TURKEY: Controversy over duty-free second-hand cars

20 September 1996

Domestic vehicle makers have expressed strong opposition to government plans to permit, for a limited period, the import of duty-free used cars by expatriate workers who deposit DM 50,000 ($33,000) with the Central Bank. The move is part of a package announced in early July to raise new' revenues to reduce the budget deficit and offset additional spending.

The cabinet finalised a draft decree on 9 September, which still has to be approved by President Suleyman Demirel. According to the draft, expatriate workers can import cars up to four years old if they open a DM 50,000 account with the central bank by the end of 1996. There is no limit on the number of accounts an individual can open.

Before the decree, expatriate workers could only import new cars.

The decree also grants a 20 per cent tax rebate on additional cars purchased abroad by account holders, and extends the same advantage to Turkish citizens in Turkey purchasing new cars, on condition again of a DM 50,000 deposit with state Ziraat Bankasi (Agricultural Bank).

Both domestic manufacturers and automotive trade unions say the decree could bring about the collapse of the domestic industry. They say the number of eligible accounts already held by expatriate workers with the central bank would justify the import of about 80,000 cars. One-third of the 300,000 workers in the automotive sector could lose their jobs, some critics claim.

The decree could also deter substantial foreign investment by prospective new entrants, including South Korea's Hyundai Motor Corporation and KIA Motors Corporation, and Japan's Honda Motor Company, Mazda and Suzuki, the opponents say The private-sector Foreign Capital Association (YASED) also says that investor confidence might be eroded by the new import measures.

Expatriate workers are expected to capitalise on the decree if it is implemented, industry sources say. Second-hand cars in Europe are about half the price they command in Turkey due to lower tax rates and more rapid depreciation in values. New car imports from Europe have soared since the elimination of duties under a EU customs union which began on 1 January.

New car imports rose by about 200 per cent to 24,117 units in the first seven months of 1996 compared with January-July 1995. Imports from EU and EFTA countries accounted for about 60 per cent of the total during the period, up from 40 per cent in 1995.

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