Turkish Accession in the EU : fact or fiction ?

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Turkish Accession in the EU factor fiction ?

• Does Turkey meet the Copenhagen criteria?

2
The difficult path towards membership

• 1963 Association Agreement
• 1970 Additional Protocol
• 1980 Freeze
• 1995 Customs Union
• 1997 Rejection
• 1999 Acceptance
• 2004 Green light
• 2006 Partial suspension

3
Copenhagen criteria

• 1. Economic criteria
• 2. Political criteria
• 3. Other criteria

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The Copenhagen economic criteria

• 1. Functioning market economy
• 2. Capacity to compete
• 3. Economic and Monetary Union
• 4. Acquis Communautaire

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1. The functioning market economy

• 1.1. Economic Policy Essentials
• 1.2. Macroeconomic stability
• 1.3. Free Interplay of Market Forces
• 1.4. Free Market Entry and Exit
• 1.5. Adequate Legal System
• 1.6. Sufficiently Developed Financial Sector

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1.1. Economic policy essentials

• GDP per capita in PPS (EU-25100) 27.6
• Human Development Index 0.75 (EU 0.94 0.79)
• Income inequality 40 (EU 24.6 38.5)
• Global competitiveness 59 (EU 2 72)

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1.2. Macroeconomic stability

• Economic growth

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1.2. Macroeconomic stability

• Inflation

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1.2. Macroeconomic stability

• Unemployment
• Participation rate 51.5 (EU-25 70.6)
• Employment rate 45.5 (EU-25 62.9)
• Employment rate women 25.2 (EU-25 55.1)

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1.2. Macroeconomic stability

• Balance of Payments
• Current account (million dollar)
• -8,036 (2003)
• -15,604 (2004)
• -23,155 (2005)

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1.3. Free interplay of market forces

• Privatization (65 of value added 80 of
  employment)
• Price liberalization (share of administered
  prices in the CPI is 10 of total weight)
• Liberalization of entry and exit of firms
  (progress yet restrictions on foreign ownership)
• Imposition of hard budget constraints on both
  public and private enterprises
• Liberal trade regime (Customs Union WTO)

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1.4. Free market entry and exit

• Privatization (slowed down)
• Enterprise restructuring (high concentration
  ratios large holdings)
• Small and medium-size enterprises (27 of value
  added 75 of employment)

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1.5. Adequate legal system

• A well-functioning and stable public
  administration built on an efficient and
  impartial civil service, and an independent and
  efficient legal system
• Time lag is long
• Not familiar with (intellectual) property rights
• Bias against foreign investors

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Index of economic freedom

• Turkey 3.11 (85)
• Belgium 2.11 (22)
• Estonia 1.75 (7)
• Finland 1.85 (12)
• France 2.51 (44)
• Germany 1.96 (19)

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1.6. Sufficiently developed financial sector

• Bank reform is the cornerstone of the IMF aid
  program
• The Turkish Central Bank was accorded a status of
  independence
• State and private banks were put under the
  supervision of an independent institution
• Increased foreign participation

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Conclusion as to criterion 1

• In recent years Turkey has concentrated its
  efforts on privatization while not enough
  attention has been paid on creating fair
  competition in domestic markets.
• Turkeys domestic industrial structure is too
  much concentrated, with large family-run
  companies dominating the scene.
• Turkey should stimulate private entrepreneurs to
  set up new companies.
• In order to attract new investors, both foreign
  and domestic, more legal transparency is
  required.
• Turkey financial sector is on the road of
  deregulation, yet requires sufficient attention
  from the government.

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2. The capacity to cope with competitive pressure

• 2.1. Positive physical infrastructure related
  factors
• 2.2. Sufficient investment in physical capital
• 2.3. Sufficient investment in human capital
• 2.4. Structural transformation of the economy
• 2.5. State Influence on competitiveness and
  enterprise restructuring
• 2.6. Growing trade integration of goods and
  services with the EU

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2.1. Positive physical infrastructure related
factors

• Share of households with internet access 7
  (EU-25 42)
• Mobile phone subscriptions per 100 inhabitants
  40 (EU-25 81)
• Number of hospital beds (per 100,000
  inhabitants) 262.1 (EU-25 639.1)
• Environmental expenditures by public sector in
  of GDP 0.22 (EU-25 0.58)

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2.2. Sufficient investment in physical capital

• Gross capital formation as percentage of GDP
  17.8 (EU-15 20.4)
• FDI intensity 0.4 (1997) 0.5 (2000) 0.6 (2004)
  EU-15 1.1 (1997) 3.5 (2000) 1.0 (2004)

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2.3. Sufficient investment in human capital

• Total expenditure on education as of GDP 3.74
  (EU-15 5.20)
• of adult population with tertiary education
  2.7 (EU-15 3.1)
• of tertiary graduates in science and technology
  per 1000 of population aged 20-29 5.6 (EU-25
  12.7)

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2.4. Structural transformation of the economy

• Sectoral distribution of value added in Turkey
  Agriculture 16 Industry 24 Services 60
• EU Agriculture 2 Industry27 Services 71

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2.5. State Influence on competitiveness

• Voice and accountability -0.04
• Political stability/No violence -0.54
• Government effectiveness 0.27
• Regulatory quality 0.18
• Rule of law 0.07
• Control of corruption 0.08

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2.6. Growing trade integration of goods and
services with the EU

• Trade integration of goods 16.9 (1995) 26.2
  (2004) 55 (variation) EU-15 7.9 (1995)10.5
  (2004) 33 (variation)
• As far as specialization is concerned, we can see
  a tendency of upgrading, although the bulk of
  Turkeys trade with the EU consists of
  traditional and low-technology product groups and
  is still disadvantaged in terms of quality.

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2.6. Growing trade integration of goods and
services with the EU

• The average Specialization index increased from
  0.48 (1995) to 0.51 (2005)
• After 1995 Turkey has maintained it comparative
  advantage in food products and beverages, other
  non-metallic mineral products, textiles and
  wearing apparel. Moreover it has developed a
  comparative advantage in new sectors fabricated
  metal products, rubber and plastic products,
  communication equipment and furniture, jewels and
  other products.

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2.6. Growing trade integration of goods and
services with the EU

• Trade integration with respect to services
  Turkey 5.8 (1995) 7.4 (2000) 5.5 (2004)
  EU-15 2.5 (1995) 3.6 (2000) 3.6 (2004)
• Outsourcing and in-sourcing of services 1068
  (1993) 4420 (2000) 104 (2005)

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Conclusions as to criterion 2

• Turkey should invest more in human capital.
• Compared to other developing countries, Turkey
  has only attracted a very limited number of
  foreign investors.

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Conclusions as to criterion 2

• Turkey is on the right track as regards the
  structural transformation of its economy.
  Industry and services become more important to
  the detriment of agriculture.
• Trade integration of goods between Turkey and the
  EU is strong. Both the Intra-industry
  Specialization and the Revealed Comparative
  Advantages Indexes prove that Turkish firms will
  be able to compete with European firms in the
  large internal market.
• Trade integration of services is weaker. From a
  net outsourcer of services Turkey turned into a
  net insourcer.

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3. The ability to take on the obligations of the
economic and monetary union

• Inflation rate () 9.85 (norm 2.9)
• Budget deficit ( of GDP) -1.2 (norm -3)
• Government debt ( of GDP) 69.6 (norm 60)
• Interest rates, 10-year bonds 28.5 (norm 6.2)
• Exchange rate against parity 16.3 (norm 15)

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4. Acquis Communautaire

• 4.1. The free movement of goods
• 4.2. The right of establishment freedom to
  provide services
• 4.3. Competition policy and state aid
• 4.4. Freedom of movement for workers
• 4.5. Agriculture
• 4.6. Regional policy
• 4.7. Budgetary provisions
• 4.8. Foreign, security and defense policy
• 4.9. Justice, freedom and security
• 4.10. Education and culture.

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4.1. The free movement of goods

• Turkish trade integration with the EU has
  remained stable
• Still problems remain with respect to
  anti-dumping procedures and technical and
  administrative barriers to trade

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4.2. The freedom of establishment and to supply
services

• Although the principle of free trade in services
  is mentioned in the Ankara agreement and
  subsequently in the Additional Protocol signed
  with Turkey it was left out of the Customs Union
  on EU insistence

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4.3. Competition and state aid

• Whereas in the field of competition legislation
  in the view of the Commission, Turkey has made
  significant process, in the field of state aid,
  Turkey has still a long way to go
• In Turkey high markups go together with a highly
  concentrated industrial sector.

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4.4. Free movement of workers

• Turkey realized that only as a Member State its
  workers might gain free access to the German
  labour market.
• Member States remain extremely reluctant
• The existing mechanisms for importing labor to
  supply European business work well enough.

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4.5. Agriculture

• Contrasts between Turkey and the EU are
  significant
• EU moved from a production support scheme to
  income support system and structural policies
  (Single Payment Scheme Cross compliance)
• Land consolidation poses serious problems

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4.5. Agriculture

• In contrast to the EU, Turkey does not have a
  structural policy
• The agricultural sector is left out of the
  Customs Union with Turkey
• Turkey would need considerable time to make a
  number of agricultural sectors more competitive
  in order to avoid substantial income losses for
  its farmers.

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4.6. Regional policy

• There is a pronounced east-west divide in Turkey
  with the main centers of economic activity
  located in the western part of Turkey
• The inclusion of Turkey would seriously increase
  the socio-economic disparities across the EU

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4.7. Budgetary impact

• Annual Budget Appropriations for Turkey (billion
  Euros)
• Hoekman et al 7.756
• Oskam et al 10 to 26
• Dervis et al 15
• Hughes 13.630
• Griffiths 6.400 to 8.120

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4.8. Foreign, security and defense policy

• Turkey prioritizes regional and bilateral
  relations. Delegation of sovereignty to
  supranational EU organs and substate authorities
  inside the country is anathema to the Kemalist
  state elite
• According to the Commission Turkey aligns itself
  with significantly fewer EU declarations than
  other acceding and associated countries
• Turkeys accession can help to secure better
  energy supply routes for the EU
• Turkey dreads the idea of the EU playing a role
  in matters of defense if it is not included in
  the EU Security Policy itself

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4.9. Justice, freedom and security

• Member states have to apply the Schengen acquis
  in full before accession
• Turkey has about 2500 km of land borders and 8000
  km of coastal borders and a large informal
  sector it is a hub for illegal migrants
• The EU is expecting Turkey to adopt a series of
  measures to enhance the protection of its
  borders, thereby disregarding particularities of
  the Turkish case
• Implementing these measures would represent a
  major shift in Turkeys immigration policy

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4.10. Education and culture

• EU opponents of Turkeys membership argue that
  Turkey is not of Europe it does not share
  Europes Judeo-Christian heritage and rationalist
  tradition, seen as the roots on which European
  identity is founded
• The three most widespread fears in Turkey with
  respect to the EU are abandoning language, end
  of national currency and loss of national
  identity and culture
• In Turkey the consensus on EU membership is much
  weaker than it was in East- and Central Europe
  and nationalist voices are much louder

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Conclusions as to the fourth criterion

• The EU wants Turkey to adopt the complete Acquis
  Communautaire before its accession
• Progress has been made in the fields related to
  the Customs Union
• There are at least three sensitive areas free
  movement of workers, CAP and Regional Policy
• Turkeys integration in the EU Common Foreign and
  Security Policy and in the EU Home Affairs and
  Justice Policy will be difficult because of
  conflicting visions.
• Public opinion in Turkey has not yet been
  sufficiently prepared for EU membership.

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The Copenhagen political criteria

• 1. Democracy and the rule of law
• 2. Respect for human rights and the
  protection of minorities.

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1. Democracy and the rule of law

• Parliament progress
• Government progress
• Public Administration progress
• Civil-Military Relations no progress
• Judicial System progress
• Anti-corruption measures limited progress

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2. Respect for human rights and the protection of
minorities.

• Observance of international law progress
• Torture and Ill-treatment progress
• Freedom of Expression limited progress
• Freedom of Assembly progress
• Freedom of Association progress
• Freedom of Religion no progress
• Womens Rights progress
• Childrens Rights progress
• Trade Unions Rights progress
• Minority Rights no progress
• Cultural Rights no progress
• Protection of Minorities no progress

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Other Copenhagen conditions

• Turkeys unequivocal commitment to good
  neighborly relations with Greece and Armenia
• Progress in the normalization of bilateral
  relations between Turkey and Cyprus.
• The fulfillment of Turkeys obligations under the
  Association Agreement and its Additional Protocol
  extending the Association Agreement to all new EU
  Member States
• Enlargement should strengthen the process of
  continuous creation and integration in which the
  Union and its Member States are engaged.

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General conclusion

• One should observe either small unions that
  centralize many prerogatives, or large unions in
  which few prerogatives are delegated above the
  national governments.
• By absorbing continuously new Member States who
  were not in favor of political integration the EU
  implicitly decided to abandon the federal model.
• Negotiations should focus on the economic
  Copenhagen criteria and on what is essential in
  the enlargement process international trade,
  common market and business relations and in
  second order environment and monetary matters.