Examination of Witnesses (Quesitons 40-59)
UKTI, BERR, FCO
26 FEBRUARY 2008
Q40 Mr Weir: But given that services
are important to UK companies, and there is clearly a demand,
in the UK at least, for an extension of the services, you seem
to be suggesting that this is unlikely to happen in the near future;
is that fair comment?
Mr Dodd: I think on the Turkish
side there is the desire to perhaps move from trade policy being
something separate and the customs union to be part of the accession
process.
Q41 Mr Weir: So it is really dependent
on the accession negotiations; it is a bargaining chip, if you
like?
Mr Dodd: I believe so.
Q42 Mr Weir: We have heard a number
of issues from companies that should never arise within a customs
union, for example differential and discriminatory taxation. Can
you say what the UK Government is doing either by itself or in
concert with EU partners to ensure that Turkey adheres to the
full customs commitments?
Mr Dodd: The process for policing
the customs union is laid out—it is a legal basis. It is
there, I guess, as a backstop—it is not ideal because it
is slow. The legal process where there has been an investigation,
and ultimately the judgment which would then be put to the Turkish
authorities and they would have to implement that judgment, is
something which can take many, many months and as a result it
is not what we would want as our first choice, but UKTI will always
want to seek to represent the interests of UK firms to push for
not having to get to that legal stage. Having said that, we are
not always successful.
Q43 Mr Weir: Does this behaviour
bode ill for accession negotiations or is there a feeling that
it is perhaps to put some pressure on accession negotiations that
this is happening, and you suggested earlier that Turkey is very
keen that the services sector was included in the accession negotiations
rather than a separate customs union. Do you have a view on that?
Mr Dodd: I will defer to UKTI
on this. My perception would be that when you have domestic firms
within Turkey facing vigorous competition from foreign firms there
will be a degree of pressure to restrict competition, and I would
suspect that there is a real problem within companies not being
comfortable with that degree of competition, rather than perhaps
it being all about bargaining chips within the accession process.
Q44 Mr Weir: If the accession process
was to be seen to speed up with a view of Turkey perhaps joining
the EU, do you think there is likely to be less concern about
these competition areas? What I am trying to get to is the linkage
between the two processes because Turkish negotiations for accession
have been dragging on now for three years or whatever and will
probably go on for several years to come. I wonder if this is
a reflection of Turkey's frustration with the length of the process.
Mr Dodd: I think there is a perception
perhaps within Turkey that prospects for accession have slowed
rather than speeded up—that is a Turkish perception—whilst
at the same time perhaps the business environment certainly, I
do not think, has got any worse and probably has improved fairly
significantly. So I am not sure that it is a complete manipulation
of the system as part of the negotiating process.
Mr McInnes: I very much endorse
those comments and I think, as Peter mentioned, it is more to
do with concerns for competition rather than it being used as
a bargaining chip. The Chairman asked earlier about the Public
Diplomacy Pilot. One of the areas the Pilot is very much focusing
on is this area where UK legal bodies are working with the Turkish
Bar Association to look at the impediments to foreign investment
that are actually created by the Turkish judicial system and coming
up with areas for possible reform.
Ms Melrose: May I add to that
in terms of the services sectors. A couple of the chapters that
are under negotiation of the 35 relate directly to services: one
is financial services and the other is the right of establishment
and freedom to provide services. So, by definition, it should
create a more favourable environment; but, as my colleagues have
said, across the board this involves painful reforms where you
need buy-in and not just from companies but also from the public,
and that is where messages from Europe, from the EU are absolutely
critical.
Q45 Mr Weir: So would your view be
that it is more to do with the tensions of a changing economy
rather than specifically linked to EU accession that is going
to happen anyway because of the way that Turkey is changing its
economy?
Mr McInnes: Yes.
Q46 Mr Weir: You mentioned earlier
the question of bilateral deals and you mentioned that Turkey
was perhaps unhappy about having to open its markets and yet the
EU had concluded it with others. We have heard that Turkey has
considered downgrading the customs union to a free trade agreement.
Is there any chance of that actually happening, in your view?
Mr Dodd: There are noises being
made but I think it seems relatively unlikely that that would
happen. I think there have been so many benefits to the Turkish
economy that the reformers, who are certainly in a leading position
within the Turkish Government, recognise that as being of real
benefit to Turkey. Perhaps of all the different elements of the
reform process, after the stabilisation of the economy, with the
help of the IMF, it is the customs union that has delivered most
in terms of setting Turkey on the road to becoming a more outward
looking conventional economy.
Q47 Mr Weir: Is there any chance
of Turkey being allowed to contribute to the negotiations as a
possible accession country to the EU?
Mr Dodd: It is an interesting
point; I do not know the answer to that. I could put it to the
Commission, if you would like.
Mr Weir: It would be interesting to know
their view on that. Presumably if there was a downgrading that
would seriously impact on the accession negotiations if they downgraded.
Q48 Chairman: Thank you. Before we
move specifically to accession can I invite you to reflect on
what is Britain's overall economic position engagement with Turkey,
how strongly positioned we actually are, because I am finding
it a little difficult to understand the position. The table you
provided us with, Mr Dodd, in your memorandum on page 9 shows
a picture of our market share for exports to Turkey going down
from 4.7% to 3.7% over a five-year period, 2000 to 2006. How much
is that because Turkey is importing things like gas, that we simply
cannot provide them with, and therefore it is not anything we
should be concerned about? How far is that a matter of concern
because it does seem that we are slipping behind France, Italy
and Germany as well as Turkey?
Mr McInnes: Perhaps if I could
comment on that? As I mentioned earlier, Turkey has not been a
traditional market for us in the same way that it has for Germany,
Italy and, to a lesser extent, France. So our market shares have
traditionally been lower than those countries. What has happened
in recent years is that whilst our trade has increased, as you
pointed out, our share has gone down, but that is very much due
to the fact of the surge in exports from China to the Turkish
market, so you have seen China significantly increase its share,
and obviously Turkey's dependence on energy imports, so you have
seen the growing importance of Russia and Iran, those two markets
as exporters to Turkey. So as we have gone down from sixth to
eighth in terms of being an exporter the two markets that have
overtaken us over that period are China and Iran, for these reasons.
Q49 Chairman: But in the evidence
of the British Chamber of Commerce in Turkey it was slightly lukewarm
about the degree to what we are properly engaged with the market—not
enough SMEs, not enough high level political visits. There is
a sense that we are not quite playing to our strengths in the
market; do you think that criticism is fair?
Mr McInnes: There is certainly
an element of truth in that, yes, and I think that that is part
of what the UKTI's strategy is designed to address, to give Turkey
a greater profile than it has had in the past. The visit by Lord
Jones later this year will be the first by a Trade Minister for
some time.
Q50 Chairman: So the criticism is
fair?
Mr McInnes: I think it is fair.
What we have found already this year, as I mentioned, is that
Andrew Cahn, the Chief Executive, has already been out to Turkey
and Digby Jones will be visiting later this year. So it will move
up the scale in terms of profile.
Q51 Mr Hoyle: Just following on,
so we can actually see Turkey going up the pecking order as a
priority because I think that is what has been lacking. It is
very quick for ministers to go on defence visits but never on
trade visits and hopefully what you are saying is that the scene
is now being set to ensure that Turkey is going to be pushed up
the pecking order and it will be given more priority; is that
fair to say?
Mr McInnes: That is very fair,
and Lord Jones has made it very clear that he sees his role as
banging the drum for UK business in overseas markets.
Q52 Chairman: We formed an impression
when we were looking at our inquiry into some of the new accession
states, A8 and A2, that actually Britain was doing rather better
beyond the walls of Europe, in places like Turkey and Ukraine,
than its competitors, but the evidence we have had from you suggests
that that is not the case and we are actually on a par with those
competitors and not recovering any of the ground we have lost,
despite the fact that English is the lingua franca of Turkey.
Mr McInnes: I think that that
again is a fair comment. In terms of what has happened in recent
years other western European countries are, if you like, in the
same boat as the UK and have seen their market shares also reducing,
but it is very much part of the strategy to get greater UK involvement
in the Turkish market.
Chairman: This inquiry is driven very
much by what might happen over the next few years in terms of
Turkey's membership of the EU, so we will turn now specifically
to those very important questions about accession with Julie Kirkbride.
Miss Kirkbride: In summary, what are
the prospects for accession? Who would like to go first?
Q53 Chairman: I should warn you,
we have been briefed by the Director General in Brussels last
week about his view of the prospects for accession, so compare
and contrast.
Ms Melrose: Let us see how they
compare. Basically what we are expecting is continuing steady
progress. I want to give you both a technical answer in terms
of the negotiations but also obviously a political one. On the
technical side, provided the Turks do their side of the work we
expect two chapters to open under the Slovenian Presidency, two
that are highly relevant to your concerns—that is intellectual
property rights and company law. It is possible that we will also
see free movement of capital open, again dependent on the technical
work. Under the French Presidency we would expect at least a further
two chapters to open, including energy but that depends on some
movement in relation to Cyprus, which I hope we will get back
to. At a political level clearly progress on accession depends
on three factors. The most critical, the first is the commitment
within Turkey to press forward on reforms and over the last year
when the elections in Turkey took place there was a notable falling
off of reform. However, just last week we saw the Foundations
Law adopted. This is something for which the UK has strongly lobbied
and also other EU Member States. What it means is greater freedom
for religious minorities, so very important, and an issue in particular
of concern to Greece but also Germany and others. So we are very
hopeful that you will see a picking up of that momentum of reform
such as modification to Article 301, which is about freedom of
expression. So there is every sign that with the AKP Government
strongly committed to EU accession now back in power with a huge
popular mandate that the progress should pick up. The second factor
is Cyprus; there is no way that Turkey will ever join the European
Union unless it recognises Cyprus as one of the 27 Member States.
Most critically that requires a UN settlement to resolve the underlying
causes; it also requires Turkey to open its ports to Cypriot vessels.
The other factor of course—and this is one that perhaps
is more in the public eye—are the attitudes within the current
EU Member States, perhaps particularly France and Germany and
that obviously is very, very critical to achieve the buy-in to
driving the accession process forward.
Miss Kirkbride: Two things about what
you have said on that aspect. First of all, what hope do we have
of France and Germany changing their minds? Secondly, whilst I
fully understand that the Cyprus issue is very tricky the Turks
really are in a cleft stick, given that because Cyprus now has
EU status, which it never should have done before it sorted out
its own problems, the Greek community in Cyprus have a complete
veto and there is no reason why they should ever cooperate, thank
you very much, so how is the Foreign Office going to cope with
that as well?
Q54 Chairman: I am sure you will
tell us about the elections in Cyprus this weekend.
Ms Melrose: In relation to key
Member States, France and Germany, Angela Merkel has made clear
on many occasions that in her position as Leader of the CDU she
is against EU membership for Turkey, but as a member of the coalition
with the SPD she very much respects commitments that the EU has
given, and I should underline that the vast majority of EU Member
States are strongly committed to the fact that the EU must keep
its commitments to Turkey. Angela Merkel has been perhaps one
of the most forceful advocates that the EU must keep the commitments
it has made to Turkey, but there will be a German election in
2009, and the issue of the free movement of workers will come
up, so it is very hard to predict in terms of German domestic
politics. In relation to France, again Nicolas Sarkozy has made
his views very clear. We have the high probability of political
blocks on some of the chapters. I think there—again very
relevant to this Committee—the attitude of, let us say,
the French corporate sector could be very, very important, particularly
if they perceive some of their interests to be negatively affected,
such as perhaps Gaz de France. So there, hopefully, from a European
Government perspective we will be doing everything we can to shore
up support with, as I have said, the majority of EU Member States
that are strongly in favour.
Q55 Miss Kirkbride: And Cyprus?
Ms Melrose: On Cyprus there are
encouraging signs. The election results on Sunday means that Christofias
is now the President and he is on the record, he campaigned as
strongly in favour of UN settlement and re-launching the process.
So in fact the two candidates that went through to the second
round—Kassoulides as well—both were standing on a
platform of moving the settlement process forward. So we are optimistic
and very, very clear that there is a window of opportunity now,
when we are election-free, in Turkey, in Greece and Cyprus. And
that is an opportunity that the parties must seize, and certainly
there are plans for the UN to consider sending an assessment mission
if they detect real buy-in from the parties, and that could be
followed up with nomination of a UN special representative. But
of course the speed of progress is entirely in the hands of the
parties. We were very, very pleased with the 8 July agreement
reached in 2006 where both sides agreed to some clear principles,
but the process ever since has just been talks about talks and
no movement. So really the key thing here is to seize the opportunity.
Q56 Chairman: So you will not welcome
many Communists to election, I imagine, at the Foreign Office.
Ms Melrose: I would have to put
Communists in inverted commas.
Q57 Mr Weir: You mentioned France
and the position of President Sarkozy. Is it not now the case,
however, that under the French Presidency there would have to
be a referendum before Turkey joined the EU and that is another
considerable barrier to EU accession?
Ms Melrose: That is currently
the case and there the French constitution was changed by President
Chirac. One of the things, a very interesting development that
we picked up early in Nicolas Sarkozy's presidency was that he
was considering amending the constitution again to remove the
need for a referendum before each new accession. If you think
here that there is a strong commitment in Paris to drive forward
accession enlargement through the Western Balkans, you can just
imagine what it would involve to have a referendum for each of
the Western Balkans countries. But of course, any single EU Member
State has a veto over any country joining the EU.
Miss Kirkbride: We have talked about
a privileged partnership for Turkey or a Mediterranean Union between
the EU and countries bordering the Sea, how might the EU's so-called
"wise-men" horizon scanning group impact upon Turkey's
prospects? And is enlargement off limits for this study?
Chairman: It has several different names.
Q58 Miss Kirkbride: I hope you understand
it more than I do.
Ms Melrose: It was the Groupe
de Sages—wise persons' group—and now of course the
Reflection Group. Its mandate was agreed by the December European
Council and the UK and Germany pushed very hard to make sure that
borders of Europe were not the focus of this group's work. Indeed,
we see it actually as an opportunity for some useful debate around
how does the EU rise to the challenges of globalisation. So a
lot of the issues in the mandate for the group are very much at
the heart of our concerns—energy, climate security, market
liberalisation and many of the issues that the Prime Minister
has flagged up in his Global Europe pamphlet. But in terms of
what is happening, the Chairman now, Felipe González, former
Spanish Prime Minister, is taking this forward. From a Member
State perspective we have not seen a lot of activity but that
must be going on behind the scenes and the time frame for this
is very long—it will not be reporting until after the European
Parliamentary Elections in 2009. So from our perspective this
is not about questioning in any way Turkey's accession; indeed,
quite to the contrary, in terms of the issues it will look at
like energy and climate security it should conclude, we think
(and in terms of regional stability), that Turkey has a key role
to play and will, if anything, enhance the EU.
Q59 Miss Kirkbride: You have probably
already answered this because it has been reflected in your other
answers, but just in case there is anything else that you would
like to add on the accession process for Turkey and what importance
is it for their continuing economic and political reform? Is there
anything else that you would like to add that had a flavour of
that?
Ms Melrose: I think it is clear
that Ali Babacan, when Europe Minister but now the Foreign Minister,
said very, very clearly that the accession process is good for
Turkey, whether it joins the EU or not, and those are reforms
that Turkey should be making, that is the narrative that this
is really, really important in its own right. So if you look at
all the areas it covers and the real challenges, as my colleague
said, of aligning to 80,000 pages of EU legislation, this is going
to imply some very major reform.
Mr Dodd: I think it is quite striking
how it has evolved over time from a political position where joining
Europe was a political end in itself and it was not perceived
to be part of a reform process at all—it was the objective
which was, I suppose, the ultimate extension of the Turkish historical
position, but the position now does seem strikingly different
to that where EU membership is linked inextricably with economic
reforms which will hopefully continue whatever the position over
accession.
| 
