SCENESETTER FOR THE SEPT. 2-3 VISIT OF SENATOR TED

UNCLAS SECTION 01 OF 05 ANKARA 004742

SIPDIS

STATE FOR EUR/SE AND H

E.O. 12958: N/A
TAGS: PREL PGOV OREP TU
SUBJECT: SCENESETTER FOR THE SEPT. 2-3 VISIT OF SENATOR TED
STEVENS TO TURKEY

REF: STATE

SENSITIVE BUT UNCLASSIFIED


1. (SBU) SUMMARY: Your visit comes at a time when our
bilateral relations are on the mend from a difficult period
when events in Iraq and Turkey's focus on getting a date from
the EU to start accession negotiations overshadowed our
traditionally close cooperation. With a growing economy, a
scheduled Oct. 3 date to start EU negotiations, and following
a series of high-level government exchanges culminating with
the early June visits of PM Erdogan, FM Gul and DCHOD Basbug
to Washington, Turkey has expressed its commitment to
strengthen our partnership in areas where our interests
converge, particularly in the Global War on Terrorism.
However, the lack of coalition effort against the PKK
(Kurdistan Workers' Party) in Iraq remains a sore point. A
recent upswing in terrorist attacks in Turkey attributed to
the PKK and lack of momentum on Turkey's EU agenda have
revealed divisions between the ruling, Islam-oriented AKP
government and secular state institutions, and indecision
that suggest a policy inertia which could impede the
government's ability to move forward to further Turkey's EU
bid and its broader policy programs. END SUMMARY.

Political Divisions
--------------


2. (SBU) By the numbers Turkey should be facing smooth
sailing politically. Ruling Islam-oriented AK Party (AKP)
has an almost two-thirds majority in parliament and controls
almost all major and second-tier Turkish cities. There is no
viable political alternative at the moment or in the
foreseeable future. The AKP government has passed long
overdue political and human rights reforms -- at least on
paper -- and has led Turkey close to an Oct. 3 start date for
EU accession negotiations. Sharply lower inflation and high
economic growth have allowed the government to argue for
continued patience on the economic front.


3. (SBU) However, a broad cross-section of Turks is worried
that Turkey is headed for a significant political day of
reckoning, even a constitutional crisis, between the core
institutions of the state, which have a secular vision of
Turkey, and AKP, which step by step is putting into effect
policies reflecting an Islamist-oriented concept of Turkey
and its foreign policy. Core state institutions (Presidency,
high judiciary, armed forces, and bureaucracy) are deeply
concerned by what they see as AKP's failure to put into
effect comprehensive and workable policies to combat both PKK
and Islamist terrorism. They are equally concerned by what
they see as AKP's broad attempts to subvert the secular
nature of public institutions by trying to pack the
Constitutional Court and other high courts, by preparing to
pass constitutional amendments which would sharply cut back
secular controls, by cutting off opposition parties' right of
debate (akin to the filibuster) to ram controversial
legislation through parliament, by appointing Islamists to
key bureaucratic posts, and by cutting off effective
bureaucratic control of Koran courses (thus leaving Turkey
vulnerable to medrese-type courses run by fanatics).


4. (SBU) In addition, both the U.S. and EU are concerned by
an anti-missionary, anti-Christian, anti-Jewish atmosphere
fostered by AKP and its policies regarding minority religions
in Turkey and by AKP's weak stance toward al Qaida, Zarkawi,
and other Islamist terrorists.

Security Relations on the Upswing
--------------


5. (SBU) Defense relations have traditionally been the
strongest aspect of our bilateral relationship, although they
have always had their ups and downs. One of the troughs was
in March 2003 when the Turkish Parliament voted against
allowing U.S. troops to enter northern Iraq from Turkey and
the following July when US forces arrested Turkish soldiers
in northern Iraq for plotting against a local mayor. The
successful June 2004 NATO Summit in Istanbul and President
Bush's visit to Ankara put the relationship back on a more
positive footing. However, the relationship suffered again
in late 2004 and early 2005 due to the continued unpopularity
of the coalition effort in Iraq (over 95% of the population
opposed the war) and lack of Turkish leadership in defending
our relationship. Military-to-military relations are on the
mend despite the Turkish military's continued frustration at
our lack of kinetic action against the PKK terrorist
organization's camps and leaders in northern Iraq. It was
the Deputy Chief of the General Staff (DCHOD),General Ilker
Basbug, who turned this situation around by expounding on the
importance of Turkey's relations with the U.S. despite some
problems, at a nationally-televised press conference on
January 26. The Chief of the General Staff (CHOD) followed
suit in April at a speech to the Turkish War Academy, in
which he reaffirmed that the Turkish-American relationship
was mutually beneficial and too broad in scope and too strong
to be weakened by any short-term event.

Partner in GWOT
--------------


6. (U) Turkey has provided valuable assistance and
cooperation to the global war on terrorism (GWOT). Ankara
offered to send peacekeeping troops to Iraq in October 2003
(an offer Iraq declined),approved the use of Incirlik Air
Base for tankers to refuel aircraft on support missions for
both OEF and OIF, authorized the transit of US troops on
rotation from Iraq, and permits the transit of fuel,
coalition supplies and humanitarian goods (from OIF's
inception until the end of CY04, over USD 2.5 billion in
coalition sustainment and humanitarian assistance, or about
25% of all sustainment and 66% of humanitarian fuel shipments
to Iraq.) In April 2005, the GOT granted the US permission
to establish a cargo hub at Incirlik. Operations begin in
June which have significantly increased the efficiency of the
delivery of supplies to Iraq. By moving cargo operations
closer to Afghanistan and Iraq, 6 US military C-17 aircraft
are able to move the amount of cargo it would take 9-10
military aircraft to move from Germany. Turkey has also
permitted the basing of a US FAA plane at Incirlik to conduct
navigational aid checks at all Iraq air fields. Turkey fully
and publicly supported the participation of all Iraqis in the
Jan. 30 elections and remains active in reconstruction
efforts, including providing fuel and electricity for Iraq,
and training in Turkey for Iraqi diplomats and politicians,
and (through the NATO training mission) Iraqi Security
Forces.


7. (U) On Aug. 8, Turkey completed its second International
Security Assistance Force (ISAF) Command (II and VII) in
Afghanistan, which it held for six months and during which
time it contributed over 1,600 troops. Turkey is currently
looking at options to further contribute to ISAF. Turkey
also contributes to reconstruction and training efforts in
Afghanistan. It is involved in the reconstruction of schools
and is exploring possible counter-narcotics training programs
for Afghan police both in Turkey and Afghanistan, as well as
alternative livelihood options for poppy farmers. Following
PM Erdogan's May visit to Afghanistan, he pledged an
additional $100M in assistance to the country.


8. (U) Beyond Afghanistan and Iraq, the US and Turkey
coordinate military assistance to Georgia and Azerbaijan,
improving their abilities to protect important energy
transport routes. Turkey subscribes to every arms control
arrangement it is eligible to join, including the
Proliferation Security Initiative (PSI). It will host the
first PSI combined air, land, and sea exercise in May 2006.
Ankara has also been supportive of international efforts to
press Iran to meet its commitments to the IAEA, fully backing
the EU-3 dialogue. The one issue on which we disagree is
Syria, where Turkey believes engagement will be more
effective than isolation to halt Syria's support of terrorism.


9. (U) The Turkish military's Partnership for Peace Training
(PFP) Center provides counter-terrorism and other training to
personnel from PfP partner countries. In June, TGS
inaugurated a NATO Center of Excellence for the Defense
Against Terrorism that will provide more specialized training
opportunities for both NATO partner nations, Allies and,
under NATO's Iraq training mission, Iraqis as well. The US
is supporting this center through the provision of rotational
trainers and via George C. Marshall European Center for
Security Studies trainer-training programs.

Defense Industry Cooperation Weak
--------------


10. (SBU) While overall mil-mil relations are improving, our
defense industry relationship is declining. Turkey has
historically preferred US military equipment for NATO and US
inter-operability reasons and in April 2005 signed a $1
billion Foreign Military Sale agreement to upgrade Turkey's
F-16 fleet; Lockheed Martin will perform the work on behalf
of the USG. However, no US firm has won a significant
commercially competed defense contract since Boeing was
awarded a contract in 2002 for Air Early Warning and Control
(AEW&C) aircraft. In 2004, three tenders (UAVs, Main Battle
Tanks, ATAK -- attack helicopter) were canceled. Bell
Helicopter, which had won the original ATAK tender in 1997,
lost it when the Turkey canceled the tender due to Bell's
inability to commit to significant technology transfer. The
tender was reissued in Feb. 2005 under onerous Terms and
Conditions requiring significant technology transfer and
heavy liability clauses. Bell Helicopter withdrew from
competition and Boeing threatened the same. In an attempt to
ensure US participation, Turkey revised the tender to reduce
some liability requirements and reissued it on May 18.
Boeing is evaluating the changes but remains unconvinced that
the terms have been revised enough to allow its
participation. We understand that the tender is being
revised yet again to address some specification issued raised
by non-US contenders in hopes of keeping them in the
competition. Bids are due Sept. 13.


11. (SBU) One bright spot is the June 26 agreement -- after
three years of negotiation -- between Turkey and Sikorsky
Helicopter for a $390M sale of 12 Seahawk helicopters, with
an option to buy 5 more. However, the sale is contingent on
the extension of an existing EXIM facility that had been
extended previously and will run out in 2011. Sikorsky has
told us it is considering bidding on a tender recently issued
for 52 helicopters for the Turkish Forestry Service and
Turkish Armed Forces. If EXIM is unable to extend its
facility for the Seahawk deal, Sikorsky's broader business
interests could be negatively impacted.


12. (U) Turkey is a Level III participant in the Joint Strike
Fighter (F-35) program and has pledged to buy around 100
planes, potentially making it the second or third largest
purchaser after the US military. However, it has requested
significant ($6B) local procurement which will be difficult
to meet.

Stagnation on Cyprus
--------------


13. (SBU) Overall settlement efforts are at a standstill
following the 2004 referendum in which Greek Cypriots
rejected the Annan Plan (Turkish Cypriots approved it).
Cypriot President Papadapoulos has refused SYG Annan,s
request that the Greek Cypriots side state its objections to
the Plan with "clarity and finality" as a first step in
further settlement efforts. Papadopolous feels no pressure
to show flexibility given that the Republic of Cyprus was
taken into the EU in May 2004.


14. (SBU) Papadopoulos has also stymied EU attempts to ease
Turkish Cypriot isolation through aid and direct trade. The
U.S. has done more than any other country to ease Turkish
Cypriot isolation, including establishing a $30.5 million
"Cyprus Partnership for Economic Growth" (CyPEG) designed to
help develop Turkish Cypriots businesses; several delegations
of Congressmen and staffers have also visited northern Cyprus
directly rather than traveling through the south. Turks
appreciate these efforts.

Bumpy Road to the EU
--------------


15. (U) Turkey and the EU are set to open accession
negotiations October 3. Turkey,s July extension of its EU
Customs Union to the ten new EU members, including Cyprus,
was marred in the view of some EU member states by Turkey's
declaration that it will not recognize the Republic of Cyprus
absent a comprehensive settlement. French PM de Villepin,s
and President Chirac's subsequent statements that Turkey
should also formally recognize Cyprus added an element of
doubt. The EU will take this up this matter just before your
visit, at a September 1-2 foreign ministers, meeting.


16. (SBU) EU members are working to agree on a negotiating
framework for Turkey prior to October 3. The UK, as EU Term
President, is working behind the scenes to prevent members
from inserting language that could cause the Turks to balk at
opening talks including, for example, suggestions that Turkey
will have to settle for less than full membership, i.e., a
privileged partnership.

Economy on the Rise
--------------


17. The Turkish economy is recovering from the sharp
financial crisis of 2001 thanks to the implementation of some
structural reforms -- such as the creation of an independent
central bank, cutbacks in government spending, and bank
regulatory reform -- as well as strong inflows of emerging
market portfolio investment. GDP grew 8.9% in 2004 and is
expected to grow at about 5% this year, while inflation is
currently below 10% and declining. The depth of Turkey's
financial problems and the partial implementation of reforms
leave the country vulnerable to a change in global market
sentiment that could be triggered either by domestic
developments or a rise in U.S. and global interest rates. A
large current account deficit (over %5 of GDP) is financed
largely by short-term inflows. Foreign direct investment has
not materialized as a stable source of financing or growth,
primarily due to the generally opaque legal and regulatory
environment.


18. The benefits of growth are not being felt by average
Turks. Annual per capita income is currently about $4000.
The current official rate of unemployment is approximately
10% (there is widespread underemployment) and
deep poverty is widespread, particularly in urban sprawl and
rural areas. Given the young population (30% is below the
age of 15),generating sustained growth is critical for
Turkey to raise incomes and maintain political and economic
stability. Unfortunately, the structural reforms necessary
to sustain such rates of growth have been slow in coming.
The privatization program has been disappointing, and the
share of unregistered (and untaxed) activity in total GDP is
estimated at 40-60%. Some of these issues are being
addressed through active IMF and World Bank programs. The
IMF recently approved a new three-year, $10 billion program
after prolonged government foot-dragging and the World Bank's
loan portfolio totals $4.3 billion. The EU accession process
will also entail reforms, but the most difficult ones will be
back-loaded and will entail large costs, such as for upgrades
needed to meet EU environmental standards.


19. In large part because of the slowness of reforms and
liberalization and the unwelcoming legal environment,
economic relations with the United States are not
commensurate with Turkey's economic size or potential.
Understandably, Turkey has given a priority to developing
economic relations with EU countries. However, the U.S.
share of Turkey's imports declined from 7.6% in 1999 to 3.5%
($3.4 billion) in 2004. The largest U.S. export category is
$500 million in raw cotton that is transformed into textiles
for export to Europe and the U.S. Other leading U.S. exports
are machinery, chemicals, and scrap metals. Total U.S.
investment is paltry: approximately $2 billion, concentrated
in the food products, banking and automotive sectors. The
highest profile U.S. companies are
Coca Cola, Citibank, Pepsi, Cargill and Ford; the latter has
a successful joint venture with a leading Turkish firm
producing light trucks for domestic use and export to Europe.
A track record of high-profile disputes involving arbitrary
Turkish court rulings and Turkish defaults on contracts has
deterred greater investment. Approximately $1 billion in
Turkish imports entered the United States under the
Generalized System of Preferences (GSP) program in 2004.


20. We also have serious issues over market access for U.S.
agricultural products, including rice and breeding cattle, as
well as a potentially restrictive biotechnology law being
considered by the Turkish parliament. Turkey plays a key
role in ensuring global energy security. The 1.0
million-barrels-per-day Baku-Tblisi-Ceyhan pipeline should be
completed later this year, and approximately 3 million
barrels flow through the congested and environmentally
sensitive Turkish Straits every day. Turkey imports nearly
all of its domestic energy supplies, including large
quantities of natural gas from Russia and Iran. It recently
announced plans to develop nuclear generating capacity, but
it is not clear how this would be financed.
MCELDOWNEY