Proceedings of the Standing Senate Committee on
Foreign Affairs and International Trade
Issue 21 - Evidence - Meeting of February 14, 2013
OTTAWA, Thursday, February 14, 2013
The Standing Senate Committee on Foreign Affairs and International Trade met this day at 10:35 a.m. to study economic and political developments in the Republic of Turkey, their regional and global influences, the implications for Canadian interests and opportunities, and other related matters.
Senator A. Raynell Andreychuk (Chair) in the chair.
[English]
The Chair: The Standing Senate Committee on Foreign Affairs and International Trade is convened today to continue its study on economic and political developments in the Republic of Turkey, their regional and global influences, the implications for Canadian interests and opportunities, and other related matters. We have before us today, as a panel, members from the Turkish Canadian Chamber of Commerce.
We thank you for coming and for appearing here in Ottawa with us. We have before us Enes Kula, Executive Director, and Mehmet Durmus, Executive Coordinator of the Turkish Canadian Chamber of Commerce.
I have asked for short statements to start with. Mr. Kula, the floor is yours.
Enes Kula, Executive Director, Turkish Canadian Chamber of Commerce: Thank you very much for giving us the opportunity to appear before this committee today. It is a true pleasure to share with you our economic, business and social views and perspectives on Turkey.
The Turkish economy has shown remarkable performance with its steady growth over the last decade. A sound macroeconomic strategy in combination with prudent fiscal policies and major structural reforms in effect since 2002 has integrated the Turkish economy into the globalized world, while transforming the country into one of the major recipients of foreign direct investments in its region.
The structural reforms, accelerated by Turkey's EU accession process, have paved the way for comprehensive changes in a number of areas. The main objectives of these efforts were to increase the role of the private sector in the Turkish economy, to enhance the efficiency and resiliency of the financial sector, and to place the social security system on a more solid foundation. As these reforms have strengthened the macroeconomic fundamentals of the country, the economy grew, with an average annual GDP growth rate of 5.2 per cent in the past nine years.
Together with stable economic growth, Turkey has also reined in its public finances; the EU-defined general government nominal debt stock fell to 39.4 per cent from 74 per cent in a period of nine years; and Turkey has been meeting the 60 per cent EU Maastricht criteria for public debt stock since 2004.
As GDP levels more than tripled to US$770 billion in 2011, up from $231 billion in 2002, GDP per capita soared to slightly over $10,000 from $3,500 in 2002.
The visible improvements in the Turkish economy have also boosted foreign trade, while exports reached $135 billion by the end of 2011 and further grew to $152 billion in 2012. This is up from $36 billion in 2002. Similarly, tourism revenues, which were around $8.5 billion in 2002, exceeded US$23 billion in 2011.
Significant improvements in a short period of time have registered Turkey on the world's economic scale as an exceptional emerging economy, the sixteenth largest economy in the world and fifth largest economy when compared with the 27 EU countries, according to the GDP figures of 2011.
While many economies have been unable to recover from the recent global financial recession, the Turkish economy expanded by 9 per cent in 2010 and 8.5 per cent in 2011, thus standing out as the fastest-growing economy in Europe and one of the fastest-growing economies in the world.
In addition, throughout the last decade Turkey has been implementing an active policy to improve its investment environment. The new Foreign Direct Investment Law, which Parliament passed in 2003, is the first instalment of the significant economic reforms to change the investment environment in Turkey and make it attractive to global investors. This law guaranteed equal treatment of all investors without differentiating between local and international investors and has enabled all international investors to enter Turkey without a preliminary authorization request, to transfer dividends freely, to access real estate, to be protected against expropriation and to hire expatriates, et cetera. The acceptance of the International Court of Arbitration and the ongoing harmonization laws with EU legislation have also made Turkey one of the most liberal countries in the world in terms of the legal framework of FDI and perhaps the investment environment.
To give you a clear picture of what this law resulted in, Turkey attracted US$110 billion under FDI in the past nine years while only attracting $15 billion in the preceding the eight decades.
Currently Turkey is ranked the thirteenth most attractive destination for FDI in the world, ninth among the emerging countries, according to a recent survey conducted by a global consulting firm A.T. Kearney.
Blessed with a unique strategic location, Turkey sits at the heart of an outstanding market within four hours' flight distance to 1.6 billion people and $25 trillion of economy spanning Europe, the Middle East to North Africa, and Caucasia.
Besides its customs union with the EU, Turkey offers tremendous opportunities to global companies to penetrate into its emerging hinterland, and this is perhaps the most important aspect that Canadian companies could also take advantage of. To benefit from Turkey's unique advantages, such as a young population with a median age of 29, a skilled labour force with more than 500,000 university graduates each year, outstanding economic performance, sound banking systems, strategic location and its historical and cultural ties in the region, many global companies have either established their manufacturing bases in Turkey or moved their regional quarters to Istanbul.
I will share some statistics in terms of global companies managing their operations from Turkey. Coca-Cola manages 94 countries from its Turkish office; GD Healthcare manages 80 countries from its Istanbul office; Microsoft manages 80 countries; Intel, the microchip manufacturer, manages 67 countries; and the list goes on. As far as Canadian companies, Scotiabank has been serving its clients in more than 40 countries through its Istanbul office since 2008.
Having pointed out all of these macroeconomic factors, it is crucially important to know that the Turkish experience is not reduced only to charts and numbers delineating the economic growth. The success of the Turkish model supersedes the economy to sensible political governance, democracy, the revitalization of civil society and its many institutions. The country has undertaken a massive overhaul of its legal and political systems to ensure the sustainability of its economic growth. Yes, there is room to improve, but current leadership is determined to complete the modernization and democratic transformation of the country.
We believe there are significant trade and investment opportunities between Turkey and Canada. According to Statistics Canada, Canadian foreign direct investment stocks in Turkey reached and exceeded $1.5 billion in 2011 resulting in an average growth rate of 7 per cent in the last decade. Currently, some 220 firms with Canadian capital are registered and active within Turkey. Also various Canadian companies operate in Turkey through their subsidiaries in Europe. Turkey attracted Canadian ventures, mostly in mining, oil and gas, and information and communication technologies. However, there is still tremendous untapped potential to further expand our bilateral trade and investment relations between the two countries.
Canada and Turkey have both recently expressed intentions to strengthen bilateral relations. Commercial opportunities in Turkey very much match Canadian supply capabilities, and each year more Canadian companies are exploring export and investment opportunities in Turkey, a sign that the economic prospects are positive. Opportunities are particularly encouraging in sectors such as infrastructure, mining, tourism, media and telecommunications, as well as in consulting, engineering and perhaps infrastructure equipment and service.
In summary, although Turkey and Canada have each taken significant and encouraging steps towards enhancing the bilateral trade and investment relationship between the two countries, particularly in the last three years, including signing the avoidance of double taxation and an air agreement which allows Turkish Airlines to fly directly from Toronto to Istanbul, it is far from being sufficient to be able to reach the true potential of trade and investment capacity of our respective countries.
For that reason, as the Turkish Canadian Chamber of Commerce, we would consider having a free trade agreement between the two countries that would also protect respective foreign direct investments as being crucially important and urgently required.
Before I conclude my overview, I would like to provide a little bit of information on the Turkish Canadian Chamber of Commerce. It was founded fairly recently in late 2009 by Canadian entrepreneurs and professionals of Turkish descent. TCCC's mandate is to promote trade and investment relationships between Turkey and Canada and perhaps be a conduit for the exchange of knowledge, experience and networking among Turkish and Canadian entrepreneurs. Although the entire operation is run through volunteers, considerable time and resources have been invested in creating an infrastructure to serve its members.
The chamber has signed strategic MOUs with relevant not-for-profit and non-governmental organizations both in Turkey and Canada. The most important one is with TUSKON, the Turkish Confederation of Businessmen and Industrialists, the largest non-governmental business organization in Turkey, comprised of over 125 local chambers in Turkey and over 140 partnerships around the world with 45,000 members. In Canada, we partnered with the Anatolian Heritage Federation, which is comprised of numerous not-for-profit organizations based in Canada predominantly serving the Turkish community.
Today TCCC has 10 representative offices across the country and approximately 200 members, mostly comprised of small- and medium-sized businesses.
We thank you very much for providing an opportunity to appear before this very important committee.
The Chair: Thank you, Mr. Kula. Could you give us a little more information about what businesses are in your chamber — what areas, what sectors?
Mr. Kula: It is a broad range of sectors, from manufacturing to distribution to warehousing, predominantly companies servicing the domestic market but some exposure to exports as well, particularly trade between Turkey and Canada.
The Chair: You say that you are a fairly recent organization. How did you come to conclude that you needed a chamber of commerce in 2009 and not previously?
Mr. Kula: That is an excellent question, Madam Chair. The majority of the Turkish community in Canada is fairly new, and I think that is the primary reason Turks established themselves in Canada later than many other communities. There are two Turkish identities, if I may use that term for lack of a better word — Turks who immigrated to Canada perhaps some 20 or more years ago and then the Turks who are fairly recent immigrants with less than 10 years of Canadian experience.
I immigrated in 2001. My primary goal was to learn English. I studied business here and decided to stay in this lovely country. I am currently a Canadian citizen and am proud of that, and I believe there are tremendous opportunities between the two countries that we can take advantage of.
The primary reason of incorporating a not-for-profit and trying to serve the Turkish community first, predominantly, and then expanding into the Canadian entrepreneurs was because there was a lack of such an organization. There were similar organizations, specifically the Canadian-Turkish Business Council. They are doing an excellent job and we have good relationships with them, but they are focusing perhaps on the larger corporations. I believe they have 30 members or so, predominantly comprised of large corporations, such as Bombardier, SNC- Lavalin and so forth.
Our idea is to serve small to medium enterprises, as both countries are comprised of them and the majority of the cooperation opportunities are between these two segments of entrepreneurs. There is a need to focus on that gap, and we decided to give it a try. Hopefully we will continue to support the idea.
Senator Downe: Could you elaborate on what the biggest barriers are between trade with Canadians and Turkey in your mind? You identified in your presentation a number of opportunities, but what are the problems that we have to overcome to reach those opportunities?
Mr. Kula: There are perhaps three primary hurdles we need to overcome. The first is the lack of knowledge of both countries by both respective countries. As you can appreciate, Canada is almost 10,000 kilometres away from Turkey and there is not much traffic. We believe, particularly from the political side, that senior level visits to both sides, back and forth, would perhaps create the awareness of both respective business communities. That is the most important thing. I do not think there were a lot of back and forth visits until three years ago, when each country opened their consul offices in Istanbul and Toronto. That triggered the relationships. Followed by that, it is the avoidance of double taxation and the air agreements signed.
We need to do more of this. We definitely recommend for this committee to visit Turkey and get first-hand experience before finalizing the study.
The second thing is a lack of free trade agreements. Since Turkey is not known well in the Canadian business community, there are, for lack of better words, prejudices and biases. This is normal, and the same exists in Turkey. We need to overcome these biases and prejudices. The only way of overcoming these is to provide strong signals to both business communities. We can achieve this through a free trade agreement.
As far as we know, talks and negotiations have started, but they somehow slowed down. There may be a number of reasons for that, but I believe personally the main reason could be — I am making an assumption here — the cultural difference of approaching these agreements. Knowing how Canada works and being a professional in the financial sector, Canadians have a different way of approaching negotiations. We like the holistic approach and more comprehensive and ambitious approaches. We want to know before we go into negotiations what we are getting into.
The culture in Turkey may be quite different, but it does not mean they are less ambitious or do not want to sign a free trade agreement with Canada. As a matter of fact, I believe Turkey has signed slightly over 20 free trade agreements across the board. Some recent ones need to be studied carefully. They present themselves as very ambitious and comprehensive free trade agreements. Perhaps our high-level politicians can reinstate those talks and negotiations.
The third reason is that Canada is perhaps positioned on certain political issues; namely, the Canadians' view of the Armenian event of the 1910s. That has had negative repercussions on official relations between the two countries, and this may have had side effects into the business communities, as well. I will leave it at that.
Perhaps both sides have taken steps forward, but perhaps we should give it another thought and try to find ways of allowing that particular factor to not impact our bilateral and investment relationships.
[Translation]
Senator Fortin-Duplessis: First of all, I would like to thank you for your presentation and for agreeing to appear before our committee.
In reading about your organization, the chamber of commerce, I understand that you organize Turkey-Canada business summits every year to encourage networking between Turkish and Canadian businesses and entrepreneurs.
What can you say about these summits? Have you noted any positive results? If so, could you provide a few examples?
[English]
Mr. Kula: Thank you very much for the question. As I said in my overview, the Turkish Canadian Chamber of Commerce has signed a strategic memorandum of understanding and will use it with some relevant organizations in Turkey, mainly TUSKON. The summit is organized by TUSKON. We have been attending and taking Canadian companies with us to Turkey to explore trade opportunities within that summit, and that definitely helped for a number of reasons.
The Canadian companies have had a chance to see it first-hand. It is difficult to explain it to entrepreneurs without them having first-hand experience. I live and breathe this every day in my professional job. I am in the investment community myself, and there may be a lot of challenges within our small- to medium-sized enterprises. One is definitely searching for new markets, trying to diversify our trade relationships, and perhaps trying to limit our dependence on neighbouring countries.
For that reason, Turkey presents very good opportunities. Those summits in particular have presented us with good opportunities to go back to the Canadian business community and tell them there is this opportunity if they want to take advantage of it. We attended in 2010, 2011 and last year. Each time, we managed to bring 15 to 20 small- to medium-sized Canadian enterprises. Some of them have reached agreements in Turkey and started bringing Turkish products into Canada, as well as the other way around. They were able to establish partnerships with Turkish companies they could sell their products to.
[Translation]
Senator Fortin-Duplessis: I can see that your organization is experiencing some success. My last question is about something else entirely. You know that when international students come to Canada to continue their studies and then return to their home countries, they become ambassadors for the country where they studied.
Once they return home, they often speak up for Canada. I have noticed that the number of Turkish students increased between 2002 and 2011.
I would like to know if, through your chamber of commerce, you encourage Turkish students continue their studies here, in Canada, or is that outside your mandate?
[English]
Mr. Kula: No, it is very well within the mandate. If you think about the business community, it is not segregated from the practical life itself. Those business people, entrepreneurs, have their children and somehow they are involved in the businesses. They are looking for good education opportunities for their children as they see that as perhaps the most significant asset they can leave to their children. We believe we should encourage that. Education remains one of the lucrative markets that Canadian institutions can perhaps take advantage of in Turkey. Do not quote me on the number, but there should be around 1,500 students of Turkish descent studying in Canadian universities. However, this number remains relatively low when compared to the total number of 32,000 Turkish-descent students studying abroad.
Having great educational institutions — and I can testify to that — Canada presents a great opportunity for Turkish students. A side mandate of the Turkish Canadian Chamber of Commerce is to encourage Turkish businessmen to immigrate to Canada under various programs. We managed to bring five or six Turkish entrepreneurs to invest in Canada and start businesses here.
[Translation]
Senator Fortin-Duplessis: Mr. Durmus, I saw you taking notes. Do you have anything to add?
[English]
Mehmet N. Durmus, Executive Coordinator, Turkish Canadian Chamber of Commerce: I would like to add one more thing in this regard. We are focusing on the students and, as you said, that is very important.
One of our volunteer members visited Turkey in December and tried to motivate students to study here for their higher education. Our members established a hostel in Toronto just to bring those students from Turkey. Now, 70 students from Turkey are studying in high schools here and will eventually be at the university level. With the motivation from our members, Turkish businessmen have now started sending their children here for their education. These are good signs.
Senator Campbell: Is it coincidental that your organization was funded the same year as the talks were proposed for free trade?
Mr. Kula: I think it is a mere coincidence.
Senator Campbell: I just saw the two dates.
The talks have stalled and they do not seem to have a lot of traction. Do you suppose that part of that reason could be the shift in policy by the Turkish government in the Middle East? At one point they were seen as a calming influence and supportive of the state of Israel, and that seems to be shifting with the change in Egypt and these other countries. Do you suppose that could be one of the reasons for the stalling? Clearly, Canada does not subscribe to that policy.
Mr. Kula: Of course, I am limited in commenting on political agendas, but as far as the chamber's view, we talk openly about these matters in the community as well. There is nothing to hide. We live in the 21st century and it is a century for transparency and open talks.
I do not think that is the case. Turkey is trying to restructure and reposition itself in the region. That is a fact. I think every country could do it for the best interests of its people. However, that does not necessarily mean Turkey is turning its back to the Western world — I will include Israel as part of the Western world — and changing its direction perhaps to the Middle East, North Africa or anywhere else in the world.
I think what the current ruling government is doing, and perhaps what they have done in the last 10 years, is asking how we can restructure the country so that we can increase the prosperity of our people. This not only resulted in pure economic growth but also translated itself in the changes of the Turkish people as far as their lifestyle and their mindset to the world. One can definitely see massive change in terms of the demographics of Turkey and how the Turkish people view the rest of the world.
I was born and grew up in Turkey; I was raised in Turkey. I have only lived in Canada for the last 10 years. I can definitely see both sides and testify to the changes that my country is, and has, gone through. There is still room for improvement, for sure. We, as Canada, have gone through massive transformation ourselves in the past decade and we are proud of this now. However, that does not necessarily mean Turkey or its government is turning its back to the Western world.
As far as the free trade agreements go, it is very much our understanding that the primary underlying reason is the cultural difference. With your support and the support of this committee, I hope that the talks could be reinstated again.
Senator Johnson: I have a question about the report of the World Economic Forum in 2011-12. It says ``accessing to financing is among the problematic factors to doing business in Turkey.'' We have had witnesses testifying that the problem is particularly acute for your small- and medium-sized enterprises. In terms of providing finances, what differences exist between Islamic banks and the commercial banks in Turkey?
Mr. Kula: Although I am in the financial sector, I do not know the differences between Islamic banking and regular commercial banking.
To answer your question in terms of the ease of getting credit in Turkish banks as far as small- and medium-sized enterprises go, the answer could be on two fronts.
First, it is just like anywhere else in the world. Are the banks willing to provide or deploy capital? Do they see the risks appropriate to deploying their capital to small- and medium-sized enterprises? I can testify that there are a lot of risks in engaging with small- and medium-sized enterprises, and the risk is very high. In a time when the world is going through macroeconomic turmoil, you can appreciate that it would be somewhat more challenging to deploy credit capital to small- and medium-sized enterprises.
On the other hand and perhaps more importantly, if one could analyze the business landscape and the corporations in Turkey, for decades the state has tried to create a Turkish elite. For more than 100 years the state has channeled its resources to certain groups in Turkey, knowingly or unknowingly, willingly or unwillingly. However, that is the case. A number of Istanbul capitalists enjoyed the very good credit environment and favours from the state.
This started to change in 1980s with the leadership of Turgut Özal. He has definitely initiated a painful makeover, if I may say, of the Turkish economy, and it abandoned the inward-looking import substitution development strategy in favour of an export-driven one. Today it is an export-driven market, continuously searching for new markets. You can see that in Turkey's exports in the last five years and how significantly it changed its direction, given the macroeconomic turmoil.
Of all the reforms completed by Turgut Özal, perhaps the most significant consequence of those reforms was to create a new class of entrepreneurs. They were not from Istanbul or Izmir or Ankara, the big commercial centres; they were businesses located simply in Anatolia.
Now Turkey has two different groups of corporations. One group is the family conglomerates that are in each sector in Turkey, including banking, and the small- to medium-size enterprises, which are not part of that family conglomerate. You can imagine that in regard to banks run by those family conglomerates, although you can try to establish independent boards and senior-level management, it is still somewhat difficult to overcome certain hurdles for small- to medium-sized enterprises in Turkey. Apart from that, it is just like any other country. Depending on the risk, I think those banks will engage with those enterprises.
Senator Johnson: How would you describe the overall business climate?
Mr. Kula: I think it is very positive. Those new classes of entrepreneurs have overcome significant challenges over the past three decades, particularly in the last 10 years. They have now started to establish their own banks and engage with foreign banks to get credit.
Senator Johnson: That is interesting.
Mr. Kula: I think it will be interesting going forward as well.
Senator Finley: Thank you very much for your presentation and your obvious frankness about the situations in Turkey.
I want to go to the free trade area for a moment, if I may. As you are probably aware, Canada is either close or not so close to signing a free trade agreement with the European Union. Turkey has for some time been active in trying to sign a European free trade deal, but it seems to have stalled quite badly.
Over the last 12 months or so, senior Turkish government representatives — in fact, as high as the Prime Minister — have indicated that they may well join what is known as the Shanghai group, the Russian-Chinese free trade bloc, or the equivalent of a free trade bloc. In your view, is this a realistic possibility, or is it just a negotiating tactic to move things along with the European Union? How serious would you consider the possibility right now that Turkey could, in effect, leave Europe and join this Shanghai group?
Mr. Kula: That is a very difficult question, but I will try to answer it. I think there are a number of factors in this very complicated relationship. One of them is that Turkey has been knocking on the doors of Europe for over half a century now. I will read some of the major milestones and timelines, if I may.
In 1963, the Ankara Agreement is signed; 1970, the signing of the Additional Protocol; 1987, Turkey's application for membership; 1995, the Association Council decision establishing the Customs Union; 1999, recognition of the candidate status of Turkey at the Helsinki Summit; in 2001, the first accession partnership document issued; in 2004, the European Council decision to start negotiations with Turkey in the Brussels Summit; in October 2005, the start of negotiations between Turkey and the EU.
It has been more than half a century. I think it would be fair to conclude that Turkey has been fairly patient and fairly persistent, if I may say.
In the last seven years, there are 35 chapters, as you are well aware, and only 12 of them have opened. There are some differences. I would not personally call them challenging technical difficulties but, perhaps, political differences of various governments' agendas in the EU countries.
Perhaps the question is this: Does Turkey really want to join the EU? I think the honest answer is yes, but why? Is it for the economic benefits that Turkey and the Turkish people aspire to join to the EU, or is it the process itself that helped Turkey modernize the country and provide more democratization steps for the government and perhaps for other institutions? I think it is the latter.
As long as that remains the primary reason for Turkey's efforts to join the EU, we can fairly conclude that Turkey will never turn its back to the EU and never stop knocking on the door. However, it needs to see a fair response from its counterparts. That may be lacking due to the political landscape of today, but it does not necessarily mean that it will not change, just like we started seeing improvements in the relationship with France when that country experienced a leadership change. That could very well happen with other countries.
I hope Turkey will continue its talks and negotiations with the EU. I do not perceive that the Prime Minister's comment on Shanghai or on any other partnership opportunities — as I said, every country would do what is best for its people, and that is what they are trying to do. The Turkish government, I think, is trying to look for alternatives. That could be one, but it does not necessarily need to be a replacement for the EU; it could perhaps supplement and complement the EU accession process.
Senator Finley: I understand there is a great deal of geopolitics involved in these discussions and I know that puts you in a very difficult position to respond to them. Perhaps we will ask the question of others more politically oriented in due course.
You mentioned one of the hurdles being the lack of a free trade agreement. Another hurdle you mentioned is a lack of knowledge, that is, Canada's lack of knowledge of Turkey and Turkey's lack of knowledge of Canada.
How deep do you feel that gap is? What would be reasonable first steps to take to overcome that? If that is indeed a fact that is preventing more trade and more intercourse and is also blocking things like free trade agreements, it becomes an essential first step somewhere. How would you recommend we address that?
Mr. Kula: Once again, having the benefit of knowing both cultures, I am a little more at ease on that than you may be, as someone who has lived in Canada.
Turkish people, in general, are very dynamic and open to change. They can establish friendships and partnerships easily and quickly. If you look at Turkey's exports — this is a bit of a business matter, but I will use it as an analogy — not to go too far back, seven or eight years ago Turkey's primary export destination was Europe. It remains the same, but it used to be in the range of 65 per cent. At some point in my childhood I remember it was 70 per cent, just as our relationship is with the U.S. It has gone down to 47 per cent in the last eight or nine years. The Turkish people did not have a great relationship or friendships or they did not know entrepreneurs in those markets, but they have established it in a considerably short period of time.
I would not consider this as a hurdle that we cannot overcome. What we need to do, and as a not-for-profit organization what we are trying to achieve, is enhance the visits. The frequency of the visits should be improved. We are trying, with our sister organizations, to bring people together from different communities and different institutions and take them to Turkey and give them first-hand experience without any comment from us or from anyone else; let them decide and vice versa.
We have also done the same thing for the Turkish companies and individuals. We organize four if not five small mission trades that are comprised of up to 30 people. We take them here, even though there is no imminent business opportunity. We need to create awareness, and you can only do that, in our view, by visiting and increasing the frequency of those visits. We can overcome that. Turkey has done that with other countries, and there is no reason why we as Canadians cannot establish those relationships.
Senator Finley: I certainly have no contrary views on this subject, but let me shift gears for a second.
Most — we will call them Western or particularly first world, I suppose — countries are imposing extreme and severe legislation on their own corporations and businesses on the subject of bribery and corruption in terms of doing business. Some of them are becoming extremely draconian. Where does Turkey sit? I know this is a difficult question to answer, but even 1 of 50 shades of grey would do. Where do they sit on it from a business perspective in terms of requiring baksheesh or bribery or corruption? What kinds of rules govern?
Mr. Kula: It is a fairly technical question, senator. I do not think I would be completely accurate in my answer, but as far as what we are seeing, we have Canadian corporations, particularly Crown corporations, that started to provide more and more services to Canadian companies that are trying to expand into Turkey. In particular, the EDC has an office in Istanbul now, and they produce reports on countries and Turkey is one of them. They can testify to this. The corruption level is fairly minimal right now, but I do not think Turkey is at a stage to claim what I would classify as a Canadian or North American level.
A new commercial code has passed. You may be familiar with that. It brings more transparency and accountability from the corporations. It definitely brings independent audits into the picture, just as we are used to here in North America and, in particular, in Canada.
Turkey is progressing on the right path; there is no doubt about that. However, there is room to improve, and there is much more that they should do in terms of changing legislation but still continue walking on that path. I do not think it is too far for Turkey to catch up with the North American standard. We cannot wait until they spend those years for us to engage with them, but perhaps we could be a little patient with them.
Senator D. Smith: Earlier you raised the 1915 Armenia issue. I do not think this is a road we are going down on this particular trip, but you did make mention of the fact that the two governments and parliaments had dialogue going and then they subsequently stalled.
The only thing I would say about that is terrible things did happen. I have been to that museum in Armenia; it is full of photographs. You used the phrase about how the Turks are good at friendships and partnerships. Encourage the governments to keep talking and maybe you can lower the tensions. The government that represents Armenia now was never part of Turkey. That was all part of Russia then. They are actually more open to having a dialogue than third and fourth generations of families that were badly hit. I would leave it at that.
Our committee has heard a fair bit about tensions from the Kurdish community, and I know there have been initiatives from the government to try and improve infrastructure in areas where there is a strong Kurdish community and the issue of them integrating more into the Turkish mainstream.
I am asking this because a couple of the other issues I had have been dealt with. Would your organization have many members from the Kurdish community involved and active in your group? Do you have any thoughts that you would like to pass on to us about the ongoing tensions and hostilities sometimes and whether progress is genuinely being made to lower the tension on that front?
Mr. Kula: The question is on the tensions of the Kurdish people, perhaps the minority in Turkey and our relationship with the same minority group in Canada.
Senator D. Smith: Right, and have you been bringing them in?
Mr. Kula: First, I personally think the tension between the Turkish and Kurdish people at ground level is not as high as you see it at the higher level.
As a matter of fact, our own organization has a number of Kurdish-descent people on the board. I am not allowed to disclose their ethnicity, but I can leave it at that. There is no tension whatsoever as far as the communities in Canada go and as far as where we stand. We have numbers of Turkish-descent, and this organization is fully operated by volunteers. There are no full-time positions or anything, and it is very open to the general public. In fact, anyone could attend if they are interested and have time to devote. If they are open to taking that risk, all they have to do is phone or email and we would be glad to receive them. There is no tension here in Canada.
As far as Turkey goes, there are some shortcomings for sure. It is not at a standard that we are used to in Canada, but there are talks and it is a process. In the last few years, good progress has been made. I hope that going forward, sooner than later, Turkey will be able to overcome this problem because it is the primary hurdle in front of the country in order to expand its reach and be able to grow and provide prosperity to its people.
Senator Wallace: Mr. Kula, your organization, the Turkish Canadian Chamber of Commerce, is based in Toronto. It is a volunteer organization. In developing the network, the business relationships between Turkish and Canadian businesses, small- and medium-sized businesses, do you focus on Toronto? How far afield do you go in Canada to develop that network, or is it basically a Toronto-focused effort?
Mr. Kula: That is an excellent question. We try to make the services available across the country. As you can imagine, it is challenging to use the resources available and allocate them across the country.
We have managed to establish 10 representative offices. Some may not be physical offices but visual ones. Montreal, Ottawa, Toronto, Kitchener, Hamilton, London, Regina, Edmonton, Calgary and Vancouver are the 10 offices.
Part of it is we try to open an office where the Turkish community is present. It remains to be a challenge, but we strive to provide these services, first of all, perhaps as low-hanging fruit for the Turkish community and then expand into the Canadian business community.
Senator Wallace: Being from Atlantic Canada, I was interested in the listing of where you have your offices. You do not have a presence in Atlantic Canada. I am sure it is understandable because of the lack of sizeable Turkish populations in the area. That is something we will have to work on in Atlantic Canada.
As you point out, your focus is on small- and medium-sized business relationships. We have heard a bit about larger Canadian businesses that have a strong presence and wish to increase that presence in Turkey. Can you give us your thoughts on where you would see the prime business opportunities for these small- and medium-sized businesses? It is a different dynamic than larger corporations, but are there certain sectors that you have seen from your past experience and looking forward that we could direct small- and medium-sized Canadian companies towards?
Mr. Kula: First of all, we believe there are complementary supply chain opportunities. That means that although they may be small- or medium-sized Canadian companies, they tend to have a high level of know-how in technology. You would be amazed by a company in Ottawa, technology related and focused, with less than 10 employees, the level of the technology and the niche market they serve in the global landscape. I do not think the size of the companies matter.
I think the opportunity is that Canada has the technology to offer and perhaps the know-how, and Turkish companies are now at a level where they can accept and are willing to work and establish partnerships. That was not there perhaps 15 years ago. Now it has started to become the norm. They are expanding into North Africa and establishing partnerships. It is easier for them, with joint ventures, to get to know the local market and vice versa. I think we can replicate the same model, particularly starting in the manufacturing and technology sectors.
Turkey is hungry for technology, and I think we should act fast because the opportunity is fast moving. If, as Canadian companies, we do not establish ourselves there, someone else will just by the nature of it.
Senator Wallace: Previous witnesses have said that it makes sense that this would be the case, that it is important for Canadian companies to have a presence in Turkey and to continue to develop those relationships. It is perhaps easier said than done with larger corporations, but to go back to the small- and medium-sized companies, how could that presence be created in Turkey and is it that important at that level?
Mr. Kula: I personally believe that if you can find and identify a trustable partner, you do not need a physical presence in that local market. It is all about who you are engaging with. As long as you establish that, you are fine.
My family is involved in business in Turkey and has had some partnerships abroad, and it is all about who you are dealing with. It is very case specific, I would say.
For that matter, we have various institutions, including our own, to help Canadian entrepreneurs to identify those companies they can trust. I believe in EDC's mandate very much. They are doing a great job. We have DFAIT offices in Turkey, and those field officers in Turkey would be helpful in identifying trustworthy companies in Turkey. I am not claiming we can trust every single company or individual to do business with, but it is something entrepreneurs are skillful at. We should trust their gut feelings and experience to identify those opportunities and start establishing relationships with their counterparts.
Senator De Bané: Mr. Kula, you have been in this country for many years and you know exactly its underpinnings and how it works. Tell me about the differences that you see in the place of religion in our society in Canada compared to the place and the importance of religion in Turkey. Are there some differences? Could you give me some comparison between the role, importance and the place of Islam in Turkey and in Egypt? Recently there has been quite a heated debate in Egypt about what should be the role of Islam in the governance of a modern country. You are the ideal person to compare both systems because you are familiar with both.
Mr. Kula: Thank you, sir. I would personally approach it from two aspects: one on the people level, the citizens, both with respect to the Turkish people and Canadian people, and vice-versa with respect to Egypt; and the second would be the political side.
The first one is easier to handle. I would say Turkey is very similar to Canada in terms of the diverse and different ethnic and religious groups it is comprised of. It is very much in line with its history. It does not matter how far you go; this has always been the case. Part of it was guided or led by the religion itself, by Islam. It encourages diversity and respect for others.
Having grown up in Turkey, I never experienced any difficulties in terms of the view or perspective of looking at people from a different religion or ethnicity. In fact, if you look at Istanbul, you find pretty much people from every single religion. Your next-door neighbour could be Jewish or an orthodox Christian or any other religion. I think Turkey has completed that part and has been a secular country for many decades. I do not think there is any doubt on that front.
The difference between Egypt and Turkey is more evident in the sense that the people in Egypt consider religion part of their lifestyle. They want to include religion in their work at government institutions because it is part of them. That is the history they have developed over many decades and centuries. It was been somewhat different in Turkey.
As far as the political differences between Turkey and Egypt go, there is definitely no economic competition between the two countries. You can easily differentiate Turkey from Egypt, but as far as the political agendas of the two countries go, one could claim that there might be, from the outset, some sort of a competition in terms of the regional leadership. That is for a number of reasons that one could deal with. Egypt, particularly, has been an active leader in the Arab community for many decades now, and it still strives to be so after having gone through its own steps of democratization. Turkey has somewhat evolved its foreign policy in the last 10 years, as you are well aware, and they are trying to be more proactive in the region. They are trying to establish good relationships with neighbours, to a certain extent, as far as the practical conditions allow them to.
In terms of state differences, Turkey is very much a secular state, and I do not differentiate it from Canada.
Senator De Bané: How significant are the Chinese, Brazilian and Russian economies to Turkey's economic growth?
Mr. Kula: That is a bit of a technical question, but I will try my best.
I can easily differentiate Russia from the rest of them as Russia is a country led by, if I may say so, a single product, mainly natural gas and petroleum products. Turkey, China and Brazil, on the other hand, are export-driven countries but supported by a number of products. That is the main difference.
Turkey has become the centre for many products, and it ranks within the top 10 in the world. For instance, it is the eighth largest crude steel producer in the world and the second largest one in Europe, I think. Its automotive manufacturing capacity has increased massively in the last 10 years.
Turkey's economic growth is not dependent on a single product. There is no concentration. There is market concentration in terms of Europe, as we have mentioned before, but that is diminishing as well. There are some differences between those countries, but in terms of growth, I believe we can confidently add Turkey to BRIC. I think that has been mentioned by some of the global firms.
Senator De Bané: One last question: How about the economies of the Middle East and Africa? How significant are they for the economic growth of Turkey? Are they important?
Mr. Kula: They are very important. I think we can easily differentiate Middle East economies from Turkey as well. They are predominantly single-product economies, mainly petroleum, but Turkey needs good relationships with those countries as it can attract foreign direct investment from them.
[Translation]
Senator Robichaud: Could you give us a brief comparison of the Turkish and Canadian work environments, with respect to minimum wage, hours of work, union activities and anything dealing with workers?
[English]
Mr. Kula: I might need to get back to you on the minimum wages. I might not be too familiar with those. However, in general terms, as I mentioned before, my own family is in business, and the minimum wages are not as high as they are in Canada. They need to be improved, to say the least.
My colleague is saying that it is about $600 to $700 a month, but we should be cautious on that figure because we need to consider the purchasing power for that dollar amount, given the Turkish landscape. In terms of unions, they are very strong in Turkey. They have similarities to what we have in Canada. They might not be as strong, but the current government has made some progress on that in the last 10 years. Certain government employees have obtained union rights, and that is definitely progress that needs to be recorded.
The Chair: We have a few minutes, so we can have a second round of questions. If the questions and the answers can be put briefly, I think we can accommodate everyone, starting with Senator Finley.
Senator Finley: Actually, I have many questions, but I will have to wait for the other witnesses to talk about them.
Turkey reportedly has a huge youth unemployment problem. I believe the numbers might be as high as 45 per cent. This leads me to the main question. I wonder if you could briefly describe the education system in Turkey — elementary, upper school, high school. How are they paid for and what is the participation? Is it 75 per cent of children?
Mr. Kula: I will try to be as brief as possible. Mandatory education is about 12 years in Turkey, so everyone has to attend elementary, secondary and high schools. It is in the law, and there are consequences if one does not attend.
In terms of cost, it is fully covered by the state. University used to be different. There were tuition fees. You could still get credit, scholarships and bursaries to cover the cost, but just like in Canada, there were tuition fees. More recently, the government has eliminated that, so it is free to go to university.
It is not as easy to go to university. There are about 1 million high school graduates getting into an exam called the university entrance exam, and you have to be in the top 5 per cent to get in. If you want to study in good schools — I do not want to differentiate them, but perhaps some of the older schools with longer standing faculty — you need to be in the 1 to 2 per cent range. That is quite difficult.
However, that also perhaps provides an opportunity for Canada to strengthen the relationship, as far as the education sector goes, and offer them help. Perhaps we can ease the visa requirement for Turkish students to come here and study in our universities.
As far as youth unemployment goes, I do not know if it is as high as 45 per cent. There are about 75 million people in Turkey and half of them are under the age of 30, so that, itself, presents a significant challenge for Turkey or for any country, for that matter.
I do not think there is an easy solution to that. It is a process for sure. The overall unemployment rate, as far as I know, is about 9.5 per cent, below ten per cent, very much in line with Western countries nowadays. Our unemployment rate used to be much lower.
As I said, it is not an easy solution. The government has taken measures to bring down the unemployment rate through foreign direct investment and providing incentives and motivation to foreign companies to create employment in Turkey, but it takes time.
Senator Finley: I have a supplementary to that. Is there such a thing as technical schools, craft schools, apprenticeship-type programs? Is there some government involvement in that?
Mr. Kula: There are different types of schools, if I can call them that. There are schools that focus on perhaps educating towards an accounting degree or towards the more technical side. There are colleges in line with what we have in Canada that provide technical education for a faster career path for those students. There are not many differences in that regard between Turkey and Canada. There are educational institutions that the government funds, as we have here in Canada.
Senator D. Smith: When Senator Wallace was asking his question, I could not help but think that a couple of generations ago so many Lebanese, thousands of them, came to Canada. Many of them stayed in Atlantic Canada and became very successful businessmen. A number of them got into Parliament. Off the top of my head I am thinking of Paul Zed, Sam Wakim and Senator Pierre De Bané. They all made it into Parliament. Maybe you need to talk to Turkish Airlines and have them stop off in Halifax every two weeks. I doubt that the volume is there to warrant it, but I want you to know that I was sentimentally sympathetic to the point you were trying to make. Do you ever hear of Atlantic Canada much among people coming over from Turkey?
He was hoping he would hear Halifax, but he did not hear it.
Mr. Kula: Briefly, a good friend of mine completed his MBA in St. John's and he also continued with his PhD, so there are a few Turkish people who were fortunate enough to discover that part of Canada. Maybe we should focus on that more.
[Translation]
Senator Fortin-Duplessis: I have a quick question. I would like to know if the global economic crisis had an impact on trade relations between Canada and Turkey. Canada weathered it quite well. Of course, we continue to be really quite cautious. I would appreciate a brief answer on that topic.
[English]
Mr. Kula: I think the same applies for Turkey. In 2008, the growth rate declined from 7 per cent from the previous year to perhaps 1 or 1.5 per cent. In 2009 the economy contracted further down. Perhaps negative growth rates have been experienced.
Turkey has had a strong comeback as well, with 9 per cent in 2010 and 8.5 per cent GDP growth in 2011. Both countries were fortunate enough to experience a strong comeback in that sense, but they were not completely immune to what was happening around the globe. Trade relationships are very much intertwined these days, so even though you may not have a direct relationship with any particular country, you still experience the side effects of your counterparts' relationships with other countries.
As a matter of fact, Turkey had very close trade relationships with Europe, and when Europe had challenges it could have impacted Turkey at a greater rate perhaps than what happened, thanks to Turkish entrepreneurs' open minds to search for new markets in the world.
The Chair: Mr. Kula and Mr. Durmus, you have been very kind; you stayed longer than we requested. The Turkish Canadian Chamber of Commerce has a recent start but an excellent future. Not only did you answer all the questions about business and investment, you entered into politics, culture and history. Thank you very much. Your enthusiasm for the increase in the relationship between Canada and Turkey is very much appreciated by this committee as we search for the best balance for a foreign policy for both our countries. Your enthusiasm, your articulate capability in responding to this relationship and your practical responses are very much appreciated.
I know from this meeting you will see, at least by echo if not direct words, some of your ideas and thoughts, as we want to hear from witnesses and you have certainly given us much to think about today. Thank you for coming.
(The committee adjourned.)