Rewarding Erdogan, Forgoing the EU: the Moral from Volkswagen’s New Factory in Turkey

Rewarding Erdogan, Forgoing the EU: the Moral from Volkswagen’s New Factory in Turkey

The EU should rethink its state aid rules when it comes to foreign competition, and the EU multinationals – their approach towards the Union’s home turf.

After many months of eager expectations and behind-the-scenes competition, it has recently become clear that German carmaker Volkswagen has chosen Turkey over Bulgaria, Romania, and Serbia as the site for its new car factory, a massive investment worth over EUR 1 billion (USD 1.010 billion).

Countries compete for large-scale investments from big multinational corporations literally all the time so the case of Volkswagen’s new factory in Turkey should be nothing to dwell on from that point of view.

Except there are also other points of view, and in this particular case with Volkswagen choosing the location of its new European factory, there have been layers upon layers of politics involved, especially with respect to the European Union, not to mention the wider social, economic, and political ramifications of the German carmaker’s decision.

The moral from the saga with Volkswagen’s new factory in Turkey is twofold, and it is a sad one for the EU in both of its dimensions.

The first part of that bitter lesson is that, given roughly equal opportunities, the largest EU-based companies such as Volkswagen are prepared to ignore the home turf of the EU in favor of countries with questionable democratic records, higher degree of political risk, and even fiery anti-EU and anti-Western rhetoric – in essence rewarding that type of behavior instead of strengthening their some of their own.

The second part of the lesson is that the EU competition rules regarding state aid to private enterprises – which are designed to ensure fair play in the EU’s internal market – can cause the EU itself to lose major investment competitions with outside players which have no such fair play scruples but unabashedly seek to promote themselves precisely with state aid.

I can be deemed a biased observer given that my native Bulgaria was also in the competition, and, if the reports are true, made it to the final round in Volkswagen’s investment contest together with Turkey, after Romania and Serbia were “eliminated”.

But as in most of my writing as an international journalist, in this case as well, my standpoint is not one of favoring my home country but of being aware of certain facts, developments, and interpretations because of my association with the said country.

And, sure, Volkswagen is entitled to making its own investment decision based on whatever criteria it wishes to take into account.

Nonetheless, it does not seem right that one of the leading EU corporations chooses to go right outside of the Union, right next door when it was offered just about equally favorable investment conditions inside the European Union, in Bulgaria or Romania, especially given that the massive Volkswagen investment would have strengthened tremendously the middle class, civil society, and well-being in the poorest part of the Union.

Or in another EU candidate country, Serbia, whose leadership at least does not engage in offensive anti-EU, anti-Western rhetoric, and whose democratic, rule-of-law record could be considered at least somewhat better.

With 1 billion euro in direct investment and 4,000 – 5,000 directly created jobs (and tens of thousands of indirectly created jobs), Volkswagen could have had an incredible economic, and therefore societal and political impact, had it chosen to set up its new European factory in Bulgaria or Serbia, each of those being a country of about 7 million people, or in Romania, a country of 19 million. Less so in Turkey, a country of 80 million.

In Bulgaria or Romania, the Volkswagen investment would have boosted tremendously the middle class, and thus the pro-Western, pro-EU orientation of the respective society (which have come under attack by foreign powers in recent years), and thus the potential of the respective country to contribute far more to the well-being, dynamics, and development of the entire European Union.

Sure, for a multinational corporation whose top, if not only, priority is profit, those ramifications are marginal concerns at best. But perhaps they shouldn’t be. Especially when the other choice is Turkey under the leadership of Erdogan.

Turkey is no doubt one of the most important countries in the world today. Its people also deserve consideration, support, and opportunities. But it is a far larger market in its own right, and, regrettably, under the rule of its leader Recep Erdogan, it has taken, rhetorically at least, what seems to be a rather anti-Western, anti-EU turn.

The decision of Volkswagen, a German company, to pick Turkey over Bulgaria, Romania, or Serbia, all things equal, is even more paradoxical considering that Germany and the Germans have been compared to “Nazis”, with “Nazi practices” by Erdogan himself a number of times over the past few years. That’s not even considering the domestic developments inside Turkey under Erdogan’s rule with respect to the rule of law, democracy, and media freedom, which are well-known to the leadership of Germany and the other European Union member states.

The massive Volkswagen investment in Turkey certainly comes as a great reward to the Turkish President in a time of major economic and political uncertainty. It is hard to see, however, how exactly this reward has been deserved.

Everybody can decide for themselves what kind of message Volkswagen’s decision is sending as far as the integrity of EU’s big business is concerned.

The opportunity to get the same conditions on the home turf of the EU in pro-Western EU societies that badly need such investments makes that whole situation even more morally questionable.

Although the German carmaker is not obliged to give answers, Volkswagen’s representatives have sought to offer some public explanation with respect to their decision to choose Erdogan’s Turkey over Serbia, Romania, and Bulgaria. (For example, in this report by DW in German – the whole Volkswagen factory saga hasn’t received that much coverage in English.)

Those have included mostly clichés such as the fact that Turkey is technically an EU candidate country – except it has been such for decades, and the accession negotiations, which started in the early years of Erdogan’s rule, back in 2005, 14 years ago, have utterly ground to a half largely because of the domestic political twists and turns in Turkey ever since.

Serbia, too, is an EU candidate country, and one with prospects for becoming an EU member sooner, at least as it now appears. Not to mention that it is bewildering that an EU candidate country should in principle be given preference to an already existing member state. If anything, common sense logic would have it the other way around.

Volkswagen’s representatives also seem to have suggested that the other bidders, Bulgaria being the one that remained as the last alternative to Turkey in the race, don’t have 5,000 qualified employees to fill the jobs in the future Volkswagen factory.

It is ridiculous to think that a modern-day European country of 7 million people such as Bulgaria, but also such as Serbia, doesn’t have 5,000 people fit for work in a Volkswagen car factory. Not to mention Romania, of 19 million people, with its pretty huge car manufacturing industry. If anything, that is just an outright insult to the people of these three countries on part of Volkswagen, which apparently thinks more highly of Turkey in that regard. Another case of Western Europe disparaging the former communist Eastern Europe. As the nice English expression goes, just to add insult to injury.

The argument that many of the 30,000 Volkswagen Passat and Skoda Superb cars projected to be manufactured in the new Volkswagen factory in Turkey are to be sold in Turkey (technically, they are for the wider Eastern European market, according to reports) isn’t very strong, either. Turkey is in a customs union with the EU so in terms of trade it doesn’t matter on which side of the border the product is produced, it can be moved freely to any part of the EU or Turkey.

Volkswagen’s representatives, however, have also hinted rather shyly at what seems to be a very crucial and decisive factor – the fact that EU member states such as Bulgaria and Romania are bound by EU competition restrictions with respect to state aid to private companies, and Turkey isn’t. Not only isn’t Turkey bound by those rules, but it has a history of actively involving the state in promoting the country to multinational corporations.

So there you have it.

A very bit EU-based multinational corporation picks a non-EU investment destination over those inside the EU because of EU rules. It’s getting a bit absurd, isn’t it?

Perhaps the European Union as represented by the European Commission and the member states should then think about whether state help limitations should be applicable when an EU destination is competing for investment with a non-EU one.

The European Commission, the EU executive, can grant explicit permissions for state aid when major investments are in question, especially in the car manufacturing industry. For some reason that procedure was never triggered in the case of Bulgaria or Romania’s bidding for the Volkswagen factory that’s now going to Turkey. Perhaps the procedure isn’t flexible enough, and the above point should still apply: do away with the restrictions when there is outside competition.

State aid may have been one of the decisive factors leading Volkswagen to select Turkey over Bulgaria or Romania. Although, then, again, Serbia also isn’t in the EU, and isn’t restricted by EU state aid rules. Nonetheless, Turkey was preferred despite the growing concerns of EU and Western leaders on relations with Erdogan.

Sure, the Turkish economy is a powerful one, it has large numbers of qualified laborers, and an already strong tradition in car manufacturing – and, yet, it is hardly convincing that just in those terms, Turkey has to offer so much more than Bulgaria, Romania, or Serbia – unless state aid is factored in. There is no doubt that Turkey is highly competitive economically but it is still not that overwhelmingly more competitive than Bulgaria, Romania, or Serbia – as to outweigh a whole bunch of other factors such as political risks.

Some news reports have pointed out the role of the Qatar Holding LLC in selecting Turkey. The Qatar Holding owns 14.6% of the Volkswagen shares, and is thus the third largest shareholder in the German multinational car manufacturer. Qatar and Turkey are known to have had close relations under Erdogan’s leadership.

The whole saga with Volkswagen decision to build its factory in Turkey instead of Bulgaria, Romania, or, alternatively, Serbia, demonstrates that EU multinationals still don’t care enough for political considerations – and they probably should as the region and the world are becoming riskier and less stable politically.

They don’t care enough for the home turf of the European Union – and they probably should, for self-explanatory reasons having to do with the constant need to keep building up and strengthening the economy, democracy, freedom, media freedom, and rule of law of your own home.

The Volkswagen factory saga also shows that the EU should rethink its state aid rules when it comes to crucial investments that non-EU destinations are also trying to get. Because in such cases they actually stimulate unfair competition, rather than fair competition.

It should be deemed regrettable for the EU that the massive Volkswagen investment didn’t go to some of its poorest and weakest-link member states because it would have no doubt strengthened them – instead, it went to Turkey whose leader Erdogan hasn’t exactly been very nice to the European Union in the recent years.

All that’s left to be said is to congratulate Manisa near Izmir in Eastern Anatolia, Turkey, on winning the Volkswagen investment worth 1 billion euro.

Ivan Dikov

(Banner image: Wikipedia)

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