Identifier
Created
Classification
Origin
06ANKARA5401
2006-09-18 07:46:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Ankara
Cable title:  

REMOVING TURKEY'S GSP BENEFITS COUNTERPRODUCTIVE

Tags:  ETRD ECON TU 
pdf how-to read a cable
VZCZCXRO5632
PP RUEHDA
DE RUEHAK #5401/01 2610746
ZNR UUUUU ZZH
P 180746Z SEP 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 8737
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 1290
RUEHDA/AMCONSUL ADANA 1110
RUEATRS/DEPT OF TREASURY WASHDC
UNCLAS SECTION 01 OF 02 ANKARA 005401 

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR EB A/S SULLIVAN
PASS USTR FOR AUSTR DONNELLY AMD MERIDETH SANDLER
USDOC FOR ITA/MAC/CRUSNACK
TREASURY FOR JONATHAN ROSE

E.O. 12958: N/A
TAGS: ETRD ECON TU
SUBJECT: REMOVING TURKEY'S GSP BENEFITS COUNTERPRODUCTIVE

REF: A) ANKARA 5093, B) STATE 128359

SUMMARY
-------

UNCLAS SECTION 01 OF 02 ANKARA 005401

SIPDIS

SENSITIVE

SIPDIS

DEPT FOR EB A/S SULLIVAN
PASS USTR FOR AUSTR DONNELLY AMD MERIDETH SANDLER
USDOC FOR ITA/MAC/CRUSNACK
TREASURY FOR JONATHAN ROSE

E.O. 12958: N/A
TAGS: ETRD ECON TU
SUBJECT: REMOVING TURKEY'S GSP BENEFITS COUNTERPRODUCTIVE

REF: A) ANKARA 5093, B) STATE 128359

SUMMARY
--------------


1. (SBU) Progress has been made and is still being made in opening
Turkish markets to U.S. exports and resolving long standing problems
like inadequate intellectual property protection. Reducing Turkey's
access to GSP benefits would deprive us of one of the few
instruments we have to work with Turkey on market access issues, and
would likely work against Turkish support for our WTO and
multilateral objectives. On top of potential bilateral setbacks,
loss of GSP benefits would have disproportionate impact on Turkey's
struggling SME sector, potentially undermining recent economic
gains. If these companies lose the competitive edge they have
enjoyed thanks to GSP benefits, the winners will be exporters from
competitors like Europe, China and India and the losers would be
U.S. consumers. In Turkey, loss of GSP benefits -- ven in the
context of a global review of the program -- would be viewed as a
punishment and would increase the multiple challenges we face
managing our relations with a key ally in a turbulent region. End
Summary.

SETBACK TO BILATERAL ECONOMIC AGENDA
--------------


2. (SBU) Our bilateral economic dialogue has revived over the last
year. After a three-year hiatus, USTR and Turkey's Foreign Trade
Undersecretariat (FTU) came together in January for a Trade and
Investment Framework Agreement (TIFA) Council meeting, which
improved the atmosphere for reducing trade impediments. We are
currently working to schedule an Economic Partnership Commission
(EPC) meeting, the first in three years.
Turkey's State Minister for Foreign Trade, Kursad Tuzmen, made 2006
the "Year of America" and has traveled extensively throughout the
U.S. to promote trade and investment.


3. (SBU) Turkey has made progress opening markets to U.S. imports
and resolving business disputes that have long plagued commercial
relations. Although IPR and agricultural market access issues
remain, the loss of GSP coverage may retard or reverse this
progress. Unlike other countries under review and unlike its main
competitors in the region and world-wide, Turkey apparently cannot

enter into other types of preferential trade agreements with the
U.S. because of its membership in the European Customs Union. GSP
is thus one of the few benefits the U.S. can use with Turkey to
promote our interests. Taking away these benefits in one fell swoop
for reasons exogenous to Turkey would deprive U.S. trade negotiators
of one of the few instruments they have to advance U.S. companies'
interests in better market access, including U.S. agricultural and
pharmaceutical companies. It is likely to preserve this flexibility
that PhRMA wrote USTR in support of maintaining Turkey's eligibility
for the GSP program.


4. (SBU) While not an active player in the Doha Round, Turkey has
been strongly supportive of the U.S. NAMA initiative. It also
worked closely with the U.S. textile industry on proposals designed
to ease the transition from the end of the global textile quota
system. Turkey has not been particularly associated with the
countries that have undermined Doha. It should not be punished with
them.

SETBACK TO ECONOMIC STABILITY IN TURKEY
--------------


5. (SBU) The United States has led the world investing in Turkey's
economic stability and prosperity. This includes our support for
economic reforms bilaterally and under the auspices of the single
largest IMF and World Bank programs worldwide. In 2003, Congress
appropriated $1 billion to support Turkey's economy during a time of
heightened regional turmoil. Although Turkey did not need to draw
on these funds, this facility was a strong symbol of our ongoing
commitment to Turkey and its economic welfare. Our efforts to
encourage reforms and sound policies are paying off in the form of
improved financial stability and broadly based economic growth.


6. (SBU) This work is also not done. Turkey's economic progress
remains vulnerable both to external financial markets and to
internal political developments. There is risk of "reform fatigue"
growing out of a perception that the benefits of better policy are
not widely diffused. Populist policy responses are always a danger
here. Turkey continues to suffer from high unemployment (8 - 10
percent),poverty (25 percent),and vast regional income

ANKARA 00005401 002 OF 002


disparities. These and other problems in the ethnically Kurdish
southeast are reflected in high infant mortality and illiteracy
rates that have made the area fertile ground for the siren song of
PKK terrorism. To address these disparities, the United States and
IFIs have encouraged greater diversification within the economy and
regionally. In the export sector, we specifically encouraged
reduced reliance on textile exports following the end of the Multi
Fiber Agreement quota regime.

SME'S BIGGEST LOSER
--------------


7. (SBU) The vehicle for diversification is Turkey's small and
medium enterprise sector, which accounts for 99 percent of
registered companies, but a much smaller share of economic activity.
TUSIAD, the organization that represents big Istanbul-based
business groups like Koc and Sabanci, estimates that its members
account for 70 percent of Turkish exports. Stronger SME performance
domestically and in exports will create jobs and spread wealth and
income more widely. SME's in the jewelry, stone and olive oil
sectors are the major beneficiaries of Turkey's GSP benefits and
would feel a loss of access most acutely. These companies operate
in highly competitive sectors and believe their products would not
be competitive in the U.S. market without GSP. The potential of
Turkey's SME's is highlighted by the economic success and relative
tranquility of the southeastern city of aziantep, which recently
hosted a U.S. Chambe of Commerce program aimed at developing SME
sector trade and investment ties between our two countries.


8. (SBU) Among Turkish SMEs, the most affected would be in the
jewelry sector, which operates on very thin margins and very tight
delivery schedules. It accounted for 36 percent of Turkey's $1
billion in GSP exports in 2005, including the waivers of competitive
needs limitations (ref a). Turkish jewelry producers maintain that
only countries like India, Italy and China can produce the same
quality of jewelry in the quantity that is produced in Turkey under
the tight time constraints demanded by U.S. importers. This makes
it unlikely that less-developed countries not currently exporting to
the United States could meet U.S. market needs after the removal of
CNL waivers or access to GSP. Turkey's regionally-based and rapidly
growing olive oil industry, also a major GSP beneficiary, competes
mainly with such more developed Mediterranean countries as Italy,
Greece and Spain. In both cases, the beneficiaries of Turkey's loss
of GSP benefits would not be the poorest countries, and the costs
would be born by U.S. consumers in the form of higher prices and
reduced availability of products.

COMMENT: POLITICAL CONSEQUENCES WILL ALSO RESULT
-------------- ---


9. (SBU) This year has seen improvement in Turkish-U.S. relations,
culminating in the signing of the Shared Vision and Strategic
Framework document and a Turkish contribution to UNIFIL. We are at
the start of serious cooperation against the PKK. Reflecting our
improved ties, the President and Prime Minister Erdogan will meet
next month. Erdogan's government is facing strong opposition
attacks for its cooperation with us on the PKK, Iraq, UNIFIL and
other issues, and this criticism will rise as Turkey approaches
parliamentary elections in 2007. The withdrawal of GSP benefits and
eligibility -- even in the context of a global review of the program
-- would be viewed here as a punishment directed at Turkey. This
would increase the multiple challenges we face advancing the U.S.
economic and political agenda with this key country at a time of
regional turmoil. End Comment.

Wilson