2003 INVESTMENT CLIMATE STATEMENT FOR TURKEY -

UNCLAS SECTION 01 OF 03 ANKARA 004548

SIPDIS


STATE FOR EB/IFD/OIA
TREASURY FOR OASIA
DEPT PLEASE PASS USTR
FAS FOR ITP/THORBURN
USDOC FOR ITA/MAC/DDEFALCO


E.O. 12958: N/A
TAGS: EINV KTDB EFIN TU
SUBJECT: 2003 INVESTMENT CLIMATE STATEMENT FOR TURKEY -
PART II

Ref: STATE 128494


The following is the second of four cables transmitting the
2003 Investment Climate Statement for Turkey:



5. PERFORMANCE REQUIREMENTS/INCENTIVES


Turkey is a party to the WTO Agreement on Trade Related
Investment Measures (TRIMS).


Turkey provides investment incentives to both domestic and
foreign investors, though these were scaled back in 2003.
These include a corporate tax exemption of 40 percent of
specified investment expenses deductible from future taxable
profits for investments greater than 5 billion TL
(approximately USD 3,600). Certain other incentives may
require an incentive certificate from the Turkish Treasury
Undersecretariat. Investment incentives are defined in a
May 2003 Finance Ministry decree. For more information on
the Turkish incentive system, please visit:
www.investinturkey.gov.tr/incentives.htm).


There are no performance requirements imposed as a condition
for establishing, maintaining, or expanding an investment.
There are no requirements that investors purchase from local
sources or export a certain percentage of output. However,
domestic or foreign investors who commit to realizing USD
10,000 of exports upon completion of the investment may be
exempt from certain fees and taxes, such as those related to
land registration or company establishment. Investors'
access to foreign exchange has no relation to exports.


There are no requirements that nationals own shares in
foreign investments, that the shares of foreign equity be
reduced over time, or that the investor transfer technology
on certain terms. There are no government imposed
conditions on permission to invest, including location in
specific geographical areas, specific percentage of local
content - for goods or services - or local equity, import
substitution, export requirements or targets, employment of
host country nationals, technology transfer, or local
financing.


The GOT does not request that investors disclose proprietary
information, other than publicly available information, as
part of the regulatory approval process. Enterprises with
foreign capital must send their activity report, submitted
to the general assembly of shareholders, auditor's report,
and balance sheets to the Treasury's Foreign Investment
Directorate every year by May.


With the exceptions noted under Section 1 "Openness to
Foreign Investment" and Section 8 "Transparency of the
Regulatory System", Turkey grants all rights, incentives,
exemptions and privileges available to national capital and
business to foreign capital and business, on a MFN basis.
American and other foreign firms can participate in
government-financed and/or subsidized research and
development programs on a national treatment basis.


Visa, residence, or work permit requirements have not
generally inhibited foreign investors. Expatriates may be
assigned as managers or technical staff. We are aware of
one case in the tourism sector in which denial of a
residence permit has hindered operations for a foreign
investor. A 2003 law (no. 4817) on work authorizations for
foreign nationals should give the Ministry of Labor and
Social Security more authority over work permits.
Implementing regulations are to be issued later this year.


Outside of the agricultural sector, Turkey generally has a
liberal foreign trade regime. There are no discriminatory
or preferential export or import policies directly affecting
foreign investors. Turkey harmonized its export incentive
regime with the European Union in 1995, prior to the start
of the Customs Union. Turkey currently offers a number of
export incentives, including credits through the Turkish
Eximbank, energy incentives, and research and development
incentives. Cash incentives for exporters have been
eliminated. Foreign investors can participate in these
export incentive programs on a national treatment basis.
More information on Turkey's trade regime can be found at
www.foreigntrade.gov.tr.
Military procurement generally requires an offset provision
in tender specifications when the estimated value of the
imported goods and/or services exceeds five million dollars.
Turkish procedures provide little incentive for U.S.
companies to satisfy offset requirements (the obligation to
invest or buy Turkish exports as a condition of winning
defense contracts) by investing in non-defense industries.

6. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT


Foreign and domestic private entities have the right to
freely establish and own business enterprises and engage in
all forms of remunerative activity. As noted above,
restrictions exist in the establishment of firms in certain
sectors where the share of foreign ownership is limited to
20 percent in broadcasting and up to 49 percent in aviation,
maritime transportation, and value-added telecommunication
services. Certain activities are reserved for GOT owned
enterprises. For example, by law, Turk Telekom has a
monopoly until December 31, 2003 on providing basic
telephone services. Beyond these areas, private entities
may freely establish, acquire, and dispose of interests in
business enterprises, and foreign participation is permitted
up to 100 percent.


Competitive equality is the standard applied to private
enterprises in competition with public enterprises with
respect to access to markets, credit, and other business
operations. Turkey is adopting the EU's competition policy;
a Competition Board was established in 1997 to implement the
1994 competition (anti-monopoly) law.



7. PROTECTION OF PROPERTY RIGHTS


Secured interests in property, both chattel and real are
recognized and enforced. There is a recognized and reliable
system of recording such security interests. For example,
there is a land registry office where real estate is
registered. Turkey's legal system protects and facilitates
acquisition and disposal of property rights, including land,
buildings, and mortgages, although some parties have
complained that the courts are slow in rendering decisions
and that they are susceptible to external influence (see
"Dispute Settlement").


Turkey's intellectual property rights regime has improved,
but still presents problems. In 1995, the Turkish
Parliament approved new patent, trademark and copyright laws
in connection with preparations for Turkey's customs union
with the EU. In 2001, the Parliament enacted amendments to
the copyright law, which provide retroactive protection,
expand the list of protected items and include deterrent
penalties against piracy. These amendments brought Turkey
into compliance with the WTO Agreement on Trade Related
Aspects of Intellectual Property Rights (TRIPS) in most
areas. In recognition of Turkey's progress in the IPR area,
USTR removed Turkey from its Special 301 Priority Watch List
and placed the country on its Watch List in 2002, where it
remains in 2003.


Intellectual property holders have praised Turkey's 2001
legislation as a significant improvement in the legal
regime. In the software area, piracy rates have come down
in recent years following an anti-piracy campaign and a
directive to legalize software used in government bodies.
However, piracy rates for recorded music remain persistently
high. Trademark holders contend that there is widespread
and often sophisticated counterfeiting of their marks in
Turkey.


Turkey's 1995 patent law replaced a law originally passed in

1879. New trademark, industrial design, and geographic
indicator laws were passed at the same time, completely
revamping Turkey's foundation for industrial property
protection. Turkey also acceded to a number of
international conventions in 1995, including the Stockholm
Act of the Paris Convention, the Patent Cooperation Treaty,
and the Strasbourg Agreement. The Turkish Patent Institute
(TPI) was established in 1994 as an independent legal entity
(Law No. 4004, June 16, 1994) under the Ministry of Industry
and Trade. TPI's mission is to support technological
development in Turkey, establish and protect intellectual
property rights and provide public information on
intellectual property rights. Currently, TPI is
understaffed to affect countrywide protection.


In accordance with the 1995 patent law and Turkey's
agreement with the EU, patent protection for pharmaceuticals
began on January 1, 1999. Turkey has been accepting patent
applications since 1996 in compliance with the TRIPS
agreement "mailbox" provisions. The patent law does not,
however, contain interim protection for pharmaceuticals in
the R&D "pipeline."


The key IPR concern for research-based pharmaceutical
companies is Turkey's lack of data exclusivity protection,
which is required by the TRIPS agreement. The lack of data
exclusivity, combined with the lack of interim patent
protection, poses substantial problems for research-based
pharmaceutical companies.



8. TRANSPARENCY OF THE REGULATORY SYSTEM


The GOT has adopted policies and laws, which in principle
should foster competition and transparency. However, foreign
companies in several sectors claim that regulations are
sometimes applied in a nontransparent manner. In 2002, the
GOT published a report on transparency and good governance
in Turkey's public sector and established an interagency
steering committee to implement it. The plan calls for:
greater public access to information from the government and
public sector entities; financial disclosure by elected
public officials; and decentralization of most public
services.


The government in principle follows competitive bidding
procedures. In 2003, Law 4734 on Public Procurement entered
into force. The law established a board to oversee public
tenders, and lowered the minimum bidding threshold at which
foreign companies can participate in state tenders.
However, the law restricts preferences for domestic bidders
to Turkish citizens and legal entities established by them.
Domestic bidders who form joint ventures with foreign
bidders are not eligible for the preference. The public
procurement law may be further amended in the future.


In general, labor, health and safety laws and policies do
not distort or impede investment, although legal
restrictions on discharging employees may provide a
disincentive to labor-intensive activity in the formal
economy. Certain tax policies distort investment decisions.
High taxation of cola drinks discourage investment in this
sector. Generous tax preferences for free zones provide a
stimulus to investment in these zones, perhaps at the
expense of investment elsewhere in Turkey. These
preferences may be trimmed under legislation currently under
consideration.


Particularly beyond the establishment phase, bureaucratic
"red tape" has been a significant barrier to companies,
both foreign and domestic. Parliament passed Law 4884 in
June 2003 which should simplify company establishment
procedures. The law repeals the permit requirement from the
Industry and Commerce Ministry for certain firms, institutes
a single company registration form and enables individuals
to register their companies through local commercial
registry offices of the Turkish Union of Chambers and
Commodity Exchanges. The goal is to enable registration to
be completed in as little as one day and to encourage
electronic sharing of documents. Turkish government
agencies are expected to issue implementing regulations
needed to bring the law into force. The government is also
considering other measures to streamline procedures for
establishing and operating a business in Turkey, based on
recommendations made in a World Bank-funded study on
administrative barriers to investment.
Pearson