Select Committee on Trade and Industry First Special Report


APPENDIX 5

INDUSTRIAL AND TRADE RELATIONS WITH TURKEY

Introduction

The Government welcomes the Committee's Report. It shares the Committee's view that the inherent instability of the Turkish monetary and political system remains a major block to steady economic improvement. For the economic reform programme to succeed in the longer term, the Turkish government must evenly implement these reforms. The Government finds it gratifying that the new economic strategy put in place since the February crisis by the Turkish government has secured new financial support from the IMF and World Bank. The Government hopes that these new measures will reduce further risk of crisis and restore the credibility of the Turkish financial institutions particularly in the banking sector.

The Government agrees with the Committee's conclusion that Turkey will continue to grow in significance as a trading partner for the UK. The Government identified Turkey as one of its top twelve priority target markets. And it is pleased to note that UK exports to Turkey for last year were up by 49% compared to 1999 and total bilateral trade for 2000 reached approximately £3.38bn. Turkey's increasing wealth has led to a demand in many sectors and there are good opportunities for British exporters and investors, which include the areas of engineering, general industrial equipment, IT and electronics, telecommunications, healthcare and power generation.

The Government has the following comments on the Committees' conclusions and recommendations:

TRADE AND ECONOMY

Privatisation

(1)We recommend that the European Commission raise with the Turkish authorities the possible benefits of amending the privatisation legislation with a view to increasing the attraction of Initial Public Offerings abroad (paragraph 19).

The Government agrees with the Committee's recommendation that the Commission should raise with the Turkish authorities the possibility of making privatisation more attractive for foreign investors and will notify the Commission of this proposal accordingly. The Government welcomes the progress made so far by the Turkish Government in this area but recognises that there is still some way to go. There is now growing political acceptance of structural change. Further privatisation is important for the efficiency and globalisation of the Turkish economy. It is hoped that these changes will create a more attractive investment climate for foreign investors. British investment covers a wide range of sectors, with over 330 British companies investing. Major British companies such as BP, Shell, Unilever (UK) and Lucas Industries are well established.

The Government will continue to promote Turkey as an attractive location for UK investment particularly for low-tech manufacturing. The Government strongly supports British investors through the Trade Partners UK network.

Banking

(2) We recommend the Government ensures that the UK banking sector can be made aware of the potential opportunities in any future public offerings involving Turkish banks (paragraph 21).

The Government will take steps to ensure, through the Trade Partners UK network, that any potential opportunities of this nature, bearing in mind the risks, are drawn to the attention of the British banking community. The Government will continue to support major UK financial companies and small financial sector groups, who will need to be reminded of the uncertainties before venturing into the Turkish market.

Insurance

(3) DTI and BTI should make companies in the UK financial services sector aware of Turkish private pensions legislation. Companies should be encouraged to explore the potential for offering their expertise to take advantage of the new situation (paragraph 22).

Private pension legislation has now been passed by the Turkish Parliament and came into force on 7 April 2001. The Government is already working with the financial services sector, through International Financial Services London (formerly British Invisibles) to organise a private pension seminar in Turkey later in the year.

UK TRADE AND INVESTMENT

Energy Construction

(4) We encourage BTI to publicise all upcoming energy construction work to UK companies (paragraph 24).

The Government will continue to track opportunities in the energy sector in Turkey and publicise them to British companies through Trade Partners UK. More particularly, considerable effort is being focussed by Trade Partners UK, with British Embassy personnel in Ankara who are working actively to promote opportunities expected to arise from the Baku-Tbilisi-Ceyhan oil pipeline project. The Government will continue to maximise opportunities for UK companies on specific elements of this project.

(5) We encourage the Government to make a representation to the Commission on the issue of spirit exports to Turkey on behalf of UK spirit producers (paragraph 28).

The Government has made a number of representations to the Commission this year about the difficulties the UK spirits industry is facing as a result of Turkey's failure to meet its Customs Union obligations, most recently in June. It is working closely with the Commission and the Scotch Whisky Association on the action to be taken to ensure that the Turkish authorities address these concerns.

Furthermore, Government officials at the DTI are liasing with the Publishers' Association over the book piracy issues highlighted in the report.

SECTORAL ISSUES

Energy

(6) We hope that the Government can help establish mutually beneficial industry links by monitoring the development of Clean Coal Technologies in Turkey (paragraph 32).

The environment has been designated as a priority sector for future work in Turkey by the Government through the Trade Partners UK network. The British Embassy in Ankara held a seminar in December 2000 on the environmental aspects of energy production, which included clean coal technology. The Government is supporting a cleaner coal technology transfer and export promotion programme alongside its cleaner coal technology R&D programme. The Government will explore the potential to develop closer links with Turkey via the technology transfer and export promotion programme. This could also include organising inward and outward cleaner coal trade missions to Turkey in collaboration with UK industry. The Government will also ensure that the relevant trade, science and technology authorities in Turkey are made aware of the capabilities of UK industry and academia in cleaner coal technologies by inviting them to relevant workshops and events that we host as part of the programme activities. The Government will also look for other opportunities to develop this area of work.

Tourism

(7) Turkey is a destination for UK tourists. We hope that BTI can build on the existing situation and be seen to identify opportunities, which might arise from the tourist service industry (paragraph 34).

The Government is already in contact with the Turkish Ministry of Tourism through the Trade Partners UK network in identifying that any opportunities are drawn to British companies active in this sector. Beverley Hughes the then Minister for Construction, DETR visited Turkey in January 2001 as head of a high-level business delegation which included tourism consultants. The Minister had a very positive meeting with the Turkish Minister of Tourism and reinforced that Turkey is an important destination for British tourists. The accompanying tourism consultants were able to offer advice to Ministry officials and Turkish private companies during their visit in carefully developing this sector so as to have a minimal impact upon the environment.

YALOVA

(8) Should the Integrated Environmental Plan go ahead, offshore goods and services would be needed to the tune of $80 million. This is something of which the UK should ensure it is in a position to take advantage (paragraph 40).

The Government, through ECGD has indicated that it is prepared to support an application for UK exports in respect of the Water Treatment element of the Integrated Environmental Plan, subject to the usual risk underwriting criteria being satisfied.

(9) We urge the UK government to make all efforts possible to secure more funding for the Yalova project to give it a chance of approval by the Turkish government. It would be unfortunate if this project, benefiting the UK and Turkey, were to be lost (paragraph 41).

The Government response to this comment is contained in its answer under point ten.

(10) We are glad to see the UK involved in a scheme for a new modern waste water system in Yalova, positioning itself to take advantage of contracts arising from both immediate and long-term projects. We hope to hear in the near future that the Turkish Government has approved this plan (paragraph 42).

The Government welcomes the Committee's support for the earthquake reconstruction projects in Yalova. The UK government continues to put its full support behind the earthquake reconstruction project in Yalova. The former DETR has helped to fund the British Earthquake Consortium for Turkey (BECT) public private partnership. The projects identified by the Consortium have been agreed as priority projects by the UK and Turkish government and incorporated into a Memorandum of Understanding. DETR and other Ministers continue to press the Turkish government to take forward these projects during trade missions and other visits to Turkey. The current economic situation in Turkey is, however, fragile and there has been a significant turnover in the key decision-makers in Turkey - particularly in the Treasury. Nonetheless, the Government believes that the projects, the waste water project in particular, are essential for the regeneration of Yalova and continues to press for a positive decision at every opportunity.

CONCLUSION

(11) We were impressed by the energy for change that we found in Turkey, and by the determination shown to implement the financial reform programme. This bodes well for Turkey's eventual EU membership. We do not know how long the accession process will take; it is already having a modernising effect on Turkey's social and economic policies. We are concerned at the apparent ease, with which the Turkish economy can be disturbed by relatively minor occurrences, thus causing problems with a steady economic reform (paragraph 43).

The Government welcomes the Committee's assessment that Turkey will one day be a valuable member of the European Union, and agrees with the observation that the EU accession process is a catalyst for economic and social reform in Turkey. The EU's Accession Partnership has set out the measures Turkey must take to meet the Copenhagen criteria, including the economic, political and administrative criteria.

The Government welcomes publication of Turkey's National Programme for the Adoption of the Acquis in response to the Accession Partnership, and looks forward to Turkey carrying out the reforms set out there. The Turkish Government has committed itself to carrying out a wide range of structural reforms, notably on taxation, social security, agricultural support and privatisation to facilitate adoption of the Acquis. These structural changes constitute a significant part of an ambitious but necessary economic reform programme. The Government urges the authorities to implement the programme in full, to restore Turkish economic health, to help Turkey to realise its full economic potential, and to help it join the European mainstream.

The Government will continue its support for a strong Turkish economic programme, including support through the International Financial Institutions. Last month the IMF Executive Board approved an additional loan to back enhanced economic reform in Turkey. We expect Turkey to implement all the necessary measures rigorously.

(12) In the medium to long term, there is every prospect of Turkey's continuing to grow in significance as a trading partner for the UK, in due course as a fellow member state of the European Union (paragraph 44).

The Government agrees with the Committee's assessment. Continuing economic and other reforms in the context of the EU's Accession Partnership should help to give a significant boost to trade and investment between the UK and Turkey.


 
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Prepared 20 July 2001