I. INTRODUCTION

The strengthening of the private sector activities in the Turkish economy is the fundamental element in the general macro-economic stability program of our Government. Within this process, foreign direct investment (FDI) plays a major role in the globalised market economy, as it increases the competitive power of the country and revives economic growth and income generation. But, the inflow of foreign direct investment has not met the full potential of an economy as large as that of Turkey and it has not been effective enough in creating business and employment opportunities.

Our government has therefore initiated a reform program with the aim to improve the investment environment in Turkey and increase local and foreign investments. The Reform Program in question and the activities to be carried out in relation with this program will be in harmony with Development Plans, Annual Programs and the National Program formed within the framework of the harmonisation process with the European Union. I

I. Key Reform Areas

Some areas requiring political determination and reform have been detected and these areas have been discussed in the workshop realised on September 10-11, 2001, under the coordination of Treasury Undersecretariat, with the participation of various public institutes and ministries as well as key representatives of the private sector. As a result of these discussions, various working groups have agreed on what needs to be done regarding each of these areas. The key areas and problems given below constitute the guidelines of this Reform Program.

1. Company establishment

Problems:

• The establishment of a standard company consists of 19 different phases covering a period of at least 2.5 months.

Targeted Solutions:

• To regulate the process of company establishment in a way to prevent unnecessary and repeated transactions

Measures:

• To revise the membership and registration transactions of trade and industry chambers and associations

• To revise the mandatory requirement of the capacity report prepared by industry chambers in certain areas

• To unite the information and registration conditions requested by different institutes like the Provincial Directorates of Labour and Social Security and municipalities

• To revise all of the requested documents and transactions to remove unnecessary and repeated transactions

• To strengthen the electronic database and information network projects in order to facilitate the exchange of information among public institutes

Employment

Problems:

• The current working permit system for foreigners functions reasonably well in general and does not bring a major burden for investors. But, some issues related to short-term permits, the employment of special groups and the high level of employee contribution fee have been brought to the agenda.

Targeted Solutions:

• To continue with the efforts for putting in order the working permit process.

Measures

• To enable the enactment of the bill dated April 4 2001, issued by the Ministry of Labour and Social Security regarding the working permits of foreign personnel

• To prepare the required official communication draft regarding the employment of foreign personnel within the framework of the new law

• To revise the policies and transactions regarding the employment of special groups or the employee contribution fee

3. Sectorial Permits

Problems:

• It has been observed that sectorial permits and other special permit processes are unnecessarily complicated due to conflicts of authority among some institutes in the sector, over-centralised approval transactions and the low rate of participation by the private sector in this process.

Targeted Solutions:

• To develop open and transparent rules, by considering public interests, to prevent certain units with decision-making authority from delaying in the implementation of these transactions, to shift the decision mechanisms away from arbitrariness and base them on objective criteria

Measures: 

• To revise the previously evaluated licensing conditions in all sectors except for agricultural industry and tourism and remove the administrative obstacles that may hinder investments

• To amend the related regulation in the alimentary sector, to differentiate the responsibilities of the Ministry of Health and the Ministry of Agriculture and Rural Affairs

• To enable a coordination between the Ministry of Tourism and the Ministry of Health, in order to better benefit from their current areas of expertise, in line with the signed protocol  T

• To transfer authority in the Ministry of Agriculture and Rural Affairs from the center to the rural organisations in order to accelerate the continuing process and strengthen rural organisations

• To revise the licensing process in the mining sector in order to enable the approval or the annulment of projects

• To amend the related regulation in order to clarify the responsibilities in the Ministry of Health, Ministry of Environment and other institutes

4. Land procurement and development

Problems:

• It takes about two years or longer to obtain all the necessary permissions and complete the approval transactions to purchase public land in Turkey and convert it into an investment.

Targeted Solutions:

• To arrange a permission procedure that will allow the investor to initiate the physical activities within a period that is in line with international standards.

Measures: 

•  To develop strategies (covering private and public land) for planning the use of land and land inventory activities

• To subsidise the sales of public land by strengthening the National Real Estate General Directorate

• To make a thorough definition of land ownership, construction of premises and settling permit processes in order to remove repeated transactions

• To evaluate the encouragement of a more active participation of the private sector in the activities for establishing organized industrial zones that will include the required legal reforms

5. Taxes and Subsidies

Problems:

• The currently implemented corporation income tax which is higher than the the levels in other countries, may result in a major tax burden if a comprehensive investment reduction and subsidy system are not applied. The subsidies implemented are too high in number and fail in providing a sufficient efficiency in the decision mechanisms.

Targeted Solutions:

• To remove the potential revision transactions and non-transparent decision processes of investments by the establishment of automatic self-sufficiency conditions and to carefully plan and develop a simpler corporation income tax system and establish an institute with exclusive authority for subsidies

Measures:

• To plan the investment subsidies policy under a sole authority, including the necessary amendments in the legal framework

• To revise the subsidy mechanisms in order to establish automatic approval conditions

• To revise the related legal amendments in order to include tax subsidies into the tax regime

• To draw strategies to increase the efficiency of the tax system and its administration in Turkey, within the framework of a program to be prepared by the Ministry of Finance 

• To make evaluations regarding the shift to inflation accounting system

6. Customs and Technical Standards

Problems:

Despite all the major reform efforts, customs transactions still form an evident obstacle for investments and trade, due to the documentation conditions, long test transactions carried out by related institutes at the customs, delayed VAT reimbursements and the subjective decision-making mechanisms which result in corruption.

Targeted solutions:

To enable the regulation of the internal functioning regime by the Undersecretariat of Foreign Trade, in order to shorten the waiting period and increase automatic transactions, by widespreading the current reforms and supporting institutional activities. In addition, to provide for the effective acceleration of customs transactions

Measures:

• To facilitate the standard suitability transactions by evaluating the possibility of uniting under one service unit all of the laboratories belonging to ministries and public institutes at all key entrance points in Turkey

• To strengthen the institutional capacity of customs also with the inclusion of the approval of the organisation law of the Undersecretariat of Customs, especially in terms of post-control, risk management and asset valuation inspection

• To widespread the current operational system in order to provide for the automation of customs transactions

• To revise thoroughly the transactions for certificate issuance to customs agencies

• To evaluate the idea of forming a sole income authority responsible for the collection of the income tax, VAT and customs revenues

• To renew and update the Law, no. 1918, on Banning and Tracking Contrabandism, by considering internationally effective implementations 

•  To evaluate thoroughly the Law on Free Trade Zones, its regulations and working procedures and carry out a cost-benefit analysis

7. Intellectual Property Rights

Problems:

• The current protection of patents, commercial trademarks and copyrights is not sufficient due to the current voids in the regulations, the ineffective enforcement of the current legislation, and the delays in the completion of transactions

Targeted Solutions:

• In order to attract the investments that generate high added value, it is necessary to establish an intellectual property rights system, in addition to the previous activities, that provides the producer an effective protection on his goods and services. This target includes the shortening of the commercial trademark registration transactions, a full harmonisation with the EU regulations and raising public awareness in the struggle against piracy.

Measures: 

• To increase the personnel and institutional capacity of the Turkish Patent Institute

• To remove the laws and implementations infringing article 39/3 of the Agreement on Trade Related Intellectual Property Rights (TRIPs)

• To organise seminars in different provinces as part of the public awareness campaign

• To provide for the VAT exception for the registration of commercial trademarks, patents and industrial designs, in line with the European implementations

• To establish an institute to enforce the required legal arrangements, to effectively implement the rules in the field of intellectual property rights and to deal with all the transactions related to these rights

Moreover, it has been found appropriate to include into the Reform Program the topics of Foreign Direct Investment Regulation and Investment Promotion, in order to initiate a comprehensive activity for the improvement of the investment environment.

8. Foreign Direct Investment Regulation

Problems:

• Currently implemented regulation on foreign direct investment is based on a law dated 1954, which has lost its function and importance during a series of amendments and corrections realised within a span of time. Right now, Turkey does not avail of a single and comprehensive legislation, regulating foreign direct investments.

Targeted solutions:

• To replace ‘The Law for Subsidizing Foreign Capital’, dated 18.01.1954, no. 6224, with a more suitable law that reflects the liberal characteristic of the investment environment in Turkey.

Measures:

To revise thoroughly all of the legal framework related to investments, with the aim to prepare a new bill on foreign direct investment

9. Promotion of Investments

Problems:

• Currently there is no institute in Turkey that would make an active promotion oriented towards certain targeted investments, to increase the inflow of foreign investment into the country.

Targeted Solutions:

• Turkey needs to develop an investment promotion strategy, including an institute to focus only on the promotion of investments, on the basis of examples of countries that have been successful in this area.

Measures: 

• To thoroughly revise the current promotion activities in the country

• To evaluate the current institutional alternatives to be established for the promotion of investments 

• To develop a promotion strategy oriented towards determined targets

III. The Structure of the Reform Process

Considering the fact that many issues related to the investment environment in Turkey interest many sections of the state, it is clear that a comprehensive transformation of the current business environment is not a transaction that may be completed in the short term. The improvement of the current business environment requires a change in the public service mentality and the attitude of the public servants as well as a close cooperation and solidarity among different public institutes. Such changes may only succeed through continuous initiatives realised under a strong coordination.

The effective cooperation between public and private sectors will play a key role within this process. It is crucial to enable a direct and intensive participation of companies and investors in this process, in order for the reform policies reflect the concerns of the private sector and provide solutions to them.

Within this framework, it has been decided to implement a program and establish the annexed structure for the improvement of the investment environment in Turkey with a comprehensive reform policy. The Coordination Committee for the Improvement of the Investment Environment (YOİK) has been set up by the Undersecretaries of the Ministry of Finance, the Ministry of Industry and Commerce, Turkish Treasury, the Foreign Trade, State Planning Organisation, and the Chairmen of the Technical Committees, the Turkish Industrialists’ and Businessmen’s Association (TUSIAD), Turkish Union of Chambers and Stock Exchanges (TOBB), Foreign Investors Association (YASED) and Turkish Exporters Board (TIM), under the chairmanship of the Undersecretariat of Prime Ministry. The secretariat services of the Coordination Committee for the Improvement of the Investment Environment will be carried out by the Undersecretariat of Treasury. The Committee will be responsible for guiding, monitoring the activities of the technical committees, which will execute the reform programs, and for determining the business program calendar and final completion deadlines. Top level representatives will participate in the Committee meetings, if this is required for the solution of the issues handled; the composition of the Committee may be expanded accordingly. The activities of the YOİK will be carried out in the regular monthly meetings. Reform-related activities will be executed by the Technical Committees described below. Different technical committees will present their activity report to the YOİK on a monthly basis; the YOİK will prepare quarterly Progress Reports in order to follow up with the process and will submit the reports to the Council of Ministers.

The working groups formed in line with the preparation activities have been converted into Technical Committees responsible for the following topics:

Technical Committee I : Company Establishment (under the chairmanship of the Ministry of Industry and Commerce)

Technical Committee II : Employment (under the chairmanship of the Ministry of Labour and Social Security)

Technical Committee III : Sectorial Licences ( under the chairmanship of the Undersecretariat of the State Planning Organisation)

Technical Committee IV : Location of Investment (under the chairmanship of the Undersecretariat of Housing)

Technical Committee V : Taxes and Subsidies (under the co-chairmanship of the Ministry of Finance and the Undersecretariatof Treasury)

Technical Committee VI : Customs and Standards (under the co-chairmanship of Undersecretariat of Customs and the Undersecretariat of Foreign Trade ) Technical Committee

VII :Intellectual Property Rights (under the co-chairmanship of the Ministry of Culture and the Turkish Patent Institute)

Technical Committee A : Promotion of Investments (under the chairmanship of the Undersecretariat of Treasury)

Technical Committee B : Foreign Direct Investment Regulation (under the chairmanship of the Undersecretariat of Treasury)

Each technical committee will be set up with the representatives of the Treasury Undersecretariat, who will provide for the harmony with the secretariat, the representatives of the public institutes, who have a key role in their topic, academicians and the top level representatives of the private sector. The representatives of the related institutes and institutions that will take part in the technical committees, are liable for participating in the meetings. Public institutes shall be represented by their personnel who are authorized to take decisions. The chairmen of the technical committees who will become the original members of the YOİK have to be at least at the deputy undersecretary level.

Evaluating also the activities realised until today, each technical committee will consider the requirements of the private sector and the political targets of the government and will develop concrete proposals and strategies in order to overcome the determined obstacles.

After the submission to the YOİK of the reports regarding the Workshops for the Improvement of the Investment Environment, realised on September 10-11, 2001, the technical committees will be activated and will begin working on the prioritised areas determined by the YOİK.

The Reporting System

The YOİK will constitute a comprehensive reporting regulation system in order to follow the current reform activities and the efficiency of these activities and to regulate the monthly reports which will be prepared by the technical committees and the quarterly reports which will be based on these reports. In order to enable the use of these reports as reliable information sources, objective evaluation criteria and suitable techniques for comparison with best implementations need to be prepared. The efficiency of various reform initiatives and measures will be evaluated by taking into consideration the surveys which will be realised for getting investors’ perspective. Even in cases where the reform measures do not have a concrete structure at the first stage, the activities within the framework of the report, the progress made and the potential deficiencies will be analysed and the efficiency of the technical committees will be evaluated.

Source : YASED

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