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June 2000 Prepared for FOREIGN POLICY REVIEW, CALIFORNIA - page 6 / 17

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  • Eliminating Trade Barriers. Turkey and the U.S. have made some progress in reducing trade barriers over the last 15 years. Turkish restrictions on agricultural product imports has become a problem case for the U.S., while Turkish textile exporters seek wider market access in the U.S. Given that textiles account for roughly half of Turkey's exports to the U.S., the simplest way to expand bilateral trade would be for the U.S. to abolish its quotas on textile imports from Turkey. And the U.S. did make a decision to provide additional flexibility in a number of categories of goods manufactured by Turkish producers. Eliminating agricultural and textile trade barriers will therefore dramatically increase “win-win” opportunities for both Turkish and U.S. businesses, at least under the present circumstances.

  • Diversification within Existing Industries. However, the fact is that, even if the U.S. domestic politics allowed Washington to remove these trade barriers, the total elimination of quotas would be a short-term gain for Turkey at best. In fact, quotas are on their way out as the U.S. will eliminate textile quotas in 2005 under its WTO obligation. Then, Turkish producers will no longer face statutory limits in supplying the U.S. market. But they will no longer be sheltered from the full force of international competition. Turkey will have to compete with the entire world (think of China, India, Indonesia and Pakistan!) to meet the demands of U.S. customers7. To meet the demands of global competition after 2005, the Turkish textile industry should begin diversifying NOW into more products, particularly higher-quality, higher-value-added products. A rejuvenated textile sector would generate new jobs and enhance bank balance sheets from Denizli to Adana, not to mention increasing tax receipts. Conversely, delay in restructuring will only make adjustments harder down the road.

  • Diversification into New Sectors. Textile industry cannot carry Turkey into the 21st century’s “New Economy”. A quantum leap in bilateral trade will require diversification of Turkish exports into new sectors. Right now, there are too many industries, which simply are not participating in trade with the U.S. One of the most important is the information industry. In most OECD countries, expansion of information-based companies over the last several years has outpaced growth in all other sectors. American companies' sales of computers and software to Turkey are miniscule. Many companies are reluctant to bring their most advanced equipment and industrial processes to joint ventures in Turkey. One of the key reasons is Turkey's immature framework for research and development, and insufficient protection of intellectual property rights. Foreign companies have little incentive to invest or trade in markets where their products could be pirated8.

  • Investment as the Basis for Trade. The area of intellectual property rights leads us to a broader theme: the importance of foreign investment to the development of trade. While a couple of decades ago, many people saw foreign investment and foreign trade as somehow competing forces; today it is widely recognized that the two go hand in hand. Maintaining an open foreign investment climate offers access to the capital necessary to modernize and meet the demand of competition across all sectors. Foreign investment also provides human capital development and access to new technologies. Turkey's

7 This will require high quality products, produced in bulk, at the lowest possible price. Turkey has some of the world’s best producers of knit and woven products. Unfortunately, most producers are small- and medium-sized firms, struggling to compete with East Asian producers solely on price.

8 Turkey has made improvements since 1995, but much remains to be done. Key steps will include ratification of several international IPR conventions, passing amendments to make copyright and patent laws fully compatible with WTO standards.

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