Memorandum submitted by the CBI
THE ECONOMIC CONSEQUENCES OF TURKEY JOINING
THE EU
OVERVIEW
1. The Confederation of British Industry
(CBI) is the premier voice of UK business, speaking for around
240,000 companies and 150 trade associations. Our membership stretches
across the UK, with businesses from all sectors and of all sizes.
Through their worldwide trading activities, UK businesses contribute
25% of UK GDP. They are the world's second largest source of foreign
direct investment (FDI) and the UK is the second largest recipient
of global FDI. This paper presents CBI's positions on EU-Turkish
economic relations.
2. We recognise the economic advances that
Turkey has made over recent years, although problems for business
remain. Further alignment with EU regulations, the elimination
of technical barriers, the liberalisation of key industries and
their opening to foreign participants should be encouraged.
3. CBI has particular concerns that Turkey
is failing to live up to its Customs Union obligations in the
areas of technical barriers to trade, import licences, state aids,
enforcement of intellectual property rights, and other discriminatory
provisions. Coupled with this is an inconsistent and unpredictable
application of rules by a range of officials from customs through
to local courts. These areas need to be urgently addressed in
order for trade relations with Turkey to fulfil their potential.
TURKEY AS
A GROWING
MARKET
4. Turkey is the world's 17th and Europe's
6th largest economy. Its GNP is expected to surpass Australia
in 2008 and become one of the top 10 economies in the world by
2050. As a developing country with a young and dynamic population
of around 70 million, it has been ranked by UKTI as one of the
ten emerging markets with significant trade and investment opportunities
for UK companies.
5. Liberal economic policies have been pursued
over the last decade to put in place an open foreign investment
regime. From 2002-06, Turkey experienced a strong recovery after
severe economic contraction in 2001. Foreign direct investment
continues to play a major role in Turkey's economic development
and prosperity. Alongside a new Law on Foreign Direct Investment,
the Government of Turkey has established a Coordination Committee
for the Improvement of the Investment Climate to help remove remaining
administrative obstacles to investment, and set up a well-funded
Investment Promotion Agency reporting directly to the Prime Minister's
Office.
6. Turkey has embarked upon a reform programme
aimed at consolidating the banking sector, accelerating the privatisation
of state-owned industries, lowering inflation, reducing the country's
heavy debt burden, and creating a stable macroeconomic environment
conducive to economic growth. International investors have been
actively encouraged to participate in the government's privatisation
programme.
7. It has amended its constitution, with
numerous laws and regulations now convergent with EU norms, and
in some areas Turkish legislation already exceeds the minimum
requirements of the acquis. In 2005, Turkey was recognised as
a functioning market economy by the EU. The new Turkish government
has defined EU accession and economic reform as its two top priorities.
8. Foreign companies are already playing
a significant role in Turkey's current economic growth. In 2004
foreign direct investment (FDI) was less than $1 billion, but
reached $9 billion by 2005 and more than doubled to $20 billion
in 2006. 25% of the top 500 Turkish companies now have foreign
investors. 60% of FDI in Turkey comes from the EU.
9. Since the implementation of the Customs
Union between the EU and Turkey, EU exports have tripled to $58
billion per annum and Turkish exports quadrupled to $48 billion.
The EU is now Turkey's largest trading partner with 42% of Turkish
imports from the EU and 52% of its exports going to the EU.
10. Turkish companies are becoming major
players in the global market place. One in four of the largest
companies in Middle East and North Africa are Turkish and 65%
of industrial exports from the MENA region originate from Turkey.
Turkish contractors are among the biggest players in the Middle
East, North Africa and Former Soviet Union with $84 billion worth
of construction projects to date. Turkey is the world's fourth
largest textile exporter after China, India and Italy.
TRADE AND
INVESTMENT OPPORTUNITIES
11. Between 2002 and 2006, UK companies
invested £1 billion in Turkey and the UK is the third largest
investor. Companies have investments in a wide range of sectors
including Aviva in life insurance, Cadbury Schweppes in confectionery,
Vodafone in communications, Tesco in retail. HSBC in financial
services. BP and Shell (Anglo Dutch) in oil and gas, and Unilever
in consumer goods.
12. Trade flows between the UK and Turkey
are £2.5 billion UK exports to Turkey and £4 billion
Turkish exports to the UK, with major sectors including vehicles,
pharmaceuticals, machinery, financial services, electrical goods
and textiles.
13. There are a number sectors of the Turkish
economy where there are significant opportunities for increased
UK participation, namely environment, water, education and training,
financial and legal services, police and security, power, transport
infrastructure ICT/Telecommunications and agribusiness.
Environment
14. There are opportunities for the provision
of environmental technologies and services, in particular wind
power, carbon emissions, air and water pollution. The UK enjoys
close relationship with leading Ministries and officials in this
remit.
Water and wastewater
15. It is estimated that some $60 billion
needs to be invested in the water and wastewater sector over the
next 10 years to conform to EU standards. IPPA and other EU funding
has been earmarked for a number of water projects. Opportunities
arise in the water management, financing, metering and project
sectors.
Education and training
16. Turkey boasts a wide manufacturing base,
much of which will need considerable upgrading to meet EU standards.
There is a significant need for education and training, design,
innovation and R & D projects in a number of key industries,
including energy. Education and training are integral to future
Turkish economic development.
Power
17. The Turkish Government is seeking foreign
investment and interest in the development of its power sector.
There are also plans to privatise electricity. The sector lacks
investment, as well as the experience to operate in an EU regulated
environment. Opportunities exist for technology transfer, investment,
consultancy generation and transmission capacity building, transport
infrastructure.
Transport infrastructure
18. Significant opportunities have arisen
in the Government strategy to improve its railway, airport/aviation
and ports infrastructure. The UK is already pursuing projects
in the regional airport sector and is well placed to win business
in improved routing. Part privatisation of the ports sector has
already occurred and plans continue to place more regional ports
in the private sector. Significant investment in the railway network
has also been announced.
Telecommunications
19. Vodafone has already won significant
business in this area. BT is also active and the development of
the sector overall has created a number of opportunities in the
hardware and software areas.
Police and security
20. There is a growing interest in this
sector with a number of UK companies are already active. Opportunities
in the security sector are forecast to grow significantly over
the next three years.
Agribusiness
21. The UK and Turkey signed a bilateral
MOU in March 2007. This centred upon the development for collaboration
in three main areas: animal husbandry, equine and organic farming.
Significant progress has been made with the first two and progress
in developing the organic farming is expected over the coming
two years. There are also a number of opportunities available
in the food processing/packaging industry, animal pharmaceuticals
and irrigation.
Turkey's potential as a gateway to the markets
of the Middle East, Caucasus and the Central Asian Republics
22. Turkey is a country of highly strategic
importance due to its geopolitical location on the intersection
point of Asia, Europe and Africa. Therefore, it has an increasingly
important role to play as an energy corridor between the major
oil and natural gas producing countries in the Middle East and
Caspian Sea and the Western energy markets.
23. It is linked to the oceans through the
Black, Marmara and Mediterranean seas, which encircle it on three
sides. The Black Sea area is linked via the Bosphorous and Dardanelles
Straits and shipping routes pass through the Marmara to the Mediterranean.
The country borders Georgia, Armenia, Azerbaijan and Iran to the
east, Bulgaria and Greece to the west, and Iraq and Syria to the
south. Turkey has won in the region of $45 billion of contracts
in Russia and Central Asia over the last five years.
24. Turkish contractors are involved in
virtually all major construction projects in Afghanistan, and
have worked with UK contractors on the construction of new airports
in Ashgabat and Samara and other cities in the region.
25. Recent high oil prices have created
new opportunities in the Middle East, with oil revenues being
invested in the major cities. Turkish companies are now involved
in building the metro system in Dubai, and roads and pipelines
in Saudi Arabia. Western companies are working with Turkish contractors,
for example in building retail centres in Kuwait, as well as in
the field of property development and food processing plants.
26. Turkish business is keen to promote
trilateral business with the UK in the markets of Central Asia,
Russia and the Black Sea area. The CBI supports the FCO and UKTI
support for trade collaboration between Turkey and the UK in this
region and will work with Turkish counterparts to promote greater
awareness of such business opportunities.
The importance of Turkey as an energy hub
27. Energy is an extremely important area
for EU-Turkish business co-operation. Turkey is located in close
proximity to 71% of the world's proven gas and 72.7% of oil reserves,
in particular those in the Middle East and the Caspian basin.
It therefore forms a natural hub between several vital energy
suppliers and energy consumers in the EU and beyond. Pipelines
through Turkey help to diversify energy supply sources and routes
into EU member states, thereby contributing to Europe's long-term
energy security.
28. Co-operation in this region will promote
legal and regulatory harmonisation via the Baku initiative, in
the European Neighbourhood Policy area and in the EU-Russia Energy
Dialogue. This aims to provide a clear, transparent and non-discriminatory
framework for energy production, transit and transport. Significant
investments will be required to achieve this.
29. Turkey has concentrated on the transport
of energy from the Caspian through pipeline projects linking the
Caucasus and Central Asia to Europe, and these routes will be
vital for the economic integration of these regions into the global
economy. Key developments include:
— the Baku-Tbilisi-Ceyhan (BTC) pipeline
linking Azerbaijan, Georgia and Turkey was extended in June 2006
to include Kazakhstan so that Kazakh crude oil will now be shipped
to Baku across the Caspian Sea and thence via BTC to Turkey; and
— the Samsun-Ceyhan oil by-pass route
on which construction has started. This will reduce increasing
pressure on maritime transport of oil through the Bosphorus and
Dardanelles straights and so increase EU energy security. Volumes
of Russian and Caspian oil passing through the straights are currently
predicted to reach 190-200 million per annum tons by 2009.
30. Turkey lies on two priority axes of
natural gas. The first relates to gas pipelines from the Caspian
and Middle East; the second is the East Mediterranean gas ring
which aims to bring natural gas from the Caspian Sea, Middle East
and Southern Mediterranean countries to Europe through Turkey
and Greece.
31. Other projects include:
— the Baku-Tbilisi-Ezurum natural gas
pipeline (BTE) will transport gas from the Shah Deniz field in
Azerbaijan to the Georgian/Turkish border, while the Trans Caspian
Natural gas Project will tap into the world's fourth largest natural
gas reserves in Turkmenistan and Kazakhstan;
— the Nabucco pipeline (if financially
resourced) to transport natural gas via Turkey, through Bulgaria,
Romania and Hungary to Austria would reinforce energy and economic
links between Europe, Turkey and Asia; and
— the potential for the development
of Iraqi natural gas reserves mostly located in Northern Iraq
and participation in the Arab natural gas pipeline project.
THE OPERATING
ENVIRONMENT FOR
BUSINESS IN
TURKEY
32. Continued market liberalisation is fundamental
to the companies investing in and operating in Turkey. The business
environment continues to improve, however there remain a number
of areas where more progress could be made:
— privatisation—continued privatisation
and deregulation to increase competition in the market;
— the judicial system—increased
efficiency of the judicial process and the implementation of the
rule of law, in particular the speeding up of dispute resolution.
Disputes are handled by the administrative courts where the process
is slow, decisions non-consistent, and interpretations of the
law questionable, with the average case taking between 12 and
18 months. Regional courts in many cases do not understand WTO
issues;
— attitude to foreign investment—increased
awareness is needed of the benefits brought by foreign investors
in order to remove suspicion in the judiciary and society in general
as to their motives;
— taxation—reduction of the tax
burden on business and in particular the removal discriminatory
taxes and their arbitrary application;
— bureaucracy—the removal of
bureaucratic obstacles and delays, and of political control and
patronage from the civil service. Tackling corruption at all levels
and greater transparency in the awarding of public tenders is
also important;
— Enhanced corporate governance;
— financial market development, including
increasing access to finance, the strengthening of the regulatory
framework for the insurance sector and broadening of the equity
market;
— continued efforts to reduce the informal
economy (which still represents 40% of economic activity);
— increased training and vocational
education; and
— increased research and development,
innovation, technology adoption and access to information and
communication technology.
SPECIFIC TRADE
POLICY ISSUES
33. CBI welcomes progress made in Turkey
to eliminate barriers to trade in many sectors and efforts to
bring many of its trade related policies in line with Community
laws. Notable improvements have been made in the banking sector,
insurance sector, in reducing technical barriers to trade, and
aligning legislation in the field of intellectual property. Implementation
in areas such as intellectual property, and remaining technical
barriers, specifically in relation to food and drink, are a concern.
Policies, such as the quota system in place for Chinese clothing
and footwear, and the subsidy regime in the steel sector, harm
the business and investment climate in Turkey. Full details of
these and other specific issues can be found in Annex A.
Trade defence
34. Turkey's trade defence policy—anti-dumping,
anti-subsidy and safeguard measures—is operated independently
of the EU and is often not as rational, business friendly or as
compliant with WTO norms as the EU's trade defence policy. Current
measures in place against Chinese textiles and footwear are far
broader in scope than the EU measures, were implemented without
warning, and unlike their EU equivalent will not be lifted in
the near future. It is likely that none of these measures comply
with WTO commitments.
Trade Barriers Regulation investigation
35. In 2003 the EU conducted an investigation
under the Trade Barriers Regulation into the importation of pharmaceutical
products into Turkey. The investigation found many aspects of
the Turkish pharmaceutical market to be in contravention of EU
norms and Customs Union or WTO obligations, specifically under
the TRIPS and TRIMS agreement. Major concerns were expressed in
relation to the failure to guarantee data exclusivity and in relation
to reimbursement.
Free movement of capital
36. Turkey has failed to facilitate fully
the free movement of capital. There are restrictions imposed on
outward capital movements, credit and cash transactions, foreign
direct investment in a number of sectors, and special government
rights in privatised companies. With regard to payment systems
and cross-border transfers there has been very little progress.
Technical barriers to trade
37. CBI strongly welcomes the reduction
by over a half of the number of goods subject to mandatory standards
and technical specifications a result of alignment with Regulation
((EEC) No 339/93). The Communiqué on standardisation in
foreign trade, further reduced the number of items subject to
mandatory standards or technical specifications upon import and
broad alignment has been achieved by the Turkish Standards Institute
has adopted more than 90% of EN standards. For example 35 mandatory
standards in the area of construction products have been abolished.
However as the above evidence displays there are still some remaining
barriers, particularly in the field of food and drink.
Customs procedures
38. Turkish customs procedures are fairly
well developed with nearly 100% of all transactions in the year
from 2005 processed electronically. However officials often delay
or hamper processes through an over-rigid approach. There is a
need for improved training of customs officials and closer coordination
with the Turkish Patent Institute, police and IPR courts.
Rights of establishment
39. CBI calls for further improvements to
the right of establishment. Many sectors have legislation requiring
operators to obtain a license and join a chamber, trade association
or professional organisation. Some professions are closed to foreigners.
40. We regret that there have been no noticeable
developments related to the freedom to provide cross-border services.
Service providers are generally required to obtain a license or
authorisation even for temporary provision of services.
Competition policy
41. CBI notes some limited progress in alignment
with EU competition policy with regard anti-trust and mergers;
however CBI is concerned that block sectoral exemptions mean that
large sections of the Turkish Economy are not subject to these
laws. We are especially concerned with sector exemptions in the
insurance, telecommunications and postal services sector.
42. The rules surrounding state aids in
Turkey still fall far short of EU norms. In the EU, state aids
are only permitted in very particular circumstances and with full
transparency in the process. In Turkey this transparency is lacking.
The failure to establish an operationally independent state aid
monitoring authority or adopt relevant state aid legislation places
Turkey in contravention of their Customs Union obligations.
Public procurement
43. CBI regrets that there has been little
progress on the reform of Turkish public procurement laws and
practices. Sectoral legislation provides widespread exemptions
from the public procurement legislation and framework, such as
the exemption offered to the Turkish Petroleum company.
44. A lack of progress with regard to the
award of public contracts reduces the ability of UK companies
to bid for procurement contracts. Thresholds and financial limits
remain too high and above EC levels; complicated and expensive
tendering procedures present another bureaucratic obstacle to
bidding for public contracts. Review procedures for complaints
regarding government contracts also fall well short of the acquis.
Intellectual property
45. CBI recognises that there has been a
degree of legislative alignment with the EU in the area of intellectual
property law. However Turkey lacks thorough and consistent implementation
of these laws, meaning intellectual property protection in the
country is inadequate and in need of improvement. Turkey needs
to make significant progress in this area to fulfil its commitments
to both the EU and the WTO.
46. Weak administrative capacity, frequent
and inconsistent changes of legislation, as well as conflicts
over collective management of rights remained as problematic issues.
Turkey also lacks consistent practices between collecting societies
resulting from a weak regulatory framework and insufficient oversight.
THE ROLE
OF THE
UK GOVERNMENT IN
ASSISTING BUSINESSES
47. The CBI supports the UK and Turkish
Governments' recently announced Strategic Partnership which recognises
the importance of growing trade, energy sector co-operation, tourism,
educational links and business co-operation in third country markets.
48. We support UKTI's plans to enhance UK
company involvement in Turkey by providing the means for UK and
Turkish business to engage more proactively and by raising general
awareness of opportunities in the market.
49. The establishment of a high-level government-to-government
forum to tackle barriers to trade and resolve trade disputes between
UK companies and their Turkish counterparts would be helpful.
This will carry out an analysis of the key barriers currently
inhibiting trade, engage stakeholders and help to identify solutions.
The CBI would encourage the forum to focus on major issues such
as enforcement of intellectual property rights, reform of Turkish
trade defence measures, elimination of state aids, and improvement
of the rules and administration in various trade related areas.
Annex A
SPECIFIC TRADE POLICY ISSUES IN DETAIL
Spirits
50. CBI recognises that the market access
issues in the spirits industry are numerous and supports the launch
of an EU trade barrier regulation complaint against Turkey in
this sector.
51. Turkey has in place both a "control
certificate" and a "certificate of conformity for importation"
for all UK/EU spirits, which are effectively import permits, the
latter of which must be renewed annually. This is in contravention
of the Customs Union Agreement 1995 which prohibits restrictions
on imports or measures having equivalent effect, and such provisions
would not be permitted within any EU member state.
52. CBI is concerned about labelling standards
for imported spirits. Officials from the Ministry of Agriculture,
MARA, have started to ask for a list of ingredients, to see labels
and question the validity of certificates granted by EU Member
States within the context of granting control certificates to
spirits importers. Labelling requirements for spirits in Turkey
go well beyond the acquis and introduce needless and illogical
requirements for certain information to be included on labels.
MARA checks have forced some producers to expensively produce
at considerable cost separate labels specifically for the Turkish
market.
53. There has been an on-going, and highly
serious dispute between Diageo, Allied Domecq and Maxxium and
the Turkish Customs over the companies' right to use differential
pricing. Turkish customs have argued that duty paid on imported
spirits should be paid on the duty free sales prices rather than
domestic import values, and that current pricing arrangements
must be rejected because importers and distributors are related.
CBI feels that both arguments are in contravention of the relevant
WTO code and that duties should be calculated on the import price
in line with EU norms.
54. A special consumption tax was amended
in 2003 introducing minimum tax-yields for certain spirit drinks.
The minimum tax yields varied according to the spirit drink, the
highest rates were levied on the main imported spirit, whisky,
while the lowest rates were applied to the main domestic spirits,
raki and vodka. CBI is concerned that this arrangement fails to
adhere to EU and WTO norms.
55. There have been more recent signs that
the Turkish government are seeking to simplify this excise code
for spirit drinks through the application of a "specific"
structure based solely upon alcohol content—as is the case
in EU Member States. Such a reform would be welcome, however it
is understood that proposals to reform this regime may still favour
Raki over imported spirits such as Whisky which would still be
in contravention of Turkey's WTO obligations.
Tea: technical barriers
56. There have been difficulties with health
certification for tea in Turkey. Under pressure from domestic
tea producers, the authorities were pressed into blocking tea
imports, through a new Ministry directive. This directive prohibits
all tea imports other than through the Black Sea Port of Rize.
Agriculture: trade barriers and subsidy regime
57. In agricultural markets technical barriers
to trade exist in relation to beef meat and live bovine animals,
the latter of which are prohibited imports. These barriers contravene
bilateral agreements between the EU and Turkey. The necessity
for health certificates on every shipment of imported agricultural
produce, bureaucracy within the Agriculture Ministry, and a protectionist
attitude on the part of several key officials are also barriers
that the CBI wants to see eliminated.
58. CBI considers retrograde the steps for
agricultural support as outlined in the "Agricultural Strategy
Paper 2006-10". The reforms run contrary to agricultural
reform being pursued at both the European and WTO level. The subsidies
contained within the paper distort agricultural markets through
linking support to production levels. The difference between the
domestic price of wheat and the export price are also considered
by some to constitute a prohibited export subsidy which could
be in violation of Turkey's WTO commitments.
Retail, textiles and sports apparel: textile quotas,
footwear duties, and other challenges
59. Retailers and sports goods manufacturers
are experiencing massive disruption to their supply chains from
safeguard measures imposing a quota system on Chinese textiles
which is far broader and further reaching than the equivalent
EU measures, as well as from damaging anti-dumping duties on footwear.
These measures have caused several major retailers to significantly
scale back their expansion plans in Turkey, and disrupted the
efforts of global sports brands to operate in Turkey.
60. The textile quota system is having a
major impact on UK retailers operating in Turkey and has led to
some retailers' quotas on certain products for an entire year
being exhausted in just two months. Under the Turkish restrictions,
even products imported firstly into the EU then onto Turkey are
subject to the safeguard measures. Several retailers, such as
Debenhams and Harvey Nichols have halted, or significantly scaled
back their expansion plans as a result of the measures. In the
case of one retailer the measures halted the opening of three
stores, and will delay or halt plans to open several more stores
if continued.
61. The quota system in place for Chinese
textiles is administered on a yearly basis by a grouping of local
manufacturers, The Exporters Council (ITKIN). There is no dialogue,
and there would appear to be no appetite for dialogue, between
importers and manufacturers on trade policy, nor does there appear
to be scope for importers to be considered in trade defence decisions.
Politically there appears to be little appetite for reform of
the current textile quota system and even less for reform of the
system of footwear duties.
62. CBI believes that Turkish trade defence
measures need to move into line with the norms of EU trade defence
policy, and adopt the procedures and criteria that can be envisaged
after the completion of the current review of the EU's trade defence
instruments next year. A revised approach to trade defence needs
to take greater account of globalisation and present greater certainty
for importers and investors in Turkey.
63. There are also problems in retail with
local political interference and manipulation of property prices
on target sites.
64. CBI is highly concerned about the production
of counterfeit sports goods in Turkey. The EU recently confirmed
that Turkey was second to China in exporting counterfeit sports
goods. Turkey also has a vast domestic market for counterfeit
goods, particularly tourist-fed demand in the south of the country.
Pharmaceutical: intellectual property and reimbursement
issues
65. In the area of regulatory data protection
the EU study showed Turkey to be in violation of their obligations
under the Customs Union Agreement and the WTO TRIPS agreement.
Despite progress there is still a lack of enforcement of new regulatory
data protection provisions. CBI also has concerns over the issue
of pending generic applications, approval of which would be contrary
to Turkey's Customs Union obligations.
66. CBI believes that Turkey should be required
to agree that it will provide full six year data protection for
all original products registered in the EU as of 1 January 2001
for which generic applications do meet the EU criteria. Turkey
should also agree to provide such data protection for products
for which there is no generic on the market but for which a generic
application was filed prior to 31 December 2004. Vaccines and
combination products should also be granted data protection in
line with obligations under the CUA. Generic products should not
be approved before original products.
67. Patent enforcement is in need of revision
and improvement. A patent linkage system linking the regulatory
authority to the intellectual property authority would ensure
that patent infringing products would not be granted market authorisation.
This measure is required to address weak enforcement.
68. Turkish policies for the pricing and
reimbursement of pharmaceutical products still lack transparency
and objectivity. The proper implementation of the pricing decree
introduced this year, alongside planned changes to the reimbursement
system, will be key to addressing these deficiencies. This process
of reform presents an opportunity to overhaul the reimbursement
system, cutting down the time it takes to receive a reimbursement
decision.
69. The pharmaceutical product registration
criteria should become more closely aligned to EU standards and
be limited to safety, efficacy and quality, and exclude economic
and price criteria.
Steel: state aids, and the need for restructuring
70. Continual subsidisation of the Turkish
steel industry and a lack of transparency in the regime governing
state aids give Turkish steel producers an unfair advantage over
their European counterparts. In order to protect against this
practise imports from Turkey should continue to be subject to
EU anti-dumping rules until Turkey becomes a full EU member state,
or until rules around dumping and subsidies are fully resolved
within the context of agreements on the relations between Turkey
and EU.
71. CBI is concerned that Turkey has yet
to present the European Commission with a satisfactory National
Restructuring Plan setting out subsidy elimination in the steel
industry, despite committing to do so in five years from the signature
of the Customs Union Agreement in 1995.
Aviation
72. Although the UK has enjoyed significant
success in introducing new carriers into Turkey, including B Med
(now BMI), EasyJet, GB Air, Thomsons and others, there are still
obstacles to free operation in this sector. The Turkish authorities
are reluctant to adhere to the Air Services Agreement and increase
competition in the market. This inertia may be driven by a strong
lobby of 16 domestic carriers.
Financial services
73. CBI recognises that the banking sector
has progressed significantly. A new Banking Law entered into force
in 2006 introducing risk-based supervision, ending the sworn-bank
auditors' monopoly in on-site supervision, and establishing a
new financial sector commission to improve cooperation among financial
sector supervisory authorities. A stronger supervisory role for
the Banking Regulatory and Supervisory Authority (BSRA) has reduced
the likelihood of another banking crisis in Turkey.
74. CBI welcomed the new statute for the
Turkish Banking Association in 2006 ending discrimination against
foreign owned banks. CBI also welcomes the new mortgage law which
allows mortgage backed securities to be sold on capital markets,
as well as a communiqué issued by the Capital Markets Board
removing the requirement that the majority of the board of directors
at a real estate investment company have to be Turkish.
75. There has been a surge of foreign interest
in the Turkish banking sector leading to a number of mergers including
BNP Paribaz-Turk Ekonomi Bank, Garanti Bank- General Electric
Consumer Finance, Akbank-Citibank, ING-Oyakbank, Dexia-Deizbank
and the acquisition of Disbank by Fortis. The share of foreign
ownership in the sector is estimated around 35%-40% compared to
5% two years ago.
76. CBI welcomes government plans to sell
three state-owned banks, Ziraat Bank, Halkbank and Vakifbank,
and notes the substantial foreign demand in the recent public
offer of 25% of Halkbank's shares.
77. The new solvency regime adopted for
insurance, re-insurance, and occupational pension companies closely
resembles both the old EU Solvency 1 regime and its replacement
the Solvency 2 regime. The introduction of a new Insurance Code
was also to be welcome. The industry recognises the improvement
in the sector a fact indicated by the significant foreign investment
in the Turkish insurance sector—Aviva are the third largest
insurance group in Turkey. However there is still scope for regulatory
improvement in the insurance sector, especially surrounding the
freedom to set tariffs in the compulsory insurance sector.
78. In relation to accounting and auditing
CBI welcomes efforts to introduce International Accounting Standards,
International Financial Reporting Standards, and the International
Standards of Audit. However many of the changes in standards are
not legally binding nor generally applied by Turkish companies,
meaning that progress in some of these areas notably in audit
are disappointing.
Publishing
79. CBI is troubled by about a Ministry
of Education directive preventing the use of foreign produced
publications in Turkish schools but encouraging the use of photocopied
foreign books as a cost-saving exercise, contravening EU copyright
law.
Postal services
80. We are not encouraged by the lack of
reform in the area of postal services, where there is a legal
monopoly. Turkey lacks an independent regulator in the postal
sector and a lack of transparency in the accounting system prevents
tracing potential distortions resulting from abuse of a dominant
market position, or from cross subsidisation.
Telecoms
81. A recent tender to introduce 3G systems
into the market has been annulled by the Tender Board due to lack
of bidders, a situation itself brought about by the fact that
the tender process strongly favoured the incumbent state owned
mobile operator Turkcell. Telecommunications are also subject
to a prohibitive tax regime that heavily distorts the free market
in services and supply.
Property acquisition
82. CBI regrets that the acquisition of
real estate by foreigners remains subject to a number of restrictions,
and in this area recently adopted legislation in the form of the
Land Registry Law was a backward step. Foreign ownership of real-estate
is also hampered by sectoral laws such as the Petroleum Law, the
Law for the Support of Tourism, and the Law on Industrial Zones.
Furthermore the Turkish Council of Ministers can block the sale
of a specific piece of land.
Further considerations on IPR
83. CBI regrets that a recent regulation
on Record and Registration of Intellectual and Artistic Works
means that certain works must now be registered in order to be
protected, which is in contravention of the Rome Convention.
84. Provincial anti-piracy commissions,
and the third IPR civil court are failing to properly enforce
intellectual property rights, and the infrastructure of these
courts is insufficient. We feel that a failure to address piracy
and counterfeiting within the context of the fight against organised
crime reduces the effectiveness of efforts to counter these problems.
3 December 2007
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