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Europaudvalget 2000-01
EUU Alm.del Bilag 235
Offentligt

FROM THE COMMISSION

TURKEY’S

PROGRESS TOWARDS

ACCESSION

***********************

8 November 2000

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Table of contents

A. Introduction ..............................................................................5

a) Preface ............................................................................................................ 5

b) Relations between the European Union and Turkey................................... 7

Recent developments under the Association Agreement (including bilateral trade)...7

Community aid ............................................................................................................8

Twinning......................................................................................................................9

Preparation of a process of analytical examination of the acquis................................9

B. Criteria for membership ........................................................10

1. Political criteria.................................................................................... 10

Introduction ...............................................................................................................10

Recent developments.................................................................................................10

1.1. Democracy and the rule of law .................................................................... 12

The parliament...........................................................................................................12

The executive.............................................................................................................12

The judicial system ....................................................................................................12

Anti-corruption measures ..........................................................................................14

The National Security Council ..................................................................................14

1.2. Human rights and the protection of minorities.......................................... 14

Civil and political rights ............................................................................................15

Economic, social and cultural rights..........................................................................18

Minority rights and the protection of minorities........................................................19

1.3. The Cyprus issue ........................................................................................... 20

1.4. General evaluation ........................................................................................ 20

2. Economic criteria ................................................................................. 22

2.1. Introduction................................................................................................... 22

2.2. Economic developments................................................................................ 22

2.3. Assessment in terms of the Copenhagen criteria ....................................... 24

The existence of a functioning market economy.......................................................24

The capacity to cope with competitive pressure and market forces within the

Union .........................................................................................................................28

2.4. General evaluation ........................................................................................ 31

3. Ability to assume the obligations of membership............................. 32

Introduction ...............................................................................................................32

3.1. The chapters of the

acquis

............................................................................ 33

Chapter 1: Free movement of goods ............................................................. 33

Overall assessment ....................................................................................................34

Chapter 2: Free movement of persons .......................................................... 35

Overall assessment ....................................................................................................35

Chapter 3: Freedom to provide services........................................................ 35

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Overall assessment ....................................................................................................36

Chapter 4: Free movement of capital............................................................ 36

Overall assessment ....................................................................................................37

Chapter 5: Company law ............................................................................... 37

Overall assessment ....................................................................................................37

Chapter 6: Competition policy ....................................................................... 38

Overall assessment ....................................................................................................39

Chapter 7: Agriculture................................................................................... 40

Overall assessment ....................................................................................................42

Chapter 8: Fisheries....................................................................................... 44

Overall assessment ....................................................................................................44

Chapter 9: Transport policy........................................................................... 45

Overall assessment ....................................................................................................46

Chapter 10: Taxation ..................................................................................... 47

Overall assessment ....................................................................................................47

Chapter 11: Economic and monetary union................................................. 47

Overall assessment ....................................................................................................48

Chapter 12: Statistics ..................................................................................... 48

Overall assessment ....................................................................................................48

Chapter 13: Social policy and employment................................................... 49

Overall assessment ....................................................................................................49

Chapter 14: Energy ........................................................................................ 51

Overall assessment ....................................................................................................52

Chapter 15: Industrial policy......................................................................... 53

Overall assessment ....................................................................................................53

Chapter 16: Small and medium-sized undertakings..................................... 54

Overall assessment ....................................................................................................55

Chapter 17: Science and research................................................................. 55

Overall assessment ....................................................................................................56

Chapter 18: Education and training ............................................................. 56

Overall assessment ....................................................................................................57

Chapter 19: Telecommunications and information technologies................ 57

Overall assessment ....................................................................................................58

Chapter 20: Culture and audio-visual policy................................................ 58

Overall assessment ....................................................................................................59

Chapter 21: Regional policy and co-ordination of structural instruments . 59

Overall assessment ....................................................................................................59

Chapter 22: Environment .............................................................................. 60

Overall assessment ....................................................................................................60

Chapter 23: Consumers and health protection ............................................. 62

Overall assessment ....................................................................................................62

Chapter 24: Co-operation in the field of justice and home affairs .............. 63

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Overall assessment ....................................................................................................63

Chapter 25: Customs union ........................................................................... 64

Overall assessment ....................................................................................................64

Chapter 26: External relations ...................................................................... 65

Overall assessment ....................................................................................................66

Chapter 27: Common foreign and security policy........................................ 66

Overall assessment ....................................................................................................67

Chapter 28: Financial control ....................................................................... 68

Overall assessment ....................................................................................................68

Chapter 29 Financial and budgetary provisions........................................... 69

Overall assessment ....................................................................................................70

3.2. General evaluation ........................................................................................ 70

C. Conclusion ...............................................................................72

Annexes ..........................................................................................75

Human Rights Conventions ratified by the Candidate Countries, September

2000 ......................................................................................................... 76

Statistical data ................................................................................................ 77

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A. Introduction

Preface

The European Council in Cardiff, which took place in June 1998, welcomed the

Commission's confirmation that it would submit at the end of 1998 its first regular reports

on each candidate's progress towards accession. In the case of Turkey, the European

Council noted that “the report would be based on Article 28 of the Association

Agreement

and the conclusions of the Luxembourg European Council”.

The Commission presented its first regular report on Turkey in October 1998, together

with the regular reports for the other candidate countries, with a view to the Vienna

European Council; a second report was adopted in October 1999, with a view to the

Helsinki European Council. The Helsinki European Council noted that the next regular

reports for the candidate countries would be presented in good time before the European

Council in December 2000.

The structure followed by this regular report on Turkey differs from that used in previous

years on three points. Firstly, the part of the present report assessing Turkey’s ability to

assume the obligations of membership (Part

B.3.1.)

has been structured to follow the list

of twenty-nine chapters covering the

acquis.

Secondly, this part has been broadened to

cover also Turkey’s administrative capacity to apply the

acquis

under each of the chapters

(previously discussed in a separate section of the report). Thirdly, the report includes, for

the first time, a section assessing the progress made by Turkey in translating the

acquis

into its official language.

In line with previous regular reports, the present report:

describes the relations between Turkey and the Union, in particular in the framework

of the Association Agreement;

analyses the situation in respect of the political criteria set by the 1993 Copenhagen

European Council (democracy, rule of law, human rights, protection of minorities);

assesses Turkey’s situation and prospects in respect of the economic criteria defined

by the Copenhagen European Council (a functioning market economy and the

capacity to cope with competitive pressures and market forces within the Union);

addresses the question of Turkey’s capacity to assume the obligations of membership,

that is, the

acquis

as expressed in the Treaties, the secondary legislation, and the

policies of the Union. This part encompasses not only the alignment of legislation,

but also the development of the judicial and administrative capacity necessary to

implement and enforce the

acquis,

as requested by the Madrid and Feira European

Councils in December 1995 and June 2000 respectively. At Madrid, the European

Council underlined the necessity for the candidate countries to adjust their

Article 28 states that “as soon as the operation of the Agreement has advanced far enough to justify

envisaging full acceptance by Turkey of the obligations arising out of the Treaty establishing the

Community, the Contracting Parties shall examine the possibility of the accession of Turkey to the

Community”.

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administrative structures, so as to create the conditions for the harmonious integration

of those States. The Feira European Council in June 2000 emphasised the vital

importance of the candidate countries’ capacity to effectively implement and enforce

the

acquis,

and added that this required important efforts by the candidates in

strengthening their administrative and judicial structures. The Feira European

Council invited the Commission to report to the Council on its findings on the matter.

This report takes into consideration progress since the 1999 regular report. It covers the

period until 30 September 2000. In some particular cases, however, measures taken after

that date are mentioned. It looks at whether intended reforms referred to in the 1999

regular report have been carried out, and examines new initiatives. Furthermore,

complementing the assessment of new developments since the last regular report, this

report provides also an overall assessment of the global situation for each of the aspects

under consideration, setting out for each of them the main steps which remain to be taken

by Turkey in preparing for accession.

In accordance with this approach, the assessment of progress in meeting the political and

acquis

criteria (including Turkey’s administrative capacity to implement the

acquis)

focuses on what has been accomplished since the last regular report, complemented with

a view of the global situation for each of the aspects discussed. The economic

assessment, for its part, is based on a forward-looking evaluation of Turkey’s economic

performance.

As has been the case in previous reports, “progress” has been measured on the basis of

decisions actually taken, legislation actually adopted, international conventions actually

ratified (with due attention being given to implementation), and measures actually

implemented. As a matter of principle, legislation or measures which are in various

stages of either preparation or Parliamentary approval have not been taken into account.

This approach ensures equal treatment for all the candidate countries and permits an

objective assessment and comparison between countries in terms of their concrete

progress in preparing for accession.

The report draws on numerous sources of information. The candidate countries have been

invited to provide information on progress made in preparations for membership since the

publication of the last regular report. The information they have provided in the

framework of the Association Agreement and in the context of the preparation of the

analytical examination of the

acquis

have served as additional sources. Council

deliberations and European Parliament reports and resolutions

have been taken into

account in the preparations. The Commission has also drawn on assessments made by

various international organisations, and in particular the contributions of the Council of

Europe, the OSCE and the International Financial Institutions, as well as that of non-

governmental organisations. However, it has become clear that in a number of areas of

the Community

acquis

information has to be broadened and deepened in order to

complete the assessments made. It is mainly through the work of the recently created sub-

committees that this additional information is to be obtained. This would allow a more

complete Regular report in 2001.

For the European Parliament the main

rapporteur

on Turkey is General Morillon.

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b) Relations between the European Union and Turkey

The European Council in Helsinki (10-11 December 1999) welcomed “recent positive

developments in Turkey as noted in the Commission’s progress report, as well as its

intention to continue its reform towards complying with the Copenhagen criteria. Turkey

is a candidate State destined to join the Union on the basis of the same criteria as applied

to the other candidate States.”

The decisions taken at Helsinki were an important watershed in EU-Turkey relations.

Building on the existing European strategy, Turkey, like other candidate countries is now

benefiting from a pre-accession strategy to stimulate and support its reforms.

However, compliance with the Copenhagen political criteria is a prerequisite for the

opening of accession negotiations. So far, Turkey has not fulfilled these political criteria.

Recent developments under the Association Agreement (including bilateral

trade)

Turkey has continued to implement the Association Agreement and the Customs Union

Agreement and contributed to the smooth functioning of the various joint institutions.

The Association Council met in April 2000 for the first time in three years and was

chaired by Turkey. It adopted two important political decisions, one on the establishment

of eight sub-committees of the Association Committee and the other on the opening of

negotiations for an agreement aiming at the liberalisation of services and the mutual

opening of procurement markets between the EC and Turkey. A first round of

negotiations was held.

A meeting of the Customs Union Joint Committee took place in February in Brussels to

discuss bilateral trade issues. The Customs co-operation committee met several times to

exchange views on the functioning of the 1995 EC – Turkey Customs Union.

The EC-Turkey Joint Parliamentary Committee met in June and adopted a joint

resolution for the first time. A further meeting is foreseen in November in Turkey. The

EC-Turkey Joint Consultative Committee on economic and social affairs took place

in July in Izmir to discuss the latest developments in EC-Turkey relations and

liberalisation of services and public procurement.

The EC-Turkey Customs Union continues to provide an essential element of bilateral

trade relations. The Customs Union entered into its final phase on 31 December 1995

following Decision 1/95 of the EC-Turkey Association Council. Decision 1/95 covers

manufactured products, but discussions have started in order to extend its scope to

services and procurement.

Trade volumes between the EC and Turkey have continuously increased, with the

exception of the contraction of 1999. Turkey has a constant current account deficit with

the EC. 90% of Turkish imports consist of investment goods, semi-finished products or

raw materials. The main categories of imports from the EC are appliances and machinery,

transport equipment and chemicals. Turkey’s main exports to the EC are finished goods:

textiles, agricultural products and foodstuffs.

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Since the establishment of the Customs Union, the importance of the two parties in each

other’s trade has been continuously increasing. In 2000, the EC has provided 52.9 % of

Turkish imports and has absorbed 53.1 % of Turkish exports.

The recession of 1999 caused a sharp contraction in imports, but this year's healthy

recovery is driving the figures for imports from the EC upwards (+28% in value, for the

last 5 months, year on year). The rise in exports is limited (+0.3 in value, for 5 month,

year on year). This means that after the reduction in trade which occurred in 1999, 2000

has seen a renewed increase in the Turkish current account deficit with the EC which

might bring it to around

€

9 billions by the end of the year (6% of GDP). Tourist revenues

rose by about 5% in the first half of 2000, after a poor result in 1999.

In general, manufactured goods circulate freely within the Customs Union territory

although certain non-tariff barriers exist on the Turkish side. Some long-standing trade

disputes are not being solved. In particular the access for alcoholic beverages is restricted

and lengthy and burdensome testing is carried out on certain products (e.g. ceramics and

tiles).

The trade in agricultural products is inter alia still hampered by the Turkish ban on

imports of live bovines and beef from the Community. This constitutes a violation of the

relevant decision under the Association Agreement. It nullifies the concessions on those

products granted by Turkey to the EC, in exchange of the important concessions granted

by the EC on Turkish agricultural products. The issue of the application of rules of origin

for Turkish tuna products is also still outstanding.

Community aid

As requested by the European Councils of Helsinki and Feira, a single framework for co-

ordinating all sources of EC pre-accession financial assistance for Turkey was adopted by

the Commission in July 2000 and sent to the Council and the European Parliament. This

regulation also provides the legal basis for the Accession Partnership for Turkey. Further

steps imply that all funds available for Turkey should be put into one single budget. The

Commission has made just such a proposal in the framework of the 2001 draft budget to

support pre-accession assistance for Turkey.

As part of the pre-accession strategy, there will also be a doubling of the yearly financial

(grant) assistance to Turkey. During the period 1996-1999, Turkey received

€

376

million, which equals an annual average over

€

90 million. From 2000 onwards the yearly

allocation to Turkey has been set at 15% of the MEDA bilateral envelope, in addition to

the

€

50 million annual average allocation foreseen in the framework of the two

‘European strategy/ pre-accession strategy ‘ regulations. The first regulation adopted in

April 2000 foresees

€

5 million per year for 3 years; the second regulation is at present in

the process of being adopted. It will provide

€

45 million per year for 3 years. Overall the

annual allocation to Turkey in 2000 will therefore amount to

€

177 million.

All these funds will be pre-accession oriented:

- 50 % of the appropriations will be allocated for structural and sector reforms aiming in

particular to harmonise Turkish legislation and practices with the EC

acquis.

Reforms

will be supported through structural adjustment facilities; the objective is to help Turkey

undertake major structural reforms in line with the Community

acquis

The programme

will be established in close co-ordination with the IMF and the World Bank.

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- 50 % of the appropriations will finance other measures promoting Turkey's integration

into the EU: to help the Turkish administration and institutions to develop the capacity to

implement the Community

acquis

(through institution building); to assist Turkey in

mobilising investments needed to align its industry and infrastructure with Community

standards (through investment support and regional/rural development) and to support the

participation of Turkey in Community programmes and agencies.

The EIB pre-accession facility and the EIB EuroMed II facility are also available to

Turkey as well as is Earthquake Reconstruction and Rehabilitation facility (TERRA) (€

600 million).

As part of the pre-accession strategy, preparations are being made to allow for the

participation of Turkey in Community programmes and agencies on the same footing as

the other candidate countries.

Following the opening of negotiations regarding Turkey’s participation in the European

Environment Agency, an agreement has been reached. Following ratification and entry

into force of this agreement, scheduled for early 2001, Turkey will become a member of

the Agency.

Twinning

Turkey has been informed that pre-accession advisors can be made available under the

Twinning Programme.

Preparation of a process of analytical examination of the acquis

The Helsinki European Council invited the Commission “to prepare a process of

analytical examination of the

acquis.”

To this end, eight sub-committees were established

through a Decision of the EC-Turkey Association Council of 11 April. These sub-

committees fulfil a two-fold task: to prepare a process of analytical examination of the

acquis

with a view to intensifying the harmonisation of Turkey’s legislation and practice

with the Community’s rules and regulations and to monitor the implementation of the

Accession Partnership priorities.

Three sub-committee meetings were recently held (agriculture/fisheries, transport/energy

and environment as well as internal market). These meetings revealed that Turkey had

made an internal inventory of the state of harmonisation of its legislation with the

Community

acquis.

This work was also carried out against the background of the various

obligations under the Customs Union Agreement to harmonise legislation in order to

remove technical barriers to trade before 2001. This inventory will be further expanded

and updated using different tools made available to Turkey by the TAIEX office. The

results will allow both the Commission and Turkey to get a fuller and more precise

picture of the state of harmonisation. The aim is for all other sub-committees to meet

before the end of the year.

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B. Criteria for membership

1. Political criteria

Introduction

The political criteria for accession to be met by the candidate countries, as laid down by

the Copenhagen European Council in June 1993, stipulate that these countries must have

achieved “stability of institutions guaranteeing democracy, the rule of law, human rights

and respect for and protection of minorities.”

In its 1999 regular report on Turkey’s progress towards accession, the Commission

concluded that:

“Recent developments confirm that, although the basic features of a democratic system

exist in Turkey, it still does not meet the Copenhagen political criteria. There are serious

shortcomings in terms of human rights and protection of minorities. Torture is not

systematic but is still widespread and freedom of expression is regularly restricted by the

authorities. The National Security Council continues to play a major role in political life.

Although there have been some improvements in terms of the independence of the

judiciary the emergency courts system remains in place. In recent months there have been

some more encouraging signs of democratisation. The government and Parliament have

worked to adopt some key laws regulating political life, the justice system and protection

of human rights. It is too early to assess the impact of these measures but these efforts

should be pursued and extended to all citizens, including those of Kurdish origin. The

Commission hopes that the positive impact of these measures will not be undone by the

carrying out of the death sentence passed on Mr Abdullah Öcalan.”

The section below aims to provide an assessment of developments in Turkey since the

1999 regular report, as well as of the overall situation in the country, seen from the

perspective of the political Copenhagen criteria, including as regards the overall

functioning of the country’s executive and its judicial system. Developments in this

context are in many ways closely linked to developments regarding Turkey’s ability to

implement the

acquis,

in particular in the domain of justice and home affairs. Specific

information on the development of Turkey’s ability to implement the

acquis

in the field

of justice and home affairs can be found in the relevant section (Chapter

24 – Co-

operation in the field of justice and home affairs)

of part

B.3.1.

of this report.

Recent developments

The current coalition has now completed more than a year of government. Its support in

the Turkish Grand National Assembly (TGNA) is still strong (nearly 2/3 of the 550

seats). Internal tensions in the coalition have so far been successfully mastered. All

political parties in the TGNA agreed to support a common candidate for the presidential

elections: Ahmet Necdet Sezer, former President of the Constitutional Court. The

elections were carried out in compliance with constitutional rules, and Mr Sezer was

elected President of the Republic on 5 May at the third round (330 votes out of 533). Mr

Sezer’s election was well received by the Turkish public, and welcomed as a signal of

strengthening the democratisation process.

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Since the last Regular Report, two State Ministers have been replaced, including the State

Minister in charge of human rights. In July a new post of Deputy Prime Minister and

State Minister in charge of EU affairs was created. The Deputy Prime Minister in

question is also in charge of the General Secretariat for EU Affairs, created in June by the

Parliament.

Procedures launched by the Chief Public Prosecutor for the dissolution of the pro-

Kurdish HADEP Party and the Islamist Fazilet Party (FP) are still in progress. The

dissolution of the FP, suspected by the Chief Public Prosecutor of “anti-secular”

activities, may trigger new parliamentary elections.

A major development in Turkish political life has been the start, soon after the Helsinki

European Council, of a wide debate in the Turkish society on the conditions of Turkey’s

accession to the EU. This debate is focusing on the political reforms to be carried out in

order to improve the human rights record as well as on the need to respect the founding

principles of the Republic of Turkey such as territorial integrity and secularism. This

debate is nurtured by a number of initiatives:

– the publication by the TGNA Human Rights Committee of nine reports on torture in

Turkey based on inspections of police stations and prisons in 1998/2000 and supported

by detailed interviews with prisoners, their families and officials;

– the work of the Supreme Board of Co-ordination for Human Rights in which all

Ministries and State organs concerned are represented. On the basis of a report

prepared in the context of the new 5-year development plan (the so-called “Demirok

report”), in July 2000 the Board issued a document on the political reforms to be

carried out in order to comply with the political Copenhagen criteria. This work was

reviewed by the Government. On 21

September, the Government made a press

statement in which it declared that “the papers prepared on human rights, democracy

and the rule of law [by the above mentioned Board] were evaluated and subsequently

adopted as reference and working documents”. The same statement indicated that the

government had set a number of priority objectives such as the adoption of new

legislation on “working rights”, freedom of association and “demonstration marches”,

the development of freedom of thought and expression, the improvement of the

functioning of the judicial system, the establishment of a Human Rights Department

under the Prime Minister

, the elimination of regional disparities in East and Southeast

Anatolia, and the training of staff on matters related to EC legislation. It also indicated

that draft laws aimed at harmonisation with EC rules and legal reforms should have

priority for debate in the Turkish Parliament. Finally the Council of Ministers decided

to continuously follow developments in the areas of human rights, democracy and the

rule of law, and to evaluate periodically the efforts made in adapting to EU standards;

– the signature in August 2000 of two major international instruments in the field of

human rights: the International Covenant on Civil and Political Rights, and the

International Covenant on Economic, Social and Cultural Rights.

The European Commission welcomes these various initiatives, which will bring forward

Turkey’s accession to the EU. It encourages Turkey to make concrete progress as soon as

possible e.g. through the adoption of various proposals by the Turkish Parliament.

This Department has been established on 5 October 2000.

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1.1.

Democracy and the rule of law

The 1982 Constitution is still in force. There is, however, general consensus among

political circles that the Constitution should be revised in accordance with contemporary

democratic standards, for example with regard to freedom of expression. An “Inter-Party-

Conciliation Committee” and a Constitution Committee in the TGNA are currently

working out constitutional amendments.

The parliament

There has been no change in the structure of the Parliament and its powers continue to be

respected. The opposition plays a full part in its activities.

In the run-up to the presidential elections, which took place in April/ May 2000, the

Parliament has been largely diverted from legislative work. As a result, during the first

half of 2000, only limited parliamentary work could be recorded on the much-expected

political reforms.

The executive

An important change in the structure of the executive is the strengthening of internal co-

ordination on EU matters with a view to accession. Early this year, an EU Internal

Economic and Technical Co-ordination Council composed of the Foreign Minister, the

State Minister in charge of foreign trade and the State Minister in charge of privatisation

was established to ensure full co-ordination between relevant Ministries on technical and

economic subjects. This task has now been delegated to Deputy PM Yilmaz. An

executive organ, the General Secretariat for EU Affairs, was created by the Parliament in

June 2000 to ensure the effective co-ordination of all governmental affairs related to EU-

Turkey relations. The Secretariat will have approximately 70 staff.

There are no further reforms of the public administration to report. However, a limited

reinforcement of the staff of the EC Co-ordination Department in the Ministry of Justice

has taken place.

Civilian control over the military still needs to be improved (see also section below on

the National Security Council). Contrary to EU, NATO and OSCE standards, instead of

being answerable to the Defence Minister, the Chief of General Staff is still accountable

to the Prime Minister. It is also noted that the Council of Higher Education, which

controls the activities of the institutions of higher education, as well as the Higher

Education Supervisory Board, include one member selected by the Chief of General

Staff.

There has been no particular change at the level of regional and local administration.

Control by the central administration over local government remains strong. The draft

law on local government, which is aiming at further decentralisation and is currently

under discussion among Ministries, remains to be adopted.

The judicial system

A positive development over the past year has been the increase of the number of judges

and prosecutors, from a total of 8,300 last year to a total of 9,947 (including candidates).

Following a new wave of recruitment in March 2000, this number should be further

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raised to 10,347. The Ministry of Justice considers that such an increase fits current needs

for extra staff.

At the same time however, no other specific measures aimed at increasing the efficiency

of the judicial system can be reported. The judicial system still faces difficulty in dealing

with a large caseload (currently more than 1 million criminal cases are pending). The

duration of judicial procedures remains very long (e.g. 655 days on average in juvenile

courts trying cases involving crimes committed by children under the age of fifteen).

An encouraging development in terms of new legislation has been the adoption of the law

on the prosecution of civil servants and other State officials, which was already being

awaited at the time of the previous regular report. This new law, which was adopted in

December 1999, aims in particular at facilitating the criminal prosecution of security

forces officials. According to this law, the initiation of prosecutions is no longer subject

to a preliminary agreement by the local administrative councils, which is a step forward.

However, the preliminary agreement of prefects and sub-prefects remains a requirement.

Further improvements are still needed in this regard. As to the draft Penal Code and the

draft law amending the Code of Criminal Procedure, which had also been referred to in

last year's regular report, these important laws remain to be adopted. It should be noted

that the Ministry of Justice has carried out intensive internal work over the last months

with a view to ensuring the compliance of draft legislation with the Copenhagen political

criteria, covering such issues as the creation of a judicial police, and the setting up of an

Ombudsman's office.

The question of the State Security Courts still needs to be further addressed. No further

changes have taken place since the removal of military judges from these Courts in June

1999. The functioning, powers and responsibilities, as well as other provisions relating

to the proceedings of these Courts need to be brought further in line with standards

existing in the EU.

There is also a need to incorporate into Turkish legislation measures designed to make

reparation for the consequences of convictions that have been found contrary to the

European Convention of Human Rights by the European Court of Human Rights. Such

measures would in particular need to ensure the restoration of civil and political rights

where those rights have been restricted as a result of the conviction, the reopening of

proceedings, and the clearing of criminal records.

There has been no progress in modernising the legal provisions and sanctions applicable

to young offenders.

As far as the training of judges and prosecutors is concerned, several programmes and

activities have been launched since 1999, covering such issues as the effectiveness of the

judiciary, alternative measures for imprisonment, human rights issues, and EC Law in

general. For example, on EC Law, a 2-day training programme for 150 people took place

in October 2000, within the framework of Greece-Turkey co-operation. Further efforts

are required to enhance training for judges, prosecutors and other personnel, especially in

the field of human rights, where close co-operation with the Council of Europe would be

useful. It is notably crucial to train prosecutors and judges on how to deal with cases in

which suspects allege torture.

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Anti-corruption measures

Since the beginning of the year, the question of corruption has been high on the political

agenda, with parliamentary investigations taking place into alleged corruption cases

involving two party leaders. Corruption continues to be widespread and remains a matter

of serious concern.

The OECD Convention on Combating Bribery of Foreign Public Officials in

International Business Transactions was ratified by law and entered into force in February

2000. However, Turkey has not yet signed any of the Council of Europe Conventions in

this domain, i.e. the Criminal Law Convention on Corruption, the Civil Law Convention

on Corruption, and the Convention on Laundering, Search, Seizure and Confiscation of

the Proceeds from Crime.

In May 2000, the Ministry of the Interior ordered a review of corruption in the Turkish

administration.

The National Security Council

There has been no change in the role played by the National Security Council in Turkish

political life. Its conclusions, statements or recommendations continue to strongly

influence the political process, as witnessed in the recent debate over the dismissing of

civil servants suspected of links with radical Islamic and separatist movements. In

addition, it appears that at present the views of the National Security Council in practice

seriously limit the role played by the government. Moreover there seems to be too little

accountability to the Parliament with regard to defence and security matters. It is noted

that the possibility of increasing the number of the civilian members of the National

Security Council is currently under debate within political and military circles.

1.2.

Human rights and the protection of minorities

In August 2000, Turkey signed two major international instruments in the field of human

rights: the International Covenant on Civil and Political Rights, and the International

Covenant on Economic, Social and Cultural Rights. The process of ratification by the

TGNA, which is to start soon, will show whether any reservations are made to any

specific provisions contained in either of these covenants. There are however still other

major human rights instruments to which Turkey has not yet acceded, including Protocol

6 to the European Convention on Human Rights on the abolition of the death penalty and

the Convention on the Elimination of All Forms of Racial Discrimination. Turkey has

also not signed the Council of Europe Framework Convention for the Protection of

National Minorities and the Statute of the International Criminal Court.

Since the last Regular Report, the European Court of Human Rights has adopted a

number of judgements on individual cases involving Turkey.

The overall human rights situation in Turkey is still under the monitoring procedure

opened in 1996 by the Council of Europe. In this connection, a visit by the Council of

Europe's “Committee on the Honouring of obligations and commitments by Member

States” took place in March 2000. The report of this visit has not yet been published.

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Civil and political rights

The problems in this area identified in last year’s regular report remain largely

unchanged, and only limited progress can be reported.

The death penalty has still not been abolished, but the

de facto

moratorium on carrying it

out has been maintained, including in the case of Abdullah Öcalan. The European Court

of Human Rights asked Turkey in November 1999 to defer the execution of Mr Öcalan in

order to enable the Court to proceed effectively with the examination of the admissibility

and merits of the applicant’s complaints under the Convention. In January 2000, the

Turkish government agreed to the temporary suspension of the execution until the end of

this process in the European Court of Human Rights. Discussions are still ongoing on the

timing of tabling a law, which would abolish the death penalty.

The situation with regard to torture and ill treatment in Turkey remains largely

unchanged.

Turkish and international human rights organisations continue to report torture cases,

most of which concern persons in detention suspected of “acts of terrorism or

separatism”

. Moreover, in the limited number of cases that led to criminal convictions

for torture and ill treatment, sentences have been very light. This situation contributes to

maintaining a climate of impunity for law-enforcement officials.

Since May 2000, the TGNA Human Rights Committee has published nine reports on

torture in Turkey, based on inspections of police stations and prisons in 1998-2000 and

supported by detailed interviews with prisoners, their families and officials. Although

they note improvements over the period, notably in the attitude of police and prison

personnel, these reports strongly criticise the lack of supervision and inspection of the

system by governors and chief prosecutors. It is hoped that the debate that has been

launched in a bold manner by the TGNA Committee, together with the promises made by

the government in September 2000, will be followed by concrete action, notably

concerning the establishment of effective inspection mechanisms.

In the framework of the fight against torture and ill treatment, there is still an urgent need

to bring legal procedures concerning pre-trial detention into line with the provisions of

the European Convention on Human Rights and the relevant case law of the European

Court. In particular, there should be an automatic judicial review (including the physical

presentation of the detainee to the judge) of the legality of all detention in police custody

at the very latest on the 4

day of detention, in line with the requirements under the

European Convention of Human Rights. It is equally important that regular medical

examination of the detainees by forensic doctors be ensured during the pre-trial detention

period, in line with the recommendations of the Committee for the Prevention of Torture

(CPT) of the Council of Europe. Finally, it should also be mentioned that a protocol

signed in January 2000 between the Ministry of Justice, the Ministry of the Interior and

the Ministry of Health is reported to put unnecessary obstacles in the way of visits to

detainees by their lawyers.

Such as the case of a medical doctor working with the Human Rights Foundation's “Treatment and

Rehabilitation Centre” in Izmir, who was tortured in October 1999 during a detention period.

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Human rights education has been incorporated in the curricula of police academies since

the beginning of the 1999-2000 academic year. This is a positive development. In

general, training on human rights issues for law-enforcement officers is of the utmost

importance, and should be reinforced, notably in co-operation with international

organisations such as the Council of Europe, or EU member states.

Prison conditions (e.g. insufficient or delayed medical care for prisoners) remain a major

cause for concern. Violent clashes between detainees and guards or security forces,

mutinies, and the taking of hostages still occur.

Ill-treatment of detainees notably during

transfer between prisons is also reported. The number of prisoners in Turkey has reached

the record figure of 72,500, leading to serious overcrowding. Under these conditions, the

coalition government is currently debating amnesty measures. The conditions in

institutions for juvenile delinquents also deserve the highest priority.

It is noted that the authorities are currently in the process of restructuring the whole

prison system. 11 prisons of a new-type (so-called F-type) should be built by the end of

2000. In these prisons, small cells for 1 to 3 prisoners will replace the current big

dormitories. They should receive prisoners who have been charged with membership of

terrorist and interest-based criminal organisations. The other prisons should be converted

to a room system with cells for 2, 4 or 6 prisoners, also by the end of 2000. While the

authorities have indicated that the new-type prisons will respect the basic international

requirements (i.e European Prison Rules of the Council of Europe and UN minimum

prison standards) notably regarding physical characteristics, human rights associations

including those representing prisoners and their families fear that the new system will

isolate prisoners, with no opportunity to socialise. Some prisoners have declared that they

will resist being moved to the new prisons. Under these conditions, the authorities, while

embarking on this restructuring, should take measures to avoid violence in prisons for

example by ensuring greater transparency on management regimes and clarification of the

rights of prisoners. They should continue to co-operate on this matter with the Committee

for the Prevention of Torture (CPT), which paid a visit to Turkish prisons in July 2000.

Particular attention should be attached, as recommended by the CPT, to measures

ensuring that prisoners spend a reasonable part of the day engaged in purposeful activities

outside their living unit.

There is still a serious problem with regard to the freedom of expression, including that in

the political sphere. Existing legislation, as confirmed by many judgements of the

European Court of Human Rights, still leads to interpretations that violate the freedom of

expression as guaranteed by the European Convention of Human Rights. Turkish courts

continue to restrict the expression of views with which the State disagrees, notably when

it concerns the situation of the population of Kurdish origin. An overall reform of both

legislation and practice in this field is urgently needed to avoid further violations. In the

meantime, judges and prosecutors should strictly respect the case law of the European

Court of Human Rights,

which notably establishes that criminal liability should be

confined to statements inciting to violence.

Mutinies took place in several prisons in July this year. On the case of the riot in Ankara Ulucanlar

Prison in September 1999, which ended in the death of ten prisoners, the TGNA Human Rights

Committee is continuing its investigation work. The Head of the Committee has however already

declared in June that the prisoners had been tortured and killed intentionally.

See recent court cases such as Sener v. Turkey (18.7.2000) and Ozgür Gündem v. Turkey (16.3.2000).

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As far as the media are concerned, the High Board of Radio and Television (RTÜK)

created in 1994 to regulate private television and radio frequencies has continued to

suspend the broadcasting of a number of radio stations. According to official sources,

there are presently 40 journalists in prison.

On 20 September 2000, the Constitutional Court repealed the law adopted in September

1999 on the “postponing of prosecutions and punishment for offences committed through

the press and broadcasting”. This law, which resulted soon after its adoption in the

release of 27 journalists, was referred to in last year’s regular report as an encouraging

measure. The Constitutional Court’s decision has been taken on the grounds that the law

in question was too limited in scope and was therefore contrary to the principle of

equality before law. The government is now asked by the Court to propose a revised law.

The EU has expressed major concern over the fact that Mr Birdal, former Chairman of

the Human Rights Association, was brought back to prison in March 2000 in order to

serve the rest of his sentence, under the terms of Article 312 of the Turkish Criminal

Code. The EU notably declared that “the renewed detention of Mr Birdal constitutes a

serious setback for the freedom of expression in Turkey and it is not in accordance with

the spirit of the Helsinki conclusions”. Mr Birdal was released on 23 September 2000,

after having completed his prison sentence. Concern was also expressed when former

Prime Minister Erbakan was sentenced in March 2000 to a one-year imprisonment, under

the same Article 312, for “inciting religious and ethnic hatred” in a speech he made in

1994.

Freedom of association and assembly (public meetings and demonstrations) is still not

fully respected. NGOs’ activities such as conferences or distribution of leaflets require

official permission. NGOs are prohibited from establishing umbrella institutions and

from arranging institutional collaboration with other NGOs on an international scale

(unless permitted by decree of the Council of Ministers). NGOs and branches of NGOs

which are active in the field of human rights continue to be subject to pressures and/or to

be closed down, in particular in regions under emergency rule. In 2000 the Diyarbakir

Branch of the Human Rights Association was closed and opened several times by

administrative decision of the Governor without explanation. Celebrations of the 21

March Kurdish New Year, while authorised in several cities in the Southeast, were

prohibited in Istanbul. It is clear that major efforts are still required to guarantee freedom

of association and assembly. It should also be noted that in December 1999, the European

Court on Human Rights found Turkey to be in violation of Article 11 (freedom of

assembly and association) of the European Convention of Human Rights in the case of

the dissolution by the Constitutional Court in 1993 of the OZDEP party (OZDEP v.

Turkey 8.12.99).

As far as freedom of religion is concerned, there have been a few signs of increased

tolerance towards certain non-Muslim religious communities, notably the Greek

Orthodox, Armenian, Catholic and Syrian Orthodox Churches, as well as the Jewish

Community. In December 1999, the authorities issued a circular according to which

The High Court confirmed this sentence in July 2000. The European Court on Human Rights, while

having rejected Mr Erbakan’s request for immediate suspension of the sentence, is still examining the

merits of Mr Erbakan's case.

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religious communities would not have to seek permission from the state in order to

restore buildings of charitable institutions and those consecrated for worship. In general,

this positive approach should be further developed, and concrete claims of non-Muslims,

whether or not they are covered by the 1923 Lausanne Treaty, should be duly examined,

including the issue of the continued closure of the seminar of Khalki.

The official approach towards the Alevis seems to remain unchanged. Alevi complaints

notably concern compulsory religious instruction in schools and school books, which

would not reflect the Alevi identity, as well as the fact that financial support is only

available for the building of Sunni mosques and religious foundations. These issues are

highly sensitive; however, it should be possible to have an open debate on them.

Economic, social and cultural rights

As regards cultural rights, a positive development has taken place with the judgement

passed by the Supreme Court of Appeals on 31 March 2000, confirming the freedom of

individuals under the Civil Code to give their children any names of their choosing

(including Kurdish ones). In practice, some names are sometimes not accepted by the

population registrar's personnel. The decision of the Supreme Court should pave the way

for a change in the legislation.

As far as the use of languages other than Turkish is concerned, no particular problems

have been reported for citizens belonging to minorities covered by the 1923 Lausanne

Treaty (Jews, Armenians, Greeks). However for those belonging to groups that are

outside the scope of the Lausanne Treaty the situation has not improved, notably

concerning TV/radio-broadcasting and education. Law N°3984 stipulates that radio and

television broadcasts will be in Turkish (with an exception for languages that will

contribute to the development of universal culture and science). In practice, some

broadcasting in Kurdish is sometimes tolerated.

In the field of education (basic and

extended education), no language other than Turkish is allowed for teaching purposes,

except where explicitly authorised by the Ministry of National Education. Neither

legislation nor practice should prevent the enjoyment of cultural rights for all Turks

irrespective of their ethnic origin. This is of particular importance for the improvement of

the situation in the Southeast, where the population is predominantly of Kurdish origin

(see below).

As regards

equal opportunities,

gender disparity is still high. The illiteracy rate is roughly

25 % for women and 6 % for men, due to low school enrolment rates for girls,

particularly in eastern Turkey. There is still a need for further action to improve the

educational position of women. In terms of equality of treatment, conformity with the EC

acquis

is not yet ensured (see

Chapter 13 - Social policy and employment

in Part B.3.1).

As far as the Civil Code is concerned, certain legal discrimination between men and

women (notably concerning the family and working life of women) persist. The current

regime foresees for example that the husband is the head of the family and alone

In the public debate that is taking place on the issue, it has been recalled that Article 39 of the 1923

Lausanne Treaty actually forbids “restrictions on the free use by any Turkish national of any language

in private intercourse, in commerce, religion, in the press, or in publications of any kind or at public

meetings“.

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represents the union produced by marriage . The husband, as head of the family, is then

the one that holds the right to legal custody of minors. Amendments to the Civil Code

have been prepared with contributions from Women’s NGOs and are under discussion in

the Parliament. The question of violence against women within the family, including so-

called “honour killings”, is still an issue of serious concern.

As far as the role of

trade unions

and the right to strike are concerned, difficulties

continue to exist

(see Chapter 13 - Social policy and employment

in Part B.3.1).

Concerning

children’s rights

and child labour, although laws and regulations are in

conformity with the Convention on the Rights of the Child (CRC), their enforcement

leaves much to be desired.

Minority rights and the protection of minorities

Turkey has not yet signed the Council of Europe Framework Convention for the

Protection of National Minorities and does not recognise minorities other than those

defined by the Lausanne Treaty.

Regardless of whether or not Turkey is willing to consider any ethnical groups with a

cultural identity and common traditions as “national minorities”, members of such groups

are clearly still largely denied certain basic rights. Cultural rights for all Turks,

irrespective of their ethnic origin, such as the right to broadcast in their mother tongue, to

learn their mother tongue or to receive instruction in their mother tongue, are not

guaranteed (see the above section on economic, social and cultural rights). In addition,

these citizens are not given opportunities to express their views on such issues.

In the case of Turkish citizens of Kurdish origin, it should be mentioned that the

expression of pro-Kurdish views is still vigorously fought by the Turkish State. In

February, three mayors from the Southeast belonging to the pro-Kurdish HADEP Party

were accused of being linked to the PKK and imprisoned. During the same month, 18

executives from HADEP were sentenced to 3 years and 9 months of imprisonment each

for initiating hunger strikes following Mr Öcalan's capture. Since the last Regular Report,

several newspapers and magazines have been forbidden and certain pro-Kurdish

associations have been closed in the region under emergency rule.

This question of cultural rights is of particular importance for the improvement of the

situation in the Southeast, especially as the security situation there has largely improved

and as Turkey is embarking on a socio-economic development programme in the region.

Since the last Regular Report, large scale armed violence in the Southeast seems to have

stopped. Various sources, including the media, report that clashes between PKK armed

militants and security forces have decreased to a low level. According to the estimates of

the Press Office of the Chief of Staff, PKK activities continued to decrease in 1999 at a

rate of 26 %, compared to 42 % in 1998. At the moment, it is difficult to assess whether

this situation is the result of the declared cease-fire of the PKK or is due to other reasons.

The state of emergency has been lifted in two provinces, Siirt (in November 1999) and

Van (in June 2000), but remains in force in four provinces, along with the village guard

system.

On the socio-economic side, the Turkish authorities have begun to step up efforts in order

to improve the level of development of the region. Further substantial efforts are required

for example with respect to education, health and water supplies. The authorities have

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also shown the will to allow a partial return of the population in villages and hamlets

evacuated in the past for security reasons.

1.3.

The Cyprus issue

Further to UN Security Council Resolution 1250 of 29 June 1999 which invited the

Greek and Turkish Cypriot leaders to engage in direct negotiations, the first round of

“proximity talks” started in New York on 3 December 1999. This round was held with

the aim of preparing the ground for future substantial direct negotiations on the Cyprus

problem.

At its meeting on 10 and 11 December 1999 in Helsinki, the European Council welcomed

the launch of the talks aiming at a comprehensive settlement of the Cyprus problem on 3

December in New York and expressed its strong support for the UN Secretary-General’s

efforts to bring the process to a successful conclusion.Second and third rounds of

proximity talks took place in Geneva in February and July 2000, without significant

discussion of issues of substance. A fourth round of proximity talks was held in New

York in September. Mr. de Soto, the UN Secretary-General’s Special Adviser for Cyprus,

reported that in this round the two sides had engaged in substantial discussion, which he

regarded as a “qualitative step forward”. He had put on the table ideas on the four core

issues: territory, property, security and constitution, but he stressed that they were not

formal proposals at this stage. The next round of talks is scheduled for early November in

Geneva. Turkey, as a guarantor country, should continue to deploy every effort to reach a

comprehensive solution to the Cyprus issue under the auspices of the United Nations.

In June tensions arose around the renewal of the mandate of UNFICYP. The Turkish

Cypriot leadership imposed more restrictive conditions on the presence of UNFICYP in

the north. Moreover, Turkish troops have made a small advance at one point in the buffer

zone where a village with four Greek Cypriot families is located. This has given rise to a

series of protests, including protests from the UN Secretary-General.

As regards the ruling of the European Court of Human Rights that Turkey had committed

a continuing violation of the rights of a Greek Cypriot, Ms. Loizidou, by preventing her

from going to her property in the north, the Committee of Ministers/Deputies of the

Council of Europe adopted a second Interim Resolution in this case in July 2000. In the

Resolution, the Committee of Ministers emphasised that “the failure on the part of a High

Contracting Party to comply with the judgement of the Court is unprecedented”, declared

that “the refusal of Turkey to execute the judgement of the Court demonstrates a manifest

disregard for its international obligations” and strongly insisted that “Turkey comply fully

and without any further delay with the European Court of Human Rights’ judgement of

28 July 1998.”

There are estimated to be around 150-200 similar cases brought by Cypriots against

Turkey now pending before the Court of Human Rights.

1.4.

General evaluation

A positive development since the last regular report is the launching in Turkish society of

a wide-ranging debate on the political reforms necessary with a view to accession to the

EU. Two important initiatives have been taken in this context: the signing of several

international human rights instruments and the recent endorsement by the government of

the work of the Supreme Board of Co-ordination for Human Rights. However, compared

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to last year, the situation on the ground has hardly improved and Turkey still does not

meet the political Copenhagen criteria.

The basic features of a democratic system continue to exist but Turkey is slow in

implementing the institutional reforms needed to guarantee democracy and the rule of

law. Changes in the executive have taken place with respect to EU-Turkey relations but a

number of basic institutional issues, such as civilian control over the military, remain to

be addressed. With regard to the judiciary, the new procedure facilitating the prosecution

of civil servants is an encouraging development. The important draft laws related to the

functioning of the judiciary referred to in last year’s regular report are still pending. No

further improvement has taken place concerning the State Security Courts since the last

reform of these Courts in June 1999. Corruption remains a matter of concern.

The death penalty is not being carried out, including in the case of Abdullah Öcalan, but

many aspects of the overall human rights situation remain worrying. Torture and ill

treatment are far from being eradicated, even though the matter is taken seriously by the

authorities and the parliament and training programmes on human rights are being

implemented. Prison conditions have not improved, although Turkey is embarking on a

substantial reform of its prison system. Freedom of expression as well as freedom of

association and assembly are still regularly restricted. A positive approach seems to be

adopted towards non-Muslim communities with regard to freedom of religion, but this

should be developed for all religious communities, including non-Sunni Muslims.

Compared to last year, the economic, social and cultural rights situation has not

improved, particularly when it comes to the enjoyment of cultural rights for all Turks

irrespective of ethnic origin. The situation in the Southeast, where the population is

predominantly Kurdish, has not substantially changed.

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2. Economic criteria

2.1.

Introduction

In its 1989 Opinion on

Turkey’s

application for EC membership, the Commission

concluded:

“Turkey’s economic and political situation, … , does not convince it that the adjustment

problems which would confront Turkey if it were to accede to the Community could be

overcome in the medium term”.

This finding was confirmed in the 1998 and 1999 Regular Reports. In its 1999 Regular

Report, the Commission found that:

“Turkey has many of the characteristics of a market economy. It should be able to cope,

albeit with difficulties, with competitive pressure and market forces within the Union,

provided sustainable macroeconomic stability is attained and there is further progress

towards the implementation of legal and structural reform programmes.”

In examining the economic developments in Turkey since the 1998 Regular Report, the

Commission’s approach was guided by the conclusions of the European Council in

Copenhagen in June 1993 which stated that membership of the Union requires:

•

the existence of a functioning market economy;

•

the capacity to cope with competitive pressure and market forces within the Union.

In the analysis below, the Commission has followed the methodology applied in the

previous Regular Reports.

2.2.

Economic developments

The Turkish economy is in the process of recovering from a sharp recession in 1999,

when real GDP declined by 5% and unemployment rose to 7.6% of the labour force.

The main reasons for the slowdown were a combination of the 1998 consolidation

programme, the Russian crisis and the earthquakes in August 1999. In December

1999, the Turkish government launched a comprehensive 3-year macroeconomic

dis-inflation and fiscal stabilisation programme. The main target is to bring down

chronically high inflation and interest rates and to consolidate public finances. A

crawling exchange rate peg and low increases of public wages and government

supported prices are successfully supporting the decline in inflation. Nevertheless,

inflationary expectations of Turkish households seem to lag somewhat behind the

targets of the government. Fiscal performance in 2000 has been strong and the

consolidation is proceeding even slightly faster than targeted. The economic growth

has resumed in 2000, based on booming domestic demand, which also benefits from

the sharp decline in real interest rates. Import growth is very strong, which has led to

a rapid deterioration of the trade and current account balances. Volatile investment

behaviour and the insignificant foreign direct investment inflows still indicate still a

cautious

attitude

the

part

investors

the

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Turkey

Real GDP growth rate

Inflation rate (CPI)

- annual average

- December-on-December

Per cent

1996

7.0

1997

7.5

1998

3.1

1999

-5.0

2000 latest

5.7 Jan-June

Per cent

per cent

80.4

79.8

85.7

99.1

84.6

69.7

64.9

68.8

60.4 Jan-Sept

49.0 Sept

Unemployment rate. end-year

- ILO definition

Per cent

6.0

6.7

6.8

7.6

8.3 Jan-March

General government budget

balance

Current account balance

Per cent of GDP

-8.4

-7.9

-7.7

-11.5

Per cent of GDP

million

€

-1.3

-1,919

-1.4

-2,326

1.0

1,669

-0.7

-1,286

-6.0 Jan-June

-5,824 Jan-June

Foreign debt

- debt export ratio

- gross foreign debt

Per cent

million

€

130.5

52,972

122.8

63,692

118.8

66,609

155.7 E

87,322 E

Foreign direct investment in

flow

- balance of payments data

Per cent of GDP

million

€

0.4

569

0.4

710

0.5

838

0.4

763

0.1 Jan-June

177 Jan-June

E = Estimates

prospect of the short and medium-term macroeconomic stability and the reform

programme.

In order to support and safeguard macroeconomic stabilisation, the government’s

stabilisation programme relies on an ambitious list of structural reforms to be

implemented over the next three years. The reform agenda covers practically all key

areas: public finances, public administration, the privatisation of state enterprises, the

banking and the agricultural sector and the social security system.

The programme is supported by a 3-year stand-by arrangement concluded with the IMF

and economic and financial sector reform programmes agreed with the World Bank.

Preparations for a public sector reform programme are at an advanced stage. In the last

year, public sector reform has improved the efficiency of the tax administration and the

number of extra-budgetary funds was reduced. Important steps in the liberalisation of the

telecommunication sector have been taken and a regulatory body has been established.

With respect to the financial sector reform, the legislative framework has been improved

and the Bank Regulatory and Supervisory Board has been established. However, the

preparations for the privatisation of the four state-controlled banks, accounting for nearly

40% of total assets, are not completed yet. Important steps in liberalising the energy

market have been taken.

Force: 15+ age; Average of April and October 1997,1998,1999 Household Labour Force Survey revised

results. The studies on 1995 and 1996 data are still continuing.

Excluding local authorities.

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Main indicators of Economic Structure in 1999

Population (average)

GDP per head

thousand

PPS-

€

Per cent of

EU average

Share of agriculture

in:

- gross value added

- employment

Investment-to-GDP

ratio

Gross foreign

debt/GDP

Exports of goods &

services/GDP

Stock of foreign direct

investment

(End of 1999 –National

Source)

64,330

5,881

per cent

14.3

41.3

per cent

20.3

50.5

per cent

million

€

per head

21.6

25,434

395

2.3.

Assessment in terms of the Copenhagen criteria

The existence of a functioning market economy

As set out in Agenda 2000, the existence of a functioning market economy requires that

prices, as well as trade, are liberalised and that an enforceable legal system, including

property rights, is in place. Macroeconomic stability and consensus about economic

policy enhance the performance of a market economy. A well-developed financial sector

and the absence of any significant barriers to market entry and exit improve the efficiency

of the economy.

The coalition government has maintained an unprecedented consensus on the essentials

of economic policy.

The government managed to bring through parliament important

Figures have been calculated using the population figures from National Accounts, which may differ

from those used in demographic statistics.

Agriculture, hunting, forestry and fishing.

Data refer to Gross fixed capital formation as % of GDP.

The 1999 data for foreign debt are estimates.

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economic reform proposals, illustrating its commitment and determination to implement

its ambitious reform programme. In mid-July 2000, parliament has approved the 8

year plan setting medium-term targets for economic consolidation, social and regional

development and legal reform. There is a general consensus on the need for the reforms,

despite some protest against the short-term social costs of the consolidation programme.

Consultations with the social partners, including the trade unions, during the preparation

of the programme could have been better. It is important that this programme is followed

or accompanied by medium-term measures to address the social problems. Policy co-

ordination among the various line ministries needs improvement.

The Turkish economy has recovered from the negative external shocks, caused by the

Russian crisis in 1998 and the earthquakes in autumn 1999.

After a sharp output

contraction, with a drop of real GDP by 5.1% in 1999, real GDP increased by more than

5% during the first half of 2000. The main contribution came from private consumption,

boosted by the sharp decline in real interest rates and increased availability of cheap

consumer loans. This led to a strong rise in the demand for consumer durables, which had

been postponed during the recession in 1998 and 1999. Private and public sector

investment also rose sharply, reflecting declining financing costs and the reconstruction

after the earthquakes. Import growth was particularly high during the first half of 2000, as

a result of strong domestic demand, the increasing oil price and the appreciation of the

Turkish lira. At the same time, export revenues were dampened by the real appreciation

of the Turkish lira. Industrial production rose by 3.4% during the first seven months of

the year. This figure is below the sector’s long-term growth potential and indicates that

the recovery has not yet reached all sectors of the economy.

Unemployment has increased considerably.

As a result of the economic slowdown in

1998 and 1999, the unemployment rate rose markedly during 1999, reaching the highest

level since the financial crisis in 1994. According to an ILO compatible survey, the

overall unemployment rate rose from 7.3% in April 1999 to 8.3% in the first quarter of

2000. There are huge differences in the unemployment rates between urban areas, where

they are above 10%, and rural areas with unemployment rates of around 5%. When

assessing those numbers, underemployment, which is reflected in a low participation rate

of only 47% (first quarter of 2000), has to be taken into account.

The most noteworthy macro-economic effect of the economic programme has been the

remarkable decline in interest rates and the reduction in inflation.

After the

announcement of the programme, interest rates fell immediately, from around 100% at

the end of 1999 to about 45% in mid-January and to around 35% in mid-2000. Consumer

price inflation increased initially, reaching a 12-month rate of 69.7% in February 2000,

reflecting price effects of the earthquake tax package and higher administrated prices. By

September 2000, the 12-month consumer price inflation had come down to 49%, the

lowest value since the early 1990s. The decline in core inflation is close to the target. The

nominal exchange rate anchor and the dis-inflationary stance of the government played a

central role in reducing inflation. The government is no longer applying backward

indexation to public sector wages and agricultural support prices, but uses the inflation

target as a guideline for wage and price setting. In addition, the Central Bank applies a

pre-announced crawling peg linked to the targeted increases in the Wholesale Price Index

instead of simply accommodating inflation. The government programme anticipates CPI

inflation declining to 25% by the end of 2000, and reaching single digit values by the end

of 2001. Despite indications of a somewhat lagging adjustment process of the

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population’s inflationary expectations, the programme has been successful in establishing

a downward trend in this respect.

In order to increase predictability, a pre-announced path for monetary and exchange

rate policy has been defined.

The consolidation programme has some features of a

currency board arrangement in the critical early dis-inflationary period, with a transition

to a floating exchange rate. Therefore, according to the programme, the exchange rate

should depreciate, in line with targeted year-end wholesale price inflation, by 20% in

2000 and 10% in July 2001. As in a currency board, net domestic assets would remain

unchanged, allowing monetary expansion only through surplus in the balance of payment.

From July 2001, the exchange rate band would widen by 5% every 6 months, until the

lira is effectively floating.

The situation of the public sector accounts improved significantly.

Thanks to the stronger

than expected recovery and the expenditure discipline, fiscal consolidation at present is

slightly better than targeted. For 2000, the programme’s key fiscal target is to raise the

primary surplus of the public sector from –2¾% of GDP in 1999 to +3¾% of GDP in

2000. This excludes extraordinary earthquake related fiscal expenditures, amounting to

about 1�½% of GDP. At the end of November 1999, the parliament approved an

“earthquake tax package”, which is expected to raise revenues by about 2% of GDP in

2000. It included an increase in income and profit tax rates and excise taxes, and the

introduction of a new tax on mobile phones bills. In addition to the earthquake package,

direct and indirect taxes, like the income tax and the VAT rate have been raised, which

should contribute nearly 3% of GDP in additional revenues. On the expenditure side, cuts

in investment and current spending, including public sector wages, should further

improve the deficit by 0.6% of GDP. In addition, structural measures approved in 1999,

such as the pension reform, should reduce state transfers to the social security fund by

0.5% of GDP. Many of the measures in 2000 are of a one-off nature, which are planned

to be replaced by more permanent measures in 2001. These are needed to assure the

medium-term sustainability of the budget and will need to take into account the budgetary

costs of reforming the banking sector. In order to increase the transparency of public

sector finances, 27 of the 61 extra-budgetary funds have been dissolved so far. Further

efforts are needed in this regard. As a result of the rather high public sector borrowing

requirement, net public debt rose sharply from 44.5% of GDP in 1998 to 62% in 1999.

After a strong decline in trade flows in 1999, imports have been booming in the first half

of 2000.

In 1999, real commodity exports declined by 2�½ %, while real commodity

imports declined by 18¼ %. The decrease in exports occurred mainly in trade with CIS

countries, while exports to the EC increased by about 3%. The decline in imports was

more evenly distributed among trade partners. However, during the first half of 2000,

trading volumes have recovered. In particular, real imports increased sharply, rising by

30% compared to the first half of 1999. Real exports rose by 15.3% in the same period,

mainly driven by higher demand from the OECD countries.

The current account balance has been deteriorating rapidly in 2000.

The strong import

increase and the ensuing rising trade balance deficit were the main causes of the

deterioration. Although tourist revenues rose by about 5% in the first half of 2000, they

compensated only a small fraction of the trade balance deterioration. As a result, the

current account deficit jumped to nearly 6% of GDP. Foreign lending, part of which is

short-term, still easily finances the rising current account deficit, as the Turkish

government, the banking sector and the enterprise sector have easy access to international

capital markets. However, this dependence makes the country vulnerable to changes in

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market confidence. The inflows of foreign direct investment are still insignificant and

hence do not contribute to financing the current account deficit.

In general, the equilibrium between demand and supply is established by the free

interplay of market forces and commodity trade is liberalised.

However, there are

considerable areas of state influence and non-market behaviour. As an inheritance of a

past when the state actively tried to push industrialisation by setting up import

substituting state industries, the state still owns a number of companies in the basic

industry sector providing inputs for the private processing industry. These enterprises

account for about 8% of GDP and employ about 400.000 persons. In many cases they are

over-staffed, inefficient and can only survive through state subsidies. The share of

administrated prices in the CPI basket is relatively high at around 25%. Those prices not

only consist of public utility fees but also prices for raw materials, provided by State

Economic Enterprises. In general, administrative prices are not cost covering. Some state

banks have been used as instruments for channelling subsidised credits to specific

sectors, like agriculture. Those transactions were covered as “duty losses” by state

transfers to these banks. These credit subsidies were phased out in early 2000.

For the first time since the beginning of the Turkish privatisation process in the mid-

1980s, the present government has achieved significant results.

A considerable share of

those enterprises which were earmarked for privatisation, have been sold so far,

generating privatisation revenues of nearly 3% of GDP during the first 8 months of 2000.

The most noteworthy privatisation projects were the sale of the 51% stake of the petrol

distributor Poaş and the initial public offering of the oil refinery Tüpraş. In addition, the

sale of a third GSM licence brought significantly higher revenues than expected. The

delay in privatisation of Türk Telekom will probably prevent the government from

meeting its privatisation revenue target of about 3�½% of GDP in 2000.

There are no major restrictions on market entry and exit.

During the first half of the year

about 27 500 new enterprises were established, which is about 15% of the total number

of enterprises. In the same period, about 8 300 enterprises were liquidated. Compared to

the same period a year before, the number of newly established enterprises declined by

2%, while the number of liquidated enterprises rose by nearly 40%. These numbers

indicate a high turnover in the enterprise sector and an adequately functioning market exit

mechanism. But it is also an indication of the need to improve the managerial skills of the

new entrepreneurs.

The legal system for the functioning of a market economy is in place.

Property rights are

clearly established. However, financial regulations and the implementation of existing

legislation need to be improved. In addition, the efficiency and transparency of the legal

system need to be increased further. The entrepreneurial climate is getting better, given

the declining economic volatility and active measures of the government to reduce

administrative and fiscal barriers for the enterprise sector.

The Turkish financial system is under heavy pressure to restructure.

Due to the banks’

strong concentration on financing the public sector deficit, they largely failed to channel

savings towards productive investment. The four state-controlled commercial banks

account for about 40% of the sector’s assets. As a result of decades of providing

subsidised and state directed lending for agricultural and small businesses, huge “duty

losses” have accumulated. This endangers the safety and soundness of the banking sector.

The government has announced its intention to sell the state-owned banks in the near

future. Due to the recession in 1999, the ratio of non-performing loans to total assets for

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the whole sector rose from 2.7% in 1998 to 3.2% in 1999, which remains a relatively low

level, largely due to low private sector lending.

The implementation of prudential rules and supervisory regulations has to be

strengthened.

The importance of improved surveillance and supervision in the financial

sector is illustrated by the huge losses of those eight banks, which were transferred to the

Deposit and Savings Insurance Fund in December 1999. The issue of winding up or

restructuring those banks is not solved yet. In addition, the fact that some of the financial

institutions are part of business conglomerates poses additional problems of supervision

and transparency. In order to address these issues, the new banking law, adopted in June

1999, was amended in December 1999. The main improvements concern the

establishment of the independent Banking Regulatory and Supervisory Board, an upgrade

of the prudential rules to meet the Basle standards, and the introduction of a six year time

frame in order to comply with EC standards on exposure limits. In addition, those

amendments include improvements with respect to accounting and disclosure standards,

capital adequacy rules and the foreign exchange exposure regulation. The Banking

Regulatory and Supervisory Board has been fully operational since early September 2000.

Given the short period of implementation, there is little evidence on which to assess the

effectiveness of these amendments and the functioning of the Banking Regulatory and

Supervisory Board.

Turkey has made considerable progress in addressing the most urgent imbalances in the

economy, yet the process of achieving a functioning market economy is not completed.

Macroeconomic stability is improving, although inflation is still too high and a solid

basis for sustainable public finances in the medium term remains to be established. The

privatisation of state enterprises has been successful, and important steps for the reform

of the agricultural sector, the social security system and the financial sector have been

taken. However, there are still too many areas where state dominance implies market

distortions. In order to cure such chronic deficiencies and to awake Turkey’s slumbering

growth potential, the authorities should continue to focus on bringing down inflationary

pressures and public deficits, and maintain their commitment to structural reforms and

market liberalisation.

The capacity to cope with competitive pressure and market forces within the

Union

As set out in Agenda 2000, Turkey's ability to fulfil this criterion depends on the

existence of a market economy and a stable macroeconomic framework, allowing

economic agents to make decisions in a climate of predictability. It also requires a

sufficient amount of human and physical capital, including infrastructure. State

enterprises need to be restructured and all enterprises need to invest to improve their

efficiency. Furthermore, the more access enterprises have to outside finance and the more

successful they are at restructuring and innovating, the greater will be their capacity to

adapt. Overall, an economy will be better able to take on the obligations of membership

the higher the degree of economic integration it achieves with the Union prior to

accession. Both the volume and the range of products traded with EC Member States

provide evidence of this.

Despite the progress in reducing macroeconomic volatility and diminishing market

distortions, a track record and sufficient degree of economic stability and predictability

has not yet been achieved.

The level of inflation and the uncertainty concerning the

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consolidation progress still do not allow economic agents to plan their activities in a

medium-term perspective. The influence of the state through state enterprises,

administrated prices and subsidised credits has for years distorted the allocative function

of the market, which would hamper the economy’s ability to withstand competitive

pressures within the Union.

The quality of Turkey's physical infrastructure facilities is very uneven.

The road network

in general is sufficiently well developed, in particular in the urban agglomerations, while

the railway system is largely outdated and inefficient, representing a sizeable burden on

public finances. With respect to the energy network, considerable investment took place

in recent years. At present, several oil and gas pipeline projects are being carried out and

the energy network is being improved.

Parts of Turkey’s capital stock needs up-grading.

Up-to-date production technologies in

the export-oriented industries exist in parallel with technologies with relatively low

capital intensities, benefiting from cheap labour and informal sector inputs. Private

investment remains volatile, with annual growth rates fluctuating between +25% (in

1994) and -16% (in 1999). The aggregate average investment share of over 20% of GDP

is relatively high. However, when non-housing investment is taken into account, the

situation is less favourable. Access to the financial sector has been extremely difficult for

private companies outside the conglomerates, and in particular for SMEs, due to the

specific structure of the financial sector and the crowding-out effect of government

borrowing.

Turkey needs to invest more in the development of human capital.

Although part of the

labour force is highly educated and familiar with modern technologies, the level of

education of a considerable share of the population is low, with relatively high illiteracy

rates. Nearly half of the population is younger than 20 years and the resources for the

basic education system have so far proved to be insufficient so far for providing adequate

education. A relatively high level of child labour further aggravates this problem, in

particular in the agricultural sector. According to OECD estimates, about 30% of the

children in the age group between 6-14 years are participating in the labour process

instead of attending school. With respect to school enrolment, there has been some

improvement in recent years, but in order to safeguard and prolong these achievements,

increased means for education would be necessary. A poor health record in general and of

this age cohort in particular is a further alarming characteristic of the Turkish labour

force. A poverty-trap like situation of low education, poor health and low incomes would

impair a sound social development and the growth potential of the Turkish economy.

In the Turkish private sector, enterprise restructuring has been a well-established

process since the 1980s, when the economy was increasingly exposed to international

competition.

However, in public sector enterprise restructuring is an important issue,

since many are over-staffed, endowed with an outdated capital stock and are in a

permanent need of state support in order to survive. The government intends to privatise

most of these enterprises in by the end of 2002, targeting privatisation revenues of about

8% of GDP. The process of restructuring and preparing for privatisation has already

started in some state enterprises and the cost involved is considerable. Privatisation

revenues will be used to partly finance them. This policy will release public finances

from notoriously less productive uses, such as subsidies and state-aids, and will support

the economy’s competitiveness in the medium-term.

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Foreign direct investment is at an economically insignificant level of less than 0.5% of

GDP.

Macroeconomic instability, growth volatility and political uncertainty were

probably the most important factors for this development. The change in the constitution,

which was approved by parliament at the end of 1999 in order to allow for international

arbitration and for privatisation in particular in the energy sector, has not yet shown

noticeable results. To simplify procedures, the need for authorisation to carry out foreign

direct investment has recently been replaced by a regime of simple registration. The

completion of privatisation projects in 2000 should increase the inflow of foreign capital

significantly.

Restructuring the agricultural sector is another medium-term issue that needs to be

tackled.

Agriculture accounts for over 40% of employment but generates about 14% of

GDP. The average farm size is decreasing, and productivity growth is low compared to

international standards. The financial support system represents a heavy burden on public

finances, distorts prices and the allocation of resources, and aggravates social disparities,

since the artificially high prices for agricultural commodities are disproportionally

affecting low-income households. The government’s new approach so far has been to

reduce support prices in line with the inflation target, and to end subsidised credits to the

agricultural sector. The reform of the agricultural sector aims at switching to a system of

direct income support for farmers. Given Turkey’s resource endowment, this sector has a

considerable potential. However, in order to improve the sector’s competitiveness and

sustainability, the initiated reform has to be sustained and deepened.

Regional disparities are traditionally very high in Turkey, with a well-developed

industrialised western part and a less developed predominantly rural eastern part.

addition within the regions, there are considerable differences in income levels and

infrastructure endowment between the urban agglomerations and the countryside. The

result of those huge disparities have been strong migration flows from the East to the

West and from the rural to the urban areas, leading to the over-utilisation of urban

infrastructure and considerable administrative bottlenecks at the municipal level.

Government measures trying to address the increasing regional disparities have not been

sufficiently successful so far.

State interference has been declining.

The government has undertaken some first steps in

order to reduce state interference, by starting to reform the agricultural sector and

liberalising the electricity and gas sectors. State aids are also being reduced. The

privatisation and restructuring of state-owned enterprises is also a step in the right

direction. But influence can still be asserted through the state-owned banks.

Trade integration with the EU is relatively high.

Turkey’s trade liberalisation started in

the 1980s, leading to the establishment of a customs union for manufactured

commodities between Turkey and the EC, which has been in force since 31 December

1995. The major economic effect of the customs union was a redirection of Turkish third-

country imports towards the EC. Turkish enterprises had no major problems in adjusting

to the new competitive situation. At present, an extension of the trade liberalisation to the

service sector is being discussed. The trade integration between Turkey and the EC rose

continuously, reaching a trade share of more than 50% of Turkey’s total trade.

Simultaneously, the commodity structure of Turkey’s trade improved, with the share of

manufactured commodities rising from 66% of trade with the EC in 1990 to nearly 70%

in 1999. In particular, the value-added in the key automotive and textile industries

increased markedly. The share of intra-industry trade with the EC is relatively high.

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However, due to the recent real appreciation of the Turkish lira, the price competitiveness

of Turkish commodities has deteriorated.

Small and very small family companies are the backbone of the Turkish private sector.

the manufacturing sector they account for 99.5% of the total number of enterprises,

employ about 65% of total employment and generate 27.3% of value added. Despite their

proven adaptability and flexibility, these companies might face difficulties to apply EU

standards

(see also chapter 16 – Small and medium-sized enterprises).

Considerable parts of the Turkish economy are already able to sustain competitive

pressure and market forces in a customs union with the EC. However, reforms are needed

in order to extend this situation to the whole of the Turkish economy, while fostering

better-balanced socio-economic and regional development. The economy has not yet

reached a sufficient degree of macro-economic stability to allow proper medium-term

planning. The differences in education, health and infrastructure need to be narrowed, in

order to enhance the competitiveness of Turkish human and physical capital and to allow

for a decline in the present social and regional disparities. The government needs to

redefine its priorities, in a medium-term perspective, in order to provide sufficient

funding for education, health, and social services. Significant restructuring is still needed

in various sectors, such as banking, agriculture and state enterprises, in order to guarantee

medium-term competitiveness for the economy as a whole.

2.4.

General evaluation

Turkey has made considerable progress in addressing the most urgent imbalances in the

economy, yet the process of achieving a functioning market economy is not completed.

Considerable parts of the Turkish economy are already able to sustain competitive

pressure and market forces in a customs union with the EC.

Turkey has made substantial progress in macroeconomic stabilisation. The privatisation

of state enterprises has been successful, and important steps for the reform of the

agricultural sector, the social security system and the financial sector have been taken.

However, macroeconomic stability is not yet achieved and a solid basis for sustainable

public finances in the medium term remains to be established. There are still too many

areas, both in manufacturing and the financial sector, where state dominance implies

market distortions. The quality of education, health and infrastructure needs to be

improved in order to enhance the competitiveness of Turkish human and physical capital

and to allow for a decline in the present social and regional disparities.

The authorities should continue to focus on bringing down inflationary pressures and

public deficits, and maintain their commitment to structural reforms and market

liberalisation. They need to redefine their priorities, in a medium-term perspective, in

order to provide sufficient funding for education, health, and social services. Significant

restructuring is still needed in various sectors, such as banking, agriculture and state

enterprises, in order to guarantee medium-term competitiveness for the economy as a

whole.

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3. Ability to assume the obligations of membership

Introduction

This section aims to update the Commission’s 1999 regular report on Turkey’s ability to

assume the obligations of membership - that is, the legal and institutional framework,

known as the

acquis,

by means of which the Union implements its objectives. Alongside

an evaluation of relevant developments since the 1999 regular report, this section seeks to

provide an overall assessment of Turkey’s ability to assume the obligations of

membership, and of what remains to be done. This section has been structured to follow

the list of twenty-nine

acquis

chapters, and incorporates also an assessment of Turkey’s

administrative capacity to implement the

acquis

in its various aspects (in previous regular

reports this had been covered in a separate section).

The European Council in Madrid in December 1995 referred to the need to create the

conditions for the gradual, harmonious integration of the candidates, particularly through

the adjustment of their administrative structures. Taking up this theme, in Agenda 2000

the Commission underlined the importance of incorporating Community legislation into

national legislation effectively, and the even greater importance of implementing it

properly in the field, via the appropriate administrative and judicial structures. This is an

essential pre-condition for creating the mutual trust indispensable for future membership.

The European Council in Feira in June 2000 recalled the importance of the candidate

countries’ capacity to effectively implement and enforce the

acquis,

and added that this

called for important efforts by the candidate countries in strengthening their

administrative and judicial structures. The Feira European Council invited the

Commission to report to the Council on its findings on the matter. Building on the

assessment of Turkey’s administrative capacity provided in the 1999 regular report, the

present report seeks to add further depth and detail, focusing on the main administrative

structures which are required for implementing the

acquis

in its various aspects.

In the 1999 regular report, the Commission concluded that :

“Turkey continues to make most progress in alignment in the areas covered by the

Customs Union and, to a lesser extent, in areas covered by the European strategy. In

general terms the situation with regard to free movement of goods is satisfactory and

Turkey has reached a high level of adoption of European standards even if it has still not

adopted a framework law. Despite the high degree of alignment in the customs area there

is still a need for a new customs code. The Customs Union was further developed in the

last year through the establishment of a common system of outward processing for

textiles. There is a need for early progress in the area of copy right law. Although there

has been no recent progress in the area of capital movements the general situation is good

and the recent adoption of a new Banking act has brought further alignment.

In competition there has been progress in the area of anti-trust although the Commission

remains concerned about the operation of the TEKEL monopoly. Turkey has notified its

state aid schemes to the Commission and these are under examination. Agriculture is

still characterised by high levels of support and protection and there has been no progress

in legislative alignment since the last Report.

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The administrative capacity to apply the

acquis

in the context of the Customs Union

remains very satisfactory. However, Turkey needs to further modernise its administrative

structures and to increase staff training.”

3.1.

The chapters of the

acquis

As indicated, the review of Turkey’s ability to assume the obligations of membership that

is provided below has been structured in accordance with the list of twenty-nine chapters

of the

acquis.

Accordingly, this section opens with an assessment of progress related to

the so-called “four freedoms”, the cornerstones of the internal market, and continues with

a systematic review of progress on each of the chapters, to cover the

acquis

in all its

various aspects: sectoral policies, economic and fiscal affairs, economic and social

cohesion, innovation, quality of life and environment, justice and home affairs, external

policies, and financial questions.

Chapter 1: Free movement of goods

Since the last Regular Report, according to the relevant Turkish authorities, around 1200

standards

were adopted. The Customs Union foresees the alignment of Turkish technical

regulations before the end of 2000. At present 80 % Turkey Standards are aligned to CEN

standards, and 80% to CENELEC standards.

In the area of

conformity assessment,

no development can be reported.

In the area of

accreditation,

a new Law on the Organisation and Functions of the Turkish

Accreditation Council (TURKAK) entered into force on 4 November 1999. It authorises

TURKAK to accredit national and foreign organisations to conduct laboratory services,

certification and inspection. The General Secretary and other office holders were

designated at the first General Assembly of the Turkish Accreditation Council, which

took place on 15 May 2000. The total number of staff is 60. Turkey intends to make use

of a pool of temporary technical staff.

With regard to

sector specific legislation,

since the last Regular Report, progress can be

noted in the area of motor vehicles, where six Directives were transposed between

November 1999 and April 2000.

No progress has been recorded in the following areas, already highlighted in the previous

Regular Report: transposition of directives for pharmaceutical, chemical and

homeopathic drugs, pricing practices, immunological medicinal products, human blood

derivatives, distribution, classification, labelling, adoption of directives concerning

cosmetics.

In the field of

non harmonised areas

and

public procurement,

no progress can be

reported.

Concerning

public procurement,

new legislation is being prepared by the Ministry of

Finance. The present public procurement system should be made more transparent and

accountable

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Overall assessment

Concerning

conformity assessment

there is a need to upgrade the existing conformity

assessment system to ensure that progress is in line with legal harmonisation. Problem

areas to be addressed relate to insufficient of knowledge of the existing conformity

assessment structures in the EC and the lack of adequately trained technical staff.

In the area of

market surveillance,

current efforts are concentrated on training the

relevant personnel and in improving the equipment capacity of the relevant bodies.

Concerning

horizontal and procedural matters,

in some sectors (based on the product

specific approach) alignment with the

acquis

is already in place. However, Turkey still

needs to complete the process of adoption of the framework law relating to the

Preparation and Implementation of the Technical Legislation on Products. This law aims

to create the legal basis for legislation to facilitate harmonisation with the European

Community and to provide the essential principles required for the implementation of the

European standardisation system in Turkey.

The delays in adopting the framework law have had negative consequences for the

planned adoption of five implementing regulations, which are already prepared and cover

specific issues - CE conformity marking; conformity assessment bodies and notified

bodies; market surveillance; notification procedures between Turkey and the EC; and

exchange of information on national measures derogating from the principle of free

movement. It has also delayed the adoption of separate

New Approach

directives.

It is important that the framework law containing the technical legislation on products be

rapidly adopted and implemented, in order to make the necessary progress on the

transposition of the

acquis

in this field.

As regards

sector specific legislation,

regulations under the new approach transposing

the directives on personal protective equipment, recreational craft, machinery, low

voltage, electromagnetic compatibility, lifts, civil explosives, gas appliances, pressure

vessels, medical devices and toys, which have been prepared, have not yet been adopted.

In addition, Turkey is preparing legislation to transpose EC legislation in a number of

sectors including motor vehicles, construction plant and equipment, measuring

instruments, textiles, medicinal products, crystal glass. However, further progress must

be made in these areas.

The transposition of the foodstuffs

acquis

has just begun, in particular in the field of food

additives, and the methodology of transposition needs to be assessed carefully. The

implementation and enforcement of the transposed

acquis

represents an important

challenge due to the necessity to reform the food industry substantially to meet EC

requirements.

The implementation of EC legislation on elimination of technical barriers to trade is

limited, particularly in view of the deadline for technical harmonisation by 31 December

2000 that was set by Decision 2/97 of the EC-Turkey Association Council. The rate of

adoption of European standards is generally satisfactory, but further substantial progress

needs to be made. On different occasions standardisation issues have led to barriers in

trade. Therefore, further alignment of standards is still needed.

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Concerning

administrative and judicial capacity

the Turkish Standards Institute (TSE)

is responsible for aligning Turkish standards with EC norms. However, TSE rules and

practices sometimes diverge from EC and international standards, causing considerable

costs and long delays. The problem is the result of incorrect application of existing

standards as well as the insufficient capacity of the TSE to carry out the work especially

in the field of testing. Major problems on technical regulations exist in the areas of

electrical and electromechanical devices, and also with respect to products such as tiles

and ceramics. The TSE has applied for full membership of both CEN and CENELEC,

which could be realised in 2001. The TSE employs 1214 full time staff. Some 4500

experts also participate in the work of the TSE.

The Ministry of Agriculture has the responsibility for the food sectors. Other competent

Ministries should also be involved in the transposition and implementation of the

foodstuffs

acquis.

Concerning

public procurement,

the Ministry of Finance is responsible for the

management, financial control and regulation of public expenditure. The Ministry issues

an approval stamp assessing the regularity of all contracts between public bidders and the

contractors. There is no authority in charge of verifying the regularity of public tender

procedures, but the ordinary tribunals have competence in this matter.

Chapter 2: Free movement of persons

In the area of

mutual recognition of professional qualifications

no progress was made.

Holders of European diplomas and professional qualifications who are granted

equivalency certificates in Turkey still do not get access to a large number of

professions. These are still restricted to Turkish nationals. No progress can be reported on

Citizens’ rights.

No development can be reported in the area of

free movement of workers.

Overall assessment

In the area of mutual recognition of professional qualifications as well as Citizen’s rights

no progress has been made since 1999. The issue of free movement of workers needs to

be the subject of mutual consultations.

Chapter 3: Freedom to provide services

Little progress has been made in the field of the liberalisation of services, in particular in

non-financial services.

At present, the supply of non-financial services is not aligned

with the

acquis

and numerous restrictions and national preferences concerning the

freedom to provide non financial services still exist in Turkey. These should be

abolished. However, since the previous Regular Report, the negotiations for extension of

the Customs Union to services and public procurement have started (in October); this

will facilitate the alignment by Turkey with the EC

acquis.

With respect to

financial

services,

The Turkish

banking sector

is adapting to the new legislative framework set by

the Bank Act of June 1999.

Inter alia,

the coverage of savings and deposits by the deposit

guarantee scheme is being reduced from 100% to reflect EC standards by the end of

2000.

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The Banking and Regulatory and Supervision Board has become fully operational, taking

up the duties previously carried out by the Treasury and the Central Bank . This system

ensures sufficient independence from the political powers.

In the field of

insurance

and other financial services no major progress to align with the

acquis

can be recorded since the previous regular report.

The Capital Market Law regulating

investment services and securities markets

was

amended in December 1999, introducing the protection of the rights of shareholder

minorities , and introducing an investor protection fund.

Overall assessment

Concerning the provision of

non financial services,

foreign nationals are requested to set

up a joint company or a limited liability company with a Turkish counterpart national

resident in order to make investments or to carry out commercial activities. Moreover

foreign residents need a permit and/or an incentive certificate issued by the General

Directorate of Foreign investments of the Undersecretariat of Treasury. The question of

acquisition of real estate/farmland needs to be carefully checked.

Liberalisation and alignment with the

acquis

are more advanced in the field

of financial

services.

Concerning

insurance,

the freedom to provide insurance services is not yet

complete in Turkey, as specific restrictions on providing these services exist. The

insurance market

is under the authority of the Directorate General for Insurance of the

Undersecretariat of the Treasury (UST), and of the Insurance Supervisory Board (ISB),

which also reports to the UST, which it itself attached to the Minister of State for

Economic Affairs. Therefore, these bodies can not be qualified as being independent.

The ISB may conduct ad hoc inspections in companies if it detects any irregularity in the

functioning, and should inspect companies once a year.

In the field of

investment services and securities market,

since 1989 there has been no

restriction on operations by foreigners, nor on the repatriation of funds involved in

portfolio investments by foreigners. Since 1999, additionally, non-resident intermediaries

have been allowed to operate in Turkey, under the supervision of the Capital Market

Board (CMB).

The Capital Market Board is the authority monitoring the

investment services and

securities market.

It is autonomous and self financed by a 0.25% fee on transactions, and

has a staff of 366. It can carry out autonomous inspections, which can lead to

administrative or financial sanctions, including the suspension of licences. The CMB

works on the basis of the principles of the International Organisation for Securities

Commissions and EC standards.

Chapter 4: Free movement of capital

The Regular Report of 1999 stated that after a long period of gradual opening up of its

regime on capital movements, the alignment of the Turkish legislation with the

acquis

well advanced. However, there has been no major progress since then.

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The Directives on

money laundering

have been transposed into the Turkish legal system

by Law 4422, in force since August 1999. Turkey needs now to properly implement and

enforce this legislation. Serious problems persist.

No other developments can be reported.

Overall assessment

Owing to its obligations under the OECD codes of capital movements, Turkey's regime is

substantially liberal in some areas. However, to comply with the

acquis,

liberalisation

must be extended to all transactions and authorisation procedures must be abolished.

Restrictions still exist concerning foreign investments in certain sectors such as mining,

energy, banking, TV and radio companies and broadcasting. Moreover, restrictions exist

on foreign investments in the transport sector (maritime, aviation), and in ports, where

foreign participation may not exceed certain ceilings. Certain restrictions also exist

concerning foreign investments in real estate.

Certain conditions are requested to foreign companies wishing to be listed on the Turkish

stock exchange and for their Initial Public Offering. Reserves of insurance companies

may not be invested in foreign assets.

Concerning the payment infrastructure, a real time gross settlement (RTGS) system is

already in place in Turkey. However, further efforts are needed to align the legislation

with the EC

acquis

in this area. Outward transfers of funds below US$5 million are free.

For higher sums the authorisation of the Undersecretariat of Treasury is required.

The Central Bank is connected to the TARGET system of the ECB for real time

transactions in EURO. The administrative capacity should be upgraded to efficiently

ensure movement of capital. In this regard, the completion and the implementation of the

banking sector reforms are essential.

A major problem for foreign investors is the absence of an independent body to settle

disputes with the public administration. The Constitution has been amended to allow for

such arbitration, but enforcement has to be improved.

Chapter 5: Company law

No progress can be reported concerning the alignment in the field of

company law.

Turkey has adopted Customs Law 4458 on the defence of

Intellectual Property rights,

which entered into force in February 2000. This new law aims at fighting against

counterfeiting trademarks and pirated copyrights.

The Law of protection of topographies of integrated circuits should enter into force by the

end of 2000.

Overall assessment

Since 1995, Turkey has been making substantive efforts to align its legislation with the

acquis

and it has, in principle, already got important parts of the legal framework in

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place. There is a need to pursue this process. The completion of the administrative set-up

is still necessary. It is crucial to create a coherent IPR enforcement system in Turkey,

inter alia,

to combat piracy. The adoption of border enforcement legislation is urgent.

Adequate training should follow for police officials, judges and prosecutors. A special

Committee has been established under the auspices of the Ministry of Justice to prepare a

new Turkish trade law. All relevant EC Company directives and legislation will be taken

into account in this process. The major discrepancies between EC and Turkish legislation

concern single member companies, merger provisions, accounting and audit legislation.

As regards

Intellectual Property rights,

a Law, under discussion at the TGNA, aims at

bringing Turkish legislation into conformity with the relevant Council directives, as well

as with the Bern and Rome conventions and foresees the creation of specialised Courts.

The enforcement of IPRs depends on the Ministry of Culture, which is currently planning

to set up a specialised institute with a wide range of powers. However, for the time being

the capacity needs to be developed.

Turkey is not member of the WIPO Copyright Treaty and WIPO performance and

Phonogram Treaty, but necessary arrangements are foreseen in the above law.

Piracy of audio-visual materials is a serious problem in Turkey. The approval of the

relevant legislation and the strengthening of its enforcement are important priorities.

Matters relating to the

Industrial Property rights,

and in particular the implementation

of the Hague Agreement of Deposit of Industrial rights, are managed by the Turkish

Patent institute, which is not a fully independent body, but is connected to the Ministry of

Industry and Trade.

Turkey intends to accede to the European Patent Organisation.

Companies are registered by the Provincial Trade Registries offices (235 throughout the

country,) which are located within the Chambers of Commerce. The total numbers of

joint stock companies and limited companies registered in 1999 were 79,034 and 389,941

respectively.

Chapter 6: Competition policy

Since the previous Regular Report, Turkey has further aligned its legislative framework

in the area of

antitrust policy

in order to conform with the Community

acquis

and the

obligations of the Customs Union agreement. Turkey has adopted to a considerable

degree secondary legislation, in particular in the area of block exemption regulations.

Further alignment however is still necessary in view of the Community’s new policies on

block exemptions for vertical restraints and on block exemptions for horizontal co-

operation agreements.

The Act on the Protection of Competition was passed in 1994. It was modified in 1999

with respect to increases in penalties for offenders. It is largely modelled on the main

principles of Community antitrust rules.

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Progress in

state aid control

appears to be limited. The precondition for future progress

is the establishment of a control authority to ensure an effective application and

enforcement of the State aid rules under the Customs Union agreement.

Considerable difficulties have been experienced in relation to monopoly adjustment. In

particular, it is regrettable that no progress was made this year with reference to the

adjustment of the State monopoly on alcohol and tobacco (TEKEL). The transitional

period for adjustment foreseen by the Customs Union agreement expired on 1 January

1998, without any improvement, despite numerous attempts by the Community to resolve

this issue. The proposals for adjustments received from the Turkish side fall short of

resolving the issue and have not been justified in legitimate terms.

The Turkish Competition Authority started operation in 1997. Since the beginning of its

activities, the Turkish Competition Authority has adopted and published a number of

legislative acts. These are the most important:

Communiqué on mergers and acquisitions calling for the authorisation of the

Competition Board;

Communiqué on the procedures and principles for notification of agreements,

concerted practices, and decisions of associations and undertakings pursuant to Art.

10 of the Competition Act;

Communiqué on block exemption of exclusive distribution agreements;

Communiqué on block exemption of exclusive purchasing agreements;

Communiqué on block exemption regarding distribution and servicing agreements in

relation to motor vehicles;

Communiqué on block exemption regarding franchising agreements.

Overall assessment

The application of

anti-trust

provisions appears satisfactory, with a considerable number

of cases having been dealt with from the start of the operation of the Competition

Authority.

Concerning

State aids,

Turkey has communicated to the Commission provisional

findings of a study on the definition of a regional aid map of Turkey. Further work is

needed to ensure that Community criteria and methodology is followed when finalising

the map to enable a differentiation of maximum aid intensities in the country.

Turkey has also provided information on parts of the policies for granting state aid.

Together with the Commission, the relevant Turkish Ministries are in the process of

establishing a list of the relevant existing laws. On this basis, a substantive review with

respect to compatibility with the Community

acquis

can begin.

There is no single authority responsible for carrying out state aid control by

systematically assessing the compatibility of aid awards with the Community

acquis.

These controls are under the responsibility of different public bodies, such as the

Undersecretariat of Treasury and Undersecretariat of Foreign Trade. Therefore, in the

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absence of a body responsible for state aid control, no enforcement record has yet been

established in this policy area. Special attention needs to be given to the overall state aid

system and the increase of transparency through the establishment of an inventory of

existing state aid and regular annual reporting following the methodology and the

presentation of the Community’s survey on state aid.

In preparation of the analytical examination of the Turkish situation with the Community

acquis,

an inventory of remaining state monopolies of commercial character and

companies with exclusive rights will have to be taken.

With the Competition Authority, Turkey has created a functionally independent body

with the necessary administrative structures to allow for the effective implementation of

rules for undertakings, but it has no competence relating to State aids. The Competition

authority has a staff of 309.

It has to be checked whether the Competition Authority is sufficiently involved in this

process of monopoly adjustment, and whether it enjoys the appropriate powers with

respect to public undertakings, state monopolies and companies having special rights.

Chapter 7: Agriculture

The agricultural sector plays an important role in the Turkish economy (see

for further

details Part B.2.2).

The number of people active in agriculture (full time and part time) is

about 9.7 million (around 41% of the total labour force). Its share in Turkish GDP is

14.3%.

The arable crop sector accounts for more than three-quarters of agricultural

production in Turkey. The most important products in Turkey are cereals (mostly wheat

with a yield of 21 million tonnes in 1998), followed by various types of fruit and

vegetables. In 1999, EC imports from Turkey amounted to

€

1,993 million. The EC

exported to Turkey for a total value of

€

805 million. The trade balance in favour of

Turkey amounted to

€

1189 million in 1999.

GDP per capita in agriculture is relatively low (€3,935 in 1998). Agricultural growth is

restrained by high rates of interest and inflation, important structural deficiencies such as

fragmented and small holdings, a lack of grassroots farmer’s organisations, inadequate

marketing facilities and inefficient open-market price formation. As a consequence,

Turkish agricultural productivity has been consistently falling over the past 10 years. At

present, Turkey is not self sufficient in food production. The average farm size is around

6 ha. Hazelnuts and to a lesser extent grapes, citrus fruits, tobacco and cotton are the

largest export products. Cereals (mainly wheat and, to a lesser extent, maize and rice) are

the main import products. Foreign nationals are not allowed to buy land but can establish

joint ventures.

The Turkish government has played an important role in agricultural development. A

large number of state owned and state directed intervention bodies are also involved in

The source for all agricultural statistics is EUROSTAT unless otherwise specified.

source: Uruguay Round Agreement definition of agricultural products, figures taken from EUROSTAT

COMEXT (see Agriculture in the European Union – statistical and economic information 1999 p. 36

for definition of the products).

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the implementation of agricultural policies, particularly state economic enterprises and

agricultural sales co operative unions.

Support policies mainly aim to achieve production increases. Different instruments are

applied. These are market price support through intervention purchases (cotton, wheat,

sugarbeet, sunflower seeds and tobacco); the subsidisation of farm inputs (artificial

fertiliser support; seed support; support for environmentally-friendly agricultural

chemicals; irrigation support; electricity power support; and, until March 2000, credit

subsidies), quota systems and tariff protection at the border. In the livestock sector,

border measures are the main mechanism to support prices (for example 235 % for meat

products). Food prices are relatively high due to high import tariffs.

Farm subsidies amount to

€

4 billion per year (2.5% of GNP). This significant figure has

led the government to develop a reform policy. In the framework of the IMF standby

agreement (dis-inflation programme) the Turkish government has committed itself:

– To phasing out existing support policies and replacing them with a direct income

support system targeted to poor farmers;

– To granting full autonomy to Agricultural Sales Co-operatives Unions (ASCUs);

– To phasing out input subsidies (gradually phasing out credit subsidies/fertiliser

subsidies);

– To privatising some of the State Economic Enterprises in the agri-food sector.

Farmers are encouraged to produce alternative products to hazelnuts, tea, sugar beet and

tobacco (crop substitution programme). In this respect, four different pilot projects are

under preparation in four different regions to reduce over-production of these

commodities. The aim is to reduce the areas for tobacco by 80,000 ha; sugar beet by

100,000 ha and hazelnuts by 100,000 ha. Compensatory payments are given for a

reduction in income due to shifting to less profitable crops. Total funds available are

approximately

€

540 million. After an evaluation of these pilot schemes, it will be

decided whether or not a further application of this policy nationwide will be

implemented. Support with regard to the upgrading of livestock sector is contemplated in

order to improve food security.

The Turkish government has undertaken harmonisation activities of Turkish agricultural

policy with the CAP, as the latter stood in 1998. Article 8 of the Association Council

Decision 1/95 stipulates the need to remove technical barriers to trade in Turkish

legislation within 5 years. An inventory of the state of alignment was made. Technical

committees have been set up and have reviewed the different components of the CAP and

produced a first table of comparison between EC and Turkish policies specifying the

harmonisation needs. This work needs further assessment. In particular, this relates to

the documents concerning arable crops and fruits and vegetables, which were transmitted

to the European Commission under the implementation of the European strategy for

Turkey.

Common Market Organisations

In this respect the adoption in June of the law to liberalise Agricultural Sales Unions and

Co-operatives (ASCUs) is important. The law eliminates all preferences and the

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governmental role in the operation of ASCUs and establishes a framework for carrying

out further restructuring into real private co-operatives.

Rural Development

As regards

rural development

one of the country’s most comprehensive regional

projects is the GAP/South Eastern Anatolia project in which the improvement of

agriculture, mainly through irrigation, plays an important role. The aim of the projects is

to increase farmers’ income.

Veterinary and Phytosanitary Legislation

In the

veterinary sector

there are in total 26 notifiable animal diseases in Turkey, of

which the most important are foot and mouth disease, rinderpest, sheep/goat pox and

brucellosis. Vaccinations, quarantine, control of animal movements, surveillance and

monitoring are being applied to control the disease, for rinderpest a stamping out policy

is applied. Given the seriousness of the situation, the Community provided in September

emergency assistance (1.3 million vaccines) to Turkey to combat foot and mouth disease.

The Commission also financially assists a national food and mouth disease control and

eradication programme.

Turkey’s main legal instrument is the law on animal health control (Law 3285 and related

guidelines) which prescribes the preparation of programmes and plans to combat animal

diseases; it establishes internal and border quarantine of livestock.

There are 8 regional veterinary control and research institutes and 39 provincial control

laboratories located all over the country.

Concerning the

phytosanitary sector

Turkey is a member of European and

Mediterranean plant protection organisation (EPPO). Turkey’s lists of plant quarantine

organisms are largely, but not entirely, harmonised with EC lists.

However, Turkey's plant health regime is not compatible with the EC regime. Control of

imports is currently governed by an import permit regime and the domestic production is

normally not subject to plant health control, other than for the purpose of the certification

of seed and propagating material. Producers, other than producers of seed and

propagating material, are not subject to compulsory registration.

Ralstonia solanacearum,

the agent of the potato brown rot is the most significant harmful

organism of concern present in Turkey. Surveys as well as laboratory tests are carried out

in accordance with the relevant EC Directive. However, the number of tests per year is

limited due to capacity problems by the single Turkish laboratory able to perform the

prescribed tests. An increase of laboratory testing capacity is urgently needed.

Overall assessment

Turkey’s agricultural policy differs substantially from the Common Agricultural Policy.

Turkey needs to undertake major efforts to align with the Community

acquis.

The first

priority is to set up basic mechanisms to be able to manage agricultural policies. It is

equally important that, as a matter of priority, veterinary and phytosanitary legislation to

combat diseases is put in place, including the necessary structures for enforcement and

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control. Further administrative reforms are needed, including training and upgrading of

equipment.

Currently, the agricultural support systems in Turkey are rather different to those in the

EC because they mainly focus on market price support via intervention and farm input

subsidies. The main features of the Common Agricultural Policy after the adoption of the

Agenda 2000 package is to have a renewed system of direct payments in place in main

production areas (cereals, beef and milk from 2005/2006 onwards). This includes the

implementation of obligatory supply control mechanisms by farmers (set aside, maximum

premium per herd size etc). In the renewed CAP more emphasis is also put on increasing

the competitiveness of EC agricultural products on world markets, food quality and safety

and the incorporation of environmental considerations in agricultural practice.

In Turkey only a limited amount of funds are allocated to direct farm income support.

The reforms envisaged by the Turkish government could however bring Turkish

agricultural policies closer to the EC model, in particular through systems compatible in

the medium term with the agricultural

acquis..

One of the fundamental objectives of the

CAP is to provide direct income support on the basis of historical (reference) yields while

at the same time controlling supplies. The overall objective of the Turkish policy in

agriculture, however, is to overcome substantial structural deficiencies and, moreover,

further substantially increase production in a sustainable way. Direct income payments in

Turkey serve to compensate farmers for their shift to other alternative, less profitable

crops. Only in limited cases is this related to supply controls (tobacco sector).

The first priority for Turkey should be to have in place the basic management

mechanisms and administrative structures of the Common Agricultural Policy. In

particular, this should imply that Turkey establishes a land register system, further

improves agricultural statistics and further upgrades inspection and control mechanisms,

including at external borders (BIPs), and establishes the financial mechanisms including

internal and external control of the Common Agricultural Policy (EAGGF). The further

development of producers´ organisations in conformity with Community legislation is to

be encouraged. It is equally important to further improve the overall quality standards

and safety of agricultural products in Turkey. This would entail the upgrading of

laboratories and other relevant equipment for inspection and sampling in order to

exercise sufficient quality control. Quality insurance of the inspection system also needs

to be developed. It is therefore recommended that harmonisation activities with the

Community

acquis

continue on this basis. An action plan for all this work could be

considered.

Turkey should establish a clear strategy for adoption of the

acquis

in the veterinary fields

including upgrading of laboratories and other equipment to detect diseases including

directly at border posts. Training of staff is further required.

Further progress has to be made on the establishment of a programme of active

surveillance and implementation of control measures in Turkey following Decision

98/64/EC. Swift and reliable information with regard to the different disease situations in

Turkey is essential.

Turkey should establish a clear strategy for the phytosanitary

acquis.

Turkish plant health

authorities should first become acquainted with the Community plant health legislation,

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before carrying out a legal gap evaluation between current Turkish legislation and EC

Acquis.

There is also a need for upgrading implementing capacity, ranging from an increase in

laboratory testing capacity, the alignment of border inspection post standards with EC

standards, training of staff and increased information to relevant parties.

As regards administrative structures, the Ministry of Agricultural and Rural Development

plays a key role in the development of agricultural policies in Turkey. At central level

1723 persons are working at the ministry, while in the provinces 30,263 persons in total

are employed. There are 6 state economic enterprises (see also above). The agricultural

sales co-operatives and their unions buy products from their members. Agricultural

chambers exist which represent farmer’s interests.

As regards the administrative capacity relating to veterinary matters, at central level these

are dealt with by the General Directorate of Protection and Control of the Ministry of

Agriculture and Rural Affairs (MARA) (departments of animal movement and quarantine

service, animal health services and public health service). Each province has an animal

health section responsible for the daily implementation of the law on animal health

control. There are also veterinary officers working at a district level. In total 1579

officials work at central and provincial level while 1322 persons are involved in

laboratories, education and training. A customs veterinary service is operational.

As regards administrative structures related to

phytosanitary

matters, these are mainly

dealt with by the Directorate of Protection and Control of the Ministry of Agriculture and

Rural Affairs. In each province there is a plant protection service (in total 2983 officials

in 81 provinces).

All inspections (in total 41) are carried out according to the Plant Quarantine Regulation

of 1991. The Plant Protection Research Institutes carry out laboratory diagnosis (one

Plant Protection Central Research Institute and 4 Agricultural Research Institutes).

In view of the large number of entities involved in agricultural policies, it would be

recommended to regroup different agricultural bodies. There is also a case to improve the

co-ordination of different aspects of agricultural policies.

Chapter 8: Fisheries

Compared to the situation in 1999, no progress can be reported in the area of fisheries.

Overall assessment

Much remains to be done in order to comply with the

acquis

in this field.

Turkey has quite substantial fishery resources both due to its long coastline and extensive

inland waters and river systems. However, the fisheries sector accounts for only 0.3 % of

Turkey’s GNP.

The total number of fishing vessels is 17,475. There is no distant water fleet. The total

number of licensed fishermen is 55,000 and the total number directly employed 200,000,

while 2 million people depend on the fishing industry indirectly.

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The overall policy aim of the government is to further develop the fisheries sectors

(increase of production) in a sustainable way by eliminating a number of deficiencies in

the fisheries structures while preserving natural resources. It also wishes to upgrade

quality control systems.

In aligning with the

acquis,

a first priority for Turkey should be the implementation of the

fundamental management mechanisms and administrative structures of the Common

Fisheries Policy. In particular, this would imply that Turkey further upgrades inspection

and control mechanism (logbooks, landing declarations, vessel-monitoring system) and

establish a separate fishing fleet register while stimulating the development of producers´

organisations in conformity with Community legislation. It is equally necessary to further

improve the overall quality standards and safety of fishery products in Turkey. This

would entail the upgrading of laboratories and other relevant equipment for inspection

and sampling in order to exercise sufficient quality control.

As regards administrative capacity the Ministry of agriculture and rural affairs (MARA)

is the main state organisation responsible for fisheries, regulation, protection, promotion

and technical assistance through four general directorates. In each of the 81 provinces

there is a sub-directorate for fisheries dealing with policy matters; inspection; quality

control and optimum use of resources. In 26 provinces are quality control institutions

established. There are also other institutions involved in fisheries such as SPO, statistics

and foreign trade. In 26 provinces, 128 inspectors work in the field of quality control

while at central governmental level, eight experts are employed in this area. A total of

approximately 250 persons work on the management of the fisheries policies at the

provincial directorates, while five persons oversee the work carried out in the provinces

at a central level. The Undersecretariat of Foreign Trade is responsible for the preparation

and implementation of regulations with respect to the in- and exports of fishery products.

Improvements of the administrative capacity are necessary.

Chapter 9: Transport policy

Since the last regular report no new legislation transposing the Community transport

acquis

has been adopted.

Turkey has participated and contributed actively to the international activities on the

relevant Pan-European Transport Corridors and in particular the Black Sea Pan-European

Transport Area for which it has acted as Chairman since July 1999. An inventory of ports

in the region has been prepared.

road transport

no further progress has been achieved yet in legislative terms,

although certain practices in the organisation of the market or professional standards

appear to be applied similarly to the EC. In July 1999 Turkey became a contracting party

to the European Agreement on the Work of Personnel of Vehicles Engaged in

International Road Haulage (AETR).

No progress can further be noted in the field of

air transport

and in the

railway sector.

In the field of

maritime transport,

no specific progress has been achieved as regards the

acquis,

although Turkey is a signatory of many related international IMO rules and

regulations and has harmonised its legislation accordingly.

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Since the last regular report, no progress can further be noted as regards the lifting of

restrictions on vessels serving the Cyprus trade and of vessels on the Cyprus register,

which Turkey still applies. This remains a matter of major concern. In addition, market

access to coastal trade is reserved for Turkish-flagged vessels.

Overall assessment

Turkey needs to step up considerably the legislative work necessary to change its

legislation and adopt the Community transport

acquis.

This must be considered a priority

at this stage of the accession process in order to prepare the ground for the effective

implementation of these laws. Whilst a large number of laws are under consideration and

preparation, many of these are framework laws which leave the detail of implementation

to secondary legislation.

As regards

road transport,

whilst accession to the European Agreement concerning the

International Carriage of Dangerous Goods by Road (ADR) was envisaged already for

last year, it has not yet been concluded. Turkey has always been invited to attend the

negotiations on the multilateral INTERBUS agreement on occasional bus services, but

neither attended the meetings nor the signature earlier this year.

As regards the

railway

sector, it is recommended that Turkey make efforts to achieve

compliance with the railway

acquis.

In the field of

air transport

Turkey is preparing to join the Joint Aviation Regulations

(JARs).

The

maritime safety

record of the Turkish fleet compared to that of the EU fleet remains

a matter of serious concern. In accordance with 1999 Paris MoU statistics, the detention

rate for Turkish-flagged vessels is 24.5%, which is one of the highest amongst the 13

candidate countries. This is to be compared with an average of 3.6% for EU-flagged

vessels.

The 1999 Regular report already stressed the importance of improving Turkey’s maritime

safety record with the objective of ensuring that the gap between the detention rates of

Turkish vessels and EU vessels is considerably narrowed. However, Turkish efforts to

improve this safety record are neither structural nor comprehensive, and mainly relate to

the transport of oil.

A key difficulty will most likely be the adaptation of Turkey’s considerable transport fleet

to EC standards. This is the case in road transport and in particular maritime transport,

for which the level of safety of the Turkish fleet needs to be vigorously addressed.

As regards the

administrative capacity

there is an urgent need to strengthen Turkey’s

maritime administration in order to improve the safety record of Turkish vessels. Turkey

should try to ensure its Flag State implementation obligations as first priority, followed

by its Port State obligations. The latter is a problematic issue, since Turkey has an

insufficient number of officers. Care should be taken that there is a sufficient number of

trained inspectors to apply the

acquis.

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Improvements of Turkey’s administrative capacity to implement and apply effectively the

legislation are required in all sectors of transport policy. In particular such improvements

should be made urgently as far as the maritime administration is concerned.

Chapter 10: Taxation

Very little progress has been reported in the field of taxation since the previous regular

Report. As regards VAT an amendment, aiming at bringing the treatment of exempted

imports in line with the Community

acquis,

was carried out in January 2000.

Overall assessment

On the basis of available information, Turkey has made very little efforts to harmonise its

tax legislation to that of the

acquis

since the previous regular report.

Substantive alignment is still required concerning

VAT.

This is in particular the case as

regards the application of VAT rates and the scope of exempt transactions. Substantive

alignment is also required in the field of excises both vis-à-vis the tax structure and the

level of duty rates.

As far as the principle of equal taxation of

excisable

goods irrespective of their origin is

concerned, further clarifications are required.

Turkey should give higher priority to aligning its tax legislation with the

acquis.

A more

strategic approach is recommended i.e. a legislation specific transposition programme.

The strengthening of the administrative capacity must remain a priority.

Chapter 11: Economic and monetary union

A detailed assessment of Turkey’s economic policy in its various aspects has been given

above, in the chapter discussing the economic criteria (B-2). Therefore, the present

section is limited to a discussion of those aspects of the Economic and Monetary Union

acquis-as

defined by title VII of the EC treaty and the other relevant texts-which

candidate countries should implement by accession at the latest, i.e. the prohibition of

direct public sector financing by the central bank, the prohibition of privileged access of

the public sector to financial institutions, and independence of the national Central Bank.

As to the process of liberalisation of capital movements, upon the completion of which

compliance with the EMU

acquis

is conditional, this aspect has been covered above, in

the section on Chapter 4 – Free movement of capital.

Since the last Regular Report, Turkey has made no significant progress in the adoption of

the EMU

acquis.

According to present legislation, the government still has access to a limited, short term

Central Bank facility in order to finance temporary liquidity constrains. However, in

practice, the treasury rarely uses this facility. Although the government does not seem to

have direct legal

privileged access to the financial institutions,

the fact that the public

banks regularly purchase government paper provides easy access to financing the

government. Financial sector legislation, such as investment rules for insurance

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companies and pension funds, needs to be further verified for the absence of privileged

access.

Overall assessment

Turkey will participate in EMU upon accession with the status of a country with a

derogation under article 122 of the EC treaty. It will need to implement the necessary

changes to its institutional and legal framework by the date of accession.

Overall, some parts of Turkey's legislation are in line with the EMU

acquis.

Further

progress is necessary with respect to all other elements of the EMU

acquis.

Under the current conditions, the Turkish government does not have access to

direct

public sector financing by the central bank,

nor from the state owned banks.

The Law establishing the Central Bank was amended in June 1999. According to the

statute, the Turkish Central Bank is not independent, as the personal institutional and

financial independence of the Central Bank are not fully guaranteed. In addition, the

statute does not quarantee the independent conduct of monetary policy. For example,

interest rates on credit and deposit are proposed by the Bank to the Prime Minister.

Equally, the Central Bank's credit policy must be in line with the Government

development plans, and must be approved by the Prime Minister.

The bodies responsible for implementing the economic policy in Turkey are the

Undersecretariat of Treasury, the Minister of Finance, and the Central Bank of the

Republic of Turkey.

Chapter 12: Statistics

Compared to the situation in 1999, no concrete progress can be reported in the field of

statistics.

Co-operation between Turkey and Eurostat started only recently. Until now, MEDSTAT

has been the main framework of statistical co-operation between the EC and Turkey. First

discussions between the Turkish State Institute of Statistics (SIS) and Eurostat took place

in June 2000. Priority areas were defined to start co-operation with Eurostat in the

following fields: Harmonised Consumer Price Index and Purchasing Power Parities,

Earnings surveys, agriculture statistics, business statistics and external trade.

Overall assessment

Turkey’s statistical system is still very different from that of the EC in most fields, such

demographic and social statistics, business statistics, external trade

and

agricultural statistics.

Differences also exist in

macro-economic statistics

although in

the past due to the EC-Turkey Customs Union, some alignment has taken place.

Regional statistics

are not available. In all of these areas much more work is needed on

methodology, quality and completeness of data to achieve compliance with the

acquis.

Further contacts between Turkey and Eurostat are envisaged before the end of the year

with the objective to assess in detail the Turkish statistical system.

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As regards

administrative capacity,

the SIS is the central authority of the statistical

system, responsible for data collection, production and publication of statistics. The

headquarter of the Institute consists of 10 “Principal Service Units” which cover the main

statistical areas, complemented by three “Advisory Units” (Legal; Research, Planning and

Co-ordination; Statistics) and three “Supporting Units” (Administrative and Financial

Affairs, Personnel, Civil Defence Unit). Presently, the SIS comprises 23 regional offices.

By Law, the “Supreme Statistical Council” is the advisory body of the Turkish statistical

system. The administrative organisation of the statistical system needs to be developed

substantially. Particular efforts are needed in areas including setting of priorities, staff

training, and ensuring appropriate staffing in departments working on areas relevant for

EU integration. Officials at the SIS require training.

Chapter 13: Social policy and employment

Compared to the situation in 1999, no major progress was made in harmonising national

legislation with the Community

acquis

in the field of social policy and employment.

As regards

Labour Law

no further alignment has taken place since 1999, even though

the Ministry of Labour and Social Security has established a committee to upgrade and

harmonise labour legislation with the

acquis.

Child labour

is widespread and remains a matter of major concern.

In the area of

equality of treatment

no further transposition of EC legislation can be

reported. No progress has further been made in the area of

health and safety.

The

public health

care system is confronted with two major problems, the insufficient

public expenditure on health services (the share in the budget dropped from 4.7% in 1992

to 2.6% in 1998) and insufficient distribution of the service in general. A reform of the

public health care system is urgently needed.

As regards

social dialogue

at all levels no major progress has been made since the last

Regular report. This area remains a matter of serious concern (see

also Section B-1.2 –

Human rights and the protection of minorities).

Concerning

social protection,

an unemployment insurance scheme was launched in June

2000. The reform of the Turkish social security system is an on-going process and

urgently needed.

Overall assessment

Turkish legislation is still very different from that of the Union in particular in terms of

standards, methods and monitoring requirements.

In the field of Labour law much remains to be done in areas such as collective

redundancies, the protection of employees with regard to the transfer of undertakings and

insolvency, the contract or employment relationship, health and safety of temporary

workers, the organisation of working time, part-time work, the protection of young

people at work, European Works Councils and posting of workers.

The “National Steering Committee” on child labour was established in 1992 by the parts

of the public sector concerned, trade unions and voluntary organisations. However,

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progress to tackle child labour has so far been limited. Turkey should address this issue as

priority (see

also Section B-1.2 – Human rights and the protection of minorities).

The Turkish Constitution guarantees gender equality and lays down the principle of non-

discrimination. However, efforts are needed to ensure implementation and enforcement

of equality of treatment. In particular actions should be envisaged to reduce female

illiteracy and promote urban employment for women through education and training.

As regards social dialogue, a law on trade unions in the public sector is under

preparation, containing a number of provisions which could entail significant constraints

on the right to organise in the public sector. These restrictive provisions notably relate to

the exclusion of large categories of workers from the right to join trade unions; the

possible 'liquidation' of trade unions by the authorities, which could lead to the banning

of trade unions on political grounds; the scope of collective bargaining; and the right of

affiliation to international public employees' confederations.

Outside the public sector, difficulties with regard to freedom of association and collective

bargaining also persist in law and practice. Thus, the law on collective bargaining,

lockout and strikes at present requires unions to represent 10% of workers at the sectoral

level in order to gain collective bargaining rights. There continue to be reports of the

denial of trade union rights in the Turkish shipbuilding industry.

Moreover, trade union rights are curtailed in export processing zones, where the

application of some labour legislation is suspended and restrictions are imposed on the

freedom of workers to organise and on the right to collective bargaining. Further progress

needs to be made as a priority to create the conditions for a free and genuine social

dialogue at all levels.

Unemployment stood at 8.3

in the first quarter of 2000, compared to 7.6 % in 1999.

The main challenges for Turkey are the high level of youth unemployment (15.2 % in

1999) and the structural change associated with a transition from a labour market which

is still dominated by the agricultural sector, with around 41.3 % of total employment in

agriculture. Moreover, half of all employment is thought to be unregistered. Against this

background, there are few signs as yet that Turkey has begun to develop active labour

market policies.

The social security system continues to be in serious financial difficulty. The reforms in

progress are essential. On major health indicators, such as infant mortality, maternal

mortality and life expectancy, Turkey continues to be significantly worse than EU

Member states. Decent standards of primary health care must be ensured for the whole of

the population. No National Programme for disabled people exists yet in Turkey. Several

institutions are in charge of disabled people, among others, the Administration of Social

Services and Child Protection, the Ministries of Health, Education, Labour and the

Worker Placement Agency. The Turkish Labour Law foresees that private and public

institutions employ disabled persons (at least 3% of the total number of staff). However,

implementation and enforcement is not ensured.

As regards the

administrative capacity

at central level, the Ministry of Labour and

Social Security has the overall competence. In the Ministry the “Social Policy and

Employment Harmonisation Committee” is responsible for the harmonisation of Turkish

legislation with the

acquis

on employment and social policy issues, whereas the

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“Technical Harmonisation Committee” is responsible for the harmonisation of Turkish

legislation in the field of health and safety at workplace.

The Turkish Employment Organisation is the sole employment Agency in Turkey dealing

with matters related to employment and unemployment issues, job finding, placement of

workers into public and private organisations and vocational training activities. It has 12

regional directorates. Being administrative and financially independent, it is operating

under the auspices of the Ministry of Labour. However, work of the Employment

Organisation is not effective and urgently needs to be improved.

Occupational health and safety is dealt with by various bodies, the Labour Inspection

Board and its affiliated groups, the Department of Occupational Health and Safety

Centre, the Near and Middle East Labour Training Centre and the Occupational Diseases

Hospitals of the Social Insurance Institution. The Labour Courts are responsible for

labour and social security cases. Moreover, there are three main social security

organisations in Turkey, the Social Security Fund for Civil servants, the Social Insurance

Institution and the Social Security Agency for Artisans and the self-employed.

Implementation and enforcement of social policy and employment rules seem not ensured

due to the involvement of various bodies and institutions at different levels and thus

conflicting interests and responsibilities, lack of trained and specialised staff as well as

lack of financial resources.

Legislation transposing the EC Directive based on Article 13 of the Treaty relative to

discrimination on the grounds of race or ethnic origin will have to introduced and

implemented.

Chapter 14: Energy

Over the last year the energy sector has been the focus of serious discussions in Turkey.

The most important reasons for this debate were the energy shortage that hit Turkey as

well as discussions concerning the construction of a nuclear power plant in Mersin-

Akkuyu.

Compared to the situation in 1999, progress in transposing the Community

acquis

in the

field of energy has been limited. In total only 16 out of 120 EC references on energy are

in harmony with the EC. 10 need harmonisation, and 32 references do not have a

corresponding Turkish legislation. A positive step was the conclusion of the ratification

process of the Energy Charter treaty and related instruments.

As regards

security of supply

no major new developments are to be reported.

With regard to the issues of

competitiveness and the internal energy market,

a first

essential step to structural reform of the energy sector, i.e. removing barriers to

liberalisation and encourage investment, was the amendment of the Turkish constitution

to allow for international arbitration and privatisation. Restructuring of all sectors is

underway, but the emphasis is very much placed upon privatisation and attracting

investments rather than the need to open up each sector and to encourage competition.

As part of conditions for receiving a loan from the IMF, Turkey has pledged to open up

and liberalise further its energy sector.

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Concerning

energy efficiency

no new developments have taken place.

In the field of

nuclear energy

there are currently no commercial

nuclear power plants

operating in Turkey. The government recently cancelled a call for tender for constructing

a first nuclear power plant in Mersin-Akkuyu for safety and budgetary reasons. A

Regulation concerning the treatment of nuclear and radioactive waste and coping with

possible accidents was published in January 2000.

Overall assessment

There is still much that Turkey needs to do to bring the energy sector’s legislative,

regulatory and administrative framework in line with the

acquis.

Key laws for the power

and gas sectors are still pending. The legislation which is under preparation should

provide a good basis for implementing the

acquis,

although it remains to be seen whether

further implementing secondary legislation will be required for full conformity.

Since Turkey is a member of the IEA, important steps have been taken for compliance

with IEA commitments and the EC emergency preparedness

acquis

as regards oil stocks.

Total oil stocks, as regularly notified to the IEA, were equivalent to 87-90 days of

consumption in 1998. All emergency preparedness measures are under the control of the

Directorate General for Petroleum Affairs, which serves as the agency for monitoring and

controlling oil stocks.

Turkish electricity generation and transmission activities have already been separated

from distribution activities. The private sector is involved in generation and distribution.

Further restructuring has been postponed until after the adoption of the envisaged

Electricity Market Law. Third party access to networks has already been part of the

Turkish electricity system.

Prices and tariffs are not established by an independent entity: the state-owned utilities

still play an important role in this. The power sector also suffers from losses amounting

to 20.4% of production. Half of this is a result of technical losses, the other half from

non-technical losses, among others theft. The state-owned distribution company’s

attempts to reduce levels of theft have met with very limited success. Such losses

contribute to the financial deterioration of the state generation and transmission company.

A financial recovery plan is therefore in place and it is hoped that the privatisation of the

distribution sector will assist in improving Turkey’s bill recovery record.

The state-owned utility for both oil and gas (BOTAS) still has a legal monopoly, and it is

the sole authority in natural gas importation as well as pricing of natural gas. There are,

however, no obstacles to foreign or private ownership or distribution, and the monopoly

will be fully abolished during the restructuring process. Access to the network is already

foreseen in the current legislation. Restructuring of the gas market is being planned.

There is still a state dominance of the oil sector through 4 State-owned enterprises

covering upstream, refining, distribution and transportation activities, and pipeline

transportation is still the responsibility of BOTAS. The 4 companies are not monopolies

but have a dominant market share. It is expected that BOTAS be unbundled soon, and

the environment for foreign participation is favourable.

Overall, Turkey’s priority in restructuring its energy sector is in privatisation and

attracting investments. It is vital that this should also be accompanied by an opening up

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of each sector and encouraging competition. In addition, there is a need to improve the

financial discipline of utilities, particularly those in the power sector. Establishing

independent regulatory authorities will help in this process.

Due attention should be given to preparing the implementation of Euratom safeguards.

As regards the

administrative capacity

the continued absence of regulatory authorities

for both the electricity and the gas sectors is an obstacle for the sector’s restructuring as

well as attracting investments. The envisaged new legislation in these areas is to establish

the independent regulatory authorities. It is important to ensure that these authorities have

the effective capacity and independence to carry out their tasks. In the nuclear energy

sector, the Turkish Atomic Energy Authority serves as a licensing authority and also

licenses trade in nuclear material. IAEA safeguards apply, including as regards measures

to protect workers.

In general the current administrative capacity in these areas requires further

modernisation in structural terms as well as staff training.

Chapter 15: Industrial policy

Since the last regular report progress has taken place concerning mainly the privatisation

of State owned enterprises. The alignment with EC standards has also progressed.

The State is committed to large-scale

privatisation,

which in the past have not

progressed as quickly as expected. For the year 2000, Turkey has set itself the target of

reaching approximately

€

8.5 billion in revenues from privatisation. To reach the year

end privatisation target, it will be necessary to make progress on the privatisation of Turk

Telecom. In January 2000 the Turkish Parliament adopted legislation on international

arbitration in cases of disputes between the State and private companies with reference to

disputes concerning concession agreements in the provision of services by private

companies. This will make it easier for Turkey to find companies willing to engage in

Turkish infrastructure projects on a build to operate basis.

In order to facilitate FDI, the need for authorisation has been replaced by the registration

to the General Directorate of Foreign Investment in the Undersecretariat of Treasury.

Overall assessment

Turkish

industrial policy

is based on the 8 th Five Year Development Plan which aims

at harmonising Turkish industrial policy with EC industrial policy and which foresees

structural reforms to integrate Turkish industry into the EC market. The plan also

proposes the harmonisation of Turkish industrial legislation with that of the EC and the

development of commercial and technical co-operation between Turkey and the EC.

However, Turkey’s industrial policy approach needs to be further aligned with that of the

EC, and should take advantage of the local potential while refraining from protectionism.

The manufacturing sector accounts for about 27% of GDP (including construction) and

23% of total employment. Turkish industry is characterised by a dual structure, with very

Developments in Industrial policy should be seen in relation to developments in the context of SME

policy (see chapter 16 - Small and medium-sized enterprises)

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large companies (conglomerates) whose activities range from manufacturing to financial

services.

The grey economy is also very large, but there are no reliable evaluations of its size. This

element can limit the effectiveness of traditional industrial policy tools. The

manufacturing sector is already largely exposed to international competition and is

showing a sufficient competitiveness in a number of sub-sectors.

An important dimension of the industrial policy is the control of state aids

(see also

chapter 6 - Competition).

Privatisation in the telecommunications and energy sectors are expected to improve the

business environment for Turkish industry in the future, provided that they are also

accompanied by a lifting of monopolies and market liberalisation. However, privatisation

of state assets will not be total, since the State intends to maintain a role in certain

strategic sectors.

In the steel sector, the government has now decided to transfer Isdemir to Erdemir, a

consequence of the failure to privatise Isdemir. The objective of this operation is to have

Isdemir produce flat iron and steel products. This operation would result in increasing

the production capacity in these products which would add to the excess capacity in the

sector in Europe, therefore contradicting EC policy objectives.

One of the weaknesses of the Turkish industrial system is the low level of FDI, around

€

1billion a year, that places Turkey around the 50

place in the world as a destination for

FDI. Therefore, any improvement of the macroeconomic and legislative framework is

important if it can increase the level of FDI.

Turkish industrial policy is managed by the Ministry of Industry and Trade. The TSE -

Turkish Standard Institute - lacks capacity, in particular in the field of testing. The

problems it encounters (also reported in the chapter 1 of this section of the Regular

Report) may have negative effects on competitiveness of Turkish companies. The

adoption of the necessary technical regulation will foster industrial policy as well as free

trade of goods.

Chapter 16: Small and medium-sized undertakings18

SME’s with less than 250 employees represent almost 65% of employment in the Turkish

manufacturing sector. They are mainly concentrated in the traditional sectors (85% of all

SME’s are concentrated in the sectors of food and beverages, textiles, wood products,

paper, fabricated metal products).

The centre piece of the State aid regime is the Decree for State Aids in Investment for

SME’s, which the Commission has to assess on its compatibility with the

acquis.

Developments in SME policy should be seen in relation to developments in the context of Industrial

policy (see chapter 15 – Industrial policy).

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Overall assessment

The alignment on EC policy has yet to start. In particular, there has been no progress

towards the simplification of the regulatory framework defining the

business

environment

as such.

There is no distinction between large companies and SME's in Turkish policy. Moreover,

there is no universal

definition of SMEs

adopted by the Turkish institutions. None of

those currently used is in line with that used by the Commission.

The main specific difficulty faced by Turkish SME's is access to finance, since the

financial sector has been reluctant to give long term credits because of high inflation and

high returns on state papers. SME's weaknesses reside in the low level of management

skills, and access to technology. Other problems are stemming from weaknesses in the

areas of research, product quality improvement, marketing, technology development and

productivity.

Operation of SMEs will be facilitated by the general stabilisation of the macroeconomic

framework, by the fiscal reform, the pursuit of the disinflation objectives and the firm

foreign exchange policy. The completion of the fiscal reform and the reduction of the

hidden economy would allow for a fair competition among small companies. The reform

of the financial sector may facilitate SME's access the financial sector and its instruments.

The reduction of the public sector borrowing requirements, and the inflation expectations

have already reduced drastically the interest rates, easing the possibility of accessing

financial markets. However the reforms do not seem to aim sufficiently at reducing the

grey economy.

As far as

administrative capacity

is concerned, Turkey has the necessary institutions.

The Ministry of Industry and Trade is responsible for the conception and implementation

of Industrial policy. It is assisted by other Ministries and, since 1990 it has had the Small

and Medium Industry Development Organisation (KOSGEB). This is a non-profit, semi-

autonomous organisation with the aim of improving the efficiency and competitiveness

of SMEs through technical assistance and training. Its business information network,

created by KOSGEB, appears to be able to provide useful information and assistance to

Turkish entrepreneurs.

Chapter 17: Science and research

Since the last Regular report some progress has been made by Turkey in this field.

During the past years Turkey has increasingly participated in European research

activities. It recently became a member of the European co-operation in the field of

scientific and technological research (COST), and has been taking part in Community

Framework Programmes since 1995, and in Eureka from the start.

New legislation on the establishment of the National Accreditation Council has been

adopted. A National Council of information technologies to co-ordinate the

implementation of a master plan for the national information infrastructure has been

established.

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The Scientific and Technical Research Council of Turkey (TÜBITAK) is the leading

organisation in implementing and co-ordinating research policies in Turkey.

Overall assessment

Currently Turkey has not asked for full association with the

RTD Framework

Programme,

and continues to participate on a project-by-project basis.

Scientific and research activities are predominantly conducted by universities (there are

74 of these) and public research institutes, and the research structure is spread rather

thinly over the country. The level of investment in the RTD by the private sector is

limited.

For the further development of the sector it is essential to have an increase in the gross

domestic expenditure in research and development as percentage of GDP which is

relatively low (0,49% in 1997). The 8

Five-year Development Plan (2001-2005)

envisages the further development of scientific and technological research. The aim is to

increase expenditure on RTD to 1.5% of GDP by the end of 2005, while increasing the

number of researchers to 20 per 10,000 of labour force. However, it is not clear in which

R and D sectors more efforts are foreseen. Turkey also envisages to increase financial

assistance to enterprises in the private sector and to encourage joint projects in the

framework of public-private partnerships. The transfer and dissemination of technology

to the private sector, in particular SMEs, has to be strengthened.

Chapter 18: Education and training

In the past year, further preparations took place for the participation of Turkey in the

Community programmes

in the fields of education, training and youth.

The exact state of transposition of the

EC Directive concerning children of migrant

workers

needs to be further clarified.

The improvement of education remains a high priority in Turkey. The Commission

supports training and education programmes in Turkey (€ 175 m grants in total). Turkey

took an important step by increasing the duration of compulsory education from 5-years

to 8-years in 1997. This will raise the number of students in secondary education after

three years, and in higher education after six years. Beyond this, the 8

Five-year

Development Plan foresees an increase in secondary level enrolment rate to 75% in 2005.

Additionally, the proportion of vocational and technical education within the secondary

education is to be increased to 35% in 2005.

The application of the apprenticeship system and the Revolving Fund Scheme in schools

would contribute to reduce child labour.

As regards administrative capacity education policy is made at a central level while each

province has educational departments.

At central level, the Ministry of Education dedicates most of its time to managing and

administering the schooling system. The Council for Higher Education is responsible for

overseeing higher education and managing universities.

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A higher decentralisation of these functions is recommended (by transferring these

responsibility to the regions, provinces or districts) and the staff of central departments

and resources should be allowed to concentrate to a higher extent on strategy and policy

level, and in promoting innovation and quality in the training provision. However, this

switch in the attribution of responsibilities would necessarily require strengthening the

capability to undertake and sustain these new tasks, both at central and at local levels.

At present, there are 87,280 people working in the management of education of whom

5335 are at Central level and 81,945 at provincial level.

Overall assessment

A tentative assessment indicates that at legal and regulatory level most principles

underpinning the educational system in Turkey are consistent and coherent with Member

States. This relates to equality of access, right to education, equal opportunities and

means, scientific and planning basis, co-education and universal education. Effective

school enrolment remains an important issue of concern. Moreover, teaching methods

need to be reviewed and unfulfilled vacancies for teaching staff in some areas are to be

addressed.

In the area of vocational training further reform measures are needed to increase the

efficiency of the training system (integrated system of occupational standards and

curricula; permanent assessment of the quality of the system); strengthening the

institutional capacity (decentralisation upgrading of skills) while a system of continuing

training needs to be established particularly with regard to the training of SME staff. A

clear link between the requirements of the labour market and the skills acquired by the

graduates of the vocational schools is needed. Investment in human resources needs to be

addressed as a priority not only by the public authorities but also by the private sector.

Chapter 19: Telecommunications and information technologies

In the area of

telecommunication markets

the government has decided in 1999 to issue

three additional licences for mobile telephony, one of them by direct award to the Türk

Telekom and the remaining two after a call for tenders. In April 2000 one tender was

awarded while the second was cancelled.

An important development in the transition process of Turkey’s telecommunications was

the adoption of a new Telecom Law in January 2000. It provides a legal framework for

further liberalisation, but maintains a monopoly of Türk Telekom on voice telephony

until the end of 2003. A new Telecommunication Authority has been established under

the new Telecom Law and its five members wereappointed. The authority is responsible

for drafting regulatory instruments including licences and for the purpose of monitoring

competition in the telecommunication markets. The expansion and modernisation of

services and infrastructure has developed well in 1999 in particular in mobile telephony

where the penetration rate reached 14 lines per 100 inhabitants (8 million subscribers) at

the end of 1999; the penetration rate in the fixed network has increased to 32 lines per

100 inhabitants (about 20 million subscribers). The GSM subscribers continued to

increase after a third GSM licence was allocated to a private consortium including one

EU Company. The digitalisation of the backbone network went up to 84.02 % in 1999

(82.9 in 1998). Use of the Internet has rapidly developed (1.1 million subscriptions: there

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are 6,5 PCs per 100 inhabitants, however only around 1% is connected to Internet)

particularly at universities and for e-commerce.

As regards the administrative capacity the Ministry of Transport has general policy

making responsibilities in the telecom sector i.e. monitoring and supervising the proper

functioning of the telecom sector in Turkey. Approximately 75 persons are working in

the Ministry. The Communications High Board takes care of security aspects. The

Competition Board is responsible for overseeing competition issues in the field.

Overall assessment

Turkey has made progress in introducing further competition in telecommunications

networks and services. However, the new law on telecommunications does not provide

independence of the regulatory authority from the fixed network operator’s influence and

from the ownership function of the state in relation to Türk Telekom. In addition, there is

a need for a tariff regime to allow Turkish Telecom to rebalance its tariffs and a

mechanism to regulate leased lines in such a way that it will permit the achievement of

the criteria of cost orientation as required by the

acquis

for voice telephony, leased lines

and other services. This will allow the Internet and other liberalised services to further

develop. It is therefore necessary that in the short term, Turkey adopts application

decrees to the existing law in order to implement essential parts of the

acquis

e.g. in

licensing and interconnection. It should ensure fair competition in mobile telephony by

providing comparable licence conditions to all operators. In the medium term, Turkey

should adopt a law to bring the new telecoms law fully in line with the

acquis

for

example with respect to the National Regulatory Authority including further

administrative capacity building.

Chapter 20: Culture and audio-visual policy

In recent years the

audio-visual

sector has undergone important changes. A competitive

environment has been created for example due to the legalisation of private broadcasting.

There is a proliferation of private radio and TV channels. There are about 16 national, 15

regional and 231 local TV channels and 36 national, 108 regional and 1056 local radio

channels. Cable Broadcasting Services are under development particularly in big cities.

Loopholes in the legislation allows the Radio-Television Board to oppose licences to

digital broadcasting transmission.

Turkey’s relevant legal framework in the audio-visual sector is determined by the law on

the Establishment of radio and television enterprises and their broadcasts from 1994.

In October 2000, Turkey ratified the Protocol to the Council of Europe Convention on

Transfrontier Television to which it is already a party.

As regards the administrative capacity, licensing of TV and enforcement of the

broadcasting legislation are the tasks of the Radio and Television Supreme Council. This

authority can suspend the authorisations of broadcasting as a retaliation against alleged

breaches of laws on security. A reform of the law creating this Council has been agreed

among the coalition partners, which would allow foreign investors to acquire up to 25%

shares in radio and TV stations; 5 members of the Board will be elected by the Parliament

and 4 by the High Education Council, the National Security Council, and the Employers’

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and Employees’ Unions. The management of broadcasting frequencies will be given to

this Council. The Ministry of culture is the main body responsible for cultural policy in

Turkey. Each province has a directorate of culture.

Overall assessment

A preliminary analysis of the Law on the Establishment of Radio and Television

Enterprises and their Broadcasts suggests that the legislation is not aligned with the

acquis.

Major discrepancies have been identified, in particular, concerning definitions,

jurisdiction, freedom of reception, discrimination on the grounds of nationality,

promotion of European and independent works, advertising and teleshopping, and

protection of minors.

Furthermore, the law sets limits to the share of foreign capital in radio and television

enterprise (20%).

Turkish’s commitments under the WTO/GATS may also prove a major difficulty in fully

taking on and implementing the

acquis

in the area of cultural and audio-visual policy in

the course of the Accession process.

On the whole, substantial progress will be needed in order to achieve alignment with the

Community

acquis

in the area of cultural and audio-visual policy.

Chapter 21: Regional policy and co-ordination of structural instruments

Since the last Regular report no particular developments can be reported in this area.

Overall assessment

While a regional policy exists in Turkey, preparations for implementing structural

policies have not yet really started.

Concerning

territorial organisation

Turkey needs to propose to the Commission a

NUTS classification in accordance with Community rules, in particular for the NUTS 2

level, which plays an important role in the implementation of structural policies.

As regards the

legislative framework

Turkey’s regional policy defines a list of provinces

to be assisted and allocates subsidies to companies settling in this part of the country. The

so-called priority provinces represent more than half of the area of the country and more

than a third of its population. Their GDP per capita is 56% of the national average (19%

of the Community average). This policy has, however, not achieved significant results so

far.

Concerning

preparation for programming,

the analysis of public investment does not

indicate a very significant effort in favour of less-favoured regions. In 1997, per capita

spending was £T 33.4 million, out of which 12.7 million was dedicated to a specific

province. Globally, the less-favoured regions received the same amount as the other

regions.

The State Planning Organisation (SPO) has started the preparation of a number of

regional development programmes:

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- Eastern Black Sea region (8 provinces)

- Eastern Anatolia (16 provinces)

- Yesil Irmak development basin (5 provinces)

- Marmara region (5 provinces).

Up to now, none of these programmes have reached an operational phase.

As regards

administrative co-ordination,

Turkish regional policy is carried out in the

framework of a centralised planning system. SPO is responsible for regional policy in

Turkey. Although responsible for co-ordination of public investments, SPO does not

seem to use this competence for regional policy purposes. With the exception of the

Authority for the development of the South Eastern Anatolia region (GAP), whose

regional policy role needs to be clarified, there are no implementing structures outside

Ankara. As foreseen in the 8

Five-Year Development Plan there are not yet SPO

regional offices and no local or regional development authorities.

In that respect, Turkey should achieve a reinforcement of its administrative structures

dealing with regional development, both at central level (SPO or a specific department

responsible for regional policy) and regional level (regional SPO offices).

As to regional

statistics,

data for the determination of eligibility are only available for

INTERREG criteria. Following the definition of a NUTS 2 classification, regional GDP

per capita in Purchasing Power Standards should be calculated. Based on data collected

by SPO and available at NUTS 3 level, regional statistics (at NUTS 2 level) should be

elaborated according to EUROSTAT standards.

Although regional problems in Turkey are serious and of considerable dimensions, there

is no efficient policy addressing them. There are no regional development authorities.

High priority needs to be given to reinforcement and modernisation of a regional policy

which is in compliance with Community standards, addressing the major gaps of the

regions lagging behind. This implies that a significant level of public investment has to

be allocated explicitly to regions which are lagging behind, thus contributing to stepping

up investments in human resources, reducing infrastructural disparities, creating a

favourable environment for private investment and ensuring a significant improvement of

living conditions.

Chapter 22: Environment

Since the last Regular report no evidence of progress in adopting the

acquis

is apparent in

areas such as air quality, waste management, water quality, nature protection, industrial

pollution control and risk management, chemicals, GMO’s, ozone depleting substances,

nuclear safety and radiation protection.

Overall assessment

Turkish legislation is still very different from that of the Community in particular in

terms of standards, monitoring requirements and methods of measurement. Complete

adoption of the environmental

acquis

remains a long-term prospect. The implementation

of the laws leaves much to be desired. It is also important to carry out detailed

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compliance checks of these laws in order to ensure full transposition of EC

environmental directives.

The 1983 Environment Law defines the framework for environmental management and

environmental legislation. The last legislative activities based on the Environment Law

date back to 1997 (amendment of the Environment Impact Assessment Regulation, which

needs, however, to be revised to bring it in line with the

acquis).

In the field of

air quality

legislation still needs to be harmonised with the

acquis.

Moreover, the Turkish air quality monitoring system needs further improvement to make

it compatible with the EC

acquis.

Waste management

is one of the most problematic areas in particular as regards

implementation of related legislation. A large percentage of household waste (93%) is

uncontrolled waste, being illegally dumped. Substantial efforts need to be undertaken to

comply with Community standards.

As regards

water quality

the 7

and 8

Five Years Development Plan underlines the

need for a new legal framework law on Water Resources and for bringing drink water

standards and wastewater discharging in line with the

acquis.

Turkey’s water legislation

does not seem to be compatible with the Community

acquis.

In order to preserve Turkey's rich assets in biodiversity,

nature protection

needs to be

paid particular attention in the pre-accession process. Turkey will need to make

significant efforts to align its legislation with the Community nature protection

legislation.

In the area of

industrial pollution control and risk management

legislation in line with

the

acquis

still needs to be introduced.

EC directives in the field of

chemicals

are not fully transposed. The Regulation on the

Control of Dangerous Chemical Substances and Preparations of 1993 is not compatible

with Community legislation (e.g. lack of provisions on risk assessment and classification

system). Turkey still lacks a general inventory of chemical substances. Turkish legislation

as regards

genetically modified organisms

is not aligned with the

acquis.

Concerning

nuclear safety

(see

Chapter 14 - Energy)

Turkish legislation is not fully in

line with the

acquis,

this in particular as regards reporting and monitoring requirements.

Concerning radiation protection the Turkish Atomic Energy Authority has defined a

strategy of licensing, radiation shielding of all equipment and development of local safety

procedures in all establishments using these sources.

As regards administrative capacity at central level, the Ministry of Environment,

established in 1991, has the overall responsibility for environmental activities. They are

carried out in close co-operation links and active partnerships with other ministries,

government agencies, local authorities and NGOs. The Ministry of Environment employs

around 800 staff, further 500 are working in over 30 provincial offices. The State

Planning Organisation (SPO) develops Five-Year Development Plans, the main

instruments for co-ordinating government policies. Since 1973 environmental issues are

addressed. Implementation of environmental policy is also entrusted to the

municipalities, which play an important role in implementing environmental protection

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measures, building environmental infrastructure, collecting and disposing municipal

waste as well as land use planning.

Overall, the administrative capacity at national and regional level is a matter of concern.

Enforcement of environmental rules seems not ensured due to the involvement of various

bodies and institutions at different levels and thus conflicting interests and

responsibilities, lack of trained and specialised staff, lack of financial resources and lack

of equipment. There is a necessity of establishing monitoring networks and permitting

procedures as well as environmental inspectorates with strong and well-determined

powers. Penalties should apply in case of non-compliance. Awareness about

environmental issues and knowledge about EC requirements is generally lacking. The

municipalities also need to speed up their preparations for EC environmental policy, in

particular as regards training.

Turkey’s environmental investments amounted in 1997 to around USD 1 billion

corresponding to 0.5% of national GDP

. The Environmental Pollution Prevention Fund

is the only national fund to finance environmental activities and investments in Turkey,

but the Ministry of Environment has authority to approve only 10% disbursements from

this fund. For the time being, the fund provides the Ministry with an annual amount of

125 million Euro to finance research, clean-up operations, education and training,

projects aimed at preventing environmental pollution and credit for the construction of

treatment plants.

Turkey’s environmental investments should to a larger extent focus on the concrete

implementation of EC environmental directives, based on a comprehensive investment

strategy. The existence of a national fund to promote environmental investments is

important in this regard.

Chapter 23: Consumers and health protection

No progress has taken place since the last regular report. The main piece of legislation

remains the Act on the Protection of Consumers dating of 1995.

The exact legal status of implementing rules, so-called “communiqués”, has to be further

clarified.

Overall assessment

Alignment with the Community

acquis

is very limited. The existing consumers

associations need to be reinforced and there is a need to establish independent market

surveillance and enforcement authorities.

Source: OECD environmental performance review, 1999. This figure includes expenditure on pollution

abatement and control, including of state owned industries, expenditure on energy saving, renewable

energy sources, pubic health, conversation of bio-diversity and landscape. Expenditure on water supply

is not included.

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Chapter 24: Co-operation in the field of justice and home affairs

Compared to the situation in 1999 no major progress has been made in the field of justice

and home affairs.

data protection

and

visa policy

no further alignment has taken place since last year.

In the area of

migration

and

border control,

efforts started to train staff and to stimulate

dialogue on migration issues. A meeting in the framework of the Centre for Information,

Discussion and Exchange on the Crossing of Frontiers and Immigration took place.

Turkey needs to conclude re-admission agreements.

In the field of

asylum,

efforts have also started as regards capacity building, in particular

training of staff, in close co-operation with UNHCR.

Equipment in the asylum area (headquarters; provinces) has been upgraded in order to

improve and accelerate the asylum status determination procedure.

As regards

police co-operation

no new developments are to be reported since last year.

In the field of

fight against fraud and corruption,

Turkey has ratified the OECD

Convention on Combating Bribery of Foreign Public Officials in International Business

Transactions. However, Turkey has not yet signed any of the Council of Europe

Conventions in this domain.

On the fight against

drugs,

no major development can be reported.”

As regards

customs co-operation

no major new developments have taken place. The

same applies to

judicial co-operation in criminal and civil matters.

Overall assessment

In the field of data protection, new legislation is under preparation. Turkey has not yet

ratified the 1981 Council of Europe Convention on the Protection of Individuals with

regard to the automatic processing of personal data.

As far as visas are concerned, the Turkish visa list is not in line with the EU list. For

instance, Iranian citizens may enter Turkey for a period of three months without a visa.

However, for other countries of origin such as Afghanistan, Pakistan and Sri Lanka, visas

can be granted in the country of origin but not at the border.

As far as border control is concerned, it is currently managed by five different forces: the

Navy and the Coast Guard at the maritime borders, the police at crossing points and

airports and the Army (land forces) at the “green border” (the gendarmerie is still in

charge in some areas, as is the case in the Van province, but it is to be replaced

everywhere by the land forces). There is no single command over border control nor

civilian command. The Gürbulak land border crossing with Iran in the province of Agri is

in the process of being modernised. Observation towers are to be built along the 350 kms

of mountains separating Turkey from Iran in the province of Van (there are currently

“barracks” along this border line). A precise assessment of the protection of the “green

border” in terms of staff and equipment still has to be conducted. It is recommended that

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the different services are better co-ordinated in order to increase the efficiency of

controls, in particular exit controls.

As regards migration, efforts need to be seriously stepped up to decrease the number of

illegal persons who try to reach Western European countries.

In the field of asylum, Turkey should lift its geographical reservation to the Geneva

Convention, although it takes into consideration all asylum requests and proceeds

together with UNHCR (parallel procedures) in order to examine these cases. In a great

majority of cases, the conclusions of the Turkish Ministry of the Interior and of UNHCR

as to granting the status of refugee are identical. In co-operation with UNHCR, the

Ministry of the Interior has drafted a 3-year project covering the period October 2000 –

October 2003 aiming at carrying out the training of the personel dealing wit asylum and

refugee issues, technical assistance and the changes which occurred in the national and

international field of asylum and refugee issues. Given the fact that the Land Forces

(Army) are in charge of the surveillance of the green borders and that many asylum

seekers enter the country by the green borders, outside the official border crossings, a

programme should be developed to enhance the awareness of the land forces on the issue

of refugees and asylum seekers. This should be done especially in the East-South East

areas of Hakkari, Agri and Van (the green border in the Van region), which consists of a

350 km mountainous border with Iran. This area is still under the control of the

gendarmerie but this control is to be handed over soon to the land forces.

As regards accommodation facilities for refugees, a big effort needs to be undertaken to

set up proper reception centres in Turkey. For the time being, refugees and asylum

seekers are in many cases accommodated by the local population thanks to the local

tradition of hospitality and solidarity. They benefit some support from the Governors’

offices and the municipalities but these efforts are not comparable to the challenges to be

faced due to the substantial regular influx of refugees and asylum seekers.

As regards police co-operation, fight against fraud and corruption, the fight against drugs,

customs co-operation and judicial co-operation in criminal and civil matters, serious

efforts are required to comply with the

acquis.

This also implies the ratification of the

respective international Conventions by Turkey. Moreover, serious efforts are needed to

increase the capacities to effectively implement and enforce legislation in these areas.

Chapter 25: Customs union

The new

Turkish Customs Code

entered into force on 5 February 2000. The provisions

were almost fully aligned but the application of the provisions in practical terms is still

slightly different in respect of free zones and customs procedures with economic impact.

In January 2000, Turkey concluded a new agreement that ensures continuation of

technical assistance in respect of the use of the transit procedure and the Single

Administrative Document (SAD).

Overall assessment

The Customs Union between the EC and Turkey entered into its final phase on 31

December 1995. The Decision establishing the Customs Union (Decision 1/95 of the

Association Council) requires that Turkey align its commercial policy and customs policy

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with those of the Community. At present, Turkey has almost fully aligned its Customs

legislation with the Community Customs legislation.

Article 15 of the Decision 1/95 of the EC-Turkey Association Council provides the right

for Turkey to retain customs duties higher than the Common Customs Tariff in respect of

some goods, until 1 January 2001. As from 1 January 2001, Turkey will apply the same

customs duties as the Community for all products covered by Decision 1/95.

As for customs, the last Regular Report highlighted the fact that the Turkish customs

system basically complies with the Community Customs Code. Differences remain in

regard to free zones, on which information exchanges have taken place between the

Commission, Turkey and the other candidate countries.

The Customs Undersecretariat which consists of almost 8000 people reports to the Prime

Minister. There are 250 customs offices. The reorganisation of customs administration

was launched in 1993 and is taking place through the “Modernisation and Automatisation

Project”, which foresees in particular the full computerisation of the administration. In

some sectors, there is a lack of co-operation with Member States’ customs

administrations, for example in respect to the verification of proofs of origin. Moreover,

there is a need for thorough training of officials in respect of customs legislation.

Chapter 26: External relations

As Turkey is already in a Customs Union with the EC, and Turkish Commercial policy is

largely aligned with the EC policy in areas covered by the Customs Union. Negotiations

are underway for the extension of the Customs Union to services and public procurement.

In the WTO framework, Turkey is a signatory to the ITA and has observer status in the

Government Procurement Agreement. As regards a new comprehensive trade round,

Turkey’s position in general concurs with that of the EU.

As far as

bilateral agreements

with third countries are concerned, the free trade

agreement with Bulgaria came into effect on 1

November 1999, with Latvia on 1

July

2000, with Slovenia on 1

June 2000 and Poland on 1

May 2000. The agreement with

FYROM was ratified 25

July. No negotiations with Cyprus have started. Agreements

with some Mediterranean countries have also been signed. The agreement with Poland

foresees a transition period until 1 January 2002 when the duties and tariffs will be

removed in the trade in industrial good between the two parties. Turkey is applying the

Community’s unilateral trade concessions to Bosnia as of July 1999.

Turkey has concluded Mutual Investment Protection Agreements with Cuba, Malaysia,

Mongolia and Russia and a Bilateral Investment Treaty with the US.

A WTO dispute settlement panel found the restrictions imposed on India for the

importation of textiles to be inconsistent with Turkey's WTO obligations. This ruling was

confirmed by the Appellate Body. Bilateral contacts are taking place (between the EC and

Turkey) to ensure that Turkey's actions to implement the panel and Appellate Body

findings do not undermine the operation of the customs union in this sector.

In the field of

development aid and humanitarian aid,

Turkey has contributed to

international stability through the province of humanitarian assistance. Since 1999,

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according to Turkish estimates, it has provided aid to 69 countries for a total value of

Euro 300 million.

Overall assessment

Overall, there is wide convergence between the EU and Turkey in the area of external

commercial relations. The compatibility of the Turkish legislation with EU policies in the

fields of dual-use, textiles and alignment to the export credits

acquis

needs to be further

assessed. There has been also good co-ordination between Turkey and the EU within the

framework of the WTO.

According to the timetable specified in the Customs Union Decision of 1 January 1996,

Turkey needs to have aligned itself with all the preferential agreements concluded

between the EC and third countries and EC autonomous preferential regimes by 2001.

Turkey has so far concluded FTAs with Bulgaria, Hungary, Romania, Lithuania, Estonia,

the Czech Republic, the Slovak Republic, Latvia, Slovenia, as well as with the EFTA

countries, Israel, and FYROM. Further progress is however necessary in meeting all the

EC commitments under preferential regimes.

The EU and Turkey should continue to keep each other informed about negotiations

aimed at the conclusion of any new trade agreement with a third country. Moreover, in

line with Turkey’s candidate status, it should contribute to the smooth functioning of

International Organisations, such as the OECD.

As regards

administrative capacity,

Turkish commercial policy is implemented mainly

by the Undersecretariat of Foreign Trade, which consists of 1494 persons in total (993 are

working in Ankara, 417 in other parts of Turkey and 84 abroad). The administrative

infrastructure, which relates to customs services, is addressed under the chapter relating

to the Customs Union

(Chapter 25 – Customs Union).

Physical checks are carried out by the Regional Directorates of Foreign Trade Inspectors.

With respect to agricultural products, the Ministry of Agriculture and the relevant

provincial Directorates play an important role in the issuing of the relevant control

certificates.

Chapter 27: Common foreign and security policy

The

political dialogue

established under the Association Agreement and the relevant

Association Council Resolutions has enhanced following the conclusions of the

December 1999 Helsinki European Council. Political dialogue was held at both bilateral

and multilateral levels. According to the Helsinki conclusions, the bilateral dialogue

(Ministerial and Political Directors’ levels) now puts “emphasis on progressing towards

fulfilling the political criteria for accession with particular reference to the issue of

human rights, as well as the issues referred to in paragraphs 4 and 9(a)” (peaceful

settlement of disputes and Cyprus issue). A meeting of Political Directors from the EU

and Turkey took place in March 2000. The April 2000 Association Council meeting also

discussed these political issues. Since the Helsinki Council, and in particular since

January 2000, Turkey has participated in all political dialogue meetings involving the EU

and the candidate countries at Ministerial level, at Political Directors level and at

European Correspondents level and expert group level.

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As regards

alignment with EU statements and declarations,

Turkey, since the Helsinki

summit, has regularly aligned its positions with those of the Union and when invited to

do so has associated itself with the Union’s joint actions and common positions. It

should be mentioned that Turkey will soon be connected to the Associated

Correspondents’ Network system which will greatly facilitate rapid and secure exchange

of messages in the CSFP area.

Concerning the development of ESDP as part of CFSP, Turkey has actively participated

in exchanges in this context with the EU, in EU+15 format (i.e. non-EU European NATO

members and candidates for accession to the EU) and in EU+6 format (i.e. non-EU

European NATO members). However, Turkey is not satisfied with arrangements set out

at the Feira European Council (June 2000) for dialogue, consultation and co-operation

with the 6 non-EU European NATO members on military crisis management. The matter

is subject to further mutual consultations.

Turkey’s official stance on the Cyprus question remains at odds both with UN resolutions

and with the EU position. However, the designation of candidate status to Turkey has

provided new impetus to the political process for the settlement of the Cyprus issue (see

above section on The Cyprus issue in Part B.1.2).

The rapprochement between Greece and Turkey, launched in July 1999, is continuing.

Turkey participated in NATO ’s Dynamic Mix 2000 exercise which took place in Greece

in May-June this year. For the first time after the Cyprus crisis, Turkish troops and

military aircraft were in Greece. Diplomatic contacts are still taking place on possible

confidence building measures in the Aegean without yielding concrete results, so far. In

fact, little progress could be noted with regard to peaceful settlement of the disputes in

the Aegean.

As far as relations with other neighbouring countries are concerned, Turkey continues to

further develop mutual relations with the Middle East, the Caucasus and Central Asia.

The Caucasus Stability Pact proposed by former President Suleyman Demirel has

however not yet materialised, due notably to the Nagorno-Karabakh issue. Turkey still

maintains its border with Armenia closed. In the margins of the November 1999 OSCE

summit in Istanbul, an agreement was signed between the contracting parties on the

construction of an oil pipeline between Baku (Azerbaijan) and Ceyhan (Turkey). Turkey

also became party to the Umbrella Agreement concluded in the framework of the EC

INOGATE programme (Interstate Oil and Gas Transport to Europe). Relations with Iran

are still marked by security concerns from Turkey and co-operation with Syria on security

matters has apparently been relatively successful. Several military operations in Northern

Iraq by the Turkish Army have led to serious concern in European public opinion. Turkey

is an active participant in the Barcelona Process.

Overall assessment

Political dialogue between the Union and Turkey advanced well since the last Regular

Report. As the

acquis

in the field of foreign policy and security develops further Turkey

should maintain the orientation of its foreign policy in line with that of the Union.

Turkey took a number of initiatives promoting stability and prosperity in the region. An

important element of this is the proposed Stability Pact for the Caucasus, which due to

the current unstable situation in the Caucasus could not bear fruit.

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Turkey furthermore continues to play an active role in the crisis management operations

in the Western Balkans through the deployment of troops in particular in SFOR/KFOR.

Further efforts regarding the developments in Turkish-Greek relations should aim at

bringing gains to both countries as well as stability to the region.

Concerning the administrative capacity to implement the provisions relating to CFSP,

Turkey has a well-staffed and functioning Ministry of Foreign Affairs.

Chapter 28: Financial control

In the area of financial control, no fundamental progress can be reported. Yet, it is to be

noted that the Turkish government has undertaken specific actions designed to improve

public internal and external financial control

and transparency such as its request to

the IMF for a formal fiscal transparency review. The Turkish Government itself identified

inadequate clarity of roles and responsibilities with respect to both the relationship

between Government and the rest of the economy and the roles of Government agencies.

Overall assessment

Given the fragmented state of financial control, it is urgent to ensure that all the “ex-post”

internal and external controls assess the soundness and reliability of accounting and

financial procedures applied, the legal conformity and regularity and the efficiency of the

actual budgetary execution of public expenditures and revenues.

Regarding the

internal financial control system

the total number of auditing units

established by various public agencies and organisations has reached 129 and more than

thirteen thousand positions have been allocated to auditors. This situation leads to

repetitions in auditing and sometimes to exclusion of some areas from the scope of

auditing and thus weakens its efficiency. And, at the same time, auditing units and

institutions reports rarely find their way out of the excessively bureaucratic system.

The controls performed by the Ministry of Finance are of a “conformity” type and are

organised according to lengthy procedures, creating substantial inefficiencies in the

provision of goods and services and putting at risk the whole management of public

funds. Audits performed by the Ministry of Finance focus on simple regularity and

legality of spending transactions but most of the time do not audit the spending systems

themselves.

The Turkish Court of Auditors (TCA) is prevented from properly exercising its

external

financial control

duties on Budget expenditure as a result of its ex ante controls of all

Budget payment orders: these ex ante controls are of an internal nature and conflict with

its main ex post external control functions and obligations.

External control should be exercised by a body acting independently of the Government.

If that body is involved in the approval of actions under the responsibility of the

executive branch, this automatically undermines its external auditing capacity and

authority, insofar as these very actions in which it has been involved would be found

inappropriate, illegitimate or irregular.

Some legal duties of the TCA cannot be fulfilled because of a lack of adequate co-

operation from the Ministries. Also, since the scope of the Budget is very narrow in the

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overall public spending, the TCA auditing capacity is greatly limited: in 1999, it has

audited only one sixth of all public accounts. Turkey is still lacking a Plan-Program-

Budget System as well as a computerised Fiscal Management Information System.

Regarding the capacity to apply

control measures relating to Own Resources and

structural action expenditure,

efforts will be required. At the national level, the

government will need to take appropriate public internal control measures, so as to ensure

that the auditing responsibility is exercised in such a way that it can effectively prevent

and deter corruption. It will be necessary also to empower the TCA with the right to put

any such risk areas of the public sector in the scope of audit programmes. This would put

an end to the widespread phenomenon of “circumvention of auditing” which is one of the

most important problems of the Turkish auditing system.

Another serious shortcoming of the Turkish Auditing System is its failure to act

according to a continuous and systematic process targeting priority and risks areas,

instead of mere

ad hoc

reactions to administrative requests. Legislation should be passed

in order to endow the Turkish auditing and internal control profession with a consistent

and comprehensive set of standards and principles applied in the EC. It includes the use

of information technologies to control public finances. These reforms are certainly

needed in order to assure

protection of EC financial interests.

All together there are around 5100 Auditors/Controllers performing audit tasks in Turkey.

Though there is a great deal of overlapping among the various layers of auditing

authority, there are also numerous loopholes in the effective coverage of financial control

and auditing, especially with respect to effective follow-up of control/audit findings and

there is no actual plans to make ex-ante controls and internal audit complementary to

each other. Moreover, many areas remain, or are made, exempt from any auditing,

through “ad hoc” legal arrangements, or merely “de facto”. Such “ad hoc” provisions

also regularly allow for non-disclosure of some audits to the TGNA.

Also, the overall concept of the Turkish fiscal management system is not based on the

modern principles of fiscal transparency, public accountability cost-effectiveness and

independence, and still more importantly, there is no general law on auditing standards

and procedures and there is no review of those standards and procedures by external

auditors, nor any publication of auditing reports.

Chapter 29 Financial and budgetary provisions

Some progress has been made over the past year as regards the

national budget.

Statistics have been improved, and reinforcing financial management and transparency

has been clearly identified as one of the main objectives in the fiscal area. The tax

administration is being strengthened. A Public Expenditure and Institutional Review has

been conducted by the World Bank and a Fiscal Transparency Review by the IMF. The

number of budgetary and extra-budgetary funds has been reduced.

No significant developments can be reported with regard to

EC co-financed matters,

own resources and administrative infrastructure.

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Overall assessment

Turkish budgetary practices are still in many respects inconsistent with standards

generally applicable in the EC. The central budget submitted to Parliament excludes

revolving funds and extra-budgetary Funds. There are some 3,000 revolving funds and

agencies with special accounts, conducting off-budget operations amounting to more than

1% of GNP. Revolving and extra-budgetary Funds do not follow budget classification. A

large portion of projects receiving foreign assistance are not included in the budget.

Financial management responsibilities are fragmented among several administrations,

each headed by a different minister. As a result, there is no clear ownership of the

budget. Also, far greater realism is required in assessing budget magnitudes in the

preparatory stage of Budget preparation.

Priority areas for further reforms should be to broaden the coverage of the budget, to

strengthen the budget preparation, to modernise the budget classification and budgetary

procedures, to clarify borrowing rules and limits for the Public Sector, and to improve

transparency rules and accounting standards.

Progress is needed also with regard to

own resources and administrative

infrastructure.

So far, little is in place or has been planned to ensure complance oft the

Turkish financial system with EC requirements regarding own resources. Additional

alignment is necessary for the proper calculation of VAT and GNP resources, as well as

further administrative modernisation. Appropriate administrative structures are required

also with regard to

EC co-financed measures.

3.2.

General evaluation

Overall, Turkey’s alignment with the community

acquis

in the areas covered by the

Customs Union is most advanced. However, since the last regular report, progress in

transposition of legislation in these areas has been limited.

As a candidate country, Turkey has to start making substantial progress in alignment

with the

acquis

in all other fields. Strategies and detailed programmes (including

priorities) are necessary for the transposition, implementation and enforcement of these

relevant areas of the

acquis.

The results of the preparation of the analytical examination

of the

acquis

and the National Programme for the Adoption of the

Acquis

to be

established by Turkey will be important tools for this work.

Substantial administrative reforms are necessary in order to implement and adequately

enforce the different EC policies. The alignment of the Turkish

statistical

base with that

of Eurostat is a very first priority.

Concerning

internal market legislation,

efforts are needed in the areas of free movement

of goods, particularly with respect to the alignment of standards and removal of other

technical barriers to trade. As a result of the obligations under the Customs Union this

process has to be completed by the end of 2000. Trade in agricultural products remains a

problem. For the

internal market,

Turkey needs to adopt framework legislation based on

the principles of the New and Global approach. Substantial reforms have been conducted

in the banking sector. No progress was recorded on the transposition of capital

movement legislation. Serious problems in money laundering persist. Alignment in the

areas of non-financial services and free movement of persons is at a very early stage.

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Further work on all other aspects of the internal market remains to be done, as well as

with respect to institution building, for example in the state aid sector. Further

adjustments to Turkish monopolies are necessary. Turkish company law is subject to

further Commission assessment of compliance with EC legislation. Substantial

harmonisation is still required in the area of

taxation.

In the customs area, there is almost

full alignment.

In the field of

telecommunications,

substantial progress has been made to introduce

competition. Further alignment with the community

acquis

is needed. Piracy of audio-

visual materials remains a serious problem.

The first priority in

agriculture

and

fisheries

is to start the introduction of basic

mechanisms and structures, (statistics, land register, improved fishing fleet register,

combat diseases, plant and animal identification systems, upgrading equipment) to be

able to manage these policies. The

maritime

safety record of the Turkish fleet remains a

matter of concern. Maritime and

road transport

needs to be adapted to EC standards.

In the

social policy

field, Turkish legislation is still very different from that of the

Community in particular in terms of standards, methods and monitoring requirements. In

the different areas much remains to be done. The same applies to key

energy

laws

reforming the power and gas sectors, which are still pending. In the

environmental

sector, strategies for transposing the

acquis

as a first step are recommended.

Compared to 1999, no major progress has been made in the field of

justice and home

affairs.

As regards migration, efforts need to be seriously stepped up to decrease the

number of illegal migrants trying to reach Western European countries. It is

recommended that the various departments in Turkey are better co-ordinated in order to

increase the efficiency of checks, particularly exit checks.

A comprehensive policy framework is needed to further establish

financial control.

Substantial efforts are still required to modernise financial management, with a view also

to protecting EC financial interests.

The overall conclusion is that substantial efforts are needed in policy fields outside the

Customs Union to further align with the

acquis,

including the establishment of adequate

implementation and enforcement mechanisms. This will require important reforms of the

administration at all levels. In some cases this will entail the establishment of new

structures, for example in the fields of state aids and regional development. Various

issues mentioned above are identified as priorities in the Accession Partnership for

Turkey.

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C. Conclusion