Green Competitiveness Of Turkish Manufacturing Industries In International Trade

The general idea of “environmental sustainability cannot be achieved with the current economic growth models” and the increasing sensitivity to the climate crisis that may be experienced in the future made it necessary to handle “growth” and “green” together. Organisation for Economic Co-operation and Development (OECD) (2011) defines green economic growth as “fostering economic growth and development while ensuring that the natural assets continue to provide resources and environmental services on which our well-being relies”. While it was believed that the natural environment would eventually impose limits on economic growth according to the early studies regarding the green growth theory, many studies have been published in recent years indicate that protecting the environment can be the driving force of economic growth. While the driving forces of traditional growth are moving at a slow pace, many countries in search of new – growth stories have begun to investigate strategies for green growth.

In the Clean Growth Strategy published by the United Kingdom in 2017, it was stated that “Move to cleaner economic growth through low carbon technologies and the efficient use of resources is one of the greatest industrial opportunities of our time”. Being the first country in the world to enact a Framework Act on Low Carbon Green Growth, South Korea has published the National Green Growth Strategy Plan in 2009 and committed to investing 2% of its GDP each year for Green Growth during the period of this plan. As of 2021, more than 110 countries representing 70% of the world economy have announced that they plan to be carbon-neutral by 2050, while China plans to reach this target before 2060.

The European Union (EU), which has early period experiences in climate change, announced the European Green Deal (EGD) in December 2019 and shared its new growth strategy that includes transformation in production, investment, trade, finance, and many other important fields in line with the goal of reaching net-zero in greenhouse gas emissions by 2050. Considering the high level of trade and investment relations between Turkey and the EU, it is expected that the green transformation that has begun in the Union will affect the Turkish economy in various ways. The most important policy change that EGD is expected to affect our country through the trade channel will be the Carbon Border Adjustment (CBA).

In its simplest form, CBA can be defined as levying carbon tax on the products imported from countries outside the Union that does not have regulations in line with the climate targeted policies set by the EU. Even though all the details about how the CBA will be implemented have not been shared yet, the decision of the European Parliament including the opinions on the issues to be taken into account in the design of the CBA was adopted in March 2021.

Through this decision, the EU aims to ensure that trade stakeholders adhere to the global greenhouse gas reduction goals by adding carbon price to imported products and to equalize the conditions for EU manufacturers who have suffered from loss of competition in international trade due to carbon cost increase for more than 10 years.

So, as our biggest trade partner, the EU, introduces new game-changing rules in trade, where is Turkey in this green transformation? How ready are Turkish manufacturing industries to protect and develop their export market share in new conditions? Regarding these two important questions, this study compares the industrial competitiveness of top 20 countries which export to EU market, 10 EU and 10 non-EU countries.

Two basic indicators are used to evaluate the industrial low-carbon competitiveness of countries:

1 .Green Innovation (GII)

• In order to monitor the transformation activities of industries to low-carbon products, Green Innovation Index (GII) was calculated for 20 countries and 23 manufacturing industries of each country.
• In the index calculation, patent data were used by following Fankhauser (2013), and European Patent Office’s (EPO) PATSTAT Global database, containing more than 100 million patent data on a global scale, was used as the data source. Thanks to the patent data, while it is possible to monitor the development of new technologies, innovative countries and competitive markets can also be determined.

2. Industrial Specialization (RCA)

• In the international trade competitiveness literature, it is considered that green competitiveness will be built on the shoulders of competitive advantage created with countries’ existing production capabilities. For example, automotive technologies with lower carbon emission rates are likely to be developed in countries with established automotive industries such as Germany, the USA, Japan, and South Korea. Therefore, the current industrial competitive advantage of countries comprises a basis for green competitive advantage in the same industry in the future.
• The Balassa Index (Balassa 1965) was calculated to monitor the industrial specialization of countries in international trade.

GREEN COMPETITIVENESS RESULTS OF TURKISH MANUFACTURING INDUSTRIES

The green competitiveness results of manufacturing industries that export goods in Turkey are presented in Graph 1.

The GII scores of the industries are shown on the vertical axis, while the RCA scores are shown on the horizontal axis. The value of 100 is determined as the threshold level for both indices. Values below this level mean that the industry is below the world average, and values above it mean that the industry performs better than the world average. The size of the bubbles reflects the share of the industry in total country exports. According to these results:

Strengths (top-right quadrant): Basic metals, rubber and plastic products, other non-metallic mineral products, paper and paper products, printing and reproduction of recorded media.

The industries that are highly competitive compared to the rest of the world and also perform above the world average in green innovation, may further increase their competitive advantage in the near future.

Opportunities (top-left quadrant): Computer electronic and optical products, chemicals and chemical products, coke and refined petroleum products.

These are the industries that have a low competitive advantage compared to the rest of the world, but with a high green innovation score, they are able to adapt to low-carbon production more quickly and therefore, able to move into a competitive zone in the future.

Weakness (bottom-left quadrant): Beverages, leather and related products, wood, and cork products, basic pharmaceutical products, machinery and equipment and other transport equipment.

The industries with low international trade competitiveness and below the world average in green innovation indicator may face difficulties in their export growths.

Threats (bottom-right quadrant): Food products, tobacco products, textiles, wearing apparel, fabricated metal products, electrical equipment, motor vehicles, furniture and other manufacturing.

Industries that are highly competitive compared to the rest of the world but have lagged the world average in green innovation in the last 10 years, may have difficulty in carrying their trade competitiveness advantage gains to the future.

• When the green competitiveness results of Turkish manufacturing industries are compared with the other 19 countries, it is seen that the number of industries in Turkey with a green innovation score below the threshold value of 100 is relatively high.
• The total value of exports made to the EU by industries that may have difficulty in carrying their trade competitive advantage gains to the future was calculated as USD 49.5 billion.
• On the other hand, it should be noted that these calculations are prepared for all manufacturing industries and that the scope of the sectors covered under EU Green Deal is much more limited. When the industrial focus is reduced to the sectors that are likely to be included in the scope of the EU’s CBA mechanism, it is seen that the basic metal industry, other non-metallic minerals, paper, refined petroleum and chemical industries perform above the world average in green innovation, and Turkey has international green competitiveness in these industries.
• In the rest of the paper, country level index values were calculated by weighting the green innovation results of each industries according to their shares in the total exports. According to the results shown in Graphic 2;

• The average GII score of the EU countries is above 100. EU countries have been implementing mechanisms to reduce carbon emission for 15 years and have early period low-emission production experiences.
• Japan (114) and South Korea (110), which have Free Trade Agreements (FTA) with the EU, are countries with high green competitiveness in their trade to the Union. Both countries have formed the content of the FTA with the EU in the past years to include environmental issues. The FTA between EU and Japan, which is described as a new-generation trade agreement, directly includes the criteria of the Paris Agreement and is the first FTA of the EU in which compliance with the objectives of the Paris Agreement is committed.
• The USA started to combat climate change as early as the EU, through its state and industry-based targets and practices. Among the 20 countries that we included in the index calculation, the USA produced the highest number of patents on technologies for adaptation and combating climate change. Emission targets have been set in 24 states and carbon pricing mechanisms have been implemented in some states.
• For India (142) and China (111), which are above the threshold GII score of 100, these values can be interpreted as improvement of the current unfavourable conditions rather than a high green competitiveness level. In the current state, both countries generate approximately five times more emissions than EU countries per $1 dollar of value added they produce. China has announced its target of becoming carbon-neutral by 2060 in September 2020.
• Russia ranks last among the 20 countries in which the total green innovation score of the manufacturing industries was analysed. The re flection of the transition to a low-carbon economy on the Russian economy is expected to occur in the energy industry sector rather than the manufacturing industries.
• The GII results of Poland (98), the Czech Republic (82), and Turkey (67) indicate that the current competitive advantage gains of the manufacturing industries have the risk of decreasing in the future. All three countries are an important part of the European supply chain, and in Poland and Czech Republic, carbon revenues are collected under the EU ETS, and the green transformation of industries is financed with this fund. The data used in the index calculation is based on the criteria of innovator country’s origin. Therefore, the high share of the EU countries, that are leading the green innovation, in total foreign direct investments in all three countries is an important factor that improves the green competition disadvantage in foreign trade and was not included in the calculation. However, considering that the countries that are the inventors of patents also stand out as exporting countries, it is important to support the green transformation of manufacturing industries with domestic technologies for the sustainability of export competitiveness.

DEİK / Economist Sercan Pişkin