Introduction:

Before and since the founding of the EU Customs Union (CU) and without any serious research many contradictory and false figures have been put forward about its negative effects. The initial purpose of this article is to elaborate a brief history of Turkey-Eu relations using the statistical data from 1995 through 2008 used in discussions of the CU and to identify the amount and number of industrial goods exports.

Did the CU Cost 100 Billion Dollars?

Turkey became a partner member of the European Economic Area (EEA) when the Ankara agreement, signed on September 12, 1963 between EEA and Turkey, came into effect on December 1, 1964. While the ultimate aim is full membership, the CU was an initial step. In reality, in terms of trade in industrial goods, Turkey entered EU and CU in 1996.

With the Additional Protocol signed on November 23, 1970, and effective on January 1, 1973, Turkish industrial products began to enter the European Community (EC became the EEA's new name in 1968) without being subject to customs. In exchange for this capitulation Turkey promised to remove customs taxes (CT) on EC countries' industrial products for 22 years beginning in 1973.

The 1963 Ankara Agreement and the Additional Protocol was approved in the parliaments of both parties made Turkey's inclusion in the EU and the CU an official promise. Unfortunately, we used and are still using Turkey-EU relations and the CU as a domestic political card for more than 45 years.

In recent years the damaging effects of the CU have often been mentioned in discussions about relations with the EU. However, nobody mentions either the positive effects of Turkish industrial products entering the EU without CT 23 years before the founding of the CU on Turkey's industrialization or the EU's 33 years of CT loss. Starting with 45-50 billion 4-5 years ago, the CU's cost was increased up to 100 billion dollars by adding 10 billion dollars each year. The calculation was as follows: since joining the CU Turkey had x billion dollars of international trade gap in its trade with the EU and additionally lost 15-20 billion dollars of CT= cost of CU!

If we continue with this false calculation, our international trade gap with EU in the 1996-2007 period reached 121 billion dollars and if we add 10-15 billion dollars of CU losses, does the CU's cost amount to more than 135 billion dollars?! No. Scientifically, this calculation is completely wrong. Unfortunately this baseless calculation has been accepted by everyone and all parties involved and the public continues to be deceived.

In the CU's last 13 years, approximately 88% of the imports have been raw materials, intermediary products and investment products, while 12% consists of perishable and durable consumer products. "The increase in imports and international trade gap in Turkey is completely related to the increase in the rate of GDP growth (investment and production) and as a result increase of exports with high import input." In fact, the rate of growth had backed down to 5-7% in 2001, and between 2000 and 2001:
- imports diminished from 54.5 billion to 41.4 billion dollars
- the international trade gap fell from 26.7 to 10. billion dollars
- the international trade gap with the EU fell from 12.3 to 2.2 billion dollars
- the current balance gap which is the difference between good and services income and cost changed from -9.8 billion dollars to +3.4 billion dollars (a 13.2 billion dollar difference, see table 1). Since AGDP increase rate is expected to diminish by around -5% in 2009, between 2008-2009 current balance gap might increase from -41.7 billion dollars to +5 billion dollars (see note 1, article 2 for details).

To summarize, since CU, between 1995-2008:
- AGDP increased from 210 to 741.2 billion dollars ( 3.5 times more)
- imports increased from 35.7 to 202 billion dollars ( 5.7 times more)
- exports increased from 21.6 to 132 billion dollars (6.1 times more)
- imports from the EU increased from 16.9 to 74.8 billion dollars ( 4.4 times more)
- exports to the EU increased from 11 to 63.4 billion dollars ( 5.8 times more)
- the EU share in Turkish imports fell from 47% to 37%
- EU share in out exports fell from 51% to 48%
- the rate of export-import correspondence with the EU (X/M) jumped from 65% to 84.8%
- the EU share in total international trade gap fell from 41.8% to 16.3% (See table 1).

Turkey's Total International Trade and Trade with the EU (in billions of dollars) 2005-2008

Some critics claim that, "in the 13 years before and after CU, Turkey's international trade gap with the EU reached almost twice the size." This is true. However, the real reason for this is, between 1995-2008, that with a high import rate the total exports increased 6.1 times and export to the EU increased 5.8 times (exports to EU increased from 11 to 63.4 billion dollars) and that the GDP increased by 352% or 3.5 times.

In the 1996-2008 period our total imports are 1 trillion 120 billion dollars, our exports are 705 billion dollars and our total international trade gap is 415 billion dollars. Only around 121 billion dollars of this gap is with EU member states (29.1%), while 294 billion dollars is with non-EU countries ( 70.95%) (See table 1). Here we need to ask this question: if the CU caused the international trade gap and its increase with the EU, what are the reasons for international trade gaps with non-EU states and how can we explain that gap? Unfortunately, no one is able to answer this question.

In 2008 exports are 132 billion (a 23% increase), imports are 202 billion (an 18.8% increase), the international trade gap is 70 billion and X/M is 65.3%. In terms of regions, the total international trade gap (M-X=billion dollars):
- 44.4% (-31.0=38.1-7.1) is with Far East and other Asian countries and X/M is 18.6%
- 35.4% (-24.7=45.6-20.9) is with BSEC (Black Sea Economic Cooperation) countries, X/M=45.8% and
- only 16.3% (-11.4=74.8-63.4) is with EU countries and X/M=84.8%.

In 2008 while only -11.4 billion dollar (16.3%) of a -70 billion dollar international trade gap is with EU countries and 58.4 billion (83.7%) of it is with non EU countries, this gap is -24.8 billion with Russia alone and -14.2 with China alone. (55.6% of the total IT gap is with Russia and China). Moreover, products imported from the Far East make up almost 90% of durable consumer goods, while imports from the EU are at least 80% investment and production goods.

On the other hand, although from 1995 to 2008 Turkey's export/import percentage (the ratio of exports to imports) rose from 60.5% to 65.4%, in EU countries this ratio jumped from 65.1% to 84.8% (and to 88% in 2007). I dedicate these facts to those that blindly oppose the EU and the CU.

To summarize, even if seen only from the international economic relations perspective, the important thing is not to lose the EU vision and motivation. Moreover, the EU project's 35 headings is a driving force towards modernization that will develop and improve Turkey's economy, living standards and democracy. Otherwise, 46 years of struggle, labor and gains on the EU path will be wasted.

In 2008, the highest national IT gaps (in dollars) and ratios of imports to exports (X/M) in order is: with China -14.2 billion ( 15.6-1.4) and 9%, with Russia -24.8 billion $ (31.3-6.5) and 20.8%; with Germany -5.7 billion (18.7-13.0) and 69.5%; with Iran -6.2 billion (8.2-2.0) and 24.4%; with South Korea -3.9 billion (4,1-0.2) and 5%; Switzerland -2.7 billion (5.6-2.9) and 51.8% and with Japan -3.7 billion (4.0-0.3) and 7.5%. The countries with whom we achieved excess IT (X-M) are: with England 2.9 billion$ (8.2-5.3); with Iraq 2.2 billion (3.9-1.3), with Greece 1.2 billion (2.4-1.2); with Azerbaijan 0.8 billion (1.7-0.9); with Romania 0.4 billion (4.0-3.6), and with Holland our IT gap is 0.

The real issue for Turkey is not the -8.2 billion dollar IT gap with 27 EU countries in 2007, but the fact that there is a -18.8 billion dollar gap with Russia alone and a -21.5 billion dollar gap with 4 far eastern countries ( China, Japan, South Korea and Taiwan). It should be pointed out that a large portion of our IT gap with Russia is compensated for by incomes from tourism, "suitcase trade" and building services, while no similar incomes from Far Eastern countries cover the IT gap.

The Advantages of Joining the CU

Textile quotas: As a result of the CU, Turkey moved from fourth to the second place in the EU textile market after China, because quotas in the textiles and ready clothing products were lifted in 1996. The total textile and clothing export of Turkey in 2004 was 17.7 billion dollars and 73% of this export was to EU countries. Turkey's share in the EU market was 13% in textiles, 9% in clothing, while China's share is 10% and 18%, respectively.

FTA advantage: as a result of Turkey joining the CU with the EU, the opportunity to make Free Trade Agreements (FTA) with Central and Eastern European Countries (CEEC), Baltic countries, Balkan countries, North Africa and some Middle Eastern countries arose. In fact, establishing FTA's with these countries is beneficial for Turkey because at the end of the 1990s Turkey was relatively superior to these countries in industrial goods trade. Secondly, because EU countries have previously established FTA's with them, industrial products imported from the EU were entering these countries without being subject to customs. The FTAs that Turkey established eliminated the EU's unfair competition in these countries, and as a result our exports especially to CEEC countries in the 2001-2004 period came close to double our average annual export increase.

Slogans and Facts abut the EU and the CU

The claim, "10-15 billion dollars of customs taxes are lost," because of the CU is exaggerated and ridiculous because the rate of protection against EU countries in 1995 was only 5.47%, and it fell to 1.34% in 1996 (SPI, November 2004, p. 23). Moreover, since almost 90% of exports in the last 12 years are related to investment and production goods, if the Turkish business world did not pay their own country this amount in taxes, we must mention its positive effects. With the unpaid customs taxes, the cost of Turkish employees fell and as a result their international competitiveness improved, while in the domestic market the welfare of the consumers that were enabled to purchase at lower prices was improved.

Another claim says that, "the IT gap was increased by joining the Common Customs Tariff (CCT) of the CU and the EU." Meanwhile, the facts that should be known are: a) even in 1995, before the CU, when our annual export was only 21.6 billion dollars, wasn't Turkey's IT gap 14.1 billion dollars? (See table 1) b) Turkey's Payment Balance structure is required to create a gap continuously because around 88% of exports are raw material, intermediary gods and investment goods. Moreover, in addition to export income, in recent years (5-6 years) Turkey has 30-44 billion dollars (with 11-17 billion dollars of service costs) of foreign currency income through service incomes such as suitcase trade, and especially tourism. What is important is to turn these foreign currencies into investment, production and export increases. The way to do this is to increase imports and the IT gap.

Although it as been claimed, "IT gaps with other countries were increased due to the CCT," this claim is not correct enough because, in industrial goods imports, Turkey won exceptions from the CCT between 1996-2001, and because in all countries, including Turkey, average customs tax rates for industrial goods exports fell to single digits, joining the CCT did not cause any significant harm to our international trade. Before the CU in 1995 the average customs tax for industrial goods imported from EU to Turkey was only 9%. If Turkish industry was destroyed by the CU, we could have achieved protection before the CU by means of a 10% devaluation.

A 40 year old slogan says, "they are partners, we are the market." From 1995 to 2007, Turkey's import share in EU exports have increased only from 0.9% to 1.5%. Taking into consideration that 60% of the EU countries' international trade consists of trade between themselves, Turkey's imports constitute around 3% of their non-EU exports. Therefore, only from the international trade perspective, Turkeys is as important to the EU as much as Iran and Iraq is to us (in terms of international trade), because the share of these countries in our exports are 1.3% and 2.6%.

The harm of the CU: since 1996 when we joined the CU, there has not been any news in the media about a firm owner that claims to have gone bankrupt because of the CU. Businesses are being opened and closed for years. Firms that could not adapt to increasing domestic and international competition since the CU and have been closed are actually transferred to more skilled hands that can increase their productivity.

Dynamic effects: the qualitative dynamic effects of the CU are also very important. Turkey's involvement in the CU along with the EU irreversibly introduced domestic producers to international competition and thus contributed to the weakening of insufficiently competitive and conservative lobbies. As a result, our firms that used to produce expensive goods with low efficiency were forced to reorganize, produce high quality and cheap gods, increase production and to export. Turkish textiles and clothing, automotive and electronics industries are among the best examples of this. However, in 1995 Bursa's automotive labor unions organized a big protest against the CU. Today the most successful export sector is the automotive sector.

Figures for Industrial Goods Exports from 1996 to 2006

The purpose of this section is to share industrial goods export figures and their distribution among countries with the public for the first time in Turkey.

Here we will summarize the main industrial goods production and export figures that are accessible to the public, and then share with the public for the first time in Turkey industrial goods export figures and their international distributions.

I will answer with numbers those who claimed "Turkish industry will collapse with the CU" before the establishment of the CU. According to the January 2005 Exporters' Union records, export increases from 1995 to 2004 in billion dollars are:
- textile and clothing from 8.2 to 21 including suitcase trade ( 2.6 times more)
- vehicles (automobiles, busses, etc.) and parts from 0.8 to 10.8 (13.5 times more)
- iron and other metals from 3 to 9.2 ( 3.1 times more)
- electronic appliances from 0.9 to 6.1 billion dollars ( 6.8 times more)

From 1996 to 2000 and 2006, in millions of items the production increase from 1996 to 2004 in sectors successful at exporting are:

- televisions from 1.8 to 8.8 and 18.3 (10.2 times more), 12.6 million items in 2007
- refrigerators from 1.7 to 2.4 and 6.2 (3.6 times more), 6.2 million items in 2007
- laundry machines from 0.9 to 1.4 and 5.4 million items (6 times more), 5.4 million items in 2007.
- ovens (LPG) from 0.6 to 0.7 and 6.8 (11.3 times more), 5.9 million items in 2007.
- automobiles from 196,000 to 306,000 and 756,000 (3.9 times more), 801,000 items in 2007
- bus and minibuses from 19,000 to 29,000 and 52,400 (2.8 times more), 50,100 items in 2007

As Table 2 shows, the number of items (and millions of dollars in parentheses) for main consumer and industrial products exported.

- televisions from 1.2 million (217) to 7.3 million (840) and 16.4 million (2,800),
- refrigerators from 645,000 (103) to 929,000 (142) and 4.2 million (765),
- laundry machines from 49,000 (11) to 275,000 (42) and 3.4 million (582),
- automobiles from 26,000 (200) to 83,000 (619) and 441,000 (5,700),
- buses-minibuses from 3,200 (258) to 6,400 (281) and 6,400 (556),
- tractors from 943 (7.7) to 4.9,000 (45) and 11,000 (836) items.

From 1996-2006, our main industrial goods export numbers are:
- televisions: to England from 167,000 to 3.0 million, to Germany from 428,000 to 2.8 million, to Italy from 21,700 to 1.5 million, to Spain from 42,000 to 1.9 million, to France from 76,000 to 1.6 million, to Romania from 14,800 to 733,000, to Greece 23,000 to 514,000, to Sweden from 10,000 to 331,000, to Russia from 8,600 to 29,000, to Austria from 36,000 to 172,000.

Main Industrial Goods Export Numbers according to Products and Country
(The First in Turkey)

- refrigerators: to England from 153,000 to 743,000, to France from 149,000 to 604,000, to Iraq from a few hundred to 256,000, to Germany from 41,600to 370,000, to Italy from 9,500 to 306,000, to Algeria from 2 thousand to 176 thousand, to Israel from 21,000 to 59,000, to Spain from 11,500 to 324,000.
- washing machines: to Germany 16,800 to 447,000, to England from 726 to 283,000, to France 4,000 to 470,000, to Russia 1,300 to 157,000, to Spain from 310 to 304,000, to Romania from 5,200 to 130,000.
- automobiles: to France from 473 to 69,600, to Germany from18 to 28,800, to Italy from 10,800 to 66,700, to Spain from 8,000 to 19,500, to Russia from 893 to 42,200, to Israel from zero to 14,000, to Algeria from one to 8,800, to England from 3 to 8,200, to Poland from one to 7,900, to Finland from zero to 9,900.

As can be seen, by the end of 2006, millions of English, French, German, and Italian citizens are using Turkish televisions, refrigerators and laundry machines. Turkish industrial products are already in the EU since in 2006 89.6% of the 18.3 million televisions (16.4 million), 67.7% of the 6.2 million refrigerators, 63% of the 5.4 million laundry machines and 58.3% of the 756,000 automobiles produced by the Turkish private sector were exported.

Conclusion

Statistical data shows that the size of Turkey's international trade gap is mostly related to the AGDP growth rate. It is wrong to declare the international trade gap harms Turkey-EU relations or the CU. In 2008, while the rate of total export-import correspondence (X/M) was 65.3%, this ratio is 84.8% with EU countries, 45.8% with BSEC countries and only 1.6% with Far eastern countries. So Turkey's IT gap problem is more with non-EU countries than with the EU.

For Turkey, even only seen from the perspective of international economic relations, the EU is very important. The important thing is that Turkey does not lose its EU vision and motivation since the EU project's 35 headings are a driving force towards modernization that will develop and improve Turkey's economy, living standards and democracy. Turkey-EU relations are not only a commercial issue, but also a process with political, legal, military, economical, financial, technological and even cultural dimensions for both sides. For Turkey, it also is a complete modernization project. Otherwise, 46 years of struggle, labor and gains on the EU path will be wasted. For more information on economic developments and Turkey-EU relations, see note 1.

In one or two years, when the global crisis ends, Turkey has an open path. In fact, as a result of the dynamism and competition due to CU with the EU, in 2008 the Turkish economy has the potential to earn more than 176 billion dollars of foreign currency annually. 132 billion dollars of this amount is from exports and the remaining 44 billion is from service incomes such as tourism, transport and construction, as well as suitcase trade. Turkey exports to around 140 countries with its army of 40,000 exporters. In Turkey's exports, the share of the manufacturing sector is 94-95%, forestry and fishing's is 3-4% while mining and quarries have around 1.5%. There is no reason for pessimism.

Prof. Dr. Emin Çarıkcı, Çankaya University, International Trade Department