TURKEY INVESTMENT ISSUES: GOOD NEWS FOR CARGILL,

UNCLAS SECTION 01 OF 03 ANKARA 004332 SIPDIS SENSITIVE DEPT FOR E, EB/CBA AND EUR/SE USTR FOR LERRION TREASURY FOR OASIA - MILLS AND ADKINS USDOC/ITA/MAC FOR DAVID DEFALCO EXIM FOR PAUL TUMMINIA TDA FOR SNYDER E.O. 12958: N/A TAGS: EINV EMIN ECPS BEXP TU SUBJECT: TURKEY INVESTMENT ISSUES: GOOD NEWS FOR CARGILL, MOTOROLA, MINING AND TELECOMS REF: A. ANKARA 608 ¶B. ANKARA 3336 Summary -------------- ¶1. (SBU) In recent months, the Turkish Government has taken several steps to resolve outstanding disputes with U.S. companies and to open its economy to foreign investment. The most notable recent step was the passage of industrial zones legislation that Cargill believes will solve the zoning problem at its sweetener plant in Orhangazi, but there have also been positive developments for Motorola, as well as in telecoms, mining and other areas. The politically-influential Turkish Union of Chambers and Commodity Exchanges also appears to be taking a greater interest in promoting foreign investment, but a more systematic effort to improve investment climate, including resolution of other longstanding energy sector disputes, still seems to be lacking. End Summary. -------------- Cargill -------------- ¶2. (U) The Turkish Parliament on June 22 approved Law 5195, amending existing industrial zones legislation. Mustafa Sayinatac, Cargill,s Director for Corporate Affairs and Business Development, told us June 16 that Cargill considers this legislation to be the solution to the zoning problem at its Orhangazi sweetener plant. In a June 12 letter to the Ambassador (para 13),Cargill CE0 Warren Staley stated that this legislation provided the framework necessary for a durable solution to this issue and thanked the Embassy for its support. The legislation is a success story in the USG,s efforts to resolve U.S. investment problems and contribute to a healthier investment climate in Turkey. Since the late 1990,s, a number of senior officials at State and other agencies have worked with several Ambassadors in advocating for Cargill at the highest levels in the GOT. ¶3. (SBU) Sayinatac told us that, under the law, the Industry and Commerce Ministry is to issue implementing regulations within three months. Cargill will apply for designation of its facility as an industrial zone and will then reapply for all necessary permits. While Cargill does not anticipate any difficulties in completing this process, we note that the ;Industry Ministry has been the source of delays in moving forward draft legislation on industrial zones, and that some observers, including in the GOT, believe that only a constitutional amendment will permanently resolve the zoning issue (ref A). -------------- Mining Law Amendments -------------- ¶4. (U) Law 5177, published in June 2004, amended existing legislation with a view toward making mining more accessible to foreign investment by streamlining permit requirements and procedures and removing limits on mining on certain types of land. In particular, environmental impact statements (EIS) will no longer be required for exploration activities. The law will require the Environment Ministry to complete an EIS for non-exploration mining activities within three months of application. It also makes it possible for mining companies to apply for "public benefit" expropriation of lands adjacent to those in their license areas. The Energy and Natural Resources Ministry will now be represented on boards deciding on land use in protected areas and designation of national parks. ¶5. (U) The U.S. Newmont Mining company recently sold its Ovacik Mine in western Turkey to a Canadian company. However, Newmont plans to continue exploration activities in Turkey. A Newmont representative told us recently that continuing and redundant permit issues with the Ovacik Mine were the main reasons for the decision to sell it. -------------- Positive Developments in Other Areas -------------- ¶6. (SBU) Motorola: Sources at the Scowcroft group advised EUR/SE and the Ambassador in late June that Motorola and the TMSF have agreed in principle on the terms of a settlement on Motorola,s nearly USD 2 billion claim on Telsim, but the deal has not yet been finalized (protect). ¶7. (U) Turk Telecom Privatization: Law 5189, entering into force early in July, removed the 45 percent limitation on foreign participation in the upcoming privatization of the Turk Telecom monopoly, as well as prior limits on foreign ownership of Telsim. ¶8. (U) Copyright Enforcement: Legislation passed earlier this year banned street sales of books, films and music and gave wider authority to law enforcement agencies to intervene against pirates without the intervention of the rightholder. Copyright piracy appears to be moving away from open sales of unauthorized material to "under the counter" sales of these goods. Representatives of the publishing and film industries in Turkey, tell us that piracy in Istanbul is down by more than half so far this year. -------------- -------------- Small Progress on Other Issues Affecting Investment Climate -------------- -------------- ¶9. (SBU) There has been no change in the GOT,s policy on data exclusivity protection for pharmaceutical patents. Howver, there has also been no formal announcement that the implementation date of GOT's data exclusivity policy will be in 2007, as feared by industry. Similarly, there has been no movement toward a final decision recently in Victor and Kristy Bedoian,s court case to annul the transfer of their hotel in Van, or in the administrative court cases on their residency and operating permits. In the Dillingham international arbitration case, an Ankara court on July 19 upheld an earlier court decision approving the right of Dillingham,s Turkish partner to withdraw funds from their joint venture on the basis of only the Turkish partner,s signature; however, the court also ordered an investigation ) to begin in October - into whether the Turkish partner was owed the money withdrawn. Furthermore, there have been no developments in long-standing energy sector disputes. -------------- TOBB Getting Involved in Investment Climate -------------- ¶10. (U) The Turkish Union of Chambers and Commodity Exchanges (Turkish acronym TOBB) launched a "Foreign Capital Assembly" with the goal of attracting FDI. This body includes many company members of the Foreign Capital Association (Turkish acronym YASED) and is to be led by YASED Chair Saban Erdikler, with TOBB President Hisarciklioglu serving as Honorary President. YASED believes this new body could help in mobilizing TOBB,s support as an institution in attracting FDI. ¶11. (SBU) At the same time, there has been no progress in implementing recommendations of the high-level Investor Advisory Council (IAC),which held its inaugural meeting in March. The Investment Environment Improvement Committees (Turkish acronym YOIKK),which are charged with implementing investment reforms, have not even convened for meetings since November 2003. (A meeting set for July 16 has been postponed). -------------- Comment -------------- ¶12. (SBU) Recent developments for Cargill, Motorola, the mining sector and others should have a positive impact on Turkey,s global business image and may in time lead to increased FDI inflows. However, it is one thing to pass legislation and another for the state administration and the courts to implement and protect the reforms embodied in these laws. While the AK Party government appears to have (mostly) shed the ambivalence that previous governments had about the desirability of foreign capital, it does need to pursue a more systematic approach and maintain a more consistent focus on investment climate if it is to effect a turnaround in its ability to attract FDI. ¶13. (U) Text of Cargill Letter July 12, 2004 Dear Ambassador Edelman, Our Turkish colleagues have informed me that the Industrial Zone law passed by the Turkish Government has recently been approved and signed by the President of the Republic. You and a number of your predecessors are aware of the struggle we faced over many years to overcome numerous legal challenges to our Orhangazi sweetener facility. We are confident that this amendment provides the framework to permanently resolve these problems. Cargill has always perceived the Orhangazi problem to be linked to the overall issue of low Foreign Direct Investment in Turkey. We hope this legislation, coinciding with strong GDP growth and declining inflation, sends a positive message to attract further investment flows to the Country. I understand that you and many of your colleagues in the Embassy have provided considerable time and effort to assist in the resolution of this issue. I am delighted to be able to offer sincere and heartfelt thanks to you and the team for a job well done. Sincerely, Warren R. Staley Chairman and Chief Executive Officer, Cargill P.O. Box 5724 Minneapolis, MN 55440-5724 End text Cargill letter. DEUTSCH