Identifier
Created
Classification
Origin
05ANKARA1565
2005-03-18 09:45:00
CONFIDENTIAL
Embassy Ankara
Cable title:  

TURKISH/AMERICAN DEFENSE INDUSTRIAL CONFERENCE

Tags:  MARR MASS MCAP PREL TU 
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This record is a partial extract of the original cable. The full text of the original cable is not available.
C O N F I D E N T I A L SECTION 01 OF 06 ANKARA 001565 

SIPDIS

STATE FOR EUR/SE, PM/RSAT AND PM/DTTC.

E.O. 12958: DECL: 03/08/2015
TAGS: MARR MASS MCAP PREL TU
SUBJECT: TURKISH/AMERICAN DEFENSE INDUSTRIAL CONFERENCE
HIGHLIGHTS DIFFERING PRIORITIES

Classified By: PolMil Counselor Timothy A. Betts; reasons 1.4 (b) and (
d).

C O N F I D E N T I A L SECTION 01 OF 06 ANKARA 001565

SIPDIS

STATE FOR EUR/SE, PM/RSAT AND PM/DTTC.

E.O. 12958: DECL: 03/08/2015
TAGS: MARR MASS MCAP PREL TU
SUBJECT: TURKISH/AMERICAN DEFENSE INDUSTRIAL CONFERENCE
HIGHLIGHTS DIFFERING PRIORITIES

Classified By: PolMil Counselor Timothy A. Betts; reasons 1.4 (b) and (
d).


1. (C) SUMMARY: The first Turkish/American Defense Industrial
Cooperation (DIC) conference to be held since 1998 provided
an opportunity for both governments to outline national
defense procurement priorities and discuss ways to improve
the bilateral defense cooperation relationship. MND Deputy
U/S Major General Inak underscored the importance of our
fifty-year long relationship but characterized bilateral
defense cooperation as too little and as favoring US exports.
He emphasized Turkey's interest in expanding its production
capabilities with US assistance and joint R&D efforts. While
expressing support for the Joint Strike Fighter (JSF)
program, he registered disappointment at Turkey's JSF
workshare. The US team, led by US Director of Armaments
Cooperation Atlantic Mr. Robert Bruce, highlighted the trade
benefits granted to Turkey and US interest in developing
closer missile defense and space cooperation. US
representatives underscored during the conference and
subsequent office calls the need for Turkey to develop
quality products at competitive prices that meet USG needs.
The Turkish procurement agency, SSM urged the USG to
encourage US firms to buy Turkish defense products, and
emphasized the ongoing requirement for offset work, while the
US team explained that under US law, we cannot direct or
encourage offets and that many in Congress view them as a
distortion of free trade. END SUMMARY.


2. (U) The 17th Annual Turkish/American DIC, held after a
lapse of seven years, in Washington on Feb. 23, received
strong participation from the Turkish Ministry of National
Defense (MND) and the Turkish defense procurement agency,
Savunma Sanayi Mustesarligi (SSM). (Full delegation list is
at para. 19 below.) In addition to leading the Turkish
delegation to the DIC, MG Inak made office calls on Acting
Undersecretary of Defense for Acquisition, Technology &
Logistics Michael Wynne, and Defense Security Cooperation
Agency Director Lt Gen Kohler. To foster deeper industrial

contacts, the American Turkish Council hosted an
industry-to-industry day following the government meetings,
which provided a forum for Turkish firms to tout their wares
and a chance to deepen existing bilateral industry contacts
through individual discussion sessions with US firms.

--------------
TURKEY LOOKING FOR MORE COOPERATION
--------------


3. (SBU) The DIC was established under the 1980 US-Turkey
Defense Economic Cooperation Agreement (DECA) as a forum for
discussion of bilateral cooperative efforts. The DIC
primarily provides a forum for both sides to discuss issues
inhibiting current cooperation, from export controls and
production offset requirements to limited R&D sharing. MG
Inak estimated bilateral trade at /- $5 billion dollars,
half of which is in the defense industries, most of which
reflected US sales to Turkey. This is in contrast, he added,
to the $7-$8 billion in trade Turkey is developing with its
"new neighbors."

--------------
TURKISH DEFENSE INDUSTRY RESTRUCTURING
--------------


4. (C) According to MG Inak and SSM Aviation head Sedat
Guldogan, Turkey is restructuring its defense industry to
become leaner and to advance its technological capabilities
in order to compete for sales on the global market. Guldogan
outlined the government's goals as:

1) Increase local industry volume by 25% in the near term,
and by 50% eventually
2) Create a technology-based industry
3) Develop meaningful partnerships in international projects
4) Effectively utilize its current capabilities now and to
increase those capabities
5) Increase Turkey's sales abroad

To get there, MG Inak said that Turkey would prioritize its
acquisition programs as follows: 1) Internal production, 2)
Co-production, 3) Direct purchase. Turkey's military is
undergoing the same transformation process as other NATO
members, moving from requirements-based planning to
capabilities-based planning. However, Turkey is still
struggling to predict its future priorities and quantities of
goods required to meet them. The defense industry is being
restructured to better respond to this.


5. (C) The genesis of the industry restructuring is Turkey's
evaluation of the US and others' defense sectors where
industries consolidated to maximize efficiencies. In
addition, Guldogan noted that militaries increasingly rely on
high-tech products such as Unmanned Aerial Vehicles (UAV)s
and advanced fighter systems like the Joint Strike Fighter
(JSF). Turkey is in the process of reorganizing its
State-owned companies, which comprise 75% of the $1.3 billion
defense industry, under a single umbrella company that will
be managed jointly by the Turkish Armed Forces Foundation and
SSM. The process should be completed by May 2005. Following
consolidation of the large State-owned companies, the small
companies and the maintenance and repair centers will be
consolidated. At the end of the 4-phase project, the private
sector will be invited to participate as a minority partner.
Foreign involvement with the re-structured firms will be
conducted through the umbrella corporation or with the
individual sub-companies depending on the size of the
project. In response to MG Inak's request for a USG analysis
of the Turkish defense industry, Mr. Bruce stated the USG
does not conduct assessments of foreign defense industries,
but recommended the MND contact the OUSD (AT&L)/Industrial
Policy for information on the methodology of their review of
the US industrial base. This could serve as a model for
Turkey to conduct its own assessment of its defense industry.

-------------- --------------
OFFSETS A TURKISH REQUIREMENT FOR THE FORESEEABLE FUTURE
-------------- --------------


6. (C) During both the government and industry portions of
the DIC, SSM Offset Department head Aysun Kucuk underscored
Turkey's continued reliance on offset work. Kucuk was
undeterred by a DOD AT&L presentation on the US policy
against offsets and current Congressional efforts to end
them, saying she viewed offsets as a "win-win" situation for
both US and Turkish firms, and an "opportunity" for US
companies to make a sale. Guldogan noted that Turkey views
foreign corporate offset requirements as a way to elevate
Turkey's technological standards and will require them for
the foreseeable future. According to a Nov. 26, 2004 MND
directive, participants in foreign tenders valued over $5M
are required to meet at least 50% of their import value in
offset commitments through production, technology transfer or
training. Participants in the attack helicopter tender
issued February 10 are required to meet a 60% offset
requirement.


7. (C) Aysun Kucuk said that US industry has only realized
$789M of its total $1.6B offset requirement to-date. She
suggested purchases of MKEK's 5.56 machine gun or the fast
patrol boats produced by Yonca Teknik A.S., R&D support or
technology transfer as ways that US industry could meet its
outstanding offset requirements. Kucuk noted that
Northrop-Grumman is evaluating the possible purchase of
Turkey's fast patrol boats and urged the USG to encourage
this purchase. She suggested that purchases in Turkey for
the US military could be credited against US corporate offset
requirements and that the USG could choose to give the credit
to the US firm of its choice. (In fact, Northrop-Grumman and
other contractors have this "offset requirement" by virtue of
their commercial contracts, not the US Government. The US
Government makes no offset commitments.) While appearing to
accept Mr. Bruce's clear explanation that the USG does not
play a role in direct commercial sales or purchases, MG Inak
and SSM representatives insisted that the USG should
positively influence Northrop-Grumman's decision. Mr. Bruce
questioned whether Turkey has taken advantage of the $1B USG
Foreign Comparative Testing program to evaluate foreign
product ability to meet a USG need, which would save the USG
from investing needlessly in development of an item that is
available elsewhere. MG Inak said he was unaware of this
program and expressed an interest in participating.


8. (C) During a separate office call with MG Inak, DSCA Chief
Lt Gen Kohler raised the USG's concern with the production
offset requirement, saying that the issue came to the fore
during the November presidential election, where it was tied
up in the controversy over exporting US jobs offshore. US
industry has tried to explain the value of offsets, to
include their role in doing business, but the perception on
the Hill remains that offsets equate to US job losses. For
that reason, Lt Gen Kohler said, he is concerned about some
of the Terms and Conditions (T&Cs) in the attack helicopter
tender. Lt Gen Kohler also emphasized the potential adverse
impact that the EU's lifting of its arms embargo on China
would have on how the US does business with all countries,
including Turkey.

--------------
NEW STANDARD CONTRACT TERMS
--------------


9. (C) SSM's Guldogan briefly described the new standard
defense contract terms, which are being applied to all
contacts initiated after Nov. 26, 2004, except those for R&D,
where some T&Cs might not apply. The goal is to receive
compatible bids calculated under similar terms. Bidders are
required to initial every page of the T&Cs. Any bid that
does not comply will not be considered. The first tender
issued under these requirements was the attack helicopter
tender issued on Feb. 10. SSM hopes that US companies will
choose to participate in the tender, which has a June bid
submission deadline. To get initial feedback from potential
bidders, SSM would host a Bidders' Conference on March 10.
While SSM welcomed input, according to Guldogan, it did not
intend to change any of the T&Cs. Guldogan expressed his
belief that the current T&Cs are "less strenuous" than some
applied in the past. He dismissed complaints by firms that
received the attack helicopter bid package that some of the
T&Cs are too difficult for any firm to meet. Through this
change, SSM is attempting to standardize certain elements,
such as the grace period. He added that SSM recognizes that
bidders may experience an added cost associated with these
terms, and that this should be reflected in their bids.


10. (U) Guldogan listed current and upcoming tenders as
follows: 6 Mine Hunting Vessels: partnering with Germany; 91
attack helicopters: RFP issued in February, bids due in June,
decision expected in December; trainer aircraft: 4 potential
bidders, including Raytheon; utility helicopters: Sikorsky
and Eurocopter, mid-year RFP; light utility helicopter for
Jandarma and police: RFP to be issued mid-year;
reconnaissance and surveillance satellite: RFP before end of
year; and an F-16 upgrade: LOA under discussion with Boeing.



11. (C) Lt Gen Kohler, during his office call with MG Inak,
raised concerns presented by US firms about the difficult
terms of the attack helicopter tender that may prevent them
from competing and suggested the need for give and take on
both sides.

--------------
RESEARCH AND DEVELOPMENT
--------------


12. (C) MG Inak noted that he specifically brought BG Akay,
MND's R&D and Technology Department head, because he views
R&D cooperation as a major area of opportunity. Asserting
that under the DECA the US committed to support the
development of Turkey's technological advancement, MG Inak
called on the US to assist Turkey to increase its testing,
evaluation and certification capability. According to Akay,
as part of the defense industry restructuring, R&D spending
would more than double to $300M or 2% of the budget in 2005,
and was projected to grow to 6%. MND R&D priorities include
UAVs, satellite-based technology, cruise missiles, air
defense systems, mine detection and disposition, smart
weapons, robotics, stealth technology, network centric
warfare and nano technology, among others. Turkish R&D is
conducted through universities, defense companies and the
TUBITAK government research facility which has departments
devoted to information technology (BILTEN),energy systems
(MRC),materiel and chemical weapons (SAGE),information
security and micro-electronics (NRIEC). TGS R&D Command's
CDR Balci noted that Turkey had more cooperative R&D projects
with other countries than with the US. Mr. Bruce welcomed
this information and underscored that Turkey's R&D priorities
had never before been clearly outlined to him. He asked for
specific contact information for each R&D area.


13. (C) During MG Inak's office call, Lt Gen Kohler noted his
concern with the low level of Turkish R&D investment. He
emphasized that Turkish firms must be at a competitive level
to work with US firms. In response to MG Inak's suggestion
that US firms could cooperate with Turkish firms on R&D, Lt
Gen Kohler emphasized that US firms identify their own R&D
partners, with the USG playing no role. Lt Gen Kohler
continued by saying that US firms do conduct joint R&D in
countries where the other company brings something to the
table, using the example of long-life batteries developed by
a foreign partner.

--------------
JOINT STRIKE FIGHTER
--------------


14. (C) SSM's Guldogan called JSF one of Turkey's biggest
defense programs. He added that Turkey is very impressed by
the project and does not question its success, but is deeply
disappointed in the amount of workshare it has received.
After the UK, Turkey will be the third largest purchaser of
planes at 100 units. If the UK drops its projected purchase
to below 100 as suspected, Turkey would become the second
largest purchaser after the USG. Given Turkey's projected
$10B purchase, which would prohibit Turkey from investing in
other projects, Guldogan expressed Turkey's surprise that its
workshare paled in comparison to "other countries" (read:
Italy) that planned to purchase far fewer planes but
complained loudly and were rewarded with over $2B in
workshare. Guldogan raised the specter of Turkish withdrawal
from the program by noting that SSM would brief its
government soon on the project and that upper management
would decide whether or not to continue with JSF in June
based on Turkey's workshare. In Guldogan's words, he was
"not complaining, just telling you. The US can take an
action or not."


15. (C) In a separate office call with Acting Undersecretary
Wynne, MG Inak characterized Lockheed-Martin, the JSF Prime
Contractor, as very inflexible. He noted that Turkey is
seeking more cooperation on the JSF program and reviewing
closely its participation in the program. Inak said he had
told his government that Turkey joined JSF to get the
technology. He does not want to have to tell his government
that Turkey will get nothing. In his view, Lockheed and
other US firms are looking for USG support and encouragement
to give Turkey business. Acting U/S Wynne responded that all
of the US JSF participants are being pushed to maximize
foreign participation but also to standardize the design as
much as possible. Finding a balance between those two
requirements is a challenge. During MG Inak's office call
with the Director, DSCA, Lt Gen Kohler said that
Lockheed-Martin is looking for the best quality, price and
overall value for inputs. He underscored that the USG could
not direct Lockheed Martin on what to do. He dismissed
Guldogan's complaint that Lockheed Martin did not publicize
its definition of "best value," saying that the definition is
widely understood.

--------------
US DEFENSE PROCUREMENT PRIORITIES
--------------


16. (U) In response to MG Inak's call for the US to address
the defense trade imbalance by pressing US firms to utilize
Turkish products, both Acting U/S Wynne during his meeting
with MG Inak, and Mr. Bruce during the DIC, outlined current
US defense procurement priorities and noted that these
included areas where Turkey could participate. They
emphasized more durable "soft goods" and efficient, creative
solutions to logistics problems. Mr. Bruce suggested trucks
that don't rust; efficient power generators; forklifts and
other equipment to move supplies into trucks faster;
longer-life batteries; better fuel efficient vehicles;
armored trucks; durable clothing for troops; ammunition and
food items. Acting U/S Wynne projected that the Iraqis would
look for strong policing vehicles and armored fuel trucks.
He also suggested the Marine Fighting Vehicle as an
opportunity. MG Inak gave no indication of Turkey's interest
in any of these areas, but, rather, again noted his
government's desire to see Northrop-Grumman purchase the
Yonca fast patrol boats.

--------------
DEPOT-LEVEL MAINTENANCE
--------------


17. (U) During MG Inak's office call, Lt Gen Kohler noted
Turkey's interest in providing depot-level maintenance and
repair services for vehicles deployed to Iraq. He
acknowledged some USG interest in this prospect since US
forces were likely to be in Iraq for some time. However, he
stressed that the US Army has the lead on this issue. A DIC
conference presentation on depot-level maintenance explained
the Congressional requirement that not more than 50% of
appropriated funds for such maintenance can be used to
contract services outside of DOD facilities and that
compliance was closely scrutinized by the GAO. However, both
at the conference and in the office call with Lt Gen Kohler,
Turkey's existing NAMSA (NATO) contract to conduct repair
work was raised as a possible umbrella under which work on
vehicles coming from Iraq could be conducted.

--------------
US VIEW OF DEFENSE COOPERATION
--------------


18. (U) In sharp contrast to the Turkish portrayal of our
bilateral defense cooperation, US presentations highlighted
the positive and looked forward to additional areas of
opportunity, including space cooperation under a framework
MOU that was being finalized. The US also hoped to sign a
Tactical Missile MoA with Turkey to provide a framework to
explore project ideas and information exchange towards the
achievement of tactical missile standardization,
interoperability, risk-sharing and tactical support. From an
export control standpoint, the State Department viewed the
partnership as strong. As a NATO member, Turkey enjoys
special US export privileges under the Defense Trade Security
Initiative (DTSI),as well as expedited congressional
notification privileges. According to State PM
representatives, of the 80 licenses being processed for the
JSF GPA, 11 are from Turkey. State PM reps also praised
Turkey for being a DTSI blanket end use and retransfer
signatory which authorizes Turkey advanced retransfer consent
to ship certain FMS equipment to other DTSI blanket end use
signatories, a process that greatly facilitates the U.S.
retansfer requirements process. Additionally, certain Buy
America Act requirements and the Balance of Payments
requirements are waived for Turkey. It is also granted
WTO/GPA privileges even though it is not a member. The one
criticism leveled at Turkey throughout the conference and
during office calls, was the need for Turkish firms to more
aggressively work to identify market needs, develop a product
to meet them, and actively market that product to potential
buyers. It was repeatedly underscored that the
responsibility for the development of Turkey's defense
industry lies with Turkey, and Turkey alone.




19. (U) Participants: MND Deputy Undersecretary for
Technology & Coordation MG Omer Inak was accompanied by: BG
Akay, MND Chair of the R&D and Technology Department, Col.
Alsancak, Defense Industrial Foreign Relations (DIFR) Dept.
head, Col. Karadag, Bilateral Foreign Relations Branch DIFR
Department head, CDR Balci from the Turkish General Staff R&D
Command, Aysun Kucuk, SSM Offset Department Director, Sedat
Guldogan, SSM Aviation Department Director, Asuman Vangolu,
SSM Director of Foreign Relations and Promotion, and Necati
Subasi from the SSM Foreign Relations Department. The US
delegation, led by the DOD Director of Armaments Cooperation
Atlantic Mr. Robert Bruce, included representatives from the
Office of the Undersecretary of Defense for Acquisition,
Technology & Logistics (OUSD AT&L),Undersecretary of the Air
Force, Navy International Programs Office, International
Security and Space Policy Office, Joint Strike Fighter
Program office, the Defense Security Cooperation Agency,
other Office of the Secretary of Defense staffs, the Joint
Staff, the State Department Political-Military Office, Ankara
Office of Defense Cooperation Chief MG Sutton and Embassy
Ankara Deputy PolMilCouns.


20. (U) This cable was cleared by OUSD (AT&L).
EDELMAN