LETTER FROM FOREIGN TRADE MINISTER TUZMEN TO USTR SCHWAB

UNCLAS SECTION 01 OF 02 ANKARA 005511 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: LETTER FROM FOREIGN TRADE MINISTER TUZMEN TO USTR SCHWAB REGARDING TURKEY'S GSP BENEFITS REF: A) ANKARA 5401, B) ANKARA 5093, C) STATE 128359 ¶1. On September 19, we received the following letter from State Minister for Foreign Trade, Kursad Tuzmen, to USTR Schwab regarding Turkey's Generalized System of Preferences (GSP) benefits. The letter provides a number of arguments for Turkey's retention of GSP. As stated in refs A and B, this issue has become one of paramount importance for the Foreign Trade Undersecretariat (FTU) and Turkey's business community, and they are taking the review very seriously. ¶2. Begin text of letter: REPUBLIC OF TURKEY MINISTRY OF STATE Ambassador Ms. Susan Schwab The US Trade Representative September 18, 2006 Dear Susan: This correspondence is in response to the notice by your office of a review or the eligibility of certain GSP beneficiary countries, including Turkey, and of existing competitive need limitation waivers of which Turkey holds two. The conditions of trade and the global market are significantly different from those existing in 1975 when the Generalized System of Preferences was initiated by the United States and several other "developed" countries. Since then, the competitive factors and economic conditions affecting world trade have been dramatically altered by events such as the end of the Cold War and the entry of a number of "new" trading states in the global marketplace, formation of the World Trade Organization with attendant disciplines in non-tariff barriers (including the demise of global textile and apparel quotas),seventy dollar per barrel oil, economic crises in Asia, South America and in my country, and the burgeoning use of unilateral and bilateral programs by the United States and Europe to compete for low cost goods and market access. Throughout these challenging times, the United States has maintained one trade preference program that has offered a special dialogue and an effective incentive for many developing countries to adopt free market practices, economic diversification and related policies and practices of democratic civil society. The Generalized System of Preferences has been one of the most successful trade policy tools ;in recent U.S. history. This success has been achieved by recognizing that reducing tariff barriers to the products of companies and people in developing countries, like Turkey, gives them an opportunity to compete for a share of the U.S. market - an opportunity that they appreciate and readily embrace. Certainly Turkey has taken advantage of this opportunity. And Turkey asks that it continue to be able to avail itself of the opportunity to improve itself by doing business with the United States through the GSP program. When the GSP was adopted, it was contemplated that countries and products would "graduate" from its benefits. Products are regularly removed but wholesale discharge of a country from GSP eligibility is rare. In 1989, the President found that Hong Kong, the Republic of Korea, Singapore and Taiwan had reached a point in their economic development and international competitiveness that warranted their graduation, noting that these countries had "achieved an impressive level of economic development and competitiveness, which can be sustained without the preferences provided by the program." I add the emphasis to the last part of the President's statement because it is critical to the decision about to be made regarding Turkey. Hindsight proves that the economies of the countries graduated in 1989 were and are capable of sustained development and competitiveness. While Turkey has made significant improvements in its economy in the past five years, it is not at all in the same shape as the economics mentioned above at the time of their graduation. Turkey has been working with the International Monetary Fund since 1999 to restructure its economy. The work is not done, as the IMF Country Report on Turkey dated July 2006 indicates. There are many economic indicators that show Turkey to be economically healthier than four years ago, but recent data also reveal the fragile nature of our recovery. Our terms of trade are declining, largely due to the strength of our currency and the stress our textile exporters arc experiencing (they represent practically 30% of our overall annual export earnings) by reason of the intense global competition fostered by the demise of the global quota system. An UNCTAD report in 2005 noted that of seventy categories of leading products exported by major exporting "developing countries", Turkey only ranked in 28 and 10 of those were in the textile and apparel sectors (which are not eligible for GSP treatment) which are steadily being overwhelmed by countries like China, Pakistan and Malaysia. Thus, my country may he a substantial exporter in a few sectors, but it is in serious need of diversification. Notwithstanding challenges such as these, Turkey maintains one of the lowest average ad valorem tariff rates on non-agricultural and non-fuel products in the world: in 2003 it was 4.3%. Compared to Brazi1 at 14.0% or India at 28.1 %, and it is evident that Turkey is willing to suffer the competitive strains required to strengthen its economy. But it still needs support like the United States GSP program. Turkey's improvements are yet to be determined as "sustained" and have not shown themselves to have permeated many sectors that need to improve export performance. Therefore, with respect to Turkey's access to the U.S. market for newly developing sectors in our economy, the GSP program remains a critical factor in our developmental equation. Assuming that the review of Turkey's economic condition leads your office to the conclusion that country graduation is not warranted at this time, I also would like to request that the one Turkish sector currently benefiting from CNL waivers, continue to receive the waivers. Our gold jewelry exports to the United States (HTSUS numbers 7113.19:29 and 7113.19.50) have exceeded the monetary limit for GSP but hardly come close to demonstrating the ability to compete without the preference against country sources such as China, India, Italy, Hong Kong or Mexico. Each country exports far more to the U.S. than Turkey (China, Hong Kong and Italy without GSP treatment, Mexico with the NAFTA advantage and India exporting four times the amount than Turkey to the U.S. also under a CNL waiver) and they will be more than able to pick off Turkish customers if a duty is imposed on jewelry imports from my country. In Turkey, the gold jewelry sector employs over 250,000 people, often incorporating whole families in the business. With the price of gold nearly doubling in the last three years, Turkey is at a competitive disadvantage since it must source its gold from foreign sources. In order to keep that important sector alive, we need to maintain our competitiveness in markets such as the United States: Without the CNL waiver, it becomes practically impossible. Turkey is a developing and dynamic country with great promise. For the past five years the people of Turkey have undertaken painful economic reform measures and have made enormous efforts to adjust to the realities of the new global market - while the country continues to adhere to its WTO obligations and maintains liberal rules and policies with respect to access to its market. These actions should not be disregarded. What is left of affirmative trade policy tools and programs for the United States to offer Turkey should remain in place while Turkey's efforts bear fruit, not terminated at a time when it would serve as a catalyst for serious economic and trade difficulties. The GSP program is a vital factor in Turkey's eventual achievement of sustained economic development and international competitiveness. For that reason, I ask that you maintain Turkey's eligibility in the program. Sincerely Yours, Kursad Tuzmen Minister of State End text of letter. Wilson