When CP Met IP:
How to Operationalize Special
and Differential Treatment?
Güven Sak
Antalya, 14 November 2005
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
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)
700
Korea
600
Korea
500
Turkey
400
300
Turkey
200
100
0
1980
1984
1988
1992
1996
2000
2004
Industrial Value Added Turkey and Korea 1980-2003
(1980 values are indexed to 100 for both two countries)
450
400
350
Korea
Korea
Turkey
300
250
200
Turkey
150
100
50
0
1980
1985
1990
1995
2000
2005
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
Non-inflationary growth (1999-2005)
140.00
 Interests rates are falling
120.00
100.00
down
 Productivity is rising
 No net job creation
 Sustainability a problem?
Industrial Production
Interest Rate
80.00
Inflation
60.00
40.00
20.00
0.00
Oca.99
Inflation and Interest Rates
Oca.00
Oca.01
Oca.02
Oca.03
Oca.04
Oca.05
Productivity and Employment Trends
100%
160.0
80%
140.0
60%
130.0
40%
economic program
Employment
Production
Labor Productivity
150.0
120.0
20%
110.0
100.0
0%
90.0
inflation
-20%
80.0
nominal interest
-40%
70.0
real interest rate
60.0
-60%
1978
1980
1982
1984 1986
1988
1990
1992
1994
1996 1998
2000
2002
2004
1996
1997
1998
1999
2000
2001
2002
2003
2004
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.

Turkey’s Trade Trends 1974-2004, billion USD
180.00
160.00
140.00
Exports
İmports
Trade Volume
120.00
100.00
80.00
60.00
40.00
20.00
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
0.00
How to Operationalize Special and Differential Treatment?
Slide 9
Breakdown of Trade (1987-2005*)
Capital Goods (Mln $)
Intermediate Goods (Mln $)
80000
70000
60000
50000
20000
Import
Export
40000
30000
20000
10000
0
1987
Import
15000
10000
5000
0
1989
1991
1993
1995
1997
1999
2001
2003
2005
1987
1989
Consumer Goods
30000
Import
25000
Export
15000
10000
5000
0
1991
1993
1995
1993
1995
1997
1999
2001
2003
2005
2001
2003
2005
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
20000
1989
1991
Overall Export / Import Ratio
35000
1987
Export
1997
1999
2001
2003
2005
1987
1989
1991
1993
1995
1997
1999
*2005 data ends in June.
How to Operationalize Special and Differential Treatment?
Slide 10
Competitiveness of Turkish Industries
Size of the bubbles indicate export volume in 2004
2000-2004 annual growth rate of exports (CAGR)
60%
Emerging
Sectors
50%
Petroleum Products
40%
Automotiv e
30%
20%
Star Sectors
TVs and Telecom
Electrical Machinery
Metals
Güç kaynakları (makinalar)
General machinery
10%
Iron&Steel
Non mettalic minerals
Plastic Materials
Fruit&Vegies
Textiles
Apparels
transportation equipment
Traditional Sectors
Snail Sectors
0%
0%
1%
2%
3%
World market share %
4%
5%
6%
How to Operationalize Special and Differential Treatment?
Slide 11
Export / Import Ratio in Traditional Industries
Apparels
40
30
20
10
0
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
1,2
1
0,8
0,6
0,4
0,2
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
How to Operationalize Special and Differential Treatment?
Slide 13
Export / Import Ratio in Emerging Sectors (2)
Office and Communication Equipment (mainly TVs)
0,6
0,5
0,4
0,3
0,2
0,1
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
How to Operationalize Special and Differential Treatment?
Slide 14
A Closer Look at the Turkish Consumer Electronics
Industry
 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)
Turkish Electronics Industry
Production by Subgroup,2003 ($000)
6%
Turkish Consumer Electronics
Production, 2003
4%
Color TV
7%
Audio Electronics
8%
Video Player
12%
2.211.500;
63%
Cashier
Color TV
96%
Calcuator
Components
Consumer Electronics
Telecom electronics
Other professional industrial
Military
Computer electronics
Source: Turkish Electronics and Information Industries Association

For audio and video
products, Turkey
ranks
16th
Audio
-Video
worldwide in export
value
Cassettes
How to Operationalize Special and Differential Treatment?
Slide 15
The Turkish TV industry is heavily
dependent on imported components
Energy; 1%
Labor; 3%
Gen. Exp.;
1%
Depreciation;
2%
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
Components;
93%
Source: Vestel company report by Finans Invest; The Eight Five-Year Development Plan by State Planning Organization
How to Operationalize Special and Differential Treatment?
Slide 16
Rising Current Account Deficit
5.000
0
-5.000
-10.000
-15.000
-20.000
20
05
20
04
20
03
20
02
20
01
20
00
19
99
19
98
19
97
19
96
19
95
19
94
19
93
19
92
Current Account Balance (Mln $)
How to Operationalize Special and Differential Treatment?
Slide 17
Exchange Rate Trends
Real Exchange Rate (Average)
160
140
120
100
80
60
40
20
0
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?
A competition policy framework to
enhance productivity growth (1)
Slide 21
 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
A competition policy framework to
enhance productivity growth (2)
 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.
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?
…thank you…
Slide 25