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UNCLAS SECTION 01 OF 11 ANKARA 000077 
 
SIPDIS 
 
DEPARTMENT FOR EB/IFD/OIA 
DEPARTMENT PLEASE PASS USTR FOR LERRION 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV OPIC KTDB USTR TU
SUBJECT:  TURKEY: 2007 INVESTMENT CLIMATE STATEMENT 
 
REF: 06 STATE 178303 
 
The following is the 2007 Investment Climate Statement for 
Turkey: 
 
¶1. Openness To Foreign Investment 
 
The Government of Turkey (GOT) views foreign direct 
investment as vital to the country's economic development 
and prosperity. Accordingly, Turkey has one of the most 
liberal legal regimes for FDI in the OECD.  With the 
exception of some sectors (see below), areas open to the 
Turkish private sector are generally open to foreign 
participation and investment.  However, all investors - 
regardless of nationality - face a number of challenges: 
excessive bureaucracy, a slow judicial system, high taxes, 
weaknesses in corporate governance, sometimes unpredictable 
decisions taken at the municipal level, and frequent 
changes in the legal and regulatory environment. 
Regulations governing foreign investment are, in general, 
transparent.  Turkey provides national treatment, including 
in the acquisition of real estate by foreign-owned 
corporate entities registered under Turkish law, and does 
not have an investment screening system (only notification 
is required).  The GOT set "reciprocity with the related 
nation" as a precondition for real estate property 
purchases by foreigners, and set an upper limit of 25,000 
square meters to the area of the real estate foreigners can 
buy. 
 
Equity participation of foreign shareholders is restricted 
to 25 percent in broadcasting and 49 percent in the 
aviation and maritime transportation sectors. 
Establishment in financial services, including banking and 
insurance, and in the petroleum sector requires special 
permission from the GOT for both domestic and foreign 
investors.  In practice, regulators have not restricted 
foreign ownership in the financial sector: in 2005 and 2006 
a series of foreign acquisitions in the sector were 
approved, and several foreign financial houses have 
longstanding operations in Turkey. 
 
Turkey's privatization process continues to move forward. 
The GOT privatizes State Economic Enterprises through block 
sales, public offerings, or a combination of both. 
Transactions closed under the Turkish privatization program 
generated $8.2 billion in revenues in 2005 and $8.1 billion 
in 2006.  On a cash basis, however, the program yielded 
$3.0 billion in 2005 and $9.6 billion in 2006, since 
privatizations are often paid for in installments.  The 
Turkish government is committed to continuing the 
privatization process despite delays that may occur in some 
individual cases. 
 
Bureaucratic "red tape" has been a significant barrier to 
companies, both foreign and domestic.  However, recent 
reforms have simplified company establishment procedures, 
reduced permit requirements, instituted a single company 
registration form, and enabled individuals to register 
their companies through local commercial registry offices 
of the Turkish Union of Chambers and Commodity Exchanges. 
In 2006, the government introduced a number of reforms 
specifically aimed at attracting foreign investment to 
Turkey.  A National Judiciary Network project will 
significantly speed the processing of commercial cases by 
sharing documents and court records more easily, as well as 
allowing for the filing of suits online.  Intermediary 
regional appeals courts have also been created to speed the 
processing of cases, and new courthouses are being built to 
alleviate overcrowding.  In addition, the government has 
improved foreign investors' access to justice, including to 
legal aid and Alternative Dispute Resolution mechanisms 
supported by the U.S., the EU and the World Bank. 
 
In addition to structural reforms, the Prime Ministry has 
created an Investment Promotion Agency whose main objective 
will be to support new investors throughout the 
establishment process and solve problems that arise after 
establishment.  The agency will also serve as an advocate 
within the government for reforms that promote investment 
and will work to raise public awareness of the benefits of 
investment. 
 
Turkey is also making progress in making the taxation 
 
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system more investor-friendly.  In 2006, the basic 
corporate tax rate was reduced from 30 to 20 percent.  The 
Government also cancelled the withholding tax for foreign 
investors' holdings of bonds, bills and stocks, though 
retaining it for bank deposits and repurchase agreements. 
The 15% rate on bonds, bills and stocks was reduced to 10% 
for domestic investors.  The Tax Administration authority 
is also in the process of establishing a large taxpayer 
unit which will handle tax collection from large 
corporations. 
 
Turkish law and regulations affecting the investment 
climate continues to evolve.  Potential investors should 
check with appropriate Turkish government sources for 
current and detailed information.  The following web site 
provides the text of regulations governing foreign 
investment and incentives as well as other useful 
background information: 
http://www.treasury.gov.tr/for_inv.htm.  Additional 
information is available at: 
http://www.investinginturkey.gov.tr 
 
¶2. Conversion And Transfer Policies 
 
Turkish law guarantees the free transfer of profits, fees 
and royalties, and repatriation of capital. This guarantee 
is reflected in Turkey's 1990 Bilateral Investment Treaty 
(BIT) with the United States, which mandates unrestricted 
and prompt transfer in a freely usable currency at a legal 
market-clearing rate for all funds related to an 
investment. There is no difficulty in obtaining foreign 
exchange, and there are no foreign exchange restrictions. 
However, as the result of a 1997 court decision, the 
Turkish Government has blocked full repatriation of 
investments by oil companies under Article 116 of the 1954 
Petroleum Law, which protected foreign investors from the 
impact of lira depreciation. Affected companies have 
challenged the 1997 decision and the case has been in the 
Turkish court system for several years. 
 
¶3. Expropriation And Compensation 
 
Under the BIT, expropriation can only occur in accordance 
with due process of law. Expropriations must be for public 
purpose and non-discriminatory. Compensation must be 
reasonably prompt, adequate, and effective. The BIT ensures 
that U.S. investors have full access to the local court 
system and the ability to take the host government directly 
to third party international binding arbitration to settle 
investment disputes. There is also a provision for state- 
to-state dispute settlement. 
 
As a practical matter, the GOT occasionally expropriates 
private real property for public works or for State 
Enterprise industrial projects. The GOT agency 
expropriating the property negotiates and proposes a 
purchase price. If the owners of the property do not agree 
with the proposed price, they can go to court to challenge 
the expropriation or ask for more compensation. There are 
no outstanding expropriation or nationalization cases. 
 
¶4. Dispute Settlement 
 
There are some outstanding investment disputes between U.S. 
companies and Turkish government bodies, particularly in 
the energy and tourism sectors. 
 
Turkey's legal system provides means for enforcing property 
and contractual rights, and there are written commercial 
and bankruptcy laws.  However, the court system is 
overburdened, which sometimes results in slow decisions and 
judges lacking sufficient time to grasp complex issues. 
Judgments of foreign courts, under certain circumstances, 
need to be executed by local courts before they are 
accepted and enforced. Monetary judgments are usually made 
in local currency, but there are provisions for 
incorporating exchange rate differentials in claims. 
 
Turkey is a member of the International Center for the 
Settlement of Investment Disputes (ICSID), and is a 
signatory of the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards. 
Turkey ratified the Convention of the Multinational 
Investment Guarantee Agency (MIGA) in 1987.  There is 
 
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currently one arbitration case pending before ICSID. 
 
Turkish law accepts binding international arbitration of 
investment disputes between foreign investors and the 
state.  In practice, however, Turkish courts have on at 
least one occasion failed to uphold an international 
arbitration ruling involving private companies. 
 
¶5. Performance Requirements/Incentives 
 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
 
The Turkish Government encourages investment in provinces 
with annual per capita income below USD 1,500 and to high 
priority development regions. For low income provinces and 
under certain conditions, the law provides for withholding 
tax incentives on income tax, social security premium 
incentives, free land, and electricity price support. These 
incentives will remain in effect until the end of 2008, 
except for allocation of free public land, which has no 
expiration date. The same law also limits certain tax 
preferences previously enjoyed by Turkey's free zones (see 
below). 
 
There are no performance requirements imposed as a 
condition for establishing, maintaining, or expanding an 
investment. There are no requirements that investors 
purchase from local sources or export a certain percentage 
of output.  Investors' access to foreign exchange is not 
conditioned on exports. 
 
There are no requirements that nationals own shares in 
foreign investments, that the shares of foreign equity be 
reduced over time, or that the investor transfer technology 
on certain terms. There are no government imposed 
conditions on permission to invest, including location in 
specific geographical areas, specific percentage of local 
content - for goods or services - or local equity, import 
substitution, export requirements or targets, employment of 
host country nationals, technology transfer, or local 
financing. 
 
The GOT does not require that investors disclose 
proprietary information, other than publicly available 
information, as part of the regulatory approval process. 
Enterprises with foreign capital must send their activity 
report, submitted to the general assembly of shareholders, 
auditor's report, and balance sheets to the Treasury's 
Foreign Investment Directorate every year by May. 
 
With the exceptions noted under "Openness to Foreign 
Investment" and "Transparency of the Regulatory System," 
Turkey grants all rights, incentives, exemptions and 
privileges available to national capital and business to 
foreign capital and business on a most-favored-nation (MFN) 
basis. American and other foreign firms can participate in 
government-financed and/or subsidized research and 
development programs on a national treatment basis. 
 
Turkey harmonized its export incentive regime with the 
European Union in 1995, prior to the start of the Customs 
Union. Turkey currently offers a number of export 
incentives, including credits through the Turkish Eximbank, 
energy incentives, and research and development incentives. 
Foreign investors can participate in these export incentive 
programs on a national treatment basis. More information on 
Turkey's trade regime can be found at 
Www.foreigntrade.gov.tr. 
 
Military procurement generally requires an offset provision 
in tender specifications. The offset guidelines were 
modified to encourage direct investment and technology 
transfer. 
 
¶6. Right To Private Ownership And Establishment 
 
With the exceptions noted above, private entities may 
freely establish, acquire, and dispose of interests in 
business enterprises, and foreign participation is 
permitted up to 100 percent. 
 
Competitive equality is the standard applied to private 
enterprises in competition with public enterprises with 
 
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respect to access to markets, credit, and other business 
operations.  Turkey has an independent Competition Board. 
 
¶7. Protection Of Property Rights 
 
Secured interests in property, both movable and real, are 
recognized and enforced. There is a recognized and reliable 
system of recording such security interests. For example, 
there is a land registry office where real estate is 
registered. Turkey's legal system protects and facilitates 
acquisition and disposal of property rights, including 
land, buildings, and mortgages, although some parties have 
complained that the courts are slow in rendering decisions 
and that they are susceptible to external influence (see 
"Dispute Settlement"). 
 
Turkey's intellectual property rights regime has improved 
in recent years, but certain deficiencies from 
international standards remain a concern.  Turkey remained 
on the U.S. Special 301 Priority Watch List in 2006 due to 
insufficient protection for confidential pharmaceutical 
test data and continued high levels of piracy and 
counterfeiting of copyright and trademark materials. 
 
Turkey's copyright law provides deterrent penalties for 
copyright infringement.  However, it does not prohibit 
circumvention of technical protection measures, a key 
feature of the World Intellectual Property Organization 
(WIPO) "Internet" treaties.  The law contains several 
strong anti-piracy provisions, including a ban on street 
sales of all copyright products and authorization for law 
enforcement authorities to take action without a complaint 
by the rights holder.  However, the law also reduces 
potential prison sentences for piracy convictions, a result 
of its harmonization with EU requirements.  While pirated 
materials are still common, the number of cases brought 
against the producers and/or distributors of these goods 
have increased significantly, and deterrent penalties have 
become more common. 
 
Turkey is a signatory to a number of international 
conventions, including the Stockholm Act of the Paris 
Convention, the Patent Cooperation Treaty, and the 
Strasbourg Agreement. 
 
Turkey accepts patent applications in compliance with the 
TRIPS agreement "mailbox" provisions.  The patent law does 
not, however, contain interim protection for 
pharmaceuticals in the research and development "pipeline". 
 
Turkey's Patent Law provides for penalties for infringement 
of up to 3 years in prison, or 47,000 YTL (approximately 
$32,000) in fines, or both, and closure of the business for 
up to one year.  However, research-based companies in the 
pharmaceuticals sector have criticized provisions which 
delay the initiation of infringement suits until after the 
patent is approved and published, permit use of a patented 
invention to generate data needed for the marketing 
approval of generic pharmaceutical products, and give 
judges wider discretion over penalties in infringement 
cases. 
 
Unlike some other countries, including the United States, 
Turkey does not currently have a system that directly links 
marketing approval for pharmaceutical products to the 
patent protection system.  The Patent Institute sends 
reports to the Ministry of Health informing them of 
pharmaceutical-related patents that have been approved.  In 
addition, in 2006 the Patent Institute, with assistance 
from the World Bank, created an online database that allows 
users to search for valid patents.  The Patent Institute 
does not, however, share with other entities or the public 
unpublished information regarding patent applications that 
have not yet been approved. 
 
In general, the Ministry of Health provides protection for 
confidential test data submitted in support of applications 
 
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to market pharmaceutical products.  However, several of the 
regulation's provisions undermine protection for 
confidential test data.  Data exclusivity is limited to 
 
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original products licensed in a European Customs Union 
country after January 1, 2001, for which no generic 
manufacturers had applied for licenses in Turkey as of 
January 1, 2005. In addition, the term of exclusivity is 
 
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limited to the duration of the drug patent.  The six-year 
term of data protection starts on the date of licensing in 
a European Customs Union country, implying a shorter term 
of protection because of the length of the marketing 
approval process in Turkey. 
 
Trademark holders also contend that there is widespread and 
often sophisticated counterfeiting of their marks in 
Turkey, especially in apparel, film, cosmetics, deswx2QQv{ystem 
 
The GOT has adopted policies and laws that in principle 
should foster competition and transparency. However, 
foreign companies in several sectors claim that regulations 
are sometimes applied in a nontransparent manner.  Turkey 
is an observer but not a member to the WTO Government 
Procurement Committee. 
 
Turkish legislation generally requires competitive bidding 
procedures in the public sector.  A Public Procurement 
board exists to oversee public tenders, and there are 
minimum bidding thresholds under which foreign companies 
are prohibited from bidding on public tenders. The law 
gives preference to domestic bidders, Turkish citizens and 
legal entities established by them, as well as to corporate 
entities established under Turkish law by foreign 
companies. The public procurement law has been amended 
eight times since its enactment and may be further amended 
in the future: it has been cited by the EU as not being in 
conformity with the EU "acquis communautaire." 
 
In general, labor, health and safety laws and policies do 
not distort or impede investment, although legal 
restrictions on discharging employees may provide a 
disincentive to labor-intensive activity in the formal 
economy. Certain tax policies distort investment decisions. 
High taxation of cola drinks discourages investment in this 
sector. Generous tax preferences for free zones have 
provided a stimulus to investment in these zones, though 
these preferences will be trimmed in the future (see free 
zones section). Similarly, incentives for investment in 
certain low-income provinces appear to be stimulating 
investment there (see "Performance 
Requirements/Incentives"). 
 
¶9. Efficient Capital Markets And Portfolio Investment 
 
The government has taken a number of important steps in 
recent years to strengthen and better regulate the banking 
system.  A 2005 revision of the Banking Law brought tighter 
bank regulation, notably by broadening the range of 
expertise inspectors can draw on when conducting on-site 
inspections. 
 
An independent Banking and Regulation Supervision Agency 
(BRSA) monitors and supervises Turkey's banks. The BRSA is 
headed by a board whose seven members are appointed by the 
cabinet for six-year terms.  In addition, bank deposits are 
protected by an independent deposit insurance agency, the 
State Deposit Insurance Fund (SDIF). 
 
Because of high local borrowing costs and short repayment 
periods, foreign and local firms frequently seek credit 
from international markets to finance their activities. As 
of October 2006, there were 33 deposit-taking commercial 
banks and 13 development or investment banks operating in 
Turkey. Sector assets as of August 2005 totaled 
approximately USD 333 billion, or about 83 percent of GNP, 
according to BRSA data. 
 
There is a regulatory system established to encourage and 
facilitate portfolio investments, though it needs 
improvements in transparency, accounting, and enforcement 
provisions to bring it up to U.S. and EU standards.  The 
Istanbul Stock Exchange (ISE), formed in 1986, is becoming 
 
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a significant emerging market stock exchange.  As of 
December 31, 2006, 332 companies were listed on the 
exchange. However, Turkey has yet to develop other capital 
markets. The Capital Markets Board is responsible for 
overseeing the activities of capital markets, including 
activities of ISE-quoted companies, and securities and 
investment houses. The Turkish private sector is dominated 
by a number of large holding companies, whose upper 
management is family-controlled. Most large businesses 
continue to float publicly only a minority portion of 
company shares in order to limit outside interference in 
company management. There has been no attempt at a hostile 
takeover by either international or domestic parties in 
recent memory. 
 
¶10. Political Violence 
 
In recent years, terrorist bombings -- some with 
significant numbers of casualties -- have struck religious, 
political, and business targets in a variety of locations 
in Turkey.  The potential remains throughout Turkey for 
violence and terrorist actions against U.S. citizens and 
interests, both by transnational and indigenous terrorist 
organizations. 
 
In November 2003 the Al-Qa'ida network was responsible for 
four large suicide bombings in Istanbul that, among other 
targets, hit western interests. Indigenous terrorist groups 
also continue to target Turkish as well as U.S. and Western 
interests. In June 2006, attacks of the indigenous 
terrorist group PKK/KADEK/KONGRA GEL increased 
significantly and claimed as many as 600 lives through the 
first nine months of the year; the PKK declared a 
unilateral ceasefire in October, but since the 
announcement, there have been repeated attacks against 
Turkish targets.  The PKK operates in parts of Northern 
Iraq and crosses the border to conduct attacks in the 
southeast region of Turkey, where the group has 
traditionally concentrated its activities, Istanbul, and 
resort areas of southern and western Turkey.  Other 
terrorist groups, including the Turkish group Revolutionary 
People's Liberation Party/Front (DHKP/C), continue to 
target Turkish officials and various civilian facilities 
and may use terrorist activity to make political 
statements. Since 2002, civilian venues such as 
courthouses, fast food restaurants, and public 
transportation have been targets of minor bomb attacks, 
resulting in small numbers of casualties. Similar, random 
bombings are likely to continue in unpredictable locations. 
Americans traveling to southeastern Turkey, the site of 
PKK/KADEK/KONGRA GEL actions, should exercise caution. 
 
Although the Turkish government takes air safety seriously 
and maintains strict controls, particularly on 
international flights, a hijacking occurred on a Turkish 
Airlines flight as recently as October 2006. For the latest 
security information on Turkey and throughout the world, 
travelers should monitor the State Department web site 
http://travel.state.gov, where the current Worldwide 
Caution Public Announcement, Travel Warnings, and Public 
Announcements can be found. 
 
¶11. Corruption 
 
Corruption is perceived to be a problem in Turkey by 
private enterprise and the public at large, particularly in 
government procurement. American companies operating in 
Turkey have complained about being solicited, with varying 
degrees of pressure, by municipal or local authorities for 
"contributions to the community". Parliament continues to 
probe corruption allegations involving senior officials in 
previous governments, particularly in connection with 
energy projects. 
 
Public procurement reforms were designed to make 
procurement more transparent and less susceptible to 
political interference, including through the establishment 
of an independent public procurement board with the power 
to void contracts. The judicial system is also perceived to 
be susceptible to external influence and to be biased 
against outsiders to some degree. 
 
Turkish legislation outlaws bribery and some prosecutions 
of government officials for corruption have taken place, 
 
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but enforcement is uneven. Turkey ratified the OECD 
Convention on Combating Bribery of Public Officials, and 
passed implementing legislation in January 2003 to provide 
that bribes of foreign officials, as well as domestic, are 
illegal and not tax deductible. In 2006, Turkey's 
parliament ratified the UN Convention Against Corruption. 
 
Turkey's Criminal Code makes it unlawful to promise or to 
give any advantage to foreign government officials in 
exchange for their assistance in providing improper 
advantage in the conduct of international business.  In the 
event that such a crime makes an unlawful benefit to a 
legal entity, such legal entity shall be subject to certain 
security measures.  The provisions of the Criminal Law 
regarding the bribing of foreign governmental officials are 
in line with the provisions of the Foreign Corrupt 
Practices Act of 1977 of the United States (the "FCPA"). 
 
There are, however, a number of differences between the 
Turkish law and the FCPA.  For example, there is not an 
exception under the Turkish law for payments to facilitate 
or expedite performance of a "routine governmental action" 
in terms of the FCPA.  Another difference between the 
provisions of the FCPA and the Turkish law is that the FCPA 
does not provide for a punishment of imprisonment, while 
the Turkish law provides a punishment of imprisonment from 
four years to 12 years.   The Prime Ministry's Inspection 
Board, which advises a new Corruption Investigations 
Committee, is responsible for investigating major 
corruption cases. Nearly every state agency has its own 
inspector corps responsible for investigating internal 
corruption. The parliament can establish investigative 
commissions to examine corruption allegations concerning 
Cabinet Ministers for the Prime Minister.  A majority vote 
is needed to send these cases to the Supreme Court for 
further action. 
 
Transparency International has an affiliated NGO in 
Istanbul. Transparency International noted that Turkey 
improved its fight against corruption again in 2006, moving 
Turkey from 65th to 60th in the transparency ranking of 159 
countries. 
 
¶12. Bilateral Investment Agreements 
 
Since 1962, Turkey has been negotiating and signing 
agreements for the reciprocal promotion and protection of 
investments. Turkey has signed bilateral investment 
treaties with 78 countries and has initiated negotiations 
with nine countries. 62 of these agreements are now in 
force, including with the United States, United Kingdom, 
Germany, the Netherlands, Belgium, Luxembourg, Denmark, 
Austria, Sweden, Switzerland, Spain, Finland, Italy, 
Portugal, Hungary, Poland, Romania, Tunisia, Kuwait, 
Bangladesh, China, Japan, South Korea, Indonesia, Croatia, 
Cuba, the Czech Republic, Estonia, Russian Federation, 
Azerbaijan, Kazakhstan, Georgia, Tajikistan, Ukraine, 
Uzbekistan, Belarus, Lithuania, Latvia, Slovakia, 
Macedonia, Pakistan, Turkmenistan, Moldova, Kyrgyzstan, 
Albania, Bulgaria, Argentina, Bosnia, Malaysia, Egypt, 
Mongolia, Greece, Israel, Afghanistan, Ethiopia, Iran, 
Lebanon, Syria, Slovenia and Jordan. 
 
Turkey's bilateral investment treaty with the United States 
came into effect on May 18, 1990. A bilateral tax treaty 
between the two countries took effect on January 1, 1998. 
Turkey has avoidance of double taxation agreements with 61 
countries. 
 
¶13. OPIC And Other Investment Insurance Programs 
 
The Overseas Private Investment Corporation (OPIC) offers a 
full range of programs in Turkey, including political risk 
insurance for U.S. investors, under its bilateral agreement 
with Turkey. OPIC is also active in financing private 
investment projects implemented by U.S. investors in 
Turkey. OPIC-supported direct equity funds, including the 
USD 200 million Soros Private Equity Fund can make direct 
equity investments in private sector projects in Turkey. 
Small-and medium-sized U.S. investors in Turkey are also 
eligible to utilize the new Small Business Center facility 
at OPIC, offering OPIC finance and insurance support on an 
expedited basis for loans from USD 100,000 to USD 10 
million. In 1987, Turkey became a member of the 
 
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Multinational Investment Guarantee Agency (MIGA). 
 
The U.S. Government annually purchases approximately USD 24 
million of local currency. Embassy purchases are made at 
prevailing market rates, which fluctuate in accordance with 
Turkey's free floating exchange rate regime. 
 
¶14. Labor 
 
Turkey has a youthful population of 71 million, 65.5 
percent of which is between the ages 15-64 and 28.8 percent 
of which is 14 years old or younger.   Of this, 60.3 
percent live in urban areas. The Turkish labor force 
numbers 25.4 million (23.13 million employed and 2.3 
million unemployed); 28.4 percent of the workforce is in 
agriculture. The official unemployment rate was 9.1 in last 
quarter of 2006. 
 
The literacy rate is 87.4 percent (93.86 percent among men 
and 80.61 percent among women).  Students are required to 
complete eight years of schooling and to remain in school 
until they are 15 years old.  Those who complete primary 
school education account for 95.74 percent of the 
population, of which only 34.46 percent complete vocational 
or higher educations, including distance education. 
 
Turkey has an abundance of unskilled and semi-skilled 
labor.  Although the Ministry of Education launched 
projects within the framework of EU programs to meet the 
needs of high-tech industries, there is a shortage of 
qualified workers. Individual high-tech firms, both local 
and foreign-owned, have generally conducted their own 
training programs for such job categories. Vocational 
training schools for some commercial and industrial skills 
exist in Turkey at the high school level. Formal 
apprenticeship programs remain in place, although informal 
training is dying out in some traditional occupations. 
Turkey's labor force has a reputation for being 
hardworking, productive and dependable. 
 
Labor-management relations have been generally good in 
recent years. Employers are obliged by law to negotiate in 
good faith with unions that have been certified as 
bargaining agents. Strikes are usually of short duration 
and almost always peaceful. Approximately 2.9 million of 
the 11 to 12 million wage and salary earners are unionized. 
The law prohibits discrimination on the basis of union 
membership but discrimination occurs occasionally in 
practice.  There is no obligation for a worker to become a 
member of any union and there is no obligation to make a 
collective labor agreement for any sector.  However, in 
order to be covered by a collective labor agreement, a 
worker should be a member of a union.  In order to be a 
bargaining agent, a union must have a membership of more 
than half of the workers employed in a work place and 
include at least 10 percent of the workers employed in that 
specific sector.  The Labor Law sets a series of steps to 
be followed, including mediation by an Arbitration Board, 
before a union may initiate a strike.  Facilitating labor- 
employer relations is among the responsibilities of the 
Economic and Social Council, which aims at maintaining an 
effective dialogue between the state and social parties to 
encourage compromise in industrial relations. 
 
Turkey has signed many International Labor Organization 
(ILO) conventions protecting workers' rights, including 
conventions on Freedom of Association and Protection of the 
Right to Organize; Rights to Organize and to Bargain 
Collectively; Abolition of Forced Labor; Minimum Wage; 
Occupational Health and Safety; Termination of Employment 
and Elimination of the Worst Forms of Child Labor. Since 
1980, Turkey has faced criticism by the ILO, particularly 
for shortcomings in enforcement of ILO Convention 87 
(Convention Concerning Freedom of Association and 
Protection of the Right to Organize) and Convention 98 
(Convention Concerning the Application of the Principles of 
the Right to Organize and to Bargain Collectively). 
However, there are few restrictions on freedom of 
association and the political activities of trade unions. 
The Constitution provides certain restrictions on the right 
to strike.  Civil servants (defined broadly as all 
employees of the central government ministries, including 
teachers) are allowed to form trade unions and to engage in 
limited collective negotiations, but are prohibited from 
 
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striking. 
 
Improvements to job security legislation provided employers 
with greater flexibility in the organization of work and 
weakened to a certain extent the job security provided by 
the regulations.  They contain many new provisions in 
conformity with international regulations of the ILO and 
the EU. 
 
There are no special laws or exemptions from regular labor 
laws in the country's 21 free trade and export processing 
zones. 
 
Use of technology is encouraged at work.  There is a 
special law concerning establishment of Technology 
Development Zones (called "techno-parks").  The state also 
contributes to research and development activities either 
though reimbursement or providing subsidies.  Personnel 
expenses, cost of machinery, equipment and software, 
consultancy and other services, fees paid to scientific 
institutions, registration fees for patent and industrial 
designs to the Patent Institute, and the cost of R&D 
related materials may be reimbursed up to 60% by the state. 
This aid may be extended for up to 3 years. 
 
¶15. Foreign Trade Zones/Free Ports 
 
Firms operating in Turkey's 21 free zones have historically 
enjoyed many advantages.  The zones are open to a wide 
range of activities, including manufacturing, storage, 
packaging, trading, banking, and insurance. Foreign 
products enter and leave the free zones without payment of 
any customs or duties. Income generated in the zones is 
exempt from corporate and individual income taxation and 
from the value-added tax, but firms are required to make 
social security contributions for their employees. 
Additionally, standardization regulations in Turkey do not 
apply to the activities in the free zones, unless the 
products are imported into Turkey. Sales to the Turkish 
domestic market are allowed, with goods and revenues 
transported from the zones into Turkey subject to all 
relevant import regulations. There are no restrictions on 
foreign firms operations in the free zones. Indeed, the 
operator of one of Turkey's most successful free zones 
located in Izmir is an American firm. 
 
Taxpayers who possessed an operating license as of February 
6, 2004, will not have to pay income or corporate tax on 
their earnings in the zone for the duration of their 
license. Earnings based on sale of goods manufactured in a 
zone will be exempt from income and corporate tax until the 
end of the year in which Turkey becomes a member of the 
European Union. Earnings secured in a free zone under 
corporate tax immunity and paid as dividends to real person 
shareholders in Turkey or to real person or legal-entity 
shareholders abroad will be subject to 10 percent 
withholding tax. The tax immunity of the wage and salary 
income earned by persons employed in the zones by taxpayers 
possessing an operating license as of February 6, 2004, 
will remain in effect until December 31, 2008, or the 
expiration date of the operating license, whichever is 
earlier. The implications of the new rules are complex, and 
interested parties may want to consult with a tax advisor 
and/or the Foreign Trade Undersecretariat (web site: 
www.dtm.gov.tr). 
 
¶16. Foreign Direct Investment Statistics 
 
With the foreign investment permit requirement in place 
until 2003, the Turkish Treasury collected detailed sector 
and country of origin data for authorized FDI. Data 
collected since the abolition of the permit requirement, by 
the Central Bank and other entities, may not be directly 
comparable to data collected prior to 2003. 
 
According to Turkish Treasury data, as of October 2006, 
there are 14,356 foreign firms invested and operating in 
Turkey. The aggregate actual inflows reached USD 43.6 
billion. In 2005, EU countries accounted for 58.4 percent 
of FDI inflows to Turkey, non-EU European countries 
accounted for 19.5 percent, Gulf countries for 19.6 percent 
and Americas for 2.8 percent. Over the past two decades, 
the Netherlands (22.2 percent) has been the top source of 
foreign investment, followed by France (11.9 percent), 
 
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Germany (10.5 percent), United Kingdom (8.8 percent) and 
the U.S. (7.2 percent) Because of the absence of a 
bilateral tax treaty until 1998, much U.S.-origin capital 
was invested in Turkey through third-country subsidiaries. 
According to U.S. Commerce Department data, U.S. company 
investment amounted to about USD 2.4 billion in 2005. By 
unofficial estimates, the U.S. may be one of the largest 
sources of foreign investment in Turkey. 
 
In 2005, about 57.3 percent of foreign direct investment 
took place in services, 33.6 percent in manufacturing, 3.1 
percent in mining and 0.5 percent in agriculture. 
 
FDI Inflow by Years (million USD) 
 
Year   Actual Inflow(Cumulative)  Inflow/GDP  No firms 
 
1980-1988                                      1,172 
1989          663                    0.80      1,525 
1990          684                    0.67      1,856 
1991          907                    0.69      2,123 
1992          911                    0.78      2,330 
1993          746                    0.56      2,554 
1994          636                    0.64      2,830 
1995          934                    0.66      3,163 
1996          914                    0.53      3,582 
1997          852                    0.54      4,068 
1998          953                    0.49      4,533 
1999          813                    0.41      4,950 
2000        1,707                    0.85      5,328 
2001        3,288                    2.21      5,841 
2002        1,042                    0.48      6,280 
2003        1,702                    0.71      6,511 
2004        2,883                    0.96      8,661 
2005        9,793                    2.71     11,540 
2006*      15,804                    0.15     14,356 
TOTAL      43,639                             14,356 
 
Source: Central Bank of Turkey, State Institute of 
Statistics, 
(*)January through October 2006. 
(**) Includes capital inflows, foreign loans and real 
estate investment. 
 
FDI Stock by Source Country (end of 2005/ million USD) 
 
Country          Value   Share (percent) 
 
Netherlands      14,043   22.2 
France            7,547   11.9 
 
Germany           6,616   10.5 
United Kingdom    5,580    8.8 
U.S.A             4,579    7.3 
Italy             4,131    6.5 
 
Belgium           3,124    4.9 
 
Finland           2,261    3.6 
 
Switzerland       1,863    2.9 
Canada              857    1.4 
Others           12,684   20.0 
 
Total            63,285  100.0 
 
Source: Central Bank of Turkey. 
 
The investment permit requirement lifted as of 2004. 
 
Turkey's External Investment by Country (As of December 
2006) 
 
Country         Amount    Share 
           (USD millions) 
Netherlands    2,732.8     30.1 
Azerbaijan     2,706.7     29.8 
United Kingdom   507.4      5.6 
Germany          492.6      5.4 
Kazakhstan       469.5      5.2 
Luxembourg       251.4      2.8 
United States    199.1      2.2 
Russia           192.3      2.1 
Romania          175.7      1.9 
 
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Switzerland      109.3      1.2 
France            95.5      1.1 
Others         1,161.4     12.8 
 
Total          9,093.7    100.0 
 
Source: General Directorate of Banking and Foreign 
Exchange, Treasury 
 
Major foreign investors 
 
Turkey's foreign investors include Renault, Toyota, Fiat, 
Castrol, Citigroup, Pirelli Tire, Unilever, RJR Nabisco, 
Philip Morris, United Defense, Honda, Hyundai, Bosch, 
Siemens, DaimlerChrysler, Chase Manhattan, AEG, 
Bridgestone-Firestone, Cargill, Novartis, Coca Cola, 
Colgate-Palmolive, General Electric, ITT, Ford Motor Co., 
Lockheed Martin, Goodyear, Aventis, McDonald's, Nestle, 
Mobil, Pepsi, Pfizer, Procter and Gamble, Abbot 
Laboratories, Aria, Bechtel, Shell, Delphi-Packard, 
Toreador/Madison Oil, AES, NRG, Normandy Mining, Marsa- 
Kraft-Jacobs Suchard, ESBAS A.S., Archer Daniels Midland, 
Merck Sharp Dohme, Bunge, Texas Pacific Group, Cisco 
Systems, Vodafone, Fortis and Bausch and Lomb. 
 
Wilson