Free zones tend to be the pioneers in attracting foreign investment into developing countries. They are a good way of arousing initial investor interest in places where there was little before, and of ensuring foreign companies receive equal treatment to domestic ones before the national law is quite ready for it.
But there are few places where free zones are so cherished for their role in economic development as in Turkey. Only in the past 20 years have the Turks embraced the free zone concept – the first arrived in 1987 – but they did so wholeheartedly.
“Turkish free zones are one of the best examples of the positive impact of free zones,” trade minister Kursad Tuzmen told the World Free Zone Convention in April at the Aegean Free Zone in Izmir (the first free zone to host the annual international event).
More than 20 Turkish free zones currently provide employment for 40,000 people directly and 200,000 indirectly. More than $22bn worth of goods is traded in the free zones, and they account for much of the $2.9bn increase to a record $63bn in Turkish exports in 2004.
Mr Tuzmen enthusiastically rattles off a list of the benefits of free zones: “Free zones work as incubators. They help upgrade human resources and labour skills, then the employment rate increases and wages increase. New innovations arise, new patterns develop and they then serve the rest of the world.”
And, of course, they facilitate FDI inflows. “It is crucial to emphasise the link between free zones and FDI,” Mr Tuzmen says. “Free zones, if used properly, can be the most important tool in attracting FDI.”
But the EU, with whom Turkey is scheduled to start entry talks later this year, is not such a big fan of free zones. “For World Trade Organisation membership it is not such a problem but, as an EU member, there can be some difficulties,” Mr Tuzmen acknowledges. “In the EU they do not want you to have a free zone mentality.”
The EU may have a fight on its hands if it intends to force Turkey to give up its much-loved free zones. Mr Tuzmen has an unabashed affection for them (he is a former director general of the Turkish free zone association) and becomes even more animated than usual when the subject arises. “This tool must be used because we are a developing country,” he insists. “It is a basic medicine for a developing country’s economy.”
The EU has reassured Turkey that once it becomes a member it can replace its free zones with clusters or transform them into technology parks. That’s all well and good for the future, once Turkey achieves EU levels of economic development and modernisation, but up until that time – which is, by even the most generous estimates, decades away – Mr Tuzmen says the free zones will be a necessity.
Easy for them to say
It is also easy for already-developed countries to forsake free zones, says Mehmet Ozmen, vice-president of the Gaziantep Chamber of Industry, because they do not need them the way that emerging markets do. “Some EU members still have free zones though, and anyway, in the EU there are a lot of advantages for those countries so they don’t even have to have free zones.”
Mr Ozmen believes the EU is wrong about free zones. “They do not understand exactly what free zones are all about, which is foreign trade and investment,” he says. “I believe they evaluated this in a hurry and made a bad decision.”
There is, of course, the big question, left largely unspoken, of what happens if Turkey abandons its free zones only to ultimately be denied EU membership. For the moment, however, Turkey will keep developing and expanding its free zones, and they in turn will keep helping to develop and expand the Turkish economy.