AMBASSADOR AND STATE MINISTER TUZMEN DISCUSS TRADE

UNCLAS SECTION 01 OF 02 ANKARA 006568

SIPDIS


SENSITIVE


STATE FOR E, EB/TPP, AND EUR/SE
STATE PASS USTR FOR NOVELLI/ERRION
TREASURY FOR OASIA - MILLS AND LEICHTER
NSC FOR MCKIBBEN AND BRYZA


E.O. 12958: N/A
TAGS: ETRD PREL EINV TU IZ IR
SUBJECT: AMBASSADOR AND STATE MINISTER TUZMEN DISCUSS TRADE
AND REGIONAL ECONOMIC COOPERATION



1. (SBU) Summary: The highlight of the Ambassador's
October 14 call on State Minister Kursad Tuzmen was that --
for the first time in living memory -- Tuzmen did not push
for U.S. lifting of textile quotas, saying the strong lira
meant Turkish exporters could not even fill existing quotas.
Tuzmen stressed his belief that Turkey could only prosper if
its neighbors enjoyed sustained economic growth, and that the
best way to achieve this would be to encourage greater
regional economic cooperation, including production sharing
agreements in Turkey's Economic Free Zones. The Minister
said Turkish exports to Iraq were booming, and could reach
$1.8 billion this year. The GOT will continue to press for
more trade with other neighbors, and hopes trade will
encourage accelerated reform in places such as Iran and
Syria. End Summary.



2. (SBU) Ambassador began his October 14 call on State
Minister (for Trade) Kursad Tuzmen by briefly outlining his
thoughts on how to enhance the economic relationship. He
noted that Turkey's macroeconomic situation is improving, but
the country needs to resolve some specific investment
disputes that are serving as a disincentive to other American
investment, and also needs to shift to higher-value added
production and exports, particularly in light of the demise
of the Multi-Fiber Agreement on January 1, 2005. He
suggested that non-textile QIZs might be a way to attract
more investment and move up the value chain.



3. (SBU) Tuzmen predicted that exports would continue to
drive growth in Turkey. Since 1997, he has pursued a policy
of enhancing trade with Turkey's neighbors. In those six
years, the share of Turkish exports to neighboring countries
has risen from 3 percent to 12 percent; his goal is to reach
30 percent. "The regimes are not important to me -- I'm just
trying to increase trade."



4. (SBU) Ambassador interjected that the nature of regimes
does matter, as the lack of freedom in authoritarian regimes
makes them less reliable trading partners. He pointed to
recent World Bank and UN studies that concluded that one of
the major impediments to growth in the Arab world is bad
governance. Tuzman acknowledged the point, but said "they
are my neighbors, and I have to live with them." He added
that the export of Turkish goods and culture would encourage
reform and liberalization in neighboring regimes, and
suggested that Iran already was undergoing significant change.



5. (SBU) The Minister argued that the biggest problem in
the region is low income, and that only trade and sustained
economic growth would bring sustainable peace. Moreover,
Turkey could not prosper as long as its neighbors remained
poor. His hope is to pursue regional production sharing
arrangements and development "clusters" (following Michael
Porter's ideas),in which Turkey could shift some low-end
production to its neighbors and move to higher end production
itself. He suggested that Turkey's Economic Free Zones,
which enjoy substantial tax advantages, would be an ideal
location for multinational clusters.



6. (SBU) Tuzmen said that designating parts of the Economic
Free Zones as Qualifying Industrial Zones could be useful,
but the U.S. needed to do a better job explaining how QIZ
status could be helpful. Most high tech goods, he noted,
already enjoy duty-free status in the U.S., so the benefits
of QIZ status were not clear. Ambassdador responded that the
GOT should look at QIZs not only for their tariff-free
status, but as magnets for attracting investment,
particularly into higher value-added sectors. He noted that
Turkey remained highly dependent on low-end exports,
including textiles and garments.



7. (SBU) Tuzmen agreed. He noted that Turkey had long
pushed the U.S. to lift textile quotas ahead of the
termination of the Multi-Fiber Agreement. Now, however, the
Turkish lira's appreciation had so hurt the competitiveness
of Turkey's textile/garment industry that it could not even
fill existing quotas. He suggested agro-industry, organic
agriculture, and industrial production in the GAP region as
possibilities for future QIZs incorporated into an Economic
Free Zone.



8. (SBU) Turning to Iraq, the Minister said Turkish exports
were rising rapidly and could reach $1.8 billion this year
(this is higher than his previous estimates). He agreed that
Turkish construction companies were also well placed to win
significant amounts of business in reconstruction
subcontracts. He reiterated his view that greater trade and
economic activity were crucial to peace and stability in
Iraq, and said Turkey was "wide open" to ideas on how to
increase bilateral commerce.
EDELMAN