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Turkey is Europe’s other major headache



The European Council has big problems to deal with this week, such as Brexit and the EU budget. Yet among the Brussels summit’s other challenges is to review the bloc’s relationship with Turkey, which is close to rupture with no sign of anything to replace it.

This long and turbulent association always needed creative diplomats on both sides. In the past five years, however, much like Turkey’s relationship with the west as a whole, it has been on the brink of collapse. European leaders tend to blame President Recep Tayyip Erdogan for this. Yet while they rightly emphasise his autocratic tendencies, they also often neglect his episodic pragmatism. The EU, in fact, has relinquished its once prodigious leverage in Turkey.

Turkey’s EU accession talks, kicked off with fanfare in 2005, were gradually halted soon after. That shut down what for Turkey had been a transformative engine of democratic renewal and reform, helping curb the army which has long been the final arbiter in Turkish politics.

The acrimonious collapse of a 2004 UN plan to reunify Cyprus, divided since 1974 between Greek and Turkish Cypriots, was part of the problem. More damagingly, France, Germany and others kept raising the barriers to EU entry against Turkey, as they feel it is too big, too poor and — rarely stated but taken as read — too Muslim.

Instead of acting as a strategic anchor, the EU helped cut Turkey loose from its western moorings. To growing anger across the Turkish political spectrum, the EU has blown hot and cold ever since, warming to Ankara opportunistically, such as when it desperately needed help holding back the Syrian refugees heading for Europe in 2016.

This was tawdry realpolitik. But Brussels did not really follow through on the agenda it set out as part of the migration deal. It pressed its own concerns while ignoring Ankara’s and was seen by Turkey to act in bad faith. Ankara had expected at least an upgrade of the customs union it entered with the EU in 1995, as well as action on visa exemptions and regular dialogue. Now there is no longer even a dialogue of the deaf.

Part of the reason for this is Mr Erdogan’s vast purges. They followed the violent coup attempt of July 2016, which was spearheaded by his former Islamist allies in institutions such as the army and the security services. The clampdown is still being used to stifle dissidence and hamstring opposition.

After three terms as prime minister, Mr Erdogan ascended to the presidency and surged towards one-man rule, undermining the independence of the judiciary, replacing parliamentary rule with a toothless national assembly, abolishing the role of prime minister, and purging his ruling neo-Islamist party of rivals. This power-grab made Turkey ineligible for EU membership.

Mr Erdogan seems to have concluded that deploying hard power abroad serves him better than aligning with the enfeebled soft power of, by his lights, duplicitous Europeans. From Syria to Libya, he seems bent on neo-Ottoman irredentism. He is staking a big maritime claim to the Aegean and Eastern Mediterranean and its gas riches. And while the European Council deliberates in Brussels this week, Mr Erdogan will be in Azerbaijan at a pan-Turkic victory parade, after helping it retake Armenian-held territory in Nagorno-Karabakh.

Turkey is a difficult customer. It is a Nato member but buys Russian air defence systems. It is a G20 member, but hosts Hamas. This difficulty is not just because of Mr Erdogan. As Hugh Pope and Nigar Goksel, veteran Turkey-watchers at International Crisis Group, put it in a paper this month: “Turkey has always done things its own way: building bridges one moment, bridgeheads the next.” The EU used to be Turkey’s most important bridge.

The EU still has levers. More than half of Turkish trade and investment is European. Turkey badly needs an enhanced customs union, the rules for which could help shore up a crumbling rule of law. But the EU needs to be more alert to other things Turkey might want.

After the United Arab Emirates normalised relations with Israel this year, Turkey moved to patch up a decade-old row with the Israelis — part, diplomats say, of its rivalry with the UAE. Indeed, a senior Turkish official scorns what he sees as Emirati aims to supplant Turkey in western eyes. The UAE “is a smart but small country, and it should understand its limits, trying to fill the vacuum left by Turkey, which always used to have good relations with Israel as the Muslim country for the west”.

Mr Erdogan’s bluster and belligerence can hardly be ignored, but there are signs Turkey still wants to be that country. The EU and the west should explore and exploit all such signs.

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Emerging Markets

Toyota faces Thai bribery probe over tax dispute




Toyota is under investigation in Thailand over allegations that consultants hired by the world’s largest carmaker tried to bribe local officials in a tax dispute, according to Thai authorities, court documents and a person with knowledge of the matter.

The probe followed a filing last month in which Toyota revealed that it had reported “possible anti-bribery violations” related to its Thai subsidiary to the US Department of Justice and Securities Exchange Commission.

Toyota is one of the biggest foreign investors in Thailand, where it makes a large range of cars, vans and pick-up trucks for the local market and for export. The country is Toyota’s biggest manufacturing hub in south-east Asia. Prior to the Covid-19 pandemic, car sales had been strong in a market, where it has a 31 per cent share.

This month, Thailand’s Court of Justice said in a statement that it would take action against any of its judges found to have taken bribes. The statement, which the court described as a move to “clarify facts” in a news report on a foreign website, directly referenced a tax dispute involving Toyota.

“If the Court of Justice has received information or explicitly found that any judge committed an act of corruption to their duty, whether it is about bribery or not, the Court of Justice will resolutely investigate and punish any action which dishonours judges, undermines the neutrality of the court, or causes society [to] lose faith in the Thai justice system,” it said.

According to the court, the case involved a tax dispute worth Bt10bn ($320m) between Toyota Motor Thailand and tax authorities over imports of parts for its Prius hybrid model. 

The affair dates back to 2015, when Toyota’s Thai subsidiary was accused by local customs authorities of understating taxes by claiming that the imported Prius vehicles were assembled from completely knocked down kits, or imported parts that were later assembled in Thailand.

CKDs would have been subject to a discounted tax rate under a Japanese-Thai free trade agreement, but if the cars were fully assembled before being imported they would have attracted a much higher rate. 

Toyota appealed against a decision by customs authorities to impose a higher duty in 2015, but lost. 

Thailand’s Court of Justice has said that it had accepted a petition to review the case, but had not yet begun hearing it.

In its regulatory filing last month, Toyota warned that the US investigations regarding its Thai subsidiary could result in civil or criminal penalties, but the company has not disclosed any detail on the allegations.

In a statement, Toyota said it was co-operating with the investigations and declined to comment on the tax dispute in Thailand. “We take any allegations of wrongdoing seriously and are committed to ensuring that our business practices comply with all applicable government regulations,” it said.

The SEC and the DOJ declined to comment.

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Boris Johnson cancels India trip after Covid cases surge in country




UK prime minister Boris Johnson’s trip to India this month has been cancelled as the country battles a new variant and a surge in coronavirus cases that is overwhelming hospitals.

A joint statement by the British and Indian governments said the decision to scrap the visit scheduled for next week was prompted by the “current coronavirus situation”.

The trip, during which Johnson had hoped to discuss the prospects of a closer trading partnership with India, was initially planned to run for four days but had been scaled back. The two leaders will speak remotely instead, with plans to meet in person later this year.

The cancellation came as India’s capital city region has been put under lockdown and authorities have prohibited the use of oxygen except for essential services, as the country battles a surge in coronavirus cases that is overwhelming hospitals.

India continues to set single-day records of coronavirus cases, reporting more than 273,000 new infections and 1,619 deaths on Monday, with the number of new cases growing by an average of 7 per cent a day, one of the fastest rates in any big country.

The surge is believed to be linked to a new B.1.617 variant that was first discovered in the country.

British health officials are investigating whether the variant should be reclassified from a “variant under investigation” to a “variant of concern” following the discovery of 77 cases in the UK.

“To escalate it up the ranking we need to know that it’s increased transmissibility, increased severity, or vaccine-evading, and we just don’t have that yet, but we’re looking at the data on a daily basis”, Dr Susan Hopkins, a senior medical adviser at Public Health England, said on Sunday.

Officials in Delhi announced it would impose a strict lockdown for a week, following Mumbai and other cities that have already placed curbs on movement.

States are running short of beds, drugs and oxygen, leading the central government to restrict use of the gas. “The supply of oxygen for industrial purposes by manufacturers and suppliers is prohibited forthwith from 22/04/2021 till further orders,” the central government said.

Arvind Kejriwal, chief minister of Delhi, said “oxygen has become an emergency” in the region because its quota had been diverted to other states. He warned there were “less than 100 ICU beds” available.

The new restrictions have been imposed even as Prime Minister Narendra Modi and his ruling Bharatiya Janata party have hosted huge political rallies and allowed religious festivals attended by tens of thousands of maskless people in recent weeks.

Amit Shah, India’s home minister, told the Indian Express newspaper that he was “concerned” about the variant and the “surge is mainly because of the new mutants of the virus”. But he was “confident we will win” over the disease and said there was not yet a need to impose a national lockdown.

Bed shortages in India have forced authorities to re-establish emergency coronavirus hospitals in banquet halls, train stations and hotels that had been shut down following the previous peak in September. Crematoriums in the state of Gujarat and Delhi are running 24 hours a day, while cemeteries are running out of burial spaces.

Coronavirus patients have also been struggling to access medicines. More than 800 injections of remdesivir, an antiviral drug commonly used in India as part of Covid-19 treatment, were stolen from a hospital in Bhopal, Madhya Pradesh, at the weekend.

India is also facing a vaccine supply crunch and has frozen international exports of jabs to meet domestic demand. New Delhi pledged on Friday to increase monthly production of Covaxin, a vaccine made by Indian manufacturer Bharat Biotech, to 100m from 10m by September. The government also said last week that it would fast-track the approval of foreign vaccines in an attempt to boost supply and cleared Russia’s Sputnik V for use in the country.

The majority of the more than 120m Indians that have been vaccinated have received the Oxford/AstraZeneca jab manufactured by Serum Institute of India, the world’s largest manufacturer. The Serum Institute has struggled to increase its monthly capacity of more than 60m doses a month due to a fire at its plant earlier in the year and equipment supply shortages from the US.

Additional reporting by John Burn-Murdoch in London

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The limits of China’s taming of tech




The record fine handed out this month to Alibaba, the Chinese ecommerce giant, was a welcome step toward combating anti-competitive behaviour. The $2.8bn penalty put Alibaba and other tech companies on notice that creating siloed fiefdoms designed to trap customers and merchants within their ecosystems will not be tolerated.

It was addressing a longstanding problem. Many of China’s ecommerce companies operate “walled gardens” that prevent interactions with rival platforms. For example, Alibaba’s Taobao ecommerce app keeps users from paying for goods using the payment app of rival Tencent. Tencent’s social media app, WeChat, prevents clips from being shared directly from ByteDance’s video-sharing app. 

Last week China’s internet and market regulators signalled the seriousness of their intent. They gave tech companies one month to fix anti-competitive practices, telling them to conduct “comprehensive self-inspections” and “completely rectify” problems, following which they would need to publicly promise to abide by the rules. The aim is create a commercially open and competitive internet.

It is tempting to argue that regulators in the west could take a leaf out of China’s book. But to hold China up as an example of competitive best practice would be to ignore the elephant in the room. Although Beijing is giving its monopolistically-minded internet companies — which are almost all private enterprises — a rap on the knuckles, it shows no sign of applying the same standards to vast swaths of the economy that have been dominated by state-owned giants for decades. 

The market dominance of these behemoths of state capitalism is an issue that affects not only domestic competitors but also foreign multinationals that operate in China. A trenchant joint paper last week from the European Council on Foreign Relations, a think-tank, and the Rhodium Group, a consultancy, took aim at the increasingly unfair advantages that this system gives China.

While it is true that China has opened up sectors such as financial services to foreign capital in recent years and allowed foreign brands to win market share in luxury goods and pharmaceuticals, broad sectors of the economy remain fully or partially closed or to overseas investors. 

Often the barriers erected to block or stymie competition are informal. Authorities can deliberately favour domestic companies in public procurement, are more ready to grant approval for licenses, subject foreign firms to arbitrary inspections or require them to re-engineer products to meet idiosyncratic domestic standards.

Such drawbacks are not new. But they are taking on an extra urgency as Chinese companies become leaders in an increasing number of industries and the country’s technological prowess draws level with the US and Europe in a list of industries. The key problem now, says the ECFR/Rhodium report, is that Chinese multinationals are using the advantage of a protected home market to build up resources that they then deploy in competition with western counterparts abroad.

This sets the scene for friction. China should extend its anti-monopolistic scrutiny from its own privately owned internet companies to several state-dominated sectors of its economy, taking care to open to foreign multinationals as much as domestic competitors. If it decides against doing this — as is likely — it will be furnishing Europeans and Americans with ammunition to argue against extending access to Chinese corporations in their own markets.

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