Relations with Neighbours-South Caucasus Ümit Özlale tepav Relations with Neighbours-South Caucasus Economic Policy Research Foundation of Turkey EMERGING POWERS, NATIONAL INTERESTS, AND THE FUTURE OF MULTILATERALISM WTO Public Forum Geneva, September 26, 2012 Ümit Özlale

Turkey’s foreign trade dynamics in eight slides

Turkey in the region: Rapid growth in manufacturing after mid-90’s Relations with Neighbours-South Caucasus Turkey in the region: Rapid growth in manufacturing after mid-90’s Share in exports of the region and level of industrialization (1996) Country’s share in total manufacturing exports of the region Role of customs union and the EU in our export performance Share of manufacturing in Country’s total exports (%) Source: UN COMTRADE, TEPAV Calculations

Relations with Neighbours-South Caucasus Today Turkey is the largest manufacturer in the region (thanks to Customs Union and closer EU link) Share in exports of the region and level of industrialization (2010) Country’s share in total manufacturing exports of the region Role of customs union and the EU in our export performance Share of manufacturing in Country’s total exports (%) Source: UN COMTRADE, TEPAV Calculations

Improvements in productive capacity:1984-2011

Relations with Neighbours-South Caucasus However, Turkey has no star industries in exports Rising sectors Star sectors Traditional sectors Failing sectors Market share in 2011 Source: UN COMTRADE, TEPAV calculations

Relations with Neighbours-South Caucasus And loss of competitiveness is a challenge: Comparison of Turkey with EU- Accession 12 Source: WEF (2007-2008), REF Calculations

Comparison of Turkey with BRIC in terms of competitiveness measures Relations with Neighbours-South Caucasus Comparison of Turkey with BRIC in terms of competitiveness measures Source: WEF (2007-2008), REF Calculations

Regional economic integration is the current trend Geographical distribution of Turkey’s exports: 1970-2011 Actually during the crisis, the problem is from the exports side. Slow recovery process in the European markets affected us very negatively Diversifying exports to the Middle East and North African markets became our first crisis response. Diversification is good. And it helped our businessmen a lot, during the first year of the crisis. Europe’s share in our exports decrease by 10 percent. But Europe is still our major market. And the European Unions’ share is still about 46 %.

Turkey’s west & east: Varying degrees of European integration Relations with Neighbours-South Caucasus Turkey’s west & east: Varying degrees of European integration İstanbul USD 51 billion Kocaeli USD 10 billion Bursa USD 11.2 billion İzmir USD 6.6 billion Kayseri USD 1.1 billion Konya USD 1 billion Gaziantep USD 3.6 billion Kocaeli: 10 billion Ankara: 5.2 billion Adana: 1.3 billion Mersin: 1 billion Eskişehir: 658 million Source: TURKSTAT

Regionalism vs. Multilateralism: Case for Turkey

Regional Trade Agreements There has been an increase in the number of RTAs for Turkey. Some of them are EC, EFTA, Egypt, Albania, Macedonia, Bosnia-Herzegovina, Croatia, Georgia, Israel, , Montenegro, Morocco, Palestine, Syria, Tunisia And RTAs are flourishing worldwide, mostly in the form of FTAs and common markets.

Why the rise of RTAs and the fall of Multilateralism? Problems in negotiation More bargaining power with RTAs Higher market share and easier market access Barriers to trade and NTB in RTAs are reduced more quickly and to a significant extent And as long as multilateralism fails to liberalize international trade, regionalism tends to continue.

However; Danger of being excluded from the RTA block for non-members Conflicting multiple RTA memberships (Spaghetti Bowl)

How does that affect Turkey? Fact 1: Europe is Turkey’s major trade partner Fact 2: Customs Union agreement between EU and Turkey was a major factor for that close trade relation Fact 3: EU gave pace to signing FTAs with its trade partners, which means that Turkey may no longer to reap the customs union benefits in the future. Fact 4: Turkey can do almost NOTHING. It works like an exogenous negative trade shock.

Does diversification of markets help? Turkey has successfully diversified its export destinations, after the global financial crisis. However, EU is still (and should be) the main actor: Export sophistication Political issues

Is MENA the solution? In terms of diversifying the exports, yes. However, it does not provide a long-term solution Quality of exports and the value added The size of the MENA market as a whole Growth prospects for the MENA region and the increasing uncertainty.

To Conclude; Although Turkey is one of the leading exporters in the region, structural problems such as competitiveness exist. There is a high probability that, increased regionalism and the associated EU policies will further emerge as a challenge. MENA is far from providing a sustainable solution. There should be more focus on a new industrial policy design.