When CP Met IP: How to Operationalize Special and Differential Treatment?

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


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


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”?


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


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.


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


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


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

)


Export / Import Ratio in Traditional Industries

Apparels

0

10

20

30

40

1996 1997 1998 1999 2000 2001 2002 2003 2004


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


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)


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)


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


Rising Current Account Deficit

Current Account Balance (Mln $)

-20.000

-15.000

-10.000

-5.000

0

5.000


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


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


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.


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


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


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)


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


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.)


…thank you…

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When CP Met IP: How to Operationalize Special and Differential Treatment?

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