Select Committee on Business and Enterprise Written Evidence

Memorandum submitted by Business for New Europe


    —    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 ).

    —    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 have brought".

    —    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 have been".

    —    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 in 2030).

    —    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 2002).

    —    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.

5.   Migration

    —    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

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