tepavEconomic Policy Research Foundation of Turkey

Ümit Özlale

EMERGING POWERS, NATIONAL INTERESTS, AND THE FUTURE OF

MULTILATERALISM

WTO Public ForumGeneva, September 26, 2012

Turkey’s foreign trade dynamics in eight slides

Slide 2

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

Share of manufacturing in Country’s total exports (%)Source: UN COMTRADE, TEPAV Calculations

Slide 3

Today Turkey is the largest manufacturer in the region

(thanks to Customs Union and closer EU link)

Country’s share in total manufacturing exports of the region

Share of manufacturing in Country’s total exports (%)

Source: UN COMTRADE, TEPAV Calculations

Share in exports of the region and level of industrialization (2010)

Slide 4

Improvements in productive capacity:1984-2011

Star sectors

Traditional sectors

Rising sectors

Failing sectors

However, Turkey has no star industries in exports

Market share in 2011

Slide 6

Source: UN COMTRADE, TEPAV calculations

And loss of competitiveness is a challenge:Comparison of Turkey with EU- Accession 12

0%

20%

40%

60%

80%

100%

120%Institutions

Infrastructure

Macroeconomic stability

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market sophistication

Technological readiness

Market size (140%)

Business sophistication

Innovation

Turkey wrt EU-Accession 12 averageEU-Accession 12 average

Source: WEF (2007-2008), REF Calculations

Slide 7

Comparison of Turkey with BRIC in terms of competitiveness measures

0%

20%

40%

60%

80%

100%

120%Institutions

Infrastructure

Macroeconomic stability

Health and primary education

Higher education and training

Goods market efficiency

Labor market efficiency

Financial market sophistication

Technological readiness

Market size

Business sophistication

Innovation

Turkey wrt BRIC average BRIC average

Source: WEF (2007-2008), REF Calculations

Slide 8

Regional economic integration is the current trend

Geographical distribution of Turkey’s exports: 1970-2011

Slide 9

Turkey’s west & east: Varying degrees of European integration

Source: TURKSTAT

BursaUSD 11.2 billion

İstanbulUSD 51 billion

KocaeliUSD 10 billion

KonyaUSD 1 billion

GaziantepUSD 3.6 billion

İzmirUSD 6.6 billion Kayseri

USD 1.1 billion

Slide 10

Regionalism vs. Multilateralism:Case for Turkey

Slide 11

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.

Slide 12

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.

Slide 13

However; Danger of being excluded from the

RTA block for non-members

Conflicting multiple RTA memberships (Spaghetti Bowl)

Slide 14

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.

Slide 15

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 sophisticationPolitical issues

Slide 16

Is MENA the solution?

In terms of diversifying the exports, yes.

However, it does not provide a long-term solutionQuality of exports and the value addedThe size of the MENA market as a wholeGrowth prospects for the MENA region

and the increasing uncertainty.

Slide 17

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.

Slide 18