House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Seventh Report

3 UK-Turkey trade

46. We now turn to the bilateral relationship between the United Kingdom and Turkey, rather than the relationship between Turkey and the EU as a whole. UK-Turkey trade is already significant. In 2006, Turkey was the 19^th largest source of goods imports to the UK, while it was our 20^th largest destination for goods exports.[116] Goods trade with Turkey increased by 71% from 2002 and 2006. However, that absolute increase was accompanied by a decline from third to eighth in the UK's relative position on bilateral trade over the same period.[117] The UK's share of total trade fell from 4.7% to 3.7%. Other Western countries have experienced the reductions in their share of total trade,[118] as Turkey has seen a "surge in exports" from China, Russia and Iran (primarily energy-related).[119] Germany's share of goods trade with Turkey dropped from 13.7% in 2002 to 10.6% in 2006, while France's share fell from 5.9% to 5.2%.

47. More recently, statistics provided by BERR suggest, worryingly, that exports to Turkey fell by almost 6% between 2006 and 2007.[120] However, the Trade and Investment Minister suggested that the trade statistics failed to reflect the UK's 'true' level of trade with Turkey, because of statistical distortions such as the booking of all Airbus exports to Turkey as entirely French exports, despite very significant British input.[121]

UK Trade & Investment (UKTI)

UKTI RESOURCES & STRATEGY

48. The CBI told us that UKTI "has recognised Turkey has a potential for growth of UK exports and a growing business relationship, and from that perspective it is doing a good job."[122] UKTI designated Turkey one of seventeen high growth emerging markets in its 2006 strategy.[123] Staff presence in Turkey increased by a third (from 15 to 20), with new resources in Istanbul, Ankara and Izmir.[124] In addition, a business adviser has been appointed for Turkey, as part of UKTI's High Growth Markets initiative, which is intended to help bring medium-sized UK companies into high-growth markets. The Minister said that it was too early to judge the results of the new adviser,[125] and the same is true of the expanded UKTI team. We strongly support the Government's recognition of the opportunities available in Turkey by its priority market designation. We also welcome the consequent increase by a third of staff resources in Turkey, and the appointment of the high-growth market adviser focused on bringing mid-sized companies to the market.

49. As the table below shows, UKTI programme expenditure in Turkey, which covers spending on trade fairs, visit support and sector-based seminars and trade missions, has fluctuated over the past few financial years:

Table 3: UKTI programme expenditure in Turkey, 2003/04-2008/09

Programme expenditure (£)

2003/04 118,799

2004/05 166,782

2005/06 177,417

2006/07 122,416

2007/08 103,381

2008/09 143,000 (forecast)

Source: UKTI

We welcome the fact that programme expenditure in Turkey is set to increase by nearly 40% in 2008/09.

RAISING AWARENESS

50. As the TBBC noted:

Turkey is not a traditional market for British companies and therefore we need to both widen the information about Turkey to British companies that wish to invest there but also give them a little more help, showing them how to be effective there.[126]

51. BERR said that "the challenge remains for us to reach into UK boardrooms to understand and counter the caution that business appears to exhibit towards Turkey."[127] UKTI's Turkey strategy includes work on raising awareness of the opportunities in Turkey. For example, UKTI has a network of 'Turkey champions' in UKTI's regional offices, and a series of regional roadshows to support this work.[128] In addition, UKTI is using its website to address "information failures".[129] We strongly support UKTI's efforts to raise awareness of opportunities in Turkey. We expect that an evaluation of the extent to which this has worked will be produced and request a copy of the conclusions. We would be particularly interested in an evaluation of the relative effectiveness of the web presence, the programme of road shows and the network of 'Turkey champions' for different sized companies. Upto-date market information is essential, particularly where there is a need to raise awareness of the opportunities available.

52. Turkey has been selected under the "Promoting the UK economy and British business" theme of the 'Public Diplomacy Pilot'—a two year scheme from April 2007 with around £300,000 of funding from the Foreign Office and the British Council.[130] 'Public Diplomacy' is the term the FCO uses to describe its work with the public overseas. This will promote the areas in which the UK has expertise, including the City of London, legal structure, and professional development and business management (including corporate social responsibility).[131] We were told there were six projects in Turkey so far including a UKTurkey lawyer link to identify legal obstacles to investment in Turkey.[132] We support the aims of the Public Diplomacy Pilot, and the additional funding of around £300,000 over two years. We note that evaluation is central to the pilot, and look forward to the results of that evaluation.

SMALL & MEDIUM-SIZED ENTERPRISES (SMES)

53. The British Chambers of Commerce in Turkey (BCCT) said that while a number of large companies have "taken the plunge" in recent years, "there are not enough SMEs coming to Turkey."[133] However, TBBC noted that "a small organisation might find they get lost trying to penetrate the Turkish market".[134] The CBI had similar views, saying that Turkey was "probably not suitable for the very small companies", rather than "mid-caps and upwards—people who have experience of dealing with some of the issues of a market with some of the complexities and some of the barriers" (see paragraphs 90 to 102).[135] The Trade Minister acknowledged the difficulties for SMEs in entering the Turkish market, but noted that supply chains and "a bit of help from their mates down the road" could help.[136] He said that if Turkey joined the EU, modern communications links might mean that for a UK-based SME Turkey "could be as much its home market as five miles down the road".[137]

54. We agree with the CBI and TBBC that Turkey is not necessarily a natural market for 'small' SMEs in particular. However, given Turkey's strong links to Europe, it is in many ways a more familiar market than India, China or Brazil. There are undoubtedly barriers and risks facing SMEs in trade with Turkey, but there remains ample scope for involving smaller businesses in niche areas, or in supply chains. Turkey may be a promising market for companies which already have experience of exporting their goods. We welcome UKTI's regional road show programme and regional champion network as means to achieve greater SME involvement in Turkey.

Turkish-British Business Council (TBBC)

55. The Turkish-British Business Council (TBBC) is a bilateral organisation of private companies operating in each others' markets, with British and Turkish co-chairmen. The Committee met with the Turkish co-chair during its visit to Turkey, and took oral evidence from representatives from the British side of the Council. The UK co-chairman explained that TBBC "facilitates high level networking contacts" for British companies operating in Turkey, and identifies "collaboration opportunities".[138]

56. The UK co-chairman emphasised that the TBBC's work was carried out with "extremely limited" public resources, of "£5,000, including VAT" over the last 18 months for secretariat support: "not much if this is a priority market."[139] The independent, non-profit making Middle East Association (MEA) provides the secretariat support and covers remaining costs, which until 2005 were provided by UKTI (with some private sector funding).[140] The MEA's Director General described the UKTI's funding as "a minimum payment".[141] The TBBC said that with more funding it "could be doing an awful lot more",[142] such as providing advice on disputes with Turkey to UK companies,[143] work on areas like "legal, financial reform",[144] and corporate governance seminars for Turkish companies.[145]

57. The TBBC's UK co-chair explicitly called for "encouragement from government […] to increase funding in a more systematic way".[146] When we asked the Trade Minister about funding he responded: "if I improve that figure, I am going to have to cut it off somewhere else unless someone gives me more money in the round, which they will not do and, […] nor should they do[147] The Minister said that UKTI would "absolutely not"[148] match-fund private contributions from TBBC members. However, we note that the UKTI strategy has included the aim "to strengthen institutional weaknesses in key networks (e.g. the TBBC)" for the last two years.[149]

58. UKTI's Turkey strategy highlights the need to address institutional weaknesses: a stronger TBBC could help. Our inquiry into Trade with India demonstrated the extent to which business councils can play a significant part in promoting bilateral relationships between the UK and particular markets. We believe there is potential for far greater involvement of the private-sector in UKTurkey relations. The Government should work with UK businesses operating in Turkey to establish what is needed for the TBBC to flourish. It may be appropriate to offer it seed funding or a degree of match funding. However, in our India report earlier this year we expressed concern about the independence of business councils as a result of their receipt of public funds; consequently we believe that whatever public support it receives, the TBBC should remain autonomous from Government.

TRADE MINISTER'S VISIT, SEPTEMBER

59. The British Chambers of Commerce in Turkey told us that "visits to Turkey by British Ministers or senior civil servants are few and far between".[150] The lack of trade visits was accepted as a fair criticism by the UKTI Director who covers Turkey.[151] However, this may be changing. The Queen made a state visit to Turkey in May.[152] The Trade and Investment Minister is planning to visit Turkey in September—the first visit to the country by a UK trade minister in "at least 15 years".[153] The Minister told us that during his visit he expected to meet with Turkey's trade, defence and education ministers,[154] and that he would be accompanied by a business delegation, including smaller as well as larger businesses.[155] He was also happy for the CBI and the TBBC to accompany him.[156]

60. The TBBC "would very much like" to be involved in the visit,[157] and the CBI was also strongly supportive of the visit:

We believe that the visit of the Trade Minister is an important way of highlighting some of the difficulties and some longstanding difficulties in the Turkish market, and at ministerial level it is important that those issues and problems are discussed and raised and that pressure is maintained on the Turkish Government to either meet their commitments or reform in a way which will grow our business relationship.[158]

BERR said it wanted dialogue at ministerial level to address market access difficulties in Turkey.[159] The CBI, for example, raised intellectual property rights and customs union obligations as key issues that they thought should be raised during the visit.[160]

61. While it is unfortunate that it has been at least fifteen years since a UK trade minister went to Turkey, it is extremely encouraging that this oversight will be addressed this September. Ministerial involvement is essential to help overcome barriers to trade in Turkey, and so enable greater British economic involvement. We hope that the cycle of visits from UK ministers with portfolios of interest—not least education—becomes more regular after September and look forward to receiving the report on the visit.

A new inter-governmental forum

62. Political and economic links with Turkey are strong, and are being strengthened. A new bilateral 'strategic partnership' was agreed on 23 October 2007 during the Turkish Prime Minister's visit to the UK.[161] Not only will it promote bilateral trade and investment, and support Turkey's EU accession bid, but the partnership would also include "defence, global security, promotion of the transatlantic partnership, regional stability and peace, tackling climate change, promotion of education and culture".[162] UKTI's strategy speaks of establishing a UK-Turkey "high level Government to Government forum".[163] The Trade Minister told us there had been delays resulting from "inactivity at the Turkish end",[164] but thatthe Government to Government forum would meet for the first time when he visited Turkey in September.[165] The Minister said he hoped the forum would focus on one or two priorities for the year ahead, and appeared to imply that the problems encountered by the UK alcoholic drinks industry could be on the forum's agenda.[166]

63. UKTI officials said the forum would not be as "complicated" as existing 'JETCOs',[167] the bilateral joint economic and trade committees established with China, India and Brazil. Although he held out the prospect of development in "three to four years' time",[168] the Trade Minister was clear that for the time being the forum would only operate at the ministerial level, rather than taking the multi-faceted approach of a JETCO. The CBI supported the strategic partnership,[169] and said that "legal enforcement of existing obligations" should be its top priority, followed by an examination of "ways of enhancing the reform process which takes forward the process of creating a better economic circumstance in Turkey from which British companies can benefit."[170] However, it warned that the forum needed to "actually deliver",[171] and that it was important to ensure that

any structure takes effective input from the business community and provides a way for the business community to continue to highlight the difficulties that exist, and indeed find ways of delivering effective results. As you know from our previous evidence, we are not greatly supportive of talk shops.[172]

64. The TBBC considered the forum offered an opportunity to "fast track review" of disputes,[173] but they too hoped that the forum would not be "just another thing that is signed and then forgotten about".[174] They said the TBBC could take on "a more significant role" with the forum, subject to "proper resource".[175] A UKTI official said that TBBC could meet alongside the forum,[176] and that UKTI expected that the forum would be "working very closely with" TBBC in identifying issues.[177]

65. We welcome the planned inter-governmental forum between the United Kingdom and Turkey. It should both help to resolve bilateral problems and enable discussion of wider problems which are unlikely to be resolved early in the accession process. Rather than functioning as a general 'talking shop', the forum might best demonstrate its effectiveness by first dealing with a limited number of the most significant barriers to increasing the economic ties between the United Kingdom and Turkey. The forum needs to engage properly with the private sector to be effective. The TBBC, as the 'voice of business' in UK-Turkey relations, must have an important part to play in this. We look forward to further details of how the forum will function in the Government's response, along with details of how practical outcomes will be measured. We agree that the multi-faceted JETCO model is—as yet—unsuitable for Turkey.

116 Office of National Statistics, Pink Book 2007, table 9.12 Back

117 Ev 49 (BERR) summary para 9 Back

118 Q52 Back

119 Q48 Back

120 Ev 83 (BERR) Back

121 Q254 Back

122 Q105 Back

123 In 2001, the Trade and IndustryCommittee's Report noted that Turkey was one of the then 10 priority emerging markets for UKTI's predecessor, Trade Partners UK (see Annex A to HC (2000-01) 360). Back

124 Q9 and Q242 Back

125 Q249 Back

126 Q151 Back

127 Ev 50 (BERR) summary para 10 Back