17 January 2005

Nicosia

We have to protect the communal existence of the Turkish Cypriots:

ª The vision of the Turkish Cypriot community is: ‘to continue and improve our existence in Cyprus, our land, without losing the communal rights we have won throughout the historical process and to reach a comprehensive solution on the basis of the Annan Plan until 3 October 2005 in order to live, continue and improve our existence and identity in security and at a level and order no less than that of the modern world.’

ª As the Turkish Cypriot Chamber of Commerce, we would like to stress the fact that the clock is ticking against the Turkish Cypriots. Every day without a solution, leads to a blood loss for the Turkish Cypriots and increases the risk of losing the communal rights won throughout the historical process.

Yours truly,

Ali Erel

President

Turkish Cypriot Chamber of Commerce

A look at the economy:

Non governmental organisations representing north Cyprus economy have shared their common views with the public a short time ago;

• It should be our economic vision to integrate the north Cyprus economy with the regional economies and to unite with markets in south Cyprus, Turkey and EU countries as well as other world markets.

• The main economic method should be to abolish the barriers against the free movement of goods, services and capital between north Cyprus – south Cyprus – Turkey and other EU countries, within the framework of EU Customs Union.

• In order to do this, there is a need to increase the competitiveness of the Turkish Cypriot companies to ensure that they are not subject to unfair competition.

• It is not possible to reach a complete economic integration between Turkey, European Union countries and south Cyprus, without a solution to the Cyprus problem. No economic measure can take the place of a comprehensive solution. We need a political solution and we need to be pro-active in producing policies.

• The Council of Ministers decision 2004/7895 of the Republic of Turkey added ‘CYPRUS’ to the customs union it has with the European Union. The Communication of the External Trade Undersecretary’s Office of the Prime Ministry of the Republic of Turkey dated 1 November 2004 has freed trade with this country and stated that documents from the Republic of Cyprus with ‘REPUBLIC OF CYPRUS’ marks shall be accepted.

• At the 17 December 2004 summit, Turkey was given a date to start negotiations but it is being demanded that it signs the Ankara Agreement by 3 October 2005. The Ankara Agreement signed on 12 October 1963 aims to strengthen the trade and economic relations between Turkey and the European Economic Community. New countries joining the community (such as Cyprus) shall enjoy the same rights Turkey offers to other member states.

• The Turkish Cypriot authorities have seen the possibility that trade between Turkey and the Greek Cypriot side would begin and has stated by a Council of Ministers decision that it has opened the ports of north Cyprus for trade.

• Turkey and south Cyprus will coexist in the customs union that has a complex economic integration model within the European Single Market and unless the necessary measures are taken fast, the north Cyprus economy will become lonelier with this integration, which further excludes and isolates it and will move towards south Cyprus.

• The development of this situation beyond our control shall affect some economic sectors immediately and some later on. Unless the necessary measures are urgently taken, this will be the beginning of a very serious economic problem.

• Some skilled labour and consumption have already moved to south Cyprus, likewise, investments and capital are also beginning to shift, which leads to a serious problem for the communal existence of the Turkish Cypriots that has already been under pressure for some time.

• After 17^th December, the chance to reach a settlement by 3 October 2005 has improved. Non governmental organisations are forming pressure groups for a settlement. The lack of a settlement requires special measures to be taken to get rid of the extra costs to the product and service producers that are due to the political situation and the current state structure.

(Legal regulations and measures that need to be taken in order to strengthen the market economy and improve the environment of investment are given in appendix 1.)

Economic indicators:

In addition to $ 180 million per year transferred by the approximately 10,000 Turkish Cypriot skilled workers employed in the Greek Cypriot side, the foreign money that entered the economy through property sales to foreigners in the north and the increase of tourism income due to the freedom of movement and accommodation of foreigners on the island with the entry into force of the Green Line Regulation on 1 May 2004, the amount of money in circulation in north Cyprus has increased, improving public income and the economic indicators.

The positive effects of this on the north Cyprus economy are being felt. The new capital that entered the system has changed the spending habits of the society and increased the capital in the banks. Part of the capital increase that is being described in $ terms and the increase in national income is due to the loss of value by 30% of the $ in international markets.

During the first 10 months of 2004 we have transferred $ 380 million to Turkey due to our $25 million worth of exports to and $ 405 million worth of imports from Turkey. This number for third countries is: $ 226 million due to $ 29 million of exports and $ 255 million of imports. A large portion of the money entering the economy through sales of immovable property, which was said to be around $ 1 billion for 2004, has left the country to Turkey and other countries as money paid for supplies, labor, construction services, and to the population from Turkey who were given these properties when they came to Cyprus years ago. With a settlement, the problem will arise on who will be responsible to pay for compensation on this land that does not have equivalent property rights in the south.

In case of a solution, the position of around 50,000 people who live in regions that will be relocated is not very good. Especially the businesspeople in these regions are at the brink of bankruptcy. The people of the region are having economic problems and are raising their voices.

The migration of especially the young and educated minds is continuing increasingly. Thousands of people are applying for public positions, which is a reflection of both the position of the economy and the migration. Around 10,000 skilled labour of the north Cyprus economy contribute to the economy in the south. Many of our companies are moving to the south with the attractiveness of economic integration between Turkey and south Cyprus. Our businesses will transfer their limited resources in the north to an economy that is 11 times larger and the economic value will move to the south. We will soon be experiencing the effects of this transfer of economic value to the south.

The budget of a government is the strongest tool in managing the economy. During 2004 that went by without a budget, it was not possible to manage the economy and increase investment. Tenders financed by Turkey and credits for investment purposes finalised in Ankara as well as investments in the construction of new hotels have started. Tourism will develop despite problems in and barriers to travel. This is a dynamic created by the Green Line Regulation. Within the same framework, if the one way trade with south Cyprus continues, there will be more cash entering the north Cyprus economy.

The settlement rhetoric has increased interest from foreign investors in north Cyprus and within this framework hundreds of foreign investors visited the Turkish Cypriot Chamber of Commerce. Nevertheless, investors are still in the preliminary investigation phase and are waiting for a political settlement until they invest.

In conclusion, there isn’t a sustainable growth in the economy. The new money that entered has spontaneously moved some sectors. A record number of cars have been imported in 2004 because the new money that enters the economy cannot be turned into investments. The formal value of car imports for the first 10 months is $ 105 million; keeping in mind the low levels of taxes paid and invoices declared to the state, we can conclude that at least $ 200 million has been paid for car sales this year. Thus the traffic problem grew bigger and started to be scary.

The boom in the construction sector:

There is a danger that the unnatural boom in the construction sector will soon lead to many bankruptcies. The low quality in construction and the lack of infrastructure are being given by many occupational organisations as reasons that many new buildings will have problems in case of an earthquake. Infrastructure problems such as electricity, water and roads come with the social and legal problems. The construction sector has now slowed down and is following the legal process closely.

Lately we can see a process against our interests in the EU. The constructions of and sales of Greek Cypriot properties in the north are being investigated. It is being said that a detailed report is being prepared on who is constructing, where they are constructing, whether there is an organised management and state support for this, and where the constructors, materials and workers come from. While some of our politicians are waiting to reach a political settlement through getting rid of the isolation, we will be given a detailed and large file on immovable property to deal with. The case on property issues in the British court is the first sign of both political and economic problems we will face in the construction sector.

It is useful to remind that Turkey has paid compensation to Loizidou as required by the 18/12/1996 decision of the European Court of Human Rights and has to return the property to the abovementioned person in 2005. There are tens of thousands of cases that are in line with a total compensation fee of approximately $ 30 billion. This will undermine the bi-zonality concept in practice and will create chaos in property ownership in the north.

The Loizudou ruling of ECHR:

The European Court of Human Rights decided on 18 December 1996 that;

• Article 159 of the TRNC Constitution stating that “immovable property within the borders of the TRNC that has been declared abandoned on 13 February 1975 shall be state property” is not valid,

• United Nations Security Council Resolutions 541 and 550 dated 1983 and 1984 respectively, declare that the TRNC does not exist legally and that other countries should not recognise any other state than the Republic of Cyprus,

• The Court or the Turkish government could not come up with any evidence that Ms. Loizidou is not the legal owner of the mentioned property,

• Turkey, although it is outside its national borders, has effective control in north Cyprus and is responsible for the results of the military operation.

And in 2003, Turkey has paid Ms. Loizidou a compensation for ‘not allowing her the use of her property’.

We have to get rid of the isolation:

In order to get rid of the limitations of the embargoes on north Cyprus economy, the isolation should be lifted with the help of foreign actors.

The first sensitivity on and record of isolations on documents took place in 2002 with the documents and lobby work of the Turkish Cypriot Chamber of Commerce. Later, the word ‘isolation’ has been used in many EU documents and has especially been shaped by the decision of the Copenhagen Summit. The EU Council has called upon the European Commission to lift the isolation. The institution authorised by the EU in the implementation of the regulations to lift the isolation, which was interpreted as ‘embargoes’ in the past, is the Turkish Cypriot Chamber of Commerce.

While the Green Line Regulation was being prepared before the referenda, the Turkish Cypriot Chamber of Commerce has been involved at the beginning of April and tried to help shape it correctly. 4 days before Republic of Cyprus’ EU accession on 1^st May, the regulation has been accepted with many mistakes and missing things. The need for the rush has become more obvious with the Papadopoullos government trying to stop the other Regulations aiming to lift the isolation.  

Getting rid of the isolation will help us. We have to work, lobby and exert pressure towards this direction. This should be a routine and daily affair for us as the Turkish Cypriot side and the Chamber of Commerce is already doing what is necessary for this.  

Respect for international and EU values and the institutions that protect them:

While we demand to get rid of the isolation, we need to stay within international law and know and accept that it is hard to take a step against EU law. It is not possible to corner a member state in the EU and have it accept a solution it does not like, especially if there are other States that have similar problems (for example Spain is against getting rid of the isolations since it will set an example for its own internal problems). And if this EU Member State declares that ‘this is an important national problem’ it becomes impossible to pressurise that state. Getting rid of the isolations will not only bother the Republic of Cyprus but a few other member states as well. The Cyprus government will not allow the ‘direct trade’ and ‘Financial Aid’ regulations or the changes to the ‘Green Line’ regulation until they are shaped the way it wants them.

Some examples on this topic are: 

• Turkey was not able to get rid of the sports isolation it has imposed on us for years. Even if it wants to, international values and the international institutions that protect them do not allow it.

• Although Turkey does not see itself as being responsible for the human rights violations in Cyprus, it accepted to pay and paid the compensation decided by the European Court of Human Rights on the Loizidou case.

• After the Conference of Islamic Countries in Istanbul, we have celebrated by declaring that ‘we went there as a community and came back as a state’. Tens of EU Member State Ambassadors said the same day ‘we will be more careful with lifting the isolation after this event and we will think very carefully before we act’.

 Mr. Kofi Annan said in his report dated 18 May 2004 that ‘there is no more need for the isolations but getting rid of the isolations should not make the separation permanent, and should help with the integration and not the recognition of the north.’

Even if we may be able to get rid of or soften the isolation before there is a political settlement of the Cyprus problem, this will be in a format and level that the Republic of Cyprus will not feel threatened by, will accept it, and it will not mean recognition. Thus getting rid of the isolation alone will not force a settlement to the Cyprus problem, replace it or move the north Cyprus economy to a desired level.

This is exactly the same as 2 Turkish Cypriot members of parliament participating in the Cyprus team at the Council of Europe and the Republic of Cyprus’ approval to it. Although it was against our wishes, these MPs were not given the right to voice their opinions either. Or when the Turkish Cypriot Chamber of Commerce is authorised on the regulations “in agreement with the Republic of Cyprus”, and the Turkish Cypriot Union of Municipalities has to become a part of the Republic of Cyprus team, it is not possible to get rid of the isolation in such a way as to force the Republic of Cyprus.

If we argue that “we need an urgent settlement based on the Annan Plan, and this settlement will be reached and lived together with Greek Cypriots and thus we need a ‘yes’ from the Greek Cypriots as well, we need to come up with new policies to reach and motivate this ‘yes’.

Developments for Turkey:

After 17 December, many policy makers in Turkey thought Turkey has moved beyond the Cyprus Problem. They were trying to give a message that ‘Turkey is trying to take as many steps as the Turkish public opinion would accept and move towards the EU by removing the Cyprus Problem from its way.’ There have been tens of editorials published in Turkish media along these points.

We have heard the statement ‘Why should Turkey solve the Cyprus Problem without getting what it wants’ many times during the 17^th December process. These words did not come from the group that is against the EU and a solution but from the group that wants Turkey to move towards the direction of the EU. Positions such as ‘Even if the Cyprus problem is solved there is no light at the end of the tunnel. Especially France, Austria and Netherlands will act as barriers and the harmonisation process will be long and tough. Even if the Cyprus problem is solved completely, Turkey’s path to the EU will not be open completely’ are getting stronger every day. The fact that Turkey was given an open ended negotiation process has helped strengthen this idea.

The idea that ‘If Turkey needs to take a known number of steps that will be seen as part of the Turkish public opinion as ‘concessions’ these steps should be taken one by one and with great caution. Each step should get a payback and while the Cyprus problem is being solved piece by piece, Turkey should be locked on to its EU membership’ is completely wrong and dangerous.

There should be an explanation to the fact that Turkey was one of the sides that asked Russia to veto the Security Council guaranties asked by Greek Cypriots before the referendum. May be it was more important for Turkey to be the side that wants a solution instead of reaching a solution. This situation was also seen in the statement ‘why should Turkey solve the Cyprus problem before getting what it wants?’ often used before and after 17^th December.

According to another idea, ‘the understanding that Turkey is keeping Cyprus as a negotiation tool is hurting Turkey’. The new dynamics of after 17^th December 2004 require that the Cyprus problem is solved, so that an important barrier against Turkey’s EU membership is lifted. In case of the lack of a solution, the recognition of the Republic of Cyprus by Turkey will hurt the Turkish Cypriots while non recognition will hurt the process for Turkey’s EU membership.

Within this framework, the fact that the statements such as the “Cyprus Problem should be solved by 3 October” or “doesn’t need to be solved by 3 October” are being used simultaneously by the same authorities, makes the problem even more complicated.

Turkey and the Republic of Cyprus moving on gradually:

Ø 1996 – Turkey enters the customs union, and agrees to Cyprus’ EU membership application, although it was said that ‘Cyprus cannot be a member of a Union of which Turkey is not a member’.

Ø 1997 – Turkey does not become a candidate in Luxembourg. The negotiations on Cyprus stop immediately. The endeavours towards a solution in Cyprus stop.

Ø 1999 – Turkey becomes a candidate state in Helsinki, Cyprus’ candidacy is taken further, 2002 Copenhagen Summit is chosen as the aimed date.

Ø 2002 – It is in the record in Copenhagen that Turkey ‘shall be given a date without any delay’, and as a response Cyprus is formally invited as a member.

Ø 2003 – Turkey pays compensation to Loizidou, and gets a date for a date of 17^th December while it witnesses Cyprus’ signature for accession in Thessaloniki and signs the treaty.

Ø 2004 – In Brussels, Turkey gets the 3^rd October 2005 date for the start of negotiations, Turkey states for the record that it will sign the Ankara Agreement and opens the way for trade with south Cyprus.

It is becoming harder to produce a treaty that will safeguard the communal existence of the Turkish Cypriots in Cyprus:

Ø With the 1996 European Court of Justice decision, the trade isolation against the Turkish Cypriots has been formalized,

Ø In the Copenhagen summit of 2002 the bargaining position of the Turkish Cypriots has deteriorated.

Ø The Customs Union signed in 2003 between Turkey and north Cyprus could not be implemented.

Ø Turkey’s declaration of intent of signing the Ankara Agreement in 2004 has further strengthened the economic isolation of the Turkish Cypriots.

Ø In 2004, the Republic of Cyprus has blocked the regulations prepared by the European Commission to stop the isolation of the Turkish Cypriots.

Ø During the whole process, the Republic of Cyprus, which did not represent the Turkish Cypriots, has carried out negotiations and became a member of the EU as Cyprus.

It is becoming harder to reach a settlement. We are now faced with the situation that worries the Turkish Cypriots and we are endeavouring to see how we can motivate the Greek Cypriots for a solution, as we have lost our bargaining position. Mr Gul also admitted this when he summarized as ‘we would not have let Copenhagen to be missed if we came to the government earlier.’

Turkey and the Republic of Cyprus continue in their paths:

Turkey has become a candidate and the Republic of Cyprus is now a member. The Cyprus Problem remains unsolved. The communal existence of the Turkish Cypriots is now in danger and is being carried to a point of no return, that is if it is still possible to reverse the communal erosion!

If we only argue ‘remove the isolations, we have done our share, let’s free Turkey from its obligations, a stronger Turkey can better protect our rights’ and nothing else, unfortunately we will only be individual EU citizens with individual rights and freedoms and better economic conditions. We will continue to live in Cyprus or in other EU countries as individuals. This is not our choice.

We have to ask ourselves:

ü Do we want a settlement? And if we do not want to go back to 1960, do we want the basis for a political settlement to be the Annan Plan?

ü Can we improve our economy to a point where it can survive without a settlement? Can we motivate the Greek Cypriots to agree on a settlement by saying “things are going well, the economy is good, migration is now reversed, there is continuous investment, and we do not need a settlement"?

ü Do we reach a settlement by saying ‘we need to invest and construct more in Morphou and Kyrenia, since in case of a settlement we will be compensated anyway and thus we can scare the Greek Cypriots and force them into a settlement’?

ü How will the property issue be solved? Through cases such as the Loizidou one, or with the Annan Plan as the basis? How are the Loizidou case and thousands of other similar ones going to affect Turkey’s EU perspective, Turkey and us?

In the light of all these evaluations we, as the Turkish Chamber of Commerce, would like to stress the fact that the clock is ticking against the Turkish Cypriots. Every day without a solution leads to a blood loss for the Turkish Cypriots and increases the risk of losing the communal rights won throughout the historical process. We find the approach that ties the solution of the Cyprus Problem to Turkey’s full EU membership completely ‘wrong and dangerous’. If this approach succeeds, there will be a huge wave of migration, and when the day for Turkey comes to become a full member, we will not even be able to get the rights we were given by the 1960 agreements, while we would be stuck with a ‘pseudo solution’.

The vision of the Turkish Cypriot community is: ‘to continue and improve our existence in Cyprus, our land, without losing the communal rights we have won throughout the historical process and to reach a comprehensive solution within international law and on the basis of the Annan Plan until 3 October 2005 in order to live, continue and improve our existence and identity in security and at a level and order no less than that of the modern world.’

Appendix1:

In order to reduce input costs that raise prices of products and services, we need to take certain precautions – that we should have taken years ago – with the goal of harmonization with the free market economy and the EU in the short and medium term.

Measures for the Short-term:

Import Taxes:

• The docking fee should be abolished.
• The Security Forces Fee should be abolished.
• The Price Stability Fee should be abolished.
• Customs taxes should be equalized with the EU Common Customs Tariff.
• The Transport Tax should be abolished.
• Customs taxes and other fees and taxes should be charged on the FOB value not CIF value.
• The customs office should operate more efficiently and costs be reduced.

Transport:

• Unloading/loading fees at our ports should be equalized with those in the south and not be a monopoly.
• High transport costs at sea and airports should be equalized with those in the south.
• Fees for cranes/forklifts used in the unloading process should be reduced.

Energy Prices:

• Electricity prices should be reduced; the energy used in production should be subsidized.
• Petrol prices should be subsidized if used in production.
• All fees on fuel oil solely used in production should be abolished.
• Since LPG is environment-friendly, LPG fees should be abolished to encourage its use in production.
• Since coal harms the environment its use should be prohibited.

Capital Costs:

• High interest rates should be subsidized with special financing from Turkey.
• High penalties and interest on late state receivables should be normalized.
• The Banking Insurance tax should be abolished.
• In order to encourage technological use, machines, equipment, tools should be accounted with the accelerated accounting method and VAT should be refunded.

Measures for the Medium-term:

Legal Infrastructure:

• A Competition Law in line with the EU should be passed.
• The General Taxes Law, Income Taxes, Corporate Tax, Inheritance Tax Laws should be redone according to modern norms. The tax system that needs to be established in that respect should not tax producers but consumers. Taxes should be acceptable to businessmen and local and foreign investors and be in line with international standards and EU legislation.
• Stamps to be placed on checks, bills, IOUs and other valuable documents should be abolished.
• VAT, Income Tax, and Corporate Tax rates should be equalized with those in the south.
• The Social Security Law should be different for private and state workers. Fund management should be the responsibility of fund owners. The private social security system should be liberated.
• The Pension Fund should be integrated in the single social security system and managed by fund owners or cancelled and all employees’ investments returned.
• A Restitution Law should be prepared to attract foreign investors.
• The Tender Law should be harmonized with the EU.
• A Leasing Law should be prepared.
• VAT receivables should be returned to companies and VAT refunds should be applied on passenger exports.
• Preparations should be made for implementing the EURO.

The Unregistered Economy should be registered and the State should be the Organizer and Supervisor:

• The unregistered workforce, unregistered workplaces, and the unregistered economy should be registered.
• The issuing of work permits should be simplified, however the influence of foreign workers on social life should be taken under control.
• It should be prevented that state organizations create unfair competition to the private sector. The state should be the organizer and supervisor.
• Military canteens should not serve civilians.

The Justice System:

• Specialized courts should be established and the justice process accelerated.
• Bounced checks should not be a problem any longer.

Training of qualified workers:

• The education system and military service should be reshaped to train the technical capacity and qualified workers that the economy needs.

Steps to be taken to reach the principal economic target:

We have to argue in the form of a package that while trying to reduce the input costs of the North Cyprus economy and improve the legal basis we also have to offer the same benefits that the Green Line Regulation provide for the north to the south. In that respect import products should freely be able to pass from the north to the south and vice versa.

The efforts of South Cyprus to restrict the flow of goods via persons crossing the checkpoints are aimed at maintaining the isolated condition of the northern economy. The south expects us to support their scenarios through counter-measures and similar restrictions and thus minimize the commercial ties between the two communities through with police procedures. This will only serve to keep ourselves and our economy under isolation. Instead of restrictions we should focus on reducing prices in the north, switch the natural flow of goods from north to the south and support our economy without police procedures.

As end result, we should propose and implement measures that will lift restrictions on the free flow of goods, services and capital between North Cyprus – South Cyprus – Turkey – and EU nations.

Subsidies and Incentives:

It may be a correct approach to expect that the losses of the North Cyprus economy arising from the unsolved Cyprus Problem and the economic ties between Turkey and South Cyprus are covered by outside funds in the short term. However, for lasting economic correction and sustainable growth this method can only be used for the short term. It must be ensured that with investment, employment, production, and marketing dynamics the free flow of products, services, and capital within the Customs Union are possible. Otherwise the socially viable free market economy cannot operate, since dependence on foreign aid only prevents the development of internal dynamics. If we insist on foreign aid, we not only cause a temporary illness in the economy, but also an erosion of democratic values as a natural reflection.