On the outside looking in: Turkey and the EU

On July 1, the people of Croatia took to the streets in celebration of their country’s official admittance into the European Union. In Istanbul, officials looked on in repugnance. After all, no one has been on the EU’s waiting list longer than Turkey. The government filed its application in April 1987, but has since managed to meet only one of the 35 acquis chapters required for full membership. The current administration has shown little interest in meeting the EU’s requirements, and talks have been stalled for the better part of three years because lawmakers in the capital of Ankara refuse to sit at the negotiating table with Cypriots.

Yet nothing has held up accession talks more than Prime Minister Recep Tayyip Erdo?an’s appalling handling of the peaceful protests that were launched in Istanbul in June. Erdo?an allowed demonstrations to spiral into three weeks of fierce riots. The Turkish police responded with gusto, killing seven and injuring almost 8,000. The unrest was eventually defused; however, several EU leaders expressed great disgust towards Erdo?an’s authoritarian show of force. At the rate he’s going, Turkey may never enjoy full EU membership. Maybe they shouldn’t bother.

Too much of a good thing
Although the country still yearns for full membership, it’s spent the better part of 20 years as an EU state in all but name. Since 1995, Turkey has had a customs union with the EU that allows for goods to flow freely across Turkish borders. The union doesn’t involve some essential areas such as agriculture, however, to which some bilateral trade concessions apply. Yet overall, the agreement allows for industrial free trade and has boosted exports for Turkey’s neighbours. The deal hasn’t gone down as well in Istanbul. In fact, Turkey’s trade deficit with eurozone countries has doubled, and has increased six fold with the rest of the world. Local industrial imports simply can’t compete with those of its EU neighbours, and domestic markets are becoming flooded with European goods and raw materials. That said, Turkey’s rather one-sided trade agreements with the EU have allowed its economy to pursue some innovative growth strategies.

Over the last few years, Foreign Minister Ahmet Davutoglu has become obsessed with pushing trade agreements on virtually every foreign dignitary he makes eye contact with. As a result, the Turkish government now has free-trade agreements with 22 countries, and has spent the last five years diversifying its export market. While the bulk of its goods are still shipped off to EU partners, Davutoglu has said he expects Iraq to become Turkey’s top trade partner by the end of the decade. That’s quite speculative – especially given that the Turks tend to maintain mixed relations with Iraq’s Kurdish population. Yet Davutoglu has also boosted trade with Russia, the US and China. Above all else, this foreign expansion has allowed the nation to transform into a sound business investment.

Investment capital
Last year, Turkey became the world’s 14th-hottest emerging economy in which to invest. Direct investment jumped to over $12.4bn. The Turkish government now has bilateral investment treaties with 75 countries – although two-thirds of this investment comes from the EU. Investment from Asia and North America is on the rise. In 2012, the US increased its investments in Turkish industries to $5.7bn. Yet what makes Turkey an attractive business hub isn’t its domestic demand, but rather its lax regulations and ancient geographical status as the gateway between Europe and Asia. British firms like JCB and Tesco have invested heavily in Turkey – but only to use the country as a base of operations to trade with non-EU countries. Although Tesco’s Turkish subsidiary has 180 stores across the country, it actually exports more than four times more into Asia than it imports. This method of foreign investment is not only good for international business, but it helps cut the Turkish trade deficit. The success story of Tesco is one of many; therefore, it’s hardly surprising that over 30,000 foreign businesses now use Turkey as a base of operations. It can’t hurt that the country boasts some of the most competitive corporate tax rates across the OECD.

British firms like JCB and Tesco have invested heavily in Turkey – but only to use the country as a base of operations to trade with non-EU countries

“We used to be complacent in Turkey,” explains Sani Sener, who heads one of Turkey’s largest construction firms. “But after 2000, the country began to understand the importance of globalisation, especially in the region… In Turkey, like other emerging markets, we need international companies, so we have to go to other countries to do business, to invest, and to take the risk… Istanbul and Turkey are a launch pad for other markets.”

All of this investment has allowed the Turkish economy to prosper. When Erdo?an came to power in 2003, the country had been suffering from years of short-term instability and consecutive banking crises. The IMF condemned the country as an emergency zone, and FDI sharply declined due to the area’s unattractive record. Yet step-by-step, Erdo?an has been able to rebuild Turkey’s financial sector and get the nation’s budget in check. Paired with the persistent trade and investment agreements that were chased down by Erdo?an’s foreign minister, Turkey has transformed into a rare economic success story. “[In] the past decade the success has been partially about a single party government,” says Tim Ash, Standard Bank’s Head of Emerging Markets. “But Erdo?an has been a key part of that success. He has vision, drive and his supporters united around him to push for the agenda he is building.”

Since 2000, the Turkish economy has grown by an average of 6.7 percent year-on-year. So far this year, its GDP has grown 16 times more than Germany’s, and shows no signs of slowing. Erdo?an’s economic strategy has earned his country the nickname ‘the new tiger’. By 2017, analysts predict the new tiger will become the leading OECD economy. In turn, the country’s economic boom has led to vast improvements in infrastructure, education and public services. In many respects, Turkey has really turned things around. Meanwhile, the eurozone is still riddled with recession and financial uncertainty. Croatia’s admittance into the EU was seen by many as tossing dead weight onto a sinking ship, and even the richest of EEA countries are seeing stagnant growth (assuming there’s any growth at all). Bearing this in mind, it’s hard to see why desperate European leaders wouldn’t jump at the chance to welcome Turkey into the union – until they look up from the country’s impressive financials.

Agree to disagree
Turkey may be a sound business investment, but concerns over the way it treats its citizens have raised concerns from every corner of the globe. » The violent crackdown on peaceful protesters in June was only the latest example of human rights violations around Istanbul. German Chancellor Angela Merkel has led the charge by citing Erdo?an’s handling of the protests as a prime example of why Turkey doesn’t belong in the EU. “I’m appalled, like many others,” she said in June. “What’s happening in Turkey at the moment is not in line with our idea of the freedom to demonstrate or freedom of speech.”

Freedom of speech isn’t the only problem. Courts abuse terrorism laws to incarcerate Kurdish minorities, while Human Rights Watch has cited example after example of unfair trials for everyday Turkish citizens. Women’s and children’s rights receive even less attention. According to Merkel, to join the EU is to align one’s nation with a commitment to shared ideals of democracy and individual freedoms. Such items don’t appear to be particularly high on President Erdo?an’s list of priorities. Even if the Turkish state did clean up its human rights record, it still refuses to play nice with other EU countries. Until Turkey agrees to make concessions and sit at a table with Cyprus, it’s automatically incapable of fulfilling 17 of the 35 chapters it must pass in order to join the EU. As of now, only 13 chapters are even open for negotiation. Just one has been closed.

Turkey may be better off leaving those chapters unopened. Its government’s human rights violations are appalling, and officials’ refusal to negotiate with other EU members is immature. Yet there are few indications the Turkish economy would continue to prosper at its current level should it join the EU. Regardless of copious foreign direct investment, Turkish exports simply cannot match those of the eurozone. Freeing up borders even more would only inundate its domestic market further still, simultaneously providing few overall trade benefits. What’s more, EU membership wouldn’t draw new European businesses into the country, as corporate regulations and incentives can’t be made to look much more attractive than they already are. In fact, there’s only one major aspect of EU membership the Erdo?an administration is missing out on: a role in Europe’s bilateral trade agreements. The US and EU recently began talks to establish the biggest bilateral trade agreement in history, which will contribute €120bn per year to the EU economy. Foreign Minister Ahmet Davutoglu was livid when he found out. He argues that Turkey should be allowed a spot at the negotiating table because of its customs union status with the EU. “It creates unfair competition against Turkey,” Davutoglu argued. “We are a democratic country, a growing economy, an important player on the international stage… The international system needs Turkey’s EU membership more than ever.”

European Commission spokesman John Clancy scoffed at Davutoglu, more or less telling him to get his own deal. That’s actually pretty sound advice. Although Turkey could tack on one or two rainy day insurance measures by joining the EU, the continent simply doesn’t have much more to offer the Turkish economy at the moment. Big member perks like the assurance of a potential bank bailout are completely unnecessary in Turkey, as there’s no single financial institution in the country too big to fail. What’s more, it’ll cost billions for Erdo?an’s government to implement the necessary changes to become a part of Europe, anyway. In the end, that very well may be why the Turkish government has only closed one of 35 acquis chapters in 25 years. After all, it can’t be that hard – Croatia filled every single requirement in less than a decade.

The UK Foreign Office has publicly stated it assumes Turkey will become an EU member “in a decade or so”. At the rate Erdo?an is going, that won’t be the case. Making further commitments to the EU would only tie down the Turkish government to expensive deals it can’t afford.

In the end, if officials want their tiger economy to continue growing as an emerging world power, full EU membership may not be the way forward. The country truly is an EU member in all but name; therefore, its desperate pursuit of full membership status amounts to nothing more than an arbitrary desire to earn a coveted status symbol of shared European ideals. Without first cleaning up its human rights record and diplomatic ties, Turkey doesn’t appear to share those ideals.