ADVANCING OUR ECONOMIC INTERESTS IN TURKEY AHEAD

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002697

SIPDIS


DEPARTMENT FOR E, EB AND EUR/SE'
NSC FOR MCKIBBEN AND BRYZA
TREASURY FOR OASIA - LOEVINGER, MILLS, AND ATKINS
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO


E.O. 12958: DECL: 05/10/2014
TAGS: ECON PREL EINV ETRD PTER TU
SUBJECT: ADVANCING OUR ECONOMIC INTERESTS IN TURKEY AHEAD
OF THE NATO SUMMIT



1. (U) Classified by Ambassador Eric S. Edelman. Reason:
1.4(b,d)



2. (C) Summary: We have time to make one more hard push to
advance our core economic interests in Turkey ahead of the
end-June Presidential visit and NATO Summit. We need to use
every opportunity during this period to encourage the
complacent GOT to broaden and deepen economic reform, to
resolve at least a few of the outstanding investment disputes
that hurt both U.S. companies and Turkey's economic
prospects, and to convince senior Turkish officials that they
need to strengthen their regime for fighting terrorist
finance, In anticipation of issues the Turks might raise
during the President's visit, we should fulfill our
commitments to schedule talks on trade and IPR issues, to
provide the GOT with a report explaining how its failure to
provide data exclusivity for pharmaceutical products violates
WTO requirements, and to seek legislation on Qualifying
Industrial Zones. End Summary.



3. (C) We have been telling the Turks for months that the
end-June Presidential visit and NATO Summit are opportunities
for them to showcase Turkey's economic recovery and
prospects, and that it would be in their interest to do
everything possible on the economic policy front to present a
favorable picture. We now have just enough time to make one
more hard push in favor of further reform and resolution of
outstanding problems, and also to fulfill commitments we have
made that the Turks are likely to ask about when the
President visits.



4. (C) Our top priority remains encouraging the GOT to do
everything possible to sustain and enhance the economy's
recovery. Although conditions, particularly related to
public finance and inflation, have improved dramatically over
the past year, the economy remains vulnerable due to very
high public debt, a growing current account deficit, and a
still-dismal business environment. The government deserves
credit for respecting Central Bank independence, generally
maintaining fiscal discipline, and implementing enough
reforms to stay on track with its IMF program. However, it
has also become complacent -- believing its own rhetoric that
the past year's rally was due entirely to its policy prowess
-- and has done far too little to implement the structural
reforms needed to create well-regulated markets and encourage
investment.



5. (C) The government's failure to take advantage of
favorable global market conditions over the past year to
consolidate gains (by aggressively implementing reforms) is
largely responsible for the economy's current vulnerability
in the face of rising global interest rates. The recent
market downturn might serve as a wake up call on the need for
further reform, but we cannot bet on it. Therefore,
particularly in our private conversations with Turkish
officials, we must avoid "happy talk" that reinforces the
prevailing complacency. Instead, we should press the
government at every opportunity not only to stick to the IMF
program, but to go beyond it by implementing the full range
of structural reforms, including accelerated privatization,
tax reform, not undermining independent regulators, more
rapid liberalization of the telecom and energy sectors, and
further steps to ensure a sound banking system.



6. (C) We also need to continue pressing for resolution of
the problems and disputes that have plagued existing U.S.
investors and deterred potential new ones. Despite intense
efforts by the Ambassador and much positive rhetoric and
promises of action from government ministers, the GOT has
failed to resolve any of our high profile problems:
Motorola's dispute with the Uzans, the Cargill zoning case,
the lack of operating licenses for our energy BOTs, the
failure of courts to enforce international arbitration
decisions on behalf of Dillingham Construction (which is
pulling out of the country),the lack of data exclusivity
protection for our pharmaceutical companies, the Bedoian
case, and others. The government could easily resolve (at
least partly) the Cargill problem by getting Parliament to
pass zoning legislation that has been circulating for months.
The other problems are somewhat more complicated, but again
the government could take steps to begin addressing them. We
need to continue stressing to GOT officials that U.S.
companies are unlikely to invest in Turkey in the absence of
progress on these cases, and that their economic recovery
program will not succeed without a significant increase in
foreign investment.



7. (C) We also want to push on two shorter-term commercial
issues: Boeing sales and Turkey's ban on rice imports.
Turkish Airlines is planning to buy a number of aircraft as
early as this summer. We understand EU officials are putting
substantial pressure on Turkish officials, suggesting that a
decision to buy Airbus will help the EU make a positive
decision in December on giving Turkey a date to begin
acccession talks. We should continue to urge GOT officials
to make a decision based on merit (i.e. commercial reasons),
and to ratify the Capetown Convention, which would enable
U.S. ExIm to offer lower-cost financing that would help
Boeing. We also need to press GOT officials to eliminate a
rice import ban, which appears to violate WTO rules, that has
been in effect since August 2003. (Note: The GOT insists it
does not have a ban, but in practice the Ministry of
Agriculture has refused to issue import licenses for rice.)
Related to that is a newly-announced quota system, under
which rice imports will be limited to those companies that
also buy rice from the Turkish Grain Board (this is an effort
to help the Board reduce its excess stocks). This quota
system also appears to violate WTO rules.



8. (C) A third priority is to convince senior GOT officials
of the need to strengthen Turkey's regime to combat terrorist
financing. A recent U.S. interagency report described the
weaknesses in the Turkish legal and administrative regime,
and proposed fixes. We plan to use this report to try to
convince senior officials -- starting with Finance Minister
Unakitan -- of the need for action. This will require
intense follow-up for a long period, but we think the
pre-visit period presents us with the best possible
opportunity to put the issue on the senior leadership's
agenda.



9. (C) The Turkish leadership is likely to ask the President
about the status of Qualifying Industrial Zone legislation,
which we have committed to pursue. We understand it will not
be possible to drop the "catch-all" exclusion from the QIZ
bill; the important point is to get legislation to the Hill
well before the President meets with the Prime Minister
(though we recognize all of the obstacles to its passage by
Congress this year).



10. (C) At the December 2003 EPC meeting, we committed to
(a) identify areas in which Turkish laws and regulations on
intellectual property rights are not consistent with
WTO/TRIPS, and provide a list to the Turkish side; and (b)
consult on IPR, non-tariff measures, trade in textiles, and
cooperation in the Doha Round. On the first issue, we
understand there is some reluctance in Washington to commit
USG views to paper, but only by doing so can we satisfy our
prior commitment and advance the possibility that the GOT
will arrive at an acceptable policy on data exclusivity. On
the second set of issues, we have conveyed Washington's
proposal to hold a digital video conference on IPR. While
the Turks have not formally responded, they have informally
indicated that they would greatly prefer a face-to face
meeting on this and other issues discussed at the EPC.
Embassy recommends that, before the NATO Summit, Washington
agencies formally propose a meeting on trade and investment
issues, perhaps in the form of a Trade and Investment
Framework Agreement (TIFA) meeting or a combined TIFA/EPC
meeting, to be held in the fall of 2004.
EDELMAN