When CP Met IP: How to Operationalize Special and Differential Treatment?Güven Sak
Antalya, 14 November 2005
e c o n o m i c p o l i c y r e s e a r c h i n s t i t u t ee k o n o m i p o l i t i k a l a r ı a r a ş t ı r m a e n s t i t ü s ü
How to Operationalize Special and Differential Treatment? Slide 2
How does it sound? “Korea’s experience illustrates that it
is better to introduce a competition regime at the initial stage of economic growth when monopolies have not yet gained political and economic power”
- Communication from the Republic of Korea, 2001
Russian example. Having reached the top, advocating
that the ladder must be removed. - A Turkish saying
How to Operationalize Special and Differential Treatment? Slide 3
Bygones are bygones, but the question remains.... Income per capita
In 1980 income per capita in Turkey was USD 1,910$ (TR ½ of Korea).
In 2004, income per capita in Turkey is (USD 3,196$) Korea’s income per capita (USD12,742$).(TR 1/4 of Korea)
Industrial Value Added In 1980, industrial value
added was USD 15 billion in Turkey and USD 35 billion in Korea. (TR is ~1/2 of Korea)
In 2003, industrial value added has reached USD 45 billion in Turkey, and USD 215 billion in Korea. (TR is 1/5 of Korea).
GDP per capita Turkey and Korea 1980-2003 (1980 values are indexed to 100 for both countries)
Industrial Value Added Turkey and Korea 1980-2003 (1980 values are indexed to 100 for both two countries)
Korea
Turkey
0
100
200
300
400
500
600
700
1980 1984 1988 1992 1996 2000 2004
Korea Turkey
Korea
Turkey
0
50
100
150
200
250
300
350
400
450
1980 1985 1990 1995 2000 2005
Korea Turkey
Source: World Bank World Development Indicators
How to Operationalize Special and Differential Treatment? Slide 4
Outline Where does the tension come from, when does CP
meet IP? Turkey: Policy Challenges
Sustainability of the growth process: Productivity growth Rising Current Account Deficit Ongoing corporate sector transformation Industrial-Competition policy mix
Needs Fast integration into the Global Value Chain Moving up the Global Value Chain Productivity growth
… but how? …. Role of Competition Policy to enhance productivity growth Is there room for “Special and Differential Treatment”?
How to Operationalize Special and Differential Treatment? Slide 5
Risks for Emerging Economies (1) Production processes are Global Accounts are National
Hence currently vulnerabilities are still national Dependency on intermediate good imports Rising Current Account Deficits The necessity to move up the global value chain
How to Operationalize Special and Differential Treatment? Slide 6
Risks for Emerging Economies (2) Production processes are Global Competition policy enforcement is national Unit of analysis in competition policy enforcement
is still too narrow
Coordination of development strategy and competition policy is needed at national level
Not a one-size-fits-all competition policy recipe Coordination of policy enforcement? Export cartels,
etc.
How to Operationalize Special and Differential Treatment? Slide 7
Turkey: a new process following the 2001 crisis? Growth without inflation Interests rates are falling
down Productivity is rising No net job creation Sustainability a problem?
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
inflation
nominal interest
real interest rate
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Oca.99 Oca.00 Oca.01 Oca.02 Oca.03 Oca.04 Oca.05
Industrial Production
Interest Rate
Inflation
Non-inflationary growth (1999-2005)
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
1996 1997 1998 1999 2000 2001 2002 2003 2004
EmploymentProductionLabor Productivity
economic program
Productivity and Employment TrendsInflation and Interest Rates
How to Operationalize Special and Differential Treatment? Slide 8
Increasing Global Integration Turkey’s total trade volume has started to rise after the 1980s as a result of the
economic liberalization program which involved a transition to export-oriented and a free-market based growth strategy.
Trade flows have further increased with Turkey’s entrance into the customs union agreement with the EU in 1996.
The final boost to trade came in 2001, when a floating exchange rate regime was put into place.
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
160.00
180.00
Exports İmports Trade Volume
Turkey’s Trade Trends 1974-2004, billion USD
How to Operationalize Special and Differential Treatment? Slide 9
Breakdown of Trade (1987-2005*)Intermediate Goods (Mln $)
0
10000
20000
30000
40000
50000
60000
70000
80000
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Import Export
Capital Goods (Mln $)
0
5000
10000
15000
20000
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Import Export
Consumer Goods
0
5000
10000
15000
20000
25000
30000
35000
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
Import Export
Overall Export / Import Ratio
0%10%20%30%40%50%60%70%80%90%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
*2005 data ends in June.
How to Operationalize Special and Differential Treatment?Slide 10
Apparels
Automotiv e
Textiles
Iron&SteelFruit&Vegies
TVs and Telecom
Electrical Machinery
Non mettalic minerals
Metals
transportation equipment
General machinery
Petroleum Products
Güç kaynakları (makinalar)
Plastic Materials
0%
10%
20%
30%
40%
50%
60%
0% 1% 2% 3% 4% 5% 6%
Competitiveness of Turkish IndustriesSize of the bubbles indicate export volume in 2004
Star Sectors
Emerging Sectors
Traditional SectorsSnail Sectors
World market share %200
0-20
04 a
nn
ual
gro
wth
rat
e o
f ex
po
rts
(CA
GR
)
How to Operationalize Special and Differential Treatment?Slide 11
Export / Import Ratio in Traditional Industries
Apparels
0
10
20
30
40
1996 1997 1998 1999 2000 2001 2002 2003 2004
How to Operationalize Special and Differential Treatment?Slide 12
Export / Import Ratio in Emerging Sectors (1)
Automotive
0
0,2
0,4
0,6
0,8
1
1,2
1996 1997 1998 1999 2000 2001 2002 2003 2004
How to Operationalize Special and Differential Treatment?Slide 13
Office and Communication Equipment (mainly TVs)
0
0,1
0,2
0,3
0,4
0,5
0,6
1996 1997 1998 1999 2000 2001 2002 2003 2004
Export / Import Ratio in Emerging Sectors (2)
How to Operationalize Special and Differential Treatment?Slide 14
A Closer Look at the Turkish Consumer Electronics Industry
Source: Turkish Electronics and Information Industries Association
For audio and video products, Turkey ranks 16th worldwide in export value
4%
12%
8%
7%6%
2.211.500; 63%
Components Consumer Electronics
Telecom electronics Other professional industrial
Military Computer electronics
Turkish Electronics Industry Production by Subgroup,2003 ($000)
Color TV96%
Color TV
Audio Electronics
Video Player
Cashier
Calcuator
Audio -VideoCassettes
Turkish Consumer Electronics Production, 2003
In 2003, TV production reached a volume of USD 2.2 Billion 50% market share in EU
80 % as OEM (for other brands), 20% as ODM (with own brand)
How to Operationalize Special and Differential Treatment?Slide 15
The Turkish TV industry is heavily dependent on imported components
Source: Vestel company report by Finans Invest; The Eight Five-Year Development Plan by State Planning Organization
Depreciation; 2%
Gen. Exp.; 1%
Labor; 3%
Energy; 1%
Components; 93%
Dependence on imported components
• Turkish consumer electronics industry has recently started importing from East Asia with the lifting of anti-dumping taxes
• Until then most components were imported from the EU
How to Operationalize Special and Differential Treatment?Slide 16
Rising Current Account Deficit
Current Account Balance (Mln $)
-20.000
-15.000
-10.000
-5.000
0
5.000
How to Operationalize Special and Differential Treatment?Slide 17
Exchange Rate Trends
Real Exchange Rate (Average)
0
20
40
60
80
100
120
140
160
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005
How to Operationalize Special and Differential Treatment?Slide 18
What do the numbers tell? Exports are on the rise; but so are
imports (even faster) Appreciating exchange rate plays a role Structure of the production process has
to be considered (Correct even before 2000)
Going to be all the more important: Mode of integration to the global production process
How to Operationalize Special and Differential Treatment?Slide 19
Can a country choose the mode of integration? How can we define integration?: Mode
of integration to the global value chain Integration into the Global Economy
Positioning in the Global Value Chain Traditional exporting sectors (textile and
apparels) decline in competitiveness Emerging exporting sectors (automotive,
office and telecom equipment) are NOT net exporters
In the emerging export sectors, decisions are made GLOBALLY.
How to Operationalize Special and Differential Treatment?Slide 20
In order to reduce vulnerabilities related to global integration: Formulate an industrial policy to:
Move up to more value added activities Build strong clusters for specialized inputs Support (~ protect) the domestic learning
process Facilitate skills conversion from traditional
to emerging sectors Removal of investment climate constraints Adopt a strategic FDI in line with
development goals
How to Operationalize Special and Differential Treatment?Slide 21
A competition policy framework to enhance productivity growth (1) Removing entry barriers and leveling playing
field for a better investment climate: Removal of exclusive rights and state aids that
constitute entry barriers Avoidance of vertical agreements by dominant firms Handling refusals to supply and essential facilities
Liberalization in infrastructure sectors to lower input prices: A privatization strategy that promotes competition Prudent regulatory frameworks A balance between competition and regulatory
authorities
How to Operationalize Special and Differential Treatment?Slide 22
Promote productivity enhancing agreements through exemptions: Exemptions on R&D and technology transfers Vertical agreements: a sector-specific fine-tuning strategy to
provide a balance between productivity enhancing agreements and entry barriers
De minimis for agreements between SMEs; hence a liberal definition for SMEs. ENLARGE the unit of analysis?
Special treatment of some sectors: a double-edged sword? ENLARGE the unit of analysis.
Mergers and acquisitions: Sector-specific policy to exploit scale economies in global
competition Fine-tuning between prohibitive policies and creating national
champions Not omly SMEs, need for large corporations in the country.
A competition policy framework to enhance productivity growth (2)
How to Operationalize Special and Differential Treatment?Slide 23
Enhancing the competition policy space
We need special and differential treatment of some sectors & agreements in line with industrial policy
To this end, we need a competition authority: which is independent, to avoid capture by vested interests with a strong institutional capacity and with adequate
resources to sustain that capacity which has clear boundaries with regulatory authorities:
delegating competitive oversight to competition authority which has close control over state aids. (becomes all the
more important when CP met IP) which has a global outlook regarding the analysis
How to Operationalize Special and Differential Treatment?Slide 24
To sum up: full harmonization vs. room for diversity We have to facilitate industrial transformation
towards higher value-added activities in a world where accounts are national but activities are global. (sustainability arguement)
To this end: we need a strategic industrial policy of which competition policy is a crucial component
Harmonization:Independent competition policy enforcement Strong policy-making capacity
Diversity: Space for strategic policies (exemptions, etc.)
How to Operationalize Special and Differential Treatment?Slide 25
…thank you…
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