basis of this principle and in line with changes in the domestic and international environment.

 

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As a democratic, secular and economically thriving country located at the center of a strategic and dynamic region, Turkey actively pursues a responsible, constructive and multidimensional foreign policy. Facing a multitude of opportunities and challenges in surrounding regions, Turkey seeks to affect a positive influence and help generate stability, security and prosperity in its region and beyond.

In pursuit of creating a belt of peace and prosperity in her surrounding region, Turkey aims to further develop its relations with neighboring countries through initiatives towards strengthening political dialogue, economic interdependence and social-cultural interaction among regional countries. The key element of this policy is fostering an environment where all regional actors can become part of the solutions and agree on a common vision based on their shared interests.

Deepening existing strategic relations with European and Transatlantic political, economic and security structures and continuing the accession negotiations with the EU remain as the main pillars of the Turkish foreign policy. At the same time, drawing strength from its increased economic and political capabilities, Turkey has been more actively involved in a wider geography and in a wider set of global issues. In this context, Turkey has been developing and strengthening its relations bilaterally as well as with regional organizations in Africa, Asia-Pacific, and Latin America and the Caribbean. Turkey has also been taking larger responsibilities in global humanitarian and development initiatives, thus becoming a leading donor country internationally. Furthermore, Turkey has been playing a stronger role in peace building and conflict prevention efforts, serving as a mediator or facilitator in various conflicts across the world as well as by initiating multilateral initiatives towards promoting tolerance and strengthening the role of mediation in the UN and other international forums.

Turkey is committed to pursuing an active foreign policy which strikes a balance between national interests and universal values. In the face of many challenges presented by the current international environment, Turkey will continue its policies aiming to ensure that opportunities and cooperation prevail over risks and conflicts.

INTERNATIONAL ORGANIZATIONS

The Republic of Turkey has always attached great importance to multilateral cooperation and thus has played an active role in regional and international organizations. In other words, Turkey’s vision of contributing to peace and stability has not been limited to neighboring regions, but rather Turkey’s actions highlight the importance of political dialogue, increased social, cultural and economic interaction, cultural harmony and tolerance among all nations to avoid tensions and conflicts, and makes great efforts to disseminate these messages to ensure a free, prosperous and secure world for all. With this understanding, Turkey has become a founding member of the United Nations (UN), the Council of Europe, the European Bank for Reconstruction and Development and the Organization for Security and Cooperation in Europe (OSCE). Turkey is also a member of NATO, the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO), the Organization of the Islamic Cooperation (OIC), Islamic Development Bank, the Black Sea Economic Cooperation Organization (BSEC), the Economic Cooperation Organization (ECO), the Developing 8 (D-8) and the Conference on Interaction and Confidence Building Measures in Asia (CICA). Turkey also has either an “observer” or a “partner” status at various regional organizations, such as the African Union, Arab League, ASEAN, Shanghai Cooperation Organization and Organization of American States. Turkey also participates in the Euromed/Barcelona Process. Furthermore, Turkey belongs to the World Bank, the IMF, the European Resettlement Fund, the Asian Development Bank, the Multilateral Investment Guarantee Agency (MIGA), the Bank for International Settlements (BIS) and is a participant in the International Convention on the Harmonized Commodity Description and Coding System. As a founding member of the United Nations, Turkey has been playing an active and constructive role regarding all issues on the UN agenda. Turkey served on the UN Security Council, during the 2009-2010 period, as a non-permanent member. Throughout its UNSC membership, Turkey followed a balanced, transparent and principled stance in dealing with the complex issues on the Council’s agenda. Turkey has presented its candidature to the Security Council once again, this time for the period 2015-2016.

Turkey is a member of The Group of Twenty (G-20). At the G-20 Leaders’ Summit in Cannes in 2011, it was announced that Turkey will assume the presidency of the G-20 in 2015. Turkey became a member of the G-20 troika (past, current and future hosts) on December 1, 2013 and its presidency will commence on December 1, 2014.

Turkey is a founder of International Maritime Organization (IMO) and member of its Executive Council since 1999. Turkey, particularly in the last decade, has intensified its efforts to improve the standards of its merchant fleet and to harmonize its legislation with the EU acquis on areas like maritime safety, fisheries and shipping. Turkey is also party to major IMO Conventions and Protocols.

 

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Turkey is also a negotiating candidate country to the European Union and full membership to the EU remains a strategic goal for Turkey.

EUROPEAN UNION

In 1963, Turkey signed an association agreement (the “Ankara Agreement”) with the European Economic Community (EEC), which is now the EU. In 1970, an additional protocol to the association agreement was signed which established the framework and conditions of the transitional stage of the association. In April 1987, Turkey submitted its formal application for full membership. In late 1989, the EEC declared that Turkey was eligible to become a full member. The EEC further decided to defer granting candidate status due to changes in the EU and Turkey’s economic situation at the time.

In 1995, Turkey and the EU concluded a Customs Union, pursuant to which Turkey and the EU eliminated all customs duties and equivalent charges on imports of industrial goods and eliminated the ad-valorem tariffs imposed on the industrial component of processed agricultural products. The EU’s quotas on Turkish textile products were also lifted. Turkey assumed the obligation to harmonize its tariffs and equivalent charges on the importation of goods from third countries with the EU’s common external tariff (from approximately 15% in 1995 to 4.2% in 2012) and to progressively adapt itself to the EU’s commercial policy and preferential trade arrangements with third countries. Although basic agricultural products were excluded from the initial package, a preferential trade regime for basic agricultural products was adopted as of January 1, 1998. Turkey is also progressively adopting many aspects of the Common Agricultural Policy of the EU and has taken substantial steps to harmonize its legislation relating to competition, consumer protection, intellectual property and standardization of foreign trade with those of the EU.

To adapt itself to the EU’s commercial policy and preferential trade arrangements with other countries, Turkey has signed Free Trade Agreements (FTAs) with 19 countries5 and the European Free Trade Association. FTA negotiations are currently underway with 12 more countries and two international organizations (MERCOSUR-Southern Common Market and GCC-Cooperation Council for the Arab States of the Gulf), and an additional 10 FTAs have already been proposed.

With the completion of the Customs Union, the association between Turkey and the EU, as stipulated by the Ankara Agreement, had entered its final stage. At the European Council held in Helsinki in December 1999, Turkey was given candidate status. The recognition of Turkey as a candidate country ushered in a new era in Turkey-EU relations. The Accession Partnership for Turkey was approved by the Council on March 8, 2001. In response, the Turkish Government adopted its National Program for the Adoption of the Acquis (NPAA) on March 19, 2001. Both the Accession Partnership and the NPAA are revised on a regular basis to take account of the progress that has been made and to allow for new priorities to be set.

In December 2004, following the EU’s decision to start accession negotiations with Turkey, the Government confirmed that it was ready to sign the Additional Protocol extending the 1963 Ankara Agreement to all the members of the EU prior to the actual start of accession negotiations. However, Turkey also placed on record that this would in no way imply a formal legal recognition of the Greek Cypriot Administration by Turkey. The Additional Protocol extending the Ankara Agreement to 16 EU member states was concluded by exchange of letters among Turkey, the Commission and the Council on July 29, 2005. Turkey also issued an official declaration, which constituted an integral part of its letter and signature, to the effect that the signature of the Protocol would not in any form constitute recognition of the “Republic of Cyprus” referred to in the said Protocol. Accordingly, Turkey stated that, pending a comprehensive settlement, its position on Cyprus would remain unchanged and expressed readiness to establish relations with the new Partnership State which would emerge following a comprehensive settlement in Cyprus.

The European Council of 2004 confirmed that Turkey fulfills the Copenhagen criteria which are a prerequisite for opening of the accession negotiations with Turkey. The Turkey-EU Intergovernmental Conference met for the first time on October 3, 2005, whereby the accession process was officially initiated. In parallel, eight sub-committees, which were formed in 2000 according to the EU acquis, periodically convene to review the developments that Turkey has achieved in related areas. So far, 14 chapters have been opened to negotiations6. On June 12 2006, negotiations on Chapter 25 “Science and Research” were opened and provisionally closed by the Turkey-EU Intergovernmental Conference.

 

 

5  Albania, Bosnia Herzegovina, Morocco, Jordan, South Korea, Georgia, Israel, Montenegro, Kosovo, Lebanon, Macedonia, Malaysia, Egypt, Mauritius, Serbia, Syria, Chile, Tunisia and Palestine
6  Free Movement of Capital-4, Company Law-6, Intellectual Property Law-7, Information Society and Media-10, Food Saftey, Veterinary and Phytosanitary-12, Taxation-16, Statistics-18, Enterprise and Industrial POlicy-20, Trans-European Networks-21, Regional Policy and Coordination of Structural Instruments-22, Science and Research-25 (provisionally closed), Environment-27, Consumer and Health Protection-28, Financial Control-32.

 

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Although the screening process was completed in 2006, screening reports of 9 chapters7 are still pending approval by the Council. Since the screening reports are not officially communicated to Turkey, the potential opening benchmarks of those chapters are not communicated either.

Fulfillment of Turkey’s commitments under the Additional Protocol which relates to access to Turkish ports for Greek Cypriot planes and vessels is an opening benchmark in 8 chapters (“1-Free Movement of Goods”, “3-Right of Establishment and Freedom to Provide Services”, “9-Financial Services”, “11-Agriculture and Rural Development”, “13-Fisheries”, “14-Transport Policy”, “29-Customs Union” and “30-External Relations”) and closing benchmark in all chapters, according to the EU General Affairs and External Relations Council Decision of December 11, 2006.

In addition, in 2007, France declared that it will not allow the opening of negotiations on 5 chapters which it considered to be directly related with membership (1“1-Agriculture and Rural Development” (one of the 8 chapters blocked due to Additional Protocol), “17-Economic and Monetary Policy”, “22-Regional Policy and Coordination of Structural Instruments”, “33-Financial and Budgetary Provisions”, “34-Institutions”). Chapter 22 was subsequently unblocked and opened in 2013.

Moreover, during the EU General Affairs Council meeting of December 8, 2009, Greek Cypriots declared that it set the unilateral “normalization” of relations as a precondition for the progress in 6 chapters (“2-Freedom of Movement for Workers”, “15-Energy”, “23-Judiciary and Fundamental Rights”, “24-Justice, Freedom and Security”, “26-Education and Culture”, “31-Foreign, Security and Defense Policy”).

As a result, there are only 3 chapters left that are not politically blocked and can be opened: “Chapter 5- Public Procurement”, “Chapter 8- Competition Policy”, “Chapter 19- Social Policy and Employment”.

As a parallel effort to the accession discussions, in May 2012 the Commission launched a “Positive Agenda” with Turkey, which was previously mentioned in the Enlargement Strategy Paper published on October 12, 2011, with an aim to bringing a new impetus to Turkish-EU relations with the understanding that it should not create a separate track in the negotiation process, but complement and support it. The “Positive Agenda” is aimed at enhancing Turkey-EU cooperation in areas of joint interest. These include: the alignment with the EU legislation, political reforms and fundamental rights, visa, mobility and migration, trade, energy, counter-terrorism and dialogue on foreign policy. In the scope of the “Positive Agenda”, Working Groups are formed on eight negotiation chapters: (“Establishment and Freedom to Provide Service-3”, “Company Law-6”, “Information Society and Media-10”, “Statistics-18”, “Judiciary and Fundamental Rights-23”, “Justice, Freedom and Security-24”, “Consumer and Health Protection-28”, and “Financial Control-32”).

As part of the Positive Agenda, the Commission has already notified Turkey that the closing benchmarks of “Chapter 20- Enterprise and Industrial Policy” and “Chapter 21- Trans-European Networks” were fulfilled in 2011. The Commission also notified Turkey of the fulfillment of the 4 closing benchmarks of the Chapters: Company Law, Consumer and Health Protection and Financial Control.

In accordance with the Commission’s recommendations in the 2002 Strategy Paper for Turkey and the decision taken at the 2002 Copenhagen European Council, the EU decided to strengthen the accession strategy for Turkey and significantly increase the EU’s pre-accession financial assistance to Turkey. Since 2007, assistance to Turkey has been financed under the budget heading of “Instrument for Pre-Accession Assistance-IPA”. Thus, Turkey, along with other candidate and potential candidate countries, became the beneficiary of pre-accession assistance from the IPA.

Since 1999, a comprehensive transformation and reform process in line with the goal of EU accession has been underway. The objectives of full compliance with the EU Copenhagen political criteria and political reforms in the areas of human rights, democracy and the rule of law constitute the backbone of the accession process.

Within the framework of the reform process, eight harmonization packages were enacted between February 2002 and July 2004. In this period, the Turkish Constitution was amended twice, revising nearly one-third of the articles of the Constitution. The amendments covered a wide range of issues related to improving human rights, strengthening the rule of law and restructuring democratic institutions. The Constitutional amendments were followed by legislative and administrative measures to ensure the proper implementation of these amendments. The Constitutional amendments were fortified by the adoption of laws that are fundamentally important for the protection of human rights. These laws include the new Civil Code, the new Penal Code, the new Law on Associations and the new Code of Criminal Procedure. These reforms aim at strengthening democracy,

 

 

7  Free Movement of Workers-2, Fisheries-13, Transport Policy-14, Energy-15, Judiciary and Fundamental Rights-23, Justice, Freedom and Security-24, External Relations-30, Financial and Budgetary Provisions-33.

 

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promoting respect for human rights and fundamental freedoms, and consolidating the rule of law and the independence of the judiciary. Furthermore, reforms with respect to freedom of thought and expression, freedom of association and peaceful assembly and freedom of religion have been implemented. There have also been reforms related to the judicial system, civil-military relations and anti-corruption measures. Relevant legislation has been changed so as to enable the learning of and broadcasting in languages and dialects which are used traditionally by Turkish citizens in their daily lives. In addition, the death penalty has been abolished and the prison system has been reformed. The right to property of community foundations belonging to certain minorities in Turkey has been ensured and the legal basis needed for the activities of foreign foundations in Turkey has been established. New definitions and measures to deal with illegal immigration have been introduced.

The Ninth Harmonization Package was introduced on April 12, 2006. This harmonization package contained pieces of legislation in the fields of transparency, ethics and civil-military relations, as well as for the adoption of international conventions on human rights and fundamental freedoms. These included the UN Convention on Corruption, Protocol No. 14 to the Convention for the Protection of Human Rights and Fundamental Freedoms, amending the control system of the Convention, and the Revised European Social Charter and the Protocol amending the European Social Charter. Amendments to the following laws were adopted and put into force within the framework of the Ninth Harmonization Package: Law on Private Education Institutions, Law on Settlement and Law on Establishment and Legal Procedures of Military Courts.

The Reform Monitoring Group set up in 2003 and currently made up of the Minister of Foreign Affairs, the Minister for EU Affairs and Chief Negotiator, the Minister of Justice and the Minister of Interior continues to meet regularly to monitor and direct the political reform process. The 28th and the 29th meetings of the Reform Monitoring Group were held in Ankara on June 15, 2013, on May 9, 2014.

In accordance with the National Program and in response to Turkey’s serious economic crisis in 2001, numerous economic reform measures have been adopted. Turkey has restructured its financial sector, ensured transparency in public finance and enhanced competitiveness and efficiency in the economy. Such structural reforms have yielded remarkable and tangible results. As a result of the banking sector restructuring following the 2001 crisis, Turkey’s financial system has had fewer difficulties emerging from the current global economic crisis. Turkey did, on the other hand, feel the negative effects of the global economic crisis resulting in shrinking exports, declining industrial production and downward pressure on growth. Nevertheless, thanks to the decisive implementation of the reforms, the economy’s resistance to negative externalities has increased, giving Turkey the opportunity to implement measures to minimize the adverse effects of the global economic crisis on domestic growth, to continue the disinflation process and to protect fiscal gains.

Turkey’s “Program for Alignment with the EU Acquis 2007-2013” was announced on April 17, 2007. Along with the relevant public institutions, non-governmental organizations have also participated in the preparations of this program which involved the harmonization of legislation that is expected to be passed between 2007 and 2013, in 33 negotiation chapters of the accession negotiations. The European Commission has welcomed this harmonization program and acknowledged it as a positive step.

The “Third National Program of Turkey for the Adoption of the EU acquis communautaire”, which outlines the envisioned Government actions over the next four years and includes a number of legislative and regulatory changes, including Constitutional amendments, aims to further harmonize the laws of the Republic with those of the European Union and was published on December 31, 2008, in the Official Gazette (No. 27097).

On February 20, 2008, the Assembly adopted the new Foundations Law (Law No. 5737). This new law that was published in the Official Gazette on February 27, 2008 (No. 26800) allows foreigners to establish new foundations in Turkey on the principle of reciprocity. Foundations will also be able to establish economic enterprises and companies on the condition that they notify Turkey’s foundations authority. The law also improved the situation of non-Muslim community foundations in relation to their international activities. In addition, on May 13, 2010, the Prime Minister issued a circular instructing all related government institutions and offices to act with utmost diligence for the total elimination of problems encountered by non-Muslim minorities, such as those related to publications containing hatred.

In January 2009, for the first time since the beginning of accession negotiations, a full-time EU Chief Negotiator, a State Minister, was appointed.

On March 24, 2009 the Commission for Equal Opportunity between Women and Men was established in the Turkish Grand National Assembly with the primary goal to contribute to the protection and development of women’s rights. The Commission continues to monitor developments on this issue at the national and international levels.

 

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In June 2009, the Turkish Parliament passed legislation which restricts the jurisdiction of military courts and enables civilian courts to try military personnel for non-military offences. This legislation also eliminates the powers of military courts to try civilians in peacetime and has enabled the formation of military courts only with professional military judges by removing non-judge members of such courts, thus further aligning Turkey with EU practices. The law came into force on June 30, 2010.

In 2009, the government launched the “National Unity and Brotherhood Project”, publicly known as the “democratic opening”. In July 2009, a widespread public debate began on a comprehensive democratic opening process coordinated by the Minister of Interior. The process was aimed at raising the democratic standards in Turkey for all citizens in an embracing manner, irrespective of their ethnic origin, beliefs, gender or political preferences. On November 13, 2009, the government announced certain measures and steps had been taken with respect to the project. These measures include:

 

    Broadcast by the TRT (Turkish Radio and Television Corporation) 24 hours a day in Kurdish and Arabic in its respective television channels as well as radio broadcasts in Armenian and Kurdish by state-owned radio stations;

 

    Lifting of all restrictions concerning broadcasting in different languages and dialects and granting a license to several private television and radio stations, including local stations; and

 

    Establishing institutions and introducing academic studies in different languages and dialects that Turkish citizens use.

In addition to these political reform efforts, implementation of the Southeastern Anatolia Project (GAP) for development continues. GAP includes investment projects in a wide-ranging array from agriculture to health, education and transportation. For instance, within the framework of the GAP Action Plan (2008-2012), approximately TL4 billion was allocated in 2010 for investments in the region. Consequently, the share of GAP in public investment rose to 14%.

The comprehensive Judicial Reform Strategy covering issues related to the independence, impartiality, efficiency and effectiveness of the judiciary and an action plan to implement the Strategy was approved in August 2009.

In December 2009, amendments were made to the Bylaw on Associations to facilitate the process of creating and establishing business associations.

On February 19, 2009, the European Court of Justice confirmed in its Soysal and Savatlı Decision that the international agreements executed by the European Economic Community are superior to the secondary and national legislation of the EU. In this context, the court decision ruled that Article 41(1) of the Additional Protocol prohibits the introduction by the Member States of a visa requirement for the Turkish citizens who provide services, if a visa was not required at the time of adoption of the Additional Protocol. Referring to its status as a negotiating country in the Customs Union with the EU, Turkey has intensified its efforts for obtaining the right of visa-free travel in EU member states for Turkish citizens.

In order to expedite Turkey’s accession process, the “EU Strategy for Turkey’s Accession Process” was approved by the Council of Ministers on January 4, 2010. This EU Strategy is based on four pillars. The first pillar is related to the official negotiation process, covering the chapters that are already opened or can be opened. The second pillar is related to the work that Turkey will carry out in all chapters irrespective of whether they are opened or politically blocked. The third pillar is related to political criteria, and the fourth pillar identifies the Republic’s communication strategy.

According to the Ministry of Interior Circular dated January 26, 2010 (No. 2010/6), EU Harmonization, Consultancy and Steering Committees have been established within 81 province governorship offices and within each of the 81 province governorships, one Deputy Governor has been appointed as the EU Focal Point.

The 2010-2014 Anti-Corruption Strategy (The Strategy on Enhancing Transparency and Strengthening the Fight against Corruption) entered into force upon its publication in the Official Gazette on February 22, 2010. Relevant bodies have been established to monitor the implementation of the strategy. Furthermore, an action plan was approved in April 2010 for its implementation. On June 24, 2011, the Financial Action Task Force (FATF), an inter-governmental global standard setting body responsible for developing and promoting policies to combat money laundering and terrorist financing (AML/CFT), identified Turkey among the jurisdictions that have strategic AML/CFT deficiencies. In 2012, Turkey has taken steps towards improving its AML/CFT regime (including its work on AML/CFT legislation) as well as Turkey’s high-level political commitment to work with the FATF to address its strategic AML/CFT deficiencies. For this purpose, a draft law addressing these deficiencies was sent to the Parliament. On February 16, 2013, the “Law on the Prevention of the Financing of

 

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Terrorism” was enacted. Following the enactment of the Law on the Prevention of Financing of Terrorism, the implementing regulation thereof was entered into force upon its publication in the Official Gazette on May 31, 2013. After the new countering financing of terrorism legislation had come into force, the first Council of Ministers’ decision was rendered on September 30, 2013. This decision, which became effective on October 10, 2013 upon its publication in the Official Gazette, enabled Turkey to update its list of individuals and entities designated by the Sanctions Committees established pursuant to resolutions 1267(1999), 1989(2011) and 1988(2011) in accordance with those kept by these Committees.

Adopted initially by the Turkish Grand National Assembly in May 2010, the Constitutional Amendment Package, which amends more than 20 articles of the Constitution, was approved in a referendum held on September 12, 2010. As a result of the provisions contained in the Constitutional Amendment Package, human rights and fundamental freedoms have been expanded and the constitutional system was brought further in line with Turkey’s international obligations by providing for or strengthening constitutional guarantees for certain groups (women, children, the elderly, the disabled), broadening the freedom of organizations, and improving the judicial system.

In the Constitutional amendment package, utmost importance was given to the recommendations in the Accession Partnership Document and Progress Reports, while ensuring that the amendments were in line with the European Charter of Fundamental Rights, the European Convention on Human Rights, the jurisprudence of the European Court of Human Rights and the related documents of the Council of Europe. In addition, the amendments enabled Turkey to fulfill certain recommendations of different monitoring groups within the Council of Europe structure.

The majority of the amendments have made it possible to eliminate or alleviate several shortcomings identified in the decisions of the European Court of Human Rights and to comply with a range of recommendations and assessments, put forward either within the framework of the accession negotiations with the European Union or by the Commissioner for Human Rights of the Council of Europe, the Venice Commission, European Commission against Racism and Intolerance, Monitoring Committee of the Parliamentary Assembly of the Council of Europe, UN Committee on the Elimination of Discrimination against Women, UN Committee on the Elimination of Racial Discrimination and several other international monitoring mechanisms.

For instance, with the new provisions on the protection of children’s rights, Turkey’s laws would adapt to the requirements of the UN Convention on the Rights of the Child and the Convention of the Council of Europe on the Protection of Children against Sexual Exploitation and Sexual Abuse.

In respect to the charters of the International Labor Organization and the decisions of ECHR, the right to form labor unions and the right to conduct collective labor agreements, including the right to conduct collective bargaining for civil servants would be guaranteed.

An action plan covering the legislative changes required by the Constitutional Amendment Package was adopted by the Council of Ministers on September 27, 2010. The action plan includes new laws as well as amendments to existing laws and is currently being implemented. These include, among other things, the “Draft Law on the Establishment of an Ombudsman Institution”, “Draft Law on the Protection of Personal Data”, “Draft Law Amending the Law on Civil Servants’ Unions”, “Draft Law on Turkish Human Rights Institution”, “Draft Law on Fight against Discrimination” and “Draft Law on the Establishment of a Monitoring Committee for Law Enforcement Officers”. The “Law on the Ombudsman Institution”, “Amendment on the Law on Civil Servants’ Union” and “Law on Turkish Human Rights Institution” were enacted in 2012.

Turkey signed the Convention on Cybercrime of the Council of Europe on November 10, 2010. This Convention will be useful in better implementing the limitations on illegal Internet content since it streamlined current regulations and provided a sound framework regarding the use of Internet. The internal ratification process of the Convention has been initiated.

The EU General Affairs Council of December 14, 2010 praised Turkey’s commitment to the negotiation process and the progress achieved in the field of political reforms, particularly the Constitutional Amendment Package. Furthermore, while referring to Turkey’s active foreign policy, the role which Turkey and the EU can play together in this field is emphasized.

Referring to its status as a negotiating country in the Customs Union with the EU, Turkey has intensified its efforts for obtaining the right of visa-free travel in EU member states for Turkish citizens.

In January 11, 2011, the Assembly approved the new Turkish Code of Obligations (Law No. 6098). Law No. 6098 was published in the Official Gazette on February 4, 2011 (No. 27836). The new law includes, inter alia, several amendments that provide protection to individuals against unilaterally pre-prepared contracts, such as the introduction of a new concept, “General Transaction Conditions”, similar to the “Terms and Conditions”

 

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concept commonly used, in foreign contracts. Additionally, in the case of any unforeseen, extraordinary events, which with respect to the debtor, leads to changes to the conditions that existed at the time of the execution of a contract, such debtor is entitled to apply to a court for modification of such contract.

In January 2011, the Assembly approved the new Turkish Code of Civil Procedure (Law No. 6100). Law No. 6100 was published in the Official Gazette on February 4, 2011 and became effective on October 1, 2011.

In January 2011, the Assembly approved the new Turkish Code of Commerce (Law No. 6102). Law No. 6102 was published in the Official Gazette on February 14, 2011 (No. 27846) and effective on July 1, 2012. Under the new Turkish Code of Commerce, among other things, companies will be required to prepare financial statements in accordance with International Financial Reporting Standards and the obligations of companies regarding public disclosures and corporate governance principles have been broadened to be in line with global standards. The new Code also allows the establishment of joint stock companies or limited liability companies with a single shareholder or partner. Legal entities could become board members, board meetings can be held in electronic media (with the use of online votes in General Assemblies now being allowed), and board resolutions can also be signed with electronic signatures. Types of mergers, conditions of withdrawal from partnerships, financial assistance to employees, spin-offs and conversions have also been acknowledged in the New TCC.

On June 28, 2011, the Ministry for EU Affairs was established which replaced the Secretariat-General for EU Affairs and Mr. Egemen Bağış was appointed as the Minister for EU Affairs and Chief Negotiator.

On September 26, 2011, The Council of Ministers approved the “Decree-Law on Organization and Duties of the Public Oversight, Accounting and Auditing Standards Authority” With the establishment of this Authority, the Turkish Accounting Standards Authority was abolished and as stated by the European Commission the relevant closing benchmark of the Company Law Chapter 6 was met. The Public Oversight, Accounting and Auditing Standards Authority has become the sole authority with the power to regulate accounting and auditing standards in Turkey. It has the authority to prepare and publish Turkish Accounting Standards in line with international standards, to ensure uniformity in implementation, necessary reliability and quality of independent auditing, to identify auditing standards, to authorize independent auditors and independent audit companies and supervise their audit activities and to ensure public oversight in the field of independent auditing.

Within the framework of Judicial Reform Strategy, the First and Second Judicial Reform Packages, which entered into force in 2011 with the aim of speeding up and carrying out the judicial services swiftly, efficiently and economically and tackling the backlog of cases, comprehensive legal arrangements were realized.

The top priority for Turkish people as well as for the Parliament is drafting a new constitution broadening democratic rights in terms of the relation between the individual and the state. Parliamentary Conciliation Committee, established with equal participation from all political parties that are represented in the Parliament, has undertaken the task of drafting the constitution as of May 2012.

Several improvements have been achieved in respect of the institutionalization of human rights. Within that context, new democratic institutions are established. The laws regarding Human Rights Institution of Turkey, undertaking a central role in terms of protection of human rights and the Ombudsman institution, bringing effective and swift solutions to the complaints stemming from administration are enacted as of June 2012. The Human Rights Institution is a public legal entity which has administrative and financial autonomy and has its own budget. The establishment of an Ombudsman system is a first in Turkey and one of the most important steps taken for accountability, fairness and transparency of the public administration. The Ombudsman Institution will improve the quality and effectiveness of public services, by addressing the complaints of citizens regarding public services in a fair and timely manner, free of charge.

Following the Constitutional changes that were adopted by the referendum held in September 2010, the right to individual petition to the Constitutional Court was introduced as of September 24, 2012. Accordingly, individuals may file a petition before the Constitutional Court for final actions and court decisions.

On July 2, 2012, the Turkish Parliament adopted new measures, known as the 3rd Judicial Reform Package, intended to improve the effectiveness of the judiciary. This package, among others, enables further protection of freedom of expression, freedom of press as well as fight against corruption. This Reform Package has made major contributions to increasing the effectiveness and speed of judicial services. Certain data on the implementation of the 3rd Judicial Package include: the number of persons for whom the decision of probation is given was 104,662 in 2010, 130,402 in 2011, and 197,400 as of December 2012.

On July 4, 2012, it was announced that a Memorandum of Understanding that lays the ground for continued cooperation in the field of central banking through regular dialogue at technical and policy level and possible staff exchanges was signed between the Central Bank of the Republic of Turkey and the European Central Bank.

 

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With respect to trade union rights, the Parliament adopted two important pieces of legislation to ensure full trade union rights in line with the EU standards. With the amendment to the Law on Public Servants’ Trade Unions and Collective Agreement in April 2012, the right of collective agreement was extended to public servants and other public employees. The Law on Collective Labor Relations entered into force in October 2012.

The EU Commission publishes regular Progress Reports on Turkey prepared annually since 1998, as well as the Enlargement Strategy Paper which evaluate developments in all candidate and potential candidate countries.

The 2012 Progress Report on Turkey and the 2012-2013 Enlargement Strategy were published on October 10, 2012. The Report welcomes the successful launch of the Positive Agenda 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 EU law, dialogue on foreign policy, visa, mobility and migration, trade, energy, counter terrorism and participation in Community programmes. In the Report, the Council invites the Commission to take steps towards visa liberalization as a gradual and long-term perspective, in parallel with the signing of the Readmission Agreement between Turkey and the EU which was signed in June of 2012. It also underlines that Turkey should sign the Readmission Agreement to allow for a proper roadmap to be finalized. The Report welcomes the work on a new constitution and acknowledges that a democratic and participatory process was put in place. The report also underlines that the representatives of non-Muslim minorities were officially received by Parliament. In the Report, terrorist attacks by the PKK (a terrorist organization in Northern Iraq) were strongly condemned by the EU, yet it is stated that the Kurdish issue remains a key challenge for Turkey’s democracy. Moreover, the Report stresses that several important pieces of legislation were adopted, in particular laws on the protection of family and prevention of violence against women, probation, collective bargaining for civil servants, the Ombudsman Institution and the national human rights institution. Regarding economic criteria, Turkey’s performance is acknowledged in terms of both economic growth and employment generation. The Report highlights that the earlier fiscal consolidation and structural reforms which have been realized since 2001, have contributed to robust growth, the financial sector performed well, and banking assets values are about 100% of GDP. However, the Report criticizes that four years after the adoption of the Public Financial Management Law, some components are still missing in particular measures to enhance the accountability, efficiency and transparency of the budgeting process.

Turkey’s 2013 Progress Report and Enlargement Strategy Document was published by the EU Commission on October 16, 2013. The Report comprehensively describes the political reforms undertaken in Turkey during the last year. The report also emphasizes the Turkish Government’s determination regarding the continuation of democratization and political reforms and, in this context, refers to the Democratization Package published on September 30, 2013, as well as to the steps taken with regards to the judiciary reform and ongoing work on the new constitution. The Report states that the process in Turkey that aims to end armed terrorist attacks and the activities of the PKK constitutes a milestone and continues to indicate the EU’s support to this process. The Report also refers to Turkey’s active role in foreign policy.

On November 5, 2013, the EU opened negotiations on Chapter 22 - Regional Policy and Coordination of Structural Instruments. Chapter 22 aims to eliminate social and economic disparities both in and among Member States. The EU communicated to the Republic certain benchmarks that need to be met with respect to the Republic’s alignment with and implementation of the acquis communautaire, including among other things, the Republic must submit to the European Commission a capacity building plan for EU Cohesion Policy covering actions at national, regional and local levels and fulfill its obligation of the full non-discriminatory implementation of the Additional Protocol to the Association Agreement towards all Member States.

The opening of a new chapter in 2013 was a welcome step that created a new momentum in Turkey’s relations with the EU. The launch of the Visa Liberalisation Dialogue on December 16, 2013 also opened a new avenue in Turkey-EU relations. The Readmission Agreement was signed on the same day.

In December of 2013, Mr. Mevlüt Çavuşoğlu, previously President of the Parliamentary Assembly of the Council of Europe, became Minister for EU Affairs and Chief Negotiator.

The visit of Turkish Prime Minister to Brussels on January 21, 2014 was important in both confirming Turkey’s political will and providing its views to its interlocutors in the EU on a range of issues in a comprehensive way.

The European Commission has considered Turkey a functioning market economy in all its annual Progress Reports since 1998. The recent Progress Reports have highlighted the robust financial sector of the country and resilience of the Turkish economy with special emphasis on its sustained growth rate despite the difficult international economic environment, underlining the successful implementation of the economic stability program and the structural reforms carried out in basic sectors.

In December 2012, Turkey announced its EU Pre-Accession Economic Program for the 2013-2015 period (the “PEP”). The PEP was prepared on the basis of the Medium Term Program (MTP) for the 2013-2015 period.

 

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The Turkish economy grew by 8.5% in 2011, 2.2% in 2012, and 4% in 2013. According to the MTP for the 2014-2016 period, Turkey’s economy is expected to have growth rates of 4% in 2014, 5% in 2015, and 5% in 2016. The year-end consumer price inflation rate was 10.45% in 2011, 6.2% in 2012, and 7.4% in 2013. Inflation target was set as 5% for 2014 and 5% for 2015. Turkey’s unemployment rates were recorded as 9.8% in 2011, and 10.1% in 2012. Unemployment rate stood at 9.7% in 2013. Unemployment rate is expected to stand at 8.8% and 8.7% in 2014 and 2015, respectively. Current account deficit/GDP ratio figures were 10% in 2011, 6.5% in 2012, and 7.1% in 2013. MTP forecasts the current account deficit/GDP ratio as 6.9% in 2014 and 6.5% in 2015.

With the Law on Mediation in Legal Disputes, published in the Official Gazette on June 22, 2012, a mediation system, through which the parties may freely address disputes arising from private law procedures, has been established. With this system, disputes can be resolved without recourse to a court, through a mediator chosen by the parties, also including foreign nationals.

The Capital Markets Law (No. 6362) entered into force on December 30, 2012. It includes regulations provisions required for the functioning and development of the capital market in a reliable, transparent, effective, stable, fair and competitive environment. The Law also aims to regulate and supervise the capital markets in order to safeguard the rights of investors.

On April 3, 2013, the Assembly approved a Draft Law (No. 443) “Including Changes on Law on Regulating Public Finance and Debt Management (Law No. 4749) and Some Decree Laws,” which was published in the Official Gazette on April 18, 2013.

The “4th Judicial Reform Package” which provides further improvements on freedom of expression and media entered into force on April 30, 2013. The main focus of the package is to amend the relevant legislation to eliminate the main reasons for judgments of violation by the European Court of Human Rights. It aims at addressing the shortcomings that are likely to result in violations of basic rights and freedoms safeguarded by the European Convention on Human Rights.

With respect to cultural rights, with the Decree of the Council of Ministers dated October 12, 2009, “Institute of Living Languages” was established in the Mardin Artuklu University. The Institute is composed of the Department of Kurdish Language and Culture, the Department of Arabic Language and Culture, the Department of Syriac Language and Culture and offers a master’s degree in the Kurdish Language and Culture and Syriac Language and Culture. The Kurdish Language and Literature Department was also established in the same university.

Within the framework of the new education system, an elective course on “living languages and dialects” (such as Kurdish, Circassian, etc.) is now available to students.

Furthermore, the post graduate program in the Department of Kurdish Language and Literature in Muş Alparslan University has started as of the 2012-2013 academic year. For the time being, 50 students are studying in this program to which more than 300 students applied. In the Department of Eastern Languages and Literatures in Tunceli University, Department of Zaza Language and Literature was established in 2011.

An extensive reform process is underway concerning dialogue with groups of different faiths and beliefs. The Parliamentary Conciliation Committee also invited community leaders of different faiths and beliefs for listening to their proposals and views on the new constitution.

In accordance with the judgment of the European Court of Human Rights on June 15, 2010, the Foundations Assembly decided unanimously that Büyükada Orphanage to be transferred to the Greek Orthodox Patriarchate. As a result, Büyükada Orphanage was transferred to the Patriarchate on November 29, 2010.

Religious ceremonies have been held every year since 2010 in Maçka, Trabzon, in the historical Sumela Monastery; and in the Surp Haç Armenian Church (Armenian Church of Akdamar on Lake Van). On May 28, 2011, a religious ceremony was organized in Alaçatı, İzmir at the Pazar Yeri Mosque, which used to be a church 90 years ago. On October 22, 2011, after a successful restoration, a religious ceremony was held in the Surp Giragos (Armenian Orthodox Church at Diyarbakır) which is one of the largest churches in the region. The first religious ceremony after 89 years was held in April of 2013 in Aya Yorgi Church in Alanya.

As a result of the 1923 population exchange between Turkey and Greece, ownership of Greek Orthodox Churches and Mosques in Anatolia (with the exception of İstanbul, Gökçeada and Bozcaada) were transferred to the relevant Turkish authorities, as the native population had to leave for Greece. The same applies for Mosques in Greece. The ownership of Greek Orthodox churches/monasteries located in the areas which were subjected to the population exchange of 1923, were transferred to the Turkish authorities in accordance with the Lausanne Peace Treaty due to the absence of local Orthodox communities. In the same vein, mosques in Greece were transferred to relevant Greek authorities.

 

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The members of the Council of Ministers and government officials have continuously been holding meetings with the representatives of religious communities to address their problems. On February 14, 2012, the Minister for EU Affairs met with more than 300 representatives of civil society organizations representing different faith groups.

With respect to property rights, an important step was taken to resolve a long-standing issue regarding the immovable properties of minority foundations by the amendment of Law on Foundations in August 2011 and its Implementing By-Law dated October 1, 2011. These amendments have paved the way for the return of the immovable properties of minority foundations. 116 community foundations have applied to the Directorate General of the Foundations regarding the registration of 1560 immovable properties in the context of the By-Law. The Foundations Assembly has already decided for the return of 318 immovable properties, and the compensation for 21 immovable properties as of June 2014. The evaluation process for the applications is ongoing.

The Izmir Jewish Community under the name of “Izmir Jewish Community Foundation”, Armenian Surp Haç Tıbrevank School under the name of “Armenian Surp Haç Tıbrevank School Foundation” and Beyoğlu Greek High School for Girls under the name of “Beyoğlu Greek High School for Girls Foundation” have gained foundation status in accordance with the Decision of the Foundations Council affiliated to the Directorate General for Foundations.

The Democratization Package announced by Prime Minister Erdoğan on September 30, 2013 proposed comprehensive reforms for further improvement and enjoyment of a wide-spectrum of civil and political rights. The package includes: allowing political discourse in languages and dialects other than Turkish, facilitation of local organization of political parties, enabling education in languages and dialects other than Turkish in private schools, lifting restrictions on renaming villages and the use of letters Q, X, W, ending the ban on women wearing headscarves in public service, enacting a comprehensive anti-discrimination legislation and establishing Anti-Discrimination Commission as well as ensuring that a bigotry motive is taken into account as an aggravating circumstance in criminal proceedings.

In addition, as a part of the Democratization Package, the Council of the Directorate General of the Foundations unanimously approved to return the property of Mor Gabriel Monastery to the Monastery Foundation on October 7, 2013.

TURKEY-UNITED STATES RELATIONS

Turkey and the United States have been close allies and partners for more than fifty years. During the Cold War, the security aspect of the relationship became more pronounced, particularly following the Truman Doctrine and Turkey’s membership in NATO. In the ensuing post Cold War era, relations between Turkey and the US have been diversified and further enhanced in the pursuit of common interests based on shared values such as democracy, the rule of law and respect for human rights as well as the desire to promote peace, stability and prosperity around the globe.

Today, Turkey and the US cooperate on a wide range of issues affecting the Middle East, North Africa, the Balkans, the Caucasus, the Eastern Mediterranean, Central and South Asia as well as on critically important issues, such as the fight against terrorism, energy supply security, nuclear non-proliferation and global economic developments.

US Secretary of State Hillary Clinton’s visit to Turkey in March 2009, followed by the first official bilateral overseas trip of US President Obama to Turkey in April 2009 and the visits of Prime Minister Erdoğan to Washington, D.C. in December 2009 and in May 2013 brought about a fresh impetus to Turkey-US relations. These high level visits reaffirmed that Turkey and the US share a common set of foreign policy priorities and that they have the common will to strengthen their cooperation with a view to addressing the challenges of the 21st century. During his visit, President Obama defined Turkish-US relations as a “Model Partnership”. This term reflects the unique character and comprehensive nature of Turkey-US relations. It defines the relationship between a global power and a regional power which also has the capacity to contribute positively to global affairs.

Major international issues which face both Turkey and the US are overlapping and Turkey-US cooperation makes a significant contribution to the efforts aimed at achieving global and regional peace, stability and prosperity.

 

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Recent developments in the Middle East and North Africa once again highlighted the relevance of Turkish-US cooperation. Turkey and the US have been consulting frequently to exchange views on issues of common concern.

President Gül visited the US to attend the NATO Chicago Summit in May 2012. Former Secretary of State Clinton paid a visit to Turkey in June 2012 within the framework of the 2nd Coordination Committee meeting of the Global Counter Terrorism Forum. She also paid a working visit to Turkey on August 11, 2012. These high level visits proved to be important steps in highlighting the relevance of Turkish-US relations against the backdrop of significant developments surrounding Turkey’s region.

High level visits and regular contacts between Turkey and the US during the course of 2013 included the visits of, Secretary of State Kerry, Foreign Minister Davutoğlu and other Ministers as well as visits of Congressional delegations.

On June 11, 2012, the United States issued a waiver to Turkey from its Iran-related sanctions, effective as of June 28, 2012, for a period of six months. The U.S. State Department said that Turkey, among other countries, had sufficiently reduced its purchases of Iranian oil to be awarded the waiver. The waiver was renewed for a further six months on December 7, 2012.

The US is one of the major trade partners of Turkey. The trade volume with the US in 2013 was U.S.$18.2 billion.

In the last decade (2002-2012) the US companies have invested U.S.$8.4 billion in Turkey and now stands as the third largest investor in Turkey behind the Netherlands and Austria. The US investments surpassed U.S.$344 million in 2013. Currently, the US ranks third in FDI flows into Turkey (2002-2012).

Turkey is also designated by the US as one of the 6 preferential markets (Colombia, Indonesia, Vietnam, Saudi Arabia, South Africa and Turkey) in the world.

The Turkish Airlines operates between Istanbul and six American metropolitan areas (New York, Washington D.C., Chicago, Los Angeles, Houston and Boston) which reinforces the connection and expands cooperation among business circles.

During Prime Minister Erdoğan’s visit to Washington in December 2009, a mechanism called “Framework for Strategic Economic and Commercial Cooperation” (FSECC) was launched with a view to bringing economic, trade and investment relations to a level proportionate with political and security relations between the two countries. Deputy Prime Minister Ali Babacan and Economy Minister Zafer Çağlayan were entrusted with a mandate to coordinate bilateral endeavors for enhancing the economic interaction and commercial ties between Turkey and the US. The first Ministerial meeting of FSECC was held in Washington, D.C. on October 19, 2010. The second meeting of FSECC was held in Ankara on June 26, 2012. The third meeting was held in Washington, D.C. on May 14, 2014. Deputy Prime Minister Ali Babacan and Minister of Economy Nihat Zeybekci (representing Turkey) and U.S. Secretary of Commerce Penny Pritzker and US Trade Representative Ambassador Michael Froman (representing the US) co-chaired the meeting.

The Economic Partnership Commission (EPC) which is one of the major existing mechanisms in Turkey-US economic cooperation is being held twice a year as of 2011. EPC held its ninth meeting in Washington D.C. on November 28, 2012 and the most recent meeting on May 23, 2013 in Ankara. The ninth and most recent meeting of the Trade and Investment Framework Agreement Council (TIFA) was organized in Washington D.C. on February 21-22, 2013. The “Business Council” (BC) which was established under the auspices of the FSECC held its first meeting in Istanbul on September 19, 2011 and the second meeting in Washington, D.C. on June 3, 2013.

The Agreement on Scientific and Technological Cooperation between Turkey and the US was signed in Washington, D.C. on October 20, 2010.

BALKANS

Turkey’s policy towards the Balkans is guided by the principles of “regional ownership” and “all-inclusiveness” and is based on four main pillars: security for all, high level political dialogue, economic interdependence and preservation of the multi-ethnic, multi-cultural and multi-religious social fabric of the region. In addition to having a common history and shared values, the Republic has a joint vision with the Balkan countries based on common goals and integration with European and Euro-Atlantic institutions.

Apart from political support, Turkey also provides assistance to the countries of the region in various areas including economy, culture, education, military and security through its relevant public institutions, municipalities, NGO’s and universities.

 

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Turkey has played a leading role in launching major initiatives such as the South-Eastern European Cooperation Process (SEECP), the only major initiative starting from within the region, and the Multinational Peace Force Southeast Europe (MPFSEE)/South-eastern Europe Brigade (SEEBRIG). Turkey also plays an active role in the South-eastern Europe Defense Ministerial (SEDM) process. Turkey continues to be active within the Southeast European Law Enforcement Center (SELEC) as well.

Turkey intensified its efforts towards the Balkans beginning from the second half of 2009. In addition to successfully holding the Chairmanship in the Office of the SEECP for the term 2009-2010, Turkey established trilateral consultation mechanisms with Bosnia-Herzegovina and Serbia on the one hand, and Bosnia-Herzegovina and Croatia on the other. These cooperation mechanisms aim to enhance peace, stability and prosperity in Bosnia and Herzegovina and transform the Balkans to a more stable region.

On April 24, 2010, the first “Trilateral Balkan Summit” was held in İstanbul with the participation of the Heads of State of Turkey, Bosnia and Herzegovina and Serbia. The second meeting of the “Trilateral Balkan Summit” was held in Karadjordjevo, Serbia on April 26, 2011. The third “Trilateral Balkan Summit” was held in Ankara on May 14 and 15, 2013. At the summit, “Ankara Summit Declaration” was adopted and the Ministers of Economy of Turkey, Bosnia-Herzegovina and Serbia met on May 14, 2013 and established “Trilateral Trade Committee”.

The Trilateral Summits bring the parties together to engage in joint projects intended to strengthen the dialogue and contribute to the regional peace, stability and cooperation.

TURKISH-GREEK RELATIONS

Following the dialogue and cooperation process initiated between Turkey and Greece in 1999, a more constructive understanding has begun to define the terms of bilateral relations which were problematic in past decades. The conclusion of 35 bilateral agreements/protocols/MoUs in various fields such as trade, tourism, environment, culture, energy, transportation and security-related matters has contributed towards cooperation on issues of common interest. During this process, 29 Confidence Building Measures (CBM) have been adopted. Since 2009, Turkey and Greece have furthered their efforts in order to improve bilateral relations.

During Prime Minister Erdoğan’s Athens visit on May 14-15, 2010, the High Level Cooperation Council (HLCC) held its first meeting and 22 documents were concluded in various fields. The second HLCC meeting was held in İstanbul on March 3-4, 2013, during which 25 documents were signed.

The establishment of this mechanism signals the beginning of a more structured and institutionalized phase in Turkish-Greek relations, which will enable Turkey and Greece to upgrade the level of relations from rapprochement to partnership. The HLCC model in essence aims to bring together all relevant Ministers from both countries in the form of a joint cabinet meeting in order to raise their issues and develop a joint vision under the guidance of the two Prime Ministers. The third HLCC meeting will be held in Greece in the autumn of 2014.

Three foreign ministerial-level visits were held between the two countries in 2013. The Greek Foreign Minister Avramopoulos visited Ankara on February 22, 2013. During his first month in office following his appointment as Foreign Minister, the Greek Deputy Prime Minister and Foreign Minister Venizelos visited Ankara on July 19, 2013. Foreign Minister Davutoğlu visited Athens on December 13, 2013.

In the meantime, established mechanisms work smoothly. By the end of 2013, 55 rounds of Exploratory Talks were held. Political consultations were held in May and October of 2013.

The mutual desire to bridge differences through dialogue and promote cooperation in the better interest of both countries has also reflected positively on other dimensions of bilateral relations, such as trade and tourism. The bilateral trade volume between Turkey and Greece had reached U.S.$3.57 billion in 2008. Although the trade volume fell to U.S.$2.76 billion in 2009 due to the impact of the global economic crisis, it displayed an upward trend in 2010 and amounted to U.S.$3 billion. Despite the deepening economic crisis in Greece, the trade volume has exceeded U.S.$4.0 billion. The bilateral trade volume has reached U.S.$4.9 billion in 2012. In 2013, it reached a record level of U.S.$5.7 billion, with a surplus of U.S.$2.7 billion in Greece’s favor. Turkey has become the number one trade partner of Greece. Both sides are working tirelessly to meet the U.S.$10 billion target set by the Prime Ministers at the second HLCC meeting in May 2013 in İstanbul.

As the largest Turkish investment in Greece, the Athens and Komotini branches of Turkish Ziraat Bank were officially inaugurated in February 2009. The Bank opened also branches in Xanthi and Rhodes in October 2010 and October 2011, respectively. Turkish companies were mostly interested in investing in the tourism sector in Greece. The amount of Greek foreign direct investment in Turkey, with the banking sector taking the lead, soared to approximately U.S.$6.7 billion by the end of 2013, while the number of Greek companies in Turkey reached 591. In 2013, Turkey was the destination of choice for more than 700,000 Greek tourists. According to the Greek National Statistics Agency, Turkish tourists visiting Greece in 2013 reached 831,000. These figures

 

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mark the continuing upward trend in tourism. As a result of the benevolent climate between the two countries, increasing numbers of Greek pilots and academicians are now working in Turkey. A number of Greek citizens have started their own businesses in Turkey. There are opportunities to enhance this cooperation in the health sector as well.

Energy has also proven to be a promising area of cooperation between the two countries. For example, the inauguration of the natural gas interconnector was held on November 18, 2007 at Ipsala on the Turkish-Greek border with the participation of the Prime Ministers of Turkey and Greece. This endeavor is of strategic significance for both countries as well as European markets, as it will provide the latter with an alternate secure energy transit route. The uninterrupted flow of natural gas from the Caspian Basin to the heart of Europe will be ensured with the extension of the present pipeline to Italy. The Baku-Tbilisi-Erzurum (BTE) Natural Gas Pipeline connection with the Turkey-Greece Interconnector is the very first alternate route to provide Europe with natural gas from the Caspian Basin.

The Southern Gas Corridor projects are key activities for the future delivery of natural gas primarily from Azerbaijan and Turkmenistan. Turkey and Azerbaijan reached an agreement concerning the sale and purchase of 6 bcm and the transit through Turkey to European markets of 10 bcm of Shah Deniz Phase 2 natural gas. The Intergovernmental Agreement and Host Government Agreement regarding development of the standalone pipeline (Trans Anatolian Pipeline, “TANAP) project, were signed by Turkey and Azerbaijan on June 26, 2012 in Istanbul. Constituting the backbone of the Southern Gas Corridor, TANAP will not be restricted to Shah Deniz gas and also aims to transport gas to be produced in other Azeri fields and from Turkmenistan. At the end of June 2013, the Shah Deniz Consortium opted for the Trans-Adriatic Pipeline (TAP) project, as the continuation of TANAP.

The Shah Deniz Consortium also announced that they have made the final investment decision for the Shah Deniz Phase 2 and an official signing ceremony was held on December 17, 2013 in Baku for the final investment decision.

Turkish and Greek Foreign Ministers agreed to launch cross-visits of Turkish Cypriot and Greek Cypriot negotiators to Athens and Ankara respectively, during their meeting in New York in September 2013 (the first round of visits took place on February 27, 2014).

Turkey hopes that this trend in bilateral relations will continue in the period ahead, with a partnership spirit resulting in a climate of habitual cooperation beneficial to both countries.

CYPRUS

Turkey supports the UN Secretary General’s good offices mission, with a view to finding a just and lasting comprehensive settlement to the Cyprus problem, based on the long established UN parameters such as bi-zonality, political equality, equal status of the two constituent states and a settlement which will bring about a new partnership state. Turkey has openly declared its full support for a political settlement in the Island.

Cyprus is the home of two politically equal parties: Turkish Cypriots and Greek Cypriots who are two distinct peoples with different religions, cultures and ethnicities. The bitter past of ethnic conflict in Cyprus dictates that lasting peace can only be achieved through a viable equal partnership.

In 1963 the Greek Cypriots expelled Turkish Cypriots from the partnership state organs and institutions as well as from their homes, in violation of the Treaties of 1960. A UN peacekeeping operation began in 1964 and has been going on since then.

From 1963 to 1974 the Turkish Cypriots continued their existence in isolated enclaves corresponding to 3% of the Island, under frequent attacks organized by the Greek Cypriot side. When this culminated with a coup d’état in 1974, which was aimed at annexing the Cyprus island with Greece, Turkey as a guarantor power was left with no other option but to exercise its Treaty rights.

In the past forty years of the UN negotiation process, the Turkish Cypriots have always supported a just, lasting and comprehensive settlement of the Cyprus issue on the basis of negotiations between the two peoples of the Island, under the auspices of the UN Secretary-General’s Good Offices mission. However, the Greek Cypriots rejected the 1985-86 Draft Framework Agreement, the UN sponsored Set of Ideas of 1992, and the package of Confidence Building Measures of 1994.

The political resolve demonstrated by the Turkish side for a settlement paved the way for a renewed initiative by the former UN Secretary General Mr. Kofi Annan in January 2004 for the resumption of negotiations between the parties on the Island with a view to reaching a comprehensive settlement in this long pending issue.

The UN Comprehensive Settlement Plan (the Annan Plan), which was freely negotiated at every stage by the two sides, constituted a culmination of the UN parameters and represented a carefully balanced compromise.

 

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The Plan was submitted to simultaneous separate referenda in the North and South of Cyprus on April 24, 2004. Turkish Cypriots accepted the Annan Plan with the encouragement of Turkey. However, the Greek Cypriots rejected the Plan with a ‘No’ vote of 76%.

Turkey as a guarantor power has given its full support to the constructive efforts of the Turkish Cypriots in the UN negotiating process for the establishment of a new partnership in Cyprus that will emerge following the comprehensive settlement which will bring peace and stability to the Eastern Mediterranean. The parameters of a settlement have been established throughout decades-long UN negotiations and culminated in the UN Comprehensive Settlement Plan of 2004. These negotiations have provided the necessary material for the achievement of the settlement on which a new state of affairs can be created in Cyprus and guaranteed according to the 1960 Treaties.

On April 18, 2010, Mr. Derviş Eroğlu was elected as the new president of the Turkish Republic of Northern Cyprus (the “TRNC”) .The new TRNC President Mr. Eroğlu committed to continue the negotiations being conducted by President Mr. Talat and Mr. Christofias where they had been left off. President Eroğlu confirmed his stance in his letter to the UN Secretary General (UNSG) on April 23, 2010 clarifying once more and in detail that the Turkish Cypriots were in full cooperation with the UN.

The negotiations resumed on May 26, 2010, between the Turkish Cypriots and Greek Cypriots. The UN Secretary General (UNSG) set the end of 2010 as the target date for reaching a conclusion in his report dated May 11, 2010. The UNSG also expressed in his report that a solution was within reach but more time was needed to reach a settlement, emphasizing his determination to closely monitor the process ahead and make an assessment of the situation in a good offices mission report in November. The Turkish Cypriots expressed their commitment to UNSG’s settlement target and took many initiatives, including making constructive proposals throughout the process. The UNSG, in his report issued on November 24, 2010, noted that the Turkish Cypriots put forward fresh initiatives.

The two leaders and the UNSG came together in tripartite meetings on November 18, 2010 in New York, on January 26, 2011 and July 7, 2011 in Geneva, and on October 30-31 2011 and January 23-24, 2012 in Greentree, New York. During these meetings and going forward Turkish Cypriot side has maintained their constructive and result-oriented approach.

On September 24, 2011, President Eroğlu put forth a constructive proposal to the UN Secretary-General with the purpose of resolving the crisis between Turkey and Greece. The proposal was officially submitted to the Greek Cypriot side through the UN on September 30, 2011. President Eroğlu proposed a mutual and simultaneous suspension of all activities related to the hydrocarbon reserves off the coast of Cyprus. If the Greek Cypriot side were not willing to accept such a suspension, as an alternative, President Eroğlu suggested that an ad-hoc committee be formed with the participation of the two sides and the UN to obtain the written mutual consent of the two sides and to determine their relevant shares, whereby the revenue shall be used to finance the implementation of the provisions of an eventual comprehensive settlement. The Greek Cypriot side returned the proposal to the Turkish Cypriot side through the UN without further comment on October 4, 2011.

On May 11, 2012, the Greek Cypriots announced the bids for a “tender.” Five concession blocks in this “tender” overlap with Turkey’s continental shelf areas. Turkey will not allow foreign oil companies to conduct unauthorized oil/natural gas exploration and exploitation activities in these overlapping areas and will take all necessary measures to protect the country’s rights and interests in the maritime areas falling within her continental shelf.

President Eroğlu made a new proposal to the UN Secretary-General on September 29, 2012 in New York calling for the establishment of a technical committee for confidence building measures. In this proposal, Mr. Eroğlu also proposed to have the hydrocarbon resources transported through a pipeline via Turkey.

In the four years of the last UN negotiating process between 2008 and 2012, the Turkish Cypriots conducted the negotiations in a dynamic manner, with constructive proposals in the framework of the established UN parameters pursuant to the UN Comprehensive Settlement Plan of 2004, which have been confirmed by the UN. Turkey’s expectation during this period was that this positive stance of the Turkish Cypriot people would be reciprocated by the Greek Cypriots and supported by the international community. Unfortunately, this last round of negotiations between 2008 and 2012 failed to produce a result.

The election of Mr. Anastasiades as the new Greek Cypriot leader in February 2013, raised hopes in the international community for an early comprehensive settlement. After the second round of the Greek Cypriot elections held on February 24, 2013, President Eroğlu called the newly elected Greek Cypriot leader Mr. Anastasiades on February 25, 2013 to congratulate him and also sent him a letter on March 1, 2013, expressing that an early meeting between them would be instrumental in helping to understand where Mr. Anastasiades stood on the terms of a negotiated settlement both in procedure and substance. The first meeting of the two leaders, which took place on May 30, 2013, was purely social.

 

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At the end of April 2013, UNSG’s Special Advisor Mr. Downer shared a paper with the two sides on the convergences reached in the 2008-2012 process, mainly to see where Mr. Anastasiades stood on the terms of a settlement. The Turkish Cypriot side confirmed its commitment to these convergences, underlining that they maintained their positions in the last process. In the absence of a Greek Cypriot reaction, President Eroğlu sent a letter to Mr. Anastasiades on August 15, 2013, asking him to clarify his position to avoid any unnecessary debate over the basis, framework and goal of the talks. In response, Mr. Anastasiades requested to start the negotiations with a pre-prepared joint statement that would be issued at the first leaders’ meeting.

The joint statement, turned into a negotiation in itself taking almost a year to complete. However, on February 11, 2014President Eroğlu and Mr. Anastasiades finally met to resume the comprehensive settlement negotiations. Turkey fully and actively supports the ongoing UN negotiations for a comprehensive settlement on the Island with the aim of establishing a new bi-communal, bi-zonal federation, based on political equality between the Turkish and Greek Cypriots, with a federal government and two constituent states of equal status, as reflected in the leaders’ joint statement of February 11, 2014.

The Turkish Cypriots accepted the UN Comprehensive Settlement Plan in 2004. In that regard, Turkey believes that the UN Security Council should heed the call made by the UN Secretary-General in his Report of May 28, 2004 towards putting an end to the isolation of the Turkish Cypriots. In his report, the UNSG noted that there is no Security Council resolution which imposes restrictions on the Turkish Cypriots and also called on members of the Security Council to encourage to all States to eliminate unnecessary restrictions and barriers that isolate the Turkish Cypriots and impede their development. While the European Council decided on April 26, 2004, to end the isolation of the Turkish Cypriots with no conditions, this decision has not yet been implemented. This situation is discouraging, particularly with respect to the ongoing UN negotiations. In line with the UNSG’s call, the international community should call for the isolation to end, thus also contributing to the settlement aim.

IRAQ

Iraq’s recent history is full of wars, military invasions and sanctions which have had regional and global repercussions. The continuing violence and civil unrest in Iraq has negatively impacted its neighboring countries, including Turkey, which have experienced and may continue to experience certain negative economic effects, such as decreases in revenues from trade and tourism, increases in oil expenditures, decreases in capital inflow, increases in interest rates and increases in military expenditures.

Turkey has strongly supported Iraq’s stability, political unity and territorial integrity and made great efforts in helping Iraq to become a democratic, stable and prosperous country at peace with its own people and its neighbors. Turkey also attaches utmost importance to embracing all segments of the Iraqi society and reaching out to every part of Iraq. To this end, Turkey launched in 2003 “Iraq’s Neighboring Countries Process”, a regional initiative that played an important role in coordinating stabilization efforts of Iraq’s neighbors as well as various other countries and international organizations until 2008.

Turkey has also actively supported national reconciliation efforts in Iraq. Through reaching out to all segments of the Iraqi society and preserving its impartial stance towards all Iraqi political groups, Turkey encouraged national reconciliation through dialogue and contributed to the successful conclusion of the government formation process after the general elections in March 2010.

Turkey also works towards integrating Iraq into the global economy and international energy markets. With this understanding, Turkey co-sponsored the UN Security Council resolutions 1956, 1957 and 1958 concerning the termination of UN-supervised arrangements for the Development Fund for Iraq and the residual activities of the Oil-for-Food Program as well as the lifting sanctions towards Iraq which were adopted at the Security Council High-Level Event on December 15, 2010.

Turkey’s relations with Iraq have been steadily developing in many fields. The Turkey-Iraq High Level Strategic Cooperation Council, established in 2008, provides the necessary legal framework to further increase bilateral cooperation between the two countries in a more structured fashion. The purpose of this High Level Strategic Cooperation Council is to achieve full economic integration between the two countries through joint projects in areas such as trade, energy, agriculture, security, health and water.

The first ministerial meeting of The High Level Strategic Cooperation Council was held in Istanbul on September 17-18, 2009, which was followed by Prime Minister Erdoğan’s visit to Baghdad in October 2009 to co-chair the first meeting of the Council. During this visit, Prime Minister Erdoğan was accompanied by nine Ministers from Turkey. On the margins of this historic visit, the parties signed 48 Memoranda of Understanding aimed at increasing cooperation between the two countries on a wide range of issues. The High Level Strategic Cooperation Council presents a unique model of cooperation for promoting economic prosperity and integration in Turkey’s region.

 

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Energy cooperation is an important aspect of bilateral relations. In cooperation with the Iraqi Government, Turkey wishes to export a significant part of Iraq’s oil and gas reserves to international markets through its territory. Turkey also promotes the swift adoption of the hydrocarbon and revenue sharing legislations by the Iraqi Parliament.

The Consulate General of Turkey in Basra was inaugurated in March 2009, in order to further the existing relations on energy, trade and also to support the development of Iraq. The visit of Minister of Energy and Natural Resources of the Republic of Turkey, Taner Yıldız to Baghdad and Erbil in December 2013 provided Turkey an opportunity to discuss issues regarding energy cooperation.

By the end of 2012, the amount of Turkish exports to Iraq reached nearly U.S.$11 billion. Turkish companies also play a crucial role in Iraq’s reconstruction and development.

In recent years Turkey has also significantly improved its relations with the Kurdish Regional Government (KRG) in Iraq. Turkish businessmen, contractors and workers have made crucial contributions to the prosperity and welfare in northern Iraq. The Turkish Consulate General in Erbil opened in March 2010. Frequent high-level visits have been carried out between Turkey and the KRG. Another important factor in Turkish-Iraqi relations is the presence of the PKK, a terrorist organization in northern Iraq. Turkey believes that the PKK constitutes a threat not only to Turkey and its people but also to the security and stability of Iraq, as well as the region at large. In this regard, having initiated a process to terminate the terrorist activities of the PKK, Turkey, seeks more resolute support and enhanced cooperation from the Iraqi authorities in removing the presence of this terrorist organization in northern Iraq. Turkey expects the Iraqi authorities, including the KRG, to take decisive and result-oriented measures to stop the activities of the PKK on Iraqi territory.

In December 2011 the US forces completed their withdrawal from Iraq. Almost simultaneously, the country fell into a political crisis which has not yet subsided. The security situation remains fragile. Lack of trust among the government partners, sectarian politics, spillover effects of the Syrian crisis and, most importantly, the reluctance to address power and revenue sharing concerns seem to lie at the heart of the present political deadlock in Iraq.

A number of high-level visits were also made in 2013. The Speaker of the Iraqi House of Representatives Usama Nujaifi has paid numerous visits to Turkey. The Chairman of the Foreign Affairs Committee of the Turkish Grand National Assembly (TGNA) Volkan Bozkır visited Baghdad in October 2013. In November 2013, Foreign Minister Davutoğlu visited Baghdad, Najaf, Kerbala, Iraqi Foreign Minister Zebari visited Turkey and the Speaker of the Turkish Grand National Assembly (TGNA) Cemil Çiçek paid an official visit to Baghdad. The Minister of Energy and Natural Resources, Taner Yıldız visited Baghdad and Erbil in December 2013.

The overall security situation has deteriorated since December 2013. Attacks by the Islamic State of Iraq and Levant (ISIL) have spread to the north and western parts of Iraq, further destabilizing the country. As a result, the number of internally displaced persons increased by the end of 2013. Due to dysfunctional government and lack of inclusive policies, public support to government has plunged, sectarian and ethnic based tensions have soared. Turkey hopes that the Iraqi leaders to resolve the outstanding political issues through democratic and constitutional means, to ensure an equitable power and revenue sharing, while embracing all segments of the Iraqi society without ethnic or religious discrimination.

IRAN

Iran is Turkey’s neighbor, located at the confluence of the Middle East, South Asia and the Caucasus. Developments with regard to Iran are of direct consequence to Turkey. Turkey has continually sought to engage Iran in helping stabilize this volatile region. Therefore, Turkey’s relationship with Iran is an asset not only for Turkey but also for the wider international community.

Given the already volatile and unstable situation in this region, Turkey believes that only negotiated and cooperative solutions can provide lasting arrangements for issues that are of regional and global concern. Turkey, therefore, actively supports the resolution of the Iranian nuclear issue through dialogue and diplomacy. With this understanding, Turkey believes that the Joint Plan of Action concluded between Iran and P5+1 in 2013, constitutes the first tangible development in this regard.

NON-PROLIFERATION AND DISARMAMENT

Turkey’s security policies exclude the production and use of all kinds of weapons of mass destruction (WMD). Party to all international non-proliferation instruments and export control regimes, Turkey supports the universal use of such measures, as well as effective implementation in good faith and consistency. With a view to fulfilling the provisions of these instruments and arrangements, Turkey has an enhanced system of export controls systems in line with the standards of the European Union.

 

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Turkey pursues a comprehensive and integrated policy in its region. Due to its proximity to areas of internal and regional strife, Turkey also closely monitors developments in its region and takes part in collective efforts aimed at containing and reversing alarming trends. In this respect, Turkey supports all efforts towards the establishment of an effectively verifiable zone free of WMD and their means of delivery in the Middle East, as an important confidence building measure that would contribute to the peace, security and stability in the region.

MIDDLE EAST AND NORTHERN AFRICA

During 2010 several high level bilateral visits took place between Turkey and Syria. The Syrian President paid two visits to Turkey on May 8-9 and on June 7. Prime Minister Erdoğan visited Syria on October 11, 2010. A Quadripartite High Level Strategic Cooperation Council (HLSCC) was also established among Turkey, Syria, Jordan and Lebanon in Istanbul in June 2010 with a view to creating a zone of free movement of goods and easing travel among its citizens to these areas.

A second Ministerial Meeting of the HLSCC was held in Lattakia in October 2010 with the participation of 12 Ministers from the Turkish Cabinet. The Ministers assessed the ratification processes and the implementation of the agreements which were previously signed. Another meeting of HLSCC at the Prime Ministers level took place in Ankara at the end of the year. Eleven new documents were signed and consensus was reached on various joint investment projects. During this period, Turkey urged the Syrian Administration to engage in reforms which would meet the needs of the Syrian people.

Turkey invested both time and money in its relations with Syria in the last ten years. The thriving relations between Turkey and Syria contributed positively to bilateral trade, investment and tourism until the crisis which has engulfed Syria following the start of mass protests in March 2011.

In March 2011 the Syrian people staged peaceful demonstrations, demanding democracy, freedom, human rights and the rule of law. However, the regime responded to these demonstrations with force and gradually started to use lethal force and killed demonstrators. In the following weeks and months, they continued their policy to suppress the peaceful protests by using heavy weapons, tanks, fighter aircraft and ballistic missiles.

In view of these developments, on November 30, 2011, the Minister of Foreign Affairs Ahmet Davutoğlu announced measures vis-à-vis the Syrian Administration, in close consultation with the Arab League, in an effort to curtail the capacity of the Syrian administration to commit acts of violence against its citizens. The measures adopted include, among others, (i) suspending the High Level Strategic Cooperation Council mechanism until a democratic administration comes to power, (ii) imposing travel ban and asset-freeze measures against some members of the Syrian leadership who have been reportedly involved in incidents where excessive violence and illegal methods were used against civilians, (iii) freezing the financial assets of the Syrian Government in Turkey and (iv) ceasing transactions with the Syrian Central Bank. On May 30, 2012, after the violence committed by the Syrian security forces in the town of Houla, pursuant to Article 9 of the Vienna Convention on Diplomatic Relations, Turkey, as the host country, requested that the Syrian Chargé d’Affaires in Ankara and all other diplomatic personnel of the Embassy to leave the country.

The situation in Syria deteriorated further in 2012 and 2013. By the end of 2013, the number of Syrians who sought refuge in neighboring countries surpassed 2 million. The death toll reached 130,000. The number of those in need of assistance inside Syria rose to 9.3 million. Over the course of 2013, the regime continued its indiscriminate attacks against innocent civilians and escalated further its campaign of violence through the continued use of heavy bombardment (ballistic missiles, barrel bombs) as well as chemical weapons.

On December 4, 2012, NATO approved the deployment of six Patriot anti-missile batteries on Turkey’s border with Syria, which will be used to protect the Turkish border. The six battery units were operational as of February 15, 2013.

On September 16, 2013, a Turkish fighter jet shot down a Syrian military helicopter after it entered Turkish airspace and failed to respond to repeated warnings to return to Syria. On March 23, 2014, another Turkish fighter jet shot down a Syrian jet plane for violating Turkish air space in an effort to demonstrate its resolution towards its rules of engagement and determination to protect its borders.

In line with its humanitarian approach Turkey continues to pursue its open-door policy without any discrimination. The number of the Syrians residing in Turkey exceeded 600,000 out of whom 210,000 were accommodated in 21 camps by the end of 2013. The Turkish Government has spent over U.S.$2 billion in an effort to further these humanitarian efforts.

 

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As a response to the shattering infrastructure and lack of services within Syria, Turkey mobilized its means to alleviate the suffering of the Syrian people through on-the-ground humanitarian assistance in conformity with international legitimacy and humanitarian principles. The total value of the aid channeled to Syria through zero point operations was in the range of U.S.$200 million.

The ongoing escalation of the regime’s aggression as well as the growing presence of extremist and terror elements (supported by the regime, particularly in the northern parts of Syria) constitutes a deep and increasing concern for Turkey’s national security.

In light of its deep-rooted historical, cultural and kinship ties with the Syrian people, Turkey continues its efforts in cooperation with its regional and international partners in order to bring an immediate end to the violence in Syria and to initiate a political transition process in line with the legitimate demands of the Syrian people. In this context, Turkey actively contributed to the endeavors of the Group of the Friends of the Syrian People which on various occasions reaffirmed its position vis-à-vis the Geneva II Conference.

In view of the fundamental changes taking place in the Middle East and North Africa in the recent period, finding a just, lasting and comprehensive settlement to the Israeli-Palestinian conflict has become all the more important and urgent. Turkey has continued to welcome and support all efforts for the resumption of the direct negotiations for the resolution of the Israeli-Palestinian conflict through a two-state solution that would lead to the establishment of an independent, sovereign and viable Palestinian State with East Jerusalem as its capital, to live in peace and security with the State of Israel, in accordance with the relevant UN Resolutions.

As fundamental changes taking place in the MENA region in the recent period have made the need for the settlement of the Israeli-Palestinian conflict more important and urgent than ever, Turkey welcomed and supported the resumption of the bilateral peace talks between the parties under the auspices of the US. On the other hand Turkey expressed the frustration for the illegal settlement activities persistently continued even in the delicate periods of the negotiations process. Thus, Turkey has repeatedly opposed ever expanding settlement activities of Israel in the occupied Palestinian territories, as the settlements endanger the vision of a two-state solution.

In light of Israel’s intransigence in the peace process and the fact that meaningful negotiations can take place only on an equal footing, Turkey has supported the Palestinian initiative to achieve full international recognition by the UN and Palestine’s UNESCO membership. Turkey has also actively supported the Palestinian bid for a “non-member observer state” status at the UN voted overwhelmingly at the UN General Assembly on November 29, 2012.

Turkey has also continued to support the Palestinian reconciliation as it constitutes a necessity both in light of the new regional context introduced by the Arab Spring, in particular for the establishment of an inclusive Palestinian Government with full democratic legitimacy and for the resumption of the peace process on a credible ground. In the same vein, Turkey has supported the Palestinian efforts for the restructuring of the PLO particularly in terms of broadening its representation. Turkey has maintained its bilateral program of assistance and its contribution to the international efforts aimed at improving the economic and humanitarian situation in Palestine and continued to carry out projects in the Palestinian territories through the Turkish Cooperation and Coordination Agency (TIKA) and Turkish Red Crescent in areas such as health, education, technical assistance, protection of cultural heritage, and water supply.

Turkey has supported all efforts of revitalizing the Middle East peace process and continued its participation in the Temporary International Presence in Hebron (TIPH) as well as in the UNIFIL and facilitated the implementation of the prisoners exchange agreement between Israel and Hamas by welcoming 11 Palestinians to Turkey.

On May 31, 2010, the Israeli armed forces intercepted a civilian aid flotilla that had embarked from Turkish ports and was bound for Gaza. The Israeli armed forces boarded the boats comprising the flotilla and 10 Turkish civilians were killed. As a result, Turkish and Israeli relations deteriorated with sharp decreases in the number of tourists from the both sides. On September 2, 2011, Turkey reduced its diplomatic representation in Israel to the level of second secretary, requested that Israel’s ambassador leave Turkey and suspended all military agreements with Israel. On March 22, 2013, Israel formally apologized to Turkey for the 2010 raid, and Prime Minister Netanyahu pledged to pay compensation to the victims’ families and to continue to ease restrictions on the movement of civilian goods into Gaza, according to a statement released by Prime Minister Netanyahu’s office. This development is seen as a first step to normalize ties between the two countries.

In the wake of the Arab Spring, Turkey has constantly supported democratic aspirations which have arisen in the Middle East and North Africa. It encouraged the governments to engage in political and economic reforms with a view to addressing the legitimate demands of their peoples. It also offered support in this regard. Turkey, however, strongly rejects and condemns the brutal suppression of the peaceful popular movements as well as

 

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military coups against democratically elected governments that have occurred in some countries. As a country which ignited the first spark of the Arab Spring, Tunisia accomplished very important reforms throughout its transition process. After the adoption of the new Constitution and the formation of the new government, Tunisia reinforced its role to be a source of inspiration for the rest of the Middle East and North Africa. On the other hand, there is an urgent need to restructure the Tunisian economy, which is highly dependent on tourism, and create new jobs that will facilitate the political transformation. Turkey is determined to provide technical and financial support to Tunisia in ensuring lasting stability, democracy and welfare in the country. With this understanding, Turkey and Tunisia established the High Level Strategic Cooperation Council in 2013. The first meeting of the Council was held on June 6, 2013 in Tunis. The two countries are working on joint projects that will enable Turkey to share its experience and expertise in the fields of economic development, poverty reduction and technical training.

The fact that Libya needs to re-build most of its institutions in the post-Qaddafi period is a formidable challenge. In addition, the lack of security and stability in the country remains a serious threat against the existing transition process. Like all countries under transition, the enormity of the challenges emanating from the immediate needs of the people calls for the existence of a freely elected government. In this regard, House of Representatives election, held on June 25, 2014, was an important step. Meanwhile, there is an urgent need to launch an inclusive national dialogue process in Libya to find solutions to the existing problems. It is also vital to protect the existing institutions established after the revolution, maintain the legitimacy of the elected personalities and ensure that the transition process moves forward. Turkey has extended its full support to Libya from the outset of the revolution. Certain Turkish institutions have offered training programs in different fields, in particular in the field of security, in order to contribute to the development of human capacity which Libyan authorities needs in the transition process.

Turkey has supported democratic transition in Egypt from the outset. The success of the democratization process in Egypt is of particular importance as this country occupies a central role in the Arab and Muslim world. Since the military coup of July 2013, Turkey has called for a swift return to democracy by maintaining its principled stance. Turkey advocates the view that the long term stability and economic development of Egypt would be attained through the establishment of a democratic political system which is based on the free will of the Egyptian people.

Turkey pursues a principled stance regarding the popular movements in the MENA region and advocates that, sustainable security and stability could only be attained through meeting the legitimate aspirations of the people. Violence and the use of military force against civilians and democratically elected governments are unacceptable. Turkey plays an active role in endeavors for generating peace, stability and security and creating an environment conducive to human development in the MENA region. In this respect, Turkey has provided and will continue to provide political and economic support for the countries experiencing democratic transition.

Yemen is on an historic path, transitioning towards stability and democratic governance. Turkey considers Yemen as a unique example where the whole international community acts in unity to support its transition into a stable, democratic and prosperous country. This international support, coupled with its own wisdom and inherent capabilities to negotiate and compromise, kept Yemen as a model of dialogue in face of the daunting challenges that the country faces.

In this vein, Turkey, as a member, actively participates in the Friends of Yemen Group efforts in the democratic transition process. To this end, Turkey’s pledge of U.S.$100 million to the Government of Yemen is programmed to support the economic and humanitarian development projects in the country.

GULF COOPERATION COUNCIL

The relations between Turkey and the Gulf countries are strong. Turkey attaches utmost importance to its bilateral relations with the Gulf countries and wishes to further strengthen them in all fields. These relations have gained momentum with the signing of the Framework Agreement on Economic Cooperation in 2005 and the establishment of High Level Strategic Mechanism in 2008. Turkey became the first country with which the Gulf Cooperation Council (GCC) established such a mechanism. Within this framework, five Ministerial High Level Strategic Dialogue Meetings have been held so far.

This mechanism lays the groundwork for deepening relations from the economic sector to political and cultural fields. According to the Joint Action Plan, which was approved on October 17, 2010, eleven joint working groups in the fields of trade and investment, agriculture and food security, transportation and communications, energy (oil, gas, petrochemicals, and renewable energy), electricity and water, environment, tourism, health, culture, education and economic, financial and monetary policy were established and hold meetings on a regular basis.

 

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Furthermore, high level reciprocal visits and signing of bilateral agreements in all fields have also contributed to Turkey’s relations with the Gulf countries.

TAF

Turkey and the League of Arab States (the Arab League) concluded an agreement in 2007 whereby they established the Turkish-Arab Cooperation Forum (TAF). The Forum identified the followings as the primary fields of cooperation: (i) political and security cooperation (ii) economy, (iii) culture, (iv) social development and (v) matters relating to the alliance of civilizations. Foreign Ministers and parliamentarians from Turkey and the Arab states meet every year under TAF with a view to expanding cooperation between Turkey and the Arab countries. The Fifth Meeting of the Turkish-Arab Cooperation Forum at the level of Ministers of Foreign Affairs was held in Istanbul on December 1, 2012. The first meeting of the Economy, Trade and Investment Ministers was held in Mersin, Turkey, on September 25, 2013. Moreover, the Turkish-Arab Economic Forum, organized since 2005, brings together representatives of the private sector. The 8th Meeting of Turkish-Arab Economic Forum was held from April 4-6, 2013 in Istanbul.

Turkish Minister of Finance Mehmet Şimşek participated in the conference titled “Over the Horizon: A New Levant” which was held in Berut on June 12, 2014. The conference was organized by the Levant Business Union, which was established in 2011 with the active involvement of Turkey and the World Bank.

TURKISH-RUSSIAN RELATIONS

Bilateral relations between Turkey and the Russian Federation have been developing in all areas in recent years.

President Abdullah Gül’s visit to the Russian Federation in February 2009, and the joint declaration signed during that visit was followed by President Medvedev’s visit to Turkey in May, 2010, whereby the High Level Cooperation Council (HLCC) was established.

The council is an annual meeting of ministers and heads of major agencies from both countries who meet under the co-chairmanship of Prime Minister of Turkey and President of the Russian Federation setting the general framework and direction of bilateral relations. The HLCC has three organs; the Joint Strategic Planning Group dealing with cooperation on international matters, Joint Economic Commission which reviews economic relations, and the Civic Forum aimed at strengthening public-to-public interaction. Council’s fourth meeting was held in St. Petersburg in November 2013.

Economic and commercial relations between Turkey and Russia have been developing since the early 2000s. Following a drop in 2009 due to the global economic crisis, trade figures steadily increased and reached U.S.$32 billion in 2013. The two countries’ leaders have jointly declared that this figure should reach U.S.$100 billion.

Reciprocal investments have also been on the rise, exceeding the level of U.S.$10 billion each as of 2013, excluding the multi-billion dollar Akkuyu nuclear power plant project to be built in Turkey.

Tourism constitutes an important aspect of Turkish-Russian bilateral relations. In 2013 4.3 million Russian tourists visited Turkey.

Yet another field of cooperation is the construction sector. Turkish construction companies have completed various projects in Russia, total value of which has reached U.S.$50 billion, as of in the end of 2013.

Overall, it can be said that despite certain differences regarding international issues, Turkey-Russia bilateral relations continue to develop in various fields. Coupled with Turkey and Russia’s involvement with the European Union and Eurasian Union integration projects, this cooperation presents useful opportunities for all actors in a wide geography.

On December 1, 2013, Turkey joined the “G20 Troika”, along with Australia and Russia. The “G20 Troika” is a three-member committee made up of the past, current and future host countries of the G20, which supports the G20 presidency. Turkey will take over the G20 presidency in 2015 and will be a member of the “G20 Troika” for a three-year period.

SOUTH CAUCASUS

The South Caucasus occupies one of the unique places in Turkey’s quest for peace, security and prosperity in its neighborhood and beyond. Turkey’s approach to the South Caucasus is shaped by its desire to establish a climate conducive to comprehensive peace and cooperation among all states of the region.

The region is home to three of the four protracted conflicts of the OSCE area, namely that of Abkhazia, South Ossetia and Nagorno-Karabakh (NK). The protracted conflicts are permanently a destabilizing factor and threat to the security of this crucial region. These conflicts have also prevented the region from realizing its full cooperation potential, which in turn, adversely affects regional wealth and prosperity. In this regard, Turkey is engaged in significant diplomatic efforts for strengthening peace and stability in the South Caucasus region.

 

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The NK conflict constitutes a major impediment to the establishment of peace, stability and prosperity and it also prevents the emergence of a cooperative atmosphere in the South Caucasus. With this in mind, Turkey, as a member of the OSCE Minsk Group, continues to support the efforts towards the peaceful settlement of the NK conflict. Turkey is also working on confidence building measures including ones in the transport sector with a view to creating peace, stability and prosperity atmosphere in the region.

The process that Turkey has initiated with Armenia for the normalization of its relations should also be regarded as the reflection of this interest. The signing of the protocols on October 10, 2009 in Zurich was a major achievement in the direction of building a comprehensive and sustainable peace in the South Caucasus. Turkey has adhered to the protocols and remains committed to the normalization process. Any progress in the NK peace process will reinvigorate the normalization process between Turkey and Armenia.

Turkey enjoys excellent neighborly relations with Azerbaijan and Georgia. The three countries are engaged in substantial regional cooperation projects like the Baku–Tbilisi–Ceyhan (BTC) oil pipeline (operational since 2006), Baku–Tbilisi–Erzurum (BTE) gas pipeline (operational since 2007) and Baku–Tbilisi–Kars (BTK) railway project.

CENTRAL ASIA

Central Asia constitutes a strategic aspect of Turkey’s multi-dimensional foreign policy. Turkey shares common historical, linguistic and cultural ties with the Central Asian Republics (CAR).

Today, Turkey’s cooperation with CAR countries has reached a strategic partnership level in various fields. Since 1991, Turkey’s desire for a stable, independent and prosperous Central Asia has guided policy priorities in the region towards building free market economies and functioning democracies. Turkey believes that a secure and democratic Central Asia will be in the interest of the region as well as the world.

Turkey has High Level Strategic Cooperation Council mechanisms with Kyrgyzstan and Kazakhstan, as well as strategic cooperation with Turkmenistan in areas ranging from energy to trade. Turkey’s economic and trade relations have reached a new horizon with each of them by being either their major or one of their leading trade partners. Turkey’s trade volume with the countries of the region was about U.S.$7.8 billion at the end of 2013. In addition, Turkish construction companies have completed about U.S.$61 billion worth of projects in the region. Turkish direct investments in the region currently exceed U.S.$4.5 billion. Nearly 2,000 Turkish companies are operating on the ground in the region. Moreover, the total of loans given to the countries in the region through Eximbank is around U.S.$1.8 billion. Additionally, Turkey has granted substantial amount its development assistance to this region, worth of approximately U.S.$1.6 billion in the last 10 years. Further, there are many Turkish state and private schools, as well as universities in the region.

Turkey spearheaded the process of The Summits of Turkic Speaking Countries’ Heads of States, which has been held since 1992, with a view to increase the solidarity and cooperation among the Turkic speaking countries. This process was rendered into an institutional structure through the Establishment of the Cooperation Council of Turkic Speaking States in 2010. The Secretariat of the Council, whose headquarter is in İstanbul, started its activities.

The first Summit of the Turkic Council with the special agenda of “Economic and Trade Cooperation” was held on October 20-21, 2011 in Almaty. The 2nd Summit of the Turkic Council was held on August 22-23, 2012 in Bishkek with theme of “Educational, Scientific and Cultural Cooperation”. The following Summit was held in Azerbaijan on August 15-16, 2013 with the theme of “Transportation Cooperation”. The International Organization of Turkic Culture (TURKSOY) was established in 1993 for the purpose of protecting Turkic culture, art, language and historical heritage and introducing these values to the world and transferring them to the younger generations.

Given the critical geopolitical location and proximity to Afghanistan, countries in the region may face financial and security issues. Turkey is closely working with these countries to help them to strengthen their security environment through providing financial assistance and military training to these countries.

Turkey encourages steps taken in the fields of democracy, rule of law and human rights in the Central Asian countries and believes that such steps will contribute to their stability, security and the process of integration of these countries with international community.

AFGHANISTAN

Turkey has traditional ties of close friendship with Afghanistan and upholds the sovereignty, independence, territorial integrity and national unity of the country. In this regard, Turkey cultivates bilateral ties with Afghanistan in every field and actively contributes to international efforts to establish lasting stability and security and ensure sustainable development in the country.

 

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Turkey has participated in the International Security Assistance Force (ISAF) in Afghanistan since its inception and assumed the command of ISAF-II (June 2002-February 2003) and ISAF-VII (February-August 2005). Turkey continues its active participation in ISAF by assuming the leadership of the Kabul Regional Command in 2009 and extending it for five consecutive years until the end of 2014.

Turkey has also announced its decision to continue as a framework nation in the Kabul region in the Resolute Support Mission (RSM) to be set up following the end of ISAF mission at the end of 2014. Turkey has 455 troops deployed under ISAF as of June 2014. Turkey is making significant contributions to the training and equipping of the Afghan National Army and the Police Force. The A programme to train 500 Afghan National Police Cadets every six months was launched at the Police Vocational Training Center in Sivas, Turkey, on 15 July 2011 in cooperation with Japan, US and NTM-A. So far 1,500 police cadets graduated in three terms of courses and the fourth term started on April 15, 2014. In addition, a training programme for 100 Afghan Female Police Cadets was held from January-March 2014. The value of Turkey’s military aid and donations has reached U.S.$100 million since 2001. It has made a commitment of U.S.$60 million for the 2015-2017 period at the NATO Chicago Summit for the financial sustainment of the Afghan National Security Forces (ANSF). Turkey has also contributed 75,000 Euros to the Afghan Helicopter Maintenance Trust Fund project developed by NATO.

Turkey’s development assistance project package to Afghanistan is the most comprehensive one in its history. Turkey is a large contributor to reconstruction efforts in Afghanistan on both a bilateral and multilateral basis, especially in the fields of health, education, agriculture, sanitation and infrastructure. Turkey’s capacity building efforts include training of government officials and education professionals along with ANA and ANP personnel.

Turkey pledged U.S.$100 million to Afghanistan in the 2008 Paris Conference, raising Turkey’s development assistance to Afghanistan to U.S.$200 million. Turkey continues to use these funds to contribute to Afghanistan’s development. After the completion of the ongoing projects, half of the value of Turkey’s total pledge will have been spent on reconstruction efforts. In line with the decision taken at the London Conference in 2010, Turkey, taking into account the Afghan absorption capacity as well as the transition process, has extended its development assistance to Afghanistan. It has also made a commitment of U.S.$150 million for development projects for the term 2015-2017 at the Tokyo Conference in July 2012.

Turkey has completed more than 600 projects in Afghanistan, reaching at least 7 million Afghans. In this context, 84 schools and 17 health clinics/ hospitals have been built or repaired. The construction and furnishing of three new schools are under way. 1,093 higher education scholarships have been awarded to Afghan students since 2009. In the 2013-2014 academic year, 214 Afghan students have benefited from these scholarships in Turkish universities “Türkiye Scholarship” programme. Turkey meets the administration costs of two clinics and two hospitals. So far, more than three million Afghans have benefited from Turkey’s assistance in health and more than 700,000 from education sectors. It has drilled 168 water wells, providing drinking water to 500,000 Afghan citizens. Most of Turkey’s projects in Afghanistan are carried out by Turkish Cooperation and Coordination Agency (TIKA).

In order to support the reconstruction efforts in Afghanistan, the first Turkish Provincial Reconstruction Team (PRT) was established in Wardak and became operational in 2006. Wardak PRT carried out substantial projects in order to contribute to the economic development and reconstruction of the province as well as capacity building at the local level , until it was handed over to Afghan authorities on August 16, 2013. As a further step in Turkey’s commitment to the reconstruction of Afghanistan, a second Turkish PRT entered into service in 2010 in the city of Shibirgan and operates in the Jawzjan and Sar-i Pul provinces. By the end of 2014, all PRTs will have been phased out and their functions handed over to the Afghan government, traditional development actors, non-governmental organizations and the private sector, including Turkish PRT in Jawzjan.

The Turkey-led Kabul Regional Command regularly conducts civil – military cooperation CIMIC activities, which include extending medical services and donations in its area of responsibility (AOR). The Turkish military contingent has thus provided health services to over one million Afghans. 358 Afghan military personnel or their family members have received health treatment at hospitals in Turkey. Annually, approximately 200 Afghan civilian patients are offered free medical treatment in Turkey. About 25 Afghan National Army veterans severely injured during military operations have received treatment and rehabilitation at the specialized military hospitals in Turkey.

Encouraging regional cooperation not only constitutes a significant aspect of Turkey’s overall vision for South Asia, but it is also one of the pillars of its comprehensive strategy towards Afghanistan. With this understanding,

 

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Turkey actively participates in international efforts and mechanisms with respect to Afghanistan. As a part of these efforts it hosted several international meetings in support of regional and international cooperation between 2009 and 2013, including six Afghanistan-Pakistan-Turkey Trilateral Summit meetings. The Eighth Summit was held in Ankara, in February 2014.

The Trilateral Summit Process, launched at Turkey’s initiative in 2007, has evolved in time into a solid platform for multidimensional cooperation among Turkey, Pakistan and Afghanistan. The process has three dimensions: Political dialogue, security cooperation and development partnership. It allows for the development of multidimensional cooperation in areas such as economy, development, security, education and training, while enabling enhanced contacts across a wide spectrum, including among parliamentarians, businessmen and members of the media. The seventh Summit was held with a special focus on connectivity on December 12, 2012 in Ankara. Transport Ministers of the three countries discussed venues of cooperation on the efficient utilization of existing transport infrastructure, and prospects of further improving transport links among the countries and in the region. A Memorandum of Understanding on Economic and Commercial Cooperation among the three countries stipulating the establishment of a Trilateral Trade Council was signed. The Summit is supported by the “Istanbul Forum” which forms the private sector cooperation leg of the Process.

Turkey continues to encourage regional cooperation through the Istanbul Process. The Process which was initiated by Turkey and Afghanistan at the Istanbul Conference for Afghanistan on November 2, 2011, serves as a regional cooperation platform with Afghanistan at its center, engaging regional countries in political dialogue and practical cooperation through the implementation of confidence building measures (CBMs). It also seeks to create synergies among other regional organizations. The spirit of regional ownership and the support of the international community have made it possible for this Afghan-led process to make significant headway. With the adoption of the implementation plans of the six CBMs (Disaster Management; Counter Terrorism; Counter Narcotics; Trade, Commerce and Investment; Regional Infrastructure; Education) at the last Ministerial Conference which was held in Almaty on April 26, 2013, implementation stage is set to begin. Turkey takes part in the implementation of all CBMs and leads the Counter Terrorism CBM together with Afghanistan and the United Arab Emirates. The next Ministerial Conference of the Process will be held in Tianjin, PRC on August 29, 2014.

Turkey also co-chairs (together with the UN Assistance Mission in Afghanistan (UNAMA) the Regional Cooperation Working Group (RCWG) of the International Contact Group on Afghanistan. The RCWG is intended to take forward the notion of regional ownership by bridging the countries of the region and the broader international community. The inaugural meeting of the RCWG was successfully held in Istanbul on June 3, 2011 with representatives from 36 countries and international organizations.

Both the Trilateral and the regional processes have engendered further associated meetings and events which have helped to bring about a positive and cooperative climate between Afghanistan and its neighbors.

ASIA-PACIFIC

Aware of the necessity to foster the linkages between political stability, economic welfare and cultural harmony globally and by virtue of its location at the centre of the Afro-Eurasian geopolitical plane, Turkey follows the developments taking place in the wider Asia-Pacific region with keen interest. As a matter of fact, Turkey has a special standing as being an Asian country among its many vocations. We have historic, linguistic, religious, and cultural ties with a wide range of countries along the ancient Silk Road.

In line with its multi-dimensional foreign policy and in view of the growing economic and political significance of the Asia-Pacific, Turkey has put into effect a new approach to its relations with the countries of the region. Broadly referred to as “opening-up to the East Asian and the Pacific”, it has gained considerable pace and depth in recent years. The main elements of the approach include, fostering economic and trade relations enhancing political dialogue mainly through consultation mechanisms, completion of legal infrastructures and strengthening cultural ties.

During the last decade, high-level bilateral visits were intensified, which has resulted in increased trade and investments. Moreover, Turkish Airlines would like to further extend its existing destinations and flight frequencies in the region and Turkish Cooperation and Coordination Agency (TIKA) has increased its development projects, especially with regard to the Pacific Island countries. Cooperation in the field of culture has expanded thanks to reciprocal cultural years and the number of scholarships allocated to the countries in the region increased.

Bilateral relations with the G-20 members of the region, namely Australia, China, Indonesia, Japan and South Korea have notably increased both economically and politically.

 

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The relations with China, which is Turkey’s largest trading partner in East Asia, as well as with Indonesia, South Korea, Japan and Malaysia, have been elevated to a strategic level from 2010 to 2014.

Turkey also enjoys amicable relations with the members of the Association of Southeast Asian Nations (ASEAN). Covering the world’s third largest population (620 million) with 4.46 million kilometer squares of surface area and a GDP of U.S.$2.3 trillion. The ASEAN region is of special importance. In this regard, Turkey aims to develop its ties with the ASEAN countries in every possible field, in particular with Indonesia, Malaysia, Singapore, Philippines, Thailand and Vietnam. Turkey has strengthened its presence by opening new Embassies in the region. Turkish Embassies in Brunei and Cambodia became operational in 2013, to be followed by Laos and one of the Pacific Island States in due course.

Economic relations with the Asia-Pacific region have also strengthened in the last decade. Total volume of the bilateral trade was U.S.$13 billion 10 years ago; it surpassed U.S.$50 billion in 2013. The increase with China has been 8 fold, Republic of Korea 6 fold, Australia and New Zealand combined 5 fold; 4 fold with the ASEAN as a whole.

During this period, Turkey has also signed two Free Trade Agreements in the region with Korea and Malaysia. The FTA negotiations with Singapore have also been started.

Parallel to the efforts at the bilateral level, Turkey has also taken necessary steps to develop its ties with the regional organizations which are active in this part of the world, namely the Conference on Interaction and Confidence Building Measures in Asia (CICA), Shanghai Cooperation Organization (SCO), ASEAN and the PIF (Pacific Islands Forum). As a reflection of Turkey’s desire to associate with as many different sub-regions of the Asia-Pacific as possible, Turkey became a party to the ASEAN Treaty of Amity and Cooperation (TAC) in 2010 and, Turkish Ambassador in Jakarta was accredited to the ASEAN. The target is to establish a “Dialogue Partnership” with the ASEAN which is the highest level of institutional relationship with the association.

As a country which is a natural member of any platform that brings Europe and Asia together, Turkey has also officially applied to join the Asia-Europe Meetings (ASEM) from the European Group.

The Pacific Islands Forum (PIF) is another regional organization of which Turkey is a Development Partner. Turkey has recently applied to become a Post-Forum Dialogue Partner to this organization.

Turkey is also forming new ties with the Least Developed Countries of the region through its wider initiative to reach out to the LDC’s worldwide.

In light of its active policy towards developing cooperative networks with all sub-regions of the Asian continent as well as Turkey’s particular intention to contribute to the work of regional organizations, Turkey is determined to cooperate and further enhance its relations with the countries of the wider Asia-Pacific region in the years to come.

AFRICA

Turkey-Africa relations have gained considerable momentum since the declaration of Turkey as a strategic partner of the Continent by the African Union in January 2008, and the “First Turkey-Africa Cooperation Summit” held in Istanbul, in August 2008.

The “Opening up to Africa Policy” has been replaced by the “African Partnership Policy”. Turkey’s relations with the region have been transformed into a mutually reinforced political-economic partnership.

Turkey pursues a multilayered policy in Africa which aims to establish close political relations by intensifying bilateral high level visits and defending the rights of various African nations at the bilateral and multilateral level: assisting certain African countries to overcome economic difficulties through trade, investment and humanitarian assistance; when duly requested, playing a role through diplomacy in the settlement of conflicts and disputes between East African nations and in intra-state conflicts; assisting certain countries in Africa to progress in the areas of democracy and good governance; giving support to the international and regional organizations to increase dialogue, understanding and peace in affected regions; and participating in peacekeeping missions in certain parts of the continent.

Turkey has 35 embassies in the African Continent as of July 2014. There are plans to open up 4 additional embassies in 2014. This process has not been one-sided. Currently, 30 African countries have embassies in Ankara.

Turkey’s trade volume with Sub-Saharan Africa in 2000 was U.S.$742 million. This figure reached almost U.S.$6.5 billion in 2012, setting a new record. The overall trade volume with the African continent has reached U.S.$20.2 billion in 2013.

 

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In line with the developing relations, the value of the Turkish direct investments to Sub-Saharan African countries is also steadily increasing.

Turkey, under various cooperation schemes, has been trying to share its experience in the fields of agriculture, health, education, energy and environment.

Turkish Cooperation and Coordination Agency (TIKA) is the key governmental agency carrying out humanitarian and development assistance. TIKA has been active in 37 African countries with its projects in various fields. TIKA has 11 Co-ordination Office’s in the continent.

The total amount of Turkey’s official bilateral development assistance to Africa was U.S.$772 million in 2012. Turkey has become a prominent country in humanitarian activities across the continent ranging from Somalia to Niger and Sudan.

Turkish Airlines commenced flights to Mogadishu, Kigali, Abidjan, Cotonou, Kinshasa, Djibouti, Nouakchott, Mombasa, Niamey, Ouagadougou and Libreville in Sub-Saharan Africa, bringing the total number of THY flights in the Continent to 39 destinations.

Under the new scholarships program initiated for the 2012-2013 education year, we have provided 561 scholarships for students from Sub-Saharan Africa and 142 scholarships for students from North African countries. This represents an approximately 60% increase compared with the scholarships allocated the previous year.

LATIN AMERICA

Aware of the rising importance of the Latin American and the Caribbean region in world economy and politics, Turkey, since the late 1990s, has been pursuing a strategy of outreach to the region, not only to improve the visibility of Turkey in the continent, but also to expand the network of its cooperation at the bilateral level as well as with the regional and international players.

At the bilateral level, Turkey, firmly believing in the importance of frequent high-level visits and the conclusion of agreements in order to complement the legal framework of its relations, has come a long way in enhancing its bilateral political, economic, commercial, cultural and defense relations with the regional countries. In 2012, there were two official Presidential visits from Ecuador and Chile. In 2013 the President of Mexico visited Turkey. With this visit, relations between Turkey and Mexico were elevated to strategic partnership and thus Mexico became Turkey’s second strategic partner in the region after Brazil. Turkey’s economic and trade relations with the countries of this region have displayed a remarkable increase and the overall trade volume exceeded U.S.$8 billion as of the end of 2013.

Turkey has increased the level of its diplomatic representation in the region by opening five new Embassies (Bogota and, Lima in 2010, Quito in 2012 and most recently in Santo Domingo and Panama) in addition to the existing 6 Embassies as well as a Consulate General in Sao Paulo. Turkey’s Embassy in Costa Rica will become operational soon. Preparations to open new Embassies in the region are also underway. Through such enhanced representation, Turkey will be better equipped to further its relations and cooperation with the broader region.

Direct Turkish Airlines flights between Istanbul and Sao Paulo since 2009 have also played a pioneering role in this respect. Flights from Istanbul to Buenos Aires via Sao Paulo commenced in December 2013. These flights are instrumental in increasing the level of tourism and trade between Turkey and these countries. Turkish Airlines intends to widen the scope of its destinations in the region in the years to come.

Turkey is working to expand its economic and commercial ties with the region. Chile became the first country in the region with which Turkey has concluded a Free Trade Agreement. Turkey is currently negotiating similar agreements with other countries of the region as well as with MERCOSUR (Southern Common Market).

While building closer ties with the countries of the region and diversifying relations on a bilateral basis, Turkey has also sought to strengthen its cooperation with regional organizations. Turkey enjoys permanent observer status in the Organization of American States (OAS), the Association of Caribbean States (ACS) and the Pacific Alliance. Furthermore, Turkey established a Cooperation and Consultation Mechanism with the Caribbean Community (CARICOM) as well as a Political Dialogue and Cooperation Mechanism with MERCOSUR.

 

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ECONOMY

BACKGROUND

After the 1980s, significant progress was made in Turkey towards establishing a full-fledged market economy. In this respect, a radical policy shift from government intervention and import substitution to a greater reliance on market forces and trade liberalization was necessary. In order to complete this process, international capital markets were entirely liberalized in 1989. In addition, a Customs Union covering Turkey’s industrial product and the last stage of the association agreement between Turkey and the European community both began in 1996. These reforms contributed significantly to the dynamic growth of the private sector and underpinned the flexibility of the Turkish economy to adapt to both internal and external factors. The success of those reforms implemented in Turkey is also reflected by the strong performance of the Turkish economy in the last decade.

Turkey’s real GDP annual growth rate averaged 3.7% during the period from 2009 to 2013. Over this period, the Turkish economy became more diversified. In particular, the industrial base was broadened, and exports of goods and services grew rapidly. In addition, financial markets expanded and became more sophisticated. Turkey’s long-term gross external debt levels rose in absolute terms from U.S.$220.1 billion in 2009 to approximately U.S.$258.8 billion in 2013. See “Debt-External Debt and Debt Management” for details.

In addition to the registered economy, Turkey has an unregistered economy, which is substantial, though by definition unquantifiable, and has historically not been reflected in the statistics of the Republic. The unregistered economy, which is referred to as “shuttle trade”, includes significant amounts of activity in the agricultural sector and trade by the Republic with states consisting of the Commonwealth of Independent States (CIS) (Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan). Consequently, trade and other figures may under-report the actual level of economic activity intended to be measured. The Government has been working with the World Bank to bring more untaxed economic activities within the scope of the registered economy, and therefore within the tax base of Turkey. Since 1996, the Government has developed a methodology to account for the portion of the unregistered economy relating to “shuttle trade” with the CIS republics. See “Foreign Trade and Balance of Payments-Current Account”.

Global Financial Crisis

Turkey’s economy was impacted by the 2008-2009 global financial crisis but began to recover in the last quarter of 2009. See “Gross Domestic Product”. Since 2003, the Republic has maintained fiscal discipline, as evidenced by the fact that the Republic’s debt ratios have been below the Maastricht criteria since 2004. In addition to prudent fiscal policies, the Republic’s strong banking sector was an important underlying factor in maintaining a healthy fiscal position. Although many countries had intervened in and supported their respective banking sector with government financing, there was no need to take any such measures in Turkey due to the nature of banking regulations implemented before the global financial crisis. Considering these developments, the turmoil in the EU sovereign debt market has not had any material impact on the Republic’s public finances or economy due to the Republic’s strong fiscal balance, low debt to GDP ratio and strong banking sector. However, as the EU sovereign debt crisis has spread beyond the euro zone periphery to larger economies, such as Spain, growth in the countries comprising the euro zone has significantly decreased, especially in Germany, Turkey’s largest export partner. Additionally, many EU countries are implementing austerity measures that may adversely impact growth in these countries. Given the strong economic and political ties between the Republic and the EU, any material deterioration in the EU economy or any material deterioration in market conditions due to the uncertainties arising from problems in the EU could have negative effects on the Republic’s economy or assets.

The Republic took measures to combat the national and global financial crisis, such as reducing private consumption tax for cable, wireless, and mobile services; increasing short-term employment benefits; giving motor vehicle tax exemption to cars more than 30 years old; and introducing tax incentives to the companies for certain investments in certain regions. These measures were published in the Official Gazette on February 28, 2009 (No. 27155). The tax exemption for cars over 30 years old was extended until December 31, 2011 (published in Official Gazette on August 1, 2010; No. 27629).

A stimulus package including a value added tax cut on certain houses and a private consumption tax cut for home appliances and certain types of automobiles was published in the Official Gazette on March 16, 2009 (Law No, 27171; Council of Minister’s Decision No. 2009/14802). Both tax reductions were initially effective until June 15, 2009, and were then extended until September 30, 2009 (Council of Minister’s Decision No. 2009/15081, published in Official Gazette No. 27260). A Council of Ministers decision (No. 14803) regarding the reduction of Resource Utilization Support Fund (RUSF) levied on consumer credits from 15% to 10% was also published in the same Official Gazette. RUSF was increased by another 15% on October 28, 2010 (Council of Minister’s Decision No. 2010/974, published in Official Gazette No. 27743).

 

37


A package including value added tax cuts levied on the sale of real estate, electronic, furniture and industrial machines was published in the Official Gazette on March 29, 2009 (No. 27184). This package extended to, among others things, automotive components, telephone equipment and certain types of furniture with the Council of Minister’s Decision No. 2009/14881 which was published in the Official Gazette on April 14, 2009 (No. 27200). The package was valid from March 30, 2009 to July 30, 2009.

On June 4, 2009, the Government announced a new stimulus package that included investment incentives, certain measures to enhance employment and a new credit guarantee fund for small and medium-sized enterprises. On June 18, 2009, Law No. 5909, which enables the Turkish Treasury to transfer up to TL1 billion of resources to the “Credit Guarantee Fund,” was approved by Assembly. Law No. 5909 and was published in the Official Gazette on June 24, 2009 (No. 27268). The purpose of this law is to ensure that the Credit Guarantee Fund is adequately capitalized. The burden of the various stimulus packages on the budget is estimated to be approximately 2.1% of GDP in 2009 and 1.9% of GDP in 2010.

An employment package of employment incentives was published in the Official Gazette (No. 26887) on May 26, 2008. According to this package, starting from May 2008, the employer’s share of social security premiums of young and women workers who are working pursuant to an employment contract and satisfying certain conditions, will be paid from the Unemployment Insurance Fund for 5 years with decreasing ratios, and the time frame for benefiting from this incentive was extended for one year on February 28, 2009 (published in Official Gazette No. 27155). With the Law No.6111 (published in the Official Gazette on February 25, 2011; No. 27857), the coverage and the utilization period of such employment incentives were broadened. This incentive is available up to 54 months for men between 18 and 29 and women over 18 from the date of hire and up to 30 months for men over 29 from the date of hire according to such law.

GROSS DOMESTIC PRODUCT

Table 1

 

     Gross Domestic Product  
     2009      2010      2011      2012      2013  

At constant 1998 prices

              

GDP (millions of TL)

     97,003         105,886         115,175         117,625         122,388   

GDP (at current prices)

     952,558         1,098,799         1,297,713         1,416,798         1,561,510   

Turkish Lira/US dollar (annual average)

     1.547         1.500         1.670         1.793         1.901   

GDP (at current prices, millions of dollars)

     616,703         731,608         774,188         786,283         820,812   

Population (mid-year, in thousands)

     72,039         73,142         74,224         75,176         76,055   

Per capita GDP (at current prices, in dollars)

     8,561         10,003         10,428         10,459         10,782   

The Turkish economy experienced robust growth between 2002 and 2007, before the negative effects of the global financial crisis weighed on Turkish industrial production. Economic growth was mainly driven by total consumption and fixed capital investments on the demand side as well as service and industrial sectors on the production side. Improved consumer and business confidence along with reduced interest and inflation rates reflected the sound macroeconomic fundamentals of this period. Also, strong growth rates, lower real interest rates and primary surpluses contributed to the reduction of the general government debt stock. However, during the 2002-2007 period current account deficits increased.

On March 8, 2008 the TURKSTAT announced a revision to the national accounts. Following this revision, GNP figures would no longer be published as of the third quarter of 2007.

In 2009, the negative effects of the global financial crisis were felt markedly on the Turkish economy as was the case for other advanced and emerging market economies. The global financial crisis affected the Turkish economy in four areas, namely i) trade, ii) external resources, iii) credit and iv) expectations. Uncertainty created by the global financial crisis, an economic recession in the Republic’s important foreign trade partners and contraction in domestic and external financing facilities led to a deteriorating economy. The most drastic effect of the global crisis was realized in the first quarter of 2009, when the Turkish economy contracted by 14.7%. Although contraction in economic activity continued in the second and third quarters of 2009 over the same period of the previous year, the pace of economic contraction was lower. In order to lessen the adverse effects of the global crisis on the economy, a series of expenditure and revenue measures were implemented starting from mid-2008. In addition to this, expansionary monetary policy by the Central Bank eased concerns in the financial markets. With the help of these policy measures and improving international risk perception, the economy grew by 5.9% in the last quarter of 2009. The Turkish economy displayed the most rapid recovery among OECD countries. With the strong growth rate in the last quarter, economic contraction in 2009 was realized as 4.8%.

 

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In 2009, while the agricultural sector value added increased by 3.6% annually, industrial and services sectors decreased by 6.9% and 3.2% respectively, compared to 2008. In 2009, the share of agriculture in GDP increased to 8.8% as its value added increased, while the industrial sector accounted for 21.1% of GDP in current prices compared to 22.0% in 2008. On the other hand, the services sector’s share rose by 0.3% and reached to 70.1% compared to 2008.

In 2010, the Turkish economy showed continued signs of recovery from the global financial crisis. The gradual decrease in interest rates and inflation played a major role in such recovery. The value added of the agricultural sector, industrial sector and services sector increased by 2.4%, 13.0% and 8.5%, respectively. The share of these sectors in GDP was 9.2%, 21.8% and 69.0%, respectively. The GDP growth rate was realized as 9.2% in 2010 which marks the highest growth rate of GDP since 2004.

In 2011, in spite of the worsening economic conditions for many countries in Europe, notably in the first half of the year, the economy grew at a strong pace, mainly driven by credit expansion and favorable external funding conditions. In the first half of 2011, value added of the agricultural sector, industrial sector and services sector increased by 7.5%, 11.9% and 10.5% respectively, and GDP growth rate was 10.8%. However, such an increase in the domestic economy raised concerns for a potentially large current account deficit. Therefore, the CBRT and BRSA took cautionary measures against robust credit growth in order to cool down the economic activity and to shrink the current account deficit. In the second half of 2011, effects of those measures slowed down the pace of growth and the GDP growth rate was 7.0%. At the end of 2011 the sectors’ growth rates were recorded as 6.1%, 9.7% and 9.0% respectively and the annual GDP growth rate was 8.8% which indicate strong economic activity in spite of measures taken. In 2011, agriculture, industrial sector and services sector accounted for 8.8%, 22.5% and 68.7% of GDP respectively.

In 2012, the slowdown in the pace of growth of economic activity continued each quarter. Namely, measures taken in 2011 yielded a gradual decline in domestic demand. Therefore, exports were enhanced through the near and Middle East to circumvent the distress in European markets and the effects of weak domestic demand and to prevent a sharp decline in GDP growth rate. On the other hand, a new investment incentive program was introduced to stimulate production. However, those efforts did not suffice to support aggregate domestic demand, and it shrank by 1.8%, while net exports grew by 4.0% in 2012. On the production side of the economy, agriculture, industrial sector and services sectors grew by 3.1%, 1.8% and 2.4%, respectively. Thus, the annual GDP growth rate was 2.1%. In 2012, agriculture, industrial sector and services sectors accounted for 8.7%, 21.8% and 69.5% of the GDP, respectively.

In 2013, domestic demand recovered somewhat thanks to increases in both private consumption and public investment expenditures which were recorded as 4.8% and 22.9% respectively. Therefore, growth in net exports declined 2.3% due to the recovery in domestic demand. On the other hand, private investment expenditures did not rise sharply and occurred as 0.7%. On the production side, agriculture, industrial sector and services sectors grew by 3.1%, 3.4% and 5.5%, respectively. High value added rises in services sector mainly stemmed from construction and financial intermediation services sectors. In sum, the GDP growth rate was 4.0% in 2013. Agriculture, industrial sector and services sectors accounted for 8.2%, 21.6% and 70.2% respectively.

Table 2

 

Gross Domestic Product

 
     GDP at
Current
prices

(in millions
of TL)
     Percentage
change
from prior
year (%)
     GDP at
Current
prices

(in millions
of US$)
     Percentage
change
from prior
year (%)
     GDP at
Constant
prices

(in millions
of TL)
     Percentage
change
from prior
year (%)
 

Years

                 

2009

     952,559         0.2         616,703         -16.9         97,003         -4.8   

2010

     1,098,799         15.4         731,608         18.6         105,886         9.2   

2011

     1,297,713         18.1         774,188         5.8         115,175         8.8   

2012

     1,416,798         9.2         786,283         1.6         117,625         2.1   

2013

     1,561,510         10.2         820,812         4.3         122,388         4.0   

 

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The following table presents changes in the composition of GDP at constant prices for the periods indicated:

Table 3

 

Composition of GDP by Sectors

   2009      2010      2011      2012      2013  

Agriculture

     8.8         9.2         8.8         8.7         8.2   

Industry

     21.1         21.8         22.5         21.8         21.6   

Mining

     1.6         1.6         1.6         1.7         1.6   

Manufacturing

     16.6         17.5         18.2         17.5         17.3   

Electricity, Gas, Steam

     2.1         2.0         1.9         2.0         2.0   

Water Supply

     0.7         0.7         0.7         0.7         0.7   

Services

     70.1         69.0         68.7         69.5         70.2   

Construction

     4.3         4.7         5.0         4.9         5.0   

Wholesale and Retail Trade

     11.9         12.2         13.5         13.4         13.6   

Transportation

     12.3         12.4         13.1         13.5         13.4   

GDP Total

     100.0         100.0         100.0         100.0         100.0   

The following table presents real growth in output for GDP for the periods indicated:

Table 4

 

     GDP Growth by Sector (at 1998 prices)  
     2009      2010      2011      2012      2013  

Agriculture

     3.6         2.4         6.1         3.1         3.1   

Industry

     -6.9         12.8         9.7         1.8         3.4   

Mining

     -6.7         4.7         3.9         0.8         -3.5   

Manufacturing

     -7.2         13.6         10.0         1.7         3.8   

Electricity, Gas, Steam

     -4.0         7.6         9.0         3.4         1.0   

Water Supply

     -1.5         4.8         6.5         2.7         4.7   

Services

     -3.2         8.5         9.0         2.4         5.5   

Construction

     -16.1         18.3         11.5         0.6         7.1   

Wholesale and Retail Trade

     -10.4         13.6         11.2         0.0         4.9   

Transportation

     -7.8         11.0         10.4         2.0         3.4   

GDP

     -4.8         9.2         8.8         2.1         4.0   

PRINCIPAL INDUSTRIES

Turkey has a well-developed and increasingly diversified industrial sector. Since 1995, industrial production has increased primarily as a result of the expansion of domestic demand since the second quarter of 1995. In addition, decreased import costs as a result of the Customs Union with the EU and an increase in investment contributed to the rapid growth of industrial production.

As the economy experienced the effects of the global financial crisis, total industrial production and manufacturing industry production in 2009 decreased by 9.9% and 11.3% respectively and industrial sector’s value added in GDP decreased by 6.9%. In parallel to these developments, the manufacturing industry capacity utilization rate decreased by 10.2% compared to 2008 and was realized at 65.0% on average in 2009. However, seasonal and calendar adjusted industrial production tended to increase from the beginning of April 2009. In 2009, the industrial sector accounted for 20.3% of total civilian employment.

In 2010, the industrial sector’s value added increased by 13.0%, in line with the domestic economy’s continued recovery from the global financial crisis. Total industrial production and manufacturing industry production increased by 12.8% and 14.5%, respectively, in 2010.

The industrial sector value added increased by 9.7% in 2011. Total industrial production and manufacturing industry production increased by 10.1% and 10.5%, respectively. The manufacturing sector capacity utilization rate was 75.4%.

In 2012, the slowdown in the economic activity was reflected in industrial sector as well. Total industrial production and manufacturing production increased by 2.5% and 2.3% respectively, while value added of industrial sector was 1.8%. The manufacturing sector capacity utilization rate was 74.2%.

 

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In 2013, thanks to recovery in the domestic economy, industrial production and manufacturing industry production rose by 3.0% and 4.0% respectively, and the capacity utilization rate was 74.6%. Value added in industry increased by 3.4% in 2013.

The following table presents industrial output for selected products for the periods indicated:

Table 5

 

     Industrial Output (Millions of TL.)      % Change  
     2009      2010      2011      2012      10/09      11/10      12/11  

Hard Coal

     707         803         840         877         14         5         4   

Lignite

     4,014         4,980         6,330         6,750         24         27         7   

Natural Gas

     340         301         327         373         -11         9         14   

Iron Ores

     461         624         882         1,201         35         41         36   

Lead, Zink, Tin Ores

     21         83         284         407         295         242         43   

Other Non Iron Metal Ores

     697         998         1,112         1,501         43         11         35   

Marble and Building Stones

     616         1,080         1,402         2,100         79         30         50   

Limestone and Gypsum

     393         401         497         538         3         24         8   

Granules and Pebble Stones

     804         1,020         1,558         2,065         26         53         33   

Other Minerals

     399         640         922         822         60         44         -11   

Beef (Fresh or Cooled)

     854         1,679         1,720         2,755         97         2         60   

Poultry (Fresh or Cooled)

     3,988         4,896         5,675         6,719         23         16         18   

Cigarette

     3,154         2,717         2,944         3,179         -14         8         8   

Cotton Yarn

     3,786         5,827         7,852         7,706         54         35         -2   

Cotton Weaving Fabric

     3,390         3,969         5,287         5,896         17         33         12   

Rough Aluminum

     300         567         836         797         89         47         -5   

Tractor (37 kw < engine power < 59 kw)

     —           474         817         610         —           72         -25   

Automobile (1500 cm3 £ cylinder volume £ 3000 cm3

     7,788         9,902         12,435         11,299         27         26         -9   

Tankers

     1,382         205         61         98         -85         -70         61   

Source: TURKSTAT

Note: All of industrial output is described as production values. 2013 data is not yet available.

ENERGY

Geographically, Turkey is in close proximity to 72% of the world’s energy resources. Thus, it forms a natural energy bridge between the source countries and consumer markets and stands as a key country in ensuring energy security through diversification of supply sources and routes, considerations that have gained increased significance in the world today.

In 2009, Turkey imported 70% of its total energy requirements. In 2010, Turkey imported 70% of its total energy requirements, while in 2011 imports constituted 72% of the gross domestic energy consumption. Also in 2011 petroleum imports constituted 27% of gross domestic energy consumption. In addition, in 2011, Turkey imported 15.8 million metric tons oil equivalent of coal and 36.1 million metric tons oil equivalent of natural gas.

In the last five years, Iran has been the major exporter of oil to Turkey, but this has decreased as of the end of 2012. Dependence on oil from Russia has also been decreasing steadily.

 

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The following table presents Turkey’s oil imports by sources for the years indicated:

Oil Imports (million tons)

Table 6

 

     2008      2009      2010      2011      2012  

Iraq

     1.7         1.7         2         3         3.7   

Iran

     7.9         3.2         7.3         9.2         7.6   

Libya

     —           0.1         —           —           1   

Saudi Arabia

     3.4         2.1         1.9         1.9         2.8   

Russia

     7.1         5.8         3.3         2.1         2.1   

Syria

     0.5         0.2         0.4         0.2         —     

Azerbaijan

     —           —           —           —           0.2   

Georgia

     —           —           —           —           —     

Kazakhstan

     —           0.5         1.8         1.1         1.4   

Italy

     —           0.2         0.1         0.1         0.3   

Others

     1.2         0.4         —           —           0.4   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total Crude Oil Imports

     21.8         14.2         16.9         18         19.5   

Petroleum Products Imports

     13.6         13.6         13.9         9.1         10   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

Source: Energy Market Regulatory Authority (EMRA)

Energy development and power generation have been priority areas for public investment. In particular, in the early 1980s Turkey embarked on a power and irrigation project (known as “GAP) in Southeastern Anatolia, and Turkey is continuing to develop hydroelectric sources. The GAP project region covers an area of 27,340 square miles, which corresponds to 9.5% of the total area of Turkey. GAP is a combination of 13 major installations primarily for irrigation and hydroelectric power generation. The project includes the construction of 22 dams and 19 hydroelectric power plants on the Euphrates and the Tigris rivers and their tributaries. It is planned that upon completion of GAP, approximately 1.8 million hectares (4.5 million acres) of land will be irrigated, and its power generating capacity will be approximately 7,500 MW (megawatt). The total cost of GAP is expected to be U.S.$24.5 billion (excluding expropriation and overhead costs). As of December 31, 2013, the installed capacity of GAP hydropower plants in operation was 6,079 MW (75% of the total installed capacity of GAP). In addition, as of December 31, 2013, approximately 23% of the total irrigation was completed, 3.5% was under construction and 73.5% was at the planning and final design level.

Market Reform and Restructuring

Turkey has achieved significant progress in establishing competitive market structures in the energy sector by increasing overall economic efficiency and encouraging new entry and investments in such sector since 2001. The Energy Market Regulatory Authority (EMRA), established in 2001, regulates the electricity, natural gas, petroleum and liquefied petroleum gas (LPG) markets pursuant to the provisions of the Natural Gas Market Law and Electricity Market Law. Independent market regulation and supervision provided by EMRA is intended to ensure a sufficient supply of quality, low cost energy in a reliable manner.

Natural Gas

Natural gas has been used extensively for power generation in Turkey since the late 1980s. Turkey is increasingly utilizing natural gas, both from its own reserves and from abroad, having established long-term purchase contracts with the Russian Federation, Algeria, Nigeria, Iran and Azerbaijan and also buys spot liquefied natural gas (LNG) from the market during the winter season in order to maintain a supply-demand balance. Turkey has very limited domestic gas reserves and national gas production represents approximately 2% of the total domestic demand. Consequently, nearly 98% of natural gas demand is satisfied by import .The Petroleum Pipeline Corporation of Turkey (BOTAŞ) is Turkey’s main natural gas importer. At present, BOTAŞ has 9 long-term sale and purchase contracts with 6 different supply sources. In 2013, primary natural gas supply amounted to 45.9 billion cubic meters (bcm). By the end of 2013, the breakdown of consumption was 45.85% electricity production, 25.11% industry and 20.78% households, government and trade offices 6.61%. Distribution is carried out by local distribution companies. As of the end of 2013, 64 distribution zones were supplied with natural gas. Recent analysis suggests that natural gas demand will increase parallel to the growth expected in primary energy demand. Forecasts currently indicate that the demand for natural gas will reach 61 bcm in 2020.

 

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In 2013, Turkey imported 26.2 bcm of natural gas from the Russian Federation, 8.7 bcm of natural gas from Iran and 4.2 bcm of natural gas from Azerbaijan. Turkey also imported 3.9 bcm and 1.2 bcm of natural gas from Algeria and Nigeria, respectively in LNG form. On the other hand, in 2013 Turkey also imported spot LNG from countries such as Qatar, Norway, Netherlands, and Egypt .

As a consequence of the three year negotiations being carried out between Turkey and Azerbaijan, the agreement for gas purchase and transmission from Azerbaijan, within the scope of Trans

Anatolian Gas Pipeline (TANAP) Project, was signed on October 25, 2011. According to the agreement, Turkey will purchase annually 6 bcm Shah Deniz Phase 2 gas starting from the end of 2018.

Turkey’s domestic natural gas transmission system is approximately 12,900 km in length. By the end of 2013, the number of firms with a distribution license reached 65 . The Natural Gas Market Law was enacted on May 2, 2001 to foster competition in the natural gas sector. Pursuant to this law, the BOTAŞ monopoly structure will be gradually decreased; supply, transmission and distribution activities in the natural gas market will be organized; and current legislation and applications will be harmonized with EU regulations.

Since the enactment of Natural Gas Market Law in 2001 , which aimed to liberalize Turkish natural gas market, crucial steps have been taken to transition to a competitive natural gas market in Turkey. In 2012, EMRA Board rendered a decision that paved the way for private sector companies to import natural gas from Iraq. The Board Decision allowed the private sector applications for natural gas import license. As a result, one company obtained an import license in September 2013. In July of 2012, EMRA Board Rendered a decision relating to natural gas import from Russia via Malkoçlar Entry Point for 6 bcm/year. According to this decision, the private sector companies were allowed to submit applications to obtain import licenses, until August 2012. Four applicants ultimately obtained natural gas import licenses. These private companies, began importing natural gas on January 1, 2013. Thus far, the market share of BOTAŞ has decreased to 75% of the total consumption.

In December 2012, EMRA Board decided that all customers should be eligible to choose their supplier. This decision was reinforced with a new EMRA Board decision decreasing the eligibility threshold for the household customers to 100,000 m3.

In October 2013, EMRA prepared and published the model agreements for natural gas transportation and delivery services in distribution regions. This development will provide transparency to supplier switching process and functioning of the market.

Studies are ongoing with regard to introducing amendments to the current Natural Gas Market Law. In this framework, the Ministry of Energy and Natural Resources published a Draft Law in June of 2012.

Restructuring the Electricity Sector

Significant steps have been made towards a fundamental restructuring of the electricity sector. The Electricity Market Law came into effect in March 2001, with the objective of developing a transparent and competitive electricity market, achieving stability of supply, and ensuring high quality and inexpensive electricity. The most important aspect of the restructuring is the central role of competition in ordering the market. In March of 2013, the new market law governing the electricity market entered into force. The Electricity Market Law (No. 6446) includes new rules and regulations regarding the electricity market to increase transparency and efficiency in the investment environment. These laws provide a framework for establishing institutions and provide the following structural regulations:

 

  Creates and maintains the EMRA, as an independent agency, governed by the Energy Market Regulatory Board, which is responsible for regulatory functions such as licensing, supervising, tariff setting and market monitoring.

 

  Requires participants in defined market segments (generation, transmission, distribution, wholesale (trading- and retail) to be licensed by the EMRA. It also requires that separate accounts be maintained for each licensed activity and location, each with specific rights and obligations.

 

  Requires bilateral contracting between market participants, thus implying a residual balancing mechanism to operate the transmission system; with compulsory pool type wholesale markets excluded.

 

 

Provides competition, since March of 2003, for consumers directly connected to the transmission system or with annual consumption of more than 9 Gigawatt Hour (GWh). This eligibility threshold was re-determined in January 2009 as 0.48 GWh, in January 2010 as 100,000 Kilowatt Hour (kWh), in January 2011 as 30,000 kWh, in January 2012 as 25,000 kWh in January 2013 as 5,000 kWh and finally in January 2014 as 4,500 kWh (85% theoretical market openness). The Electricity Market and Security of Supply Strategy paper, dated May 2009,

 

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which was prepared under the coordination of the Ministry of Energy and Natural Resources (MENR) with participation and contributions by relevant stakeholders, provides that the threshold level will be decreased on a regular basis in order to increase market openness rate in electricity consumption. Accordingly, non-household users were fully eligible by the end of 2011, while all other users will become fully eligible by the beginning of 2015.

 

  Provides for non-discriminatory and regulated third party access to the electricity grid and distribution system.

Several models such as the Build-Operate-Transfer (the “BOT Model”), the Build-Own-Operate (the “BOO Model”) and the Transfer of Operating Rights (the “TOOR Model”) were developed previously to provide effective means to attract foreign and domestic investment. As of the end of 2013, There are 20 plants in operation based on the BOT Model with total capacity of 2,335.8 MW, whereas approximately 6,101.8 MW of capacity was built through the BOO Model. 55 plants comprising a total of 938.5 MW of capacity are producing electricity based on the TOOR Model. However, the desired outcome was not obtained through application of these models and they were abolished pursuant to the provisions of the new Electricity Market Law, which envisages a competitive electricity market.

Auto-production is regulated by Law No. 3096 by Decree No. 85/9799 which allows MENR to grant permission to industrial plants, residential complexes with more than 5,000 dwellings, five star hotels, industrial zones, universities and municipal institutions to generate their own electricity. As of the end of 2013, approximately 203 auto-producing plants generated an annual power output corresponding to 5.4% of Turkey’s total electricity generation and 541 Independent Power Producers (IPP) generated 84,079 GWh which constituted approximately 35% of Turkey’s total electricity generation in 2013. With the amendments in Law Nr. 6446, auto-production license was abolished and accordingly all of these licenses will be changed into generation licenses.

Turkey consumed 246.3 billion kWh of electricity in 2013. Installed capacity has reached 64 GW in 2013 and the increase of electrical energy demand has been realized as 1.4% in 2013. Electricity demand is projected to increase annually between 5% and 5.7% until 2020.

With the enactment of the Electricity Market Law, incentives for the development of renewable energy have been promoted. In this context, a separate law was enacted in May 2005 to promote renewable-based electricity generation within the market. Law No. 5346 introduced feed-in tariffs and purchase obligations for distribution companies from certified renewable energy producers. However, the feed-in tariff system was only a transition scheme and market-based mechanisms are expected to be used eventually. Supporting mechanisms such as feed-in tariffs, purchase obligation, connection priorities, lower license fees and exemptions and various practical conveniences in project preparation and land acquisition are defined in the law, in conformity with EU legislation and practice. These mechanisms have facilitated the development of power plants based on renewable energy sources particularly small hydro and wind plants. In this context, a crucial number of investors applied to EMRA to for licenses especially for the small hydro and wind plants.

With the Bylaw on Competition for the Applications of the Wind and Solar Power Plant Projects (Official Gazette: December 6, 2013, No. 28843), principles and procedures related to applications for projects to be connected to the grid are determined. Within the context of this Bylaw, eligibility criteria are determined by the declared RES (Wind Power Electricity Generation Plant) contribution margin to be paid per MW of electricity.

According to the Amendment to Law on Utilization of Renewable Energy Resources for the Purpose of Generating Electrical Energy (No. 6094) (Official Gazette: January 8, 2011, No. 27809), a new support structure was introduced with varying prices for different renewable based electricity generation, namely: 7.3 US cents per kWh for hydro and wind, 10.5 US cents per kWh for geothermal and 13.3 US cents per kWh for solar and biomass (including waste gases). In addition, MENR issued the By-law on the Domestic Production of the Equipment Used in Facilities Producing Electrical Power with Renewable Energy Resources published in the Official Gazette dated June 19, 2011 (No. 27969) to provide certain support of between 0.4 to 3.5 US cents per kWh to power plants for the utilization of domestically manufactured technical equipment. Additionally, MENR also issued the By-law on Electricity Generating Facilities Based on Solar Power which identifies the standards, testing and audit methods for equipment used in solar power plants in the Official Gazette dated June 19, 2011 (No. 27969). Moreover, the EMRA issued the By-law on Production of Electricity in Electricity Market without License in the Official Gazette dated July 21, 2011 (No. 28001) which identifies methods and principles to be applied for cogeneration facilities that produce electricity for its own needs and renewable energy based facilities with installed capacity below 500 kW and micro cogeneration facilities which are all exempted from licensing requirements .The new Electricity Market Law (No. 6446) aims to increase the amount of generation plants based on renewable resources, increasing the limit of the unlicensed installed capacity to 1 MW. This law also defines methods and principles for unloading excess electricity into the system. Similarly, EMRA issued the

 

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By-law on Certification and Promotion of Renewable Energy Sources which identifies methods and principles for the certification of renewable energy facilities and the establishment and operation of such facilities (Official Gazette dated October 1, 2013 (No. 28782).

Through the new Electricity Market Law, a new market activity named “market operation” has been introduced. “Market operation” involves the operation of organized wholesale electricity markets, and handling financial settlement matters. Market operation, which is currently conducted by a department under TEIAS called Electricity Market Financial Settlement Center (PMUM), will, in the future, be conducted by Energy Markets Operation Company (EPİAŞ), to be established as a public law entity operating under a market operation license to be issued by EMRA.

The share of renewable energy sources in total electricity generation was realized as 28.5% and total wind capacity reached 2.76 GW in 2013.

On June 5, 2009, a U.S.$500 million loan and a U.S.$100 million loan (Clean Technology Fund) was provided by the World Bank in order to encourage investors to construct generation plants with renewable energy resources. Such investors, who will construct power plants using hydro, wind, solar, geothermal and other renewable energy resources, can apply for such loan through the Turkish Industrial Development Bank and Turkish Development Bank.

The Law of Geothermal Resources and Spring Waters which is Turkey’s other renewable energy program was enacted on June 13, 2007. This law aims to promote investigation, exploration, development, production, and protection of geothermal resources in a sustainable and effective manner. Integrated use of geothermal, re-injection of geothermal after usage for the efficiency and protection of environment are regulated under this law.

Privatization of the bulk of the publicly held installed capacity in the power generation sector was initiated in 2011. Transmission ownership and market operation functions will remain under government control through the Turkish Electricity Transmission Co. (TEİAŞ), as a result of the nature of the transmission activity.

Efforts to increase private sector participation in the power sector are a critical issue in the current stage of the ongoing transition to a fully competitive market framework. The Turkish Electricity Distribution Company (TEDAS) was restructured in 2006 and divided into 21 distribution companies. Retail companies unbundled from distribution companies are the sole suppliers to ineligible consumers.

The electricity sector in Turkey was dominated by three state-owned companies, covering generation, trading and transmission activities: Turkish Electricity Transmission Corp. (TEİAŞ), Electricity Generation Corp. (EÜAŞ) and Turkish Electricity Trading and Contracting Corp. (TETAŞ). As of end of 2013, the share of publicly held installed capacity stayed below privately held installed capacity due to continuous and increasing private investments in the sector. Moreover, about 62.4% of electricity generation capacity was held by the private sector in 2013. In 2008, the Privatization Authority had privatized 9 small power plants with a total capacity of 140 MW for US510 million. The Privatization Agency is in the process of privatizing the remaining 55 plants. 28 plants were privatized in 2011, 17 plants were privatized in 2013 and 10 plants are in the privatization progress. Preparation work to privatize the remaining 27 hydro is being undertaken with the coordination of MENR. Three thermal power plants (Kangal, Seyitömer, Hamitabat) were completely privatized at the end of 2013, 4 thermal power plants (Kemerköy, Yeniköy, Yatağan, Çatalağzı) will be privatized by the end of 2014 and the remaining 11 plants are expected to be privatized in the next few years.

The largest generation company is EÜAŞ, a state-owned company, which held approximately half of all installed capacity in 2011. Independent power producers owned more than 64% of total capacity in 2013. BOO, BOT and TOOR power plants (with long term purchase agreements with TETAŞ) had 14.6% of capacity. EÜAŞ has a 37.2% share in installed capacity in 2013

The Law on Construction and Operation of Nuclear Power Plants and the Sale of the Energy (Law No. 5710) was printed in the Official Gazette on November 21, 2007 and sets forth rules for the construction and operation of nuclear power plants and the sale of the energy generated. The main purpose of this law was to support investments in nuclear power plants in Turkey. The law introduced a bid procedure for suppliers who want to enter into an energy purchase agreement with the stated owned wholesale company TETAŞ and obtain a generation license for a maximum period of 15 years. The purchased amount was distributed to legal entities having wholesale and retail licenses with bilateral agreements. This incentive mechanism was considered an important tool for potential investors to take part in nuclear power plant projects.

A bylaw regarding the principles, procedures, and incentives for contracts which will be entered into within the context of the Law on the Construction and Operation of Nuclear Power Plants and the Sale of Energy was printed in the Official Gazette on March 19, 2008. Immediately thereafter, an announcement concerning the construction and operation of nuclear power plants and the sale of such energy to TETAŞ was published in the Official Gazette on March 24, 2008. According to the law and bylaw, TETAŞ held the tender on September 24, 2008 and there was only one bidder. TETAŞ subsequently cancelled the tender.

 

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In order to introduce nuclear power into the generation portfolio, projects are being carried out at bilateral level. An intergovernmental agreement (IGA) between the Russian Federation and Turkey concerning cooperation in the area of construction and operation of the nuclear power plant on the Akkuyu Site in Turkey was ratified and came into force on December 27, 2010 (OJ Number 27721). The Akkuyu site has been allocated to the project company established under the terms of the agreement. The IGA establishes build own operate (BOO) model where the project company is responsible for construction and operation of the Akkuyu NPP. It is expected that a construction license application will be submitted in December 2014.

An IGA between Turkey and Japan was signed in May 2013 for construction and operation of the second nuclear power plant and development of the nuclear industry in Turkey. This IGA establishes a public private partnership (PPP) between Japanese Consortium (MHI, Itochu and GDF Suez) and EÜAŞ. Sinop site has been designated as the potential candidate for the second nuclear power plant. Site evaluation studies in Sinop have begun.

A draft nuclear energy law has been prepared in order to separate the promotional and regulatory activities of the Turkish Atomic Energy Authority by establishing a new nuclear regulatory authority and internalizing the provisions of the Joint Convention on the Safety of Spent Fuel Management and on the Safety of Radioactive Waste Management which awaits accession by the Turkish Parliament. A separate draft law on Third Party Liability in the Field of Nuclear Energy has been prepared with the purpose of internalizing the provisions of the Paris Convention on Third Party Liability in the Field of Nuclear Energy together with the amendments and supplements thereto from time to time.

Turkey acknowledges the need to reduce energy dependency and to improve energy efficiency. The Energy Efficiency Law (Law No. 5627) was enacted and published in the Official Gazette on May 2, 2007. In this context, several programs aimed at improved energy efficiency are ongoing, while legislative studies are underway with the objective of enhancing the efficient use of energy and energy resources so as to reduce the burden of energy costs on the economy. The Energy Efficiency Strategy Paper (published in the Official Gazette on February 25, 2012, No. 28215) was published in order to increase the effectiveness of energy efficiency studies which had occurred to date and to set concrete objectives for such studies, with an aim to reduce primary energy use at least 20% by 2023.

Similarly, according to the “2010-2014 Strategic Institutional Plan” of the MENR, reducing the energy use of the Turkish economy has been identified as one of its important objectives. The Plan sets to improve energy efficiency and reduce primary energy use by 20% by 2023, compared to use in 2008. Furthermore, in order to increase efficiency and to raise production capacity, rehabilitation and modernization of publicly held power plants by the use of new technologies is to be completed by the end of 2014 according to the plan.

The Ministry of Environment and Urbanization issued a Bylaw on Energy Performance of Buildings (Official Gazette dated December 5, 2008; No 27075) effective as of December 5, 2009 and revised in April 2010 which requires new buildings to meet minimum performance criteria and standards concerning architecture, heat insulation, heating and cooling systems and electrical wiring. According to this regulation an “Energy Performance Certificate” is required as of January 2011 which indicates energy expenses and CO2 emissions for new buildings and buildings to be sold or rented and ranks a building in different classes: A-D. A construction license will not be granted to new buildings having less than a “D” class certification. Furthermore, central heating is required for new buildings having an area of more than 2000 m2.

According to Law No. 4703, Preparation and Implementation of Technical Legislation on Products, the Regulation on Eco Design Requirements for Energy Related Products was published in the Official Gazette No. 27722 on October 7, 2010 by a Decree of Council of Ministers. Under this law, the implementing communiqués for different product groups will be published and implemented by relevant public authorities (for example, communiqués for appliance, motor and lighting manufacturers will be published and implemented by the Ministry of Industry and Trade).

The Electricity Market and Security of Supply Strategy Paper was approved by a High Decision Council on May 18, 2009. This paper sets forth the strategy to develop a well-functioning market in electricity sector by drawing a road map for essential elements for ensuring security of supply and enhancing competitiveness in the rapidly growing electricity market of Turkey. The strategy’s main focus is on security of supply, including a capacity mechanism and targets for utilizing domestic sources for power generation. The strategy also covers market design and includes a road-map for implementing a new wholesale market regime.

According to the strategy paper, electricity produced from renewable sources when compared to all forms of electricity generation is projected to be at least 30% by 2023. In this scope, remaining hydro and indigenous

 

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coal potential which could be exploited technically and economically will be utilized to generate electricity energy by 2023. Installed wind power capacity is estimated to reach 20,000 MW by 2023. Utilization of geothermal and solar resources will be extended significantly in electricity generation. Introduction of nuclear power to the generation mix is also envisaged by 2020. The strategy paper states that new interconnection lines will be set up and the capacity of existing interconnection lines will be upgraded so as to advance electricity import and export potential with neighboring countries.

Electricity Interconnections

Turkey has the following existing interconnections with neighboring countries that are currently in use, and import/export figures are as follows:

 

  Bulgaria: There are two 400 kV separate interconnection lines between Hamitabat (Turkey) and Maritsa East (Bulgaria), and each of them currently operate in synchronous parallel mode with the ENTSO-E Continental Europe Synchronous Area (CESA). 4,571 GWh/year of energy was imported from Bulgaria to Turkey and nearly 0.2 GWh/year of energy was exported from Turkey to Bulgaria through the Hamitabat-Marista East interconnection line in connection with trial synchronous parallel operation between the Turkish power system and ENTSO-E CESA in 2013.

Experts in Transmission System Operation in Turkey, Romania and Bulgaria have formed a Study Group, which will search for alternative ways to achieve electricity transfers between the three countries through an overhead transmission line. A preliminary report relating to data of the three countries was discussed in a Study Group meeting on October 10, 2013, in Istanbul.

 

  Azerbaijan (Nahcievan): There is a 154 kV interconnection line between Babek (Nahcivan/Azerbaijan) and Iğdır (Turkey) which is currently operating in import in isolated region mode. 276.7 GWh/year of energy was imported from Nahcevan to Turkey and 13.5 million kWh/year of energy was exported from Turkey to Nahcievan at 15-25 MW peak power through the Igdir-Babek interconnection line in 2013.

 

  Iran: There are two interconnection lines; one of which is a 400 kV Khoy (Iran) and Başkale (Turkey) interconnection line and currently operating at 230 kV and the other is a 154 kV Doğubeyazıt (Turkey) and Bazargan (Iran) interconnection line, both of which are currently operating in import in isolated region mode. Approximately 2,140 GWh of energy was imported from Iran to Turkey through the Khoy-Baskale interconnection line and 265.2 million kWh energy was imported from Iran to Turkey via 154 kV Doğubayazıt-Bazargan interconnection line in 2013.

 

  Georgia: There is a 220 kV interconnection line between Hopa (Turkey) and Batum (Georgia) which is currently operating in import in isolated region mode. In addition, construction of the 400 kV interconnection line between Borçka (Turkey) and Akhaltsikhe (Georgia) with a DC back-to-back station in Akhaltsikhe was completed in 2013 and ready for use. Further, construction and construction of a new 154 kV transmission line, between Batumi (Georgia) and Muratlı (Turkey), with a DC back-to-back station at Georgian side is under consideration. 86 million kWh/year of energy was imported from Georgia to Turkey via the Hopa-Batum interconnection line in 2012. A total of 1,221 million kWh of energy was imported through this line between January 1, 2007 and December 31, 2012. A total of 1,171.8 million kWh of energy was exported from Turkey to Georgia (Acara) between January 1, 2007 and December 31, 2010.

 

  Syria: The 400 kV interconnection line between Birecik (Turkey) and Aleppo (Syria), has been offline since October 1, 2012 due to technical problems on the Syria side. However, steps have been taken to increase the amount of energy exchanged between Syria and the back to back station in Şanlıurfa (Birecik TS to 600 MW. A successful interconnection depends on the crisis in Syria ending and the establishment of new relationship with the appropriate institutions.

 

  Iraq: There is a 400 kV interconnection line between PS3 (Turkey) and Zakho (Iraq) which was being used for export to Iraq in isolated mode, but the use of this line was terminated as of January 25, 2011. However, an Interconnection Operation Agreement was signed between TEİAŞ and the Regional Directorate of Iraq and the Ministry of Electricity on June 10, 2013. As of June 12, 2013, the interconnection line has resumed operation. Installation of a second 400 kV interconnection line between Cizre (Turkey)–Mosul (Iraq), is well underway and the portion of the line within Turkish borders is 130 kilometers in length. Cizre -Border section has been completed but the Mosul - Border section is not and Iraqi authorities have stated that they cannot predict when this section will completed. 421.6 GWh energy was exported from Turkey to Iraq through PS3 - Karkey (Turkey) - Zakho (Iraq) Interconnection Line in 2013.

 

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Construction of another 400 kV interconnection line between Cizre (Turkey) and Musul (Iraq) is in the tender process. The study for the installation of the section of the line within the borders of Turkey has been started within 2012 and the ongoing studies are expected to be completed in 2013.

 

  Greece: There is a 400 kV interconnection line between Babaeski (Turkey) and Philippi Neo Santa (Greece) which is currently operating in synchronous parallel mode with ENTSO-E CESA).173.2 GWh/year of energy was imported from Greece to Turkey and nearly 804.7 GWh/year of energy was exported from Turkey to Greece through the Babaeski-Neosanta interconnection line in connection with trial synchronous operation between the Turkish power system and ENTSO-E CESA in 2013. A Bilateral Agreement was signed in November 2012 between TEİAŞ and IPTO (ADMIE), the independent power system operator of Greece, with respect to the commissioning of a communication channel for providing the real time data exchange realized between the National Load Dispatch Center located in Ankara and Athens.

EMRA issued the By-law on Electricity Market Import and Export, published in the Official Gazette dated May 17 , 2014 (No. 29003), in order to identify rules and exceptions governing the export and import of electricity through interconnections between the national grid and transmission grids of neighboring countries and to determine methods and principles of capacity allocation in international interconnections.

Trial synchronous parallel operation of the Turkish Power System with the ENTSO-E Continental Europe Synchronous Area (CESA) began on September 18, 2010. The trial parallel operation will be finalized in 3 sections. The “limited commercial exchange” period, which is the third and last phase, was delayed until the autumn of 2013. On September 4 2013, ENTSO-E Regional Group Continental Europe (ENTSO-E RG CE) Plenary approved the report emphasizing the success of the technical studies carried out by TEİAŞ for ENTSO-E connection. The trial operation process has been extended until October 18, 2014.

According to the Electricity Market and Security of Supply Strategy Paper, electricity transmission connections with neighboring countries which are not ENTSO-E members were envisaged to be realized at asynchronous parallel (DC) operation method. Until the establishment of the required (DC) facilities to provide the asynchronous operation of the electricity transmission connections with the neighboring countries, electricity exchange must be realized at other connection methods.

Crude oil and natural gas pipelines and pipeline projects

As the energy bridge between the east and the west, Turkey has already completed various regional and inter-regional interconnection projects and promotes certain others in order to meet its own energy demand as well as to remain an important actor in the transportation of hydrocarbons.

As an economically feasible and environmentally protective project for the transportation of crude oil produced mainly in the Azeri-Chirag-Guneshli offshore fields of Azerbaijan, the Baku-Tbilisi-Ceyhan Crude Oil Pipeline is operated under the sponsorship of a group of petroleum companies, collectively BTC Co., formerly known as MEP Participants. BTC Co. is led by BP Exploration (Caspian Sea) Ltd. Other current shareholders include SOCAR, Chevron, Statoil BTC Caspian As, TPAO, ENI, Total, Itochu Oil Exploration (Azerbaijan) Inc., INPEX, ConocoPhillips, and. ONGC Videsh Limited. An Intergovernmental Agreement among Azerbaijan, Georgia and the Turkey and the Host Government Agreements between the governments of these countries and shareholders of BTC Co., constitute the legal framework of the project.

Since June 4, 2006, the BTC pipeline has operated commercially. As a result of tremendous efforts to complete the pipeline, the first oil reached Ceyhan Marine Terminal (CMT) on May 28, 2006 and the first tanker was commercially commissioned on June 4, 2006. This pipeline provides a route to international markets for oil from the Caspian region, primarily from Azerbaijan and the giant ACG field complex in the offshore Caspian. The pipeline route is from the Sangachal terminal in Baku, Azerbaijan via Georgia to the Turkish Mediterranean coast at Ceyhan. The total length of the pipeline is 1760 km and the original capacity was 1 mb/d. As of the end of 2013, approximately 2 billion barrels of oil were transported to the world markets.

The BTC Pipeline, as the pioneer of the east-west energy hub connecting the energy supplies in the Caspian region and Central Asia with Western markets, has a capacity of 50 million tons of crude oil per annum and is expected to remain operational for 40 years with possible extensions of two subsequent 10 year periods.

An Intergovernmental Agreement (the “IGA”) relating to the sale of Shah Deniz Phase II gas to Turkey and the transit passage of natural gas originating from Azerbaijan across Turkey was signed on October 25, 2011 between Turkey and Azerbaijan.

The IGA sets forth two options for transiting natural gas across Turkey; either via the national grid of Turkey or via a standalone pipeline. On December 24, 2011, Turkey and Azerbaijan signed a Memorandum of Understanding concerning the development of such standalone pipeline. The project will have minimum 16 bcm/a capacity and will be scalable to accommodate future natural gas volumes originating and transiting from

 

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Azerbaijan. The Intergovernmental Agreement and the Host Government Agreement of The Trans Anatolian Pipeline (TANAP) Project were signed on June 26, 2012 and become effective on April 8, 2013. Construction is scheduled to start in 2015 with first gas flow planned at the end of 2018 to Turkey and at the beginning of 2019 to Europe. TANAP Project is critical to meeting the natural gas demand of both Turkey and Europe. Upon operation, this project would be the first to take gas from the Caspian Sea and transmit it to Europe from Caucasus as an alternative to Russian gas. 6 bcm of the 16 bcm of gas to be taken from the Stage 2 of the Shah Deniz Offshore Gas Field is planned to be used in Turkey and the remaining 10 bcm is planned to be transmitted to Europe through TANAP Project. Thus, Turkey will become a strategic country for European energy supply security. Regarding the TANAP Project, the Final Investment Decision has been taken and Gas Transportation Agreements were signed on December 17, 2013.

On May 30, 2014 “Agreement relating to the sale and purchase of 30% of the issued share capital of TANAP Doğalgaz İletim A.Ş. between State Oil Company of the Republic of Azerbaijan and Boru Hatları ile Petrol Taşıma A.Ş.” was signed and the share of BOTAŞ in TANAP project increased to 30%.

The TANAP Project is designed as the backbone of the Southern Gas Corridor and will contribute to not only the diversification of natural gas sources for Turkey but also European energy supply security. TANAP Project will facilitate the realization of the other projects such as SCPX and TAP within the Southern Gas Corridor.

Once the Southern Gas Corridor is opened by Azerbaijani gas, other gases such as the Turkmen gas originated from Caspian Basin or Iraqi and Iranian gas can also flow through this corridor as well.

In June of 2013, the consortium developing Azerbaijan’s Shah Deniz gas field chose the Trans Adriatic Pipeline (TAP) over Nabucco West project. The TAP project, first envisioned more than a decade ago, reflects a European Union push for alternatives to Russian gas imports and is expected to start flowing in 2019. The annual gas transportation capacity of the project is planned to be 10 bcm. However, the design of the pipeline will allow to transport additional gas sources more than 20 bcm/a. The TAP project will collect Azeri gas via Turkey and will start on the border of Turkey and Greece, where it will connect with the TANAP project. TAP will continue onshore, crossing the entire territory of Northern Greece, then pass through Albania to the Adriatic coast. The offshore section of the pipeline will traverse the Adriatic Sea and will connect Italy’s gas transportation network in Southern Italy. TAP will be approximately 870 kilometers in length (Greece 545 km; Albania 211 km; Adriatic Sea 105 km; Italy 8 km). TAP is fronted by Norway’s Statoil, Swiss company AXPO E.ON Ruhrgas of Germany, BP of England, SOCAR of Azerbaijan, Fluxys of Belgiım and TOTAL of France. The EU Commission has assessed the strategic potential of Turkey in transporting oil and gas to European markets. The framework of the EU program is anticipated to initiate activities for a gas pipeline between Turkey and Greece with the objective of establishing the South European Gas Ring which would allow for the resources of the Caspian basin, Russia, the Middle East, Southern Mediterranean countries and other international sources to flow through Turkey to European markets.

As the first step of the South European Gas Ring Project, the Interconnector Turkey-Greece (ITG) pipeline was inaugurated on November 18, 2007 with an official ceremony. Following the completion of the pipeline, the first gas delivery to Greece started in November 2007. The interconnection line between the two countries is expected to be extended to Europe through multiple routes.

Iraq is considered an important resource for both Turkey and Europe in respect of oil and gas supply. Turkey is a secure and sustainable route for the exportation of Iraqi oil and gas to the world markets as well as Turkey itself. With political stability in Iraq, such sources could be supplied to Turkey and world markets via Turkey in the future.

On March 28, 2014, a Memorandum of Understanding relating to the Turkey-Bulgaria Interconnector Project. This memorandum establishes a Joint Working Group in order to prepare a prefeasibility report and action plan for the Project.

A joint declaration was signed between Elektrik Üretim A.Ş. (EÜAŞ) and Korea Electric Power Company (KEPCO) in March 2010, for the purpose of installing the second nuclear power plant in the Sinop nuclear power plant site, on the Black Sea Coast of Turkey. After technical studies continued approximately five months, the intergovernmental negotiation process started, but the negotiations ceased in November 2010 due to disagreement on some important issues. Shortly thereafter, negotiations with the Japanese government were started in November 2010, regarding the Sinop Project. The negotiations halted because of the Fukushima Daichi nuclear power plant accident on March 11, 2011.

Facing an ever-increasing energy demand and challenges related to climate change, nuclear energy has once more moved up on the agenda of several countries including Turkey. With a growing population and a rapidly expanding economy, Turkey’s dependence on fossil fuel resources from external suppliers presents a substantial challenge to its energy security. Turkey is currently looking into the possibilities of diversifying its energy

 

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resources both in type and origin to meet the demand. Nuclear energy is one of viable options in this regard. Turkey diligently takes all necessary precautions in generation of nuclear energy. In Nuclear Power Plant projects of Turkey, state-of-art technologies and methods will be utilized to obtain the highest level of nuclear safety, taking in to account the latest developments in Fukushima Daichi Nuclear Power Plant.

 

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The following table presents Turkey’s energy supply (by resource) for the years indicated:

Table 7

 

            Coal (2)     Oil     Hydro     Gas     Electricity     Other     Total  
      (mtoe)(1)      (%)     (mtoe)      (%)     (mtoe)      (%)     (mtoe)      (%)     (mtoe)      (%)     (mtoe)      (%)     (mtoe)      (%)  

Production

     2009         17.4         16.39     2.35         2.21     3.09         2.91     0.63         0.59     —           —          6.86         6.46     30.33         28.58
     2010         17.52         16.04     2.61         2.39     4.45         4.07     0.63         0.58     —           —          7.22         6.60     32.43         29.68
     2011         17.84         16.40     2.4         2.21     4.5         4.14     0.63         0.58          6.63         6.09     32         29.41
     2012         17.01         14.15     2.4         2     4.98         4.14     0.53         0.44          6.99         5.81     32         26.62

Import

     2009         15.34         14.45     33.89         31.93     —           —          32.88         30.98     0.07         0.07     —           —          82.18         77.43
     2010         15.92         14.57     36.57         33.48     —           —          34.82         31.87     0.1         0.0009        —           —          87.41         80.01
     2011         15.8         14.52     39.19         36.02        —          36.12         33.20     0.39         0.36          91.5         84.10
     2012         22.43         18.68     37.86         31.52          37.91         31.56     0.5         0.41          98.7         82.18

Export (3)

     2009         —           —          6.7         6.31     —           —          0.06         0.06     0.1         0.09     —           —          6.86         6.46
     2010         —           —          7.64         6.99     —           —          0.06         0.06     0.17         0.0015        —           —          7.87         7.20
     2011            —          7.68         7.06        —          0.06         0.06     0.31         0.28          8.05         7.40
     2012         0.005           6.10         5.07          0.5         0.41     0.25         0.21          6.86         5.71

Net Stock

     2009         —           —          —           —          —           —          —           —          —           —          —           —          -0.3         -0.28   
     2010         —           —          —           —          —           —          —           —          —           —          —           —          -0.3         -0.3   
     2011         —           —          —           —          —           —          —           —          —           —          —           —          1,1         0.97   
     2012                                       0.81         0.67   

Statistical Error

     2009         —           —          —           —          —           —          —           —          —           —          —           —          1.47         1.39   
     2010         —           —          —           —          —           —          —           —          —           —          —           —          -1.9         -1.80   
     2011         —           —          —           —          —           —          —           —          —           —          —           —          -0.006         -0   
     2012                                       0.563         0.46   

Total Supply

     2009         32.91         31.01     30.57         28.80     3.09         2.91     32.78         30.88     —           —          6.86         6.46     106.14         —     
     2010         33.53         30.68     29.22         26.74     4.45         4.07     34.91         31.95     —           —          7.22         6.60     109.26         —     
     2011         33.64         30.92     33.91         31.17     4.5         4.14     36.75         33.78          6.63         6.09     108.8      
     2012         39.29         32.71     31.20         25.97     4.97         4.13     37.37         31.12          7.24         6.02     120.1      

 

(1) Million metric tons of oil equivalent. Calorific unit of energy is taken as 860 kcal/10 kWh
(2) Includes coke and petrocoke
(3) Includes marine bunkers.

Source: MENR

 

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AGRICULTURE

While agriculture has historically been a very important sector in Turkey, the contribution of this sector to the country’s GDP has diminished in the past few years. Nevertheless, this sector is crucial to the Republic since the agricultural sector employs a significant portion of Turkey’s work force, supplies products to many other sectors and it critical for two important concepts; food security and safety.

Structural reform has been at the center of all agricultural policy discussions since 1999. The main aims of the initial reform program were to phase out price support and credit subsidies, to withdraw the government from its direct involvement in production, the processing and marketing of crops and to introduce a less distorting support system that is called Direct Income Support (DIS) based on land rather than inputs or output.

In 2000, the Government began to implement the Agricultural Reform and Implementation Project (ARIP), with the support of the World Bank, to mitigate potential short-term adverse impacts of subsidy removal, to facilitate the transition to efficient production patterns (a crop substitution scheme for tobacco and hazelnut), and to establish a National Farmer Registry (NFR) System, each of which would also contribute to harmonize policies with the Common Agricultural Policy of the EU. ARIP was extended in 2006 to include DIS and a new Rural Development Program and a wider set of investment support activities. In 2009, ARIP ended and DIS payments have been replaced by other area based support schemes like fertilizer and diesel supports which are independent of real consumption.

A new Agricultural Law was also enacted in 2006 to implement the Government’s “Agricultural Strategy Paper 2006-10” adopted at the end of 2004, which was intended to bring Turkey’s agricultural policies more in line with those of the EU in addition to institutionalizing the then-newly started DIS payments.

In recent years, support schemes that contribute to productivity have been given special importance. Premium payments especially for oil seeds, area-based supports, animal husbandry supports and rural development supports are among the major schemes in the support program. In 2012, those major support schemes have accounted for 31.5%, 31.4%, 29.3% and 2.6% of total support budget respectively. The distribution of premium payments, area-based supports, animal husbandry supports and rural development supports for the year 2013 are estimated to have constituted 29.7%, 27.1%, 32.5% and 5.0% of the total support budget, respectively.

A new agricultural support strategy is being prepared in order to align with applicable EU standards. Under this strategy, agricultural support payments will be differentiated on area and product base in order to increase competitiveness in the sector and provide stability in farm incomes.

As irrigation investments accelerated with the introduction of the GAP action plan (2008-2012), the concentration on regional development action plans increased. A new version of the GAP action plan is currently being finalized. In addition, upcoming action plans for other priority regions are also in process. The purpose of such plans is to increase the amount of land that can be irrigated by finalizing projects through constructing secondary and tertiary canals. While enlarging the total irrigated land figure, the focus will be on using the new technology that conserves water in irrigation systems. In order to overcome water scarcity problems and use available resources more efficiently, modern irrigation systems are built not only by constructing new systems but also by rehabilitating old ones.

In 2011, agricultural value added increased by 6.1%, compared to a 2.4% increase in 2010 (in 1998 prices). Also, the growth rate of agricultural sector continued in 2011 by 5.3% in real prices. Agriculture accounted for approximately 9.2% of GDP in real prices and 22.1% of civilian employment in 2012. The share of agriculture decreased by 0.3% and accounted for approximately 8.8% of GDP in 2011. In 2012 and 2013, value added in agriculture increased by 3.1% for each year and accounted for 8.7% and 8.2% of GDP (at current prices) respectively.

Although agricultural production in Turkey is generally less efficient than elsewhere in Europe, Turkey is largely self-sufficient with respect to crops. Turkey is a net exporter country in terms of agricultural raw and processed products trade in the world market. Moreover, there have been significant improvements in the quality and productivity of its crops in recent years. These crops, such as barley, wheat, maize and soya, have become more readily marketable.

 

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The following table presents Turkey’s agricultural output (by crop) for the years indicated:

Table 8

 

            Agricultural Output                       
     Annual                           Percentage Change  
     2009      2010      2011      2012      2013      10/09      11/10      12/11      13/12  
            (in thousands of tons)                                     

Cereal

                          

Wheat

     20,600         19,674         21,800         20,100         22,050         -4.5         10.8         -7.8         9.7   

Barley

     7,300         7,250         7,600         7,100         7,900         -0.7         4.8         -6.6         11.3   

Maize

     4,250         4,310         4,200         4,600         5,900         1.4         -2.6         9.5         28.3   

Pulses

                          

Lentils

     275         422         380         410         395         53.4         -28.9         7.9         -3.7   

Chick Peas

     563         531         487         518         506         -5.7         -8.1         6.4         -2.3   

Dry Beans

     181         213         201         200         195         17.4         -5.7         -0.5         -2.5   

Industrial Crops

                          

Sugar Beet

     17,275         17,942         16,126         14,920         16,483         3.9         -10.1         -7.5         10.5   

Cotton (raw)

     1,725         2,150         2,580         2,320         2,250         24.6         20.0         -10.1         -3.0   

Tobacco

     81         53         45         73         90         -34.6         3.9         62.2         23.3   

Oil Seeds

                          

Cotton

     1,021         1,273         1,527         1,373         1,287         24.6         20.0         -10.1         -6.3   

Sunflower

     1,057         1,320         1,335         1,370         1,523         24.9         1.1         2.6         11.2   

Groundnut

     90         97         90         123         141         8.0         -7.1         36.7         14.6   

Tuber Crops

                          

Potatoes

     4,425         4,548         4,613         4,795         3,948         2.0         2.2         3.7         -17.7   

Dry Onions

     1,850         1,900         2,141         1,736         1,904         2.7         12.7         -18.9         9.7   

Fruit Bearing Vegetables

                          

Watermelons and Melons

     5,489         5,295         5,512         5,711         5,587         -3.5         4.1         3.6         -2.2   

Tomatoes

     10,746         10,052         11,003         11,350         11,820         -6.5         9.5         3.2         4.1   

Fruits and Nuts

                          

Grapes

     4,265         4,255         4,296         4,185         4,011         -0.2         1.0         -2.6         -4.2   

Figs

     244         255         261         275         299         4.3         2.2         5.4         8.7   

Citrus Fruits

     3,514         3,572         3,614         3,475         3,681         7.6         1.2         -3.8         5.9   

Hazelnuts

     500         600         430         660         549         20.0         -28.3         53.5         -16.8   

Apples

     2,782         2,600         2,680         2,889         3,128         -6.6         3.1         7.8         8.3   

Olives

     1,291         1,415         1,750         1,820         1,676         9.6         23.7         4.0         -7.9   

Tea

     1,103         1,306         1,231         1,250         1,150         18.3         -5.7         1.5         -8.0   

Value Added in Agriculture

                          

(at 1998 prices, billion TL)

     9,769         9,999         10,605         10,935         11,276         2.4         5.3         3.1         3.1   

SERVICES

The services sector, which accounted for 69.5% of GDP (excluding tax-subsidies and Financial Intermediation Services Indirectly Measured) in 2012 (compared to 68.7% of GDP in 2011) and 58.1% of total civilian employment in 2013, is composed of a wide range of activities including construction, wholesale and retail trade, tourism, transport and communications, as well as finance and commerce, health, education and social services. In 2012, value added in the services sector increased by 2.4%, compared to a 9.0% increase in 2011. The increase in the services sector was attributable to the overall recovery of the Turkish economy and its impact on trade and construction sectors. In 2013 value added increases continued in the services sector and the growth rate reached 5.5%.

Trade

In 2012, wholesale and retail value added decreased and accounted for 13.4% of GDP (at current prices) as a result of decreases in domestic demand and output. However, in 2013, wholesale and retail value added rose by 4.9% and accounted for 13.6% of GDP (at current prices).

 

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Tourism

Tourism has become a major growth sector in Turkey’s economy, has contributed significantly to foreign exchange earnings, and has generated demand for other activities including transportation and construction. Government policy has been to support and promote growth in the tourism sector in Turkey by expediting improvements in infrastructure and by facilitating private investment in this sector, including both foreign and domestic investment.

In 2010, the total number of foreign visitors visiting Turkey increased by 5.7% to 28.6 million. Nevertheless, tourism revenues decreased by 1.7% to U.S.$22.6 billion. In 2011, the number of foreign visitors increased by 9.9% to 31.5 million and tourism revenues increased by 10.9% to U.S.$25.1 billion. In terms of number of tourists, Turkey moved up one position to sixth place among world’s top tourism destinations in 2011 and remained in sixth place in 2012. These figures also show that average spending by tourists in Turkey increased in 2011. Current political crisis in Northern African countries has lead to an increase in Turkish tourism. In 2013, the total number of foreign visitors visiting Turkey increased by 9.8% to 34.9 million and tourism revenues increased by 10.5% to U.S.$28 billion.

The following table presents overall tourist arrivals, receipts and the percentage change in receipts for the years indicated:

Table 9

 

Year

   Total Arrivals      Total Receipts      % Increase in Total Receipts  
     (in thousands)      (in millions of US dollars)      (percentage)  

2009

     27,077         22,980         -1.6   

2010

     28,632         22,585         -1.7   

2011

     31,456         25,054         10.9   

2012

     31,783         25,345         1.2   

2013

     34,910         27,997         10.5   

Sources: CBT, Ministry of Culture and Tourism

Transport and Communications

Modernization of transport and communications has been a priority of the public sector in the past decade, and since 1996 this sector has received, on average, approximately 33% of total public sector investment. Including private sector investments in transport, approximately 23% of gross fixed capital development has been allocated to transportation and communication since 1996.

Major projects have included the construction of motorways, the expansion of airports and air traffic control systems, railway improvement, and the continuing improvement of road standards to higher load/axle capacity in intensive traffic areas.

Since its liberalization in 2004, the telecommunications sector has experienced rapid growth. As of 2012 and 2013, the value of the telecommunications market reached approximately U.S.$16.8 billion and U.S.$17 billion, respectively. A total of 1035 authorizations were granted to 625 telecommunications operators as of August 22, 2014.

The Electronic Communications Law (Law No. 5809, published in Official Gazette on November 11, 2008), which was prepared in line with EU legislation, came into effect in 2008. It introduced a general regime that considerably simplified market entry for providers. Several additional regulations have been put into effect since the enactment of Law No. 5809.

In the context of the EU accession process of Turkey, the “Information Society and Media” chapter of the EU acquis (Chapter 10) was opened for negotiation in December 2008. Negotiation is still open as of the date of this Annual Report.

3G mobile broadband services were introduced in August 2009 in Turkey. As of 2012, 3 telecommunication operators provide these services.

The usage of fixed and mobile broadband services is steadily increasing in Turkey while fixed telephone usage has been declining since 2006. Mobile telephone (GSM + 3G) use was around 88% as of March 2012 and fixed line telephone use declined to 19.85%. The use of broadband services in Turkey increased drastically in the last few years. Total broadband use was around 22.3% as of March 2012, and mobile broadband use reached 12%.

 

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In 2009, it decreased by 7.8% and accounted for 12.3% of GDP. In 2010 and 2011, the total output in transportation and communication increased by 11.0% and 10.4% in real terms and accounted for 12.4% and 13.1% of GDP at current prices), respectively. In 2012, value added in transportation grew by 2.0% and accounted for 13.5% of GDP (at current prices). In 2013, the growth rate in this sector was occurred as 3.4% and share in GDP was 13.4%.

Construction

The importance of the construction sector is underscored by the role of housing, particularly by the activities of the Mass Housing Administration, the development of industrial facilities and commercial buildings, and the implementation of public infrastructure improvements. Also, domestic and international contracting and engineering services are important to the value added and employment potential of Turkey. With its strong knowledge, experience and human resource capacity, the Turkish construction and contracting services sector is competitive in foreign markets.

The construction sector shrunk by 16.1% in 2009. However, the sector began to recover in 2010 from the sectoral recession with a growth rate of 18.3%. In 2011 the sector grew by 11.5%. Following this high growth period, a slowdown was observed in the sectoral activity, which is reflected by a 0.6% growth in 2012. In 2013, value added in construction recovered and achieved a 7.1% growth rate.

The construction and contracting sector maintains a competitive position in certain foreign markets, especially in North Africa, Middle East and CIS. Its market share has increased from around U.S.$1 billion in 2000 to U.S.$31.7 billion in 2013. The total contracting amounts in 2009, 2010, 2011, 2012 and 2013 were U.S.$21.7 billion, U.S.$23.1 billion, U.S.$20.5 billion, 29.5 billion and U.S.$31.7 billion respectively.

EMPLOYMENT AND WAGES

The total civilian labor force in Turkey was 27,047 thousand people in 2013. Turkey has a large pool of unskilled and semi-skilled workers. Turnover in the labor force has been high in certain industries, particularly in those that are labor-intensive. During the period from 2008 to the end of 2013, the total labor force increased at an average annual rate of approximately 3.77%.

Total civilian employment was 24,601 thousand in 2013, of whom approximately 21.2% were employed in agriculture, 20.7% in industry and 58.1% in services. Moreover, in 2013, the labor force participation rate was at 48.3%, compared to 47.6% in 2012.

There were 3,319,584 public sector workers at the end of 2013. The rate of unemployment was 9.0% in 2013, compared to 8.4% in 2012.

The following table sets forth information with respect to the labor force and employment in Turkey for the dates indicated:

Table 10

 

     Employment (in thousands)  
     2009      2010      2011      2012      2013  

Civilian labor force

     23,710         24,594         25,594         26,141         27,047   

Civilian Employment

     20,615         21,858         23,266         23,937         24,601   

Agriculture

     4,752         5,084         5,412         5,301         5,204   

Industry

     4,179         4,615         4,842         4,903         5,101   

Services

     11,684         12,159         13,012         13,733         14,297   

Unemployed

     3,095         2,737         2,328         2,204         2,445   

Unemployment rate (%)

     13.1         11.1         9.1         8.4         9.0   

Source: TURKSTAT

The collective bargaining system in Turkey covers workers in the public and private sectors. The public sector includes employees who are defined under Union and Collective Bargaining Law No. 6356 and work for state – owned enterprises.

In 2009, labor costs in the public sector increased by 7.7% in nominal terms (6.4% in real terms) compared to 2008. Labor costs in the private sector increased by 8.1% (6.8% in real terms) in 2009, compared to 2008. Labor costs (including salaries and benefits) for civil servants increased by 7.0% in nominal terms (-1.4% in real terms) in 2009 compared to 2008.

 

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In 2010, labor costs in the public sector increased by 6.9% (-1.5% in real terms), compared to 2009. Labor costs in the private sector increased by 7.2% (-1.2% in real terms) in 2010, compared to 2009. Labor costs (including salaries and benefits) for civil servants increased by 7% (-1.4% in real terms) in 2010 compared to 2009.

In 2011, labor costs in the public sector increased by 6.4% (-4.2% in real terms), compared to 2010. Labor costs in the private sector increased by 11.6% (0.5% in real terms) in 2011, compared to 2010 (predict). Labor costs (including salaries and benefits) for civil servants increased by 12.0% (0.8% in real terms) in 2011, compared to 2010.

In 2012, labor costs in the public sector increased by 7.2% (1.0% in real terms), compared to 2011. Labor costs in the private sector increased by 9.4% (3.1% in real terms) in 2012, compared to 2011. Labor costs (including salaries and benefits) for civil servants increased by 13.1% (6.6% in real terms) in 2012.

The following table sets forth the real and nominal changes in costs of labor to public and private employers from the prior year for the public and private sectors and civil servants for the years indicated:

Table 11

 

     Changes in Labor Costs  
     Public Sector      Private Sector(2)      Civil Servants  
     Nominal      Real (1)      Nominal      Real (1)      Nominal      Real (1)  
                   (percentage change)                

2009

     7.7         6.4         8.1         6.8         13.4         12.0   

2010

     6.9         -1.5         7.2         -1.2         7.0         -1.4   

2011

     6.4         -4.2         11.6         0.5         12.0         0.8   

2012

     7.2         1.0         9.4         3.1         13.1         6.6   

2013

     9.2         4.5         —           —           7.3         2.7   

 

(1) Deflated by the WPI. Labor costs presented in this table include costs of employment in addition to wages.
(2) Figures represent a selective sample of wages covered by the collective bargaining agreements between TİSK, the confederation of employer unions, and trade unions.

Source: Ministry of Development, Turkish Confederation of Employer Associations, TURKSTAT, Ministry of Finance.

The wages of civil servants were increased by 8.7% on average in 2009 (consisting of a 4% increase effective from January 1, 2009 and a further increase of 4.5% effective from July 1, 2009). The wages of public sector workers increased by 2.5% for the first half of 2010 and by another 2.5% for the second half of 2010. The salaries of civil servants were increased by 2.5% for the first six months of 2010 and by another 2.5% for the second half of 2010. Salaries for civil servants were increased by an additional 1.06% in order to compensate for the difference between the actual inflation rate and the targeted inflation rate in the first half of 2010. The implementation of prudent policies in public finance and the banking sector created the fiscal flexibility that enabled the increase in wages and salaries of civil servants in 2009 and 2010 in accordance with then-existing contractual obligations. The salaries of civil servants increased by 4.0% in each six month period in 2011. The salaries of civil servants increased by 4.0% in the first six months of 2012 and it was announced that the salaries of civil servants would increase another 4.0% in the second half of 2012. The salaries of civil servants increased by 3.0% in each six month period of 2013.

The minimum wage for both private and public sector workers increased by 4.7% in the first six months of 2011. The minimum wage for both private and public sector workers increased by 5.91% in the first six months of 2012 and by another 6.09% in the second half of 2012. The minimum wage for both private and public sector workers increased by 4.1% in the first half of 2013 and by an additional 4.4% in the second half of 2013.

The Constitution recognizes the rights of employees and employers to form labor unions, employers’ associations and other organizations in order to safeguard and develop their economic and social rights and the interests of their members, consistent with the characteristics of Turkey as defined in the Constitution and in line with its democratic principles. A series of Constitutional amendments adopted in 1995 removed certain restrictions on activities of trade unions and associations, including restrictions on direct political activity, contributions from and to political parties and collective activity with other associations, foundations and professional organizations. In addition, the right of civil servants to establish trade unions was recognized.

 

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The Constitution also stipulates, however, that the right to strike and to engage in lockouts is not to be exercised in a manner contrary to the principle of good faith, to the detriment of society or in a manner damaging to national wealth.

Law No. 6356, which regulates collective labor agreements, was enacted in 2012. This legislation came into force instead of the Law No. 2821 and 2822. With this new law many arrangements have been implemented to enhance the opportunities of trade union organization to move industrial relations and labor life to modern standards and ILO criteria.

As of July 31, 2013, 1,468,021 employees were members of a trade union (in public), compared to 855,463 employees at the beginning of 2007. Moreover, the ratio of civil servants who are union members was 68.77% as of July 31, 2013, compared to 68.17% as of July 31, 2012.

 

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INFLATION

Despite having increased in the last quarter due to record high unprocessed food prices, CPI ended 2009 at a historic rate of 6.5%. The increase in PPI was 5.9% during the same period. The sharp contraction in economic activity and the collapse of commodity prices due to the global financial crisis brought down inflation rates in all major categories of the CPI basket. Energy and processed food prices, which are particularly sensitive to commodity price developments, displayed sharp declines. Price changes in services were also at their lowest levels across all categories due to weak demand conditions and a favorable outlook in cost-based factors. The contribution of core goods to inflation eased as well.

In 2010, CPI and PPI inflation were 6.4% and 8.9%, respectively with the CPI being close to the year-end inflation target of 6.5%. In the first quarter of 2010, increases in indirect tax rates on alcoholic beverages, tobacco and fuels, along with the base effect, resulted in a rise in inflation. However, in the second quarter of 2010, inflation began to decrease with the easing of food and commodity prices. Although domestic demand recovered in 2010, aggregate demand conditions did not create inflationary pressures. Hence, inflation in subcategories of the CPI followed a reasonable course, except for unprocessed food prices, which were volatile during 2010. Meanwhile, despite increasing in the first quarter of 2010, the annual rate of increase in core inflation indicators remained at considerable lower levels than headline inflation throughout the year.

Falling to a historically low year-end value in 2010, the annual headline inflation further declined in the first quarter of 2011 and decreased by March 2011 to 3.99%, the lowest figure since June 1970. Throughout the year, import prices denominated in Turkish lira increased, mainly through the depreciation of the Turkish lira, which caused core goods inflation to soar in the second half of 2011. Though it did not have an unfavorable outlook, annual inflation of services followed a mild upward trend. While year-on-year rates of processed food prices rose during 2011, rates for unprocessed food followed a volatile course which led to a similar course in the annual inflation of food group. Likewise, energy prices followed an upward trend, which got steeper after energy price adjustments in the last quarter of 2011. Also, adding to upward price pressures, the tax rate on certain items such as alcoholic beverages and tobacco products increased in the fourth quarter of the year. Additionally during 2011 the contribution of aggregate demand conditions to disinflation decreased and producer price pressures remained high. The sizable depreciation of the Turkish lira was the main factor causing the year-end target of 5.5% to be exceeded by a wide margin, as annual CPI inflation was realized at 10.45%. Meanwhile, PPI inflation rose to 13.33% and core inflation indicators scaled up.

In 2012, CPI inflation ended the year with a historically low year-end value of 6.2%. The depreciation of the Turkish lira in 2011 for the most part ceased to effect inflation, particularly with respect to durable goods, thus annual inflation in core goods displayed a downtrend across the year. The relatively favorable course of unprocessed food prices was a major factor in reducing inflation. The stable course of the foreign exchange rates, the slowdown in economic activity and the steady course of international commodity prices, excluding agricultural products, throughout the year contributed positively to the inflation outlook. Although services inflation grew slightly during this period, alleviated cost and demand pressures caused the core inflation indicators to trend downwards across the year. However, public price increases and tax adjustments, especially in the energy sector, were the leading factors in worsening inflation. Consumer inflation exceeded the 5% inflation target by 1.16% in 2012, but remained within the uncertainty band. PPI inflation also hit a historically low year-end level with 2.45% and curtailed cost-side pressures on consumer prices across the year.

In 2013, consumer inflation increased by 1.2 points year-on-year to 7.4%, overshooting the uncertainty band of the inflation target. The consumer inflation, which soared due to the tax adjustments on tobacco at the beginning of 2013, followed a volatile path in the remaining part of the year amid developments in unprocessed food and energy prices, and ended the mid-year significantly above the value implied by the target. In the second half of the year, the weak course of portfolio flows driven by global uncertainty over the monetary policies in advanced economies led to depreciation of the Turkish lira and caused core inflation indicators to rise with the pass-through effect. Consequently, inflation expectations deteriorated slightly during the last six months of 2013. PPI inflation rose to 6.97% and the course of producer prices suggested that cost pressures on consumer prices increased.

 

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Uncertainty Band around Target and Inflation Realizations

Table 12

 

     Dec. 2009      Dec. 2010      Dec. 2011      Dec. 2012      Dec. 2013  

Uncertainty Band (upper limit)

     9.5         8.5         7.5         7         7   

Uncertainty Band (lower limit)

     5.5         4.5         3.5         3         3   

Realization

     6.5         6.4         10.4         6.2         7.4   

 

Source: TURKSTAT, CBT

The following table presents the percentage changes in producer and consumer prices for the years indicated:

Inflation

Table 13

 

Year

   Producer Price Index      Consumer Price Index  
     (percentage change)  

2009

     5.9         6.5   

2010

     8.9         6.4   

2011

     13.3         10.4   

2012

     2.5         6.2   

2013

     7.0         7.4   

 

Source: TURKSTAT

EDUCATION

According to the Address Based Population Registration System, the adult literacy rate among the 25-64 age group increased sharply from 80.5% in 1990 to 93.7% in 2013. The rate for men and women was 95.62% and 91.89%, respectively. Over the years, increasing primary school attendance rates have been influential in reducing the illiteracy rate.

According to the Ministry of Development, total student enrollment in the educational year 2012-2013 was 20.7 million, of whom 5.0% were in pre-primary school, 52.0% were in primary school, 19.2% were in secondary school and 23.8% were in university. The number of university students continues to increase year after year.

ENVIRONMENT

During the 1990s, Turkey experienced increasing environmental pressures as a result of rapid urbanization and rapid sectoral growth in energy, industry and transport. Among these environmental pressures, Turkey experienced industrial and municipal pollution, erosion, waste management inadequacies and water, air and noise pollution, particularly in urban areas, such as Istanbul, Ankara, Izmir, Kocaeli, Mersin and Adana.

The Ministry of Environment and Forestry (renamed in 2011 as the “Ministry of Environment and Urbanization), which is authorized to enforce environmental laws and regulations by imposing fines, civil and criminal sanctions or shutting down facilities, was formed in 2004. Turkey made significant advances in the latter half of the 1990s by reforming its environmental legislation to harmonize with the EU acquis, increasing environmental management capacity and increasing environmental investments. Provincial and local governments now exercise more power with regard to environmental issues. There are 81 provincial offices of the Ministry of Environment and Urbanization. In addition, the Supreme Environmental Board, which is composed of senior government officials, was established in 1996.

Partnership arrangements and other agreements have been made with private sector groups, including the cement, automobile, textile, sugar, and leather industries, for early compliance with environmental legislation. Considerable progress has been achieved in the environmental performance of export-oriented industries, and projects have been launched for ensuring environmentally sound performance of small and medium-sized enterprises. Since 1994, the private sector has been incentivized to invest in environmental protection through the use of matching grants, covering up to 50% of the costs of environmental investments, and tax exemptions. In 2008, the Ministry of Environment and Urbanization initiated a study to identify and remove environmentally harmful incentives in cooperation with other related institutions.

 

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Turkey continues to cooperate with international environmental initiatives. Turkey is a party to most of the multilateral environmental agreements. Turkey is active in regional environmental initiatives such as the Mediterranean Technical Assistance Program, the Mediterranean Action Plan, the Black Sea Environment Program and Regional Agenda 21, which is a program for continuing development in Central Asian Republics and Balkan countries, pursuant to which these countries will operate under the same agenda regarding environmental issues.

As a candidate country for the EU, various environmental initiatives have been initiated by Turkey. The Environment Chapter opened as part of Turkey’s EU accession negotiations on December 21, 2009 following the fulfillment of the opening benchmarks. The Accession Process requires Turkey to address certain current environmental concerns, including, among others, water quality, the control of dangerous chemical substances and waste management. In January 2001, the European Commission (EC) permitted Turkey and 12 other candidate nations to join the European Environmental Agency prior to becoming full members of the EU.

Turkey has made significant advances towards developing its environmental legislation and provincial and local governments have been given increased power with respect to regulating environmental matters. However, problems remain with regard to implementation of environmental policies and as a result environmental issues persist.

COMPETITION LAW

The Law on the Protection of Competition (Law No. 4054, the “Competition Act) is the basic legislation which provides the framework for antitrust and merger control rules. The purpose of the Competition Act, which was adopted by the Grand National Assembly of Turkey on December 7, 1994, is to prevent agreements, decisions and practices preventing, distorting or restricting competition in markets for goods and services, and abuse by those undertakings dominant in the market, and to ensure the protection of competition by providing the necessary regulations and performing oversight to this end.

The Competition Act prohibits the following:

 

  Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their objective or effect, or likely effect, the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services (i.e., agreements involving price fixing, market sharing, etc.);

 

  Abuse by an undertaking or association of undertakings of their dominant position in a particular field; and

 

  Mergers or acquisitions that create or strengthen an undertaking’s dominant position and significantly decrease competition.

The Competition Act has been enforced by the Turkish Competition Authority (TCA) since 1997, when the TCA was formed, and the Competition Board is the decision-making body of the TCA. In addition, the Competition Board has the authority to adopt secondary legislation designed to assist in the implementation of the Competition Act, which is in line with the legislation of the European Union.

The TCA is stand-alone entity and is granted administrative and financial autonomy. The TCA is a related body of the Ministry of Customs and Trade, but is independent in fulfilling its duties.

The Competition Board has the power to impose an administrative fine of up to 10% of the annual gross revenue of an applicable entity on the undertakings or associations of undertakings or the members of such associations that violate the Competition Act. Moreover, an additional administrative fine of up to 5% of the fine referenced in the previous sentence is imposed on an undertaking’s/association of undertaking’s managers or employees who are determined to have had a decisive influence with respect to the violation. Undertakings or associations of undertakings or their managers and employees who actively cooperate with the TCA for purposes of disclosing violations of the Competition Act may not be fined or fines may be reduced due to such cooperation. The Competition Act also provides for turnover-based fines for certain procedural violations, such as failure to provide requested information; providing incomplete, false or misleading information; hindering or complicating on-the-spot inspections; executing unauthorized mergers or acquisitions, which are subject to review by the Competition Board, or failure to comply with the decisions of the Competition Board.

Furthermore, the Competition Act empowers the Competition Board to impose structural remedies (i.e., divestiture of certain assets) and behavioral remedies (i.e., elimination of certain conduct such as refusal to deal or amendments to certain provisions in agreements involving resale of goods by dealers) in the event the Competition Act is violated. As a final matter, the TCA is empowered to submit its opinions regarding draft legislation to the relevant administrative and legislative bodies.

 

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The following table presents a summary of the files concluded by the TCA between 2009-2013:

Files Concluded

 

Year

   Competition
Infringement
     Exemptions and
Negative
Clearance
     Mergers and
Acquisitions
     TOTAL  

2009

     178         46         146         370   

2010

     252         96         276         624   

2011

     283         54         253         590   

2012

     303         50         303         656   

2013

     191         58         213         443   

TOTAL

     1,339         361         1,446         3,127   

In 2010, the following secondary legislation was adopted:

 

    Communiqué No. 2010/2 on Hearings held vis-à-vis the Competition Board, which sets forth rules and procedures for hearings held by the Competition Board;

 

    Communiqué No. 2010/3 on the Regulation of the Right of Access to File and Protection of Trade Secrets explains the procedures and principles for determining whether information or documents obtained during the enforcement of the Competition Act qualifies as trade secrets and for protecting such information and documents that have been classified as trade secrets.

 

    Communiqué No. 2010/4 Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board was published in the Official Gazette in 2010 and effective as of January 1, 2011. Communiqué No. 2010/4 replaced former Communiqué No. 1997/1. This Communiqué imposes new principles and procedures concerning mergers and acquisitions that are required to be authorized by the Competition Board and provides for a new notification system based on the turnover of undertakings instead of the old system based on market share and turnover as set forth in the former Communiqué No. 1997/1.

In 2011, the following legislation was adopted:

 

    Articles 3, 20, 22, 27, 30 and 37 of the Competition Act were amended, in part to amend provisions regarding the composition of the Board and powers of the President of the TCA in delegating work to TCA staff.

 

    Two guidelines on Communiqué No. 2010/4 were issued. One of the guidelines was with respect to remedies that are acceptable to the TCA and the other was with respect to ancillary restraints in mergers and acquisitions. The purpose of this Communiqué is to determine and announce the mergers and acquisitions which require notification to and authorization by the Competition Board.

In 2012, the following legislation was adopted:

 

    Communiqué on the Procedure for the Applications about Competition Infringements (Communiqué No. 2012/2). The Communiqué determines and announces procedures for the intended applications to the TCA regarding the possible infringements of competition law and procedures for evaluating such applications within the Authority.

 

    Communiqué on the Amendments Made to the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board (Communiqué No. 2010/4), (Communiqué No. 2012/3). With this communiqué, the merger notification thresholds have been amended. According to the amended (new) communiqué, authorization of the Board shall be required for the transactions which satisfy either one of the following thresholds:

(a) Total turnovers of the transaction parties in Turkey exceed TL100 million, and turnovers of at least two of the transaction parties in Turkey each exceed TL30 million, or

(b) The turnover in Turkey for the acquired assets or operations in acquisition transactions, or for at least one of the transaction parties in merger transactions exceeds TL30 million, and at least one of the other transaction parties has a global turnover exceeding TL500 million.

Communiqué No. 2012/3 also revoked previous exceptions in Communiqué no 2010/4 with respect to the affected market.

In 2013, the following legislation was adopted:

 

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    Block Exemption Communiqué on Specialization Agreements (Communiqué No: 2013/3): The purpose of this Communiqué is to establish the conditions for granting block exemption to specialization agreements between undertakings from the application of the provisions of Article 4 of the Competition Act.

 

    Communiqué on the Procedures and Principles to be Pursued in Pre-Notifications and Authorization Applications to be Filed with the Competition Authority in Order for Acquisitions via Privatization to Become Legally Valid (Communiqué No: 2013/2): The purpose of this Communiqué is to establish and announce the procedures and principles to be pursued in pre-notifications and authorization applications to be filed with the Competition Authority in order for acquisitions realized by the Privatization Administration or by other public institutions and organizations to become legally valid, in accordance with Article 7 as well as Article 27, Paragraph 1, Subparagraph f of the Competition Act.

 

    Guidelines on the General Principles of Exemption: The Competition Act dated 2.7.2005 and numbered 5388 abolished the obligation to notify the Board of the agreements, concerted practices and decisions of associations of undertakings that are under the scope of Article 4 of the Act. Since the obligation to notify was abolished, in principle, undertakings and associations of undertakings should make the assessment for exemption on their own without notifying the Board. The purpose of these guidelines is to draw a general framework about the scope of Article 4 and the principles for the application of the conditions listed in Article 5 as well as to set out the criteria used in the assessment of exemption.

 

    Guidelines on the Assessment of Non-Horizontal Mergers and Acquisitions: The purpose of these Guidelines is to lay down the general principles to be taken into consideration in the initial assessments to be conducted by the Competition Board in relation to non-horizontal mergers and acquisitions.

 

    Guidelines on Horizontal Cooperation Agreements: The purpose of these Guidelines is to establish the principles that shall be taken into consideration in the assessment, within the framework of Article 4 and 5 of the Competition Act, of agreements between undertakings, decisions of associations of undertakings and concerted practices with the nature of a horizontal cooperation.

 

    Guidelines on Cases Considered as a Merger or an Acquisition and the Concept of Control: The cases considered as a merger or an acquisition are specified in Article 5 of the Communiqué no 2010/4 Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board (the Communiqué). Accordingly, a merger by two or more undertakings or the acquisition of direct or indirect control over all or part of one or more undertakings by one or more undertakings or by one or more persons who currently control at least one undertaking, through the purchase of shares or assets, through a contract or through any other means shall be considered a merger or an acquisition within the scope of Article 7 of the Act, provided there is a lasting change in control. Cases considered as a merger or an acquisition as per Article 7 of the Act are given in these Guidelines.

Turkish competition law is parallel to EU competition law and the implementation of competition policy in Turkey is one element of a much larger national initiative to advance beyond the Customs Union Agreement and achieve formal membership in the European Union. The Competition Act covers only antitrust and merger control rules. Regarding legislative alignment with the acquis communautaire in the field of competition rules and administrative capacity of the TCA, the 2011 Progress Report prepared by the European Commission reiterates that Turkey has made progress in adapting the acquis, administrative capacity is high and operational independence of the TCA is satisfactory. The Report indicated the need to make certain alignments with the acquis in some fields. Under Law No. 6015, published in the Official Gazette (No. 27738) dated October 23, 2010, the State Aid Monitoring and Supervision Board monitors and supervises state aids in line with the relevant acquis communautaire.

The TCA actively attends the meetings of Organization for Economic Cooperation and Development, United Nations Conference on Trade and Development, and International Competition Network on a regular basis and presents written papers and oral presentations while attending other meetings in the international space. The TCA has signed Memorandums of Understandings with the competition agencies of Korea, Romania, Bulgaria, Portugal, Bosnia and Herzegovina, Mongolia, Croatia, Austria and Northern Cyprus in 2012, and with Kazakhstan and Ukraine in 2013 each in an aim to promote cooperation in the field of competition law and policy.

INTELLECTUAL PROPERTY

Turkish Copyright Law No. 5846 (enacted in 1951, as amended in 1995 by Law No. 4110) provides protection for scientific and literary works (including computer programs), musical works, artistic works (including textile and fashion designs), cinematographic works, and derivations. Under this law, an author has the exclusive right to perform, authorize or present his works which fall into one of the above mentioned categories, including the rights of adaptation, reproduction, distribution, performance presentation and broadcast.

 

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This law provides a 70-year term of protection for these economic rights and also recognizes moral rights, which include an author’s right to claim authorship of the work and to object to any distortion, mutilation or other modification of his or her work that would be prejudicial to his or her honor or reputation.

Since its founding, Turkey has ratified a number of international agreements that were important in the patent and trademark field, including the Paris Convention in 1925 and the Madrid Agreement in 1930. Turkey became a Member State of the World Intellectual Property Organization (WIPO) in 1976. Turkey was also a member of the former International Patent Institute (IIB) which was integrated into the European Patent Office in 1978. Turkey participated in the preparatory work for establishing a centralized European patent granting system, including the Luxembourg Inter-Governmental Conference in 1969 and the Munich Diplomatic Conference in 1973.

Under Decree Law No. 544, which became effective in June 1994 a government authority with financial and administrative autonomy, named the Turkish Patent Institute (TPI), was established to adapt the modern industrial property system of the developed world. Decree Law No. 544 was amended with the “Law on Establishment and Functions of Turkish Patent Institute” (Law No. 5000) in November 2003. Furthermore, Law No. 5194, which amended other laws which provided protection for patents, trademarks, industrial design and geographical indications, came into force on June 22, 2004. Under this Law, the penalty provisions of Decree Laws 551, 554, 555, and 556 were updated and harmonized with EU standards.

The main task of the TPI is to perform registration pursuant to provisions of relevant acts of industrial property, which currently concerns patents and utility models, trademarks, industrial designs, topographies of layout-designs of integrated circuits and geographical indications. In addition, TPI performs the following: acts as a mediator in the performance of license transactions; acts as an expert before the courts; guides technological transfers and submits such information for the benefit of the public; cooperates with national/international institutions; and ensures the implementation of agreements in the field of industrial property rights. This attempt in modernization resulted in the enactment of various laws, decree laws, and regulations between 1994 and 2005.

A founding member of the World Trade Organization, Turkey adopted its national industrial property legislation in 1995. Turkey’s intellectual property legislation was reviewed successfully by the TRIPS (Trade Related Aspects of Intellectual Property Rights, a part of the World Trade Agreement) Council in 2000.

Turkey has also been a member of the European Patent Organization since 2000, which enables it to obtain patent protection in up to 38 European countries, including four extension states on the basis of a single application. Turkey has ratified the revised version of the EPC (EPC 2000), which came into force on December 13, 2007. The revision aims to provide for the adaptation and harmonization of the EPC with international laws, particularly TRIPS and Patent Law Treaty (PLT).

In June 1995, Turkey enacted the Decree Law (No. 556) which brought Turkish trademark law into compliance with the requirements of three international agreements. This Decree fulfills obligations under amendments to the 1883 Paris Convention (the “Paris Convention”), which enables citizens of member states to obtain equal protection under the laws of the other member states. It also provides citizens of a member state with a six-month period after the first registration of a trademark to register in other member states. This Decree incorporates provisions of applicable law as they apply to trademarks so as to harmonize Turkish law in terms of protection, enforcement and customs procedures designed to prevent trade in counterfeit goods. Finally, it complies with the requirements of the European Community Customs Union Decision (the “Customs Union Decision”). In the area of trademark law, the Customs Union Decision requires adoption of the provisions of EC Directive 89/104, which harmonizes the laws of the member states relating to trademarks.

Turkey also ratified the Madrid Protocol and entered it into force on January 1, 1999. The Madrid Protocol is one of the two treaties governing the system of international registration of marks to which 87 states are a party as of August 2011. It aims to render the Madrid System more flexible and more compatible with the domestic legislation of certain countries that have not been able to assent to the Agreement.

The Trademark Law Treaty is currently in effect in 45 countries as of September 2006 and has been in effect in Turkey as of January 1, 2005. This treaty makes national and regional trademark registration systems more user-friendly. This is achieved through the simplification and harmonization of procedures and through removing pitfalls, thus making the registration system safe for the owners of marks and their representatives.

 

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The Turkish Patent Decree Law No. 551 provides a legal framework for the issuance and protection of patents and utility model certificates that complies with TRIPS and the Customs Union Decision. Turkey has also ratified the Strasbourg Agreement concerning international patent classification and the Patent Cooperation Treaty (PCT). The PCT makes it possible to seek patent protection for an invention simultaneously in each of a number of countries by filing an international patent application.

Turkey ratified the Locarno Agreement in November 30, 1998 establishing international classification and the Geneva Act of the Hague Agreement concerning international registration.

A council was established in 2008. It aims, among other things, to coordinate the relevant governmental bodies in order to increase the effective enforcement and implementation of intellectual property rights. The council is headed by Undersecretaries of the Ministry of Science, Industry and Technology and the Ministry of Tourism and Culture. The council is composed of both the relevant governmental bodies and the Turkish Union of Chambers and Commodity Exchanges, the highest body representing the private sector.

In 2007, the EU identified the opening benchmark for “Chapter 7 (Intellectual Property Law)”. An action plan, in this context, was prepared and submitted to the EU on March 24, 2008 and the Negotiating Position Document for Chapter 7 was submitted to the EU for evaluation in April 2008. In line with the Action Plan and the 2008 National Program, a number of draft laws, including, but not limited to, Law on Protection of Designs, Trademarks Law, Law of Patent and Utility Model and Law on Geographical Indications were prepared to be harmonized with the acquis. Negotiations with the EU on closing such benchmarks have been continuing.

The TPI currently administers bilateral cooperation protocols with the IPR Offices of the following countries: Austria, Azerbaijan, Brazil, Czech Republic, Denmark, France, Georgia, Italy, Kyrgyzstan, Macedonia, Mongolia, Morocco, Russia, Uzbekistan, and Sweden, China, Tunisia, Albania and Moldova.

The overall share of R&D (both public and private) expenditures in GDP increased from 0.73% by the end of 2008 to 0.85% by the end of 2009. By the end of 2012, such share was 0.92%.

INTERNATIONAL AGREEMENTS RATIFIED BY TURKEY

 

NAME

   Establishment
Date
   Number of
Parties
   Turkey’s
Position
   Recent
Developments and
Participation

Convention Establishing World Intellectual Property Organization

   1967    184    YES    May 12, 1976

Agreement Establishing World Trade Organization (WTO)

   1995    153    YES    March 26, 1995

European Patent Convention (EPC)

   1973    37    YES    November 1, 2000

IP PROTECTION

Paris Convention for the Protection of Industrial Property

   1883    173    YES

Since

October 10, 1925

London Act.

   Stockholm Act
Article (1-12) since
1995

Article (13-30)
since 1976

Patent Law Treaty (PLT)

   2000    25    Signed

January 2, 2000

   Not ratified

Trademark Law Treaty (TLT)

   1994    45    YES    January 1, 2005

Singapore Treaty on the Law of Trademarks

   2006    19    Signed

March 28, 2006

   Not ratified
GLOBAL PROTECTION SYSTEM

Budapest Treaty on the International Recognition of the Deposit of Micro-Organisms for the Purposes of Patent Procedure

   1977    72    YES    November 30, 1998

The Hague Agreement Concerning the International Deposit of Industrial Designs (Geneva Act.)

   1999    57    YES    January 1, 2005

 

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NAME

   Establishment
Date
   Number of
Parties
   Turkey’s
Position
   Recent
Developments and
Participation

Protocol Relating to Madrid Agreement

   1989    81    YES    January 1, 1999

Patent Cooperation Treaty (PCT)

   1970    142    YES    January 1, 1996
CLASSIFICATION

Locarno Agreement Establishing an International Classification for Industrial Designs

   1968    51    YES    November 30, 1998

Nice Agreement Concerning the International Classification of Goods and services for the Purposes of Registration of Marks

   1957    83    YES    January 1, 1996

Strasbourg Agreement Concerning the International Patent Classification (IPC)

   1971    61    YES    January 1, 1996

Vienna Agreement Concerning International Classification of the Figurative Elements of Marks

   1973    28    YES    January 1, 1996

Statistics Regarding Industrial Property Rights Applications/Registrations/Grants

Table 14

 

     2009      2010      2011      2012      2013  

Number of Patent Applications

     7241         8343         10241         11599         12053   

Number of Utility Model Applications

     2882         3033         3244         3788         3541   

Number of Trademark Applications

     72110         85466         117723         111143         100608   

Number of Industrial Design Applications

     6340         6972         7989         8423         8782   

Source: Turkish Patent Institute

Table 15

 

     2009      2010      2011      2012      2013  

Number of Patent Granted

     5610         5510         6539         7816         8925   

Number of Utility Model Issued

     2179         2050         1976         2299         2037   

Number of Trademarks Registered

     56921         43851         42059         64721         83189   

Number of Industrial Designs Registered

     5737         6841         7388         7767         8393   

Source: Turkish Patent Institute

SOCIAL SECURITY SYSTEM

The pay as you go social security system in Turkey has been run by the Social Security Institution (SSI) since 2006. The SSI is responsible for conducting all operations of the active/passive insured and their dependents regarding retirement and health services.

 

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Before 2006, there were three different social security institutions which provided service to the insured depending on their working status (worker, self-employed, civil servant). Because of this fragmented system, the insured were unfairly receiving different levels of services depending on their working status including health services and retirement parameters. In addition, the budget deficits of these institutions were growing rapidly. Because of these reasons, studies on a fair and financially sustainable social security reform had begun in early 2000s.

The most important parameters of the social security system which have been amended by the Social Security and Universal Health Insurance Law (Law No. 5510) in 2008 are provided in the below table.

Table 16

 

    

Before the Reform

  

After the Reform (Law 5510)

Retirement Age

(women/men)

   58 / 60 (for new entries)    Gradual increase to 65 for both genders starting from 2035

Contribution Period

 

•   Workers

 

•   Others

  

7000 days

 

9000 days

  

7200 days

 

9000 days

Valorization of Contribution for SSK and BK

   100% real GDP growth+ 100% CPI    100% CPI + 30% real GDP growth

Replacement Rate

 

•   Civil servant

 

•   Others

  

•   50% + 1% for each year

 

•   3.5% for the first 10 years; 2% for the next 15 years; 1.5% for the remaining years

   2% for each year

Source: UT

In addition to eliminating the differences between the services that the insured receive, one of the most important features of the reform was to repress the rapidly growing deficits of the social security system. Total budgetary transfers to the SSI were 4.56% of GDP in 2013.

Revenues and Expenditures of Social Security Institution

Table 17

 

Million TL    2009     2010     2011     2012     2013  

Revenues

     78,073        95,273        124,480        142,929        163,014   

Expenditures

     106,775        121,997        140,715        160,223        182,689   

Rev. - Exp.

     -28,703        -26,724        -16,235        -17,295        -19,675   

Budgetary Transfers (BT)

     52,600        55,244        52,772        58,728        71,264   

BT as % of GDP

     5.52     5.03     4.07     4.15     4.56
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Source: SSI

The goals of the reform in health services are:

 

    Implementation of General Health Insurance which covers entire population

 

    Countrywide implementation of family medicine

 

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    Easier access to all health care services by the insured

Personal Pension System

Law No. 4632 (Individual Pension Savings and Investment System) aims to (a) establish the regulation and supervision of the individual pension system which is complementary to the state social security system on the basis of voluntary participation and a fully funded defined contribution, with a view towards directing individual pension savings to long term investments, (b) improve welfare level during retirement by providing a supplementary pension income and (c) contribute to economic development by creating long-term resources for the economy and thereby increasing opportunities for employment. The Personal Pension System commenced on October 27, 2003. As of the end of 2013, there were 18 pension companies, 4,153,055 participants and 4,687,675 active pension contracts in the system, while the total amount of funds reached TL25.1 billion.

According to the Law No. 6327, which came into force in June 2012, the tax deduction incentive was replaced by a state match of 25% for the contributions made by the participants within the system. This match is capped at the annual gross minimum wage for each participant. This new incentive, aiming to increase the effectiveness of the system in attracting pension savings, came into effect on January 1, 2013. As a result of the new incentive, in 2013, the number of new participants entering into the system has more than doubled when compared to the 2012 figure.

A reform in 1999 introduced compulsory unemployment insurance. The Turkish Employment Agency is responsible for all transactions and services related to unemployment insurance. Contribution rates for unemployment insurance are 2% for the employer, 1% for the employee and 1% for state based on the employee’s gross salary.

The first unemployment payments were made in March 2002. As of December 2013, the total asset value of the Unemployment Insurance Fund was TL70.4 billion.

 

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EXCHANGE RATES AND EXCHANGE POLICIES

The Central Bank continued to implement the floating exchange rate regime in 2009 along with the inflation-targeting regime. In its policy document entitled “Monetary and Exchange Rate Policy for 2009”, the Central Bank indicated that having a strong foreign exchange reserve position was the general strategy of the Bank and in case of a recovery in liquidity conditions due to developments in international markets, the Bank may, with prior notice, resume foreign exchange buying auctions. The Central Bank further stated that foreign exchange selling auctions could be held should exchange rate patterns be deemed unhealthy due to possibly insufficient market depth. Accordingly, to ensure efficient operation of the foreign exchange market through supporting liquidity, the Central Bank resumed foreign exchange selling auctions on March 10, 2009, with the daily sale amount set as U.S.$50 million. A total of U.S.$900 million was sold in the 18 auctions held through April 2, 2009, when concerns about the depth of the foreign exchange market eased due to favorable developments in global markets.

As a result of positive expectations related to the global economy in early August 2009, global liquidity and risk appetite regained strength, causing an increase in capital inflows to Turkey and the foreign exchange market became relatively stable. Taking this opportunity to build up foreign exchange reserves, the Central Bank decided to resume foreign exchange buying auctions beginning August 4, 2009. The maximum daily amount to be purchased in auctions was set at U.S.$60 million, of which U.S.$30 million was optional. The total amount of foreign exchange purchased in 2009 auctions was U.S.$4.3 billion. The Central Bank did not exercise any direct intervention in the markets in 2009. As a result, gross foreign exchange reserves of the Central Bank stood at U.S.$70.7 billion as of December 31, 2009.

The Central Bank continued to implement the floating exchange rate regime in 2010 along with the inflation-targeting regime. A strong foreign exchange reserve position is important for emerging economies like Turkey to curb the unfavorable effects of potential internal and external shocks to the economy and to boost confidence in the country. Therefore, in 2010, the Central Bank held foreign exchange buying auctions to build up reserves. The maximum daily amount to be purchased in auctions was set at U.S.$60 million, with U.S.$30 million being the auction amount and the remaining U.S.$30 million being the optional amount. Due to the growing capital inflows to Turkey, the Central Bank decided to increase the maximum daily amount to be purchased in auctions to U.S.$80 million, with U.S.$40 million being the auction amount and U.S.$40 million being the optional amount, effective from August 3, 2010. In order to benefit from capital inflows more effectively and to enhance resilience against volatile capital flows, the Central Bank decided to alter the method of foreign exchange buying auctions on October 4, 2010 in an attempt to strengthen foreign exchange reserves. According to this new method, in the event of improvement in liquidity conditions and strengthening capital inflows, the Central Bank could raise the maximum daily amount to be purchased through auctions in order to accelerate foreign exchange reserve accumulation. From October 4, 2010 to December 31, 2010, Central Bank purchased U.S.$5.8 billion. The total amount of foreign exchange purchased in 2010 with auctions was U.S.$14.9 billion. The Central Bank did not exercise any selling intervention or selling auction in 2010.

The Central Bank continued to implement the floating exchange rate regime in 2011. Amid strong capital inflows to Turkey in the first quarter of 2011, further FX purchase auctions were held with the objective to strengthen the Central Bank’s reserves as much as possible. In the second quarter of 2011, rising concerns over global growth and sovereign debt sustainability in some European countries deteriorated risk appetite and had an adverse impact on capital flows to emerging economies, including Turkey. In view of these developments, the amount to be purchased via daily FX auctions was reduced in May and June, and FX purchase auctions were suspended as of July 25, 2011. Given the heightened uncertainty due to aggravated concerns over global growth and sovereign debt sustainability in some European countries as of late July, with a view to providing the market with FX liquidity, the Central Bank started to hold FX sale auctions as of August 5, 2011 when deemed necessary. In September 2011, the Central Bank announced that the selling amount was set as the maximum daily amount to be sold on the days of FX sales. The amount to be sold could also be lower than the maximum selling amount when deemed necessary. In November, the Central Bank decided to announce the maximum amount of FX that can be sold via auctions on every working day for the subsequent two working days. In December, the Central Bank increased the maximum amount of FX that can be sold within two working days following the daily FX auctions to U.S.$1.70 billion and the amount that can be sold other than exceptions to U.S.$1.35 billion. Starting from January 6, 2012, the Central Bank started to hold intra-day foreign exchange sale auctions when necessary. Given the improving current account balance dynamics following the decisions taken at the MPC meeting on January 24, 2012 as well as the abrupt changes in global conditions, the regular FX sale auctions were suspended as intra-day FX sale auctions proved relatively more efficient and better-suited to meet the objectives of the monetary policy than the regular auctions. Moreover, on October, 18, 2011 December 30, 2011 and January 2-4 2012, direct FX sale interventions were performed in response to unhealthy price formations in exchange rates due to loss of market depth. The last four direct FX sale interventions were

 

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conducted in the context of additional monetary tightening which was started on December 29, 2011 as a response to deteriorated inflation outlook and delivered on so-called exceptional days in the first half of 2012. Although, additional monetary tightening has been implemented mainly via open market operations, it also featured unsterilized (effective) foreign exchange sales and interventions in order to prevent inflation expectations to be adversely affected from exchange rate movements detached from fundamentals.

With a view to providing the market with FX liquidity, FX required reserve ratios were reduced in July, August and October 2011. In addition, interest rates on weekly FX deposits at the FX and Deposit Markets were slightly reduced in August 2011. The maturity of FX deposits that banks can buy from the Central Bank was extended from one week to one month in December 2011. Furthermore, in order to ease FX liquidity in the interbank FX markets, the Central Bank resumed its intervention in the FX Deposit Markets in November 2011.

Moreover, in September 2011, the Central Bank provided a facility that up to 10% of reserve requirements for Turkish lira liabilities can be maintained in US Dollar and/or Euro. This facility has been first raised to 20% and then 40% in October 2011. In 2012 this facility has further been gradually raised to 45%, in May 2012, 50% and in June, 55%. Since this facility has been almost 100% used by the banks, it increased the FX reserves of the Central Bank.

On October 27, 2011, the Central Bank updated the reserve requirement ratios for Turkish Lira deposits for related maturities and set the range between 5-11%. In addition, the reserve requirement ratios for foreign exchange deposits and liabilities were adjusted on October 5, 2011, with a range set between 6-11% depending on maturity.

On December 28, 2011, the Central Bank announced that, in addition to the daily one-week repo auctions, the Central Bank will start holding one-month (4 weeks) repo auctions every Friday. The one-month repo auctions are to be held in the traditional auction method and each institution’s total bid amount is to be limited to an announced auction amount. Auctions commenced on December 30, 2011. For the period of December 30, 2011 to January 26, 2012, upper limits have been set as TL2.0 billion for the total funding through one-month auctions and TL3.0 billion for each week’s auction. On May 29, 2012, the MPC decided to set the amount of daily funding via quantity auctions between 1 and 5 billion Turkish liras. On June 21, 2012 the MPC decided to keep the amount of daily funding via quantity auctions between 1 and 5 billion Turkish liras until July 19, 2012. The upper limit for each one-month repo auction to be held between June 22 and July 21, 2012 has been set at TL5 billion.

On March 29, 2012 the limit for standard gold reserves that may be held to meet reserve requirements for foreign currency liabilities, excluding precious metal deposit accounts, was decreased from 10% to 0%. On June 21, 2012, it was announced that the upper limit for gold reserves that might be held to maintain Turkish lira reserve requirements was raised from 20% to 25%, and banks are allowed to hold Turkish lira reserve requirements in gold over the total amount calculated by multiplying the first tranche corresponding to 20% of Turkish lira reserve requirements by a reserve option coefficient (ROC) of “1” and the second tranche corresponding to 5% of Turkish lira reserve requirements by a ROC of “1.5”.

On August 3, 2012, the Central Bank announced certain technical amendments to the Communiqué on Reserve Requirements no. 2005/1 relating to operational processes with respect to reserve requirements. These amendments stipulate that, as is the case with FX reserve requirements, the Turkish lira equivalent of FX reserves maintained for Turkish lira reserve requirements will be calculated by using the exchange rates announced in the Official Gazette on the calculation date; the US dollar reserves held by the Central Bank to maintain Turkish lira reserve requirements will not be less than 50% of total FX reserves; and the carryover limit will be 5%. On September 11, 2012, the Central Bank announced that in order to maintain required reserves consistent with the composition of foreign currency liabilities, banks must maintain their required reserves against their US dollar-denominated liabilities in US dollars only.

In 2011, the amount of FX purchased via FX purchase auctions totaled U.S.$6.45 billion, while the total amount of FX sold through FX sale auctions and direct interventions amounted to U.S.$13.60 billion. Furthermore, in 2012, an FX amount of U.S.$2.46 billion sold through FX sale auctions and direct interventions. Gross FX reserves of the Central Bank excluding gold stood at U.S.$78.33 billion at the end of 2011 and U.S.$84.00 billion on July 13, 2012.

 

69


Central Bank Direct Interventions and Auctions in (million USD)

Table 18

 

     Interventions        Auctions  
     Purchase        Sale        Purchase        Sale  

2009

     —             —             4,316           900   

2010

     —             —             14,865           —     

2011

     —             2,390           6,450           11,210   

2012

     —             1,450           —             1,006   

2013*

     —             —             —             14,360   

 

* As of December 20, 2013.

Source: CBT.

In the second half of 2012, the Central Bank continued to implement the floating exchange rate regime along with the inflation targeting framework (having no nominal or real exchange rate target, and with intervention unlikely unless the level of exchange rate seems decoupled substantially from macroeconomic fundamentals, hurting inflation and financial stability goals). The Central Bank continued to construct the Reserve Option Mechanism (ROM), which allows Turkish banks to hold a certain portion of their TL required reserves in foreign exchange (FX) and gold, during the second half of 2012 and increased the ROCs by 0.2% for all of the tranches except the first tranche (compared to July 2012). The utilization rate of this mechanism reached around 90% as of the end of 2012. The mechanism so far appears to support the resilience of the economy to cross-border capital flows and facilitate the liquidity management of the banking system.

As of December 21, 2012, ROM-based foreign exchange reserves were valued at U.S.$27.2 billion (an increase of U.S.$16.9 billion from the previous year), and the ROM-based gold reserves were valued at U.S.$12.5 billion (an increase of U.S.$10.2 billion from the previous year). To further strengthen the Central Bank’s FX reserves, the Central Bank increased the export rediscount credits limits several times during 2012. In sum, export rediscount credits added U.S.$8.3 billion to the Central Bank’s net international reserves. Overall, total gross international reserves of the Central Bank reached U.S.$119.1 billion as of the end of 2012. Additionally, the Central Bank provided nearly U.S.$2.5 billion to the market through interventions and auctions in 2012 (Table 16).

Due to increasing cross-border capital flows during 2012, the Central Bank gradually increased the foreign exchange required reserve ratios to a range of 6%-11.5% (with 6% for the longest maturity, and 11.5% for the shortest maturity) from 5%-11%. Moreover, the Central Bank’s foreign exchange lending rate was 4.5% for US Dollars and 5.5% for Euro. In the last meeting of the Monetary Policy Committee (MPC), on December 25, 2012, the MPC increased foreign exchange lending rates for US Dollars and Euro to 10% due to favorable global financial market conditions.

On January 22, 2013, the ROC for all tranches of Turkish Lira reserves held in gold was raised by “0.1” points. On March 26, 2013 to support financial stability Central Bank announced that in the context of the facility that allows banks to hold Turkish lira required reserves in FX and gold, one more tranche has been added to the existing tranches by keeping the upper limit unchanged, and the ROCs have been raised by 0.1 points for all tranches excluding the first tranche. On April 16, 2013, with a view to supporting financial stability in light of the latest developments in global markets, the ROCs for FX reserves held for Turkish lira required reserves have been raised by 0.2 points for all tranches except for the first tranche. On May 16, 2013, one more tranche has been added to the existing tranches by keeping the upper limit unchanged, and the ROCs have been raised by 0.1 points for all tranches excluding the first tranche. Below is the table that compares the new approach to the previous.

Table 19

 

FX Facility Tranches (%)

   Current ROC    New ROC

0-30

   1.4    1.4

30-35

   1.4    1.5

35-40

   1.7    1.8

40-45

   2.1    2.2

45-50

   2.4    2.5

50-55

   2.6    2.7

55-60

   2.7    2.8

Source: Central Bank

 

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Following the tapering signal by the U.S. Federal Reserve Board in May 2013, most emerging countries’ risk premiums exhibited an upward trend until late 2013. Accompanied with domestic risk factors, the Turkish lira lost value against major currencies (e.g. USD, Euro) beyond what peer emerging countries have experienced. To contain potential risks due to currency depreciation (e.g. a rise in inflation due to pass through), the CBRT has implemented additional monetary tightening and conducted unsterilized foreign exchange selling auctions (amounting to approximately U.S.$14 billion for the whole year). Moreover, banks reduced their ROM-based reserves during the second half of 2013 to some extent, which, all things being equal, decreases the depreciation pressure on the currency. There were also increases in the upper limit of the interest rate corridor in mid-2013. Further, the CBRT has conducted forward guidance on the likely path of the CBRT average funding rate in fourth quarter of 2013. The CBRT announced that the rate would be close to the upper limit of the corridor until the end of the year.

The following table displays the average and the period-end rates of exchange of Turkish Lira per US Dollar, Japanese Yen and against the US Dollar-Euro currency basket:

Exchange Rates

Table 20

 

Period

Average

Year

   Turkish Lira per
U.S. Dollar
     Turkish Lira per
Euro
     Turkish Lira
per 100
Japanese

Yen
     Turkish Lira per
Currency Basket
 

2009

     1.55         2.16         1.66         1.85  (1) 

2010

     1.51         2.00         1.72         1.75  (1) 

2011

     1.68         2.33         2.11         2.01 (1) 

2012

     1.80         2.32         2.27         2.06  (1) 

2013

     1.91         2.53         2.04         2.22   

Period End At

           

December 31st

           

2009

     1.51         2.17         1.64         1.84  (1) 

2010

     1.55         2.06         1.90         1.80  (1) 

2011

     1.91         2.47         2.46         2.19  (1) 

2012

     1.79         2.36         2.08         2.08  (1) 

2013

     2.14         2.94         2.03         2.54   

 

(1) The basket consisting of U.S.$0.5 and EUR0.5.

Source: CBT

Note: CBT’s foreign exchange effective selling rates.

 

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INTERNATIONAL LENDING

On May 11, 2005, the Executive Board of the International Monetary Fund (the “IMF”) approved a three year, SDR 6.66 billion (approximately U.S.$10 billion at the time) stand-by arrangement (the “2005-2008 Stand-By Arrangement”) to support Turkey’s economic and financial program through May 2008. An amount equivalent to SDR8 555.17 million (approximately U.S.$837.5 million at the time of the release) was made available immediately. Between May 11, 2005 and May 8, 2008, IMF staff missions visited Turkey seven times for program review discussions and various letters of intent were signed. On May 9, 2008, the seventh review and disbursement of the remaining balance of SDR 2.25 billion (approximately U.S.$3.65 billion at the time of the release) was approved by the IMF Executive Board, which completed Turkey’s 19th Stand-By-Arrangement. The Republic and the IMF have since been continuing their relationship on a regular membership basis. On May 14, 2013, Turkey paid SDR 281 million to the IMF. With this payment, Turkey’s debt to the IMF has been settled.

The Undersecretariat of the Turkish Treasury, together with the World Bank, launched the Country Partnership Strategy (CPS) of Turkey on February 28, 2008. The CPS ended June 30, 2011 and was designed to provide Turkey with financial and technical support over the 2008-2011 period. The 2008-2011 CPS package initially envisaged total financial support of U.S.$8.1 billion and consisted of both investment and program loans. Under the 2008-2011 CPS program, a total of approximately U.S.$7.64 billion worth of agreements were signed, consisting of development policy loans (58%) and investment loans (42%).

A summary of the program and investment loans approved during the 2008-2010 period under the CPS program are as follows:

 

    Second Competitiveness and Employment Development Policy Loan with a total funding of €342.8 million (approximately U.S.$500 million) - a series of loans to support economic policies in the areas of investment climate, labor markets, credit and capital markets, and innovation, technology, quality standards and labor skills (approved on December 16, 2008).

 

    Second Programmatic Public Sector Development Policy Loan (PPDPL II) with a total funding of €255.4 million (approximately U.S.$400 million) - provides support for the Turkish Government’s comprehensive reform of the public sector. (approved on June 19, 2008).

 

    Programmatic Electricity Sector Development Policy Loan-I with a total funding of €548.4 million (approximately U.S.$800 million) (approved on June 11, 2009).

 

    Restoring Equitable Growth and Employment Programmatic Development Policy Loan (REGE DPL I) with a total funding of €931 million (approximately U.S.$1.3 billion) - provides support for Turkey’s public reform agenda under the PPDPL series. The REGE DPL I also focused on managing the impact of the global economic crisis and transition to recovery as well as job creation through business climate reforms previously supported under the CEDPL series. (approved on March 23, 2010).

 

    Second Programmatic Environmental Sustainability and Energy Sector Development Policy Loan with a total funding of €519.6 million (approximately U.S.$700 million) (approved on June 15, 2010).

A summary of the program and investment loans approved during the 2008-2010 period under the CPS program are as follows:

 

Program Loans

   Original
Amount
     USD
Equivalent
     Board
Approval
Date
     Loan
Agreement
Date
 

Second Restoring Equitable Growth and Employment (REGE) DPL 2

   506,100,000       $ 700,000,000         May 5, 2011         May 27, 2011   

Investment Loans

   Original
Amount
     USD
Equivalent
     Board
Approval
Date
     Loan
Agreement
Date
 

Additional Loan for the Fourth Export Intermediation Project

   87,800,000       $ 120,000,000         March 17, 2011         April 5, 2011   
   $ 180,000,000       $ 180,000,000         March 17, 2011         April 5, 2011   

 

8  The Special Drawing Right, or SDR, serves as the unit of account of the IMF. The value of the SDR in terms of U.S. dollars was SDR 1 = $1.583210 on September 25, 2009.

 

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Program Loans

   Original
Amount
     USD
Equivalent
     Board
Approval
Date
     Loan
Agreement
Date
 

İstanbul Seismic Risk Mitigation and Emergency Preparedness Project

   109,800,000       $ 150,000,000         April 21, 2011         August 4, 2011   

Additional Financing for Private Sector Renewable Energy and Energy Efficiency Project

  
 
$
183,600,000
and        
235,000,000
  
  
  
   $ 500,000,000         November 22, 2011         December 5, 2011   

On March 27, 2012, it was announced that the new CPS of the World Bank Group with Turkey for 2012-2015 was launched, with anticipated financing from the World Bank for Turkish government programs of up to U.S.$4.45 billion during the four-year period, consisting of development policy loans (35%) and investment loans (65%). In addition, the new CPS provides for financing of private sector investments by the International Finance Corporation (IFC) between U.S.$1.7-$2.0 billion for such four-year period, and for guarantees against non-commercial risks from the Multilateral Investment Guarantee Agency (MIGA). The IFC and the MIGA are members of the World Bank Group. The Third Programmatic Environmental Sustainability and Energy Sector Development Policy Loan (ESES DPL III) was approved by the Board of Executive Directors of the World Bank on March 27, 2012 and the loan agreement for a total financing of €455,400,000, was signed on April 6, 2012. The total amount of the loan was released on June 19, 2012.

In 2013, financing in the amount of approximately U.S.$1.3 billion was secured from the World Bank. U.S.$500 million of this financing was earmarked for project financing to support the real sector. U.S.$800 million (€624.1 million) was earmarked for budget financing as a Competitiveness and Savings Development Policy Loan (CSDPL). The CSDPL was provided by the World Bank to support Turkey’s reform efforts in fostering business environment and competitiveness, boosting domestic savings and deepening the financial sector. The Loan Agreement was signed on June 7, 2013 and the proceeds were disbursed on July 25, 2013.

On May 17, 2010, the annual review of Turkey’s economy, referred to as an Article IV consultation, commenced with the visit of an IMF staff mission. The IMF periodically consults with each member state in order to ensure that each member state has in place a sound macroeconomic framework and corresponding policies to promote financial stability, economic growth and free exchange rates. On May 28, 2010, the IMF staff mission concluded its review and published its preliminary conclusions, and on July 30, 2010, the Executive Board of the IMF concluded the Article IV consultation and post-program monitoring with the Republic. The Executive Board of the IMF commended Turkey for far reaching reforms and prudent fiscal policy that limited exposure and paved the way for an effective response to the global financial crisis and contributed to a robust economic recovery. The Executive Board noted that the main challenge for the Republic is containing external imbalances that could undermine the economic recovery.

On February 11, 2011, the Executive Board of the IMF concluded the Second Post-Program Monitoring Discussions with Turkey. The Executive Board welcomed the strong recovery of the Turkish economy during 2010, with output exceeding its pre-crisis level and unemployment moderating significantly, but noted the sharply widening current account deficit. The Executive Board stated that Turkey’s main challenge is determining the right policy mix in the face of vulnerabilities arising from excessive domestic demand and volatile short-term capital flows. The Executive Board recognized that Turkey’s favorable near-term growth prospects and healthy balance sheets would likely continue to attract capital inflows, but also noted that predominantly short-term capital inflows have increased the Republic’s exposure to capital flow reversal and associated repricing risks. The Executive Board welcomed Turkey’s increased focus on systemic financial-sector risk and a moderate tightening of macroprudential measures. A number of Executive Board directors, however, called for further action in these areas. The Executive Board also encouraged progress on structural reforms to enhance competitiveness and resilience to capital inflows.

Between March 16, 2011 and April 5, 2011, an IMF staff mission visited Turkey for the Financial Sector Assessment Program (FSAP) update. FSAP assessments include a financial stability assessment, which is the responsibility of the IMF, and a financial development assessment, which is the responsibility of the World Bank. The Financial System Stability Assessment for Turkey, including the main findings of the 2011 FSAP update for Turkey, was endorsed by the IMF during the IMF Executive Board meeting on November 30, 2011 and was published on September 7, 2012.

On September 6, 2011, an IMF staff mission visited Turkey for the purpose of conducting an Article IV consultation for the year 2011. The IMF staff mission concluded its review on November 30, 2011, and published its staff report on January 27, 2012. The staff noted that Turkey entered the global economic crisis

 

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with stronger private and public sector balance sheets than many other countries in the region, due to institutional reforms and improved policy frameworks adopted earlier in the decade. The staff also noted that a deft macroeconomic and financial policy response during the global economic crisis enhanced policy credibility. However, an inadequate policy response to renewed capital flows caused growth to revert to its previous unbalanced path, and an overvalued real exchange rate and abundant external financing caused demand to become skewed toward imports resulting in the current account deficit widening sharply. The staff report commented on various other economic developments and policies in Turkey, including recommending structural reforms to prevent the emergence of a negative output gap as the current account is corrected.

An IMF staff mission visited Turkey between May 31 and June 6, 2012 to discuss recent economic developments and preparations for the 2012 Article IV consultation discussions. In their conclusion statement, the IMF staff stated that the economy is decelerating toward a soft landing, thus the imbalances built over the last two years are diminishing.

On September 13, 2012 an IMF staff mission visited Turkey in the context of 2012 Article IV consultations. The IMF staff mission concluded its review on September 26, 2012, and published its staff report on December 21, 2012. In their report the staff noted that Turkish authorities set the stage for more sustainable and balanced growth in 2012, accompanied by declines in the current account deficit and inflation. The staff also emphasized the importance of the tighter fiscal policy proposed in the Republic of Turkey’s 2013 budget. They also noted that in the current environment of volatile capital flows, the Central Bank’s more flexible policy framework served the Turkish economy well. Additionally, the staff explained that the Turkish banks appear well-positioned for the introduction of Basel III.

Between September 19, 2013 and October 1, 2013, an IMF mission visited Turkey as part of the annual Article IV consultations. On November 20, 2013, the Executive Board of the IMF concluded the Article IV consultation with Turkey and the staff report was published on December 20, 2013. In their report the staff noted that the economic activity accelerated and domestic demand got stronger. However, these improvements came with a deteriorating external account and inflation remaining above target. The staff underlined that monetary stance should be tightened and the monetary policy framework should be normalized with a clearer focus on inflation. On fiscal policy, while mentioning that the fiscal targets for 2013 are on track to be met, the staff noted that the fiscal stance was expansionary and should be reined in. They also stated that increasing national savings and improving competitiveness were central to addressing vulnerabilities, which would require ambitious medium-term fiscal targets and deepened structural reforms. In addition, sound performance of the Turkish financial system was appraised while advising against downside risks.

An IMF mission visited Turkey from April 24-30, 2014 in preparation for the 2014 Article IV regular consultations. No press release was issued following the mission’s visit.

In 2010, the Islamic Development Bank Group (IDBG) approved the Member Country Partnership Strategy for the Republic of Turkey, which is the first strategy document ever approved by IDBG. According to the strategy document IDBG will provide €2 billion of financing for projects in Turkey during 2010-2013. As of the end of 2013, IDBG has provided U.S.$2.2 billion of financing for projects in Turkey.

 

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Turkey became a recipient country of the European Bank for Reconstruction and Development (EBRD) in 2008. As of the end of 2013, EBRD has provided €3.9 billion of financing for projects in Turkey, particularly in the private sector. The annual business volume of EBRD in Turkey was €920 million in 2013. Given the uncertainties in Russia and Ukraine, we expect that Turkish operations will grow further. EBRD has demonstrated its intention to deepen the engagement and its confidence in the future of the Turkish economy. For instance, the EBRD Office in Istanbul will be expanded to become a regional one, covering the Central Asian operations of the Bank. In addition, EBRD will open up another office in Gaziantep in September of 2014.

Turkey is a founding member of the Black Sea Trade and Development Bank (BSTDB). BSTDB has provided €164 million of financing for projects in Turkey from 2009-2013. According to the 2011-2014 Medium Term Strategy, BSTDB plans to invest approximately €32 to 47 million per year in Turkey.

The Republic signed a total of €650 million, €920 million, €1.1 billion and €1.5 billion worth of various financing agreements with the European Investment Bank in 2010, 2011, 2012 and 2013, respectively.

Turkey is a founding member of the Council of Europe Development Bank (CEB). CEB provided €1.1 billion of financing for projects in Turkey from 2008 to 2013.

Between 2010 and 2013 the Republic and CEB signed a total of €630 million worth of various financing agreements in connection with the “İstanbul Earthquake Risk Mitigation and Emergency Preparedness Project” and Small and Medium Enterprise (SME) Development Loans.

During the G-20 meeting held in Los Cabos on June 18-19, 2012, Turkey declared its commitment to contributing to global financial stability by increasing the resources of the IMF. On June 19, 2012, it was announced that the Central Bank of the Republic of Turkey will contribute up to U.S.$5 billion to the IMF, to be counted as part of its international reserves. The note purchase agreement between the IMF and the Central Bank of the Republic of Turkey has been signed and became effective as of October 17, 2013.

 

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FOREIGN TRADE AND BALANCE OF PAYMENTS

FOREIGN TRADE

Turkey has increasingly diversified its export products and markets, with industrial products claiming an increasing share of total exports. In 2009, the increasing trend in exports was interrupted by the global economic crisis as Turkey’s trade partners went into serious economic recession. Therefore, Turkish export performance was hit by reduced export demand from countries, especially in the EU and decreased by approximately 22.6% in 2009, compared to the previous year.

In 2010, total exports were U.S.$113.9 billion, an 11.5% increase when compared to 2009. In 2011, exports increased by 18.5% to U.S.$134.9 billion. In 2012, exports increased by 13% to U.S.$152.5 billion and in 2013, exports decreased by 0.4% to U.S.$151.8 billion. In the meantime, because domestic demand also increased, import demand increased considerably by 31.7% and 29.8% in 2010 and 2011 respectively. Since imports increased more than exports, the trade deficit and hence the current account deficit also increased and reached pre-crisis levels. While the trade deficit (including shuttle trade) and the current account deficit were U.S.$53.0 billion and U.S.$40.4 billion in 2008 respectively, the trade deficit increased significantly to U.S.$56.4 billion and the current account deficit increased to U.S.$45.4 billion in 2010, U.S.$89.1 billion and U.S.$75.1 billion respectively in 2011 and the trade deficit and the current account deficit U.S.$65.3 billion and U.S.$48.5 billion respectively in 2012. The trade deficit and the current account deficit were U.S.$80 billion and U.S.$65.1 billion respectively in 2013. The increase in imports stemmed partly from the increase in energy prices and partly from the expansion in economic activity.

The composition of exports has shifted substantially from agricultural products to industrial products. Industrial exports accounted for 95% of total exports in 2008 while the share of agricultural products was 3%. In 2013, this outlook did not change significantly. In addition to traditional export goods such as textiles and clothing products, food products and beverages, rubber and plastic products, metal products, machinery and equipment, electrical machinery and apparatus, motor vehicles and trailers, other transportation and furniture have been gaining greater importance. In 2013, while textiles and clothing products increased 8.8% to U.S.$27.4 billion, exports of food products and beverages, rubber and plastic products, basic metals, machinery and equipment, electrical machinery and apparatus, motor vehicles and trailers, other transportation and furniture decreased by 7.1% to U.S.$75.0 billion.

Turkey entered into the Customs Union with the EU in 1996. Within this context, customs duties for all industrial products imported from the EU were abolished and the Common Customs Tariff of the EU was adopted. In the case of processed agricultural products, the EU and Turkey have agreed upon the establishment of a system in which Turkey differentiates between the agricultural and industrial components of the duties applicable to these products. Accordingly, Turkey has abolished the duties applicable to the industrial component for products originating in EU and EFTA countries, while duties applicable to the agricultural products still apply. However, the EU has granted customs duty concessions for a number of Turkish products, and Turkey has extended to the EU the limited concessions that it allows to EFTA countries. Within the framework of this agreement, customs duties for ECSC products originating in the EU and EFTA countries were gradually decreased and were fully abolished in January 1999.

In order to comply with the common commercial policy of the EU in the textile and clothing sector, Turkey has harmonized its legislation to the EU’s quota and surveillance measures for that sector. A decree on state aid has also been brought into force in line with EU state aid regulations, limiting the scope of state aid to research and development, environmental protection, market research, training activities, refunds on agricultural products and other aid compatible with Turkey’s obligations under multinational agreements.

Turkey’s principal trading partners have traditionally been EU member countries. In 2013, EU member countries accounted for 41.5% of total exports and 37.7% of total imports. The largest total export market for Turkish products was Germany, which accounted for 9% of total exports in 2013 compared to 8.6% in 2012.

To date, Turkey has made the most progress in aligning itself with the preferential agreements of the EC and has signed 15 numerous trade agreements that include Central and Eastern European countries, EFTA countries and Israel and there are still several agreements to be concluded with other countries. As a part of this process, Turkey has also adopted the EU’s General System of Preferences (GSP) towards the lesser developed countries. Turkey’s adoption of the EU’s preferential agreements enables it to participate in the EU trade arrangements with Central and Eastern European and Mediterranean countries. Turkey was integrated in the Pan-European Cumulation of Origin effective as of January 1, 1999. The free trade agreements that have been executed and Turkey’s participation in the Pan-European Cumulation of Origin are expected to further diversify the composition and destination of Turkish exports.

 

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The following table presents Turkey’s total imports, exports and terms of trade for the years indicated:

Table 21

Terms of Trade-Foreign Trade, Value, Volume

 

     2009      2010      2011      2012      2013  
in billions of U.S dollars         

Exports f.o.b (1)

     102.1         113.9         134.9         152.5         151.8   

Imports c.i.f (2)

     140.9         185.5         240.8         236.5         251.7   

Consumption goods

     19.3         24.7         29.7         26.7         30.4   

Capital goods

     21.5         28.8         37.3         33.9         36.8   

Intermediate goods

     99.5         131.4         173.1         174.9         183.8   

Total Exports

     (percentage change from previous year)      

Value

     -22.6         11.5         18.5         13.0         -0.4   

Price

     -16.1         3.4         11.5         -2.7         0.1   

Volume(3)

     -7.5         7.9         6.4         16.2         -0.5   

Total Imports(2)

              

Value

     -30,2         31.7         29.8         -1.8         6.4   

Price

     -19.5         8.4         14.9         -2.6         1.6   

Volume(3)

     -12.9         21.4         13.1         0.9         8.2   

Terms of Trade

     4.2         -4.6         -3.0         -0.4         1.5   

Source: TURKSTAT

 

(1) Excluding transit trade and shuttle trade.
(2) Excluding transit trade and non-monetary gold.
(3) Volume changes are obtained by dividing value changes by price changes.

 

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The following table presents the composition of Turkey’s exports by sector of trade for the periods indicated:

Table 22

 

     Exports (FOB)* by Sectors and Commodity  
     Annual                           Percentage Change  
     (in millions of U.S. dollars unless otherwise indicated)  
     2009      2010      2011      2012      2013      2010/09      2011/10      2012/11      2013/12  

Agricultural and Forestry

     4,347         4,935         5,167         5,189         5,653         13.5         4.7         0.4         9.0   

Agriculture and farming of animals

     4,337         4,919         5,148         5,167         5,627         13.4         4.7         0.4         8.9   

Forestry and logging

     11         15         19         22         27         44.5         20.2         16.8         24.0   

Fishing

     189         156         186         190         258         -17.4         19.2         2.3         35.6   

Fishing

     189         156         186         190         258         -17.4         19.2         2.3         35.6   

Mining and Quarrying

     1,683         2,687         2,805         3,161         3,879         59.7         4.4         12.7         22.7   

Mining of coal, lignite and peat

     1.5         6.5         5.9         6.7         3.4         339.2         -10.3         13.6         -48.7   

Crude petroleum and natural gas

     101         100         126         230         249         -0.6         25.8         81.9         8.2   

Mining of uranium and thorium ores

                          

Metal ores

     689         1,280         1,214         1,339         1,729         85.8         -5.2         10.3         29.2   

Other mining and quarrying

     891         1,300         1,459         1,585         1,898         45.9         12.3         8.7         19.7   

Manufacturing

     95,449         105,467         125,963         143,211         141,358         10.5         19.4         13.7         -1.3   

Food products and beverages

     5,931         6,703         8,880         9,515         10,664         13.0         32.5         7.1         12.1   

Tobacco products

     266         296         301         415         465         11.0         1.8         37.9         12.1   

Textiles

     9,559         10,932         12,920         13,262         14,741         14.4         18.2         2.6         11.2   

Apparel

     9,603         10,618         11,633         11,959         12,704         10.6         9.6         2.8         6.3   

Luggage, saddlery and footwear

     499         656         773         914         1,191         31.7         17.8         18.1         22.5   

Products of wood and cork

     510         573         653         659         724         12.3         14.0         0.8         10.0   

 

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Paper and paper products

     982         1,194         1,407         1,647         1,934         21.6         17.8         17.0         17.4   

Printing and publishing

     148         141         164         158         155         -4.3         15.9         -3.9         -1.9   

Coke, petroleum products and nuclear fuel

     3,650         4,153         6,122         7,180         6,300         13.8         47.4         17.3         -12.3   

Chemicals and chemical products

     4,300         5,706         6,743         7,309         7,615         32.7         18.2         8.4         4.2   

Rubber and plastic products

     4,035         4,887         6,241         6,431         7,030         21.1         27.7         3.0         9.3   

Other non-metallic minerals

     3,769         3,989         4,042         4,084         4,290         5.8         1.3         1.0         5.1   

Manufacture of basic metals

     15,103         14,427         17,062         29,111         17,516         -4.5         18.3         70.6         -39.8   

Manufacture of fabricated metal products (exc. machinery)

     4,470         4,973         6,230         6,590         7,068         11.2         25.3         5.8         7.3   

Manufacture of machinery and equipment

     8,070         9,059         11,126         11,858         12,780         12.3         22.8         6.6         7.8   

Office, accounting and computing machinery

     100         134         140         148         178         33.2         4.9         5.5         20.1   

Electrical machinery and apparatus

     4,099         4,864         5,863         5,860         6,460         18.7         20.6         -0.1         10.2   

Communication and apparatus

     1,919         1,951         2,111         2,511         2,047         1.6         8.2         19.0         -18.5   

Medical, precision and optical instruments, watches

     367         412         499         628         789         12.2         21.0         26.0         25.7   

Motor vehicles and trailers

     12,863         14,857         17,044         16,244         18,246         15.5         14.7         -4.7         12.3   

 

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Other transport

     2,418         1,659         1,992         1,781         2,340         -31.4         20.1         -10.6         31.4   

Furniture

     2,786         3,283         4,014         4,946         6,194         17.8         22.3         23.2         25.3   

Recycling

                          

Electricity, Gas and Water Supply

     140         181         149         190         29         29.8         -18.0         27.8         -84.8   

Electricity, gas and steam

     140         181         149         190         29         29.8         -18.0         27.8         -84.8   

Wholesale and Retail Trade

     331         452         632         535         606         36.6         39.9         -15.4         13.3   

Wholesale and retail trade

     331         452         632         535         606         36.6         39.9         -15.4         13.3   

Other Business Activities

     1.2         2.0         0.6         0.5         3.4         63.2         -71.4         -6.7         529.3   

Other business activities

     1.2         2.0         0.6         0.5         3.4         63.2         -71.4         -6.7         529.3   

Social and Personal Activities

     2.4         3.6         5.0         2.3         15.1         48.2         38.1         -53.8         555.2   

Total

     102,143         113,883         134,907         152,478         151,803         11.5         18.5         13.0         -0.4   

 

* Excluding shuttle and transit trade

Source: TURKSTAT

Turkey has taken the lead in the establishment of the Black Sea Economic Cooperation Zone, which is intended to create a regional trade organization for the 11 countries surrounding the Black Sea. With the participation of Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russian, Serbia, Ukraine and Turkey, the Black Sea Trade and Development Bank has been established to promote economic prosperity and promote regional projects in the area. Turkey has also embarked on efforts to develop new export markets in countries with which Turkey has not traditionally traded. See “Description of Turkey—International Organizations.”

 

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The following table presents Turkey’s exports by country for the periods indicated:

Table 23

 

    2009     2010     2011     2012     2013     2009     2010     2011     2012     2013  

TOTAL

    102,142,613        113,883,219        134,906,869        152,461,737        151,802,637        100.0        100.0        100.0        100.0        100.0   

A- EUROPEAN UNION
(EU 28)

    47,228,119        52,934,452        62,589,257        59,398,377        63,039,810        46.2        46.5        46.4        39.0        41.5   

B-FREE ZONES IN TURKEY

    1,957,066        2,083,788        2,544,721        2,294,934        2,412,824        1.9        1.8        1.9        1.5        1.6   

C-OTHER COUNTRIES

    52,957,428        58,864,980        69,772,890        90,768,426        86,350,002        51.8        51.7        51.7        59.5        56.9   

1-Other European Countries

    11,103,289        11,124,225        12,734,548        14,166,917        14,213,880        10.9        9.8        9.4        9.3        9.4   

2-North African Countries

    7,415,776        7,025,168        6,700,805        9,443,604        10,041,750        7.3        6.2        5.0        6.2        6.6   

3-Other African Countries

    2,738,866        2,257,898        3,633,016        3,913,246        4,103,794        2.7        2.0        2.7        2.6        2.7   

4-North American Countries

    3,578,829        4,242,435        5,459,299        6,662,554        6,580,293        3.5        3.7        4.0        4.4        4.3   

5-Central America and Caraips

    621,826        597,975        626,293        769,630        1,004,173        0.6        0.5        0.5        0.5        0.7   

6-South American Countries

    677,599        1,237,356        1,840,351        2,191,084        2,126,991        0.7        1.1        1.4        1.4        1.4   

7-Near and Middle Eastern

    19,192,808        23,294,873        27,934,772        42,451,153        35,574,660        18.8        20.5        20.7        27.8        23.4   

8-Other Asian Countries

    6,705,544        8,580,833        10,199,361        10,574,649        12,016,838        6.6        7.5        7.6        6.9        7.9   

9-Australia and New Zealand

    361,640        402,591        480,755        490,339        538,473        0.4        0.4        0.4        0.3        0.4   

10-Other Countries

    561,251        101,627        163,690        105,250        149,150        0.5        0.1        0.1        0.1        0.1   

D- SELECTED COUNTRY GROUPS

                   

1-OECD Countries

    52,243,683        57,394,215        67,113,921        66,289,740        68,683,836        51.1        50.4        49.7        43.5        45.2   

2-EFTA Countries

    4,335,560        2,416,381        1,887,252        2,601,134        1,661,908        4.2        2.1        1.4        1.7        1.1   

3-Organization of the Blacksea Economic Cooperation

    12,272,591        14,456,173        17,767,964        18,791,305        20,367,992        12.0        12.7        13.2        12.3        13.4   

4-Organization for Economic Cooperation

    5,948,111        7,617,077        9,291,735        16,563,295        11,898,400        5.8        6.7        6.9        10.9        7.8   

5-Commonwealth of Independent States

    7,957,492        10,288,272        13,376,636        15,074,703        16,924,418        7.8        9.0        9.9        9.9        11.1   

6-Turkish Republics

    3,399,485        3,921,072        5,039,884        5,840,703        6,908,137        3.3        3.4        3.7        3.8        4.6   

7-Organization of Islamic Cooperation

    28,626,586        32,469,556        37,325,434        55,218,487        49,370,615        28.0        28.5        27.7        36.2        32.5   
    2009     2010     2011     2012     2013     2009     2010     2011     2012     2013  

Total

    102,142,613        113,883,219        134,906,869        152,461,737        151,802,637        100.0        100.0        100.0        100.0        100.0   

Germany

    9,793,006        11,479,066        13,950,825        13,124,375        13,702,577        9.6        10.1        10.3        8.6        9.0   

Iraq

    5,123,406        6,036,362        8,310,130        10,822,144        11,948,905        5.0        5.3        6.2        7.1        7.9   

United Kingdom

    5,937,997        7,235,861        8,151,430        8,693,599        8,785,124        5.8        6.4        6.0        5.7        5.8   

Russia

    3,189,607        4,628,153        5,992,633        6,680,777        6,964,209        3.1        4.1        4.4        4.4        4.6   

 

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Italy

    5,888,958        6,505,277        7,851,480        6,373,080        6,718,355        5.8        5.7        5.8        4.2        4.4   

France

    6,211,415        6,054,499        6,805,821        6,198,536        6,376,704        6.1        5.3        5.0        4.1        4.2   

USA

    3,240,597        3,762,919        4,584,029        5,604,230        5,640,247        3.2        3.3        3.4        3.7        3.7   

UAE

    2,896,572        3,332,885        3,706,654        8,174,607        4,965,630        2.8        2.9        2.7        5.4        3.3   

Spain

    2,818,470        3,536,205        3,917,559        3,717,345        4,334,196        2.8        3.1        2.9        2.4        2.9   

Iran

    2,024,546        3,044,177        3,589,635        9,921,602        4,192,511        2.0        2.7        2.7        6.5        2.8   

China

    1,600,296        2,269,175        2,466,316        2,833,255        3,600,865        1.6        2.0        1.8        1.9        2.4   

Netherlands

    2,127,297        2,461,371        3,243,080        3,244,429        3,538,043        2.1        2.2        2.4        2.1        2.3   

Egypt

    2,599,030        2,250,577        2,759,311        3,679,195        3,200,362        2.5        2.0        2.0        2.4        2.1   

Saudi Arabia

    1,768,216        2,217,646        2,763,476        3,676,612        3,191,482        1.7        1.9        2.0        2.4        2.1   

Azerbaijan

    1,400,446        1,550,479        2,063,996        2,584,671        2,960,371        1.4        1.4        1.5        1.7        2.0   

Libya

    1,795,117        1,932,370        747,629        2,139,440        2,753,096        1.8        1.7        0.6        1.4        1.8   

Israel

    1,522,436        2,080,148        2,391,148        2,329,531        2,649,663        1.5        1.8        1.8        1.5        1.7   

Romania

    2,201,936        2,599,380        2,878,760        2,495,427        2,616,313        2.2        2.3        2.1        1.6        1.7   

Belgium

    1,795,682        1,960,441        2,451,030        2,359,575        2,573,804        1.8        1.7        1.8        1.5        1.7   

Ukraine

    1,004,772        1,260,423        1,729,760        1,829,207        2,189,245        1.0        1.1        1.3        1.2        1.4   

Others

    37,202,809        37,685,804        44,552,166        45,980,102        48,900,936        36.4        33.1        33.0        30.2        32.2   

 

(1) Countries are ranked by 2013 figures.

Source: TURKSTAT

 

82


The value of imports increased from approximately U.S.$7.9 billion in 1980 to approximately U.S.$202 billion in 2008. However, with the global economic crisis the value of imports fell significantly to U.S.$140.9 billion in 2009 and the EU accounted for 40.1% of Turkey’s total imports. In 2010, the value of imports increased to U.S.$185.5 billion and the EU accounted for 38.9% of Turkey’s total imports. In 2011, the value of imports increased to U.S.$240.8 billion and EU share in Turkey’s import was 37.8%. In 2012, the value of imports increased to U.S.$236.5 billion and EU share in Turkey’s import was 37%. In 2013, the value of imports increased to U.S.$251.7 billion and EU share in Turkey’s import was 36.7%.

In 2013, of the main commodity groups, the share of intermediate goods in total imports was 73%, while the shares of capital goods and consumption goods in total imports were 13.5% and 12.1%, respectively.

The following table presents the composition (by Broad Economic Classification) of Turkey’s imports (other than non-monetary gold) by sector of trade for the periods indicated:

Table 24 (In Million Dollars, and % changes)

 

     2009      2010      2011      2012      2013      10/09      11/10      12/11      13/12  

TOTAL

     140,928         185,544         240,842         236,545         251,661         31.7         29.8         -1.8         6.4   

Capital goods

     21,463         28,818         37,271         33,925         36,771         34.3         29.3         -9.0         8.4   

Capital goods (Except transportation vehicles)

     18,384         23,250         29,605         28,125         32,034         26.5         27.3         -5.0         13.9   

Transportation vehicles incidental to industry

     3,078         5,569         7,665         5,800         4,737         80.9         37.7         -24.3         -18.3   

Intermediate goods

     99,510         131,445         173,140         174,930         183,811         32.1         31.7         1.0         5.1   

Unprocessed materials incidental to industry

     7,985         12,259         16,160         15,344         13,926         53.5         31.8         -5.0         -9.2   

Processed materials incidental to industry

     43,492         58,733         75,482         73,612         85,896         35.0         28.5         -2.5         16.7   

Unprocessed fuels and oils

     1,139         1,176         1,304         1,162         923         3.2         10.9         -10.9         -20.5   

Parts of investment goods

     8,292         9,064         10,861         10,949         12,412         9.3         19.8         0.8         13.4   

Parts of transportation vehicles

     7,841         10,581         12,334         11,129         11,890         34.9         16.6         -9.8         6.8   

Unprocessed materials of food and beverages

     2,074         2,794         4,379         3,703         3,414         34.7         56.7         -15.4         -7.8   

Processed materials of food and beverages

     1,206         1,113         1,794         2,137         2,244         -7.7         61.2         19.1         5.0   

Processed fuels and oils

     9,183         12,223         16,434         17,424         17,426         33.1         34.4         6.0         0.0   

Consumption goods

     19,290         24,735         29,692         26,699         30,416         28.2         20.0         -10.1         13.9   

Automobiles

     4,265         6,820         8,475         7,248         9,127         59.9         24.3         -14.5         25.9   

Resistant consumption goods

     2,619         3,499         4,337         4,353         4,962         33.6         24.0         0.3         14.0   

Semi-resistant consumption goods

     4,090         5,303         6,453         5,893         6,795         29.7         21.7         -8.7         15.3   

Non-resistant consumption goods

     4,949         5,531         5,895         5,177         5,392         11.8         6.6         -12.2         4.2   

Unprocessed of food and beverages

     596         676         814         809         845         13.5         20.4         -0.7         4.5   

Processed of food and beverages

     1,003         1,366         1,816         1,387         1,619         36.2 &