Update on Investment Issues Facing U.S. Companies

UNCLAS SECTION 01 OF 03 ANKARA 000377

SIPDIS


DEPT FOR E, EB/IFD/OIA - MROCHE AND EUR/SE
DEPT PLEASE PASS USTR FOR LERRION/BPECK
USDA FOR FAS/ITP HENKE, MEYER, HANSEN
TREASURY FOR OASIA - MILLS AND LECHTER


SENSITIVE


E.O. 12958: N/A
TAGS: EINV EAGR KIPR TU
SUBJECT: Update on Investment Issues Facing U.S. Companies
in Turkey


Ref: (A) Ankara 21 (B) Ankara 4
(C) 2003 Ankara 7785 (D) Ankara 137
(E) Ankara 342


Summary
--------------



1. (SBU) Following up on the Ambassador's recent meetings
with economy ministers, the Embassy has pressed GOT
authorities hard to resolve the numerous disputes involving
U.S. companies. We have stressed that progress in these
cases will help make the Prime Minister's visit to
Washington a success, and will allow him to showcase Turkey
as an investment destination before America's private
sector. Based on follow-on meetings with Industry, Finance
and Treasury officials, it appears that the Cargill zoning
problem has the best chance of being resolved, possibly
before the PM visit. The GOT may also address data
exclusivity in the near term, possibly on terms which will
be unacceptable to U.S. industry and the USG. End Summary.



2. (SBU) The Ambassador raised investment problems in recent
meetings with the Prime Minister, as well as the Ministers
of Economy, Finance and Industry (refs A, B and C). In
early January meetings, Econ Counselor and Econoff raised
these issues with Treasury Undersecretary Canakci, Industry
Ministry Undersecretary Adem Sahin, Finance Ministry advisor
Halit Ocal, Treasury Deputy Director General for Foreign
Investment Osman Emed and Ak MP Reha Denemec. We suggested
that the Prime Minister's upcoming visit to Washington,
combined with the scheduled mid-March Investor Conference
and the June NATO Summit, presented Turkey with great
opportunities to showcase its economic reforms and improved
investment environment. We argued that turning some of the
FDI problem cases into success stories during this period
would go a long way toward changing investor perceptions
about Turkey.


Cargill
--------------



3. (SBU) We pressed GOT interlocutors to expedite passage of
an industrial zones law which would remedy Cargill's zoning
problem. Sahin and Ocal told us that the Industry Ministry
had almost completed the process of obtaining clearances
from other state bodies on a new industrial zones law which
should completely address the problem associated with siting
Cargill's Orhangazi plant on land zoned for agricultural
use. Emed stated that there was unanimity within the GOT on
the need to approve this legislation. FM Unakitan told the
Ambassador January 16 that Parliament would soon pass the
industrial zones law (ref E).


Data Exclusivity
--------------



4. (SBU) We stressed the importance of swiftly implementing
data exclusivity protection for pharmaceuticals, and sought
to debunk arguments by the generic industry that this policy
would significantly increase health care spending. Sahin
and Ocal told us that the GOT was considering a "compromise"
which would implement data exclusivity only in 2006 or 2007.
Embassy responded that implementation six or seven years
after the deadline in the TRIPS agreement was not
acceptable. Ak MP Reha Denemec told us separately that the
GOT would implement data exclusivity, but with the
protection period starting off very limited (two or three
years) and gradually increasing.



5. (SBU) In a separate meeting, Turkish Industrialists and
Businessmen's Association (TUSIAD) Ankara Representative
Zafer Ali Yavan told Econoff that TUSIAD, which has both
generic and research-based company members, would try to
facilitate a compromise acceptable to both sides and would
draft a report for the GOT on this issue in the next several
weeks.


Energy Projects
--------------



6. (SBU) Econ Counselor stressed the need to come to a
satisfactory resolution of the dispute between the Energy
Ministry and energy build-operate-transfer (BOT) companies
over pricing and licensing. While we understood the GOT's
desire to lower energy prices, harassing and pressuring
companies with legitimate contracts was of serious concern
to us, and would make it hard for Turkey to attract new
investment into the sector. We stressed that the government
needed to grant operating licenses to these companies, and
that any discussions on tariff reductions should be done
fairly, respectfully, and in a manner that enhanced investor
perceptions of Turkey's investment environment. Ocal
responded that he would relate our position to the Finance
Minister, who would likely call the Energy and Natural
Resources Minister on this issue (septel).


Bedoian Hotel Investment
--------------



7. (SBU) We raised the fact that the various court cases of
Victor and Kristy Bedoian, who have been unable to operate a
hotel they renovated in Van for several years, have moved
extremely slowly. Embassy underlined its interest in a fair
outcome in these cases. Ocal, who seemed to be well-
informed on this, told us he would recommend that the
Finance Minister weigh in with the Justice Minister to ask
that the administrative courts render a fair and speedy
decision in the administrative court cases on the Bedoians'
residency and operating permits. The Ambassador also raised
this case with the Interior Minister.


Cola tax
--------------



8. (SBU) We told Ocal that we recognized the difficulty of
lowering any taxes during the current period of belt-
tightening, but related that the industry believes a lower
tax rate on cola products (currently over 47 percent) might
more than compensate the budget through higher sales. Ocal
said the Ministry was sympathetic to the cola industry's
arguments, but that a tax reduction would be hard to
contemplate in the near term.


Motorola
--------------



9. (SBU) Embassy asked interlocutors to make their best
efforts in the Motorola-Telsim case. We noted that, as the
Government decides how to handle the complicated legal and
debt issues related to the Uzan Group (which owes billions
to the State because of the failure of Imar Bank),it should
keep in mind the tremendous impact of the case on foreign
investor perceptions, and seek a resolution that provides
fair treatment to Motorola.



10. (SBU) Industry U/S Sahin said that, following
Ambassador's discussion of these issues with Minister
Coskun, the Minister had taken it upon himself to coordinate
an interagency discussion of these cases. Halit Ocal
similarly said Finance Minister Unakitan was seized with
resolving these problems, and had tasked him specifically
with investigating the facts with other agencies and with
the Embassy. Canakci was more reserved, but took note of
our presentation. Reha Denemec predicted the GOT would
resolve the problem, but added that resolution would require
some changes in the Telecommunications Authority Board,
which would have to approve a possible takeover of Telsim.


Comment and Recommendation
--------------



11. (SBU) The GOT has long been sympathetic to Cargill with
respect to its zoning problem. A legislative remedy is well
on its way, with concrete steps possible before the PM
visit. A GOT announcement on data exclusivity may also come
in the near term, though it may contain an unacceptably
lengthy transition period (ref D). We are somewhat
encouraged by the fact that the Finance Minister's advisor
has taken an interest in the Bedoian case, and that the
Industry and Finance Ministers are focused on solving the
range of investment problems facing U.S. companies.



12. (SBU) Embassy understands that USG interlocutors will
raise unresolved investment issues during bilaterals with
the PM's delegation in Washington. We should also use the
trade experts visit, promised at the December 2003 Economic
Partnership Commission and scheduled to take place in the
first quarter of 2004, as a vehicle to promote resolution of
investment problems.
Edelman