Sunday’s Zaman, Turkey
Sept 14 2008

Turkey’s pro-business stand outweighs benefits of trade wars

Trade barriers and, more worrisomely, trade wars have recently
injected themselves into the political debate in Turkey after trucks
and ships carrying Turkish exports began experiencing long delays at
Russian customs posts, at a cost of half a billion dollar so far.

The move came right after the Russian-Georgian war raised suspicions
in Ankara that Moscow was trying to flex its muscles by using trade
leverage against Turkey.

Whether that was the case, the Turkish government seemed unwilling to
respond in kind to Russian pressure despite Foreign Trade Minister
KürÅ?ad Tüzmen’s public outcry and tough talk. The
reason was pretty much clear to decision-makers in Ankara as the
country heavily relied on Russian oil and gas, with 40 percent of its
oil and 65 percent of its natural gas coming from Russia.

In broad terms, the pro-business and pro-reform stance of the Turkish
government, which is unwilling to resort to harsh trade tactics and
which has been committed to the removal of barriers since 2002, has
paid off well. Between 2002 and 2007 exports to neighboring countries
rose 478 percent, while imports from neighbors grew 340 percent. In
the same period Turkey’s gross domestic product (GDP) increased 187
percent, reaching $663 billion, and foreign trade grew by 216 percent.

Economists generally argue that trade wars are counter-effective and
non-productive at best and decrease the economic welfare of the
countries involved in the dispute. Yet few economists and a good
number of political scientists believe trade wars or the threat
thereof can help the country to win a concession of some sort from the
other side.

Many agree today that the use of trade wars is a double-edged
sword. The threat of using trade leverage has the potential to
backfire and certainly can have long-term repercussions by forcing
countries to look for alternate partners. In the long run, the country
that resorts to trade wars stands to lose big and risk being labeled
an "unreliable partner" by the international community.

"The problem between Turkey and Russia is temporary" says
Hüseyin Yayman, associate professor in the faculty of economics
and public administration at Gazi University. He stressed that Turkey
and Russia need each other more than others as both have interests in
energy development in the region. "The project of being an energy hub
for Europe should proceed in consideration of Russian interests,"
Yayman noted. Stressing that there is no absolute friendship or
animosity among countries, Yayman said, "Turkey should act
pragmatically and practically in pursuing its interests."

Turkey seemed to have learned its lesson in a recent flare-up of
tension with Russia. In the likelihood that Russia could cut its gas
supply to Turkey this winter, government officials scrambled to find
alternative sources to Russian gas. Energy Minister Hilmi Güler
was shipped out to Azerbaijan and Turkmenistan last week to convince
the leaders of those countries to provide more gas to Turkey.

With the plans on Ankara’s plate to diversify on full launch, Russia
may lose billions of dollars of revenue from gas and oil sales to
Turkey. So far Russia has tried to dismiss allegations that it might
use gas supply to pressure Turkey. On a visit to the Turkish capital
on Sept. 2, Russian Foreign Minister Sergey Lavrov ruled out cuts in
Russian natural gas supplies to Turkey. "This is crazy. Why would such
a thing happen?" Lavrov asked in response to a question. "Have you
ever seen Russia breaking its commitments in any natural gas
agreement?"

In addition to the risk of losing a steady source of revenue, Russia
could alienate Turkey and more likely push it further into the
American corner if more pressure is brought to bear on Turkey using
trade and other tools. Beril DedeoÄ?lu is among those who
believe Turkey will be forced to take a clear stand with the US if
Moscow gets tough with Ankara. Professor DedeoÄ?lu, who holds
the department chair at Galatasaray University’s department of
international relations, told Sunday’s Zaman that diversification of
oil and gas pipelines will go on no matter how much pressure Russia
exerts in the region. She stressed, however, that problems like
customs issues should be resolved at low-level technical meetings.

Turkey has in the past employed trade protections and erected barriers
against its trading partners partly as retaliation against increased
protectionism and partly due to political reasons to pressure
countries to yield to demands made by Ankara. Turkey has had a closed
border with Armenia since 1993, when Armenia occupied the disputed
Nagorno-Karabakh region of Azerbaijan. Ankara had resorted to
switching on and off the border with the regional government in
northern Iraq to pressure Kurdish factions to stop harboring and
helping terrorist Kurdistan Workers’ Party (PKK) groups.

Turkey has also tasted the bitter side of trade barriers imposed by
the UN Security Council against its neighbor Iraq, after the first
Gulf War. Ankara had to suffer $35 billion in lost revenue. The
closure had led to the decay of a fleet of more than 40,000 Turkish
trucks lying idle in southeastern Turkey, where they had provided
employment to local Kurds.

In the last decade or so, Turkey seems to have reorganized its
priorities when it comes to foreign trade issues. This has become more
prevalent in its relations with Iran. To the dismay of NATO ally the
United States, Turkey has continued to expand its trade relations with
Tehran and defied the pressure to impose sanctions on Iran. Last year
Ankara signed a memorandum on energy cooperation with the
Iranians. New contracts of cooperation were also signed last month
when Iranian President Mahmoud Ahmedinejad paid a working visit to
Turkey and met with Turkish President Abdullah Gül in
Ä°stanbul. Turkey would like to increase natural gas purchases
from Iran and build a new natural gas pipeline. The United States,
however, opposes plans for Turkish investment in Iran’s South Pars gas
fields and the possibility of Iran selling its gas to European markets
via an existing pipeline that carries gas to Europe through Turkey.

Thanks to a soccer match at Yerevan’s Hrazdan Stadium, Turkey was able
to launch an unexpected move with its neighbor Armenia in a bid to
thaw strained relations that have been marred by hostility for nearly
100 years.

Relations between Greece also improved after successive earthquakes
shook both countries in 1999. The leaders of the two nations were able
to capitalize on the outpouring of public sympathy. Greece has become
one of the key supporters of Turkey’s bid for full membership in the
EU. Trade and investment restrictions were eased. The National Bank of
Greece, the largest bank in Greece, bought a 46 percent stake in
Finansbank AS, Turkey’s eighth-largest bank, at a cost of $2.77
billion in 2007. EFG Eurobank Ergasias, controlled by the Latsis
family, also agreed to buy 70 percent of Tekfenbank for $180 million.

In the last five years 25 bilateral agreements have been signed
between the two countries, and there has been a fivefold increase in
the volume of two-way trade. The number of Greek tourists who visited
Turkey between January and July of 2008 has increased by 41.5 percent
compared to the same period last year, according to a report published
in Greek newspaper Kathimerini last week.

On another front, Turkey has been enjoying very good relations with
its neighbor Bulgaria for the last 15 years, after the regime change
in Bulgaria with the reversal of repressive policies directed against
the Turkish minority there. Bulgaria is a key supporter of Turkey’s EU
bid, and both countries strongly endorse the Nabucco project, the
3,300-kilometer-long gas pipeline that would carry natural gas from
Central Asia through Turkey to Austria. Yet there are some pending
issues that need to be addressed with Bulgaria. On the top of the list
comes an 83 euro transit fee charged Turkish trucks crossing into
Bulgaria as of July. Turkey had to retaliate with a measure in kind as
of Sept. 1 by charging the same fee when entering Turkey. Ankara
claims Bulgaria’s move was a breach of a 1979 agreement on road
transit that would allow both sides to transport goods without paying
any additional fees.

Recent history with Syria shows how quickly Turkey was able to mend
its relations with its southern neighbor. Just 11 years ago Turkey was
on the brink of war with Syria when Ankara massed troops on its border
to coerce the Syrian government into relinquishing its support for the
PKK. The countries are experiencing what some have called a
"honeymoon" in bilateral relations with expanded economic and
political ties. The two countries opened the border for visitors and
cleared most land mines planted to restrict exchanges. Turkish
language classes in Damascus are now popular for Syrian speakers of
Arabic.

14 September 2008, Sunday
ABDULLAH BOZKURT Ä°STANBUL