2.1 Legislation on trade and investment

2.1.1 Legislation on trade administration

The Foreign Trade Regulations Law is the major legislation in Turkey in the administration of trade. Other laws pertaining to trade administration include the Customs Law, the Law on the Prevention of Unfair Competition by Imports, the Free Zones Law, and the Law on Measures to be Taken by the Government Relating to Taxes for the Purpose of Promoting Exports.

2.1.2 Legislation on investment administration

The major legislation in Turkey governing foreign investment is the Foreign Direct Investment Law. Other legislation regulating foreign investment includes the Decree on Foreign Investment Framework and the Circular of the Decree on Foreign Investment Framework.

2.2 Trade administration

2.2.1 Tariff system

As a result of the customs union with the European Union in 1996, Turkey applies the EU common external tariff (CET) to all industrial products and to the industrial components of processed agricultural products from third countries.

Turkey enacted a new Decree on 25 August 2004, including into its Generalized System of Preferences (GSP) all industrial products covered by the EU's GSP regime and offering the same preferential terms as the EU. The customs duty rates applied to the industrial components of processed agricultural products are aligned to the EU's common external tariff rates. In addition, in order to increase the competitive capacity of the domestic producers, Turkey has significantly reduced or suspended customs duties applied to imports of certain products predominantly used as raw materials or intermediate inputs in chemical and electronic industries.

Goods imported into Turkey may be subject to five types of charges: customs duty rates, excise duties, the Mass Housing Fund (MHF) levy (on fishery products), special consumption tax (SCT), and the value-added tax (VAT). Customs duties fall into five kinds: ad valorem, specific, compound, mixed and formula duties. The VAT is levied at 1 percent, 8 percent and 18 percent, down from the previous five rates. Agricultural and basic goods are charged 1 percent and 8 percent, while some non-agricultural and luxury items are charged 18 percent. The VAT applies to the CIF and the customs duty of the imports.

2.2.2 Import administration

2.2.2.1 Customs procedures

The format of the Turkish customs declaration has been aligned on the single administrative document (SAD) used in the EU for customs procedures. All imported goods must be presented to customs through the SAD accompanied by pertinent documents. Form EUR1 is required for imports from non-EU countries with which Turkey has free trade agreements.

Certain goods can be imported only through specialized customs offices. For example, customs formalities for motor vehicles, tractors, and their spare parts and accessories are carried out by Yesilkoy and Gebze Specialized Customs Directorates; textile fabrics by Bursa and Halkali Specialized Customs Directorates; some petroleum products, by Gebze Specialized Customs Directorate; and plants and plant products, by Mersin Specialized Customs Directorate

2.2.2.2 Rules of origin

Turkey applies two different sets of rules of origin: non-preferential and preferential. The non-preferential rules of origin, set out in Articles 17 and 21 of the Customs Law, assign origin to the country where the good underwent its "last substantial transforma tion and an important stage of manufacture". Preferential rules of origin, specifying the standards for processing and added value of the relevant products, apply to imports from countries with which Turkey has signed bilateral or multilateral trade preference arrangements.

2.2.2.3 Import restrictions and licenses

Turkey bans the imports of hashish, opium, silkworm eggs, any kind of soil, leaf, stem, straw and natural manure used for agricultural aims, computer game machines, and products that bear the brand of a manufacture or the brand name of a commercial product, or a commercial title against related international conventions for industrial property.

According to the Communiqué of Standardization for Foreign Trade, Turkey places the import of the following products under licensing: agricultural products such as fresh fruits and vegetables, dry fruits, beans, edible vegetable oils, and cotton; solid fuels, wastes, scrap metals, medicinal materials, pharmaceutical products, detergents, foods, animal products, veterinary drugs, some chemical products, tobacco and their products, and alcoholic beverages.

Turkey promulgated in 2004 the Decree Concerning the Execution of Import Surveillance and the Regulation Concerning the Implementation of Import Surveillance as its legislative base for supervising imports. When the import of a particular product poses a threat of injury to domestic producers of the same or competing products and when the import of the product in question is deemed in the national interest, the Directorate General of Imports of the Undersecretariat of the Prime Ministry for Foreign Trade can impose surveillance over the product upon application or by its own judgment. The imported product under surveillance must be accompanied with an import license for the said product issued by the Directorate General of Imports of the Undersecretariat of the Prime Ministry for Foreign Trade in addition to other documents as required by the customs laws and regulations.

Pursuant to Article 20 in the Decree Concerning the Surveillance and Safeguard Measures Against Imported Products of Chinese Origin issued in April 2004, quantitative restrictions upon certain footwear and ceramics of Chinese origin have been lifted on 1 January 2005.

2.2.3 Export administration

Exporters in Turkey are required to register with the Exporters Union and their local Chamber of Commerce.

Turkey prohibits the export of the following products: cultural- historical works and natural fauna, India hemp, tobacco seedling and tobacco plants, Angora goats, all the wild animals and hunting animals, except the ones mentioned in the List of the Goods Permitted for Exportation, tree species of walnut, mulberry, cherry, plum, yew, ash, elm and linden, exports under the protocols and changes of the Vienna Convention on the Conservation of the Ozone Layer, natural bulbs of flowers that are prohibited to export, firewood and charcoal, liquidambar orientalis, and certain chemicals.

The export of the following products should be registered: products in payment of loans to the Support and Price Stabilization Fund (SPSF), natural gas re-exported after being imported from Russia under the bilateral agreement between the two countries, products under international embargo, some electronic devices, products such as centrifuges under the Wassenaar Agreement, products under the Missile Technology Controlling Regime (MTCR), unprocessed olive oil, processed bulk or barreled olive oil, unprocessed olive oil in bags, liquorice root, raw meerschaum, live sheep and cattle.

2.3 Investment administration

2.3.1 Investment promotion policies

The Turkish Investment Encouragement System can be divided into two categories, General Investment Encouragement Program (GIEP) and Aids Granted to Small and Medium Sized Enterprises' (SMEs) Investments. Based on different investment encouragement measures eligible, the following regional classification is established in Turkey: developed regions, priority development regions, and normal regions.

2.3.1.1 General Investment Encouragement Program (GIEP)

Eligible investment projects under the General Investment Encouragement Program (GIEP) can benefit from the following measures: imports of machinery and equipment to be used for the investment project shall be subject to customs duty exemption, if such imports have been approved by the Undersecretariat of Treasury; imports and domestic purchases of machinery and equipment within the scope of approved machinery and equipment lists attached to the investment encouragement certificate are exempted from the va lue added tax; investment credits and operating credits, which differ from industry to industry and from region to region, can be allocated in order to guide and encourage the investments aiming at regional development, research and development (R&D) investments, environmental protection investments, investments in priority technology areas, investments to be moved to priority development regions from developed regions, and manufacturing, agro-industry and mining investments in the priority development regions in compliance with the legislation on State Encouragements to Investments.

2.3.1.2 Aids granted to Small and Medium Sized Enterprises' (SMEs) Investments

According to the relevant Turkish laws, small and medium sized enterprises (SMEs) refer to companies which are holding assets not exceeding 950 billion Turkish Liras (TL) and operating in the manufacturing, agro- industry, tourism, education and health, mining, and software industries. Companies employing 1 to 9 workers are defined as micro size, 10 to 49 workers defined as small size, and 50 to 250 workers defined as medium size. The investment of SMEs benefit from the following encouragement elements: exemption from customs duties, value added tax exemption for imported and domestically purchased machinery and equipment, and credit allocation from the budget.

2.3.2 Restricted investment sectors

Turkey currently restricts investment in such sectors as broadcasting, television, civil aviation, maritime transportation, port services, fishery processing, electricity distribution sector, and privately operated marinas.

2.3.3 Other investment policies

To further improve the investment environment in Turkey, the Undersecretariat of Treasury established on 15 March 2004 an Investment Advisory Council, which consists of both policy makers and investors. Working together with the Coordinated Committee for the Improvement of the Investment Environment (CCIIE), which was established a few years earlier, the Investment Advisory Council publishes on an irregular basis its Progress Report on investment and policy recommendations.

2.4 Competent authorities

The Undersecretariat of the Prime Ministry for Foreign Trade (UFT) is the leading government body in the administration of foreign trade in Turkey. The UFT formulates, administers and coordinates Turkey's foreign trade policies, consults with other relevant ministries and institutions in matters concerning foreign trade policy formulation and its implementation, and submits to the legislature proposals for deliberation.

The General Directorate of the Customs is mainly responsible for formulating customs policies, taking part in setting tariff rates, levying customs duties and other taxes, fees and charges, controlling and inspecting cargo and vehicles, compiling customs statistics, and cracking down on smuggling.

The Ministry of Industry and Trade (MIT) is chiefly responsible for the formulation and enforcement of trade-related laws in areas such as technical barriers to trade, protection of intellectual, industrial and commercial property rights, competition, and consumer rights.

The Undersecretariat of the State Planning Organization (SPO) is primarily responsible for setting out the economic development objectives and the priorities for public investment programs, preparing the national five-year development plan, and implementing incentive schemes and support mechanisms for regional development. The General Directorate of Foreign Investments (GDFI) operates as a one-stop agency within the Undersecretariat of Treasury to assist foreign investors. The GDFI is authorized to guide and assist foreign investors in exploring investment opportunities in Turkey, receive and process foreign investment applications and grant investment incentives, register license, know-how and management agreements, and represent the government to negotiate bilateral investment promotion and protection agreements with foreign countries.