Turkey: American Investment in Turkey: U.S. State Department Report

Last Updated: 18 August 2015
Article by Serap Zuvin and Alexandra Brown

In May of this year (2015), the United States (U.S.) released its Investment Climate Statement1 for Turkey. The U.S. Department of State releases these reports annually in order to "help U.S. investors make informed investment decisions."2 The reports are prepared by U.S. embassies and diplomatic missions of the relevant countries and they contain information regarding; market barriers, business risk, legal and regulatory systems, dispute regulation, corruption, political violence, labor issues, and intellectual property rights.3 These reports are also used in the U.S. Department of Commerce's Country Commercial Guides4.

The most recent report states that the Turkish market is "generally under-penetrated by U.S. businesses and presents many investment opportunities due to its size, youth, and geographical position."5 However, the report also points to several issues that Americans perceive as barriers to closer economic ties with Turkey. The report's two main recommendations are: (1) fighting corruption, and (2) expanding the Customs Union agreement with the European Union (EU).

Fight Corruption

The U.S. has a long history of fighting corruption domestically and abroad. In 1977, the U.S. passed the Foreign Corrupt Practices Act6 which "prohibits Americans and other persons and businesses that fall under the jurisdiction of the law from bribing foreign officials in order to obtain or retain business."7 This legislation was then reiterated internationally in the form of the OECD Anti-Bribery Convention, which Turkey ratified and entered into force as Law No. 4782 of the Criminal Code on January 11, 2003.8 Meanwhile it is important to note that prior to Law No.4782, Anti-Corruption Law; dated April 19, 1990 and numbered 36289 has mandated penalties of fines and imprisonment for corruption and bribery since 1990.10

The Investment Climate Statement notes that the Turkish Criminal Code regarding bribing foreign government officials is in line with the provisions of the United States' Foreign Corrupt Practices Act.11 In addition, Turkey has made efforts to ensure their anticorruption regime is on par with international standards. Notably, Turkey has ratified the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (which was heavily influenced by the Foreign Corrupt Practices Act), the Council of Europe Criminal Law Convention on Corruption, and the United Nations Convention Against Corruption.

While Turkey's anticorruption law is progressive, the report criticizes its implementation, especially with respect to the immunity of the MP officials in corruption cases.12 For example, the Grand National Assembly can establish commissions to examine corruption allegations against cabinet members but a majority vote is necessary to forward the cases to the Constitutional Court for further action.13 In a recently released Human Rights Report, the U.S. equated this with impunity because, while there are criminal penalties in place for official corruption, MPs and senior public officials have immunity in corruption cases.14 Transparency International Turkey also recommends excluding corruption-related crimes from the scope of immunity granted to members of parliament.15 The Turkish chapter of Transparency International further advocates for the enactment of a Political Ethics Law to create standards for conduct, contact with lobbyists, conflict of interest, post-employment restriction, rules on gifts and hospitality, and transparency for campaign and political finance.16 These efforts aim to put Turkey's ranking back to a proper place after it fell in Transparency International's 2014 Corruption Perception Index.17 The Corruption Perception Index ranking was discussed in depth in Serap Zuvin Law Office's "The Corruption Perception Index for 2014 has Been Released by Transparency International."18

While U.S. private investment has increased in recent years, the report implies that the current political situation and resulting American perception of corruption might damage future investment potential if implementation of the existing anticorruption laws is not improved.19

Expand the Customs Union Agreement with the EU

The U.S. Investment Climate Statement also notes that expanding Turkey's Customs Union agreement with the EU "could pave the way for a more non-discriminatory and market-based environment to attract more U.S. participation" if it included government procurement and services.20 The EU and Turkey have recently agreed to expand their Customs Union and plan to discuss the prospect of eliminating tariffs on services, government contracting, and most agricultural goods.21 If these changes are negotiated and agreed upon, the updated Customs Union would bring Turkey's foreign trade regime in line with more recent U.S. Free Trade Agreements (FTAs).22 These changes might even address the obstacles to a future FTA that were listed by U.S. Secretary of Commerce Penny Prizker on a 2014 visit to Ankara which included protection of intellectual property rights and market access.23

A FTA with the U.S. and an updated Customs Union agreement with the EU could be especially important for Turkey because of the pending Transatlantic Trade and Investment Partnership (TTIP), which, if adopted, will create a free trade agreement between the EU and the U.S. through the elimination of tariffs and other trade barriers.24 As previously explored by Serap Zuvin Law Office in "Economical Impacts of TTIP on the US, EU and Turkey," this threatens to seriously disadvantage Turkey's trade position because the U.S. could export goods to Turkey without paying tariffs, while Turkey would still have to pay tariffs to export goods to the U.S.25 While the upgraded Customs Union agreement alone will not compensate for the disadvantages posed by TTIP, it does increase the prospects of an FTA with the U.S.26 In addition, these two agreements could align Turkey's standards with those being developed for the TTIP and improve Turkey's chances of joining at a later date.27


Despite the report's negative findings, AmCham's Business and Investment Climate Survey in Turkey 2014-2015, which is conducted to "better understand the outlook and perceptions of senior executives of U.S. companies operating in Turkey regarding the business and investment climate," had a more positive outlook.28 The report found that "companies have a strong tendency to continue their operations in Turkey and the future investment propensity is high."29 Similarly, a 2013 IMF report found that there is not a single five year period in which growth fell significantly below the predicted rate30 and the Brookings Institution predicted that Turkey's growth potential over the next twenty years is around 4.2%.31 After the Istanbul Stock Exchange was opened for public trading in 1986,32 U.S.-Turkish economic relations have grown, especially during the past 20 years with agreements aimed to increase foreign investment, such as the U.S.-Turkey Business Council.33 The U.S. has become one of Turkey's larger trading partners at around $20 billion a year (increasing from 10.8 billion USD in 2009 to 19.1 billion USD in 201434) and American FDI in Turkey tripled from 2010 to 2011.35 Still, economic integration is quite limited in comparison with the EU and other longstanding partners.

In addition, Turkey's growth has moderated the last few years (decreased to the 3-4% growth from 5+% growth rates from 2002-201136), and as economic recovery from the global crisis slows in the EU and Middle Eastern markets suffer from regional instability and conflict, Turkey is looking for new markets and partners to regain its high growth rates.37 Therefore, increasing economic ties with the U.S., the world's largest outward investor at 360 billion USD per year,38 could be an avenue to improve growth rates, but it has yet to be seen if the political barriers to investment promulgated by the U.S. State Department's Investment Climate Statement will have the predicted negative impact on private economic relations between the two countries. In fact, Ahmet Erdem, Head of the International Investors Association (YASED), noted that the $1.23 trillion (16%) decrease in FDI from 2013 to 2014 was due to "several fragilities in the global economy, political uncertainties, and increasing geopolitical risk" which "played a role in a decreasing trend in FDI flow across the world."39 However, he argued that political circumstances in Turkey do not affect foreign investment directly because investment is strategic in the long-term.40

Therefore, it remains unclear if the political barriers will actually play a role in discouraging U.S. foreign direct investment in Turkey. However, the impending negative effects of the TTIP on the Turkish economy will likely yield an updated Customs Union Agreement, as Turkey and the EU have already agreed to negotiations.


1. 2015 Investment Climate Statement – Turkey, U.S. Department of State, May 2015, available at http://www.state.gov/e/eb/rls/othr/ics/2015/241775.htm

2. 2015 Investment Climate Statements, U.S. Department of State, available at http://www.state.gov/e/eb/rls/othr/ics/

3. Ibid.

4. Ibid.

5. Supra footnote 1

6. Foreign Corrupt Practices Act of 1977, U.S. Department of Justice, available at http://www.justice.gov/criminal-fraud/statutes-regulations

7. U.S. Leads Anti-Corruption Efforts at OECD, United States Mission to the Organization for Economic Cooperation and Development, available at http://usoecd.usmission.gov/mission/combating-corruption.html

8. Turkey – OECD Anti-Bribery Convention, OECD, available at http://www.oecd.org/daf/anti-bribery/turkey-oecdanti-briberyconvention.htm.

9. Anti-Corruption Law; dated April 19, 1990 and numbered 3628 and published in the Official Gazette dated May 4, 1990 and numbered 20508

10. Anti-Corruption Legislation In Turkish Law, Gune Okuyucu-Ergun, available at https://germanlawjournal.com/pdfs/Vol08No09/PDF_Vol_08_No_09_903-914_Developments_Okuyucu-Ergun.pdf.

11. Supra footnote 1

12. Ibid

13. Ibid.

14. 2014 Human Rights Report – Turkey, U.S. Department of State, June 25, 2015, available at http://www.state.gov/j/drl/rls/hrrpt/2014/eur/236586.htm

15. Turkey Must Clean Up Its Politics or Suffer Even Greater Problems Down the Road!, Transparency International, January 13, 2014, available at http://www.transparency.org/news/pressrelease/turkey_must_clean_up_its_politics_or_suffer_even_greater_problems_down_the

16. Ibid.

17. Turkey: The Corruption Perception Index for 2014 has Been Released by Transparency International, Serap Zuvin and Aybala Kurtuldu, December 11, 2014, available at http://www.mondaq.com/article.asp?articleid=359776

18. Ibid.

19. Supra footnote 1

20. Supra footnote 1

21. EU and Turkey to Expand Customs Union, Mathhew Dalton & Emre Peker, Wall Street Journal, May 12, 2015, http://www.wsj.com/articles/eu-and-turkey-to-update-customs-union-1431430501

21. Ibid.

22. Why an EU-Turkey Customs Union Upgrade is Good for Turkey, Kemal Kirisci, The German Marshall Fund of the United States, May 29, 2015, available at http://www.gmfus.org/publications/why-eu-turkey-customs-union-upgrade-good-turkey

23. Turkey: Economical Impacts of TTIP on the US, EU and Turkey, Serap Zuvin and Aybala Kurtuldu, February 20, 2015, available at http://www.mondaq.com/article.asp?articleid=376266

24. Ibid.

25. Why an EU-Turkey Customs Union Upgrade is Good for Turkey, Kemal Kirisci, The German Marshall Fund of the United States, May 29, 2015, available at http://www.gmfus.org/publications/why-eu-turkey-customs-union-upgrade-good-turkey

26. Ibid.

27. Investment Climate Survey in Turkey 2014-2015, AmCham Turkey, available at http://www.amchamturkey.org/images/surveys/BusinessandInvestmentClimateinTR2014-15.pdf

28. Ibid.

29. IMF Working Paper: Growth Slowdowns and the Middle-Income Trap, International Monetary Fund, March 2013, available at https://www.imf.org/external/pubs/ft/wp/2013/wp1371.pdf

30. From Know-Who to Know-How: Turkey and the "middle-income trap", Martin Raiser, Brookings Institution, February 19, 2015, available at http://www.brookings.edu/blogs/future-development/posts/2015/02/19-turkey-middle-income-trap-raiser.

32. Istanbul Stock Exchange, MarketsWiki, available at http://www.marketswiki.com/mwiki/Istanbul_Stock_Exchange.

33. What U.S. counsel should know about strengthening bilateral commercial relations between U.S. and Turkey, Pelin Baysal & Cansu Akbiyikli, January 8, 2015, available at http://www.insidecounsel.com/2015/01/08/what-us-counsel-should-know-about-strengthening-bi

34. U.S. Relations with Turkey, U.S. Department of State, February 24, 2015, available at http://www.state.gov/r/pa/ei/bgn/3432.htm

35. Fact Sheet: U.S.-Turkey Economic Partnership, Office of the Press Secretary of the White House, May 16, 2010, available at https://www.whitehouse.gov/the-press-office/2013/05/16/fact-sheet-us-turkey-economic-partnership

36. Turkey's Transitions: Integration, Inclusion, Institutions, Martin Raiser, Marina Wes, et al, The World Bank Group, available at http://www.worldbank.org/en/country/turkey/publication/turkeys-transitions-integration-inclusion-institutions

37. Turkey: Business shifts west as crises rage from Syria to Iraq, Daniel Dombey, Financial Times, September 21, 2014, available at http://www.ft.com/intl/cms/s/0/066e9998-10f9-11e4-b116-00144feabdc0.html#axzz3f6QIDkzt

38. FDI in Figures: International investment stumbles into 2014 after ending 2013 flat, OECD, April 2014, available at http://www.oecd.org/daf/inv/FDI-in-Figures-April-2014.pdf.

39. Turkey ranks 22nd most popular spot for forieng direct investors: Association, Hurriyet Daily News, June 24, 2015, available at http://www.hurriyetdailynews.com/turkey-ranks-22nd-most-popular-spot-for-foreign-direct-investors-association.aspx?pageID=517&nID=84484&NewsCatID=345.

40. Doğrudan yabancı yatırımda trend değişmez, Dünya, June 25, 2015, available at http://www.dunya.com/ekonomi/yatirim/dogrudan-yabanci-yatirimda-trend-degismez-266722h.htm.

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