Luxembourg and Turkey move toward closer relations

I believe the decision to open the 36th embassy in Ankara for a small country deserves more attention since it symbolizes greater importance and significance that goes beyond the simple value of the bilateral relations for the two countries. We have to remember that while Turkey opened its embassy in Luxembourg in 1987, it was not until 2002 that Luxembourg appointed a non-resident ambassador to Turkey, only to be followed with the new embassy this week. The core of relations between the two countries focus on the idea that both countries see each other as a “gateway” to a larger consumer market in their respective immediate neighborhoods and value the multilateralism and international engagement to solve outstanding issues.

Not just the opening of the embassy but the very appointment of Ambassador Arlette Conzemius as the representative of the Grand Duchy of Luxembourg in Turkey also tells us how much importance her government puts on friendly ties with Turkey. Ms. Conzemius, whom I met on several occasions, is sharp, articulate and a top-notch diplomat. She was ambassador to Vienna and permanent representative to the United Nations Office there. She has also been accredited to both Turkey and Slovenia as a nonresident ambassador. Furthermore, she served as the director for international economic and European affairs at the Foreign Ministry between 2005 and 2007. Before that, she was the ambassador of Luxembourg to the United States for an unusually long period of seven years. She has served as the permanent representative of Luxembourg to the Council of Europe as well.

Though a small land-locked country, one-tenth the size of Ankara province by landmass, Luxembourg has far more impact on European affairs with its membership in NATO and the EU. Located at the heart of Western Europe, Luxembourg was able to keep its identity through active engagement in international and regional organizations. Sandwiched between France and Germany, the two heavyweights in the EU, Luxembourg has always looked out for major peripheral powers like Turkey that can counterbalance French and German overbearing. The country thinks Turkey, with increasing clout in its region, and with political stability and robust economic growth, may help Luxembourg maintain its political and economic interests in a region stretching from the Middle East to the Balkans and from the Caucasus to North Africa.

That is one of the reasons why Luxembourg, one of the six founding members of the EU, has been an ardent supporter of Turkey's membership to the EU from the start. We should recall that Turkey's formal negotiations with the EU started in October 2005 in Luxembourg. The only chapter -- Science and Research -- out of the 35 that Turkey needs to negotiate with the EU was completed and closed in the Intergovernmental Conference held in Luxemburg in June 2006. The country rejected half-way measures for Turkey like “privileged partnership” floated by the French. It lobbies for an open visa policy for Turkish nationals in the Schengen area. The country is home to some 500 Turks and there are no integration problems for them in the country, which has a population of half a million.

Both Luxembourg Prime Minister Jean Claude Juncker and Foreign Minister Jean Asselborn, long-serving Luxembourgian politicians who have paid many visits to Turkey over the years, have witnessed the rapid transformation and dynamic changes taking place in this EU-candidate country. The personal chemistry between Juncker and Prime Minister Recep Tayyip Erdoğan goes back to 2003, when Juncker met with Erdoğan while he was not even a prime minister. Juncker had accompanied Erdoğan to the airport in an apparent gesture of goodwill during the latter's visit to Luxembourg. Erdoğan returned the favor in September of this year, when he accompanied his counterpart to the Ankara Esenboğa Airport. Both men are among the longest serving prime ministers in Europe.

There is also a financial aspect of bilateral relations that both sides are keen to promote. Luxembourg, the world's second largest investment fund center after the US and the most important private banking center in the eurozone, wants to enhance cooperation with Turkey on financial matters, banking and with the insurance sector as well. Turkey's ambition to turn İstanbul into a financial hub by attracting sovereign and private funds from the Gulf, the Caucasus and Africa may be realized with Luxembourg's willingness to share its experience and best-practices with Turkey. In his speech at the inauguration of the new embassy in Conzemius' residence, Davutoğlu hinted at that, saying Turkey will work closely with Luxembourg on the project of making İstanbul a financial center.

In return, Turkey may extend some help to Luxembourg by keeping an eye on its interests in the G-20 group of major advanced and emerging economies, which has been pondering overhauling the financial and banking sectors to stabilize the world economy. It was not that long ago when Luxembourg clashed with the G-20 group in 2009 and landed on the "gray list" of nations with questionable banking arrangements. It later had to adopt the Organization for Economic Cooperation and Development (OECD) guidelines on exchange of information and be removed from the list. But major concerns for Luxembourg are still there as the France-led bloc in the G-20 is pushing for tax on financial transactions -- the so-called “Tobin Tax” or “Robin Hood Tax.” Turkey joins in the opposition group led by the US and Canada lobbying against the tax. During the last summit, France failed to secure this tax but vowed to keep pushing for the tax at future gatherings.

Part of the reason for Turkey's position is of course the significant amount of foreign direct investment (FDI) flowing to Turkey from Luxembourg. In contrast to the trade volume, which is in negligible numbers, the FDI from Luxembourg was $303 million in the first three quarters of this year. FDI from Germany, Turkey's largest trading partner, was only $321 million in the same period. FDI inflows from Luxembourg were $269 million in 2010, $466 million in 2009, $2.1 billion in 2008 and $583 million in 2007.

The economic cooperation is not limited to the banking and financial sectors, of course. Luxembourg is home to successful small and medium-sized enterprises (SMEs) that flourish based on innovation and the use of technology. Luxembourg's SME growth has outstripped that of its EU peers considerably and consistently over the past years, contributing to its economic performance. The Turkish economic miracle was also helped greatly by its own dynamic SMEs. Turkey, with its dynamic, well-educated and young labor force and low-cost process for university-industry partnership, offers great potential for innovation and technology companies operating in Luxembourg.

Coupled with that, Luxembourg also wants to diversify its trade portfolio to reduce the impact of external shocks. Its major trading partners are France, Germany, Belgium and the Netherlands. But the country wants to reach out to other markets in order to minimize negative effects of the eurozone crisis. Turkey, as an emerging market, is a perfect candidate for Luxembourg to cultivate trade ties not only for Turkey's 74 million-strong vibrant consumer market but for markets in Turkey's neighborhood. On the industry level, there is already close cooperation going on. For example, ArcelorMittal, the world's largest steel producer, is headquartered in Luxembourg and is the market leader in steel for use in the automotive industry, construction, household appliances and packaging, all of which have a great market share in Turkey. ArcelorMittal has investments in Turkish companies Rozak, Erdemir and Borusan.

There is certainly a lot of room for improvement in bilateral ties. The trade volume, though on the rise, needs a lift between the two countries. It stood at a mere $140 million in 2010, favoring Luxembourg. For the first 10 months of 2011, the trade volume exceeded last year's figure already with $185 million -- an increase of 65 percent over the same period last year. It is obvious that both governments are determined to enhance cooperation on a number of fronts. No doubt the veteran Ambassador Conzemius has her work cut out for her.