What next for Turkey’s application to join the European project?

PAMELA NEWENHAM

Turkey will be glad to see the end of the Cypriot EU presidency. As Ireland assumes the rotating presidency in January, there are expectations it will create an opportunity to open a new page in Turkey-EU relations.

Turkish EU affairs minister Egemen Bagis says Ireland’s EU presidency will be an historic turning point in regard to Turkey-EU relations. He is hopeful Turkey’s bid to join the European Union will accelerate during the presidency in the first half of next year.

The country first submitted an application for full membership of the European Union in 1987, having had ambitions that date back to 1959. It has been negotiating for membership ever since.

Many Turks believe that Europe is missing out on a fast-growing economy that could give the EU a much-needed boost.

According to the latest figures from the International Monetary Fund, Turkey is the 18th-largest economy in the world based on gross domestic product.

But after decades of courtship, the country unsurprisingly no longer maintains the enthusiasm it once had for EU membership and, while it’s not quite ready to throw in the towel, many businesses seem indifferent to the delays.

But what would EU membership mean for business?

While accession to the EU would bring many benefits, including much-desired corporate governance, for the hundreds of Turkish and foreign businesses that operate in the country’s free zones, it would mean an end to 0 per cent corporation tax.

Companies operating in and people working in free zones are exempt from corporate and income taxes until the end of the taxation period of the year Turkey becomes a full member of the European Union.

The country first introduced free zones, which are considered outside the customs zones, in 1987.

Companies operating within the zones are exempt from corporate tax if they export 85 per cent of what they produce. The lack of corporate and income taxes mean free zones break EU rules.

Furthermore, companies operating in the free zones are exempt from paying customs duties on goods, machinery and equipment brought into the zones, and can buy Turkish products VAT-free.

Europe does not have the same economic interest for Turkey that it had a few years ago, according to Ünal Kocaman, a board member at ESIAD (Aegean Industrialists and Businessmen’s Association).

“If we were in, we would have the problem of the euro,” said Mr Kocaman. “Even the EU is questioning its future. We will not speed up the process because we do not know what will happen to Europe.”

A custom union agreement in place between Turkey and the EU means goods from Turkey are already in free circulation in the EU.

So membership might not necessarily bring huge additional trade benefits.

Until recently the EU was the final destination for 52 per cent of all Turkish exports, according to Minister of Finance Mehmet Simsek. This has fallen to 38 per cent since the onset of the European crisis.

The free zones have attracted many foreign companies to Turkey, contributing to a lower unemployment rate in the country than in Ireland and the EU. There are more than 20 free zones in Turkey, employing tens of thousands of people.

The thriving economy has led to high inflation, which for a long time was in double digits, according to Mr Simsek.

“Inflation was always in double digits. We’ve managed to bring it down to single digits but high single digits. It’s currently between 8 and 9 per cent,” he said.

However, while Europe may not still hold the same interest for Turkey as it used to, the country still looks to it especially with regard to corporate governance, according to Mr Simsek.

“In terms of rules and regulations we are looking to London, Europe and the rest of the world to see how we can improve legislative background to financial services.”

Following on from the crisis in Europe, the Turkish government has adopted a comprehensive programme of measures to prevent overheating of the economy, which was growing 17 per cent year-on-year in real terms, Mr Simsek said.

As a result, the country tightened its credit policy and introduced tax hikes.

“We are in a crisis-prevention stage, so our job is relatively easier than Europe and other countries that are in crisis management or crisis resolution stages,” said Erdem Basci, the governor of the Central Bank.

via What next for Turkey’s application to join the European project? – The Irish Times – Sat, Dec 29, 2012.