06 Jan

Addressing a summit on defense industries in Ankara on 12-13 December 2018, President Erdoğan, said, he believes that public and private sectors, from finance to human resources and technology production, will do parts collectively in defense industries. Followed by this statement, with Presidential Decree (Decree No: 481)  on December 20, 2018, Turkey’s Tank and Pallet Factory operated under 1st Central Maintenance Factory Management, located in Sakarya had been included in the scope of privatization program for 25 years period of operating time aiming to improve productivity in the economy and to reduce the expenditures,  to use the resources efficiently in national defense industry, to raise the operational efficiency of the factory and investments to be made by private sector to create new business and production facilities.

The decree that received the most discussion was the contradiction to the scope and purpose of the privatization law (Law No: 4046) relying on the fact that the factory was a military unit not a state enterprise. In addition, many of the workers (reported 1000 roughly) of the factory fear that privatization leads to job losses or change in their working conditions even Ministry of Defense, Hulusi Akar has noted that they will not harm the personal rights of the workers.

Apart from the ongoing discussions, it is hard for now to estimate whether the results will be poor or rich as the consequence of the first implementation of such a privatization in Turkey is unforeseen but the fundamental difference motivating the privatization and government owned contractor operated model may help us to have a better understanding on achievement of such a transition in defense industries.

No doubt that national security exception is one of the vital arguments in trade and procurement in domestic and international trade which is also clearly addressed in GATT (General Agreement on Tariffs and Trade) of WTO (World Trade Organization). Accordingly, nothing in GATT shall be construed to prevent any member country from taking any action which it considers necessary for the protection of its essential security interests, relating to fissionable materials or the materials from which they are derived; relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; taken in time of war or other emergency in international relations; or to prevent any member country from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. It is therefore clear that the important motive for privatization from state perspective is to reduce the public expenditures and to improve efficiency. The main aim of the privatization has been explained on official web-site of Turkish Privatization Administration as to ensure that the state is completely withdrawn from the field of business administration. On the other hand from enterprise perspective, the sole objective is and should be the profit by nature. In such a tripedal resonance mechanism, it appears that the problems of the strictly government held defense facilities largely results with non-competition while government is manufacturing on right hand and procuring by left hand and Turkey seems to discern the proper legislative framework for the best fit model when defense industry dynamics and performance measures vary by means of governance, management, mission and vision.

The interpretative method in understanding the private industry involvement to defense industries in no case should be explained with and limited to the aim of withdrawal of the state from the field of business administration as noted by the official authority of Turkish Privatization Administration. This requires empirical work which should have been based on facility operations, routine and periodic works, dynamic mission requirements, quality control and certified expert workmanship and materials. In developing countries, state owned enterprises in defense industries mostly limit their capabilities and vision to meet the local requirements and do not attempt to maximize their extensions in global sales. While they effort to transfer the technology, the talent in their organizations are getting transferred in many cases.

Two main factors are usually cited in private involvement to defense industries. The first is the compliance and the second is mission. We note that enterprises leading to an improvement of efficiency in defense industries would be less convincing when factories are fully privatized in accordance with the provisions of Law No: 4046. This is probably because the privatization policy in Law No: 4046 prioritize the productivity in the economy and to reduce public expenditures which are in no case shall be the prior aim in defense industries.  The second factor, mission, constitutes the function that would serve to the benefit from defense industry perspective when privatization takes place. On an average scale, it can be assessed by overall outcome in quantity and quality though it can be more important for the ownership of intellectual property to be concentrated. These two factors also have highly broad impact, direct link and effect on ownership intellectual property rights depending on which firm/unit is privatized.

In the era of trade wars and pushing effect of defense technologies, Turkey should have “strategic” legislative framework with no immediate privatization implementation while outshining the world as a country that manufactures and exports challenging defense items. We suggest that this is not proper to apply the Law No: 4046 since the proposed transition relates to and is limited with the facility management model not privatization. It is also weird to apply the Law No: 4046 to adopt a new facility management model before corporatization. Turkey will also experiment the insurance of army assets by a private company following the privatization. Decree requires the finalization of privatization of the factory until 31 December 2019 and it seems there are many issues to be brainstormed before closing.

 

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