Examination of Witnesses (Quesitons 20-39)
UKTI, BERR, FCO
26 FEBRUARY 2008
Q20 Mr Clapham: I just have a couple
of questions on the forum. Could you say a little bit more about
its role and how, for example, it will differ from the Turkey
Britain District Council?
Mr McInnes: The government to
government forum is, as it said, very much a government forum
which we are setting up with a view to providing this high level
vehicle, which we have not had in the past for regular ministerial
contact on commercial matters, with a view to identifying opportunities
where the UK and Turkey can work together, both bilateral within
each other's markets but also in third markets; but also critically
as a vehicle for addressing some of the issues, some of the problems.
Where it differs from the Turkish-British Business Council is
that the Business Council is a private sector driven vehicle obviously
representing business on both the UK and Turkish sides. UKTI does
attend meetings but it is very much a private sector driven vehicle
rather than a government forum.
Q21 Mr Clapham: So it is quite different.
When one looks at, for example, JETCOs with India and China, is
there a great difference there? Is it still such that it will
be just developing the relationship between governments rather
than looking at economics and trade?
Mr McInnes: I would expect the
government to government forum and UKTI through the forum to be
working very closely with the Business Council, and I would expect
the Business Council to be identifying the issues and feeding
through the issues that need to be addressed by governments to
improve the overall business environment. So I would expect us
to be working very closely and hand in hand with the Business
Council.
Q22 Mr Clapham: Given the high priority
of Turkey, is the British Turkish Council likely to get any additional
resources? I know you earlier referred to the number of people
working in your team but is there a prospect of even more help
within the UKTI strategy?
Mr McInnes: Business Councils
are private sector driven vehicles and they very much depend on
the commitment of the private sector in terms of effort, time
and resource and independence. They depend on business people
for providing that commitment to the Business Councils. Typically
UKTI contributes only a very small level of funding to the work
of the Business Councils and generally that takes the form of
support for activities undertaken by the Business Councils that
are in line with UKTI strategy.
Q23 Mr Clapham: That support for
private businesses is very important. One of the complaints that
we have made to us time and time again by private business is
that they are just not getting enough information. Given that
sort of criticism are there any plans, for example, to set up
a dedicated website where private business could actually access
the information that they required?
Mr McInnes: Again, obviously there
are a number of channels through which we try to, if you like,
promote, publicise the opportunities that exist within the Turkish
market for UK companies. The Chairman has already referred to
the UKTI website, which does provide specific information on opportunities
within sectors and advice on doing business within those markets.
I have mentioned the road shows, which have been another vehicle
for getting out information to companies potentially interested
in the market. We have also produced some publications on doing
business in Turkey and on specific sector opportunities, so there
are a number of mediums that we use to try and get the message
across; and we work closely with the Business Council and one
of the areas in which we are working with them is on a specific
seminar that they are organising in early April, the time of their
next meeting. So we work closely with the Business Council but,
as I say, typically the funding that is provided to Business Councils
is quite limited.
Q24 Mr Clapham: On the information
issue, is there any indication that the Business Council would
like to see more information or do they indicate that they are
quite happy with the amount of information that is provided?
Mr McInnes: I think it is fair
to say that the Business Council itself is going through a period
of development. On the UK side a new Chair, Sir Julian Horn-Smith,
was appointed last year and I know very much that Sir Julian,
with the Middle East Association, and ourselves are very keen
to see the Business Council focusing its efforts in the future,
so as not to be a talk shop but very much focusing its efforts
on specific issues that matter to UK and Turkish business.
Q25 Chairman: Just before I hand
on to Mr Bailey, without repeating your answers to questions can
I press you a little on the difference between the forum and a
JETCO. This Committee has heard evidence in the past from representatives
of the Government that there is a limited number of JETCO forums
that can credibly be established and keep ministerial commitments
at a sufficiently high level. So just rank the Turkey forum alongside
the JETCOs for me.
Mr McInnes: I think that the phrase
or the term JETCO has become something of a shorthand descriptor
for government to government forum and certainly we do not envisage
the UK Turkey Government forum being, if you like, as complicated
as the JETCOs that have been established for China, India and
Brazil. So we envisage a much simpler structure. Part of the reason
is that, you have referred to the existence already of the Turkish-British
Business Council, with which obviously we will be working closely
together. The objective of setting this up is to provide the vehicle
for regular dialogue on commercial matters at a high level that
has not taken place to date.
Q26 Chairman: Placing a discipline
on both governments to maintain that dialogue.
Mr McInnes: It certainly will
provide that, yes, Chairman.
Q27 Mr Bailey: We have already alluded
to the website. Can you explain the divergence between the sector
priorities in your evidence and the UKTI Turkey sector guide on
the website?
Mr McInnes: First of all, in terms
of the evidence what we are trying to do is to cover not only
the sectors that are priorities for UK Trade and Investment but
also to cover those sectors that were highlighted in the invitation
from the Committee and the terms of reference of the Committee,
which also highlighted one or two other sectors that clearly are
of interest and are of relevance to the UK-Turkey commercial relationship.
In terms of our sector priorities these are reviewed on an annual
basis and so there will be change from year to year in terms of
what are our priorities. For the most part the sectors will remain
the same so you have sectors like environment and water that have
remained constant as priorities for UKTI. But, for instance, this
year ports in the year 2008/2009 are going to be one of our priorities
for Turkey; so that also accounts for some of the change, from
constant review.
Q28 Mr Bailey: I do not wish to put
words into your mouth but is it fair to say that basically the
evidence is just more up to date?
Mr McInnes: It is an ongoing process
so, as I have mentioned, ports will not be reflected as a priority
for us in the evidence that we submitted towards the end of last
year, but will now become so. The evidence was up to date as at
the time it was submitted, but clearly things move on.
Q29 Mr Bailey: Are there any other
major opportunities that you have identified?
Mr McInnes: Again, I think the
areas in which we see particular opportunities are those which
we have highlighted in the memorandum, so they are areas like
the environment, water, agriculture, ports, power—and financial
services is a very important area. These are some of the key areas
which we see offering the most potential.
Q30 Mr Bailey: What about energy
and related projects?
Mr McInnes: Very much so. Again,
as I have mentioned, power. First of all, there are opportunities
because there is a crying need for more capacity. Turkey is looking
to install between 50,000 and 60,000 megawatts of additional capacity
by 2020 so there is a real need for additional capacity. So there
are opportunities both in conventional power but also in terms
of renewable energies and Turkey is particularly strong in areas
like hydropower, solar and wind power. So there are those opportunities.
Also—and again as I mentioned in an earlier answer—one
of the entities that is going to be privatised in the foreseeable
future in the course of this year and over into 2009 is electricity
distribution and generation; so again that is going to provide
opportunities for UK companies on the power side. More generally
of course Turkey has a critical role as an energy corridor.
Q31 Mr Weir: What, from your perspective,
are the biggest blockages to a deeper bilateral trade and investment
relationship between the UK and Turkey?
Mr McInnes: I think it is quite
a long list in terms of some of the issues that are raised with
us by UK companies. At a general level some of the issues most
commonly commented on by UK companies relate to work permits,
the judicial system within Turkey and also taxation. But there
are a number of other issues—bureaucracy, IPR, corruption,
these are all issues that are mentioned by companies but of course
it will depend on which particular sector the companies come from.
Q32 Mr Weir: Ms Melrose mentioned
that they were working towards introducing the Acquis by 2013;
do you think that requires to be done before British companies
would have the confidence to invest in Turkey?
Mr McInnes: I think the very fact
of the announcement of the opening of the negotiations themselves
and the impact that that has had demonstrates that in the last
few years the level of investment in Turkey has increased quite
dramatically and that is very much since the time when the negotiations
started. The comment has certainly been made to me by UK companies
that the process towards accession is as important as accession
itself as Turkey addresses some of these issues.
Q33 Mr Weir: In some of our investigations
in other areas we have been told that often there is a type of
perception or reluctance of UK companies to get involved in some
markets; do you find that the case in Turkey or is there interest
from UK companies to invest in Turkey?
Mr McInnes: Typically Turkey has
not been a traditional market with the UK companies and I think
that is reflected in the share that the UK currently enjoys within
the Turkish market which, as I mentioned earlier, is less than
our share of overall trade. In terms of investment, again we have
seen in the last few years some very significant investments by
UK companies. They typically tend to be the larger well known
companies, obviously HSBC acquiring a major bank in Turkey; then
Vodafone a couple of years ago acquiring the second mobile operator,
Telsim; and Cadbury Schweppes have made a couple of major investments
in the last few years. So we have seen certainly a growing interest
on the part of UK companies in investing in Turkey.
Q34 Mr Weir: Is that because of,
as we said earlier, the route to accession? Is the very fact that
Turkey is now negotiating to join the EU the driver for companies
now looking at investing in the market?
Mr McInnes: I think it reinforces
it but, again, as comments made by my colleagues earlier, Turkey
anyway has embarked on the reform process and obviously that process
is making Turkey in itself a more attractive market.
Q35 Miss Kirkbride: We will come
back to accession proper in a minute but as there are barriers
which presently exist to UK and Turkish trade which ones do you
think will be addressed by the move towards joining the EU and
which ones will be addressed by the inter-government forum?
Mr Dodd: I think it is quite striking
that the process of moving towards EU membership is a really long,
slow one with many, many stages. In terms of addressing the values
which exist at the moment obviously we would like to address those
more rapidly. We can divide them perhaps to those at the border
and those behind the border. Of the ones which happen at the border
where the customs union is in place clearly there should be ways
to prevent those kinds of restrictions being in place. So if customs,
for example, are blocking things for a particular reason there
is a mechanism, albeit a slow one, to address that. The big raft
of behind the border restrictions, the kind of non-tariff barriers,
which my colleague from UKTI mentioned, I think there are the
opportunities for addressing those on a bilateral basis but there
are many more of them which actually are more likely to be addressed
by the wider reform process, which is making Turkey into a more
open economy. It is really striking how over the last ten years
it has started to become a very different kind of economy from
one where there were barriers on such a wide range of issues and
so many restrictions that it was incredibly difficult for foreign
firms to do any kind of business, to a position now which is not
ideal by any manner of means but where there is at least an understanding
of the need—at least within parts of government—to
address many of these restrictions. There are so many different
ones that we probably need to address them individually to give
you an accurate answer.
Q36 Miss Kirkbride: What is your
perception of Turkey as an homogenous country, or not as the case
may be, because obviously there is an east-west issue, but also
all those holiday resorts the Aegean Sea and everything else are
very different—they do not feel like what you would expect
Turkey to feel like when you go there. Is there very wide disparity
within the kinds of economies within areas of Turkey?
Mr Dodd: I think there are both
regional disparities within Turkey, where you have Istanbul as
a kind of global mega-city, and some areas of the Turkish countryside
that are really very traditional and have a very different kind
of economy. The more fundamental difference perhaps even than
that is the difference between that portion of the Turkish business
community and establishment which seeks to look inwards and to
restrict things in order to continue with a previous system and
those that are looking at economic reform to generate new opportunities
and to generate a more conventional "globalised" economy.
I think the role of the customs union has been very striking in
that it has opened up competition into bits of the Turkish economy
which had not faced it previously and, as a result, has been very
popular with some and extremely unpopular with others.
Q37 Miss Kirkbride: But the same
rules and restrictions apply everywhere, so even in those areas
that feel different there is still a uniform system of rules and
regulation?
Mr Dodd: The implementation of
rules obviously varies, I am sure, from sector to sector and from
region to region; and I am sure the further you get away from
the large cities it is rather different.
Q38 Miss Kirkbride: What issues does
Turkey raise with us in terms of what they see as our barriers
to trade and our issues—businessmen's visas was mentioned
a little earlier by someone. What are those issues looking at
it the other way around?
Mr Dodd: One of the issues that
they certainly mention is the rules of the game of the customs
union. The Turkish Government is not comfortable with the way
that effectively Turkey has to accept whatever bilateral trade
deals the EU signs with other countries and apply those to give
their access to the Turkish market on those terms, but Turkey
does not have the right to negotiate its own bilateral trade deals.
So that is a clear area of discontent. But there are some specifics
about doing business as well.
Mr McInnes: If I may comment very
briefly on that? Obviously the UK is an open market as far as
other countries are concerned. I think the one point that Turkish
companies would raise would be costs and certainly that is a factor
why there has not been more Turkish investment here in the UK
to date—costs.
Chairman: Let us turn now to the current
customs union arrangements and Mike Weir.
Q39 Mr Weir: Mr Dodd, you mentioned
that the current customs union had opened up competition in Turkey.
Do you believe, given what you said before, that this has delivered
for UK businesses? Is it a good deal for UK businesses to get
into Turkey?
Mr Dodd: I think the customs union
as it stands is certainly not perfect and it is certainly not
complete. From a UK perspective the big area which is missing
is services, but I think that the UK would be perhaps better placed
than most to take advantage if there was an expansion of the agreement
to cover the service sector. Having said that, we have what we
have and it has made a big difference to doing business in Turkey.
The scope for negotiating improvement to it I think is unclear
on both sides.
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