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06ANKARA5093 2006-09-01 14:20:00 UNCLASSIFIED//FOR OFFICIAL USE ONLY Embassy Ankara
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1. (SBU) Summary. Turkish officials lost no time responding to news
that the Generalized System of Preferences (GSP) program was up for
review (ref a). State Minister for Foreign Trade Kursad Tuzmen's
letters to USTR Schwab and Secretary Gutierrez were highly
publicized in local media. MFA officials have also begun to chime
in. Business reactions are more muted, but companies fear losing
competitive advantage to countries enjoying preferential trade
agreements with the U.S. Turkey's $1 billion in GSP exports compose
approximately 20 percent of Turkey's total exports to the U.S. If
Turkey lost GSP benefits, its companies would face an average tariff
of about 5% on these products. Even coming as part of global
changes in the program, a loss of the benefits Turkish companies
currently enjoy will be seen here as a policy decision deliberately
and specifically aimed at Turkey. End Summary.


Government Officials Take Lead


2. (SBU) Within days of our delivery of ref A, media highlighted
State Minister for Foreign Trade Kursad Tuzmen's letter to USTR
Schwab in which he argues that it would be unfair if Turkey lost GSP
benefits because Turkish companies' competitors in the U.S. market
benefit from preferential or free trade agreements (which Turkey is
prevented from signing with the U.S. because of its membership in
the European Customs Union). Tuzmen added in a handwritten
postscript his hope that Turkey will receive favorable consideration
from USTR during this review because Turkey accounts for only 0.3
percent of total U.S. imports.

3. (SBU) More recently, MFA officials have begun to speak up.
During the recent American Turkish Council (ATC)-sponsored Staffdel,
MFA officials responsible for bilateral relations appealed to the
staffers to ask their Congressional Members to favorably consider
Turkey during the GSP review process. They argued that eliminating
Turkey's GSP privileges would benefit China and developed countries
such as Italy the most, rather than shifting the benefits to
less-developed countries. MFA officials are also raising the
subject in meetings with Embassy officers.


Business More Subdued, For Now


4. (SBU) Local Turkish jewelry producers told us that the loss of
GSP benefits would negatively affect their $384 million in
GSP-covered exports, on which they currently do not pay the 5.5
percent tariff. While large producers such as Goldas, a company
based in Istanbul that produces high quality gold jewelry, could
remain competitive, smaller companies who compete on very low profit
margins would be driven from the U.S. market due to competition
mostly from China. (Many of these smaller companies operate in
Turkey's many covered bazaars, whose small business and tradesmen
form part of the backbone of ruling AK party support.) Goldas
representatives added that while they believe that larger, higher
quality producers can remain in the market, they will certainly lose
their competitive advantage, from which, according to them, Italian
jewelry producers will benefit the most.

5. (SBU) We also recently began receiving correspondence on this
issue. The Turkish Foreign Trade Association and the Turkish
Exporters Assembly wrote the Ambassador to argue that the loss of
Turkey's GSP privileges would mostly affect Turkish SMEs and reduce
our bilateral trade volume below its already relatively small level.
Losing trade benefits during Minister Tuzmen's "Year of America,"
they added, would be an "ironic circumstance to evolve in a negative
direction." TURKTRADE also echoed Minister Tuzmen's argument that
other countries that might lose their GSP privileges also enjoy
benefits under other preferential trade agreements with the U.S.


COMMENT: Not Unexpected


6. (SBU) Because A/USTR Shaun Donnelly alerted his counterparts in
the January 2006 Trade and Investment Framework Agreement (TIFA)
Council meeting that Congress was considering a review of the entire
GSP program, ref A did not come as a complete surprise to FTU
officials. Still, the news will change the nature of U.S.-Turkey
trade discussions, which have traditionally focused on Turkey's
request for additional preferential arrangements for Turkish
exports, such as under a QIZ program. If Turkey loses its GSP
privileges, many here in the government and press will see it as a

ANKARA 00005093 002 OF 002

decision aimed specifically at Turkey and will spin political
theories that go far beyond the commercial realm. The point that it
was part of a global review of the program will be completely lost.


2005 Exports 2006
Product (USD 1,000) YTD Tariff





1. Jewelry - gold 279,853 105,553 5.5
or platinum

2. Jewelry - gold 103,992 43,574 5.5
necklaces or chains

3. Copper wire 37,421 34,386 4.9

4. Marble (not slabs) 32,709 18,896 4.9

5. Olive oil 31,548 11,315 USD.034/kg

6. Motor vehicle parts 30,212 15,954 2.5

7. Aluminun plates 24,538 10,398 3.0

8. Travertine, dressed or
polished 22,538 0 4.2

9. Copper parts for certain
appliances 21,782 9,720 3.0

10. Travertine,
flat surface 15,684 0 4.2

11. Furskin apparel 15,305 2,077 4.0

12. Copper wire,
not insulated 14,436 8,335 3.0

13. Propylene sheets
film, etc. 14,218 8,202 4.2

14. Olive oil 13,874 13,195 USD.034/kg

15. Other calcareous
stone 12,535 6,966 4.9

16. All others 396,351 254,674

TOTAL GSP EXPORTS 1,067,000 543,245

Note: Total Turkish 2005 imports USD 5.1 billion.