Economic Aspects of Turkey’s Accession to the EU Presented by: Hristiana Pencheva and Iliyan Iliev

Overview of Turkey and its relations with the EU applied for associate membership in 1959 applied for associate membership in 1959 became part of the Association Agreement in 1963 became part of the Association Agreement in 1963 economic and political turmoil economic and political turmoil became a candidate country in 1999 became a candidate country in 1999

Main concerns of the EU policy- makers Turkey would have the largest number of council votes within 20 years Turkey would have the largest number of council votes within 20 years Turkey would receive the largest budget transfer Turkey would receive the largest budget transfer Large number of Turkish immigrants Large number of Turkish immigrants internal problems with the minority rights internal problems with the minority rights excessive political strength of the military excessive political strength of the military The “Cyprus” question The “Cyprus” question

The Budgetary Question If it sustains a 5-6% growth it will reach 4% of the EU GDP If it sustains a 5-6% growth it will reach 4% of the EU GDP It will become the largest beneficiary It will become the largest beneficiary Structural Funds – 4%*4%=0.16% of the EU GDP=22.4bn EUR/year Structural Funds – 4%*4%=0.16% of the EU GDP=22.4bn EUR/year CAP expenses – agricultural sector is 10% of its GDP – expenses equal to 0.08% of the EU GDP=11.2bn EUR/year CAP expenses – agricultural sector is 10% of its GDP – expenses equal to 0.08% of the EU GDP=11.2bn EUR/year Contribution – 0.048% (1.2% of its GDP) of the EU GDP – 6bn EUR Contribution – 0.048% (1.2% of its GDP) of the EU GDP – 6bn EUR Overall budgetary expense – 25-28bn EUR/year Overall budgetary expense – 25-28bn EUR/year

Turkish Immigration – expectations and fears Expected between 1.5 and 4.5mln immigrants in the first 10 years of membership Expected between 1.5 and 4.5mln immigrants in the first 10 years of membership Fear of depressed wages, higher unemployment in all levels, social frictions and political upheavels Fear of depressed wages, higher unemployment in all levels, social frictions and political upheavels

Turkish Immigration – real economic effects Complementary work force - highly skilled local workers complemented by unskilled immigrants Complementary work force - highly skilled local workers complemented by unskilled immigrants Highly skilled immigrants are acting as economic boosters Highly skilled immigrants are acting as economic boosters No change in the job opportunities No change in the job opportunities Increased wages for the high-skilled spheres Increased wages for the high-skilled spheres “old” Europe needs fresh work force due to the demographic crisis “old” Europe needs fresh work force due to the demographic crisis

Turkish Immigration – Demographic Effect

Turkish Economy GNI/capita close to Bulgaria and Romania in 2000 GNI/capita close to Bulgaria and Romania in 2000 Economic disparities across the territory Economic disparities across the territory Large rural population Large rural population Large agricultural sector Large agricultural sector Lack of diversified investment Lack of diversified investment

Turkish Economy

EU-Turkish Trade For Turkey, the EU is a major trade partner, mainly in agriculture For Turkey, the EU is a major trade partner, mainly in agriculture 70% is with preferential treatment without import barriers and duty free 70% is with preferential treatment without import barriers and duty free Only CAP-sensitive goods do not receive preferential treatment Only CAP-sensitive goods do not receive preferential treatment Tariff-quota schemes Tariff-quota schemes A future accession would create a more competitive market, better quality of the goods and a more flexible price system A future accession would create a more competitive market, better quality of the goods and a more flexible price system

EU-Turkish Trade

Foreign Direct Investment $15 FDI/capita in 2000, in Poland it was $256 FDI/capita $15 FDI/capita in 2000, in Poland it was $256 FDI/capita bureaucratic barriers bureaucratic barriers high levels of corruption high levels of corruption extensive regulation extensive regulation

Positive Characteristics of the Accession Use of EU funds in Turkey for major projects Use of EU funds in Turkey for major projects Higher FDI levels Higher FDI levels Decreased unemployment Decreased unemployment Increased competitiveness Increased competitiveness Stabilization of the economy Stabilization of the economy Attractive market for the EU companies – 70 million consumers Attractive market for the EU companies – 70 million consumers A strategic position – connected to crude oil and natural gas networks A strategic position – connected to crude oil and natural gas networks Fresh labor force Fresh labor force

Bibliography Harry Flam - Turkey and the EU: Politics and Economics of Accession, 2004 Harry Flam - Turkey and the EU: Politics and Economics of Accession, 2004 Daniel Gros - Economic Aspects of Turkey’s Quest for EU Membership, 2005 Daniel Gros - Economic Aspects of Turkey’s Quest for EU Membership, 2005 Stéphanie Jung and Stanislav Kubacek - Economic Aspects of Turkey’s Accession to the EU - How Turkey’s Membership is Challenging the EU, 2005 Stéphanie Jung and Stanislav Kubacek - Economic Aspects of Turkey’s Accession to the EU - How Turkey’s Membership is Challenging the EU, 2005 Dr. Bahadir Kalegasi - What Turkey Could Bring to the EU, 2004 Dr. Bahadir Kalegasi - What Turkey Could Bring to the EU, 2004 UNCTAD, 2002 UNCTAD, 2002 Eurostat, 2006 Eurostat, 2006 The World Bank, 2006 The World Bank, 2006 European Commission data European Commission data International Monetary Fund, 2004 International Monetary Fund, 2004 US Census Bureau, 2005 US Census Bureau, 2005

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