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Turkey is swiftly becoming a country of unrivalled strategic importance following a decade of booming economic growth, prompting renewed calls for an Istanbul-based international arbitration centre to resolve complex disputes.
The country’s location, straddling Europe and the Middle East, has long made it an influential regional player. But a new surge of inward and outward investment, alongside shifting relations with neighbouring states, has considerably boosted its commercial and trade significance.
‘People unfamiliar with the region forget that Turkey is a thousand miles from one side to the other, and 80m people live there,’ says Dentons partner and energy specialist Karl Hopkins, who heads a team of practitioners providing strategic and legal advice to national oil companies. ‘The economy is growing by leaps and bounds as modernisation moves east through the country and away from the traditional cities.’
He adds: ‘History repeats itself and the Ottomans are on the rise again. They are going to be the regional pivot point.’
Turkey has attempted to establish an arbitration centre in the past to deal with its growing number of international disputes, but has lacked the necessary support. Now, however, a draft law to set up the Istanbul Arbitration Center has been submitted to parliament and, if passed, is due to come into force in April 2014.
If approved, the centre would have one court for domestic disputes and one for international disputes. The draft law states it must determine its rules of arbitration as well as other alternative dispute resolution mechanisms, within six months of the law’s enactment.
While the law has been celebrated by some, others have voiced concerns that intervention by the Turkish Ministry of Justice may undermine the centre’s independence. According to the law, the centre’s general assembly would comprise 20 members from a handful of financial institutions, which some fear may have undue influence over proceedings.
‘There is definitely room for a regional arbitration centre in Istanbul to be successful, but it will not happen overnight,’ says Covington & Burling energy Partner Gaëtan Verhoosel, Co-Chair of the firm’s International Arbitration Practice. ‘It will be important for the new centre to be fully independent of the government in terms of funding and otherwise, and to build up its credentials in terms of international capability and independence.’
The backlog in the Turkish court system has added to arbitration’s growing popularity. Over a million civil cases were pending at the start of 2011, alongside 1.4m criminal and 200,000 administrative cases.
With investment pouring in from Europe and Asia, and outward investment extending from the Balkans to Bhutan, the country is desperately in need of a reliable and efficient means to resolve disputes. In 2012, Turkey ranked as the world’s 13th most attractive destination for Foreign Direct Investment (FDI), according to the A T Kearney Foreign Direct Investment Confidence Index.
Yet further reservations remain. Many believe the Turkish judiciary needs more experience and training in arbitration and international commercial law before an arbitration centre would be viable. Judges have been criticised for being overzealous in setting aside arbitral awards due to ‘public order’ considerations, while the arbitration system as a whole is seen by some as too complex and reminiscent of civil litigation proceedings.
‘The biggest problem is bandwidth,’ says Hopkins. ‘The number of lawyers who are up to the task is relatively small. There are now some really good Turkish firms, but when you get outside the international arenas of Istanbul and Ankara, you’ll have a hard time finding someone who has the requisite skills.’
Turkey began accession talks to join the EU in 2005, but talks have repeatedly stalled due to concerns about democracy and human rights issues in the country. In June, EU foreign ministers backed a proposal to postpone further talks for about four months, following the government’s violent crackdown on protesters critical of the regime.
However, insiders claim that behind the scenes the relationship between Turkey and its EU and US allies remains strong. Indeed, Turkey has never been more powerful in terms of commerce, trade and security. While its energy reliance on Iran weakens, its relations with neighbouring Kurdistan – once its sworn enemy – are blossoming. An oil pipeline from Kurdistan is due to be built through the country next year, allowing the Kurds to bypass Baghdad and reap the spoils. Turkish companies are now flocking to the oil-rich region, alongside energy giants such as ExxonMobil, Chevron and Total.
‘One of the most significant developments has been Turkey’s investment in Kurdistan,’ says Jeremy Wilson, a partner and energy specialist in the International Arbitration Practice at Covington & Burling. ‘Until recently the use of the word Kurdistan was taboo in Turkey and there was little cross-border trade, but now Turkey sees huge opportunities to import oil and gas from the Kurdistan region.’
The deal was classic realpolitik, stresses Hopkins. ‘Economics always trumps ideology. It became too expensive for them to hate each other anymore.’
According to Hopkins – whose strategic advice team includes very high-profile members of the political and diplomatic community – this explosive Turkish growth spurt has only just begun. ‘Turkish companies are becoming a much larger part of the business community globally. I would say in ten years you are going to see the Turks every place that you see the French or the Americans in the key sectors: construction, engineering, agriculture, energy. They are on the move.’
The International Bar Association Blog 