THE EURASIAN FREE TRADE AREA
The nucleus of the economic organisation in the offing is BSEC which completes foundation process, but backbone is Turkish-Russian cooperation. Phenomenal advancement in bilateral relations between Ankara and Moscow is given low profile. Turkey’s bilateral free trade arrangements mushroom and free trade zones flourish within the country. The Eurasian Free Trade Area will find elaborate infrastructure when it’s ready to appear legally in the international sphere.
The Luxembourg rebuff by the European Union last December was a timely stimulant for Turkey to give a boost to its plans for developing a Eurasian Union from the Adriatic to China. The nucleus of this enormous free trade area of the next century will be the Black Sea Economic Cooperation (BSEC) which marked its sixth anniversary on June 25th. At the fourth summit of BSEC in Yalta on June 4th-5th the organization completed its foundation process with the signing of its charter by all eleven members – Albania, Armenia, Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, the Russian Federation, Turkey and Ukraine. It is now making preparations to legally become a free trade area. Linking the member countries’ energy, transport and communication networks is high on the agenda of BSEC and task forces are drawing up the necessary projects.While this multilateral cooperation continues with mostly Ankara’s initiative, Turkey is also in the process of creating free trade zones at home and concluding free trade agreements with several countries. Such agreements have already been signed or are about to be concluded with Hungary, Romania, Bulgaria, the Czech Republic, Moldova and Ukraine. Similar arrangements are also underway in the Caucasus and with the Turkic Republics of Central Asia.
Turkey and Russia, both kept at arms length by Europe, cooperate silently.
With $10 billion bilateral trade volume, Russia has today already become Turkey’s second biggest trading partner after Germany, promising to be the first before long, with the natural gas agreements which recently went into force. In tourism too, Russia, with its 1.5 million tourists to Turkey every year, is about to overtake the Germans who rank first.
The Speaker of the Russian Parliament (Duma), Gennady Nikolaevich Seleznev, was in Turkey two weeks ago to make contacts with Turkish rulers and parliamentarians and to receive information from the Turkish-Russian Business Council about the future of these relations. It was explained to him in Istanbul that the secret of the boom in mutual trade was the frontier or rather coastal trade that has been going on between Turkey and Russia since the downfall of communism. The Turkish department stores in Russia are also showing a very good example of free trade arrangements between the two countries. Recent initiatives by Moscow to tax this trade by 100% could deliver a blow to this flourishing trade. Seleznev assured the Turkish businessmen that the tax on frontier trade was not 100%, but 3%. Russia was going through a profound socio-economic crisis and they needed income. That was why they had to levy such a tax, he explained.
The explanation was, however, diplomatic euphemism and there were deeper reasons for Moscow’s abrupt move two months ago to turn back a shipload of merchandise from Turkey within the coastal trade arrangements, on the grounds that they would henceforth be taxed 100%. It concerned Turkey’s putting limitations, after pressure from Shell and other oil multinationals, on diesel imports within frontier trade arrangements from all frontier gates. ( Issue No:16-17). These restrictions were against the arrangements Turkey had made with Russia about energy supplies.
Now that fresh and deeper rooted arangements are being made about diesel imports from Iraq, Syria, Iran and Nakhichevan, the boot is in the other foot. Shell and the West are sulking and Moscow is relaxing the step it had taken as a reaction to changes in diesel trade. Under the new rules, diesel imports within frontier trade arrangements will be sold throughout Turkey under a different colour, probably red, as a sign of “imperfect goods is sales” through a consortium of nine of the 12 petrol distribution companies. Shell and BP are keeping away from this arrangement and the all important Petrol Office is waiting for the completion of the formalities of the privatization of POAŞ. ( Issue No:33) With this arrangement, Turkey is satisfying its neighbours about diesel purchases within the established frontier trade rules and, at the same time eliminating the criticisms that it is losing $1.2 billion tax revenue from these diesel imports which amount to 2 million tons a year, a third of the total.
Below is the summary of the information given to Seleznev about Turkish-Russian economic relations at a briefing in Istanbul by the Turkish-Russian Business Council.
The Turkish-Soviet trade volume was $300 million only a decade ago. Today the Russian Federation has $10 billion mutual trade with Turkey and preparations are underway to double it up to $20 billion within a few years by eliminating visa restrictions, double taxation and other hindrances.
Turkey’s biggest holdings and contracting companies such as Enka, Koç, Entes, Alarko, Anadolu and Netaş are running billions of dollars of businesses in Russia. The Ram supermarkets of Koç and Enka in Moscow are spreading towards other cities with investments amounting to hundreds of million of dollars. Entes has recently opened a factory in Russia to manufacture machinery for baking, in addition to its other investments there. The Anadolu Group is making a $180 million investment there to build the biggest beer brewery of Europe. Netaş manufactures rural telephone switchboards in the Russian city, Zlatoust.
Turkish contractors’ activities in Russia have been a legendary success – 132 Turkish contracting companies are carrying out 465 contracts in Russia, amounting to $10.5 billion and $6.5 billion worth has already been completed. To give a boost to Turkish-Russian economic relations the Turkish Eximbank has accorded $1.2 billion loans to Russia and disbursed $850 million so far.
Even a more important field of cooperation for Turkey is joint high-tech ventures between TÜBITAK (The Turkish Scientific and Technological Research Institute) and its Russian counterpart. This cooperation may make Turkey one of the rare countries which have space technology. The West is reluctant to share such high-tech industries with Turkey, and Russia, as the first country to orbit a man in space, may fill this gap for Turkey.
The rapidly developing Turkish industry’s thirst for energy and the Russian Federation’s rich oil and natural gas resources place Russia at a great advantage in this mutually beneficial trade and cooperation. If the Baku-Ceyhan pipeline eventually goes into operation Turkey will consume half of the 50 million tons of oil that will run through the pipeline.
The Chairman of the Turkish-Russian Business Council, Yavuz Kireç, who has been doing business with Russia since 1984, says that top Russian rulers wish to have bilateral or multilateral cooperation with Turkey for the energy routes from the former USSR. Kireç believes that Turkey and Russia are natural partners as two powerful countries of Eurasia both of whom are kept at arms length by Europe. He thinks that Germany never wants Turkey to be a key country in the energy routes from Central Asia and explains the Luxembourg rebuff with Germany’s negative stance. It is also an opportunity for Turkey to work towards a new multilateral economic area, the Eurasian Union, as opposed to the European Union. About energy cooperation, he says, “Diplomatic contacts with the United States are exceedingly useful, but not enough. We must also lobby the oil multinationals.”
Kireç’s company, Endes, is actively cooperating with Russian companies for a $1.5 billion natural gas pipeline to Turkey from Ukraine through Moldova, Romania and Bulgaria. The $716 million Ukraine part is being built on BOT (build-operate-transfer) basis. The Gastransit company founded for this purpose has 26% Turkish capital (18% BOTAŞ and the rest divided among Entes, Enka, Gama and Tekfen) and 37% each Russian and Ukranian capital.
This pipeline will bring 3.8 billion m3 of
natural gas to Turkey before the winter of 1999. Construction has already begun of a 48 MW
compressor station in Tarutino, Ukraine for this purpose and will be completed within 15
months. Out of a total of 17 bn m3 a year, Turkey will receive 8 billion m3.
It will, therefore, enter into service before the Iranian natural gas pipeline and the
Blue Current
( Issue No:4). With this additional 8 billion m3 , the natural gas
imports from Russia will reach 14 billion m3 a year and it solves Turkey’s
current power shortage.
A big hindrance in economic cooperation with the Russian Federation is the current economic crisis there. Yavuz Kireç says, however, that the Moscow Stock Exchange is not a reflection of the real Russian economy. It is highly speculative and lack of experience in capitalist institutions cause difficulties in Russia’s transition from communism.
Meanwhile, Turkish contractors surprise the Russians with their dynamism and efficiency of free enterprise. Several modern buildings and offices in Moscow and other Russian cities are built and jointly owned by Turkish companies and the Moscow Municipality.
Free trade zones in Turkey head for $8 billion business volume
To develop its frontier and coastal trade with its neighbours, Turkey began to set up free ports and zones as from 1985, within the Free Zones Act. Today there are 13 free zones where 685 companies employ 8750 people. In 1997 there was a total business volume of $5.6 billion. This year the number of free zones is expected to reach 17 and their trade volume $8 billion, accounting for 10% of Turkey’s imports and exports. In the first five months these free zones handled $2,8 billion business.
The 13 free zones are Mersin ($1,792.6 million trade volume in 1997), Antalya ($180.6 m), the Aegean ($1,429.7 m), Istanbul (Atatürk Airport) ($866.2 m), Trabzon ($96.2 m), Istanbul (leather industry) ($1,127.8 m), East Anatolia ($31 m), and Mardin ($13.6 m). The others are IMKB (The Istanbul Stock Exchange), İzmir, Rize, Samsun and Çatalca free trade zones. They had a total business volume of about $30 million in 1997.
In addition to these 13 free zones, new ones are planned in Yumurtalık (Adana), Gaziantep, Kayseri, Kocaeli, Bursa, Şanlıurfa and Trakya. In the new century Turkey aims to have 20 free trade zones with a total work volume equal to 15% of Turkey’s foreign trade.
On August 8th the construction of the Trakya Free Zone began with President Demirel and PM Mesut Yılmaz attending the ceremony for this $3 billion project. It will cover an area of 2 million m2 in Çorlu and provide employment for 25,000 people when completed in three stages. The project has been undertaken by a Germany-based Turkish company, Şahinler Holding, and will reach full capacity occupancy in three years with 1000 companies and full capacity functioning in five years. It means $1 billion exports a year and the arrival of $500 million foreign capital. Contrary to the other free trade zones, the one in Trakya will be an industrial complex made up of electronics, optics, biotechnologies and ready-made clothing sectors, while the others are mostly for banking, finance, and imports.
The Trakya Free Zone is only one leg of a bigger complex comprising Çorlu Airport and the Port of Tekirdağ. Çorlu Airport, which has the capacity for 1.5 million passengers/year, was built in only nine months and inaugurated by Demirel and Yılmaz on the same day, August 8th. They also inaugurated the privatized Tekirdağ Port.
The President of Şahinler Holding, Kemal Şahin, said that their aim was to make the Trakya region an integrated textile and clothing industry centre, a magnet for the world’s textile industry. The Japanese sewing machine giant, Juki, will pioneer for Japanese investments in this free zone. In addition to the Japanese, the German company, Wastima and other German and American companies are interested in taking part in this project.
PM Mesut Yılmaz said at the ceremony, “While there were 3000 exporters in Turkey in 1980, this figure is 24,000 today. While our exports were $260 million in 1960 they are $26 billion now and our aim for 1999 is $30 billion. Free zones are important for that reason. These zones accelerate foreign capital and technology arrivals. “
Privatization of Black Sea ports repealed by Danıştay with little practical value
While President Demirel and PM Yılmaz were urging private enterprise to build 400 more free zones like the one Şahinler Holding was building in Çorlu, their efforts were delivered a blow from the judiciary. The highest administrative court of Turkey, Danıştay, repealed the privatization of the Black Sea ports in Giresun, Sinop, Ordu, Rize and Hopa.
The management of the first three of these ports was handed to the Çakıroğlu Group on June 30th, 1997 for 30 years for $5,612,605. The port of Rize was handed to the Çillioğlu Group for 30 years on August 7th, 1997 for $5,606,605 and the port of Hopa was leased for 30 years to Park Maritime and the Hopa Port Administration on June 17th, 1997 for $4,400,718.
Like several other repeals of privatization contracts in the past, the repeal of these five important ports will not have much practical value and is bound to remain on paper because “an irreversible step has already been taken.” The Government maintains that these repeals are not retroactive. The privatization was carried out a year ago and, in the meantime, the company in question made billions of TL of investments. So there is nothing to be done about these repeals.
This interpretation saves the privatization of ports in the Black Sea and in a way saves Turkey’s coastal trade with Russia and the other Black Sea countries - so important for the national economy.
As for the rule of law and compulsion to enforce judicial verdicts, the law calls for indemnities when the Administration’s actions are repealed by Danıştay, but the repealed action is irreversible. There is nothing much that can be done about the non-enforcement of these repeal verdicts especially over an issue like privatization of which almost all the political parties and institutions are unanimously in favour. uras@ada.net.tr August 10th, 1998