Memorandum submitted by Business for New
Business for New Europe (BNE)
welcomes the opportunity to respond to the House of Commons BERR
Select Committee inquiry on the subject of the economic consequences
of Turkey joining the EU.
BNE is an independent coalition
of UK business leaders. Our aim is to support the UK's active
engagement in Europe, and to promote a reformed, enlarged and
free-market EU. We recognise the benefits that cooperation with
our European partners brings. Since our launch in March 2006,
we have become a leading pro-Europe organisation in the UK, gaining
a good deal of press coverage for our views. We have a number
of leading business figures serving on our Advisory Council (for
more information, see www.bnegroup.org ).
This response has been prepared
by the BNE Executive.
One of BNE's principles is as
follows: "We support the enlargement of the EU including
Turkey, and recognise the benefits that the recent wave of enlargement
Free movement of people, enshrined
in the Treaty of Rome (1957), is a fundamental principle of the
EU, and this should be encouraged. It is part of the EU's overall
vision of free movement of goods, services, capital and people.
BNE has taken the clear and
consistent approach of advocating a wider single market and open
labour markets, because in the long-run this approach will lead
to greater economic growth, productivity and entrepreneurship.
Migration following previous
enlargements has contributed to UK economic growth. In 2006 the
highly respected Ernst and Young item club reported that the 2004
migration "has proved remarkably positive for the economy,
keeping interest rates a 0.5% lower than they would otherwise
Therefore BNE supports Turkey's
membership of the EU, and believe that it would bring economic
benefits as well as political and strategic advantages. In time,
we believe that the future accession of Turkey to the EU will
be beneficial not only for Turkey but also for the UK and the
rest of the EU.
1. Single Market
As a result of Turkish accession,
the single market will increase by 70 million people (Turkey's
population is projected to grow from 70 million today to 85 million
The EU's single market is already
the largest in the world, accounting for approximately 40% of
world trade and spanning a population of 500 million.
Turkey signed an "association
agreement" in 1963 with what was then the EEC, which was
strengthened in 1995 by the creation of a customs union, abolishing
barriers to trade in goods. However the move to a fully-fledged
single market encompassing Turkey would be a significant further
step, moving from trade in industrial goods to free trade in services,
capital and labour.
2. Foreign investment
The accession process itself
has benefited foreign investment, and this continue if Turkey
entered the Union.
Foreign investors have been
attracted to Turkey by its dynamic domestic economy and other
factors such as its location and relatively low labour costs.
There are very strong economic
ties between the Turkey and the rest of Europe. EU countries account
for 60% of FDI in Turkey.
Following the customs union
agreed in 1995, the EU's trade with Turkey has increased significantly.
This has culminated today in a situation whereby the EU is Turkey's
biggest trading partner, being responsible for 42% of Turkish
imports and 52% of its exports.
As a result of the reforms preparing
Turkey for EU membership, business has been given confidence to
invest in Turkey. The EU's recognition of Turkey as a candidate
country in 1999 gave a very positive signal to business, as did
the EU's decision in 2005 that accession talks were ready to start.
Foreign business would be likely
to invest more once Turkey joined the EU. Businesses would be
able to invest in Turkey in the knowledge that they could reach
the entire European single market.
The last three years have seen
a huge upsurge in foreign direct investment (FDI), coinciding
with the beginning of accession talks in 2005. Annual FDI was
$1 billion or less until 2004 but by 2006 it had increased to
a staggering $20 billion. In the course of the Turkish economic
boom which started in 2004, it is estimated that two million jobs
were created outside agriculture.
3. British business and Turkey
British and other Western business
has been investing in the rapidly-expanding Turkish economy.
Whilst Germany is Turkey's biggest
investor, the UK's economic ties with Turkey have been increasing.
The UK government has recognised
this, identifying Turkey as one of 17 markets on the UKTI High
Growth Markets Programme.
It is estimated that there are
approximately 430 British companies operating in Turkey, including
some very large companies such as Vodafone and Aviva. Furthermore
Turkish investment in the UK is also growing.
4. Turkey's economic dynamism
Turkey's economy is one of the
success stories of the modern era, and its entry into the EU would
have a galvanising impact on the European economy.
The Turkish economy has been
growing at 7% per annum (annual average GDP growth of 7.4% since
Its rapid economic growth has
made Turkey the sixth largest economy in the EU One trend that
illustrates Turkey's rapid economic growth is the increase in
GSM users from 15 million in 2003 to 58 million in 2007.
Turkey's economy has been reforming,
including moves to make the central bank independent and a privatisation
programme of state-owned companies.
The nature of the economy has
been changing rapidly, with moves to high tech sectors and to
the manufacturing of certain goods, such as car and televisions.
With an average age of 29 and
65% of the population below 34 years of age, Turkey has a disproportionately
young population, which offers exciting economic opportunities
in the future.
Migration from Turkey would
offer opportunities for UK business and be positive for the UK's
economy as a whole.
Once turkey has jointed the
EU, some Turks would look for economic opportunities in the UK
and elsewhere in Europe, as was the case with previous enlargements,
most notably 2004.
This migration could be timely,
considering the demographics of the European continent, which
has a low birth rate and an ageing population.
However, we should bear in mind
that Turkey's recent economic success means that they are more
economic opportunities domestically. In addition many Turks would
be likely to go to Mediterranean countries for climate and cultural
reasons. Therefore we should not over-estimate the number of Turks
who would be likely to come here, though it is important that
the UK government be well-prepared for new arrivals.
Current projections of Turkish
emigration range from 0.5 million to 4.4 million, which would
be only 0.7% of the EU-28 population.
An influx of migrants from Turkey
would be likely to have positive economic effects. In general
the UK has an ageing population and just as young migrants from
eastern Europe have plugged crucial gaps in our labour market,
young Turks would be likely to do the same.
Turkish migrants could help
fill low-skill jobs and public sector jobs but also highly skilled
posts too. It is estimated that Turkey produces 400,000 university
graduates a year.
6. Accession will create new business opportunities
Accession will create opportunities
for business. The reforms Turkey will need to implement to be
ready for EU membership are in the interests of business, whether
domestic or foreign.
Whilst the customs union has
helped to build links between the EU and Turkey, its effects have
been limited to trade in industrial goods. The application of
European rules and regulations in a range of other areas, such
as public procurement and environmental regulation, will create
fresh opportunities for business.
To comply with environmental
regulation, it is estimated that Turkey may have to invest as
much as $60 billion, which could create new opportunities for
technical and environmental companies which can help them do that.
Liberalisation of Turkey's energy
and telecoms sectors will create more opportunities for British
and other foreign companies. Turkish membership would be likely
to have a dramatic impact on the energy sector in particular,
with its position as a gateway to the energy rich Middle East.
At present Turkey exports 35-40 billion cubic metres of natural
gas to Europe every year, which would only be likely to grow after
joining the EU.
BNE believes that the immigration
to the UK from other EU member states has been of great economic
benefit to the UK economy. The enlargement of the EU has been
one of the Union's most successful policies and furthermore its
effect of increasing immigration to the UK, has also been an economic
success for the UK.
The experience of recent enlargements
should give us some confidence when considering Turkish accession.
The EU's enlargement since 2004 to take in the countries of eastern
Europe has been an undoubted success. It has benefited not only
the incoming countries, but also the established member states.
Of course there are areas of
concern, such as the fact that Turkey produces a high volume of
pirated goods. Furthermore, there are significant areas of concern
in the accession negotiations, whether on Cyprus or more generally
on human rights.
The business community recognises
the massive opportunity offered by Turkish membership of the EU.
British and other businesses with investments in Turkey have already
witnessed the transformation of the country on a day-to-day basis.
If the EU rejects Turkey's membership, it will not only have far
reaching political consequences, including a nationalist backlash,
but it also will have a damaging effect on foreign investment
in Turkey. At this juncture in negotiations, it is crucial for
the pro-Turkish accession business voice to be heard.
31 October 2007