FOURTH TIFA RENEWS DIALOGUE FOR EXPANDING TRADE

UNCLAS SECTION 01 OF 04 ANKARA 000479

SIPDIS

FAS/W FOR ITP
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STATE PLEASE PASS USTR FOR SDONNELLY AND LERRION

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ETRD EAGR KIPR TU
SUBJECT: FOURTH TIFA RENEWS DIALOGUE FOR EXPANDING TRADE
WITH TURKEY

Ref: A) 05 Ankara 7658
B) Ankara 327
C) 05 Ankara 6899

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This information is sensitive but unclassified. Please
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1. (SBU) Summary: The fourth meeting of the U.S.-Turkey
Trade and Investment Framework Agreement (TIFA) Council
held January 24 in Ankara was an opportunity for the
U.S. and Turkey to discuss ways to revive our bilateral
trade relationship in an open and positive dialogue.
Along with the specific issues of market access,
taxation, IPR protection, Qualifying Industrial Zones
(QIZs),the GSP program and U.S. anti-dumping cases,
both sides stressed the potential for trade expansion
more than continuing differences. Both sides left with
a greater understanding of the other's views and a
renewed interest in cooperating on trade and investment
issues. End summary.

2.(SBU) The fourth meeting of the US-Turkey Trade and
Investment Framework Agreement (TIFA) Council convened
January 23 - 24 in Ankara. This was the first Council
held since 2001, although the 1999 TIFA called for
annual meetings. Assistant USTR Shaun Donnelly led the
U.S. delegation, which included representatives from the
Departments of State, Commerce and Agriculture. GOT
Foreign Trade Under Secretary Tuncer Kayalar led the
Turkish delegation, which included representatives of
the Ministries of Health, Agriculture and Foreign
Affairs, and the Turkish Sugar Board. The meetings
comprised a morning plenary session and a working
luncheon with the two delegation heads. An afternoon
session discussed technical issues at the working level.
AUSTR Donnelly met on the margins with the Under
Secretary of the Ministry of Agriculture (ref B) and

SIPDIS
with officials of the Turkish Federation of Chambers of
Commerce and Industry (TOBB). A breakfast meeting with
the U.S. business community in Turkey was cancelled for
unavoidable logistical reasons.

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Desire for Expanded Trade Sets Positive Tone
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3. (SBU) In the morning plenary session, Donnelly and
Kayalar stressed the importance of the bilateral
relationship and a desire for it to expand beyond the
traditional military and political partnership.
Kayalar's presentation emphasized the growth and
stability that Turkey's economy has enjoyed since the
2001 financial crisis. He pointed out, however, that
despite this growth, the level of trade between the US
and Turkey is far below its potential, with the Turkish
share of U.S. imports only 0.3% and the U.S. share of
Turkey's imports only 4.6%, and both countries losing
market share in the other. In order to build Turkish
exports to the United and Western Hemisphere, Kayalar
noted that 2006 marks the beginning of the Department of
Foreign Trade's "Year of the Americas" trade promotion
strategy (ref B).


4. (SBU) Donnelly similarly emphasized the potential for
expanding the bilateral trade relationship. He noted
Turkey's positive economic growth and the resolution of
several longstanding disputes involving US companies.
He commended the GOT for its steps to address many of
the issues that the USG has raised regarding protection
of intellectual property and congratulated Turkey for
the recent start of formal EU accession talks, noting
that the U.S. has supported Turkey's integration into
the European Union for more than forty years. Donnelly
encouraged continued reforms that strengthen investor
confidence and attract businesses to Turkey.

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Discussion of Specific Issues
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5. (SBU) Regarding Turkey's specific areas of concern,
Kayalar mentioned the long-standing anti-dumping cases
that have been brought against Turkey and expressed

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Turkey's concerns regarding the Byrd Amendment. He
requested USG support for a GSP competitive needs limit
waiver for Turkish exports of travertine marble to the
U.S. Finally, on the long-standing idea of the creation
of Qualifying Industrial Zones (QIZs) in Turkey, Kayalar
stated that this subject had been on the agenda for many
years, but that it remained the FTU's opinion that QIZs
would only make economic sense for Turkey if they
allowed for duty free export to the United States of a
broad spectrum of textile products. He asked for U.S.
clarification of its views on whether or not this issue
should remain on the bilateral agenda or be dropped.


6. (SBU) For the U.S. part, Donnelly raised the local
U.S. cola companies' concerns about the "special
consumption tax" Turkey levies on cola beverages and the
inability of U.S. companies to access sweeteners at
internationally competitive prices under Turkey's
current sugar regime. On IPR, he praised Turkey for
finally implementing data-exclusivity regulations, but
noted that the 2005 regulations fall short of Turkey's
obligations under the WTO TRIPS agreement. Donnelly
added that U.S. research-based pharmaceutical companies
continue to have concerns regarding the fate of
approximately 35 products for which generic applications
were filed prior to the January 1, 2005 start of the new
law. Regarding QIZs, Donnelly noted the political
sensitivity of textile imports for the U.S. and the fact
that a QIZ program for Turkey would require legislative
action. Finally, regarding agriculture, Donnelly
discussed in general terms the current WTO bilateral
consultations on Turkey's rice import regime and
expressed concern at Turkey's failure to issue
regulations governing the importation of meat, poultry
and beef, which effectively prevents such imports.

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WTO: Cooperation on NAMA Possible
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7. (SBU) Explaining Turkey's views on the Doha Round
negotiations, Kayalar said the GOT is concerned about
its agricultural sector, which accounts for about 30% of
total employment, and wants to see market access changes
affecting developing countries (such as Turkey) phased
in over as long a period of time as possible. Turkey
supports the phase out of export subsidies by developed
countries. On non-agricultural market access (NAMA)
issues, Turkey considers itself a developed and
competitive country in the market and could possibly
find ways to cooperate with the U.S. on these issues
during the Doha Round. Donnelly noted that Turkey was
well positioned to be a major beneficiary of the new
trade flows that an agreement would unleash and stated
that the U.S. understands the sensitivity of the
agricultural sector to many countries, including Turkey.
He explained, however, that until meaningful agreement
is reached on agriculture, the Doha Round cannot move
forward on NAMA and services.

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Technical Discussions
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8. (SBU) In the afternoon "technical discussions" that
did not include the two delegation heads, USTR Director
Lisa Errion and representatives from the Departments of
Commerce, State and Agriculture met with Turkish
officials (almost twenty) to discuss in detail the
issues raised by the principals during the morning
discussions. Turkish officials were not prepared to
discuss meat or livestock import regulations during the
technical discussions and suggested a separate meeting
at a later date. In addition, the WTO rice case was not
discussed ruing the afternoon discussions.

Cola Taxation and Sugar Law
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9. (SBU) The U.S. side raised two issues of concern to
the U.S. soft drink industry in Turkey: discriminatory
taxes on cola and the high cost of sweeteners due to
domestic production quotas and high import duties for

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starch-based sweeteners. On the tax issue, GOT
officials stated that the total tax on cola drinks is
46% and that these taxes are levied on all carbonated
soft drinks, not just colas. As such, they argued that
there is no discriminatory treatment as compared with
other beverages sold in Turkey because they do not
consider juices, coffees, and waters as direct
substitutes for soft drinks.


10. (SBU) Regarding the cost of sweeteners, GOT
officials reported reductions to two discrete tariff
lines related to starch-based sugar and argued that
liberalizing imports of these items would create more
supply in the market. They also touted a 2005 increase
in the domestic fructose production quota from 10% to
15% of sugar production as creating new supply for the
industry. More in-depth discussion revealed, however,
that the tariff lines in question have no relevance to
the products needed by this industry. Even with the
increase in the production quota, there is still
significant excess production capacity in the Turkish
fructose industry and insufficient domestic fructose
supply. In response to a question from the U.S. side
about allegations that a Turkish cola-producer was
illegally producing fructose, a representative of the
Sugar Board reported that Turkish cola maker Ulker was
recently fined and made to cease in-house production of
fructose outside of the sugar regime. The U.S. side
requested that the Foreign Trade Undersecretariat extend
its good offices to meet with representatives from the
U.S. beverage manufacturers to discuss these issues in
more depth, and FTU officials indicated they would be
happy to do so.

Daimler-Chrysler
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11. (SBU) The U.S. side raised concerns about an
increase in the taxation of imports of Daimler
Chrysler's Voyager minivan from 10% to 84% following a
customs reclassification of the vehicle. GOT officials
said they reclassified the Voyager from 8704 (commercial
vehicle) to HS code 8703 (passenger vehicle) based on an
opinion received from the World Customs Organization
(WCO). While most vehicles in that category are subject
to a tax rate of 10%, the Voyager's weight, capacity,
and engine size put it in a category of a luxury vehicle
which is assessed a tax rate of 84%. The Turkish side
alluded to an outstanding court case on this issue. The
U.S. side indicated that it intended to discuss the
matter in greater detail with the company and would
follow up on the issue at a future date through the U.S.
Embassy.

IPR
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12. (SBU) The U.S. expressed its concerns about the
Turkish legislature's consideration of a proposed
amendment to Turkey's patent law that reportedly would
weaken patent protection in Turkey (ref C). Concerns
regarding the current draft legislation include: lack of
patent term restoration for regulatory delay to ensure
the internationally required 20 year term of patent
protection for pharmaceuticals; compulsory licensing
provisions that appear inconsistent with TRIPs; and lack
of a clear right of action against those using
infringing products. Representatives of FTU and the
Turkish Patent and Trademark Office said that they share
our misgivings and that they are urging the legislature
to prevent its passage.


13. (SBU) The U.S. side also reiterated points made by
Donnelly in the morning session about the research-based
pharmaceutical companies' concerns regarding data
exclusivity. Turkish officials indicated that the 35
generic applications submitted in late 2004 just before
the new DE regulations went into effect are being
reviewed, but this review does not necessarily mean that
they will subsequently be approved. The Turkish side
argued that, under European Customs Union (ECU)
regulations, Turkey cannot differentiate itself from
other ECU countries and thus the data exclusivity period

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must begin with the first marketing approval in an ECU
country.

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Comment: Positive Tone Renews Interest in Cooperation
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14. (SBU) This TIFA Council meeting restored the
bilateral dialogue on trade issues and provided an
opportunity to discuss future cooperation.
WILSON