TURKEY-SYRIA FTA: NARROW SCOPE AND MODEST

C O N F I D E N T I A L ANKARA 001568

SIPDIS

SIPDIS

DEPARTMENT PLEASE PASS USTR FOR LERRION


E.O. 12958: DECL: 03/23/2016
TAGS: ETRD POL ECON TU SY
SUBJECT: TURKEY-SYRIA FTA: NARROW SCOPE AND MODEST
EXPECTATIONS

REF: A. DAMASCUS 1082

B. 05 ANKARA 7073

Classified By: DCM Nancy McEldowney for reasons 1.4 b & d.

This cable was coordinated with CG Istanbul.


1. (C) Summary: Turkish government officials and businessmen
do not share the SARG's optimism about the recently-approved
Turkey-Syria Free Trade Agreement. Turkish officials tell us
that Turkey's FTAs are dictated by European Customs Union
requirements, and business contacts tell us that Syria is a
difficult and insecure market in which to conduct business.
Turkey's business community does not expect significantly
enhanced economic ties between the two countries to result
from it. End summary.


2. (SBU) While the recent approval by the Turkish Parliament
of the Turkey-Syria Free Trade Agreement has generated
copious press coverage in Syria (ref A),the Turkish press
has not shown the same level of interest. Turkey's bilateral
trade and investment with Syria has increased substantially
in recent years, but with a total trade volume in 2005 of USD
743 million, it represents a trifling percentage of Turkey's
overall trade and economy (ref B). On March 7, Turkey's
Parliament approved the legislation authorizing the Foreign
Trade Undersecretariat (FTU) to sign the agreement, which
will then require final Cabinet approval. It will enter into
force two months following this approval.

Foreign Trade Undersecretariat
--------------


3. (SBU) In general, Turkey's "FTAs" are much narrower than
standard U.S. FTAs, and this one is no exception. According
to Cemalettin Damlaci, FTU Director General for EU, Turkey's
FTAs generally only include industrial goods and not
comprehensive coverage of services, agricultural products, or
investment. Damlaci said that Turkey generally agrees to
abolish tariffs on industrial goods upon the date of entry
into force, but it gives its partners the option of phasing
out their tariffs over a period of time, usually four to five
years. In the Syria FTA, Turkey will allow Syria to phase
out its tariffs on Turkish products over twelve years. In
regard to agricultural products, Damlaci told us that
coverage is always limited in Turkey's FTAs, and is subject
to ongoing negotiations after the two sides have signed the
agreement. Under the FTA with Syria, Turkey is provided
duty-fre exports for limited quantities of goods (the
largest of which is 10,000 tons of barley). Syria gains
duty-free export privileges for limited quantities of
specified agricultural products (the largest of which is
1,000 tons of crude sunflower-seed or safflower oil),but
Turkey maintains a 35 percent duty on 30,000 liters of wine
coming from Syria.


4. (SBU) Damlaci explained that Turkey's decisions to pursue
bilateral FTAs are predicated on their obligations under the
European Customs Union (ECU) agreement. Under the 1996
agreement, Turkey had five years in which to harmonize its
bilateral trade agreements with the EU's preferential
regimes. In 2004, Turkey negotiated and signed agreements
with Palestine, Morocco and Tunisia. In 2005, it negotiated
FTAs with Syria and Egypt. He noted that Turkey has had some
difficulty implementing agreements with several Middle
Eastern countries with which the EU has preferential
arrangements due to those countries' concerns about the
effect of increased Turkish imports on domestic business.
Turkey's FTA with Syria is one such example and required
several rounds of negotiations before both sides agreed. In
2006, Turkey is still negotiating FTAs with Lebanon, Jordan,
Chile and Mexico. The FTU is also holding preliminary FTA
discussions with Algeria, although the GOA has indicated
that, as of now, it is not ready to sign an FTA with Turkey.


5. (SBU) In addition to its ECU requirements, Damlaci
discussed Turkey's obligations as a participant in the
Euro-Mediterranean (Euro-Med) Partnership. In the 1995
Barcelona Declaration, Euro-Med Partners agreed to establish
the Euro-Med Free Trade Area (EMTA) by 2010. The EU is
currently negotiating Euro-Med "Association Agreements"
between itself and its partners that include trade
preferences. Euro-Med participants include the 25 EU member
states and Algeria, Egypt, Israel, Jordan, Lebanon, Morocco,

the Palestinian Authority, Syria, Tunisia and Turkey. Libya
has been an observer since 1999.

Ministry of Foreign Affairs
--------------


6. (C) MFA D/US for Bilateral Political Affairs, Ahmet
Uzumcu, told Ambassador March 21 that the Syria-Turkey FTA
resulted from Turkey's obligations to the EU, which was
earlier negotiating its own (never signed) preferential trade
agreement, and asked the GOT to engage. Uzumcu emphasized
that Turkey regularly briefed the EU on the status of FTA
negotiations with Syria, and the EU never indicated that they
wanted Turkey to stop talks. The MFA views the FTA as a
purely technical agreement that could provide more economic
benefits to Turkey than to Syria. Uzumcu argued that the
agreement is in the long-term interest of the international
community because it could provide the outside world with
greater access to the Syrian economy. He asserted that the
Syrian people view Turkey as a model and envy the Turkish
people and their standard of living. The FTA is a technical
step toward engaging the SARG to promote openness and reform.


7. (C) Ambassador cautioned that this agreement would be seen
as political. Uzumcu stressed that the GOT has curtailed its
high-level contact with the SARG. The GOT is trying to "tame
the regime," he added. Since they do not believe a better
alternative is in the offing, the GOT has no alternative but
to cooperate.

Turkish Business: Large-scale Trade Not Happening
-------------- --------------


8. (C) Turkish businessmen do not expect significant results
from the FTA. Turkish-Syrian Business Council head Fatih
Karamanci downplayed the prospects of the agreement
significantly increasing Turkish trade with Syria, and added
that the Council did not lobby aggressively for its
ratification. He told us that Syria had historically been a
good place to export, but Turkish businesses have encountered
increasing difficulty because of worldwide price competition
and Syria's participation in the "Greater Arab Free Trade
Agreement." Syria has had much lower cost access to the
Turkish market than Turkish businesses have had to Syria, but
the FTA should equalize this to some extent when it is fully
implemented (after 12 years). Karamanci emphasized that the
FTA was not a business initiative, and that the Council does
little more than act as an instrument for hosting Syrian
trade delegations and government officials. They try to
propose solutions to business problems, but the Council has
little influence on verall policy.


9. (C) Echoing comments b the Secretary General of the
Chamber of Indutry of the southeastern city of Gaziantep,
which is located just north of the Syrian border, Karamanci
also argued that there is little potential for Turkish-Syrian
trade. Syria lacks the infrastructure to cope with increased
trade, and Turkish businesses continually encounter problems
with security, banking, transferring funds and ensuring
implementation of contracts. Karamanci, who is active in
Turkey's textile sector, has lessened these problems for his
own business by requiring full payment for goods prior to
shipping them. He doubted that the FTA will result in
increased Turkish FDI in Syria due to the lack of security
and infrastructure. He questioned why a Turkish company
would take the risk of investing in Syria when Dubai or even
Lebanon are much more attractive alternatives. To date, only
six companies have established private investment projects in
Syria, and three additional Turkish companies have submitted
offers for government tenders related to construction
(historically a strong industry internationally for Turkey).


10. (C) Comment: While the SARG may be intent on hyping this
agreement as evidence of their decreased isolation and
growing trade potential, Turkish officials and businessmen do
not share their opinion of its importance. Turkish Foreign
Trade Minister Tuzmen is a career trade bureaucrat who
specializes in FTAs, and as Minister he has made it his goal
to sign as many as possible. The agreement will have little,
if any, short-term economic impact, and its long-term impact
will rely on Syria's ability to improve its infrastructure
and capacity. We do not expect this FTA to either
significantly enhance Turkey's trade with Syria or the
political ties between the two countries. End comment.


Visit Ankara's Classified Web Site at
http://www.state.sgov.gov/p/eur/ankara/

WILSON