Transparency of the Regulatory System

The Government of Turkey (GOT) has adopted policies and laws that, in principle, should foster competition and transparency.  The GOT makes its budgetary spending reports available online. Accounting, legal, and regulatory procedures appear to be consistent with international norms, including standards set forth by the International Financial Reporting Standards (IFRS), the EU, and the OECD.

Publicly traded companies adhere to international accounting standards and are audited by well-respected international firms.  Copies of draft bills are generally made available to the public by posting them to the websites of the relevant ministry, Parliament, or Official Gazette.  Nevertheless, foreign companies in several sectors claim that regulations are applied in a nontransparent manner. In particular, public tender decisions and regulatory updates can be opaque and politically driven, according to critics. 

International Regulatory Considerations

Turkey is a candidate for membership in the EU; however, the accession process has stalled, with the opening of new accession chapters put on hold.  Some, though not all, Turkish regulations have been harmonized with the EU, and the country has adopted many European regulatory norms and standards. Turkey is a member of the WTO, though it does not notify all draft technical regulations to the WTO Committee on Technical Barriers to Trade (TBT).

Legal System and Judicial Independence

Turkey’s legal system is based on civil law, and provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws.  Turkey’s court system, however, 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 upheld by local courts before they are accepted and enforced.  Recent developments reinforce the Turkish judicial system’s need to undertake significant reforms to adopt fair, democratic, and unbiased standards “There were indications the judiciary remained subject to influence, particularly from the executive branch, and faces a number of challenges that limited judicial independence.” See: https://www.state.gov/reports/2018-country-reports-on-human-rights-practices/turkey/

Laws and Regulations on Foreign Direct Investment

Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors.  The New Turkish Commercial Code No. 6102 (“New TCC”) was published in the Official Gazette on February 14, 2011. The backbone of the investment legislation is made up of the Encouragement of Investments and Employment Law No. 5084, Foreign Direct Investments Law No. 4875, international treaties and various laws and related sub-regulations on the promotion of sectorial investments.  Regulations related to mergers and acquisitions include: a) Turkish Code of Obligations: Article 202 and Article 203, b) Turkish Commercial Code: Articles 134-158, c) Execution and Bankruptcy Law: Article 280, d) Law on the Procedures for the Collection of Public Receivables: Article 30, and e) Law on Competition: Article 7. The government’s primary website for investors is http://www.invest.gov.tr/en-US/Pages/Home.aspx  .   Although most U.S. investors have not been directly affected to date, there is an increased perception that the government is willing to use its executive authority to interfere in the court system in ways that could affect foreign investors, including favoring domestic companies.

Competition and Anti-Trust Laws

The Competition Authority is the sole authority on competition issues in Turkey and handles private sector transactions.  Public institutions are exempt from its authority. The Constitutional Court can overrule the Competition Authority’s finding of innocence in a competition case.  There have been some cases of Turkish courts blocking foreign company operations on the basis of anti-competitive claims and a few investigations into foreign companies initiated.  Such cases can take over a year to resolve, during which time the companies can be prohibited from doing business in Turkey, benefitting their (local) competitors. 

Expropriation and Compensation

Under the U.S.-Turkey Bilateral Investment Treaty (BIT), expropriation can only occur in accordance with due process of law, can only be for a public purpose, and must be non-discriminatory.  Compensation must be prompt, adequate, and effective. The GOT occasionally expropriates private real property for public works or for state industrial projects. The GOT agency expropriating the property negotiates the purchase price.  If the owners of the property do not agree with the proposed price, they are able to challenge the expropriation in court and ask for additional compensation. There are no known outstanding expropriation or nationalization cases for U.S. firms.  Although there is not a pattern of discrimination against U.S. firms, the GOT aggressively targeted businesses, banks, media outlets, and mining and energy companies with alleged ties to the so-called “Fethullah Terrorist Organization” (FETO) and/or the July 2016 attempted coup, including the expropriation of over 1,100 private companies worth more than USD 11 billion.

Dispute Settlement

ICSID Convention and New York Convention

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 are no known arbitration cases involving a U.S. company pending before ICSID. Foreign arbitral awards will be enforced if the country of origin of the award is a New York Convention state, if the dispute is commercial under Turkish law, and as long as none of the grounds under article V of the New York Convention are proved by the opposing party.

Investor-State Dispute Settlement

The U.S.-Turkey BIT ensures that U.S. investors have full access to Turkey’s local courts 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. There is limited data about investment disputes available to the U.S. Embassy’s economic team, with only a handful of known cases. Over the last decade, the government has a mixed record of handling investment disputes through international arbitration.

International Commercial Arbitration and Foreign Courts

Turkey adopted the International Arbitration Law, based on the United Nations Commission on International Trade model law, in 2001.  Local courts accept binding international arbitration of investment disputes between foreign investors and the state. In practice, however, Turkish courts have been reported to sometimes fail to uphold an international arbitration ruling involving private companies in favor of Turkish firms.  There are two main arbitration bodies in Turkey: the Union of Chambers and Commodity Exchanges of Turkey (www.tobb.org.tr  ) and the Istanbul Chamber of Commerce Arbitration and Mediation Center (www.itotam.com/en  ).  Most commercial disputes can be settled through arbitration, including disputes regarding public services.  Parties decide the arbitration procedure, set the arbitration rules, and select the language of the proceedings.  The Istanbul Arbitration Center was established in October 2015 as an independent, neutral, and impartial institution to mediate both domestic and international disputes through fast track arbitration, emergency arbitrator, and appointments for ad hoc procedures.  Its decisions are binding and subject to international enforcement. (www.istac.org.tr/en  ).

As of January 2019, some commercial disputes may be subject to mandatory mediation; if the parties are unable to resolve the dispute through mediation, the case moves to a trial.

Bankruptcy Regulations

Turkey criminalizes bankruptcy and has a bankruptcy law based on the Execution and Bankruptcy Code No. 2004 (the “EBL”), published in the Official Gazette on June 19, 1932 and numbered 2128.  The World Bank’s Doing Business Report gave Turkey a rank of 109 out of 190 countries for ease of resolving insolvency. See: http://www.doingbusiness.org/data/exploretopics/resolving-insolvency  )