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                       Is Turkey economically ready to join EU?
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                                        1. Introduction.

     Turkey’s candidature for the European Union is maybe the most controversial and

consequently well-analyzed of any in the history of the organization. The topics of the debate are

familiar: human rights abuses, overly uppermost military, and the impact of Islam on the one

hand, contrary to strategic partner, valid candidate, and the advantages of including a Muslim

democracy on the other. The interaction among these factors will define Turkey’s progress

toward membership over the next several years.

     Notwithstanding, in theory the EU defines membership eligibility rested on a set of

impartial criteria that do not take diplomatic issues into account. As Turkey has already been

accepted as a part of Europe, it should be practicable to evaluate its performance as compared

with these criteria and to the status of other EU candidates, past and actual, at major points in the

accession process.

     The economic aspects of the entry of Turkey to the European Union are of great

significance and need special attention. The given paper aims to provide a short overview of

Turkey’s economy and to highlight the major problems concerning GDP, agriculture,

manufacturing, inflation and currency issues.




                            2. GDP and the economy of Turkey.

     Turkey is regarded to have a less middle-income economy. Its per capita is correspondingly

small contrasted to the EU. The GDP per capita in conditions of Purchasing Power (PPS) was in

2003 at 28.5% of the EU-25 medium, corresponding to the level of Bulgaria and Romania.

Valued in current prices in 2003, the GDP of Turkey was comparable to about 2% of the GDP of

EU-25 or just half of the ten Member States.

     Turkey is distinguished by large provincial disparities which widely follow a West-East

pattern. The richest areas are concentrated in the western part of the country while the poorest
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ones are at the eastern frontier. The richest province Kocaeli, an essential manufacturing

location, has a GDP per capita of more than 90% above the national average (46% of the EU-25

average). At the other edge of the gradation, the poorest regions Agri and Van have only around

one third of the national GDP per capita (8% of the EU-25 average).

      These profits disparities are displayed in the sectoral structure of the areas. The richer areas

have significant shares of production and occupation in manufacturing and assistance whereas in

most of the other territories agriculture is the most essential derivation of income and

employment.

      In the late decades some macroeconomic and commercial crises took place in the country,

more recently in 1994, end-1999 and early-2001. They have caused to high volatility in

aggregate financial activity and interfered with the overall step of growth. Since 2001, more

advances have been made in stabilizing the economy and addressing the main reasons of these

crises in the last decades. This is especially visible in the resumed enlargement path and the

sharply lessened inflation. Nevertheless, this stabilization process is not yet full and some

imbalances, such as the broadening external shortage remain to be amended. Further

accomplishment of structural reforms would not only help to escaping stabilization crisis, but

also let Turkey to attain or even lift its growth potential.

      Even though Turkey’s population is appropriately large, its GDP represents just over 2% of

the EU-25 GDP. As a result, the favourable economic impacts of Turkey’s membership in the

EU are likely to be disproportional, for instance small for the EU-25 as a whole and much bigger

for Turkey. The results on the EU will very much depend on the manner the Turkish economy

will be able to manage its arrangement for membership.

      The admittance of Turkey would display economic defiance, and implicitly chances to all

parties included.
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     Overall, EU Member States’ economies would advance from the admittance of Turkey,

albeit only minorly. An advance of growth in Turkey should present a positive influence to EU-

25 exports (Cakmak E.H., 1998).

     Turkey would advance considerably from its admittance to the EU. Admittance should

boost Turkey’s development basically via enlarged trade, higher contribution due to higher FDI,

inflows, and higher productivity development due to a change in the sectoral arrangement of

output and the accomplishment of structural renovations in line with the more competitive EU

internal market setting.




                           3. Agriculture and agricultural policies.

     Agriculture is the basic significance to Turkey, both in social and economic conditions.

About half of Turkey’s territory of some 79 million hectares is occupied with agriculture, which

is hardly ever in line with the EU 27 average (48%). Turkish admittance would be therefore add

about 39 million hectares to the EU’s agricultural territory. This would show 23% of the EU-25

agricultural area. In 2003 roughly one third of the labour force was occupied in agriculture, and

in the same year the sector showed 12.2% of GDP.

   The climatic and geographical conditions across the country allow a broad sphere of various

farming activities, and Turkey is a main world producer of (in no especial order) cereals, cotton,

tobacco, fruit and vegetables, nuts, sugar beet and sheep and goat meat. Roughly 50% of

Turkey’s agricultural territory is given to arable crops (of which about 20% is fallow land and

20% irrigated), 25% to constant grasslands and pastures and 2.5% to constant crops (Cakmak

E.H., 1998). There are important regional contrasts in production patterns.

     The farm structure in Turkey demonstrates similarities with several of the new member

countries and with Bulgaria and Romania. In relation to the 2001 census there are about 3

million agricultural investments in Turkey (contrasted to almost 13 million in the EU-25), most
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of which are family farms engaging family labour. This is down from about 4 million

investments in 1991. Numbers for the average size of investments propose that investments are

small by EU levels (6 hectares on midpoint contrasted to an EU-25 midpoint of 13 hectares).

These figures are numbers of investments and medium size is however not in line with the whole

territory. The reasons for this discrepancy are not comprehensible, but they may stem from the

exclusion of collective or unused land or defects in the statistical terms.

     Maintenance and semi-maintenance farming is an essential characteristic of Turkish

agriculture, as is the case in certain areas of the current EU and in Bulgaria and Romania. These

farms are typically marked by productivity being low and only a small part of production being

marketed. They are hard to reach with usual market and price course, but are decisive for the

income defense and life of the most of the country population in Turkey.

     Turkish admittance would add over 80 million supplemental consumers to the EU-25 total

of 452 million, nevertheless with a per capita buying potency substantially power than the EU-25

average.

     A compared to earlier acceding state Turkey is bigger, more inhabited and poorer. It is also

more argued in market terms than most. The competition of its agriculture and agri-food forms

is, in general, less on average than in the EU.

     A correct assessment as to what degree the existent CAP system could manage with an

accession by Turkey and its connection for financial reserves would need a deeper exanimation,

at least as thorough as the one that made in the case of the new Member Countries.

     Turkish agricultural policies

     Historically, Turkey has had a highly guarded agricultural market in assessment terms.

While import defense remains high, since 2000 Turkey has been carrying out an agricultural

renovation programme focusing at re-orienting agricultural help, fulfilling a balance of supply

and demand, producing a more competitive agricultural area and decreasing state including. The

major elements in the agricultural renovation programme are: parting home prices decoupled
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immediate income fees (to the roughly 90% of farmers having between 0.5 and 20 hectares);

one-off fees to stimulate farmers to change from tobacco and hazelnuts to alternative crops;

substitute of state economic firms and agricultural sales cooperatives with self-commercial

individual cooperatives and social awareness campaigns to stimulate expenditure.

   The renovation process is still not full, however it has had some positive effect, for instance

on the degrees of the most trade deforming types of support. It is evident however that Turkey’s

agricultural policy still varies considerably from that of the EU, outstandingly as regards the part

of direct aid and the absence of any affective country development policy (Cakmak E.H., 1998).

Different budget-financed market guidelines still exist such as interference purchasing, input

subsidies and producing related subsidies. Import rates for most agricultural products are higher

than in the EU, and for many perspective products forbidden. Export grants play a role;

nevertheless they are less important than in the EU. Privatization of state agricultural companies

is lagging behind.

     According to the late OECD figures, the Producer Support Estimate (PSE) in Turkey in

2003 was 26% (contrasted to 37% in the EU 15), and the Total Support Estimate (TSE) showed

4.41% of GDP (contrasted to 1.32% in the EU 15). The joined share in the PSE of market price

support, input and output fees in Turkey in 2001-2003 was 85%, contrasted to 69% in the EU 15

(the difference being due basically to the more emphasis in the EU 15 on immediate fees).

     As regards agriculture, Turkey’s entry to the EU would undoubtedly have a significant

impact on the EU budget. Concerning agricultural policies, the agricultural reform programme in

Turkey is a pace in the right direction.




                                       4. Manufacturing.

     Turkey's manufacturing industries are various and increasing. Public-sector essences

dominate manufacturing, accounting to about 40 percent of additional value. Private-sector
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companies are prevailing over by several large conglomerates that have grown across some

industries.

     The production of textiles is Turkey's biggest industry, very competitive on international

level, and the most significant foreign-exchange earner. Domestic cotton and wool supply with

much of the raw material for the industry, but synthetics production has also grown. The textile

sector gave 20 percent of total manufacturing output in the mid-1990s. The fixed capacity is

equal to about 33 percent of that of the EU in conditions of cotton spinning and about 11 percent

of EU woolen thread and textiles.

     Textile exports grew quickly after 1980, but protectionism in industrial countries, involving

the EC nations and the United States, menaced the sector's growth. Nevertheless, by 1992

textiles numbered 35 percent of total exports. Investment in increased capacity in the 1980s

completed with increased exports of ready-made products and garments.

     The iron and steel sector has turned to be more competitive in the neighboring Middle

Eastern markets, where Turkey's location is a beneficial. Notwithstanding, competitiveness

comes largely from heavy grants to the state companies. Two-thirds of Turkey's steel is

manufactured by three public-sector steel mills, which stay heavily granted. Public plants contain

the old and outdated mill at Karabek. Private plants, usually more profitable than state plants,

tend to apply scrap as a raw material and to export to adjacent countries. The Eregli Iron and

Steel Company is known as one of the most profitable in Turkey, particularly after a US$1.5

billion upgrade elaborated to increase raw steel capacity by one-third, to around 3 million tons

annually.

     Capacity use in the iron and steel sector grew rapidly in the 1980s and early 1990s. Total

output of crude iron rose from about 3.1 million tons in 1987 to about 4.5 million tons in 1993.

Steel ingot output grew from about 7 million tons in 1987 to 10.3 million tons in 1993. The value

of exports of iron and steel increased from US$34 million in 1980 to US$1.6 billion in 1994.

Such exports accounted for about 10 percent of total exports.
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     The chemical industry, one of the country's valuable, is concentrated in several large state

companies, containing the Petrochemical Corporation and Etibank, and some 600 private firms.

Chemical exports grew during the second half of the 1980s but fell unexpectedly in the early

1990s, in the main because of rising competition and lower costs elsewhere. The sector's purpose

is to make the state self-sufficient in petrochemicals rather than to export. In 1996 Turkey

manuactured about 144,000 tons of polyvinyl chloride, about 239,000 tons of polyethylene,

about 86,000 tons of benzine, and about 33,000 tons of carbon black.

     Turkey's automobile industry, organized in the mid-1960s, was step by step exposed to

imports after 1980. Though the sector recovered from low manufacture levels after 1983,

domestic producers stay weak. The Turkish automobile industry in 1995 contained three

producers, every affiliated with a foreign manufacturer: Tofas, which assembles Fiat passenger

automobiles; Oyak-Renault, builder of Renaults; and General Motors, which assembles Opel

Vectras. Toyota in partnership with local conglomerate Sabanзi Holding built a plant in 1994

designed to produce 100,000 automobiles annually, and a Hyundai plant that produces 100,000

units per year.




                                      5. The inflation rate.

     Turkey's economic issues stem from its overdue try to reduce the high rate of inflation in

the economy.

     During the past several decades, double figure inflation has turned to be endemic in

Turkey, with costs rising at an annual rate of 70% some time ago. High inflation, in its turn, has

resulted in distortions in the commercial sector, which had become contingent on high interest

rates - at aroud 100% - for its benefits. And it has been very costly for the state, which has to fee

a big part of the budget to fund the interest charges on its public sector debts.
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     The slumpflation was made worse by the serious earthquake in 1999, which reduced

economic increase and enlarged the budget deficit.

     In December 1999, the Turkish government signed a document with the International

Monetary Fund to attempt and bring inflation and social spending under control, in return for a

$4bn lend.

     Under the conditions of the IMF lend, the Turkish government pledged to decrease its

budget deficit - which surpassed 10% of the country's financial output in 1999 - by half, and to

cut inflation from 70% to 25%. It was also arranged to a string of privatizations, a reduction in

grants, particularly to the agricultural sector, and a partly fixed exchange rate.

     In wide terms the renovations had seemed to be working, with the budget deficit decreasing

as the economy moved into recovery and inflation and interest rates falling sharply.

     Nevertheless, attempts to reconstruct the banking sector have displayed the depth of their

issues, particularly the subsidized lends to small private companies and the inappropriate

regulatory structure. And that in turn has influenced the confidence of overland investors, who

are sponsoring Turkey's big trade deficit, which has doubled to 6% of GDP.

     A main motivation for financial reforms in Turkey is the country's wish to enter the

European Union. The EU is also troubled with the low degree of foreign investment in Turkey,

due to the financial instability. But more than 50% of its trade is in Europe, partially due to a

customs union that has been in effect since 1995. And there are concerns that with almost 70

million people, any early admittance before Turkey's economy is modernized would result into a

number of economic migrants to other countries of the EU.

     In some means, Turkey's great inflation is also a feature of a deeper economic instability.

The state is still cut between a relatively new urban sector and a much less developed country

sector in Eastern Turkey. More than 40% of the population is still engaged in agriculture;

nevertheless it gives only 14% of GDP. And the infrastructure in country areas is poor, and there

are low degrees of education, particularly among women.
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     To enter the EU, the state must improve its infrastructure, involving the health and

education system. And more basically, the high level of inequality in Turkey is in itself a major

source of political as well as economical imbalance.

     Dealing with Turkey's long list of economic issues is likely to be a long-period task. And

the way to reform could well be difficult.




                                        6. The Currency.

     Turkish currency, the lira, has fallen to its lowest mark yet after ministers retired from

Prime Minister Bulent Ecevit's government.

     The lira - which has been falling for three month during a long absence by Mr. Ecevit -

stood at 1,705,000 to the dollar. The currency fall was sparked by doubts that an early election

would destabilize a $16bn (Ј10.4bn) loan settlement with the International Monetary Fund

(IMF).

     Political instability raises issues about Turkey's plans to entry the European Union (EU).

Turkey needs to introduce reforms before it can be regarded for membership (Conference on

Turkey: Towards EU Accession <www.cie.bilkent.edu.tr/>).

     That is why, Turkey relaunched the lira, knocking six zeros off the currency in the hope of

stimulating trade and powering its raising economy.

     The alteration will see the end of such dizzyingly-high worthiness as five million lira – just

enough for a short taxi ride - and the 20m note, equal to $15. These evaluations were the product

of decades of inflation which in 2001 was as high as 70%.

     Inflation has since been tamed and economic perspectives are improving.

     The currency - officially called the new lira - was launched at midnight on 1 January. From

that time, the one-million lira note became the new one-lira coin.
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     The government hopes the alteration will be seen as a promise of increasing economic

stability as Turkey moves through the long process of trying to entry the European Union. On an

everyday level, it is hoped the alteration will greatly stimulate international trade and end mix-up

among foreign investors and Turks alike.

     The introduction of the new Turkish lira displays clearly that the Turkish economy has

broken the vicious circle that it was imprisoned in for many years. The new lira is also the

symbol of the stable economy that people dreamed of for so many years.




                                          7. Conclusion.

     This paper briefly reviewed the economic aspects of the accession readiness of Turkey to

the European Union and confirmed that some integration impacts are already visible in the

context of the EU-Turkey relationships.

     Research has shown that agriculture will be one of the most important issues in the

preparations for the entry. The basic emphasis in this regard and the major focus for the

accession must be the creation of the development strategy directed at the restructuring and

modernization of the most important sectors.

The latest EU assessment shows that Turkey does not yet completely meet its criteria for a fully

functioning market economy. Important restructuring is necessary, especially in banking,

agriculture and state companies, in order to guarantee competitiveness for the economy in the

whole.
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References.

   1.   Akder H.      (2001),    UNDP     national        human   development         report     for Turkey

        <http://www.un.org.tr/undp/pdf/nhdr/insani%20gelisme%20endeksleri.pdf>                       25     Feb.

        2005.

   2.   Breakthrough             at             EU-Turkey              Talks               <http://www.dw-

        world.de/dw/article/0,1564,1431578,00.html> 25 Feb. 2005.

   3.   Cakmak E.H. (1998), Agricultural policy reforms and rural development in Turkey.

        Economic Development and Poverty Reduction Workshop; Mediterranean Development

        Forum, 3-6 September, 1998.

   4.   Conference on Turkey: Towards EU Accession <www.cie.bilkent.edu.tr/> 25 Feb. 2005.

   5.   Economist.com | Country Briefings: Turkey <www.economist.com/countries/Turkey/>

        25 Feb. 2005.

   6.   Khan M.S. and Senhadji A.S. (2001), Threshold effects in the relationship between

        inflation and growth. IMF Staff Papers, 48 (1).

   7.   Verheugen:         Accession           Strategy      between           Turkey            and         EU

        <www.diplomaticobserver.com/news_read.asp?id=968> 25 Feb. 2005.

				
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