TRADE OFFICIAL ON CUSTOMS UNION WITH NORTHERN

1. (C) Summary: Embassy's August 13 discussion with a
senior foreign trade official raised questions about how much
substance there is to the customs union framework agreement
Turkey signed with the "TRNC" authorities August 8. Foreign
Trade Director General for Agreements Tevfik Mengu argued
that the agreement would have little short-term impact on
trade, but was designed to harmonize northern Cyrpus' economy
with that of the EU. He claimed the EU should not have any
problem with the agreement, since it refers to "Cyprus"
rather than to the "TRNC," and therefore is no different from
other agreements Turkey is negotiating with countries that
have free trade agreements with the EU. Embassy's sense,
shared by local European Commission representatives, is that
this agreement is largely a political show, unlikely to have
much economic impact. End Summary.




2. (C) Embassy met with Foreign Trade Director General for
Agreements Tevfik Mengu August 13 to try to learn the details
of the customs union framework agreement signed with TRNC
authorities August 8. Mengu was evasive, but made the
following points:


-- The agreement has few details, but is meant to provide the
framework for an eventual customs union agreement;


-- Turkish and "TRNC" authorities still have to complete the
annexes and protocols needed to turn this into a full-fledged
customs union agreement. Turkey is in "no rush" to do this,
and in any case the agreement will not take effect before May
1, 2004;


-- The primary goal is not short-term trade expansion ("they
have nothing to sell," per Mengu), but to help northern
Cyprus harmonize its economy with that of the EU, in
anticipation of Cyprus' accession (i.e. presuming there will
be a settlement prior to accession).




3. (C) When pressed on what this agreement actually will do,
Mengu responded that "it doesn't say much." He added that
Turkey will work with "TRNC" authorities to eliminate tariffs
on industrial goods and to create a "certificate of origin"
system in the north. Mengu explained that goods from
northern Cyrpus currently come to Turkey without certificates
of origin. If meant for re-export, authorities here give
them Turkish certificates of origin. Mengu stressed,
however, that the volume of such exports is miniscule.




4. (C) Mengu argued that the EU should not have a problem
with the framework agreement because it refers to "Cyprus,"
not to the "TRNC." In that sense, he claimed, it is no
different than the other free trade agreements Turkey is
negotiating -- based on Article 16 of its Customs Union
agreement with the EU -- with countries that have signed free
trade agreements with the EU. Mengu implied that, by fudging
the definition of "Cyprus," the agreement would allow the EU
to pretend the agreement was with the recognized country of
Cyprus, while allowing Turks to say it is with the "TRNC."




5. (C) An Ankara-based Economic Commission representative
told us his office had many questions about the agreement,
but could not comment authoritatively until it obtained the
text. EC reps plan to meet with Foreign Ministry officials
August 15 to discuss the agreement and, they hope, obtain a
copy. The representative questioned the GOT argument that,
by referring to "Cyprus" in the agreement rather than the
"TRNC," it had avoided any legal issues vis-a-vis the EU.


5. (C) Comment: Embassy shares reftel's assessment that
there is not much economic substance to this agreement, as
does the EC rep with whom we spoke. It appears to be largely
a political gesture that Turkey will attempt to justify
internationally with the argument that it is simply helping
northern Cyprus prepare for EU membership if there is a
settlement.
DEUTSCH