Keywords

1 Introduction

There are many types of definitions in the literature for the free-trade zones. Generally, it can be defined as places where commercial and industrial activities are simplified and government intervention is reduced to minimum and also a place in the political boundaries of a country but remained outside the customs territory. As can be understood from the description, with its flexibility free zones provide major commercial interests (IZTO, Access Date: 11.04.2016).

When we examine the historical process of free zones, this process can predicate up to ancient Greek and Roman civilizations about 2000 years ago. Greece’s Piraeus and Challis Ports are considered as the first examples of this subject. The first free zones are established on the major trade routes. The colonies on these routes eliminated the economic and political controls fully or partially on “free cities” (Tumenbatur 2012, p. 340).

However, in the sense we understand it today, the first examples are Gibraltar Island (1704), Singapore (1819), and Hong Kong (1841) with the treaty between England and China for 99 years (KALKINMA, Access Date: 11.04.2016).

There are also examples from the Ottoman Empire. Today Sulina City remains in the Romanian border where the Danube flows into the Black Sea. This city’s port has been turned into a free port during the Ottoman Empire in 1870. This port has been announced as a free zone in 1978 by the Government of Romania (Alpar 1985, p. 13).

There are various port applications in European cities in the early 1900s. Free-trade zones seemed as a way of solving the economic crisis after the Great Depression on 1929. Singapore and Hong Kong free zones which were established before the Second World War and the following ones like Panama, Ireland, Taiwan, and South Korea achieved a great success. These successful implementations have contributed significantly to the adoption of the idea of establishment of free zones in many countries (Karaduman and Zafer 2002, p. 133).

Free zones are implemented in order to improve economic development. In 1980s by rapidly increasing the number of free zones reached to 450 zones over 80 countries. This rapid growth has led to search for new markets. In this respect in year 1978, the World Export Processing Zones Association (WEPZA) was founded under the leadership of United Nations Industrial Development Organization (UNIDO). WEPZA, a nonprofit organization, helps the member countries on market and trade researches and provides important support by reducing cost of research (Tumenbatur 2012, p. 340).

2 Free-Trade Zones and Applications in Turkey

Sudden changes in the political and economic systems are not easy for the countries. The countries who noticed it began to look for different ways to adapt to changing conditions for economic development. At this point, due to more trade development request without changing the current political and economic system, the phenomenon of the “free zone” was developed. The benefits of such commercial points understood that without making any customs operations and radical changes in the existing commercial system, the imported goods can be stored or can be processed easily. As a result, free-trade zones appeared as safe ports for the storage of goods from abroad or for transit trade (Duzenli 2006, p. 20).

2.1 The Scope of Free-Trade Zones

The main purpose of the establishment and operation of free zones can be determined as follows (Sezgin 2008, p. 12):

  • To increase investment and production for export

  • To speed up the entry of foreign capital and technology

  • To assure the need of the economy for the input cheap and on a regular basis

  • To take more advantage of external financing and trade opportunities

On the other hand, some important functions of these free-trade zones can be listed as follows (Sezgin 2008, p. 12):

  • Testing of new trade and economic policies

  • Introducing new technologies into the country by encouraging foreign capital firms

  • Providing direct and indirect employment

  • Reducing costs by partial importation to the country

  • Removing bureaucratic barriers

  • Providing incentives and benefits for low-cost export goods

  • Providing economic contribution by enabling transit trade

  • Providing world trade for export products by simplifying the distribution.

Meanwhile, it is possible to talk about some substantial benefits of a free trade. These benefits can be listed as follows (Orhan 2003, p. 122):

  • Provide benefits for importation (time, storage costs, tax advantages, and quality assurance).

  • Provide benefits for exportation (timing and competitive advantage).

  • Provide foreign capital entry.

  • Provide employment support.

2.2 Free-Trade Zones in Turkey

In Turkey, attempts for establishment of free zones started in 1927. However, they could not find an application area because of the political and economic reasons until the 1980s. The first application of the free zone is considered at the port Istanbul, and for this purpose a law is issued on 22 June 1927. However, it could not be put into practice because of the inadequate infrastructure, bureaucratic obstacles, and the Great Depression seen all over the world (Bakir 1984, p. 68).

In 1928, a free zone trial is done for Ford Company, but it failed again due to the Great Depression. Similarly, attempts to free zones in 1946 and 1956 are forgotten for a short time. The serious practice for free zones in Turkey has been done after the new economic strategies in 1980. It was thought that such zones could contribute to exports and also attract foreign investors. After various discussions, Mersin and Antalya (1987), Ege and Istanbul Atatürk Havalimani (1990), Trabzon (1992), Istanbul Deri ve Endustri (1995), Dogu Anadolu and Mardin (1995), IMKB (1997), İzmir Menemen Deri, Rize, Samsun, Istanbul Trakya, Kayseri (1998), Avrupa, Gaziantep, Adana-Yumurtalik (1999), Bursa, Denizli ve Kocaeli (2001), and Tubitak-Marmara Arastirma Merkezi Teknoloji (2002) were established. Although the contribution of current free zones to the economy is discussed, the new zones, Istanbul Kiyi Bankaciligi, Zonguldak-Filyos, and Ipekyolu Vadisi, are established in Turkey (Ozturk 2013, p. 77).

3 Trading Volumes of Free Zones in Turkey and Evaluation of Their Contribution to International Business

When Table 1 is examined, Turkey’s export figures can be seen between the years 2011 and 2015. Accordingly, in 2015, approximately Turkey’s 45% of the exports realized to the European Union, meanwhile exports from free-trade zones ratio, %, has been 1.33. In this aspect, it can be concluded that there is not an adequate rate of exports made from free-trade zones.

Table 1 Exports of Turkey to country groups, 2011–2015 (value: thousand $)
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When Table 2 is examined, Turkey’s import figures can be seen between 2011 and 2015. Accordingly, in 2015, Turkey imports approximately 38% from the European Union; imports from free zones in Turkey have been 0.59%. If Tables 1 and 2 were compared, it can be evaluated as positive that export rates are higher than import rates.

Table 2 Imports by country groups, 2011–2015 (value: thousand $)
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As of 31 December 2014, a total of 2914 companies operate in free zones of Turkey, and it can be observed from Table 3. Twenty-three percent of these companies are foreign and 77% of them are domestic. In addition, 32% of them makes production, 46% of them concerns in trading, and 22% are operating in other activities. Thirty percent of domestic firms that are located in free zones are production facilities; 37% of foreign firms that are located in free zones are production facilities.

Table 3 Number of companies in Turkey’s free zones
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According to Table 4, as of 31 December 2015, the total number of the companies has been decreased by 1.03%. Despite this decline, the number of companies engaged in production increased by 1.40%, and the number of other companies operating in other activities increased by 2.82%, while the number of trading companies has decreased by 4.53%.

Table 4 Changes and breakdown of free zone operation licenses
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Table 5 situates the annual trade volume of free zones in Turkey. There are 19 free zones in Turkey. It can be obtained that trade volumes fell in year 2011, showed an increase in years 2012 and 2013, but declined again in years 2014 and 2015, respectively. In years 2014 and 2015, 82.5% of the total trade volume has been realized by seven free zones. The remaining 12 free zones performed 17.5% of the total trade volume.

Table 5 Annual trade volume of free zones (US$1000)
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Benefiting from Table 5, as a result of the calculations made by taking into account, seven free zones which performed the highest trading volume is as follows.

Free zones

Rate of trade volumes in total (%)

Aegean

19

Mersin

16

Istanbul Industry and Trade

14.5

Europe

11

Bursa

8.5

Istanbul Thrace

7

Istanbul Atatürk Airport

6.5

Europe, Istanbul Thrace, Istanbul Atatürk Airport, Istanbul Industry and Trade, and Bursa are located in the Marmara Region. With reference of this information, 47.5% of the total trade volume of free zones has been performed by the free zones located in the Marmara Region. On the other hand, according to Table 5, when Aegean, Istanbul, Izmir, and Denizli are taken into account, the ratio of Turkey’s total trade volume of free zones located in the west is approaching 71%. There can be seen an annual total trade volume of free zones by the direction of trade on Tables 6 and 7.

Table 6 Directional changes in total trade volume (US$1000)
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Table 7 Directional changes in trade volumes during January–December period (US$1000)
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There are 19 free zones in Turkey. When the years between 2011 and 2015 are evaluated, a total of 111,632,611,000 US dollars in trade volume was recorded during the 5-year period. The direction of the trade can be seen below:

  • From zones to Third World countries is 33.3%

  • From Third World countries to zones is 31.9%

  • From zones to domestic market is 22.8%

  • From domestic market to zones is 12%

With the reference of the above ratios, bilateral trade volumes of free zones with foreign countries are 65%. On the other side, bilateral trade volumes of free zones with domestic market are 35%. With the reference of Table 7, it can be said that there is an important decrease of annual trade volume as compared to the previous years. Especially the trade from domestic market to the free zones decreased by 19.3%.

Table 8 shows the distribution of trade of free zones according to the group of countries. As compared with the previous year, the annual trade volumes of free zones to the almost all groups of countries has decreased, but the annual trade volumes with North Africa and Middle East countries, OECD countries, and other European countries, which are not member of the EU, have increased.

Table 8 January–December period breakdown of trade volume by countries (US$1000)
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In 2014 and 2015, a total of 42,692,903 billion US dollars in trade volume realized and its distribution can be observed below:

  • EU countries are 31.6%.

  • Other OECD countries are 7.6%.

  • Other European countries are 0.2%.

  • CIS is 5%.

  • North Africa and Middle East are 10%.

  • Turkey is 31.9%.

  • Other countries are 13.7%.

The highest trade volumes of free zones by country have emerged with European Union countries and the Turkey domestic market.

Table 9 shows the distribution of annual trade volumes of free zones by sector between the years 2011 and 2015. A total of 42,692,903,000 US dollars of annual trade volume of free zones can be summarized as follows:

  • Agriculture is 8.48.

    • Vegetables products are 8.1%.

    • Livestock products are 0.18%.

    • Fishery products are 0.017%.

    • Forestry products are 0.345%.

  • Mining and quarrying are 0.32%.

  • Industry is 91.2%.

    • Processed agricultural products are 5.3%.

    • Processed petroleum products are 2%.

    • Industrial products are 83.9%.

Table 9 January–December period breakdown of the trade volume by sectors (US$1000)
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With the light of below information, the biggest share of the annual trade volume is emerged by the industry sector with the ratio of 91.2%.

With the help of Table 9, as compared with the previous year in 2015, the following changes can be observed:

  • Vegetable products increased by 38.7%.

  • Livestock products decreased by 48.71%.

  • Forestry products increased by 17.42%.

  • Processed petroleum products decreased by 46.88%.

Table 10 shows the total employment of free zones in Turkey. Apparently, in the year 2015, the total number of employees has increased by 1.19% compared to the previous year and became 62,234 persons. The majority of the employees are workers. An interesting outcome is, while the total trade volume has decreased, the total number of employees has increased.

Table 10 Employment structure of free zones in January–December period
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The distribution of the total number of employees by trade zones can be seen below.

Rate of employment in free zones (%)

Aegean

28

Bursa

16

Mersin

14

Istanbul Industry and Trade

8.2

Antalya

7.5

Kayseri

6.2

Europe

6

Istanbul Thrace

3

Izmir

2

Istanbul Atatürk Airport

1.9

Kocaeli

1.9

Others

5.3

http://www.ekonomi.gov.tr (Access Date: 11.04.2016)

When Tables 5 and 10 are compared, the outcoming result is summarized in Table 11.

Table 11 Rate of trade volumes and rate of employment in free zones
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According to Table 11, the free zones located in Istanbul have lower rates of employment, but on the contrary, the rate of trade volumes is higher relatively. The rate of trade volumes of Bursa and Aegean area free zones is lower than the rate of employment. It can be concluded that there is no evident correlation between the rate of trade volumes and rate of employment.

4 Conclusion

The rapid globalization all over the world is changing the way of business. Free zones are also one of the important reflections of changing business. Despite the turbulent historical past, the free-trade zones are very important points for the world trade today.

Located in various geographic locations of our country, 19 of the free-trade zones have been a very significant contributor to our economy. These free zones have reached the number of direct employees over 50,000 people in total both blue and white collar by 2015.

In these free zones, over 3000 companies carry over 20 billion dollars in trade volume per year. Therefore, these trade zones are very important business points in terms of employment and foreign trade. More than a quarter of the companies that operate in the free zones are foreign companies. That is also very important in terms of foreign capital entry.

On the other hand, Turkey is rapidly evolving and advancing in the region; therefore there must be a further increase in the trading volumes for the free zones in Turkey. The commercial developments which will be revealed in the volume of free zones in Turkey will have a very positive impact on the country’s and region’s economies.

Consequently, foreign capital should be encouraged and should be provided to contribute to the country’s economy by new legal regulations, incentives, and new advantages that may be offered for these important commercial points.