The Republic of Cyprus has a well-documented history of conflict concerning, largely, the legitimacy of its government and the relationship of its populace to influential mainland powers. Since the 1974 invasion of the north part of the island by the Turkish army resulting in a de facto division of the island into the Turkish Republic of North Cyprus (recognised only by Turkey) and the internationally recognised Greek Cypriot administration in the south (which claims dominion over the whole republic), the economy of the island as a whole has suffered from foreign investors’ reluctance to invest in a ‘war zone’ and has faced immeasurable lost trading opportunities arising out of the UN-maintained ‘buffer zone and demarcation line’. Furthermore, until recently North Cyprus faced a European Union (EU) trade embargo which greatly weakened its economy.

The goal of acceding to the EU has been part of a longstanding struggle to bring peace and economic stability to the troubled island and to define its identity on the world stage. European countries have been understandably eager to settle the internal conflict before admitting the country to the EU (not least to avoid undermining relations with Turkey). The European Council resolved in 2002 to admit Cyprus as a whole if the North and South could reach a UN-brokered solution by 28 February 2003. Failing that, the application of North Cyprus would be suspended. The settlement foundered when simultaneous referenda were put forward on 24 April 2004 and passed by North Cyprus but rejected by the Greek Cypriots. The latter therefore acceded to the EU on 1 May 2004, while the former remains outside as, according to the EU, ‘areas of the Republic of Cyprus in which the Government of the Republic of Cyprus does not exercise effective control’. The EU subsequently decided to put an end to the isolation of the Turkish Cypriot community and to facilitate the reunification of Cyprus by encouraging the economic development of the Turkish Cypriot community. On 7 July 2004, the European Commission announced draft regulations aimed at the following: establishing financial support and encouraging contacts between the two communities; facilitating direct trade with the north with a preferential import regime; defining special rules for intra-island trade and authorising the Turkish Cypriot Chamber of Commerce to certify import items.