EX-99.(D)(2) 2 d58827dex99d2.htm EXHIBIT D-2 Exhibit D-2

Exhibit D-2

THE REPUBLIC OF TURKEY

 

LOGO

This description of the Republic of Turkey is dated as of January 19, 2016 and appears as Exhibit D-2 to the Republic of Turkey’s Amendment No. 2 to Annual Report on Form 18-K/A to the U.S. Securities and Exchange Commission for the fiscal year ended December 31, 2014.


TABLE OF CONTENTS

 

     Page  

FORWARD-LOOKING STATEMENTS

     4   

RECENT DEVELOPMENTS AND SUMMARY

     5   

DESCRIPTION OF THE REPUBLIC

     18   

Location, Area and Topography

     18   

Population

     19   

Government Organization and Political Background

     19   

Foreign Policy

     21   

International Organizations

     22   

International Relations

     23   

ECONOMY

     72   

Background

     72   

Gross Domestic Product

     73   

Principal Industries

     76   

Energy

     77   

Agriculture

     87   

Services

     90   

Employment and Wages

     92   

Inflation

     94   

Education

     95   

Environment

     96   

Competition Law

     96   

Intellectual Property

     100   

Social Security System

     104   

Exchange Rates and Exchange Policies

     106   

International Lending

     110   

FOREIGN TRADE AND BALANCE OF PAYMENTS

     114   

Foreign Trade

     114   

Other Goods, Services and Income

     121   

Balance of Payments

     122   

Current Account

     123   

Foreign Direct Investments

     125   

Future Directions

     128   

Capital Account

     134   

International Reserves

     135   

FINANCIAL SYSTEM

     136   

The Central Bank

     136   

Monetary Policy and Inflation

     138   

Banking System

     144   

Capital Markets

     157   

PUBLIC FINANCE

     165   

General

     165   

Central Government Budget

     167   

Taxation

     169   


Personal Income Tax

     170   

Corporate Income Tax

     171   

Investment Incentive System

     171   

Value Added Tax

     172   

Developments in Tax Policy

     174   

Tax Revenues

     178   

State Owned Enterprises (SOEs)

     179   

Privatization Implementations

     183   

Extra-Budgetary Funds

     193   

Local Government

     193   

Public Sector Fixed Investment

     194   

Public Sector Borrowing Requirement

     194   

DEBT

     196   

General

     196   

Domestic Debt

     197   

External Debt and Debt Management

     218   

Risk Management

     228   


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 AND SUMMARY

GENERAL

The Republic’s economy was impacted by the 2008-2009 global financial crisis but has been recovering from the crisis since the last quarter of 2009. The Republic’s GDP increased by 4.0% in the third quarter of 2015 as compared to the third quarter of 2014. See “— Economic Developments”.

From December 14, 2015 to January 13, 2016, 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 4.62%.

On May 13, 2014, an explosion at a coal mine in Soma, Manisa, caused an underground mine fire. 301 people died in that disaster. Following the incident, an investigation was initiated and 24 people were taken into custody. On November 10, 2014, the indictment of the case was presented to the court by the chief public prosecutor. The indictment has been rejected by the court on four grounds, including lack of testimony, lack of evidence, violation of the principle of individual criminal responsibility and submission of charges without including the necessary technical details. On March 7, 2015, the court approved a revised bill of indictment implicating 45 people in connection with the mining incident. The lawsuit is ongoing.

On December 14, 2014, Turkish authorities made over two dozen arrests of media representatives during raids of a newspaper and TV station with close ties to the US-based Islamic cleric Fethullah Gulen, the spiritual leader of the Gulen movement, an opposition movement in Turkey. The arrests were made on charges of forgery, fabricating evidence and forming an illegal organization to oppose the state. On December 14, 2014, European Union officials Federica Mogherini and Johannes Hahn issued a joint statement stating that such actions were incompatible with the freedom of media, which is a core principle of democracy. On December 15, 2014, Turkish President Recep Tayyip Erdogan issued a statement that such steps were necessary and within the rule of law against elements that threaten national security. Following the arrests, several detainees have been released with the remaining subject to further interrogation. On December 19, 2014, the 1st Istanbul Penal Court of Peace issued an arrest warrant for Fethullah Gulen. On February 24, 2015, an Istanbul Court issued a second arrest warrant for him. On September 17, 2015, a Turkish prosecutor sought a jail sentence for Fethullah Gulen of up to 34 years. On October 19, 2015, Istanbul’s High Penal Court issued an arrest warrant for Gulen and Sinan Dursun for “attempting to stage a coup, establishing and masterminding an armed organization and political espionage”. On November 9, 2015, the Istanbul 14th Criminal Court ordered the arrests of Fethullah Gulen and former police officer Emre Uslu over illegal wiretapping, along with 112 suspects. On December 28, 2015, another arrest warrant has been issued for Gulen, along with 60 suspects.

In 2015, there were a series of raids against opposition media outlets and Gulen -associated businesses throughout Turkey. For example, in January 2015, several policemen were arrested for illegal wiretapping and political spying charges. On September 1, 2015, Turkish police raided the Ankara-based offices of a media group affiliated with Fethullah Gulen. Six people were arrested and a warrant was issued for the conglomerate’s chief executive, Akin Ipek. On September 16, 2015, Turkish police issued warrants against eleven executives on charges of organized theft. The arrests took place in the central city of Kayseri, where police raided a university with alleged links to Fethullah Gulen. On October 26, 2015, an Ankara court appointed administrators to take control of the Koza İpek Holding, which Ankara Chief Public Prosecutor’s Office links as a Gulen-associated business.

On March 27, 2015, the Assembly approved the new domestic security law (Law No. 6638). Law No. 6638 was published in the Official Gazette on April 4, 2015 (No. 29316). The new law expands the powers of the Turkish police and increases penalties for people participating in unauthorized demonstrations.

In recent years, the Republic has experienced a number of terror-related incidents. On January 6, 2015, a police station in Istanbul was bombed. In June 2015, four people died and over 400 were injured after two explosions hit the city of Diyarbakir during a pro-Kurdish HDP election rally.

After DAESH’s (a synonym for the Islamic State terrorist group) terrorist attack in Suruç on July 20, 2015, and DAESH’s targeting Turkey’s military border post directly on July 23, 2015, Turkey initiated military actions against this terrorist organization in Syria. On July 24, 2015, Turkish Air Force bombed certain DAESH targets in Syria, based on Turkey’s right of self-defense in accordance with Article 51 of the UN Charter.

 

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On October 10, 2015, two bombs exploded in Ankara during a peace rally killing nearly 100 individuals and wounding over 200 others. On October 28, 2015, the Ankara Chief Public Prosecutor’s office said a DAESH cell from Gaziantep, a province in southern Turkey that borders Syria, carried out the bombing. On January 12, 2016, a bombing in Istanbul killed at least 11 individuals including the bomber, a suspected DAESH activist based in Syria. More than a dozen other individuals were wounded in the attack. Following the suicide bombing, Turkish artillery attacked DAESH positions in Syria and Iraq, killing around 200 fighters within 48 hours.

In late July 2015, the terrorist group PKK declared an end to a two-year cease. Since July 2015, several Turkish soldiers and policemen have been killed by PKK, and Turkish security forces have carried out operations against the terrorist group in Turkey and Northern Iraq. The violence has continued to escalate resulting in hundreds of civilian as well as military casualties, and damage to infrastructure in the southeast region of Turkey. Since July 2015, there have also been airstrikes against PKK targets. In October 2015, Turkish aircraft bombed PKK targets overnight in Turkey and Northern Iraq. The Turkish Government has stated that PKK militants must relinquish their weapons and return to their camps in Northern Iraq before it will halt operations and restart peace talks.

On January 15, 2016 Turkish security forces detained 27 academics on charges of conducting terror propaganda. All of the detained academics were released after questioning.

The Republic is continuing its humanitarian efforts to provide shelter to refugees fleeing the conflict in Syria. As of January 11, 2016, 268,843 Syrian refugees occupied accommodation centers throughout Turkey. As of December 2015, the Republic spent more than U.S.$8 billion for Syrian refugees in Turkey.

On October 6, 2015, a draft action plan was published reflecting an agreement between the EU and the Republic to cooperate on support of refugees and migration management to address the unprecedented refugee crisis created by the situation in Syria and Iraq (the “Action Plan”). The Action Plan identifies collaborative actions to be implemented as a matter of urgency by the EU and the Republic with the objective to assist the Republic in managing the massive influx of refugees and preventing uncontrolled migratory flows from Turkey to the EU. The Action Plan contemplates immediate implementation to be jointly steered and monitored by the European Commission and the High Representative / Vice President and the Republic through the establishment of the EU-Turkey high-level dialogue on migration. On November 29, 2015, the Leaders of the European Union met in Brussels with their Turkish counterpart. In this meeting, the European Union declared that it is committed to provide an initial 3 billion euro of resources to Turkey for Syrian refugees.

On December 10, 2015, Prime Minister Ahmet Davutoğlu announced a structural reform agenda to be completed by January 2017. The main objectives of the structural reform agenda are reaching a high income level with strong and sustainable growth and ‘Inclusive Growth’ which will enable all parts of the society to benefit from the strong and sustainable growth.

Turkey became a member of the G20 troika (past, current and future hosts) on December 1, 2013, and its presidency of the G20 commenced on December 1, 2014. Turkish G20 Presidency hosted the meeting of G20 Ministers of Agriculture on May 6-8, 2015, in İstanbul. This was the first time G20 Agriculture Ministers convened since 2011. G20 Agriculture Ministers expressed their strong support of global efforts to ensure food security and agreed on the importance of establishing economically, socially and environmentally sustainable food systems. The G20 Labor and Employment Ministers Meeting was held on September 3-4, 2015, in Ankara. By adopting G20 Labor and Employment Ministerial Declaration, G20 Labor Ministers agreed upon a target to reduce the share of young people who are at most risk of being permanently left behind in the labor market by 15% by 2025. The first G20 Energy Ministers Meeting in the history of the G20 was held in İstanbul on October 2, 2015, focusing on issues relating to development and access in particular. The G20 Leaders’ Summit was held on November 15-16, 2015, in Antalya. After the conclusion of its term as the G20 President, Turkey passed the presidency over to China on December 1, 2015.

POLITICAL CONDITIONS

The latest general elections were held on November 1, 2015. The AKP, the CHP, the MHP and the HDP received 49.50%, 25.32%, 11.90% and 10.76% of the votes, respectively. After the elections, on November 24, 2015, AKP has formed a single party government.

 

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The following table sets forth the composition of the Assembly by total number of seats as of January 14, 2016:

 

Political Party

   Number
of Seats
 

Justice and Development Party (AKP)

     317   

Republican People’s Party (CHP)

     134   

People’s Democratic Party (HDP)

     59   

Nationalist Action Party (MHP)

     40   

Total

     550   

Source: The Grand National Assembly of Turkey

Following the November 2015 elections, the Government started negotiations to form a new constitution with an aim to replace the existing constitution, which was enacted after the military coup in 1980, with a more democratic one.

INTERNATIONAL RELATIONS

On May 6, 2015, Turkey became an Associate Member of the CERN, the European Organization for Nuclear Research.

On June 18, 2015, the Minister of Energy of Russia Alexander Novak and the Minister of Productive Reconstruction, Environment and Energy of Greece Panagiotis Lafazanis signed a Memorandum of cooperation on the construction and operation of the TurkStream pipeline on the territory of Greece. On June 22, 2015, Turkey issued a permit on engineering surveys for the offshore section of the TurkStream pipeline. On September 14, 2015, Gazprom Deputy CEO Alexander Medvedev announced that the TurkStream pipeline would be postponed due to the political situation in Turkey. On December 3, 2015, Russia has announced that preparatory work on the TurkStream pipeline project was halted.

On August 7, 2015, the Northern Cyprus Water Supply project was completed with the installation of the final part of the pipeline connecting Turkey to the Turkish Republic of Northern Cyprus. In early October 2015, the first fresh water from Turkey reached the Turkish Republic of Northern Cyprus.

On November 10, 2015, the European Commission published EU Progress Report for Turkey. In its report, the European Commission urged Turkey to lift restrictions on media freedom, respect human rights and stop interfering in the judiciary. Report states that Turkey saw a deterioration of its security situation. The European Commission called for a relaunch of peace talks. Regarding the economic criteria, the report emphasized that the Turkish economy is well advanced and can be considered a functioning market economy. Additionally, it confirmed that Turkey is developing the capacity to cope with the competitive pressure and market forces within the EU. The Report also states that political dialogue on foreign and security policy continued, including on counter-terrorism, against the background of Turkey joining the international coalition against DAESH.

On December 14, 2015, Chapter 17-Economic and Monetary Policy of the EU Acquis was opened to negotiations. This brings the number of chapters opened to negotiations to 15, one of which is provisionally closed.

Cyprus

On April 26, 2015, Presidential elections were held in northern Cyprus. Mustafa Akinci won the elections by gaining 60.83% of the votes. Following the completion of the elections, comprehensive settlement negotiations resumed on May 15, 2015. On July 27, 2015, the Turkish Cypriot parliament approved the country’s new coalition government.

United States

On June 11, 2012, the United States issued a waiver to Turkey from certain U.S. extraterritorial sanctions against Iran that otherwise might have applied by reference to Turkish imports of Iranian crude oil. The waiver took effect as of June 28, 2012, for a renewable period of six months and was later superseded by additional sanctions relief under the Joint Plan of Action with Iran, enabling Turkey, among other countries, to continue purchasing its current average amounts of such crude oil from January 20, 2014 forward, subject to the non-involvement of the US financial system and other US elements in those transactions. This sanctions relief was last extended on July 14, 2015 in connection with the Joint Comprehensive Plan of Action (“JCPOA”) through “Implementation

 

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Day” of the JCPOA sanctions relief, at which time the United States will suspend more broadly the relevant extraterritorial sanctions, while leaving in place the primary sanctions against the involvement of US elements in Iran-related oil transactions. On October 18, 2015, the Secretary of State issued contingent waivers of certain statutory sanctions provisions. These waivers will only take effect on Implementation Day. Until Implementation Day is reached, the only changes to the Iran-related sanctions are those provided for in the Joint Plan of Action of November 24, 2013, as extended.

On July 24, 2015, Turkey allowed its Incirlik air base to be used by the United States to fight against DAESH within a certain framework.

Syria

On May 16, 2015, a Turkish fighter jet shot down a Syrian aerial vehicle for violating Turkish air space in accordance with its rules of engagement and determination to protect its borders.

On July 24, 2015, Turkish Air Force bombed certain DAESH targets in Syria, based on Turkey’s right of self-defense in accordance with Article 51 of the UN Charter. Turkish Air Force also targeted PKK militant camps in Northern Iraq.

On August 16, 2015, having reassessed the threats stemming from the conflict in Syria, the United States and Germany decided to pull Patriot missile batteries from southern Turkey.

On December 3, 2015, the Prime Minister of Turkey announced that Turkey is setting up “physical barriers” in the 98-km (61 miles) stretch of land controlled on the Syrian side by DAESH.

On December 18, 2015 United Nations Security Council unanimously agreed a resolution endorsing an international roadmap for a Syria peace process. Turkey has announced that it supports a solution in which Bashar Assad would be transitioned out in the envisaged political transition process through absolute transfer of power to a transitional government.

Russia

Following the launch of Russian airstrikes in Syria commencing on September 30, 2015, on October 3-4, 2015, two Turkish F-16 fighter jets intercepted a Russian plane that entered Turkey’s airspace. The Republic strongly objected to the incidents and on October 5, 2015, NATO issued a statement denouncing the violation of Turkish airspace and requesting that Russia cease its attacks on the Syrian opposition and civilians, to focus its efforts on fighting DAESH, and to promote a solution to the conflict through a political transition.

On November 24, 2015, Turkey’s military downed a Russian warplane near Turkey’s border. The plane had violated Turkish air space after being repeatedly warned to change its course. Since then, relations between Turkey and Russia have deteriorated. Russia has imposed some economic sanctions to Turkey, including a ban on the import of some Turkish foods, banning Russian tourists from visiting Turkey, and a ban on charter flights to Turkey. Russia also announced an end to visa-free travel for Turks to Russia and terminated extension of labor contracts for Turks working there. On November 30, 2015, NATO has announced that Turkey has the right to protect and defend its borders following the downing of a Russian warplane.

On December 7, 2015, Deputy Prime Minister of Turkey has announced that a worst-case scenario of “zero relations” with Russia would cost Turkey about U.S. $9 billion. On December 30, 2015, Russia broadened its sanctions against Turkey, which include restricting new Turkish construction and curbing tourism activities in Russia.

Iraq

On December 6, 2015, Turkey deployed forces to a camp in a region of northern Iraq as a routine rotation to train Iraqis to retake Mosul from DAESH. Iraqi Prime Minister said his country might turn to the U.N. Security Council if Turkish troops sent to Northern Iraq were not withdrawn within 48 hours. Later, Turkey decided to halt transfer of troops. On December 8, 2015, Iraq’s ambassador to the United Nations stated that bilateral talks between the neighboring states were proceeding favorably. On December 18, 2015, Turkey decided to move troops out of Iraq to de-escalate tensions.

 

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ECONOMIC DEVELOPMENTS

The following table sets forth the percentage of GDP represented by economic sector (at current prices and expressed in percentages) for the periods indicated:

 

GDP by Economic Sector

   2014      2015
Q1
     2015
Q2
     2015
Q3
 

1.        Agriculture, forestry and fishing

     7.1         3.9         6.4         12.7   

2.        Mining and quarrying

     1.5         1.0         1.2         1.5   

3.        Manufacturing

     15.8         16.5         16.5         14.0   

4.        Electricity, gas, steam and air conditioning supply

     1.6         1.4         1.5         1.4   

5.        Water supply, sewerage, waste management and remediation

     0.7         0.7         0.7         0.8   

6.        Construction

     4.6         4.4         4.8         4.1   

7.        Wholesale and retail trade

     12.0         11.6         12.0         11.0   

8.        Transportation and storage

     11.9         10.8         11.9         11.6   

9.        Accommodation and food service activities

     2.6         2.1         2.1         3.9   

10.      Information and communication

     1.9         2.1         1.8         1.5   

11.      Financial and insurance activities

     3.0         3.3         2.9         3.9   

12.      Real Estate activities

     9.8         10.6         9.9         9.0   

13.      Professional, scientific and technical activities

     3.4         4.6         3.3         2.6   

14.      Administrative and support service activities

     2.1         2.5         2.1         1.7   

15.      Public administration and defense; compulsory social security

     4.2         4.8         4.1         4.3   

16.      Education

     3.7         4.7         3.8         3.3   

17.      Human health and social work activities

     1.5         1.8         1.5         1.4   

18.      Arts, entertainment and recreation

     0.2         0.3         0.2         0.2   

19.      Other service activities

     1.1         1.1         1.0         1.0   

20.      Activities of household as employers

     0.2         0.3         0.1         0.1   

21.      Sectoral total

     89.0         88.5         87.9         89.1   

22.      Financial intermediation services indirectly measured

     1.4         1.5         1.6         1.4   

23.      Taxes-Subsidies

     12.5         13.0         13.7         12.3   

24.      Gross Domestic Product (Purchaser’s Price)

     100.0         100.0         100.0         100.0   

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 (in %)

   Q1      Q2      Q3      Q4      Annual  

2014

     5.1         2.4         1.8         2.7         2.9   

2015

     2.5         3.8         4.0         

Source: TURKSTAT

For the month of December 2015, CPI increased by 0.21% and domestic PPI decreased by 0.33% as compared to the previous month.

In December 2015, the Republic’s annual CPI and domestic PPI increased by 8.81% and 5.71%, respectively, as compared to the same month of the previous year.

On December 16, 2015, the Government offered an interest rate of 10.79% for its 10-year Government Bond, compared to 8.44% on November 19, 2014.

The calendar adjusted industrial production index increased by 3.5% in November 2015 compared to November 2014 (year on year).

 

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The following table indicates unemployment figures for 2015:

 

2015

   Unemployment
rate
     Number of
unemployed
 

January

     11.3         3,259,000   

February

     11.2         3,226,000   

March

     10.6         3,069,000   

April

     9.6         2,821,000   

May

     9.3         2,789,000   

June

     9.6         2,880,000   

July

     9.8         2,970,000   

August

     10.1         3,058,000   

September

     10.3         3,112,000   

Source: TURKSTAT

On April 2, 2015, the Government announced an 11 item package of investment and employment initiatives to increase employment. The new package is expected to create 120,000 new jobs by increasing the number of employed in public utility professions.

On January 11, 2016, the Medium Term Program covering 2016-2018 period (the “2016-2018 Medium Term Program”) was announced. The main objectives of the 2016-2018 Medium Term Program are increasing stable and inclusive growth, reducing inflation, preserving the decreasing trend in the current account deficit, increasing competitiveness, employment and productivity, and improving fiscal discipline and strengthening public finance. The 2016-2018 Medium Term Program set a central government budget deficit target of 1.3% of GDP by the end of 2016, 1.0% of GDP by the end of 2017, and 0.8% of GDP by the end of 2018. In the 2016-2018 Medium Term Program, the government announced that GDP target growth is 4.5% in 2016, and 5.0% in 2017 and 2018. The primary surplus to GDP target is 0.6% for 2016, 1.1% for 2017, and 1.3% for 2018. The current account deficit to GDP ratio target is 3.9% for 2016, 3.7% for 2017, and 3.5% for 2018.

TOURISM

In November 2015, the number of foreign visitors visiting the Republic decreased by approximately 0.53% to 1,720,554 as compared to the same month of 2014. Between January and November 2015, the number of foreign visitors visiting the Republic decreased by approximately 1.36% to 34,779,841 as compared to the same period in 2014. According to the Turkish Statistical Institute, in the third quarter of 2015, tourism revenues decreased by 4.4% compared to the same period of 2014.

EMPLOYMENT AND WAGES

On December 30, 2015, the Minimum Wage Determination Commission agreed to increase the minimum wage by 30% to TL 1,300 from TL 1,000. In order to prevent a black market economy and support employers, 40% of the effective increase will be compensated by the government. There are around 5.3 million workers on minimum wage payroll in Turkey.

As of October 2015, total civilian employment was approximately 26.9 million of whom approximately 20.4% were employed in agriculture, 27.6% in industry and 52% in services sectors. Moreover, in October 2015, the labor force participation rate was at 56.5%, compared to 55.6% in October 2014. There were approximately 3,509,000 public sector workers at the end of third quarter of 2015.

As of December 2015, the total asset value of the Unemployment Insurance Fund reached to TL 93 billion. Yearly return of the fund for 2015 was 7.64%. Approximately 92% of the Unemployment Insurance Fund is invested in bonds and 8% of the assets are held in deposits.

As of the end of 2015, the number of pension funds offered to the public equaled 249. The total net asset value of these funds increased to approximately TL 48.0 billion in 2015 from TL 37.8 billion in 2014.

 

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FOREIGN TRADE AND BALANCE OF PAYMENTS

In November 2015, the trade balance (according to provisional data) posted a deficit of U.S.$4.236 billion as compared to a deficit of U.S.$8.317 billion in the same period in 2014. In November 2015, total goods imported (c.i.f.), including gold imports, decreased by 10.2% to approximately U.S.$15.974 billion, as compared to approximately U.S.$21.385 billion during the same period in 2014. In November 2015, the import of capital goods, which are used in the production of physical capital, decreased by approximately 12.8% over the same period in 2014; 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 44.9% over the same period in 2014; and the import of consumption goods decreased by approximately 6.7% over the same period in 2014. In November 2015, total goods exported (f.o.b.), decreased by 10.2% to approximately U.S.$11.738 billion, as compared to approximately U.S.$13.067 billion during the same period of 2014. In November 2015, the current account produced a deficit of approximately U.S.$2.105 billion, as compared to a deficit of approximately U.S.$5.794 billion in the same period of 2014.

Net foreign direct investment inflows into Turkey amounted to U.S.$14.1 billion in the period of January – November 2015.

The following table summarizes the balance of payments of Turkey for the periods indicated:

 

in millions of US dollar    2015 Jan-Nov  

CURRENT ACCOUNT

     -27.837   

Trade Balance

     -42.693   

Goods Exports

     139.864   

Goods Imports

     182.557   

Services

     23.554   

Primary Income

     -9.560   

Secondary Income

     862   

CAPITAL ACCOUNT

     -6   

FINANCIAL ACCOUNT

     -10.751   

Direct Investment (net)

     -9.188   

Portfolio Investment (net)

     14.783   

Assets

     6.937   

Liabilities

     -7.846   

Other Investment (net)

     -16.346   

Assets

     12.571   

Liabilities

     28.917   

RESERVE ASSETS

     -5.184   

NET ERRORS AND OMISSIONS

     11.908   

Source: CBRT

In the January-October 2015 period, crude oil import has increased by 42.05% compared to the same period in 2014. In October 2015, natural gas imports increased by 8.83% to 3,745.98 million sm3 compared to 3,442.02 million sm3 in October 2014. In October 2015, liquefied petroleum gas imports increased by 12.5% to 300,616.75 tons compared to 267,244.39 in October 2014.

As of October2015, total gross international reserves of the Central Bank were approximately U.S.$142, 393 million (compared to U.S.$148,302 million as of October 2014). As of October 2015, gold reserves were approximately U.S.$18,439 million (compared to U.S.$19,577 million as of October 2014) and the Central Bank gross foreign exchange reserves were approximately U.S.$100,121 million (compared to approximately U.S.$112,710 million as of October 2014).

As of January 13, 2015, the Central Bank held approximately TL 12.4 billion in public sector deposits.

 

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MONETARY POLICY

The Central Bank set the annual inflation target rate for 2016 at 5.0%. The following table sets forth the quarterly inflation path and uncertainty band for 2015:

Inflation Path Consistent with the Year-End Inflation Target and the Uncertainty Band for 2015

 

     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

On January 13, 2016, the Central Bank foreign exchange buying rate for U.S. dollars was TL 3.0138 per U.S. dollar, compared to an exchange buying rate of TL 2.2778 per U.S. dollar on January 13, 2015.

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

Period-End Exchange Rates

 

     2015      2016**  

Turkish Lira per US Dollar

     2.92         3.04   

Turkish Lira per Euro

     3.19         3.32   

Turkish Lira per 100 Japanese Yen

     2.43         2.61   

Turkish Lira per Currency Basket (*)

     3.05         3.18   

 

(*) The basket consists of U.S.$0.5 and EUR 0.5.
(**) As of January 15, 2016.

Source: CBRT

On August 18, 2015, the Central Bank announced a roadmap for the process of simplifying monetary policy. The main directives of this process are: interest rate corridor would be made more symmetric around the one-week repo interest rate and the width of the corridor would be narrowed (during normalization), overnight borrowing facility provided for primary dealers via repo transactions would be terminated (before normalization), and collateral conditions would be simplified (before and during normalization). In an effort to support financial stability, the Central Bank introduced some incentives to encourage longer term borrowing of banks, and took measures to reduce intermediation costs, among others.

On October 21, 2015, the Monetary Policy Committee held a meeting at which it kept short-term interest rates constant (compared to the prior meeting) as follows:

a) Overnight Interest Rates: the Marginal Funding Rate was kept at 10.75%, and the borrowing rate was kept at 7.25%

b) The one-week repo rate was kept at 7.5%

c) Late Liquidity Window Interest Rates (between 4:00 p.m. – 5:00 p.m.): the borrowing rate was kept at 0% and the lending rate was kept at 12.25%

The Monetary Policy Committee stated that annual loan growth continued at reasonable levels in response to the tight monetary policy stance and macroprudential measures and that the favorable developments in the terms of trade and the moderate course of consumer loans contribute to the improvement in the current account balance. The Monetary Policy Committee also stated that external demand remained weak in the first half of the year, while domestic demand contributed to growth moderately. The Monetary Policy Committee assessed that the implementation of the announced structural reforms would contribute to potential growth significantly. The Monetary Policy Committee noted that energy price developments affect inflation favorably, while exchange rate movements delay the improvement in the core indicators. The Monetary Policy Committee also noted that considering this delay and taking into account the uncertainty in domestic and global markets and the volatility in energy and food prices, the Committee decided to implement a tighter liquidity policy as long as deemed necessary. The Monetary Policy Committee also stated that future monetary policy decisions will be conditional on the inflation outlook, and taking into account inflation expectations, pricing behavior and the course of other factors affecting inflation, the tight monetary policy stance will be maintained.

 

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On November 24, 2015, the Monetary Policy Committee held another meeting at which it kept short-term interest rates constant compared to the prior meeting on October 21, 2015. The Monetary Policy Committee determined that developments in energy prices continue to affect inflation favorably, yet cumulative effects of the exchange rate movements delay the improvement in the core inflation trend. The Monetary Policy Committee also noted that the growth composition appears to be shifting in favor of net exports thanks to the rising demand from the EU countries. The Monetary Policy Committee stated that future monetary policy decisions will be conditional on the inflation outlook; taking into account inflation expectations, the pricing behavior and developments in other factors affecting inflation, the tight monetary policy stance will be maintained.

On December 9, 2015, the Central Bank announced the monetary and exchange rate policy for 2016. The Central Bank noted that it will maintain a price stability-oriented monetary policy framework and while aiming to keep inflation close to the target. The Central Bank stated that the uncertainty band will be maintained at 2% in both directions, as in previous years.

On December 29, 2015, the Monetary Policy Committee held another meeting at which it kept short-term interest rates constant compared to the prior meeting on November 24, 2015. The Committee stated that the desired improvement in the inflation outlook is yet to be seen. Although energy price developments continue to affect inflation favorably, cumulative exchange rate movements delay the improvement in the core inflation trend. Core inflation indicators are expected to remain at high levels in the short run. In addition, year-end unprocessed food inflation is likely to exceed the October Inflation Report projections. The effect of higher-than-targeted inflation expectations and the acceleration in wage increases necessitate close monitoring of the overall pricing behavior. Against this backdrop, the Committee stated that the tight liquidity stance would be maintained as long as deemed necessary. The Committee also stated that recent indicators suggest that domestic demand follows a more moderate course in the last quarter of the year, while external demand offers positive contribution to growth. Although geopolitical tensions pose a downside risk to external demand, the recovery in the European economies contributes to external demand. Meanwhile, the recovery in consumer confidence as well as investment and employment prospects amid waning domestic uncertainties is likely to support domestic demand in the upcoming period. Hence, economic activity is expected to maintain a stable growth trend.

As of January 14, 2016, the one-week repo auction rate of the Central Bank was 7.5%, the Central Bank overnight borrowing interest rate was 7.25% and the Central Bank Marginal Funding Rate was 10.75%.

BANKING SYSTEM

The Republic has a relatively strong, well-capitalized and profitable banking system. The banking system in the Republic had a capital adequacy ratio of 15.52% and a relatively low non-performing loan ratio of 3.05% as of November 2015. This ratio takes into account a moderate increase in non-performing retail loans.

As of November 2015, loan to deposit ratio and net income margin of banking sector is 122.69% and 3.12% respectively.

On May 29, 2015, Turkey’s first state-owned participation bank (a financial institution whose activities are in compliance with Islamic rules), Ziraat Participation Bank, officially began operating.

As of August 28, 2015, the reserve requirement ratios (the “RRRs” and each, an “RRR”) for foreign exchange (FX) denominated liabilities of banks and financing companies were revised in order to encourage the extension of maturities of non-core liabilities. New ratios started to be applied to the liabilities after August 28, 2015 and the maintenance period began on October 23, 2015.

 

Liabilities other than deposits/participation funds

   Current Ratios (%)      New Ratios (%)  

With maturity up to (and including 1 year)

     20         25   

With maturity up to (and including 2 years)

     14         20   

With maturity up to (and including 3 years)

     8         15   

With maturity up to (and including 5 years)

     7         7   

With maturity longer than 5 years

     6         5   

Source: CBRT

 

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As of December 10, 2015, the RRRs for Turkish Lira deposits/participation accounts were between 5% and 8.5% depending on maturity. Furthermore, as of that date RRRs were 11.5% for Turkish Lira demand deposits, notice deposits and private current accounts, and deposits/participation accounts with maturities up to one month and three months (including 1 and 3 months).

In February 2015, the Turkish Banking Regulation and Supervision Agency (the “BRSA”) ordered the seizure of Asya Katilim Bankasi, a publicly traded bank in Turkey that trades as Bank Asya, as a result of which the Turkish Savings and Deposits Insurance Fund assumed management control of the bank. The BRSA announced it was taking such action due to Bank Asya’s violation of a provision of the Banking Law that requires banks to have transparent and open shareholding and organizational structure that does not obstruct the efficient auditing of the bank by the BRSA. On May 29, 2015, the management of Bank Asya was transferred to the Savings Deposit Insurance Fund.

PUBLIC FINANCE AND BUDGET

During the period from January – December in 2015, the central government consolidated budget expenditures were approximately TL 506.0 billion and the central government consolidated budget revenues were approximately TL 483.4 billion, compared to central government consolidated budget expenditures of approximately TL 448.8 billion and consolidated budget revenues of approximately TL 425.4 billion during the same period in 2014. During the period from January – December in 2015, the central government consolidated budget deficit was approximately TL 22.6 billion, compared to a central government consolidated budget deficit of approximately TL 23.4 billion during the same period in 2014.

During the period from January – November December in 2015, the central government consolidated budget primary surplus reached approximately TL 30.4 billion, compared to the central government consolidated budget primary surplus of approximately TL 26.5 billion during the same period in 2014.

In December 2015, the central government consolidated budget expenditures were approximately TL 58.8 billion and the central government consolidated budget revenues were approximately TL 41.6billion, compared to central government consolidated budget expenditures of approximately TL 50.5 billion and consolidated central government budget revenues of approximately TL 38.5 billion during the same period in 2014.

In December 2015, the central government consolidated budget deficit was approximately TL 17.2 billion, compared to a central government consolidated budget deficit of approximately TL12.0 billion during the same period in 2014.

In December 2015, the central government consolidated budget primary deficit reached approximately TL 15.4 billion, compared to a central government consolidated budget primary deficit of approximately TL 10.6 billion during the same period in 2014.

The following table sets forth the details of the central government budget for the period from January-December 2015 and for December 2015.

 

Central Government Budget (Thousand TL)

   January –
December 2015
(cumulative)
     December
2015
 

Budget Expenditures

     56,874,952         17,726,246   

1-Excluding Interest

     10,459,912         3,110,105   

Compensation of Employees

     11,332,833         531,135   

Social Security Contributions

     53,005,740         1,734,184   

Purchase of Goods and Services

     483,386,422         41,593,887   

Current Transfers

     464,784,775         39,473,687   

Capital Expenditures

     407,474,654         34,729,587   

Capital Transfers

     19,655,281         609,778   

Lending

     2,208,499         156,689   

2-Interest

     26,540,977         2,859,946   

Budget Revenues

     7,932,221         498,802   

1-General Budget Revenues

     973,143         618,885   

 

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Central Government Budget (Thousand TL)

   January –
December 2015
(cumulative)
     December
2015
 

Taxes

     15,092,595         1,948,588   

Property Income

     3,509,052         171,612   

Grants and Aids and Special Revenues

     -22,606,010         -17,176,880   

Interest, Shares and Fines

     30,399,730         -15,442,696   

Capital Revenues

     56,874,952         17,726,246   

Collections from Loans

     10,459,912         3,110,105   

2-Special Budget Institutions

     11,332,833         531,135   

3-Regularity & Supervisory Institutions

     53,005,740         1,734,184   

Budget Balance

     483,386,422         41,593,887   

Balance Excluding Interest

     464,784,775         39,473,687   

Source: Ministry of Finance

According to the Constitution, the budget law should be submitted to the Parliament at least 75 days prior to the year end. Moreover, the budget law (either provisional or not) should be enacted before the beginning of the fiscal year. However, due to the busy election calendar, the Parliament was not able to negotiate the budget. Under these circumstances, according to article 19 of the Law 5018 named Public Management and Control, a provisional budget would be enacted. The provisional budget, which covers the period between January 1, 2016 and March 31, 2016, was approved by the Parliament and published in the Official Gazette on December 23, 2015. Given that the revised Medium Term Program has been approved by the Council of Ministers, the preparation of the draft 2016 final budget law has almost been finalized, and this draft is expected to be enacted before the last day of provisional budget, i.e.: March 31, 2016.

PRIVATIZATION

The Government’s plans for privatization include, among others, the remaining shares of Turk Telekom A.S., Turk Hava Yollari A.O., electricity generators/distributors, bridges and ports, toll roads, Halkbank, and the national lottery.

In 2015, the privatization implementations of Turkey amounted to an aggregate U.S.$2 billion in value. The following indicates a summary of the most significant privatization implementations completed in 2015:

 

Name of The Company or Asset

   Date of
Privatization
     Amount (US
Dollar)
 

TCDD - Derince Port

     25.02.2015         543,000,000   

SEAŞ - Soma B Thermal Power Plants and immovable fixed assets of this Plant

     22.06.2015         685,500,000   

EÜAŞ - Orhaneli ve Tunçbilek Thermal Power Plants and immovable fixed assets of BLİ

     22.06.2015         521,000,000   

Note: Only privatizations worth U.S.$100 million or more are listed above.

Overall privatization proceeds realized by the Turkish Privatization Administration (PA) since 1985 have reached U.S.$66.92 billion as of January 15, 2016.

DEBT

On October 30, 2015, the Treasury announced the financing program for 2016. According to this program, total amount of debt service is projected to be TL 122.3 billion, comprising the payments of TL 72.0 billion in principal and TL 50.3 billion in interest. Total domestic debt service is expected to be TL 93.6 billion while total external debt service is expected to be TL 28.7 billion. On the external financing front, the Treasury announced that up to U.S.$4.5 billion equivalent external financing is planned in 2016 through bond and lease certificate issuances in international markets and the total amount of external financing is planned to reach at most U.S.$5.5 billion, with the inclusion of project and program loans from the World Bank, European Investment Bank and other international financial institutions.

 

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The Central Government’s total domestic debt stock was approximately TL 439.5 billion as of the end of November 2015, compared to approximately TL 413.6 billion as of the end of November 2014. In 2015, the average maturity of the Republic’s domestic cash borrowing was 71.8 months, as compared to 68.5 months in 2014. The average annual interest rate on domestic cash borrowing in local currency (including discounted treasury bills/government bonds) on a compounded basis was 9.17% in 2015, compared to 9.62% in 2014.

In 2015, average external borrowing cost for dollar-denominated issuances was approximately 4.7%.

EU-defined general government debt to GDP ratio in third quarter of 2015 was 34.6%, compared to 33.5% in 2014.

The total gross outstanding external debt of the Republic was approximately US$405,985 million (at then-current exchange rates) at the end of the third quarter of 2015, The table below summarizes the gross external debt profile of the Republic (at period end).

 

Gross External Debt Profile (Million USD)    2014      2015  
   Q1      Q2      Q3      Q4      Q1      Q2      Q3  

GROSS EXTERNAL DEBT

     388,140         402,229         397,587         402,482         392,798         404,880         405,985   

SHORT TERM

     125,690         131,555         131,487         132,813         129,452         127,087         120,830   

Public Sector

     17,843         18,159         18,934         17,866         18,165         16,924         15,355   

Central Bank

     762         661         417         342         290         270         208   

Private Sector

     107,085         112,735         112,136         114,605         110,997         109,893         105,267   

LONG TERM

     262,450         270,674         266,100         269,669         263,346         277,793         285,155   

Public Sector

     99,376         101,402         100,130         99,844         95,223         98,796         99,447   

Central Bank

     4,100         3,628         2,527         2,142         1,820         1,708         1,344   

Private Sector

     158,974         165,643         163,444         167,683         166,303         177,288         184,363   

Source: Undersecretariat of Treasury

SUMMARY OF KEY ECONOMIC INDICATORS

The following table summarizes the key economic indicators of Turkey for the periods indicated:

 

     2010      2011      2012      2013      2014      2015  

Nominal GDP (billion TL)

     1,099         1,298         1,417         1,567         1,747         1,445

Real GDP Growth (%)

     9.2         8.8         2.1         4.2         2.9         3.4

Unemployment (%)

     11.2         9.2         8.4         9.1         10.0         10.2   

Consumer Price Index (%)

     6.40         10.45         6.16         7.40         8.17         8.81   

Domestic Manufacturing Producer of Price Index (%)

     6.02         13.3         5.5         4.5         11.4         5.9   

Current Account Deficit (million USD)

     45,312         75,008         48,535         64,658         46,526         27,837 ** 

Public Sector Budget Primary Balance /GDP (%)

     0.7         1.8         0.8         1         0.6         0.8 *** 

Central Government External Debt Stock (million USD)

     78,085         79,184         81,710         85,663         85,162         81,099 ** 

Public Sector Borrowing Requirement/GDP (%)

     2.4         0.1         1         0.5         0.6         0 *** 

Source: TURKSTAT, CBRT, Treasury

* 9 months
** As of November
*** 2016-2018 Medium Term Program target

 

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In 2015, growth was mainly driven by the increase in domestic demand and private investments. External demand’s contribution to growth has been negative. The unemployment rate increased due to the rise in labor force participation. Inflation increased due to increases in food prices and unfavorable exchange rates. The current account deficit in 2015 improved due to the decline in oil and commodity prices. The current account is mainly financed through long-term sources and direct capital investments. Domestic debt security yields have been increasing primarily because of the overall increase in global rates and tight liquidity conditions.

 

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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 International Monetary Fund (“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 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 2014, agriculture, industrial sector and services sector accounted for 8.0%, 22.0% and 70.0% of GDP respectively. The average GDP growth rate during the 2010-2014 period was 5.4%. 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.

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.

 

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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 77,695,904 on December 31, 2014. The annual population growth rate for Turkey in 2014 was 1.3%, compared to an annual growth rate of 1.4% in 2013. 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, Aydin, Balikesir, Bursa, Diyarbakir, Gaziantep, Hatay, Kahramanmaraş, Kayseri, Kocaeli, Konya, Manisa, Mersin, Samsun, Sanliurfa and Van.

In 2014, total employment was 25,933 million, with approximately 21.1% employed in agriculture, 20.5% in industry and 58.4% in services (including construction). See “Economy-Employment and Wages.” The unemployment rate was 9.9% in 2014.

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 11.1 per thousand live births for the year 2014. According to the Address Based Population Registration System, the adult literacy rate among individuals aged 6 years and over increased sharply from 80.5% in 1990 to 96.1 in 2014.

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

 

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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.

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 Law No. 2839 provides that parties whose nationwide vote in general elections is less than 10% are not eligible for seats 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 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. In March 2014, the former chief of staff, sentenced to life imprisonment, was released by a decision of the Constitutional Court, on the grounds that he had been ‘unlawfully deprived of his freedom’. As a result of the court’s decision, more than 50 people convicted in the case were also released. In May 2015, the Supreme Court of Appeals Prosecutor’s Office has requested the reversal of the decision. The 16th Criminal Chamber of the Supreme Court of Appeals will hold the first hearing in the appeal case on October 6, 2015.

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. On March 31, 2015, all suspects in the case were acquitted.

The AKP won the 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 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.

On August 10, 2014, the presidential elections were held. Recep Tayyip Erdogan was elected by absolute majority vote to a five-year term as president. Recep Tayyip Erdoğan received 51.79% of the total votes, whereas Ekmeleddin Ihsanoglu, the joint candidate of the Republic’s two largest opposition parties, claimed 38.44% and Selahattin Demirtas, candidate of the pro-Kurdish Democratic Regions Party (formerly the Peoples’ Democracy Party), won 9.76%.

On December 14, 2014, Turkish authorities made over two dozen arrests of media representatives during raids of a newspaper and TV station with close ties to the US-based Islamic cleric Fethullah Gulen, the spiritual leader of the Gulen movement, an opposition movement in Turkey. The arrests were made on charges of forgery, fabricating evidence and forming an illegal organization to oppose the state. On December 14, 2014, European Union officials Federica Mogherini and Johannes Hahn issued a joint statement stating that such actions were incompatible with the

 

20


freedom of media, which is a core principle of democracy. On December 15, 2014, Turkish President Recep Tayyip Erdogan issued a statement that such steps were necessary and within the rule of law against elements that threaten national security. Following the arrests, several detainees have been released with the remaining subject to further interrogation. On December 19, 2014, the First Istanbul Penal Court of Peace issued an arrest warrant for Fethullah Gulen.

The latest general elections were held on June 7, 2015. The AKP, the CHP, the MHP and the HDP received 40.66%, 25.13%, 16.45% and 12.96% of the votes, respectively. The following table sets forth the composition of the Assembly by total number of seats as of July 31, 2015:

 

Political Party

   Number of Seats  

Justice and Development Party (AKP)

     258   

Republican People’s Party (CHP)

     131   

Nationalist Action Party (MHP)

     80   

People’s Democratic Party(HDP)

     80   

Independents

     1   

Total

     550   

Source: The Grand National Assembly of Turkey

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, the country’s foreign policy has developed, always on the basis of this principle and in line with changes in the domestic and international environment.

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 be a positive influence and to help generate stability, security and prosperity in its region and beyond.

In pursuit of creating peace and prosperity in the 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 solution 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 European Union (the “EU”) remain the main pillars of 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 on greater responsibility in global humanitarian and development initiatives, thus becoming a leading donor country internationally. Furthermore, Turkey has been playing a more prominent 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 such as the United Nations Alliance of Civilizations and Mediation for Peace towards promoting tolerance and strengthening the role of mediation in the United Nations (the “UN”) and other international forums.

Strong commitment to human rights, the rule of law and democracy are among the guiding principles for Turkey in pursuing foreign policy objectives. With this understanding, Turkey gives its full support to protection, promotion and effective implementation of fundamental human rights in its surrounding region and beyond, as well as making significant contributions to the international standard-setting activities with respect to human rights.

Turkey has become party to the principal international human rights treaties of the UN.

 

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Turkey is party to the European Convention on Human Rights and to a large number of protocols and other Council of Europe Conventions, including Protocol 6 and 13, abolishing the death penalty in all circumstances.

A series of comprehensive reforms have been introduced in line with Turkey’s international commitments and aspirations to further improve the standards of human rights, the rule of law and democracy. Existing legislation has been revised with a view to further align the domestic legal framework with international standards and principles, particularly those set by the European Court of Human Rights and the EU’s Copenhagen political criteria.

Turkey is committed to pursuing an active foreign policy which aims to strike 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 with the goal of ensuring that opportunities and cooperation prevail over risks and conflicts.

INTERNATIONAL ORGANIZATIONS

The Republic of Turkey has always placed great importance on multilateral cooperation and thus has played an active role in regional and international organizations. Its vision of contributing to peace and stability has not been limited to neighboring regions, rather Turkey’s involvement has highlighted the importance of political dialogue, increased social, cultural and economic interaction, cultural harmony and tolerance among all nations to avoid tensions and conflicts. Through the years, the country has greatly contributed to disseminating these messages to other countries and regions to ensure a free, prosperous and secure world for all. Turkey is the founding member of the UN, the Council of Europe, the EBRD and the Organization for Security and Cooperation in Europe (OSCE). Turkey is also a member of NATO, the 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 is a member of 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 one of the founding members of the UN, Turkey has been playing an active and constructive role regarding all issues on the UN agenda. During the 2009-2010 period,

 

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Turkey served on the UN Security Council (UNSC) 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 UNSC’s agenda.

Turkey is a founding and an active member of the Organization of the Islamic Cooperation (“OIC”) and will host the 13th Islamic Summit of the OIC from March 31 to April 1, 2016 in İstanbul. Starting with this Summit, Turkey will assume the Summit Chairmanship for a period of three years.

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 would 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 of the G-20 commenced on December 1, 2014.

Turkey is one of the founding members of International Maritime Organization (“IMO”) and a 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 in areas like maritime safety, fisheries and shipping. Turkey is also party to major IMO Conventions and Protocols.

Moreover, Turkey became an Associate Member of CERN, the European Organization for Nuclear Research, on May 6, 2015, following Turkey’s ratification of the Associate Member Agreement signed in 2014, granting Associate Member status to the country. Turkey’s Associate Membership will strengthen the long-term partnership between CERN and the Turkish scientific community.

INTERNATIONAL RELATIONS

EUROPEAN UNION

In 1963, Turkey signed an association agreement (Ankara Agreement) with the European Economic Community (“EEC”), which is now the EU. In 1970, an additional protocol to the Ankara 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 the EU. In December 1989, the European Commission in its “Opinion on Turkey’s Request for Accession to the Community” determined that the EEC could not accept a new member or engage in new accession negotiations prior to 1993, at the earliest. Moreover, the opinion stated that Turkey would have to fulfill certain requirements in terms of the country’s economic, social and political developments prior to any accession negotiations.

With the completion of the Customs Union, the association between Turkey and the EU, in accordance with the Ankara Agreement, entered its final stage and at the European Council (the “EU Summit”) held in Helsinki in December 1999, Turkey was granted

 

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candidate status. The recognition of Turkey as a candidate country for accession to the EU ushered in a new era in Turkey-EU relations. The Accession Partnership Document for Turkey was approved by the Council of the European Union (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 Document and the NPAA are revised on a regular basis to take note of the progress made and to include new goals and priorities.

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 Ankara Agreement to all members of the EU prior to the actual start of accession negotiations. However, Turkey 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 an exchange of letters among Turkey, the EU Presidency and the European Commission on July 29, 2005. Turkey issued an official declaration, as an integral part of its letter, that its signature, ratification and implementation of the Protocol neither amount to any form of recognition of the Republic of Cyprus referred to in the Protocol; nor prejudice Turkey’s rights and obligations under the Treaty of Guarantee, the Treaty of Alliance, and the Treaty of Establishment of 1960. Accordingly, Turkey stated that, pending a comprehensive settlement, its position on Cyprus would remain unchanged and expressed its readiness to establish relations with the new Partnership State, which would emerge following a comprehensive settlement in Cyprus.

The European Council (the EU Summit) of 2004 confirmed that Turkey had fulfilled the “Copenhagen criteria,” which enumerates the prerequisites for opening accession negotiations with Turkey and on October 3, 2005, the Turkey-EU Intergovernmental Conference met for the first time, officially initiating the accession process.

Accession Negotiations

In Turkey’s EU accession negotiations, 14 chapters have been opened to negotiations, outlined in the table below, and one chapter is temporarily closed.

 

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Chapters open to negotiations:

Chapter 25- Science and Research (provisionally closed) (Austria, 12.06.2006)

Chapter 20- Enterprise and Industrial Policy (Germany, 29.03.2007)

Chapter 18- Statistics (Germany, 26.06.2007)

Chapter 32- Financial Control (Germany, 26.06.2007)

Chapter 21- Trans-European Networks (Portugal, 19.12.2007)

Chapter 28- Consumer and Health Protection (Portugal, 19.12.2007)

Chapter 6- Company Law (Slovenia, 17.06.2008)

Chapter 7- Intellectual Property Law (Slovenia, 17.06.2008)

Chapter 4- Free Movement of Capital (France, 19.12.2008)

Chapter 10- Information Society and Media (France, 19.12.2008)

Chapter 16- Taxation (Czech Republic, 30.06.2009)

Chapter 27- Environment (Sweden, 21.12.2009)

Chapter 12- Food Safety, Veterinary and Phytosanitary Policy (Spain, 30.06.2010)

Chapter 22- Regional Policy and Coordination of Structural Instruments (Lithuania, 05.11.2013)

Although more than nine years have passed since the screening process, there are still nine chapters for which screening reports have not been approved and opening benchmarks have not been communicated to Turkey. Those chapters are: Chapter 2-Freedom of Movement for Workers, Chapter 13-Fisheries, Chapter 14- Transport Policy, Chapter 15-Energy, Chapter 23-Judiciary and Fundamental Rights, Chapter 24-Justice, Freedom and Security, Chapter 30-External Relations, Chapter 31-Foreign, Security and Defense Policy, Chapter 33-Financial and Budgetary Provisions.

According to the EU General Affairs and External Relations Council Decision of 11 December 2006, fulfilment of Turkey’s commitments under the Additional Protocol is the opening benchmark for eight chapters and the closing benchmark for all chapters.

The aforementioned decision states that: “The Council decided in particular to suspend negotiations on eight chapters relevant to Turkey’s restrictions with regard to the Republic of Cyprus, and will not close the other chapters until Turkey fulfils its commitments under the additional protocol to the EU-Turkey association agreement, which extended the EU-Turkey customs union to the ten member states, including Cyprus, that joined the EU in May 2004.”

 

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

As a result, 14 chapters have been politically blocked in light of the Cyprus issue. Turkey is ready to revive the process and proceed in the negotiations, which, however, may be difficult as long as the political blockages are in place. Currently, Turkey’s priority is to open Chapter 17-Economic and Monetary Policy. Following the subcommittee meeting on March 13, 2015, Turkey submitted its complementary Negotiating Position to the EU on March 20, 2015. At the same time, Common Position of the EU was prepared by the European Commission and submitted to the Council. Turkey expects the Chapter to be open to negotiations in the near future.

Further Efforts to Accelerate Accession Negotiations

1. Turkey’s New EU Strategy

The 62nd Government of Turkey was formed on August 29, 2014 and H.E. Ambassador Volkan Bozkır became Minister for EU Affairs and Chief Negotiator. The Government reiterated its commitment to the EU accession process through Turkey’s New EU Strategy (EU Strategy), which was announced by Mr. Bozkır on September 18, 2014. The EU Strategy rests on three pillars: determination in the political reform process, continuity in socio-economic transformation and effectiveness in communication.

The first pillar of the strategy involves the political reform process. The Reform Monitoring Group, which was established in 2003 and ensures the proper implementation of political reforms in Turkey, has been restructured as the Reform Action Group (RAG) to ensure more effective functioning of the reform implementation process. RAG will not only monitor the political reforms but also prepare and implement the reforms. The two initial meetings of the RAG were held on November 8, 2014 and February 20, 2015.

The second pillar of the EU Strategy is socio-economic transformation in Turkey, which is a continual process essential to fostering and consolidating democracy. Accordingly, a two-phase National Action Plan has been established, which focuses, among other things, on proper enforcement of relevant legislation to further raise the living standards of Turkish citizens. The National Action Plan is expected to be implemented in two phases, the first phase covers the period between November 2014 and June 2015 and the second phase covers the period between June 2015 and June 2019. The National Action Plan sets out priorities of Turkey in the negotiation of chapters with respect to the alignment of primary and secondary legislation with the EU acquis, as well as institutional capacity building initiatives along with other relevant work.

 

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Moreover, to ensure that new legislation is drafted in line with the acquis, the Prime Ministry issued a Circular on September 25, 2014, which designates the EU Ministry as the coordinator institution to oversee the accession process.

The third pillar of the EU Strategy, Turkey’s “EU Communication Strategy,” was announced to the public on October 16, 2014. The EU Communication Strategy has two dimensions. The first dimension covers communication within the country, which aims to contribute to the domestic perception of the Turkish people of the EU accession process as a modernization project that aims to improve the living standards of Turkish people. The second dimension of the strategy addresses the European public opinion of Turkey and its accession negotiations with the EU.

In this context, the Ministry for EU Affairs hosted Civil Society Dialogue Meetings in six different cities, including İstanbul (on November 26, 2014), İzmir (on February 19, 2015), Konya (on March 18, 2015) Adana (on March 24, 2015), Bursa (on April 22, 2015) and Antalya (on April 28, 2015). Hundreds of Civil Society Organizations (“CSOs”) representing businesses, universities, different interest groups and local administrations were invited and over 2,000 participants in each of those cities attended the meetings. During the meetings, CSOs expressed their thoughts about Turkey’s EU accession process and shared their opinions/recommendations on how to establish a better dialogue between civil society and the public sector and participate more actively in every aspect of this process. The meetings created a forum and an opportunity not only for the CSO’s voices to be heard, but also for the Ministry to explain to the CSOs the goals of the EU Strategy, as well as discuss the EU funds available for CSO’s development, and for promoting public-civil society dialogue and civil society dialogue between Turkey and EU.

Within the framework of the “New European Union Communication Strategy,” to ensure contribution of all segments of Turkish society to the EU accession process, the Ministry for EU Affairs continues to take determined steps, such as opening its second Office in Antalya on December 21, 2014 and its third Office in İzmir on February 19, 2015, in addition to its headquarters in İstanbul. The three offices plan to work together to achieve harmonization and effective implementation of the EU acquis at a local level. The offices also plan to work in close cooperation with NGOs, municipalities, and public institutions in all EU related activities at the local level and to ensure efficient use of EU financial assistance to Turkey.

2. Sub-Committees

In order to monitor progress made with respect to the goals outlined in the Accession Partnership Document and align with EU acquis, eight sub-committees to the Association Committee were established by Decision No: 3/2000 of the EC-Turkey Association Council on April 11, 2000. However, because the subcommittees were established before the accession negotiations began, they remained a mechanism to harmonize the EU acquis, and therefore they lacked the capabilities needed to effectively respond to the challenges of the negotiation process.

 

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These problems also affected continuity of sub-committee meetings and sub-committees had not met for nearly 3 years. Meanwhile, the success of the Positive Agenda exercise and the working groups established has shown that working on a chapter basis is much more efficient and result-oriented. Based on the results obtained from the working group experience, Turkey and the European Commission agreed on a new chapter-based methodology for sub-committee meetings. To date, six sub-committee meetings employing this methodology have already been held. The remaining sub-committees as well as some chapter-based meetings are planned to be held in autumn. Turkey expects sub-committees to deal specifically with opening and closing benchmarks and to be informed via official letters from the European Commission about the progress being made with respect to relevant benchmarks following sub-committee meetings.

3. Dialogue Platforms

Recently, new dialogue platforms were established between Turkey and the EU. Turkey welcomes intensifying the dialogue for deepening Turkey-EU relations, however the dialogue mechanisms between Turkey and the EU are not a substitute for the accession process. These mechanisms complement and support the accession process. For example, one of such dialogue platforms is the Turkey-EU Political Dialogue Meetings at Ministerial Level, which are being held regularly and have been since 2010. In these meetings, Turkey-EU relations and the accession process are discussed comprehensively and views are exchanged on regional and global issues which concern both parties. The EU-Turkey Strategic High Level Energy Dialogue was launched on March 16, 2015 and demonstrates the willingness of Turkey and the EU for further cooperation. Turkey is a natural energy hub between the energy resources of the Middle Eastern and Caspian Regions and the EU energy markets. Turkey’s development as an energy hub would be beneficial to both Turkey and the EU. Turkey hopes to set up new platforms in the future, such as a high level economic dialogue platform as well as others.

Political Reforms

Since 1999, a comprehensive transformation and reform process in line with the goal of EU accession has been underway. Turkey’s objective is full compliance with the EU Copenhagen political criteria and political reforms in the areas of human rights, democracy and the rule of law, which are prerequisites to EU accession.

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

 

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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, promoting respect for human rights and fundamental freedoms, and consolidating the rule of law and the independence of the judiciary.

The Reform Monitoring Group, a ministerial group consisting of the Minister for EU Affairs and Chief Negotiator, the Minister of Justice, the Minister of Foreign Affairs and the Minister of Interior, was set up in 2003 and gathered continuously afterwards. As mentioned previously, following its last meeting in July 2014, the Reform Monitoring Group was restructured as the Reform Action Group (“RAG”). There already exists significant coordination between the participating Ministries in RAG, which are supportive of new and comprehensive reform initiatives. The RAG will no longer just monitor the political reforms, but it will also take on an active role in the whole cycle of the reform agenda, contributing to the preparation, adoption and implementation phases of reforms.

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 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 Reform 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 legislation supporting 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 Reform Package: Law on Private Education Institutions, Law on Settlement and Law on Establishment and Legal Procedures of Military Courts.

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 of contributing to the protection and development of women’s rights. The Commission for Equal Opportunity continues to monitor developments on this issue at the national and international levels.

 

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In June 2009, the Turkish Parliament adopted 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 peace time 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’s practices with EU practices. The Law came into force on June 30, 2010.

The comprehensive constitutional amendment adopted in 2010 led to improvements in the area of the judiciary and in the area of rights and freedoms which are mainly introducing positive discrimination for women, children and vulnerable people including the elderly and the disabled, and freedom of assembly. 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.

In 2009, the Government launched the “National Unity and Brotherhood Project,” publicly known as the “Solution Process.” The main objective of the Solution Process is raising democratic standards in Turkey for all citizens without any discrimination. The Solution Process has led not only to an open public debate but also to certain improvements in the area of cultural rights. The barriers to learning and supporting the different languages and dialects used traditionally by the Turkish citizens and to their use in political campaign were removed and the Government took many supportive measures to keep these languages alive. These supportive measures included broadcasting in different languages and dialects programs on state-owned television and radio and the establishment of institutions and introduction of academic centers to preserve these languages, as well as offering elective courses to teach these languages in compulsory education.

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

The Democratization Package announced 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

 

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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 establishment of the Anti-Discrimination Commission, as well as ensuring that a bigotry motive is taken into account as an aggravating circumstance in criminal proceedings.

After five years’ implementation, the Judicial Reform Strategy, which aims to further strengthen the independence, impartiality, efficiency and effectiveness of the judiciary, was renewed in 2015 with the contributions of all stakeholders in an open dialogue. Within the framework of the Judicial Reform Strategy, Turkey has adopted six judicial reform packages beginning in 2011. The amendments to the legislation were introduced to strengthen independence and impartiality and increase the effectiveness of the judiciary as well as to reduce the backlog of cases.

The First and Second Judicial Reform Packages 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. On July 2, 2012, the Turkish Parliament adopted new measures, known as the Third 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 Third Judicial Reform Package includes the number of people who received probation, which was 104,662 in 2010, 130,402 in 2011, and 197,400 as of December 2012.

Especially the Third and the Fourth Packages were designed to improve human rights and governance and to overcome the problem of long trials, as guided by the European Convention on Human Rights and case-law of the European Court of Human Rights. The Law also introduces the concept of a “judge of liberty” who is assigned to guarantee the personal freedom and security and the right to a fair trial. Instead of the judge who is hearing the case, another judge, known as the “judge of liberty” is assigned to decide on the measures of protection of suspects (such as search and seizure, apprehension, detention, arrest, appeal to arrest) during investigations. This new system has started to produce results to further strengthen the impartiality of the judiciary. The Packages also amended certain provisions in penal legislation including detention orders, administrative judiciary and legislation regarding freedom of expression and freedom of the press as well as fight against corruption. The amendments to the Turkish Criminal Code and the Anti-Terror Law give more room for interpretation in favor of freedom of the press and freedom of expression. In addition, the Packages amended the statute of limitations that existed with respect to offences of torture, by making them inapplicable to such offences.

The Fifth Reform Package contributed to enhancing legislation to ensure the right to a fair trial, personal freedom and protection of privacy and personal data, as well as presumption of innocence. The Sixth Reform Package introduced the regional courts of

 

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appeal in administrative judiciary, which courts are to act as a filter between first instance courts and Council of State. Regional Courts of Appeal may either uphold or quash the decision of the First Instance Courts. The Council of State is the last instance for reviewing judgments rendered by administrative courts. This in turn reduces the length of trials in administrative judiciary while strengthening the Council of State’s main role- safeguarding legal uniformity through case-law by reducing its backlog. In the area of human rights, the amendments strengthened the effectiveness of the penalties regarding offences against sexual integrity.

The Law amending the Law on Judges and Prosecutors and Certain Laws and Decree Laws entered into force December 12, 2014. The Law mainly aims to further strengthen independence, impartiality and the effectiveness of the judiciary in line with the provisions of the European Convention on Human Rights and case law of the European Court of Human Rights. The Law on Eradicating Terrorism and Strengthening Societal Integration was enacted to further enhance the on-going solution process and strengthen societal integration. It went into force in July 2014.

The Law amending the Law on Duties and Competencies of the Police and Certain Laws and Decree Laws (known as Reform Package on Internal Security and Protection of Freedoms) was adopted by the Parliament on March 27, 2015. The Law is aimed at striking a necessary balance between freedom and security.

New democratic institutions were established, which created notable improvements in the process of institutionalization of human rights. The Human Rights Institution, for example, is a public legal entity which has administrative and financial autonomy and has its own budget. The Laws regarding the Human Rights Institution of Turkey play a central role in protecting human rights. The Ombudsman Institution aims to 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. The establishment of an Ombudsman system is a first in Turkey and one of the most important steps taken to improve accountability, fairness and transparency of the public administration.

Following the Constitutional changes that were adopted by a referendum held in September 2010, the implementation of the individual application system to the Constitutional Court began on September 23, 2012.

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 Agreements entered into force in October 2012.

With the Law on Mediation in Legal Disputes, published in the Official Gazette on June 22, 2012, a mediation system was established through which the parties may freely address disputes arising from private law procedures. With this system, disputes can be resolved through a mediator chosen by the parties.

 

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Significant steps have been taken to enhance the dialogue with different faith groups. The Ministers and Government officials have been continuously holding meetings with the representatives of religious communities to address their problems. Prime Minister Ahmet Davutoğlu met with the religious leaders and representatives of different faith groups twice in the first half of 2015. As a result of this open dialogue, the problems of these citizens in many areas, ranging from education to religious freedoms, were successfully addressed.

Following the request of the Greek community for a Greek Primary School in Gökçeada, permission was given as of March 28, 2013 to open a Greek minority school in Gökçeada. Furthermore, In September 2014, the Ministry of National Education approved the opening of the Private Mor Ephrem Syriac Kindergarten by Beyoğlu Virgin Mary Chaldean Church Foundation in Yeşilköy, İstanbul.

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 applied to 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. 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 Foundations and the Foundations Assembly has decided for the return of 333 immovable properties, and has decided to pay compensation for 21 immovable properties.

On February 20, 2008, the Assembly adopted the new Foundations Law (Law No. 5737). This new Law that was published in the Official Gazette No. 26800 on February 27, 2008 allowed 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.

 

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An important step was taken to resolve a long-standing issue regarding the immovable properties of minority foundations by an amendment to the Law on Foundations in August 2011 and its implementing By-law dated October 1, 2011. The Foundations Assembly has already decided to return 318,333 immovable properties, and to award compensation for 21 immovable properties.

In addition, as a part of the Democratization Package, the disputed property of Mor Gabriel Monastery was returned to the Monastery Foundation in 2013.

Some churches and monasteries, including Sumela Monastery, Armenian Church of Akdamar on Lake Van and Surp Giragos (an Armenian Orthodox Church at Diyarbakir) that have been closed for years to religious ceremonies were opened. The recent example of reforms is the restoration of the Great Synagogue in Edirne by the General Directorate of Foundations, which opened for worship on March 26, 2015.

Visa Liberalization Dialogue

The launch of the Visa Liberalization Dialogue on December 16, 2013 was an important point in Turkey-EU relations. The Readmission Agreement was signed on the same day. Steps towards ensuring timely completion of the Visa Liberalization Dialogue and effective implementation of the Turkey-EU Readmission Agreement are being taken together with all the relevant Turkish institutions and with the collaboration of the European Commission.

The European Commission has already reported on October 20, 2014 that Turkey has fulfilled 62 out of 72 criteria presented in the Visa Liberalization Roadmap to some extent. The European Commission is expected to publish its second report on the Visa Liberalization Dialogue in November 2015. It is expected to conclude the Visa Liberalization Dialogue and obtain visa-free travel for Turkish citizens within a reasonable timeframe after the start of full implementation (vis-a-vis third country nationals and stateless persons) of the Readmission Agreement in late 2017.

In addition, the Visa Liberalization Dialogue should be evaluated and conducted independently from the rights and acquisitions stemming from the Association Law. In this regard, it is mentioned in the Readmission Agreement that this Agreement shall be without prejudice to the provision of the Ankara Agreement, its additional protocols, the relevant Association Council decisions as well as the relevant case-law of the Court of Justice of the European Union.

Harmonization with the Acquis

It has been half a century since the association relationship was established between Turkey and the EU. The EU has been a driving force for various reforms carried out in the country in the last fifty years. Especially since the establishment of the Customs Union in 1996, Turkey has continued its reform process in every field of the acquis and

 

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achieved an advanced level of alignment in most of them. In this regard, in 2014 alone, 24 primary and 154 secondary legislative enactments were made affecting the harmonization process with the EU acquis. Some outstanding steps aiming to align Turkish legislation with the EU acquis are mentioned below.

The 2010-2014 Anti-Corruption Strategy (The Strategy on Enhancing Transparency and Strengthening the Fight against Corruption) and its Action Plan was completed successfully. Turkey is committed to fight against corruption based on the principles of the 2010-2014 Anti-Corruption Strategy. Prime Minister Davutoğlu announced the legislative package on transparency in public life in January 2015. 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 took 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, the Law on the Prevention of the Financing of Terrorism and its implementing regulation were adopted in 2013. In addition, MASAK General Communiqué No. 12 entered into force on June 21, 2014 to ensure proper implementation of the mentioned primary legislation. After the new counter-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. As a result of aforementioned improvements, at its Plenary in October 2014, the FATF decided that Turkey had taken sufficient steps in addressing technical compliance with its Core and Key Recommendations, and removed Turkey from the targeted follow-up process. Furthermore, Turkey was also removed from the ICRG process of the FATF which detects and publicly announces high-risk jurisdictions in the same Plenary.

On September 26, 2011, The Council of Ministers approved the Decree-Law on Organization and Duties of 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, namely 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.

 

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On January 11, 2011, the Assembly approved the new Turkish Code of Obligations (Law No. 6098). Law No. 6098 was published in the Official Gazette No. 27836 of February 4, 2011. 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” 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 Commerce (Law No. 6102) and it was published in the Official Gazette No. 27846 of February 14, 2011 and entered into force on July 1, 2012. Under the new Turkish Code of Commerce (“TCC”), 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 TCC 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 TCC.

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

The Capital Markets Law (No. 6362) entered into force on December 30, 2012. It includes 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.

Payment and Securities Settlement Systems, Payment Services and E-Money Institutions Law No. 6493 entered into force on June 27, 2013. The Law was prepared in line with Turkish commitments to the EU alignment process. It regulates the payment and securities settlement systems, payment services, payment service providers and e-money institutions. The Law also aims at promoting financial stability, providing a sound legal basis for the payments area, supporting the developments in the payments area and contributing to the financial inclusion in Turkey.

 

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Turkey signed the Convention on Cybercrime of the Council of Europe on November 10, 2010, which was ratified on April 22, 2014. The convention entered into force on January 1, 2015. This Convention will be useful to better implement limitations on illegal internet content, since it streamlined current regulations and provided a sound framework for the use of internet.

Moreover, implementation of the Southeastern Anatolia Project (“GAP”) for development continues. GAP includes a wide-ranging array of investment products from agriculture to health, education and transportation. The GAP Action Plan Phase I was implemented in 2008-2012. During the first implementation period of the Plan, the share of GAP initiatives in public investments increased from 7% to nearly 14%. More than TL 30 billion (around €12.7 billion) was allocated for investment in GAP Region in the 2008-2012 periods. Within the framework of the GAP Action Plan Phase II (2014-2018), almost €8.9 billion (TL 26.7 billion) is allocated to the region. Moreover, Konya Plain (“KOP”), Eastern Black Sea (“DOKAP”) and Eastern Anatolia (“DAP”) development action plans were adopted and have been implemented by their respective development administrations.

Progress Reports

Since 1998, the European Commission annually publishes its regular Progress Reports on Turkey, as well as the Enlargement Strategy Paper, which evaluate developments in all candidate and potential candidate countries.

The 2010 Progress Report on Turkey and the 2010-2011 Enlargement Strategy were published on November 9, 2010. The report states that Turkey continues to sufficiently fulfill the political criteria. The package of Constitutional amendments approved in a referendum on September 12, which created the conditions for progress in a number of areas, such as the judiciary and fundamental rights and public administration. The report also underlines that economic growth resumed in 2009 and accelerated in 2010, recouping most of the losses incurred during the crisis. Fiscal sustainability was maintained and access to external finance remained unproblematic for both the public and private sectors. Trade and economic integration with the EU remained high and Turkey strengthened its presence in new markets. Privatization and economic reforms advanced, albeit at a slower pace. Unemployment is higher than pre-crisis levels and external imbalances and financing needs increased. Access of SMEs to financing remains difficult. With regard to alignment with the EU acquis, the Progress Report confirms that progress or good progress has been made in 23 out of the 33 Chapters. Contrary to the 2009 Report, the 2010 Report does not identify any chapter where there is “no progress.”

In 2011, the Progress Report on Turkey and the 2011-2012 Enlargement Strategy were published on October 12, 2011. In the report, the European Commission concluded that

 

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Turkey has made progress in meeting EU membership criteria. The Report indicated that Turkey continued to sufficiently fulfill the political criteria. According to the Report, work on implementing the 2010 Constitutional reform package was launched by the Government, free and fair parliamentary elections took place on June 12, 2011, and opened the way for further Constitutional reform. The establishment of a specific Ministry for EU Affairs was regarded as an encouraging signal for Turkey’s reform efforts to meet the EU accession criteria. The Report also indicated that the rapid economic expansion continued and the private sector remained the main driving force behind the rapid economic expansion. The report underlined the fact that robust economic development allowed strong employment growth and a sizeable drop in unemployment. In the progress report, it is also stated that Turkey continued to improve its ability to take on the obligations of membership, in particular Chapter 6-Company Law, Chapter 18-Statistics and Chapter 21-Trans-European Networks.

The 2012 Progress Report on Turkey and the 2012-2013 Enlargement Strategy were published on October 10, 2012. The Report welcomed 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 the EU law, dialogue on foreign policy, visa liberalization, mobility and migration, trade, energy, counter terrorism and participation in Community programs. In the Report, the Council invites the European 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 2012. It also stressed 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 has been put in place. The Report also notes that 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 stressed 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.

Turkey’s 2013 Progress Report and the Enlargement Strategy Document were published by the European Commission on October 16, 2013. The Report comprehensively described the political reforms undertaken in Turkey during the previous year. The report also emphasized the Turkish Government’s determination regarding the continuation of democratization and political reforms and, in this context, referred 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 stated that the process in Turkey that aims to end armed terrorist attacks and the activities of the PKK constitutes a milestone and continues to generate the support of the EU. The Report also referred to Turkey’s active role in foreign policy.

 

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The 2014 Progress Report on Turkey and the 2014-2015 Enlargement Strategy were published on October 8, 2014. The Report specifically references Turkey’s positive actions implementing legislation within the Democratization Package framework and praises Turkey’s constructive approach outlined in the Solution Process. The report indicated that the adoption by Turkey of “The Action Plan on Prevention of ECHR Violations” was a critical step in the democratization process. The humanitarian assistance provided by Turkey to 1.5 million Syrians fleeing violence across the border was also praised in the Report. The Report also indicated that the growth of the economy since 2011 affirms the strength and resilience of the economy against the global economic shocks. With regard to alignment with the EU acquis, the Progress Report confirmed that progress has been made at various levels in 30 of the 33 negotiation chapters. The Progress Report also indicated that Turkey has reached advanced level of alignment in 26 of these chapters.

Economic Criteria

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, ensuring transparency in public finance and enhanced competitiveness and efficiency in the economy. Such structural reforms have yielded positive 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, however, 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, Turkey’s economy was more resilient in the face of the negative effects of the 2008 global economic crisis than it had been in the 2001 crisis. The reforms gave 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.

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

In March 2015, Turkey submitted its Economic Reform Program (“ERP”) for the 2015-2017 period, which replaced the Pre-Accession Economic Program (“PEP”). The ERP was prepared on the basis of the 2015-2017 Medium Term Program.

The Turkish economy grew by 8.5% in 2011, 2.1% in 2012, and 4.2% in 2013 and 2.9 in 2014. According to the ERP for the 2015-2017 period, Turkey’s economy is expected to have growth rates of 4% in 2015 and 5% in 2016, and 2017. The year-end consumer price

 

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inflation rate was 10.45% in 2011, 6.2% in 2012, 7.4% in 2013, and 8.2% in 2014. Inflation target was set as 5% both for 2015 and 2016. Turkey’s unemployment rates were recorded as 8.4% in 2012, 9% in 2013, and 9.9% in 2014. Unemployment rate is expected to decrease to 9.5% in 2015, 9.2% in 2016 and 9.1 in 2017. Current Account deficit/GDP ratio figures were 10% in 2011, 6.2% in 2012, and 7.9% in 2013. ERP forecasts the Current Account deficit/GDP ratio as 5.4%, 5.4% and 5.2% in 2015, 2016 and 2017, respectively.

Customs Union

On the other hand, it is worth to underline the recent developments between Turkey and the EU vis-à-vis Customs Union. For Turkey, Customs Union was considered as a stepping stone and the reason for entering into such an asymmetric structure was the expectation of EU membership within a foreseeable period of time. As that foreseeable period has yet to arrive, and the systemic problems continue to exist, Turkey agreed with the EU that Customs Union requires an update. In this respect a common understanding has been reached between the parties. The update package will include solutions to the systemic problems Turkey faces and also the extension of the Customs Union to new areas, like services and public procurement.

One of the most important systematic problems of the Customs Union is the difficulty for Turkey to conclude free trade agreements (“FTAs”) similar to the ones EU concludes with third countries. Taking into account the Transatlantic Trade and Investment Partnership (“TTIP”), negotiations between the EU and the United States, and an important reflection and an integral part of this update process needs to be inclusion of Turkey to TTIP.

Financial Assistance

Following the expiration of 2007 to 2013 IPA term’s legal framework (“IPA I”), the European Commission and Turkey established priorities for financial assistance under the new Instrument for Pre-accession Assistance (“IPA II”), set out in the Indicative Strategy Paper for Turkey for the period 2014-2020. This key document was presented to the Commission’s IPA committee in July 2014 and adopted on August 26, 2014. The IPA II Framework Agreement, transferring the implementation principles into internal legislation was signed by both parties on February 11, 2015. The Law No. 6647 regarding approval of the Framework Agreement by the Turkish Grand National Assembly was published in the Official Gazette on April 28, 2015. Council of Ministers’ decision approving the Agreement was published in the Official Gazette No. 29393 on June 21, 2015. The Agreement will enter into force right after the procedure of the exchange of “nota verbale” between Turkey and the EU. In IPA II, reforms relating to the rule of law and fundamental rights, home affairs, and civil society are to receive increased funding compared to IPA I. Other priorities include education, employment and social policies. In the sectors of environment, transport, and energy, the IPA II will focus on promoting development towards a resource efficient, low carbon economy and on increasing inter-connectivity between Turkey and the EU. In the areas of agriculture and

 

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rural development, work will focus on food safety, veterinary and phytosanitary policy, agriculture, fisheries and rural development. These priorities will be used as the basis for sector programs promoting structural reforms, allowing more targeted assistance and improving the impact of financial assistance.

EU Process at the Local Level

According to the Ministry of Interior Circular No. 2010/6 of January 26, 2010 EU Harmonization, Consultancy and Steering Committees were 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.

Meanwhile the Ministry for EU Affairs started a project called “Improving the Effectiveness of Governorates in the EU Accession Process.” The fifth year of the project is continuing as of 2015. The project, which is being implemented in cooperation with the Ministry of Interior, contributes to the following objectives at the local level:

 

    To adhere to the responsibilities brought by the EU accession process and to implement the regulations adopted within this context;

 

    To obviate the misperceptions, prejudices and groundless fears in the public regarding the EU membership process;

 

    To use the EU financial assistance more effectively; and

 

    To spread the experience acquired through adoption of the EU acquis to the local regions, thereby disseminating the EU enthusiasm to the periphery.

The “Action Plan for Strengthening Capacity for EU Affairs at the Local Level” was prepared and released to the public on December 23, 2014. The Action Plan is a roadmap that will provide a more systematic and sustainable base for EU related activities carried out by the Ministry for EU Affairs and other relevant public institutions at the local level. It will also pave the way for a more effective performance of the work at the local level envisaged in Turkey’s New European Union Strategy and the new Communication Strategy, and for institutional capacity building required in this framework.

In the new implementation period of the IPA (2014-2020), the European Commission and Government of Turkey agreed that Civil Society would make up a specific sub-sector, under the overall sector of “Governance and Democracy.” About 190 million Euro will be allocated to this sub-sector. The programming of the IPA-II civil society sub-sector has been underway with the participation of all relevant parties.

The objectives under the Civil Society sub-sector are to support the development of civil society through more active democratic participation in policy and decision making processes; promote a culture of fundamental rights and dialogue; enhance civil society dialogue and inter-cultural exchange between civil societies in Turkey and Europe.

 

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UNITED STATES

Turkey and the United States have been close allies and partners for more than sixty 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 United States have been diversified and further enhanced in the pursuit of common interests based on shared values such as democracy, the rule of law, respect for human rights and development and growth of a market economy, as well as the desire to promote peace, stability and prosperity around the globe. Turkey-US relations have been defined as a “Model Partnership” by President Obama who paid his first overseas visit to Turkey in 2009, after being elected to his first term in office. This term reflects the distinct character and comprehensive nature of Turkey-US relations. It defines the relationship between a global power on the one hand and a regional power on the other, which also has the capacity to contribute positively to global affairs.

Turkey and the United States together face a host of international challenges of major significance. Turkey-US cooperation continues to make substantial contributions to efforts aimed at achieving global and regional peace, stability and prosperity. The United States is Turkey’s main military export-import partner. While defense ties form the bedrock of the relationship between two countries, there have also been significant improvements in bilateral trade and economic relations.

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

Bilateral high level visits gained momentum during the last couple of years. Former President Gül visited the United States 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 Turkey-US relations against the backdrop of significant developments surrounding Turkey’s region.

The visit of former Prime Minister, now President Erdoğan to Washington, D.C. in May 2013, has been of great significance as it brought about a fresh impetus to Turkey-US

 

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relations. This visit reaffirmed that Turkey and the United States 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.

Other high level visits and regular contacts between Turkey and the United States during the course of 2013 included the visits of Secretary of State Kerry, former Foreign Minister, now Prime Minister, Davutoğlu and other Ministers as well as visits of Congressional delegations.

Frequent high-level visits and contacts between Turkey and the United States also took place in 2014. On the margins of the NATO Wales Summit and the UN General Assembly in 2014, President Erdoğan met with United States President Obama and United States Vice President Biden, respectively. Prime Minister Davutoğlu also met with Secretary of State Kerry on the margins of the NATO Wales Summit, in September 2014. In the last quarter of 2014, Turkey hosted a number of Senior Administrative Officials from the United States. In this period, Vice President Biden, Secretary of State Kerry, Secretary of Commerce Pritzker and Secretary of Defense Hagel visited Turkey.

United States Secretary of Commerce Pritzker’s visit with the President’s Export Council (“PEC”), the PEC’s first trip to Turkey, was an important occasion to discuss more business and investment opportunities between the two countries.

The United States is one of the major trade partners of Turkey. The bilateral trade volume between Turkey and the United States was approximately U.S.$19 billion in 2014. Turkish exports to the United States reached U.S.$6.3 billion, mainly composed of iron and steel, road transportation vehicles and textile fiber and its products. Total import volume was U.S.$12.7 billion. Iron ore and metal scraps, textile fiber and other transportation vehicles are the major import items of Turkey from the United States.

In the last decade (2004-2014), U.S. companies have invested U.S.$9.09 billion in Turkey. Currently, the United States ranks third in FDI flows into Turkey behind the Netherlands and Austria. US investments surpassed U.S.$325 million in 2014.

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

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 stated that Turkey, among other countries, had sufficiently reduced its purchases of Iranian oil to be awarded the waiver. This waiver was last extended until June 30, 2015.

The mechanism called Framework for Strategic Economic and Commercial Cooperation (“FSECC”) was launched in 2009 with a view to bringing economic, trade and investment relations to a level proportionate to political and security relations

 

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between the two countries. Deputy Prime Minister Ali Babacan and Economy Minister Zafer Çağlayan were entrusted with the mandate to coordinate bilateral endeavors for enhancing the economic interaction and commercial ties between Turkey and the United States. The first Ministerial meeting of FSECC was held in Washington, D.C. on October 19, 2010. The second and third meetings of FSECC were held in Ankara on June 26, 2012 and in Washington, D.C. on May 14, 2014, respectively. Deputy Prime Minister Ali Babacan and Minister of Economy Nihat Zeybekci (representing Turkey) and U.S. Secretary of Commerce Penny Pritzker and U.S. Trade Representative Ambassador Michael Froman (representing the United States) co-chaired the last meeting.

The Transatlantic Trade and Investment Partnership Agreement (“TTIP”) process between the United States and EU and how Turkey fits into this process is critically important for Turkey both economically and politically. A High Level Committee (“HLC”) was established with the aim to analyze the potential impact of the TTIP process with regard to Turkey’s Customs Union with the EU. The HLC is expected to pave the way to groundwork for the launch of the Free Trade Agreement negotiations between Turkey and the United States. Its first meeting was held on September 17, 2013 in Washington D.C. and its second meeting was held on the margins of the FSECC meeting in Washington D.C. on May 14, 2014.

The Economic Partnership Commission (“EPC”), one of the major 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 its tenth meeting on May 23, 2013 in Ankara. The ninth and the most recent meeting of the Trade and Investment Framework Agreement Council (“TIFA”) was organized in Washington D.C. occurring on February 21-22, 2013. The “Business Council” (BC), established under the auspices of the FSECC, held its first meeting in Istanbul on September 19, 2011, its second meeting in Washington, D.C. on June 3, 2013 and its most recent meeting on July 24, 2014 in Istanbul.

Turkish Airlines operates between Istanbul and seven American metropolitan areas (New York, Washington D.C., Chicago, Los Angeles, Houston, Boston and San Francisco), which reinforces the connection and expands cooperation among business circles. Direct flights to Miami and Atlanta are expected to start in the near future.

The Agreement on Scientific and Technological Cooperation between Turkey and the United States 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

 

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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.

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.

During 2014, several high level visits took place, including the visits of Borut Pahor, President of Slovenia, Bakir Izetbegović, Member of the Presidency of Bosnia and Herzegovina, Nikola Gruevski, Prime Minister of Macedonia to Turkey and, Prime Minister Davutoğlu’s visit to Macedonia. With these visits, Turkey’s economic and trade relations with the countries of this region have displayed a significant increase and the overall trade volume exceeded U.S.$21 billion as of the end of 2014.

GREECE

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

 

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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”) were adopted. Since 2009, Turkey and Greece have furthered their efforts in order to improve bilateral relations.

During then 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 third meeting of HLCC was held in Athens on December 6, 2014 on the occasion of Prime Minister Ahmet Davutoğlu’s visit to Greece and a Joint Declaration was signed in this context. Implementation of the documents signed in the first two HLCC meetings and further enhancement of the cooperation between the two countries were the focus of the third HLCC meeting. In total 48 documents were signed at the HLCC meetings between Turkey and Greece.

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 Greek Deputy Prime Minister and Foreign Minister Venizelos visited Turkey on November 28-30, 2014. Foreign Minister Çavuşoğlu attended the 31st Meeting of the Council of Ministers of Foreign Affairs of the Organization of the Black Sea Economic Cooperation (“BSEC”) held in Thessaloniki on December 12, 2014 and paid a private visit to Komotini on the same day.

In the meantime, established mechanisms work smoothly. By the end of 2014, 58 rounds of Exploratory Talks were held. Political consultations were held in June and November of 2014.

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 in 2011. 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. Bilateral trade volume was about U.S.$5.6 billion in 2014. Following the establishment of the HLCC

 

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mechanism, bilateral trade volume doubled between the two countries and Turkey has become the number one trade partner of Greece in 2013. 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.$6.7 billion by the end of 2014, while the total of Turkish companies’ investments in Greece was about U.S.$ 500 million. In 2013, Turkey was the destination of choice for more than 800,000 Greek tourists. According to the Greek National Statistics Agency, Turkish tourists visiting Greece in 2014 reached 1,000,000. These figures mark the continuing upward trend in tourism. As a result of the benevolent climate between the two countries, increasing numbers of Greek pilots and academics 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, the 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.

 

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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.

The 20th anniversary of the “Contract of the Century” and the Southern Gas Corridor ground-breaking ceremony took place on September 20, 2014 at Sangachal Terminal in Baku.

As agreed by the Turkish and Greek Foreign Ministers during their meeting in New York in September 2013, the cross-visits of the Turkish Cypriot Negotiator Mr. Kudret Özersay and Greek Cypriot Negotiator Mr. Andreas Mavroyiannis to Athens and Ankara, respectively, took place on February 27, 2014, following the resumption of the comprehensive settlement negotiations on February 11, 2014. These visits were important to manifest the support and commitment of Turkey and Greece.

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. With this understanding, Turkey is determined to develop new joint projects for the welfare of both nations by using the opportunities that our common geography gives us.

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.

 

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In the past forty-seven 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.

The Annan 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 president of the Turkish Republic of Northern Cyprus (the “TRNC”) . President Eroğlu committed to continue the negotiations being conducted by President 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. During the process, 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, the Turkish Cypriot side maintained their constructive and result-oriented approach.

 

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The international community had high expectations from the tripartite meeting held on January 23-24, 2012 in Greentree. The Turkish side had been hoping that the second Greentree meeting would usher in the high-level meeting with the participation of the two sides and the three guarantors, which would address all remaining issues that couldn’t be agreed upon by the two sides in order to seal the settlement through a grand bargain. Regrettably, this was not achieved at the meeting, despite the sincere efforts of the Turkish Cypriot side and a very important opportunity was missed.

Throughout the period following the second Greentree meeting, the Turkish Cypriot side continued its determined and constructive efforts for the success of the UN process in the coming months, with Turkey’s full support. However, no progress was achieved. The UNSG informed the two leaders on April 21, 2012 that he did not consider the current conditions as being appropriate for convening a high-level meeting. This was especially disappointing for the Turkish Cypriot side, which spared no effort so that this opportunity would not be wasted.

After the Greek Cypriot elections in February 2013, it took almost a year for the new Greek Cypriot leader, Mr. Anastasiades, to sit at the negotiation table. As stated above, back in 2012, the process was halted when the high-level multilateral meeting with the participation of guarantors and subsequently the referenda were about to be held.

A joint statement exercise was actually launched in September 2013 since the Greek Cypriot side did not clarify its position on the convergences achieved in the 2008-2012 process. President Eroğlu had, however, confirmed several times his commitment to the agreed convergences and to all their positions so far tabled in the negotiations.

Almost a year after the election of Mr. Anastasiades and months-long effort to finalize the joint statement to be issued, the two leaders in Cyprus finally met on February 11, 2014 to resume the comprehensive settlement negotiations under the auspices of the UN.

Following the resumption of the comprehensive settlement negotiations, the cross-visits of the Turkish Cypriot Negotiator Mr. Kudret Özersay and Greek Cypriot Negotiator Mr. Andreas Mavroyiannis to Athens and Ankara, respectively, took place on February 27, 2014. These visits were important to manifest the support and commitment of Turkey and Greece as motherlands.

Since the resumption of the negotiations, Turkish Cypriot side had been making great effort to secure the existing convergences and to build upon them. Despite the leaders’ joint statement of February 11th that referred to “structured” negotiations to be carried out in a “results-oriented” manner, focusing on unresolved core issues, the Greek Cypriot side first came with new proposals in a selective manner, disregarding the convergences and tried to encourage the Turkish Cypriots to do the same. This was pushing them into a futile, time-consuming exercise, which meant losing the whole acquis of this process and returning back to 2008.

In their meeting on July 24, 2014, the leaders agreed that both sides had completed the submission of proposals on all issues.

 

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Following the summer break, the leaders met again on September 17 so a basic agreement could be reached to move to the next phase of structured negotiations. The expectation was that the talks would proceed in a results-oriented manner and that following the referenda at the earliest opportunity, a lasting settlement would be achieved.

Instead of concentrating on the negotiation process at this critical juncture, the Greek Cypriot side started a new drilling activity on September 25, 2014 in the so-called license areas, which overlaps with those of the Turkish Cypriots. This was their second drilling after their first attempt in 2011. Despite Turkey’s and the TRNC’s warnings, on September 15, 2011, the Greek Cypriot side began its first offshore drilling activities on September 19, 2011. A continental shelf delimitation agreement was then signed on September 21, 2011 by Prime Minister Erdoğan and TRNC President Eroğlu in the margins of the 66th United Nations General Assembly in New York. Turkey and the Turkish Cypriots view this as a necessary reaction to the Greek Cypriot provocation, although they are in principle opposed to such undertakings before a comprehensive solution. The Greek Cypriots did not accept Mr. Eroğlu’s constructive proposal for a fair sharing of these natural resources put forth on September 24, 2011 or on September 29, 2012. In the absence of cooperation from the Greek Cypriot side, the Government of the TRNC then designated its own license areas around the Island and issued licenses for exploration and exploitation of oil and gas reserves on these areas to the Turkish Petroleum Corporation (TPAO). In the aftermath of the second drilling of the Greek Cypriots in June 2013, they urged once again the Greek Cypriots not to undermine negotiations as well as the rights of the Turkish Cypriots. The Turkish Cypriots made their decision clear to send a seismic research ship and a drilling platform to the area, if the Greek Cypriots did not stop their unilateral activities.

In response to the unilateral activities of the Greek Cypriot side, TRNC also started to conduct seismic research activity in its own license area, which does not overlap with the Greek Cypriots’ drilling activity area.

The NAVTEX massage for the seismic research being conducted by the Barbaros Hayrettin Paşa (“BHP”) ship was issued by Turkey as TRNC is unable to issue any NAVTEX due to the embargos applied by the Greek Cypriots. It should be stressed that Turkey has no claim in the maritime areas in the south of Cyprus, including the area where the Greek Cypriots started drilling activities.

In response to the Turkish Cypriots’ counter-measure, the Greek Cypriot stepped away from the UN negotiations table on October 7th.

The start of offshore drilling activities by the Greek Cypriot side in the Eastern Mediterranean was untimely and had a negative impact in terms of the settlement

 

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process. The Turkish Cypriots have equal and inherent rights over the resources of the whole continental shelf of the Island, which is accepted by the international community, and even the Greek Cypriots do not deny this. The two peoples of the Island should jointly decide on how to use the off-shore natural gas and oil resources. The Turkish Cypriots fair sharing proposals of September 24, 2011 and September 29, 2012 are still valid. As set forth with this proposal, Turkish and Greek Cypriots should determine jointly the future course of off-shore oil/gas activities, including revenue sharing.

Turkey considers the natural resources discovered around the Island as an additional encouraging element for a settlement. Reaching a comprehensive settlement in Cyprus will create a positive atmosphere for enhanced cooperation in the Eastern Mediterranean. The settlement will lead to an environment conducive to boosting the economic relations between the two peoples of the Island, Turkey and Greece. Over the last 10 years, the economic gap between the Turkish Cypriots and Greek Cypriots has narrowed considerably. This could eliminate another discouraging factor for the Greek Cypriots compared to the referenda back in 2004.

Water is another area for potential cooperation. Turkey and TRNC are about to complete a pipeline project, which will bring 75 million cubic meters of water from Turkey to Northern Cyprus. This amount can be increased tenfold in the future that would be equal to the double of the water requirement of the entire Island.

Following the Greek Cypriot side’s drilling activities coming to an end at the end of March, Turkish Cypriot side decided to withdraw the ship conducting seismic research from the region. The Turkish Cypriot Presidential elections were held in April 2015 and Mustafa Akıncı was elected as the President of the TRNC. Following the completion of the elections on the Turkish Cypriot side, the comprehensive settlement negotiations resumed on May 15, 2015.

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 UNSG 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 all Member 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, Turkey hopes that the international community will call for the isolation to end, thus also contributing to the settlement aim.

 

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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 processes after the general elections in March 2010 and April 2014.

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 (“HLSCC”) 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 HLSCC 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. The High Level Strategic Cooperation Council presents a unique model of cooperation for promoting economic prosperity and integration in Turkey’s region.

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.

 

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Turkey is expanding its consular presence in Iraq in line with its efforts to strengthen bilateral relations in all fields. In addition to the opening of its Mosul Consulate General in 2007, Turkey has also opened Consulates General in Basra and in Erbil in 2009 and 2010, respectively. Turkey is considering further expanding its Consular network in Iraq in the coming years.

Turkey’s main export items to Iraq are food products and beverages, basic metals, furniture, metal products, agriculture, electrical machinery, wearing apparel, rubber and plastic, and machinery and equipment products. There was a substantial increase in nearly all export items to Iraq between 2010-2014 period.

Turkey managed to diversify both its export markets and export products by implementing effective strategies in foreign trade. Export diversification to the MENA region allowed Turkish exports to grow despite weak demand in the EU, Turkey’s major trade partner, after the global financial crisis. Moreover, since 2010, export to Iraq increased mainly due to the recovery in the economic activity and political stability in the region. Turkish organizations and businesspersons increased operations in this region to take advantage of its geographic proximity to Turkey.

The major industries of Turkish companies operating in Iraq are finance, construction, logistics, and wholesale & retail trade.

By the end of 2014, the amount of Turkish exports to Iraq had reached nearly U.S.$11 billion, in comparison to U.S.$6 billion in 2010. Turkish companies also play a crucial role in Iraq’s reconstruction and development. As of 2014, a total of 1,600 Turkish companies operate in Iraq and their total undertakings reached U.S.$2.2 billion.

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. In addition to the opening of Consulate General in Erbil, in 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 United States 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 in general and the isolation of Sunnis and Kurds in particular, 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.

The overall security situation has severely deteriorated since December 2013. Attacks by DAESH (a synonym for the Islamic State terrorist group) have resulted in loss of at least 1/3 of Iraq’s territory. As a result, the number of internally displaced persons continued to increase and reached 2 million by the end of 2014.

Throughout 2013 and most of 2014, due to dysfunctional government and lack of inclusive policies, public support to government has plunged, sectarian and ethnic based tensions have soared. Under these difficult circumstances, Iraqi Parliamentary elections were held in April 2014 and a new government was formed in September 2014. The

 

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initial inclusive approach adopted by this government was reciprocated by the full support of the international community. Political, military, humanitarian and financial support extended to Iraq was a response to the positive attitude of Iraqi politicians in promising to endorse inclusive policies and uphold representativeness in governance. Turkey has also followed suit and offered assistance through communicating its political will to further strengthen relations. Turkey has offered military assistance to Iraqi Government in fighting against DAESH, while expeditiously dispatching humanitarian assistance to those in need. Establishment of three IDP camps in the north of Iraq for approximately 40,000 people is part of this assistance initiative.

On the political spectrum, Turkey and Iraq held several high level bilateral exchanges, especially following the formation of the new government in 2014. By the end of 2014, a second HLSCC meeting was held in Turkey under the auspices of the two Prime Ministers with the attendance of relevant Ministers, as well as businessmen.

Turkey hopes that the Iraqi leaders will resolve the outstanding political issues through democratic and constitutional means, to ensure 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 reaching a comprehensive and lasting agreement between Iran and P5+1 will positively contribute to stability in the region.

 

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Iran is an important trading partner of Turkey. In 2012, the volume of trade between Turkey and Iran reached the record level of U.S.$21 billion. Since then, the trade volume decreased significantly. In January-November 2015 period, total imports from Iran decreased by 38% compared to the previous year, mainly due to lower energy costs, while exports to Iran declined only by 3.5%. In the last 6 years, the major products exported to Iran are natural or cultured pearls, precious metals and jewelry products, machinery and mechanical appliances, plastics and articles, wood and articles of wood, electrical machinery and equipment and parts, and tobacco products. Major products imported from Iran are mineral fuels and mineral oils, plastics and articles thereof, copper and articles thereof, organic chemicals, and fertilizers. In 2012, when the total trade reached its record level, the main product exported was gold and the main product imported was energy. Natural or cultured pearls, precious or semi-precious stones, precious metals, metals clad with precious metal and articles thereof, imitation jewelry, coin accounted for 65.9% of total exports in 2012. Mineral fuels, mineral oils and products of their distillation, bituminous substances, and mineral waxes accounted for 89.4% of total imports in 2012.

The tourism sector constitutes the main part of Turkey’s service trade, as well as trade in goods. The number of Iranian tourists visiting Turkey has increased rapidly in the last decade and reached its peak level of 1.9 million in 2010. From January-November 2015, the number of tourists from Iran was approximately 1.6 million, which accounted for a 4.6% share of the total number of tourists visiting Turkey during that same time period.

Given that Turkish and Iranian economies complement each other, bilateral relations between Turkey and Iran, particularly in trade and energy, will accelerate rapidly once the sanctions against Iran are lifted. Preferential Trade Agreement (PTA) between Turkey and Iran, which came into effect in 2015, will also be instrumental in increasing bilateral trade.

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.

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 (“QHLSCC”) 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 QHLSCC 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 QHLSCC 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 has invested substantial resources, politically, economically and otherwise, in its relations with Syria in the last ten years., prior to the conflict that began in March 2011, following the start of mass protests. The thriving relations between Turkey and Syria had contributed positively to bilateral trade, investment and tourism until the conflict erupted.

 

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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, killing many demonstrators. In the weeks and months that followed the initial protests, the regime continued its policy to suppress 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, (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, (v) terminating oil exports from Syria, and (vi) freezing credit relations with the Syrian government.

The situation in Syria progressively deteriorated in 2013 and 2014. By the end of 2014, the number of Syrians who sought refuge in neighboring countries surpassed 3 million. The death toll reached 245,000. The number of those in need of assistance inside Syria rose to 10.8 million. Over the course of 2014, the regime continued its indiscriminate attacks against innocent civilians and further escalated 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 augmentation of Turkey’s air defense capabilities. In this context, United States, German, Dutch and Spanish Patriot batteries have been deployed in Turkey in various periods since 2013.

On March 23, 2014, a Turkish fighter jet shot down a Syrian jet and lastly on May 16, 2015 a Turkish fighter jet shot down a Syrian aerial vehicle for violating Turkish air space in accordance with 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 Syrians under temporary protection in Turkey

 

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has exceeded 2 million, of whom 260,000 are accommodated in 25 temporary protection centers as of August 2015. The Turkish Government has spent more than U.S.$ 6 billion for Syrians in Turkey, whereas the total contributions we received bilaterally and multilaterally from the international community so far have been limited to U.S.$ 417 million.

As a response to the shattering infrastructure and lack of services within Syria, Turkey mobilized its own resources to address and 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.$330 million. Since July 2014, Turkey has also been cooperating closely with the UN to enable UN cross-border humanitarian operations into northern Syria within the framework of UN Security Council Resolution 2165.

The regime’s aggression, as well as the growing presence of extremist and terror elements (supported by the regime, particularly in, but not exclusive to, the northern parts of Syria) constitute a deep and increasing concern for Turkey’s national security. This threat became more acute and manifold with the emergence of DAESH in Syria in the beginning of 2014. DAESH terrorism quickly became a threat to regional security as well has had a direct impact on Turkey’s national security.

The latest terrorist attack in Suruç on July 20, 2015 and DAESH’s targeting Turkey’s military border post directly on July 23, 2015, compelled Turkey to initiate necessary and proportionate military actions against this terrorist organization in Syria. On July 24, 2015, Turkish Air Force hit certain DAESH targets in Syria, based on Turkey’s right of self-defense in accordance with Article 51 of the UN Charter.

As a member of the International Coalition, Turkey contributes to the Coalition’s efforts in Syria and Iraq through the use of its own national assets and capabilities. Additionally, Turkey and the United States decided to deepen their cooperation in the fight against DAESH terrorism in July 2015. This understanding was confirmed between the two countries at the highest level on July 22, 2015 (Telephone conversation between Presidents Erdoğan and Obama).

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. Turkey remains fully committed to a political solution in Syria and will continue to support all efforts for a genuine political transition based on the principles of the Geneva Communique.

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

 

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conflict has become all the more important and urgent. Turkey supports all efforts for the resumption of the direct negotiations for the resolution of the Israeli-Palestinian conflict, through a two-state solution based on pre-1967 borders 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.

Turkey was deeply disappointed by the failure of the bilateral peace talks between the parties under the auspices of the United States in April 2014. Turkey made significant contributions to the mediation efforts to establish a ceasefire, which was reached on August 26, 2014. On the other hand, Turkey has repeatedly condemned the Israeli illegal settlement activities, which have been carried out even in the delicate periods of the negotiations process, and which undermine the basis for just, lasting and comprehensive peace. Thus, Turkey continues to oppose 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 supports the Palestinian initiative to achieve full international recognition. Turkey also actively contributed to the Palestinian bid for a “non-member observer state” status which was granted by the support of an overwhelming majority of the member states at the UN General Assembly on November 29, 2012. Turkey also welcomes the recent steps in Europe towards the recognition of Palestine as a state.

Turkey sees the Palestinian unity as imperative for a sustainable settlement of the conflict. With this understanding, it supports the Palestinian reconciliation with the view that the establishment of an inclusive Palestinian Government is essential for putting the peace process on a credible ground and for the realization of the two-state vision. Turkey welcomed the establishment of the National Unity Government on June 2, 2014 and it actively encourages the parties to strengthen the Unity Government.

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. It carries out projects in the Palestinian territory through the Turkish Cooperation and Coordination Agency (“TIKA”), Prime Ministry Disaster and Emergency Management Authority (“AFAD”), and Turkish Red Crescent, in areas such as health, education, technical assistance, protection of cultural heritage, and water supply. Moreover, Turkey pledged U.S.$200 million in the period of 2015-2017 at the Donors Conference in Cairo, which took place on October 12, 2014 for the reconstruction of, and the humanitarian aid to Gaza. At the end of 2014, Turkey’s assistance (developmental and humanitarian alike) to Palestine has reached U.S.$369 million. Turkey continues its participation in the Temporary International Presence in Hebron (“TIPH”) as well as in the UNIFIL.

 

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On May 31, 2010, the Israeli armed forces intercepted a civilian aid flotilla in international waters 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, Turkey downgraded 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. The technical level talks on compensation to victims’ families are completed and the parties are at the final stage of the settlement process.

Bilateral economic and trade relations continue and the Free Trade Agreement, signed in 1997, remains in place. Bilateral trade has risen steadily reaching U.S.$5.4 billion in 2014.

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 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 important steps in its transition process. After the adoption of the new Constitution and the formation of the new government, Tunisia can now contemplate a new period based on pluralism and democracy. On the other hand, economic and security-related challenges still remain to be addressed. Particularly, increasing terrorist activity has posed a significant threat, which has broader implications for Tunisia’s democratic consolidation efforts and economic well-being. With this understanding, Turkey continues to provide technical and financial support to Tunisia to ensure lasting stability, democracy and welfare in the country. High Level Strategic Cooperation Council mechanism, established in 2013 among Turkey and Tunisia, has given a fresh impetus to the bilateral relations of the two nations. 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, defense, security, poverty reduction and technical training.

In order to facilitate the transition process, Turkey has extended financial assistance to Tunisia. Turkey provided a financial package worth U.S.$500 million (U.S.$50 million grant, U.S.$200 million loan, U.S.$200 million Eximbank loan and remaining U.S.$50 million grant to finance TICA projects in Tunisia) to Tunisia.

 

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The fact that Libya needs to re-build most of its institutions in the post-Qaddafi period still remains an arduous challenge. Turkey has extended full support to Libya from the outset of the February 17th revolution. In line with the urgent priorities of Libya, Turkey has contributed to capacity building efforts in the field of security. Turkish institutions have offered training programs in different fields (to military cadets, police officers and border guards). However, clashes that have erupted in May 2014 affected different parts of the country and resulted in a recurring spiral of violence. Continued armed clashes have added fuel to legitimacy claims among rival political factions, mainly in Tripoli and Tobruk. Given the increasing presence of terrorist groups in the country, the need for finding an urgent and viable political solution in Libya has become a priority issue for the international community as well. In this regard, UN-facilitated political dialogue aimed at forming a Government of National Accord offers a valuable opportunity for the Libyans. Turkey supports this Libyan-led and owned process and stands ready to contribute to the effective implementation of a prospective deal.

Turkey has supported the democratic transition in Egypt from the outset. Democratization of Egyptian politics is of particular importance, as this country occupies a central role in the Arab and Muslim world. With this understanding, as was the case in the immediate post-Mubarak era, Turkey has been calling for a swift return to democracy since the military coup of July 2013. Turkey advocates the view that the long term stability, security and economic development of Egypt would only be attained through the establishment of a democratic political system which is based on the free will of the Egyptian people. Therefore, Turkey rejects the toppling of the democratically elected government through undemocratic ways, alienation of certain segments of society, as well as violence and disproportionate use of force against civilians.

Yemen faces severe political, economic, humanitarian and security problems. These challenges require a resolute and unified stance from the international community, particularly the UN. Turkey believes that a lasting settlement in Yemen could be possible only through peaceful political dialogue and reconciliation, based on the parameters set by the Gulf Cooperation Council Initiative, the National Dialogue Conference outcomes and the UN Security Council Resolution 2216. With this understanding, Turkey supports international efforts to find a political solution in Yemen.

Turkey has been supportive of constitutional legitimacy in Yemen represented by President Abd Rabbu Mansour Hadi. To assist economic development in Yemen, Turkey pledged U.S.$100 million to Yemen in 2012. This amount has been allocated for specific capacity-building projects. As the conditions on the ground allow, these projects will be put into implementation, following the signing of the draft Grant Agreement. Turkey also extends humanitarian assistance to Yemen. Turkey has delivered humanitarian aid both in Yemen and in Djibouti.

 

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GULF COOPERATION COUNCIL

Turkey has strong political, economic, commercial and cultural ties with the Gulf countries, based on deep-rooted common history, common values and interests. Turkey views its relations with the Gulf countries from a strategic perspective and wishes to further develop its relations with the Gulf Cooperation Council (“GCC”). To this end, there is common will and mutual understanding between Turkey and the GCC. In 2008, the Turkey-GCC High Level Strategic Dialogue Mechanism was established. Within this Mechanism, four meetings have been held thus far at Foreign Ministers level.

Moreover, the bilateral relations between Turkey and the Gulf countries have been steadily developing. High level bilateral visits are frequently held between Turkey and the Gulf countries and several agreements have been signed, which continue to contribute to the expansion of relations in all fields between Turkey and the GCC 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. Alongside officials in charge of economic affairs, TAF also envisages platforms for political cooperation, such as the meetings of Foreign Ministers and parliamentarians. 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. The second meeting was held in Kuwait on April 20, 2015. Moreover, the Turkish-Arab Economic Forum, organized since 2005, brings together representatives of the private sector. The 10th Meeting of Turkish-Arab Economic Forum was held on April 1-2, 2015 in Istanbul.

Turkish Minister of Finance Mehmet Şimşek participated in the conference titled “Over the Horizon: A New Levant” which was held in Beirut 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.

RUSSIA

Bilateral relations between Turkey and Russia have been steadily developing in various areas over the recent years. While the view of the two nations differ on a number of international issues, in particular, with respect to Crimea, the Ukraine crisis and Syria, the two countries keep their channels of dialogue open.

Taking into account the development of ties in different spheres, Turkey and Russia founded the High Level Cooperation Council (HLCC) in May 2010.

 

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This HLCC holds annual meetings co-chaired by the Presidents and attended by ministers and heads of major agencies from both countries. It sets the general framework and direction of bilateral relations. The last HLCC meeting was held in Ankara in December 2014.

The HLCC has three organs; the Joint Strategic Planning Group, which deals with cooperation on international matters, the Joint Economic Commission, which reviews economic relations, and the Civic Forum, aimed at strengthening public-to-public interaction. Economic and commercial relations between Turkey and Russia have been developing since the early 2000s. Bilateral trade has reached over U.S.$30 billion since 2008, comprising mostly Turkey’s energy imports from Russia.

Reciprocal investments have also exceeded U.S.$10 billion each, as of 2014, excluding the multi-billion dollar Akkuyu nuclear power plant project being built in Turkey.

Tourism constitutes an important aspect of Turkish-Russian bilateral relations. Every year, over 4 million Russian tourists visit Turkey. Yet another field of economic cooperation is the construction sector. Turkish construction companies have completed various projects in Russia, the total value of which has reached U.S.$ 56 billion as of the end of 2014.

Turkey wishes to use the opportunities presented by Turkey-Russia ties to bring welfare and prosperity to its region. While not implementing sanctions against Russia, Turkey uses the frank dialogue between the two countries to share its bilateral and international concerns with Russia at all levels.

On December 1, 2013, Turkey joined the “G-20 Troika” along with Australia and Russia. The “G-20 Troika” is a three-member committee made up of the past, current and future host countries of the G-20, which supports the G20 presidency. Turkey has taken over the G20 presidency on December 1, 2014 and will remain a member of the “G-20 Troika” until the end of 2016.

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 keeps its adherence to the protocols and remains committed to the normalization process. However, Armenia does not display a similar approach as shown by its latest move of recalling the Protocols from the Armenian Parliament.

Turkey enjoys excellent neighborly relations with Azerbaijan and Georgia. The three countries are engaged in substantial regional cooperation projects such as 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 and the TANAP 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 (“CARs”).

Today, Turkey’s cooperation with CARs has reached a strategic partnership level in many 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 whole 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 with CARs 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 reached U.S.$8.5 billion at the end of 2014. In addition, Turkish construction companies have completed around U.S.$67 billion worth of projects in the region. Turkish direct investments in the region amounted to U.S.$4.5 billion as of the end of 2014. More than 2,000 Turkish companies

 

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are operating in the region. Moreover, the total amount of loans given to the countries in the region through Eximbank is around U.S.$2 billion. Turkey has also provided the region with a substantial amount of development assistance, worth approximately U.S.$1.9 billion in the last 10 years.

Turkey spearheaded the process of The Summits of Turkic Speaking Countries, which has been held since 1992, with a view to increasing solidarity and cooperation among the CARs. This process gained an institutional structure through the Establishment of the Cooperation Council of Turkic Speaking States in 2010. The Council has been conducting various projects, ranging from education to transportation. The Secretariat of the Council is located in İstanbul Furthermore, the International Turkic Academy and Turkish Culture and Heritage Fund have been established in Astana and Baku, respectively, within the framework of the Council.

Given the critical geopolitical location and proximity to Afghanistan, countries in the region may face financial and security challenges. Turkey is closely working with these countries to assist them in their effort to strengthen their security environment.

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 integration with the 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. Turkey has supported the International Security and Assistance Force (“ISAF”) Operation, aiming at providing security and stability to Afghanistan from 2001 until its termination on December 31, 2014. Turkey twice assumed the ISAF Command and the Central (Kabul) Regional Command.

Following the completion of the ISAF Operation, the Resolute Support Mission (RSM) was launched by NATO on January 1, 2015. Turkey continues as a “framework nation” (a term used by NATO to define a nation accepting the primary responsibility for completing the tasks assigned to a multi-national headquarters groups and/or units) in the Kabul region and assumed the responsibility of the Kabul International Airport in the RSM as of January 1, 2015. Former Turkish Ambassador to Kabul currently serves as the Senior Civilian Representative of NATO in Afghanistan. Furthermore the Turkish Embassy in Kabul carries out the role of NATO Contact Point for the 2015-2016 period.

As a continuation of its historical solidarity, Turkey’s assistance to the Afghan people is the most comprehensive development aid program directed to another country throughout

 

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its history. Within this aid program, Turkey has completed 806 projects in all provinces of Afghanistan since 2001, worth more than U.S.$300 million. Turkey also committed U.S.$1 million at the Tokyo Conference in 2004, U.S.$100 million at the London Conference in 2006 and U.S.$100 million at the Paris Conference in 2008, to the development of Afghanistan. These contributions were used to fund various development projects. At the Tokyo Conference in 2012, Turkey pledged U.S.$150 million to the development efforts in Afghanistan for the 2015-2017 period. This pledge was reiterated during the London Conference in 2014. Turkey also confirmed its pledge of U.S.$60 million to the Afghan National Defense and Security Forces for the 2015-2017 period. Turkey is the seventh biggest contributor of financial aid of all its NATO allies, in terms of the amount of its financial commitments in Afghanistan.

As a part of its capacity building assistance in the field of security in Afghanistan, Turkey organizes comprehensive training programs for the Afghan National Army (“ANA”) and Afghan National Police (“ANP”). Turkish Armed Forces have trained some 17,500 ANA members since 2001. Nearly 3,250 ANA members were trained in Turkey. The Security General Directorate organized 82 different training programs between 2001 and 2004 and a total of 1,234 Afghan police cadets were trained. Since 2011, 1,956 Afghan police cadets were trained in 4 terms of a six-month program. Likewise, a total of 494 Afghan women police cadets were trained since 2011.

The largest part of Turkey’s development assistance is dedicated to education in Afghanistan. Turkey has built 85 schools in Afghanistan and more than 700,000 Afghan citizens have been served by the schools built by Turkey so far. Health is the second largest field of Turkey’s development assistance to Afghanistan. A total of 214 projects were completed in this field. 17 hospitals or clinics were built or repaired. Two hospitals and two clinics have been operated by Turkey (TIKA) for five years. Thus far, some 3.5 million Afghans have been served by hospitals, clinics and mobile health clinics operated by Turkey. Transport and storage services is another field supported by development assistance funds. 20 projects were completed in the areas of road and bridge construction and restoration , amounting to U.S.$42.5 million.

Agriculture (pest control, water control and training in other agricultural issues), forestry, fishery, infrastructure and water purification (more than 500,000 Afghans have access to potable water through 168 water wells, which were dug by Turkey) and civil aviation are the other fields supported by Turkey’s development assistance funds. Turkey also contributes to Afghanistan in the field of civil capacity building, particularly administrative infrastructure and governance. 43 projects were completed in the field of culture and social peace, amounting to U.S.$6.7 million.

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, 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 2007 and 2014, including eight Afghanistan-Pakistan-Turkey Trilateral Summit meetings.

 

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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 Eighth Summit was held in Ankara in February 2014. Turkey also continues to encourage regional cooperation through the Heart of Asia-Istanbul Process. This 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”)., Counterterrorism, Counternarcotics, Disaster Management, Trade, Commercial and Investment Opportunities, Regional Infrastructure, Education). 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. Turkey takes part in the implementation of all CBMs and leads the Counter Terrorism CBM together with Afghanistan and the United Arab Emirates. The fourth Ministerial Conference of the Process was held in Beijing, on October 31, 2014.

Overall, these initiatives aim at creating a climate of confidence and increasing cooperation among countries of the region which face common challenges.

ASIA-PACIFIC

Turkey follows developments taking place in the wider Asia-Pacific region with keen interest as a country located at the center of the Afro-Eurasian geopolitical plane. Its unique place presents it with opportunities to engage with a wide a range of culturally diverse 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 adopted policies geared towards a more constructive relationship with the region, broadly referred to as “opening-up to the Asia-Pacific region,” which have gained considerable pace and depth in recent years. The main elements of the policy include, fostering economic and trade relations, enhancing political dialogue, establishing necessary legal frameworks and strengthening cultural ties.

Over the last decade, high-level bilateral visits as well as bilateral trade and investments between Turkey and the regional countries intensified. Turkish Airlines fly to more

 

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destinations with an increasing number of flights per week. Turkish Cooperation and Coordination Agency (“TIKA”) has increased the number of its development projects, especially with regard to the Pacific Island countries. Cultural exchanges have grown through mutual culture years and Turkish scholarships provided to the regional countries.

Bilateral relations with the G-20 members of the region, namely Australia, China, Indonesia, Japan and the Republic of Korea remain strong both economically and politically. Between 2010 and 2014, Turkey successfully elevated its relations with six countries in the region to the level of strategic partnership: China, Japan, Indonesia, Korea, Malaysia and Singapore.

Turkey enjoys amicable relations with the members of the Association of Southeast Asian Nations (“ASEAN”), which constitute the world’s third largest population (620 million) along with 4.46 million kilometer squares of surface area and a GDP of U.S.$2.3 trillion at the center of the Asia-Pacific region. Turkey continues to expand its diplomatic network in the region by opening new Embassies, most recently, in Nay Pyi Taw, Phnom Penh, Bandar Seri Begawan, which will be followed by new missions in Laos and in a number of Pacific Island states.

Economic relations with the Asia-Pacific region have also strengthened in the last decade. A decade ago, the total volume of bilateral trade was U.S.$13 billion; it surpassed U.S.$67 billion in 2014. The increase of bilateral trade with China has been eight-fold, the Republic of Korea - six-fold, Australia and New Zealand combined - five-fold; and four-fold with the ASEAN as a whole.

Major items exported to Asia-Pacific are salt and sulphur, ores, slag and ash, nuclear reactors, boilers, machinery and mechanical appliances, inorganic chemicals, vehicles other than railway or tramway rolling-stock, mineral fuels and oils, and iron and steel. Major items imported from Asia-Pacific are electrical machinery and equipment, nuclear reactors and boilers, plastics and articles, mineral fuels and oils, vehicles other than railway or tramway rolling-stock, iron and steel, organic chemicals, and optical machines.

From 2011 onward, Turkey has signed Free Trade Agreements with the Republic of Korea and Malaysia and has launched negotiations with Singapore.

In addition to the efforts at the bilateral level, Turkey has taken necessary steps to develop its ties with the regional organizations active in Asia.

Turkey’s Dialogue Partnership with the Shanghai Cooperation Organization in June 2012 is another example of its opening to the Asia-Pacific region, as are the signing of the ASEAN Treaty of Amity and Cooperation in 2010 and its active participation in the Pacific Islands Forum (“PIF”) as Post-Forum Dialogue Partner. Turkey has also officially applied to join the Asia-Europe meetings (“ASEM”) from within ASEM’s European Group.

In Southeast Asia, the signing of the Treaty marked a turning point in Turkey-ASEAN relations, paving the way for Dialogue Partnership in the future. Today, our Embassy in Jakarta is accredited to ASEAN.

Turkey has also expanded its relations with the Pacific Island countries. It hosted Turkey – Pacific Small Island Developing States Foreign Ministers Meeting in 2008 and 2014. During this period, Turkey established diplomatic ties with Cook Islands, Marshall Islands, Kiribati, and Niue. As an emerging donor country and development partner, Turkey has allocated U.S.$1 million for the development of Small Island States.

 

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Against the background of emerging cooperative relations between Turkey and the Asia-Pacific states and organizations, Turkey is committed to working towards ever closer engagement with the region.

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.

Partnership is further strengthened by the Second Turkey-Africa Partnership Summit held in Malabo, Equatorial Guinea, in November 2014.

Turkey pursues a multilayered policy in Africa, giving priority to the principle of “African solutions to the African problem” and aiming 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.

The increase in the number of the Turkish embassies in the continent serves as an indicator of this interest. While the number of Turkish embassies was only 12 in 2002, this figure has now reached 39. This process has not been one-sided, as many African countries opened embassies in Turkey. Currently, 32 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.$8.4 billion in 2014. The overall trade volume with the whole African continent has reached U.S.$23.4 billion in 2014.

Major items exported to Africa are iron and steel, nuclear reactors, boilers, machinery and mechanical appliances, mineral fuels and oils, and electrical machinery and equipment. Major items imported from Africa are mineral fuels and oils, jewelry and precious metals, cocoa, plastics and articles, copper and articles, and iron and steel.

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

 

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is estimated to be around U.S.$ 6 billion. Turkey, under various cooperation schemes, has been trying to share its experience in the fields of agriculture, health, education, energy, tourism and environment.

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 15 Co-ordination Offices in the continent.

The total amount of Turkey’s official bilateral development assistance to Africa was U.S.$ 783 million in 2013. 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, Libreville and Bamako in Sub-Saharan Africa, bringing the total number of THY flights in the continent to over 40 destinations.

Under the scholarships program, Turkey provided 3,364 scholarships to students from Sub-Saharan Africa and 799 scholarships to students from North African countries during the 2010-2014 period.

LATIN AMERICA

Aware of the rising importance of the Latin American and the Caribbean regions 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. During the visit, relations between Turkey and Mexico were elevated to the level of strategic partnership and Mexico became Turkey’s second strategic partner in the region after Brazil. President Recep Tayyip Erdoğan visited Colombia, Cuba and Mexico between the 9th and 13th of February 2015. The visit was the first presidential tour to Latin America from Turkey in the last 20 years. Turkey’s economic and trade relations with the countries of this region have displayed a significant increase and the overall trade volume exceeded U.S.$9 billion as of the end of 2014.

Major items exported to Latin America are iron and steel, vehicles other than railway or tramway rolling-stock, nuclear reactors and boilers, ships, boats and floating structures, and mineral fuels and oils. Major items imported from Africa are mineral fuels and oils, oil seeds and oleaginous fruits, miscellaneous grains, seeds and fruit, industrial or medicinal plants, straw and fodder, ores, slag and ash, vehicles other than railway or tramway rolling-stock, copper and articles, nuclear reactors and boilers, and iron and steel.

 

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Turkey has increased the level of its diplomatic representation in the region by opening another embassy in San Jose, in addition to the existing 11 Embassies as well as a Consulate General in Sao Paulo. Turkey’s embassy in Guatemala will become operational in 2015. Preparations to open new embassies in the region are also underway. Moreover, Turkish Cooperation and Coordination Agency (TİKA) opened its Coordination Office in Mexico City. TİKA Coordination Office in Bogota will be operational soon. 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. Efforts are underway to initiate new direct flights to several new destinations in the region. These flights are instrumental in increasing the level of tourism and trade between Turkey and these countries. 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, such as Mexico, Colombia, Peru (the Pacific Alliance) and Ecuador. 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”), the Pacific Alliance and Central American Integration System (“SICA”). Furthermore, Turkey established a Cooperation and Consultation Mechanism with the Caribbean Community (CARICOM), a Political Dialogue and Cooperation Mechanism with MERCOSUR and a Consultation Mechanism with the Community of Latin American and Caribbean States (“CELAC”)-Quartet.

 

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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 5.4% during the period from 2010 to 2014. 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.$214.8 billion in 2010 to approximately U.S.$269.6 billion in 2014. 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 (a required debt ratio in order to adopt the European Union’s single currency) 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).

 

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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).

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 TL 1 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  
     2010      2011      2012      2013      2014  

At constant 1998 prices

              

GDP (millions of TL)

     105,886         115,175         117,625         122,556         126,128  

GDP (at current prices)

     1,098,799         1,297,713         1,416,798         1,567,289         1,747,362  

Turkish Lira/US dollar (annual average)

     1.500         1.670         1.793         1.902         2.187  

GDP (at current prices, millions of dollars)

     731,608         774,188         786,283         823,044         799,001   

Population (mid-year, in thousands)

     73,142        74,224         75,176         76,055         76,903   

Per capita GDP (at current prices, in dollars)

     10,003        10,428         10,459         10,822         10,390   

Source: TURKSTAT

 

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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%.

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 9.5%, 21.7% and 68.8%, 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 9.0%, 22.5% and 68.5% 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

 

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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 8.8%, 21.7% and 69.4% 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 5.3% and 24.1% respectively. Therefore, growth in net exports declined 2.6% due to the recovery in domestic demand. On the other hand, private investment expenditures did not rise sharply and occurred as 0.5%. On the production side, agriculture, industrial sector and services sectors grew by 3.5%, 3.4% and 5.7%, respectively. High value added rises in services sector mainly stemmed from construction and financial intermediation services sectors. In sum, the GDP growth rate was 4.2% in 2013. Agriculture, industrial sector and services sectors accounted for 8.3%, 21.6% and 70.1% respectively.

In 2014, growth rate of domestic demand declined to 1.1%, mainly caused by sluggish increase in private consumption expenditures which was recorded as 1.4% and the 8.7% decrease in public investment expenditures. On the other hand, private investment expenditures could not rise remarkably and recorded only 0.4% growth. Sluggish domestic demand and depreciation in domestic currency bolstered the growth of net exports somewhat and was recorded as 1.8%. On the production side, agricultural sector shrank by 2.1% due to unfavorable weather conditions. Therefore, crop production shrank by 4.8%. Industrial sector carried on its moderate pace and grew by 3.8%. Capital goods production and energy production were the main leading manufacturing sectors which recorded 5.4% and 4.3% growth rates respectively. On the other hand, mining sector’s production growth rate occurred as 7.4% and 5.6% for value added growth rate, which had bolstered the total industrial value added in 2014. Services sector grew by 3.9%, which was mainly fueled by financial intermediation services, professional, scientific and technical activities, education and entertainment activities, which recorded 7.0% and 10.8% growth rates respectively. Agriculture, industrial sector and services sectors accounted for 8.0%, 22.0% and 70.0% of GDP, 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                                          

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

     1,567,289         10.6         823,044         4.7         122,556         4.2  

2014

     1,747,362         11.5         799,001         -2.9         126,128         2.9   

Source: TURKSTAT

The following table presents the composition of GDP at current prices for the periods indicated:

Table 3

 

Composition of GDP by Sectors (1)

   2010      2011      2012      2013      2014  

Agriculture

     9.5         9.0         8.8         8.3         8.0   

Industry

     21.7         22.5         21.7         21.6         22.0   

Mining

     1.6         1.7         1.7         1.6         1.6   

Manufacturing

     17.4         18.2         17.4         17.3         17.8   

Electricity, Gas, Steam

     2.0         1.9         2.0         2.0         1.8   

Water Supply

     0.7         0.7         0.7         0.7         0.8   

Services

     68.8         68.5         69.4         70.1         70.0   

Construction

     4.7         5.0         4.9         5.0         5.1   

Wholesale and Retail Trade

     12.2         13.4         13.3         13.6         13.5   

Transportation

     12.4         13.1         13.5         13.5         13.4   

GDP Total

     100.0        100.0        100.0         100.0         100.0   

 

(1) Financial intermediation services were indirectly measured and tax-subsidies were distributed to sectors with respect to their sectoral weights. Therefore, the sum of agriculture, industry and services sectors’ shares equals 100%.

Source: TURKSTAT

 

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

Table 4

 

     2010      2011      2012      2013      2014  

Agriculture

     2.4        6.1        3.1        3.5         -2.1   

Industry

     12.8        9.7        1.8        3.4         3.8   

Mining

     4.7        3.9        0.8        -3.4         5.6   

Manufacturing

     13.6        10.0        1.7        3.7         3.7   

Electricity, Gas, Steam

     7.6        9.0        3.4        1.3         4.1   

Water Supply

     4.8        6.5        2.7        4.7         10.8   

Services

     8.5        9.0        2.4        5.7         3.9   

Construction

     18.3        11.5        0.6        7.4         2.2   

Wholesale and Retail Trade

     13.6        11.2        0.0        5.1         1.8   

Transportation

     11.0        10.4        2.0        3.9         2.8   

GDP

     9.2        8.8        2.1        4.2         2.9   

Source: TURKSTAT

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.

 

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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%.

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.

In 2014, industrial sector carried on its moderate pace. Industrial production and manufacturing industry production rose by 3.6% and 3.2%, respectively, and the capacity utilization rate was 74.6%. Value added in industry increased by 3.8% in 2014.

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

Table 5

 

     % Change                                     
     2010      2011      2012      2013      10/09      11/10      12/11      13/12  

Hard Coal

     803        840        876         818        14        5        4         -7   

Lignite

     4,980        6,330        6,816         6,246        24        27        8         -8   

Natural Gas

     301        327        373         348        -11         9        14         7  

Iron Ores

     624        882        1,201         1,267        35        41        36         6  

Lead, Zink, Tin Ores

     83        284        407         566        295        242        43         39  

Other Non-Iron Metal Ores

     998        1,112        1,501         1,152        43        11        35         -23  

Marble and Building Stones

     1,080        1,402        2,100         2,681        79        30        50         28  

Limestone and Gypsum

     401        497        538         606        3        24        8         13  

Granules and Pebble Stones

     1,020        1,558        2,061         3,391        26        53        32         65  

Other Minerals

     640        922        822         1,236        60        44        -11         50  

Beef (Fresh or Cooled)

     1,679        1,720        2,755         2,652        97        2        60         -4  

Poultry (Fresh or Cooled)

     4,896        5,675        6,719         6,840        23        16        18         2  

Cigarette

     2,717        2,944        3,179         3,567        -14         8        8         12  

Cotton Yarn

     5,827        7,852        7,706         8,292        54        35        -2         8  

Cotton Weaving Fabric

     3,969        5,287        5,896         6,723        17        33        12         14  

Rough Aluminum

     567        836        797         766        89        47        -5         -4  

Tractor (37 kw < engine power < 59 kw)

     474        817        610         897        —          72        -25         47  

Automobile (1500 cm3 cylinder volume 3000 cm3

     9,902        12,435        11,299         12,084        27        26        -9         7  

Tankers

     205        61        98         —          -85         -70         61         —    

Source: TURKSTAT

Note: All of industrial output is described as production values. 2014 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 exporting countries and energy consumer markets and it stands as a key country in ensuring energy security through diversification of supply sources and routes. Therefore, considerations that have gained increased significance in the world today.

Turkey imported 70% of its total energy consumption in 2010 which increased to 72% in 2011 and 73% in 2012 and 2013.

 

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Over the last 3 years, the total amount of oil imported has decreased from 19.5 million to 18.1 million tones. In 2013, net petroleum imports constituted 25% of gross domestic energy consumption. In addition, in 2013, Turkey imported 20.1 million metric tons of oil equivalent of coal and 37.3 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. Currently, Iraq is the primary exporter of oil to Turkey.

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

Table 6

Oil Imports (million tons)

 

     2010      2011      2012      2013      2014  

Iraq

     2         3         3.7         6.3         5.7   

Iran

     7.3         9.2         7.6         5.5         5.5   

Libya

           1         0.6         0.1   

Saudi Arabia

     1.9         1.9         2.8         2.8         2.1   

Russia

     3.3         2.1         2.1         1.5         0.6   

Syria

     0.4         0.2            

Azerbaijan

           0.2         0.1      

Georgia

              0.4         1.8   

Kazakhstan

     1.8         1.1         1.4         1.6         1.6   

Italy

     0.1         0.1         0.3         0.2      

Others

           0.4            0.7   

Total Crude Oil Imports

     16.9         18         19.5         19         18.1   

Petroleum Products Imports

     13.9         9.1         10         13         14.8   

 

Source: Energy Market Regulatory Authority (EMRA)

Energy development and power generation were priority areas for public investment. In particular, in the second half of 1970s 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). As of December 31, 2014, the installed capacity of GAP hydropower plants in operation was 6,079 MW. In addition, as of December 31, 2014, approximately 23.6% of the total irrigation was completed, 9.5% was under construction and 66.9% was at the planning and final design level. The total cost of GAP is expected to be U.S.$24.5 billion (excluding expropriation and overhead costs)

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.

 

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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 1% of the total domestic demand. Consequently, nearly 99% 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 2014, primary natural gas supply amounted 48.7 billion cubic meters (bcm). By the end of 2014, the breakdown of consumption was 48.12% electricity production, 25.40% industry and 19.10% households, government and trade offices 5.82%. Distribution is carried out by local distribution companies. As of the end of 2014, 69 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.

In 2014, Turkey imported 26.9 bcm of natural gas from the Russian Federation, 8,9 bcm of natural gas from Iran and 6,1 bcm of natural gas from Azerbaijan. Turkey also imported 4.1 bcm and 1.4 bcm of natural gas from Algeria and Nigeria, respectively in LNG form. On the other hand, in 2014 Turkey also imported spot LNG from countries such as Qatar, Norway, Spain, Trinidad Tobago and Nigeria.

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 2018. The Shah Deniz natural gas production of Azerbaijan will be transmitted to Europe by this project.

Furthermore, on December 1, 2014, Russian Federation President Putin and proposed an offshore pipeline (with a capacity of 63 bcm/a), Turkish Stream, planned to cross Black Sea to reach Turkish territories.

Turkey’s domestic natural gas transmission system is approximately 12,900 km in length. By the end of 2014, the number of firms with a distribution license reached 69. 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. By 2014, the market share of BOTAŞ has decreased to 80% 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 taken in December 2014 decreasing the eligibility threshold for the household customers to 75,000 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.

Amendment of Natural Gas Market Law was sent to the Grand National Assembly in August 2014. It is aimed to enhance liberalization and competition of natural gas market and expected to contribute to the process of liberalization of Natural Gas Market within the Draft Natural Gas Market Law.

 

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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, in January 2014 as 4500 kWh and finally in January 2015 as 4,000 kWh.(85.04% theoretical market openness). The Electricity Market and Security of Supply Strategy paper, dated May 2009, 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 end of 2016.

 

  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 2014, 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 940.6 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 2014, approximately 203 auto-producing plants generated an annual power output corresponding to 2.0% of Turkey’s total electricity generation and 541 Independent Power Producers (IPP) generated 115.4 TWh, which constituted approximately 46% of Turkey’s total electricity generation in 2014. 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 255.5 TWh of electricity in 2014. Installed capacity has surpassed 71.5 GW as of July 2015 and the increase of electrical energy demand has been realized as 3.7% in 2014. Electricity demand is projected to increase annually between 5% and 6% 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

 

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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 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).

By the end of 2014, the share of renewable energy sources in total electricity generation was 21.0% and total wind capacity reached 3.629 GW.

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.

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.

 

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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 2014, 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 69% of electricity generation capacity was held by the private sector in 2014. 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. Ten thermal power plants (Kangal, Seyitömer, Hamitabat, Kemerköy, Yeniköy, Yatağan, Çatalağzi, Orhaneli, Tunçbilek and Soma B) were completely privatized at the end of June 2015. The remaining plants are expected to be privatized in the next few years.

While EÜAŞ, a state-owned company, held approximately half of all installed capacity in 2011, its share in total installed capacity reduced 31% by the end of 2014. Independent power producers owned more than 56% of total capacity in 2014. BOO, BOT and TOOR power plants (with long term purchase agreements with TETAŞ) had 13% of capacity.

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 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.

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.

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. On June 25, 2015, EMRA granted Akkuyu NPP a preliminary generation license which is effective for 36 months. It is expected that a construction license application will be submitted in November 2015 following the approval of the Site Parameters Report by Turkish Atomic Energy Authority (“TAEK”).

An IGA between Turkey and Japan for construction and operation of the second nuclear power plant and development of the nuclear industry in Turkey was ratified and came into force on May 23, 2015 (OJ Number 29364) 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 continues.

 

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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 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.

 

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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). 4,680 GWh of energy was imported from Bulgaria to Turkey and nearly 0.2 GWh 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 2014.

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 Iğdir (Turkey) which is currently operating in import in isolated region mode. 265.7 GWh of energy was imported from Nahcevan to Turkey and 12.6 GWh of energy was exported from Turkey to Nahcievan at 15-25 MW peak power through the Igdir-Babek interconnection line in 2014.

 

  Iran: There are two interconnection lines; one of which is a 400 kV Khoy (Iran) and Başkale (Turkey) interconnection line and currently operating at 220 kV and the other is a 154 kV Doğubeyazit (Turkey) and Bazargan (Iran) interconnection line, both of which are currently operating in import in isolated region mode. Approximately 2,18 GWh of energy was imported from Iran to Turkey through the Khoy-Baskale interconnection line and 253.2 GWh energy was imported from Iran to Turkey via 154 kV Doğubayazit-Bazargan interconnection line in 2014.

 

  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 Muratli (Turkey), with a DC back-to-back station at Georgian side is under consideration. 86 GWh of energy was imported from Georgia to Turkey via the Hopa-Batum interconnection line in 2012. A total of 1,221 GWh of energy was imported through this line between January 1, 2007 and December 31, 2012. A total of 1,171.8 GWh 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 Şanliurfa (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. 409,8 GWh energy was exported from Turkey to Iraq through PS3 - Karkey (Turkey) - Zakho (Iraq) Interconnection Line in 2014.

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 2015.

 

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  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 809.3 GWh 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 Centers 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. Following the fulfilment of the standards/obligations set down in the ENTSO-E Operation Handbook by TEIAS, the “Long Term Agreement” was signed in April 2015, which is a requirement of the ENTSO-E Articles of Association for permanent operation and will make the standards and obligations binding for TEIAS. In this regard, Turkish electricity market is a part of the European Internal Electricity Market with its whole actors.

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 AzBTC, Chevron, Statoil BTC Caspian As, TPAO, ENI, Total, Itochu Oil Exploration (Azerbaijan) Inc., INPEX, ConocoPhillips and ONGC Videsh Limited. The 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 1768 km and the original capacity is 1 mb/d.

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.

Subsequently on December 24, 2011, Turkey and Azerbaijan signed a Memorandum of Understanding concerning the development of a standalone pipeline. The Trans Anatolian Natural Gas Pipeline (TANAP) Project will have minimum 16 bcm/a capacity and will be scalable to accommodate future natural gas volumes originating and transiting from 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. The groundbreaking ceremony of TANAP was held in March 2015 and construction was started in April 2015.

 

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First gas flow is planned at the end of 2018 to Turkey and in 2020 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 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.

On May 30, 2014, a signing ceremony of a package of agreements concerning Shah Deniz gas field and TANAP Project was held in Istanbul. The package contains several agreements related to the increase of TPAO’s share in Shah Deniz Consortium from 9% to 19% by acquiring all shares of TOTAL, increase of BOTAŞ’s share in TANAP Project Company from 20% to 30% by acquiring 10% of SOCAR’s share, transportation of 6 bcm of gas to be purchased by BOTAŞ from Shah Deniz Phase II via TANAP System. With these agreements, Turkey reaffirmed its commitment to Shah Deniz field and pipeline projects in order to further enhance its supply security and open up the Southern Gas Corridor.

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 2020. 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 Belgium, TOTAL of France and Enagas of Spain.

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 was finalized. This memorandum establishes a Joint Working Group in order to prepare a prefeasibility report and action plan for the Project.

At the Turkey-Russia High Level Consultation On Council Meeting, President Putin proposed a pipeline, which would use most of the route of the canceled-South Stream Project via the Black Sea but to turn to Turkey and end up at Turkey-Greece border following the on-shore route. The project is planned to transport 63 bcm/a natural gas to Turkey and Europe. It aims to give gas to Turkey at end 2016 and to Europe at end 2019 following the termination of Russian Federation-Ukraine agreement of natural gas transit through Ukrainian territories.

 

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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    2010      17.52         16.0         2.67         2.4         4.45         4.1         0.63         0.6         —           —           7.21         6.6         32.48         29.72   
   2011      17.86         15.6         2.55         2.2         4.50         4.0         0.65         0.6               6.66         5.8         32.22         28.15   
   2012      17.01         14.2         2.40         2.0         4.98         4.1         0.53         0.4               7.04         5.9         31.96         26.61   
   2013      15.45         12.8         2.48         2.1         5.11         4.3         0.44         0.4               8.46         7.0         31.94         26.55   
Import    2010      15.92         14.6         36.57         33.5         —           —           34.82         31.9         0.10         0.0         —           —           87.41         80.01   
   2011      17.58         15.4         36.09         31.5            —           36.21         31.6         0.39         0.4               90.29         78.87   
   2012      22.43         18.7         37.86         31.5               37.91         31.6         0.50         0.4               98.70         82.18   
   2013      20.13         16.7         37.88         31.5               37.35         31.1         0.64         0.5               96.00         79.81   
Export(3)    2010      —           —           7.64         7.0         —           —           0.6         0.6         0.17            —                      -8.39         -7.63   
   2011         —           8.24         7.2            —           0.6         0.5         0.31         0.3               -9.15         -7.99   
   2012            9.55         8.0               0.5         0.4         0.25         0.2               -10.31         -8.58   
   2013      0.01            8.35         6.9               0.56         0.5         0.11         0.1               -9.03         -7.50   
Net stock    2010      —           —           —           —           —           —           —           —           —           —           —           —           -0.30         -0.3   
   2011      —           —           —           —           —           —           —           —           —           —           —           —           1.10         0.97   
   2012                                          -0.81         -0.67   
   2013                                          -0.64         -0.53   
Statistical Error    2010      —           —                                         -1.90         -1.8   
   2011      —           —           —                          —           —              —           
   2012                                          0.56         0.46   
   2013                                          2.01         1.67   
Total supply    2010      33.53         30.7         29.22         26,7         4.45         4.1         34.91         31.9         —           —           7.16         6.6         109.26         100.0   
   2011      35.84         31.3         30.49         26.6         4.5         4.0         36.90         32.2               6.75         5.9         114.48         100.0   
   2012      39.29         32.7         31.20         26.0         4.97         4.1         37.37         31.1         —           —           7.26         6.1         120.09         100.0   
   2013      34.66         28.8         33.90         28.2         5.11         4.3         37.63         31.3               8.99         7.5         120.29         100.0   

 

(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

AGRICULTURE

While agriculture has historically been a very important sector in Turkey, the contribution of this sector to the country’s GDP and total employment 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, generates most of the income and employment in rural areas, supplies products to many other sectors, and contributes significantly to total exports of the country.

 

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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 2013, those major support schemes have accounted for 30%, 28%, 31.7% and 5.5% of total support budget, respectively. The distribution of premium payments, area-based supports, animal husbandry supports and rural development supports for the year 2014 are estimated to have constituted 30.8%, 28.8%, 30.5% and 5.1% 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 has been finalized for the period of 2014-2018. In addition, to the revised GAP Action Plan (2014-2018), the KOP Action Plan (2014-2018), the DAP Action Plan (2014-2018), and the DOKAP Action Plan (2014-2018) applicable to other priority regions have also been prepared and implementation thereof has begun. The purpose of these plans is to strengthen the social and economic development of Turkey. The agriculture sector plays a crucial role in these Action Plans to create jobs and incomes, improve the standard of living in rural areas and diminish the regional disparities. The principal objectives of the agriculture sector in these Action Plans are to increase productivity, generate more income and employment in rural areas, and provide sufficient and balanced nutrition to the population.

In 2014, agricultural value added decreased by 2.1%, compared to a 3.5% increase in 2013 (in 1998 prices). This shrinking in the sector mainly stems from the unfavorable climatic conditions. Agriculture accounted for approximately 8.0% of GDP in current prices and 21.1% of civilian employment in 2014.

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  
     2010      2011      2012      2013      2014      2010/11      2011/12      2012/13      2013/14  
     (in thousands of tons)      (percentage)  

Cereal

                    

Wheat

     19,674         21,800         20,100         22,050         19,000         10.8         -7.8         9.7         -13.8   

Barley

     7,250         7,600         7,100         7,900         6,300         4.8         -6.6         11.3         -20.3   

Maize

     4,310         4,200         4,600         5,900         5,950         -2.6         -9.5         -28.3         -0.8   

Pulses

                    

Lentils (red)

     422         385         410         395         325         -8.8         6.5         -3.7         -17.7   

Chick Peas

     531         487         518         506         450         -8.1         6.3         -2.3         -11.1   

Dry Beans

     213         201         200         195         215         -5.7         -0.3         -2.5         10.3   

Industrial Crops

                    

Sugar Beet

     17,942         16,126         14,920         16,483         16,743         -10.1         -7.5         10.5         2.3   

Cotton (raw)

     2,150         2,580         2,320         2,250         2,350         20.0         -10.1         -3.0         4.4   

Tobacco

     53         45         73         90         70         -14.3         61.3         22.8         -22.2   

Oil Seeds

                    

Sunflower

     1,320         1,335         1.370         1,523         1,638         1.1         2.6         11.2         7.5   

Soybeans

     87         102         122         180         150         18.2         19.4         47.4         -16.7   

Rapeseed

     106         91         110         102         110         -14.3         20.6         -7.3         7.8   

Groundnut

     97         90         123         141         124         -7.1         35.8         15.1         -12.5   

Tuber Crops

                    

Potatoes

     4,513         4,613         4,795         3,948         4,166         2.2         3.9         -17.7         5.5   

Dry Onions

     1,900         2,141         1,736         1,905         1,790         12.7         -18.9         9.7         -6.0   

Fruit Bearing Vegetables

                    

Watermelons and Melons

     5,295         5,512         5,711         5,587         5,593         4.1         3.6         -2.2         0.1   

Tomatoes

     10,052         11,003         11,350         11,820         11,850         9.5         3.1         4.1         0.3   

Fruits and Nuts

                    

Grapes

     4,255         4,296         4,185         4,011         4,175         1.0         -2.6         -4.2         4.1   

Figs

     255         261         275         299         300         2.2         5.6         8.7         0.5   

Citrus Fruits

     3,572         3,614         3,475         3,681         3,784         1.2         -3.8         5.9         2.8   

Hazelnuts

     600         430         660         549         412         -28.3         53.5         -16.8         -25.0   

Apples

     2,600         2,680         2,889         3,128         2,480         3.1         7.8         8.3         -20.7   

Olives

     1,415         1,750         1,820         1,676         1,768         23.7         4.0         -7.9         5.5   

Tea

     1,306         1,231         1,250         1,150         1,260         -5.7         1.5         -8.0         9.6   

Value Added in Agriculture

(at 1998 prices, billion TL)

     9,999         10,604         10,935         11,315         11,083         6.1         3.1         3.5         -2.1   

Source: TURKSTAT

 

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SERVICES

The services sector, which accounted for 69.4% of GDP (excluding tax-subsidies and Financial Intermediation Services Indirectly Measured) in 2012 (compared to 68.5% of GDP in 2011) and 58.4% of total civilian employment in 2014, 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 and 2014 value added increases continued in the services sector and the growth rate reached 5.7% and 3.9%, respectively. As of end of 2014, services sector accounts for 70.0% of GDP.

Trade

Wholesale and retail trade is a dynamic sector in Turkish economy. A modernization trend toward more organized market structure has been observed during recent years. By 2013, the share of sector in total enterprise and employment in industry and services were 39.9% and 24.3%, respectively (excluding financial services). In 2013, wholesale and retail value added accounted for 13.5% of GDP and remained stable in 2014 (at current prices).

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 led 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. In 2014, the total number of foreign visitors visiting Turkey increased by 5.5% to 36.8 million and tourism revenues increased by 5.6% to U.S.$29.6 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)  

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  

2014

     36,838         29,552         5.6   

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.

 

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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, 2013 and 2014, the value of the telecommunications market reached approximately U.S.$16.2 billion, U.S.$15.7 billion and U.S.$15.4 billion, respectively. Even though growth rates in the transportation and information/communication sectors were 3.9% and 2.8% in 2013, 2.8% and 3.3% in 2014, respectively, in terms of Turkish lira, the contraction in U.S. dollar terms is the result of depreciation of the currency. A total of 1031 authorizations were granted to 632 telecommunications operators as of May 11, 2015.

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. Arrangements for the awarding of 4G licenses are ongoing.

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) penetration is 92.7% and fixed line telephone use declined to 15.9% as of March 2015. The use of broadband services in Turkey increased drastically in the last few years. Total broadband penetration is 53%% as of March 2012, and mobile broadband use reached 41.7% as of December 2014.

In 2010 and 2011, the total output in transportation increased by 11.0% and 10.4% in real terms and accounted for 12.4% and 13.1% of GDP at current prices, respectively, while information/communication sector grew by 4.7% and 9.2% in real terms and accounted for 2.5% and 2.2% of GDP at current prices. In 2012, value added in transportation grew by 2.0% and accounted for 13.5% of GDP at current prices, while information/communication sector grew by 8.5% in real terms and accounted for 2.3% of GDP. In 2013, the growth rate in transportation sector was 3.9% and share in GDP was 13.5%, while information/communication sector’s growth rate and share was 2.8% and 2.2%, respectively. In 2014, the growth rate in transportation sector was 2.8% and share in GDP was 13.4%, while information/communication sector’s growth rate and share was 3.3% and 2.1%, respectively.

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. Although the sector recovered and achieved a 7.4% growth rate in 2013, this trend did not continue in 2014, when a decreasing trend was observed in growth rates. Decreasing positive growth rates in the first three quarters in 2014 (5.8%, 3.4% and 2.0%, respectively) turned negative during the last quarter (-2.1%) constituting an overall annual growth rate of 2.2% for 2014.

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 U.S.$30.2 billion in 2013. The total contracting amounts in 2010, 2011, 2012, 2013 and 2014 were U.S.$23.4 billion, U.S.$23.0 billion, U.S.$29.7 billion, U.S.$30.1 billion and U.S.$27.0 billion, respectively.

 

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EMPLOYMENT AND WAGES

The total civilian labor force in Turkey was 28,786 thousand people in 2014. 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 2014, the total labor force increased at an average annual rate of approximately 3.89%.

Total civilian employment was 25,933 thousand in 2014, of whom approximately 21.1% were employed in agriculture, 20.5% in industry and 58.4% in services. Moreover, in 2014, the labor force participation rate was at 50.5%, compared to 48.3% in 2013.

There were approximately 3,440,000 public sector workers at the end of 2014. The rate of unemployment was 9.9% in 2014, compared to 9.0% in 2013.

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)  
     2010      2011      2012      2013      2014  

Civilian labor force

     24,594        25,594        26,141        27,046         28,786   

Civilian Employment

     21,858        23,266        23,937        24,601         25,933   

Agriculture

     5,084        5,412        5,301        5,204         5,470   

Industry

     4,615        4,842        4,903        5,101         5,316   

Services

     12,159        13,012        13,733        14,296         15,147   

Unemployed

     2,737        2,328        2,204        2,445         2,853   

Unemployment rate (%)

     11.1        9.1        8.4        9.0         9.9   

Source: TURKSTAT

The following table sets forth information on the employment rate with respect to age and gender in Turkey for the dates indicated:

Table 11

 

     Employment Rate%                Youth* Employment Rate%  

          Year          

   Male      Female      Total          

          Year          

   Male      Female      Total  

2010

     62.7         24.0         43.0                  2010      40.2         20.3         30.0   

2011

     65.1         25.6         45.0                  2011      43.4         21.2         32.1   

2012

     65         26.3         45.4                  2012      42.5         20.7         31.5   

2013

     65.2         27.1         45.9                  2013      43.1         21.5         32.2   

2014

     69.5         29.5         49.5                  2014      45         22.0         33.5   

September 2015

     71.1         31.0         51.1          September 2015      48.8         24.3         36.6   

Source: TURKSTAT

              

(*)    Young people in the 15-24 age group

       

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 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.

 

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In 2013, labor costs in the public sector increased by 7.8% (3.1% in real terms), compared to 2012. In 2014, labor costs in the public sector increased by 10.6% (0.3% in real terms), compared to 2013. Labor costs in the private sector increased by 9.3% (4.6% in real terms) in 2013, compared to 2012. Labor costs (including salaries and benefits) for civil servants increased by 7.3% (2.7% in real terms) in 2013 and 11.2% (0.8 % in real terms) in 2014.

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 12

 

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

2010

     6.9        -1.5         7.2         -1.2         7.0        -1.4   

2011

     6.4        -4.2         4.4         6.0        12.0        0.8  

2012

     7.2        1.0        12.1         5.7        13.1        6.6  

2013

     7.8         3.1         9.3         4.6         7.3         2.7   

2014

     10.6         0.3         —           —           11.2         0,8   

 

(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 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 13.1% in 2012 and 7.3% in 2013. In 2014, all civil servant salaries increased by a fixed amount (TL 175) and additional increases were made to certain professional groups. As a result of these improvements, the salaries of civil servants increased by 11.2% in 2014.

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. In 2014, the minimum wage for both private and public sector workers increased by 5.0% in the first half of 2014 and by an additional 6.0% in the second half of 2014. In 2015, the minimum wage for both private and public sector workers increased by 6.0% in the first half of 2015 and by an additional 6.0% in the second half of the year.

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

 

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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.

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. As of July 31, 2014, 2,270,558 employees were members of a trade union. 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. The percentage of civil servants who are union members was 70.03% as of July 31, 2014.

INFLATION

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 considerably 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 to 3.99% by March 2011, the lowest it has been since June 1970. Throughout the year, import prices denominated in Turkish lira increased, mainly as a result of 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 the 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 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 affect inflation, particularly with respect to durable goods, thus annual inflation in core goods displayed a downward trend 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 throughout the year. However, public price increases and tax adjustments, especially in the energy sector, were the leading factors contributing to a 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 of 2.45%, curtailing cost-side pressures on consumer prices throughout the year.

 

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In 2013, consumer inflation increased by 1.2 points year-on-year to 7.4%, overshooting the uncertainty band of the inflation target. 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.

In 2014, annual consumer inflation increased by 0.8 points year-on-year to 8.2%, rising above the uncertainty band around the inflation target. This increase was mostly driven by the depreciation of the Turkish lira as well as the sharp increase in food prices. Throughout the year, inflation followed a volatile course shaped by food price and exchange rate developments. In the first half of 2014, inflation soared due to considerable depreciation of the Turkish lira and surge in food prices and ended the mid-year significantly above the value implied by the target. Despite the slowdown in the second half of the year, thanks to plunging international oil prices and the partial correction in unprocessed food prices, annual inflation ended the year with a high year-end value. Consequently, medium-term inflation expectations followed a downward track in the fourth quarter after trending upward earlier in the year. In line with the outlook for import prices, annual PPI inflation declined to 6.4% in 2014.

Uncertainty Band around Target and Inflation Realizations

Table 13

 

     Dec. 2010      Dec. 2011      Dec. 2012      Dec. 2013      Dec.2014  

Uncertainty Band (upper limit)

     8.5         7.5         7         7         7   

Uncertainty Band (lower limit)

     4.5         3.5         3         3         3   

Realization

     6.4         10.4         6.2         7.4         8.2   

Source: TURKSTAT, CBRT

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

Inflation

Table 14

 

Year

   Producer Price Index      Consumer Price Index  
     (percentage change)  

2010

     8.9         6.4  

2011

     13.3         10.4  

2012

     2.5         6.2  

2013

     7.0         7.4  

2014

     6.4         8.2   

Source: TURKSTAT

EDUCATION

According to the Address Based Population Registration System, the adult literacy rate among individuals aged 6 years and over increased sharply from 80.5% in 1990 to 96.1% in 2014. The rate for men and women was 98.7% and 93.6%, respectively. Over the years, increasing primary school attendance rates have been influential in reducing the illiteracy rate.

 

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According to the Ministry of Development, total student enrollment in the educational year 2014-2015 was 23.6 million, of whom 4.9% were in pre-primary school, 45.3% were in primary school, 24% were in secondary school and 25.6% 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.

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 (the “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.

 

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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.

The following table presents a summary of the files concluded by the TCA between 2010 and 2014:

Files Concluded

 

Year

   Competition
Infringement
     Exemptions
and Negative
Clearance
     Mergers and
Acquisitions1
     Other 2      TOTAL  

2010

     252         96         276         23         647   

2011

     283         54         253         27         617   

2012

     303         50         303         31         687   

2013

     191         58         213         30         492   

2014

     163         59         215         27         464   

TOTAL

     1,192         317         1,1260         138         2907   

 

1  Including privatizations.
2  Including decisions taken in response to a Council or State Decision and other matters (e.g. requests for a re-evaluation of the decision).

Source: Competition Authority

 

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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 TL 100 million, and turnovers of at least two of the transaction parties in Turkey each exceed TL 30 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 TL 30 million, and at least one of the other transaction parties has a global turnover exceeding TL 500 million.

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

In 2013, the following legislation was adopted:

 

  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.

 

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  Guidelines on the General Principles of Exemption: The Competition Act dated July 2, 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.

In 2014, the following legislation was adopted:

 

    Guidelines On the Assessment Of Exclusionary Abusive Conduct by Dominant Undertakings: These Guidelines were published in order to describe the elements the Competition Board (“Board”) must take into consideration when assessing exclusionary abusive conduct by dominant undertakings under article 6 of the Competition Act, to increase transparency, and thus to minimize the uncertainties that may arise in the interpretation of the article by the undertakings.

 

    Competition Assessment Guide: the Guide aims to provide a methodology for government agencies in evaluating competitive impacts of draft or existing legislation. It includes a checklist setting forth questions for detecting unnecessary restraints on competition.

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 Korean Republic (2005), Romania (2005), Bulgaria (2007), Portugal (2008), Bosnia and Herzegovina (2010), Mongolia (2010), Russia (2011), Croatia (2011), Austria (2011), Northern Cyprus (2012), Egypt (2012), Kazakhstan (2013), and of Ukraine (2013) each in an aim to promote cooperation in the field of competition law and policy.

 

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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. This law has 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 their work that would be prejudicial to their 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 to the modern industrial property system of developed countries. Decree Law No. 544 was amended by the “Law on Establishment and Functions of Turkish Patent Institute” (Law No. 5000) in November 2003. Further, Law No. 5194,came into force on June 22, 2004 and amended other laws which provided protection for patents, trademarks, industrial design and geographical indications. Under this Law, the penalty provisions of Decree Laws 551, 554, 555, and 556 were updated and harmonized with EU standards. However, a Constitutional Court decision in 2008 annulled the criminal sanctions related provisions of patent, designs and geographical indications.

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 most recently in 2012.

 

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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 trademarks 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 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.

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.

 

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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, China, Bosnia & Herzegovina, Czech Republic, Denmark, France, Georgia, Italy, Kyrgyzstan, Macedonia, Mongolia, Morocco, Russia, Uzbekistan, and Sweden, Tunisia, Albania and Moldova.

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

 

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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

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

 

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Statistics Regarding Industrial Property Rights Applications/Registrations/Grants

Table 15

 

     2010      2011      2012      2013      2014  

Number of Patent Applications

     8343         10241         11599         12053         12375   

Number of Utility Model Applications

     3033         3244         3788         3541         3568   

Number of Trademark Applications

     85466         117723         111143         100608         111544   

Number of Industrial Design Applications

     6972         7989         8423         8782         9028   

Source: Turkish Patent Institute

Table 16

 

     2010      2011      2012      2013      2014  

Number of Patent Granted

     5510         6539         7816         8925         8530   

Number of Utility Model Issued

     2050         1976         2299         2037         2561   

Number of Trademarks Registered

     43851         42059         64721         83189         87545   

Number of Industrial Designs Registered

     6841         7388         7767         8393         8265   

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.

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

Table 17

 

   

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

 

30% real GDP growth +

100% CPI

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 4.4% of GDP in 2014.

Revenues and Expenditures of Social Security Institution

Table 18

 

Million TL

   2010     2011     2012     2013     2014  

Revenues

     95        124        143        163        184   

Expenditures

     122        141        160        183        204   

Rev. - Exp.

     -27        -16        -17        -20        -20   

Budgetary Transfers (BT)

     55        53        59        71        77   

BT as % of GDP

     5.0     4.1     4.2     4.6     4.4

Source: SGK (in Turkish)

The goals of the reform in health services are:

 

    Implementation of General Health Insurance which covers the entire population,

 

    Countrywide implementation of family medicine and

 

    Easier access to all health care services by the insured.

 

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The compulsory unemployment insurance system was introduced in 1999. 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 the State based on the employee’s gross salary.

The first unemployment payments were made in March 2002. As of December 2014, the total asset value of the Unemployment Insurance Fund was TL 81.4 billion.

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 2014, there were 19 pension companies, 5,092,871 participants and 5,807,319 active pension contracts in the system, while the total amount of funds reached TL 37.8 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. Whereas the total number of participants at the end of 2012 was 3,128,130, as a result of the new incentive, the number of new participants who have entered into the system has increased by approximately 2 million between 2013 and 2014.

EXCHANGE RATES AND EXCHANGE POLICIES

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, on August 5, 2011, the Central Bank started to hold FX sale auctions, 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

 

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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 to 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 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 from being adversely affected by exchange rate movements detached from fundamentals.

With a view of 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 introduced a new facility, Reserve Option Mechanism (ROM), which allows banks (and later on other financial institutions) to maintain reserve requirements for Turkish lira liabilities in US Dollar and/or Euro up to a certain threshold. According to this mechanism for each Turkish lira reserve requirement, the banks can bring equivalent FX amount weighted by a factor called Reserve Option Coefficient. In September 2011, this facility allowed banks to maintain FX reserves for Turkish lira reserve requirements up to 10%. This option was first raised to 20% and then 40% in October 2011. In 2012, this option was gradually further raised to 45%, in to 50% in May 2015 and 55% in June 2015. Since this facility is used by the banks almost fully, 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% and 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% and 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 were set as TL 2.0 billion for the total funding through one-month auctions and TL 3.0 billion for each week’s auction. On May 29, 2012, the MPC decided to set the amount of daily funding via quantity auctions between TL 1.0 and TL 5.0 billion. On June 21, 2012, the MPC decided to keep the amount of daily funding via quantity auctions between TL 1.0 and 5.0 billion until July 19, 2012. The upper limit for each one-month repo auction to be held between June 22 and July 21, 2012 was set at TL 5.0 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 were 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.”

 

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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 U.S. dollar-denominated liabilities in U.S. 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.$78.46 billion at the end of 2011 and U.S.$84.00 billion on July 13, 2012.

Central Bank Direct Interventions and Auctions in (million USD)

Table 19

 

     Interventions      Auctions  
     Purchase      Sale      Purchase      Sale  

2010

     —           —           14,865         —     

2011

     —           2,390         6,450         11,210   

2012

     —           1,450         —           1,006   

2013

     —           —           —           17,610   

2014*

     —           3,151            11,200   

 

* As of December 31, 2014 (Includes direct sales to State Energy Enterprises)

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 seemed 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.

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% to11.5% (with 6% for the longest maturity, and 11.5% for the shortest maturity) from 5% to 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.

 

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During 2013, the CBRT implemented new revisions to Reserve Option Mechanism for gold and FX facilities. These revisions included an increase in ROCs for gold option on January 22, 2013, an increase in ROCs for gold and FX option on March 26, 2013, addition of new tranches for FX and gold on March 26, 2013, an increase in ROCs for FX option on April 16, 2013, an increase in ROCs for FX option and addition of new tranches for FX on May 16, 2013, an increase in ROCs for FX option on December 26, 2013. The latest tranches and corresponding ROCs as of December 31, 2014 are described below.

Table 20

 

FX Facility Tranches (%)

   ROC  

0-30

     1.4   

30-35

     1.5   

35-40

     1.8   

40-45

     2.6   

45-50

     2.9   

50-55

     3.1   

55-60

     3.2   

Source: Central Bank

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. US Dollar, 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.$17 billion for the whole year). There were also increases in the upper limit of the interest rate corridor in mid-2013. Further, the CBRT 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.

In the beginning of 2014, Turkey experienced external and internal developments with strong effects on its exchange rate and risk premium. In order to contain the negative impact of these developments on inflation and macroeconomic stability, the CBRT decided at its interim MPC meeting on January 28, 2014 to deliver a strong and front-loaded monetary tightening and to simplify its operational framework. Accordingly, the marginal funding rate was raised from 7.75% to 12%, the interest rate on borrowing facilities provided for primary dealers on repo transactions within open market operations was raised from 6.75% to 11.5%, and the CBRT borrowing rate was raised from 3.5% to 8%. With regard to the simplification of the operational framework, the CBRT decided to provide liquidity from the one-week repo rate instead of the marginal funding rate, and the one-week repo rate was increased from 4.5% to 10%. This simplified framework has been kept in operation throughout 2014, with several downward revisions to the one-week repo rate and to the interest rate corridor.

During the same time period, the CBRT provided FX liquidity to the market by direct currency intervention and daily FX sale auctions. Considering the developments in FX volatility, the limits on daily FX sales were revised several times which set the minimum amount between U.S.$10 million to U.S.$40 million. Moreover, the CBRT announced that the required portion of the FX requirements of energy-importing SEEs would be met directly by the Undersecreteriat of the Treasury and the CBRT as of December 17, 2014. In 2014, an FX amount of U.S.$14.35 billion was sold through FX sale auctions and direct intervention.

As of December 19, 2014, ROM-based foreign exchange reserves were valued at U.S.$33 billion (from U.S.$34.1 billion in 2013), and the ROM-based gold reserves were valued at U.S.$15.1 billion (an increase of U.S.$14.8 billion from the previous year). As of August 1, 2014, the CBRT limit the foreign currencies that can be maintained for Turkish lira required that the reserves be within the scope of the Communiqué on Reserve Requirements No. 2013/15 to the U.S. dollar only. To further strengthen the Central Bank’s FX reserves, the Central Bank increased the export rediscount credits limits several times during 2013 and 2014. In sum, export rediscount credits added U.S.$12.7 billion in 2013 and U.S.$13 billion in 2014 to the Central Bank’s net international reserves. Overall, international reserves of the Central Bank reached U.S.$127.3 billion as of the end of 2014.

 

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In order to maintain balanced growth and capital inflows for the upcoming global monetary policy normalization, the CBRT has changed the foreign exchange deposit rates that apply to banks to borrow from the CBRT within their limits through the Foreign Exchange Deposit Market. As of October 9, 2014, the rates for one-week maturity borrowings from the CBRT as a last resort facility were reduced from 10% to 7.5% for the US Dollar and from 10% to 6.5% for the Euro. Moreover, considering the increase in banks’ balance sheets and in CBRT’s international reserves, it raised the banks’ transaction limits at the Foreign Exchange and Banknotes Markets from U.S.$10.8 billion to U.S.$22.6 billion as of December 10, 2014.

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 21

 

Period

Average

Year

   Turkish Lira per
U.S. Dollar
     Turkish Lira per
Euro
     Turkish Lira
per 100
Japanese
Yen
     Turkish Lira per
Currency Basket(1)
 

2010

     1.51         2.00         1.72         1.75  

2011

     1.68         2.33         2.11         2.01   

2012

     1.80         2.32         2.27         2.06  

2013

     1.91         2.53         2.04         2.22  

2014

     2.19         2.91         2.08         2.50   
Period End At                            
December 31st                            

2010

     1.55         2.06         1.90         1.80  

2011

     1.91         2.47         2.46         2.19  

2012

     1.79         2.36         2.08         2.08  

2013

     2.14         2.94         2.03         2.54  

2014

     2.32         2.83         1.95         2.58   

 

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

Source: CBRT

Note: CBRT’s foreign exchange effective selling rates.

INTERNATIONAL LENDING

The Undersecretariat of the Turkish Treasury, together with the World Bank, launched the Country Partnership Strategy (“CPS”) of Turkey on February 28, 2008 covering the period from 2008 to 2011. Under the CPS, U.S.$7.64 billion was provided consisting of development policy loans (58%) and investment loans (42%). U.S.$4.11 billion of this amount was secured between January 2010 and June 2011.

The current Country Partnership Strategy (Current CPS) covering the period from 2012 to 2015 was launched on March 27, 2012 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%).

 

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In addition, the Current CPS provides financing for private sector investments and guarantees against non-commercial risks by the International Finance Corporation (“IFC”) and Multilateral Investment Guarantee Agency (“MIGA”), respectively. IFC and MIGA are members of the World Bank Group (“WBG”).

As of June 30, 2014, under the Current CPS, the WBG delivered financing of over U.S.$5.5 billion, including U.S.$ 2.7 billion from the World Bank, U.S.$2.8 billion from the IFC and U.S.$ 65 million from the MIGA.

The CPS Progress Report which was prepared within the context of the CPS Mid-term Review became effective on October 3, 2014. The Progress Report reviews the completed and projected activities within the Current CPS Program, including program and project financing as well as analytical studies. In the context of the CPS Mid-term Review, the Current CPS period has been extended one year until June 30, 2016.

As a result of the extension, the CPS financial package has been increased by up to U.S.$2 billion, reaching U.S.$6.45 billion in total, consisting of development policy loans and investment loans, which will be secured by the World Bank. In addition, the Current CPS, as extended, is expected to provide financing for private sector investments by the International Finance Corporation (IFC) between in the amount of U.S.$600-650 million for each fiscal year 2015 and 2016. Moreover, the MIGA is also expected to increase its portfolio in Turkey.

As of December 31, 2014, U.S.$3.85 billion (U.S.$1.9 billion for budget financing and U.S.$ 1.95 billion for investment financing) has been provided by the World Bank. A summary of the program and investment loans approved during the 2012-2016 period under the Current CPS are as follows:

 

Program Loans    Original Amount      USD Equivalent      Board Approval    Loan Agreement

Environmental Sustainability and Energy Sector (ESES) DPL3

   455,400,000       $ 600,000,000       Mar 27, 2012    Apr 06, 2012

Competitiveness and Savings Development Policy Loan (CSDPL)

   624,100,000       $ 800,000,000.       Jun 06, 2013    Jun 07, 2013

Turkey Sustaining Shared Growth DPL

   367,400,000       $ 500,000,000       Jul 24, 2014    Aug 22, 2014
Investment Loans                        

Private Sector Renewable Energy and Energy Efficiency Project - Add. Finance

   $

235,000,000

183,600,000

  

  

   $ 500,000,000       Nov 22, 2011    Dec 5, 2011

SME Energy Efficiency

   $ 201,000,000       $ 201,000,000       Mar 27, 2013    May 6, 2013

Third Access to Finance for SMEs (SME III)

   $ 300,000,000       $ 300,000,000       Jun 26, 2013    Aug 22, 2013

Renewable Energy Integration

   217,600,000       $ 300,000,000       May 9, 2014    Jul 10, 2014

Gas Sector Development - Add. Finance

   $ 400,000,000       $ 400,000,000       Jul 02, 2014    Oct 02, 2014

Innovative Access to Finance

   $

190,000,000

44,100,000

  

  

   $ 250,000,000       Jul 22, 2014    Aug 22, 2014

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

 

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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 re-pricing risks. The Executive Board welcomed Turkey’s increased focus on systemic financial-sector risk and a moderate tightening of macro-prudential 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 fiscal 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 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.

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 became effective on October 17, 2013.

On September 13, 2012, the 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 its 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.

 

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After the last payment on May 14, 2013, Turkey’s outstanding debt to the IMF due to the Stand-by Arrangements was settled.

Between September 19, 2013 and October 1, 2013, the 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 its 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 comprehensive structural reforms. In addition, the report praised the sound performance of the Turkish financial system, while advising against downside risks.

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

Between September 11 and 24, 2014, the IMF mission visited Turkey to hold discussions for the 2014 Article IV regular consultation. On November 21, 2014, the Executive Board of the IMF concluded the Article IV consultation with Turkey and the staff report was published on December 5, 2014. In its report, the staff noted that Turkey’s economy has grown by 6% on average since 2010, which was a significant achievement. However, low national saving and competitiveness challenges are constraining investment and exports. The staff also noted that monetary policy needs to focus on the inflation target, and macro prudential policies should also be reinforced. The staff commended the fact that the financial system remains well capitalized and capital adequacy ratios are high on average, and mostly based on high quality capital, while noting that a tighter fiscal stance would contribute to reducing the external imbalance and relieving pressure on monetary policy.

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 the IDBG. Within the scope of the Strategy, the IDBG provided €2.2 billion of financing for projects in Turkey during the period covered by the Strategy, namely 2010-2013. As of the end of 2014, IDBG has provided U.S.$2.7 billion of financing for projects in Turkey for the period 2010-2014.

As one of the founding members, Turkey became a recipient country of the EBRD in 2008. As of the end of 2014, EBRD has provided €4.7 billion of financing for projects in Turkey, mostly in the private sector. The annual bank investment (signed operations) of EBRD in Turkey was €1.37 billion in 2014. As EBRD suspended its operations in Russia in 2014, Turkey became first among countries invested in by the EBRD in terms of loan volume in 2014. Accordingly, the EBRD operations in Turkey are expected to reach €2 billion in 2015. The EBRD has demonstrated its confidence in the future of the Turkish economy by making its EBRD Office in Istanbul a regional hub, covering the Central Asian operations of the EBRD as well. In addition, the EBRD opened another office in Gaziantep in September of 2014.

Turkey is one of the founding members of the Black Sea Trade and Development Bank (BSTDB). The BSTDB has provided €147.7 million of financing for projects in Turkey between 2010 and 2014. According to the 2015-2018 Country Strategy, the BSTDB plans to invest approximately €37 to €55 million per year in Turkey.

The Republic signed a total of €650 million, €920 million, €1.1 billion, €1.5 billion and €1.1 billion worth of various financing agreements with the European Investment Bank in 2010, 2011, 2012, 2013 and 2014, respectively.

Turkey is one of the founding members of the Council of Europe Development Bank (CEB). The CEB provided €730 million of financing for projects in Turkey from 2010 to 2014.

 

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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 2014, exports increased by 3.8% to U.S.$157.6 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.$40.2 billion in 2008 respectively, the trade deficit increased significantly to U.S.$56.3 billion and the current account deficit increased to U.S.$45.3 billion in 2010, U.S.$89.2 billion and U.S.$75 billion respectively in 2011 and the trade deficit and the current account deficit U.S.$65.4 billion and U.S.$48.5 billion respectively in 2012. The trade deficit and the current account deficit were U.S.$79.9 billion and U.S.$64.7 billion respectively in 2013, U.S.$63.6 billion and U.S.$46.5 billion respectively in 2014 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 6.4% to U.S.$75.0 billion. In 2014, textiles and clothing products increased 6.4% to U.S.$29.2 billion. Additionally, 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 4.4% to U.S.$78.1 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. In 2014, EU member countries accounted for 43.5% of total exports and 36.7% of total imports. In addition, the largest total export market for Turkish products was Germany, which accounted for 9.6% of total exports in 2014 compared to 9.0% in 2013.

 

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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.

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

Table 22

Terms of Trade-Foreign Trade, Value, Volume

 

     2010      2011      2012      2013      2014  

Exports f.o.b (1)

     113.9         134.9         152.5         151.8         157.6   

Imports c.i.f (2)

     185.5         240.8         236.5         251.7         242.2   

Consumption goods

     24.7         29.7         26.7         30.4         29.0   

Capital goods

     28.8         37.3         33.9         36.8         36.0   

Intermediate goods

     131.4         173.1         174.9         183.8         176.7   

Total Exports

              

Value

     11.5         18.5         13.0         -0.4         3.8   

Price

     3.4         11.5         -2.7         0.1         -1.4   

Volume(3)

     7.9         6.4         16.2         -0.5         5.3   

Total Imports(2)

              

Value

     31.7         29.8         -1.8         6.4         -3.8   

Price

     8.4         14.9         -2.6         -1.6         -2.9   

Volume(3)

     21.4         13.1         0.9         8.2         -0.9   

Terms of Trade

     -4.6         -3.0         -0.4         1.4         2.1   

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 23

Exports (FOB)* by Sectors and Commodity

Annual

 

          Percentage Change (%)  
    (in millions of U.S. dollars unless otherwise indicated)                          
    2010     2011     2012     2013     2014     2011/10     2012/11     2013/12     2014/13  

Agriculture and forestry

                 

Agriculture, hunting and related service activities

    4,934,710        5,166,596        5,188,858        5,653,323        6,029,749        4.7        0.4        9.0        6.7   

Forestry, logging and related service activities

    4,919,250        5,148,007        5,167,145        5,626,402        6,007,500        4.7        0.4        8.9        6.8   
    15,461        18,590        21,713        26,921        22,249        20.2        16.8        24.0        -17.4   

Fishing

                 

Fishing, aquaculture and service activities incidental to fishing

    156,014        186,017        190,340        258,177        346,537        19.2        2.3        35.6        34.2   
    156,014        186,017        190,340        258,177        346,537        19.2        2.3        35.6        34.2   

Mining and quarrying

                 

Mining of coal and lignite; extraction of peat

    2,687,124        2,805,449        3,160,765        3,879,449        3,406,108        4.4        12.7        22.7        -12.2   

Extraction of crude petroleum and natural gas

    6,538        5,864        6,660        3,416        8,524        -10.3        13.6        -48.7        149.5   

Mining of metal ores

    100,472        126,405        229,919        248,808        226,136        25.8        81.9        8.2        -9.1   

Other mining and quarrying

    1 280,265        1,213,947        1,338,680        1,729,264        1,367,763        -5.2        10.3        29.2        -20.9   
    1,299,848        1,459,233        1,585,505        1,897,960        1,803,684        12.3        8.7        19.7        -5.0   

Manufacturing

                 

Manufacture of food products and beverages

    105,466,686        125,962,537        143,193,911        141,358,199        147,063,673        19.4        13.7        -1.3        4.0   

Manufacture of tobacco products

    6,702,887        8,880,453        9,514,194        10,664,446        11,157,572        32.5        7.1        12.1        4.6   

Manufacture of textiles

    295,712        301,161        415,340        465,440        554,938        1.8        37.9        12.1        19.2   

Manufacture of wearing apparel; dressing and dyeing of fur

    10,932,274        12,920,412        13,259,405        14,740,647        15,414,345        18.2        2.6        11.2        4.6   

Tanning and dressing of leather; manufacture of luggage, handbags, saddlery, harness and footwear

    10,617,877        11,633,424        11,955,404        12,703,715        13,774,339        9.6        2.8        6.3        8.4   

Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting ma

    656,482        773,480        913,714        1,119,089        1,153,163        17.8        18.1        22.5        3.0   

Manufacture of paper and paper products

    572,954        653,294        658,431        724,289        853,569        14.0        0.8        10.0        17.8   

Publishing, printing and reproduction of recorded media

    1,194,369        1,407,263        1,646,891        1,933,665        1,984,840        17.8        17.0        17.4        2.6   

Manufacture of coke, refined petroleum products and nuclear fuel

    141,420        163,950        157,514        154,496        167,516        15.9        -3.9        -1.9        8.4   

Manufacture of chemicals and chemical products

    4,153,298        6,122,477        7,179,744        6,299,799        5,728,616        47.4        17.3        -12.3        -9.1   

Manufacture of rubber and plastics products

    5,705,513        6,742,722        7,308,244        7,614,807        7,961,092        18.2        8.4        4.2        4.5   

Manufacture of other non-metallic mineral products

    4,887,391        6,240,692        6,430,097        7,029,917        7,540,140        27.7        3.0        9.3        7.3   

Manufacture of basic metals

    3,988,850        4,042,172        4,083,453        4,289,985        4,329,006        1.3        1.0        5.1        0.9   

Manufacture of fabricated metal products, except machinery and equipment

    14,426,576        17,062,183        29,109,842        17,516,405        16,636,398        18.3        70.6        -39.8        -5.0   

Manufacture of machinery and equipment n.e.c.

    4,972,611        6,230,149        6,589,003        7,067,823        7,430,414        25.3        5.8        7.3        5.1   

Manufacture of office, accounting and computing machinery

    9,059,416        11,126,283        11,856,605        12,779,481        13,591,595        22.8        6.6        7.8        6.4   

Manufacture of electrical machinery and apparatus n.e.c.

    133,812        140,303        147,973        177,687        189,324        4.9        5.5        20.1        6.5   

Manufacture of radio, television and communication equipment and apparatus

    4,863,596        5,863,094        5,859,416        6,459,928        6,364,651        20.6        -0.1        10.2        -1.5   

Manufacture of medical, precision and optical instruments, watches and clocks

    1,950,504        2,110,837        2,511,008        2,047,306        2,234,260        8.2        19.0        -18.5        9.1   

Manufacture of motor vehicles, trailers and semi-trailers

    412,176        498,727        628,171        789,300        833,518        21.0        26.0        25.7        5.6   

Manufacture of other transport equipment

    14,856,618        17,043,514        16,244,049        18,245,643        19,217,801        14.7        -4.7        12.3        5.3   

Manufacture of furniture; manufacturing n.e.c.

    1,659,460        1,992,358        1,780,943        2,340,254        2,398,340        20.1        -10.6        31.4        2.5   
    3,282,891        4,013,587        4,944,472        6,194,074        7,548,236        22.3        23.2        25.3        21.9   

Electricity, gas and water supply

                 

Electricity, gas, steam and hot water supply

    181,375        148,789        190,211        28,970        88,884        -18.0        27.8        -84.8        206.8   
    181,375        148,789        190,211        28,970        88,884        -18.0        27.8        -84.8        206.8   

Wholesale and retail trade

                 

Waste and scrap

    451,656        631,901        534,800        605,984        672,861        39.9        -15.4        13.3        11.0   
    451,656        631,901        534,800        605,984