TURKISH CYPRIOT OWN GOAL: TRADE IN POTATOES

C O N F I D E N T I A L NICOSIA 000977

SIPDIS

SIPDIS

DEPT PLEASE PASS TO USAID/E&E STUDZINSKI

E.O. 12958: DECL: 06/25/2016
TAGS: ETRD EAID PREL PGOV ECON CY
SUBJECT: TURKISH CYPRIOT OWN GOAL: TRADE IN POTATOES
THROUGH LIMASSOL BLOCKED BY "TRNC" AUTHORITIES, TURKEY

Classified By: AMBASSADOR RONALD SCHLICHER. REASONS 1.4. (B) AND (D).


1. (SBU) This is an action request. Please see paragraphs 3
and 9.

Summary and Comment
--------------

2. (SBU) Turkish Cypriot authorities and Turkey intervened
June 23 (two days before important local elections) to kill a
USAID contractor-facilitated deal that would have sent 2,000
tons of Turkish Cypriot potatoes to a European buyer through
the Greek Cypriot port of Limassol, apparently out of
misplaced concern that trade through the south would
undermine efforts to get the EU to remove restrictions on the
use of Turkish Cypriot ports. The deal, had it gone through,
would have opened up a new lucrative market, permitting
Turkish Cypriots to sell their entire stock of surplus
potatoes at nearly three times the price currently available,
and possibly pre-sell all of next year's crop. In February,
Turkish Cypriot authorities acted to block a more modest
"test" shipment of valencia oranges. (Note: the EU Green
Line Regulation does not permit Turkish Cypriot citrus or
potatoes to enter the EU if shipped from Turkish Cypriot
ports. End note.) Turkey has reportedly promised to
compensate the Turkish Cypriots for the loss of sale of the
entire potato and citrus crops (much of the citrus had simply
been left to rot on the trees for lack of buyers),although
presumably at below full market price. The GoC Presidential
Administration, which bent over backward to make the deal go
through, can be expected to exploit this development to argue
that Greek Cypriot ports could fully meet Turkish Cypriot
needs if only given the chance and to stress that the Turkish
Cypriots are motivated by a separatist political agenda.


3. (C) The Turkish/Turkish Cypriot action is a gross
miscalculation that will only play into the GoC,s propaganda
machine and serve to further isolate the Turkish Cypriot
community. It will also slow down efforts by the EU to
expand the scope of new products, such as fish and honey,
allowed across the Green Line. While we have learned never
to underestimate the Turkish Cypriots, ability to shoot
themselves in the foot, this example is especially egregious.
It fits a pattern of refusing to take small (or in this case
large) positive steps unless all their political demands are
met and focusing not on the actual merits of a case, but what
the Greek Cypriot reaction to it might be. Post recommends
that the Department ask Embassy Ankara to intervene with key
GoT interlocutors to urge them to butt out and allow this and
similar deals to go through and to encourage the Turkish
Cypriots not to pursue a policy of self-isolation. End
summary and comment.

Citrus Deal Killed in February
--------------

4. (SBU) In February, after protests by the Turkish Cypriot
Chamber of Commerce, Famagusta port workers and the Turkish
Cypriot Truck Drivers Union, Turkish Cypriot authorities
instructed the "semi-state" Cipruvex citrus packing house to
refuse to pack a small "test" shipment of Valencia oranges
bound for the UK via the Greek Cypriot port of Limassol. The
deal was being facilitated by a USAID contractor that had
identified the buyer as part of its efforts to find new
markets for Turkish Cypriot products. While Turkish Cypriot
citrus cannot legally be exported to the EU if shipped from
Turkish Cypriot ports, Turkish middlemen frequently buy it on
the cheap, re-label it as Turkish and sell it to the EU at a
hefty premium. Shipping citrus through Limassol would mean
that Turkish Cypriots would eliminate the Turkish middlemen
and keep most of the profit for themselves. It would also
significantly increase overall sales. Despite our repeated
demarches on the benefits of opening new markets, no new
deals could be worked out before the end of citrus season,
leaving thousands of tons of citrus to rot on the trees for
lack of buyers.

You say Potato...
--------------

5. (SBU) Since different varieties of potatoes are grown in
Cyprus and Turkey, the only way to sell Turkish Cypriot
potatoes to the EU is through Greek Cypriot ports (i.e., it
is much more difficult to get away with labeling Turkish
Cypriot potatoes as Turkish). Cypriot potatoes are also
attractive in Europe because the harvest in Cyprus is several
weeks before the European harvest, creating a brief window

during which Cypriot potatoes command prices almost three
times the level that Turkish Cypriot producers can get in
Turkey. Potato production in north Cyprus has also declined
in past years because of lack of buyers, meaning that
production could be quickly increased to fulfill new demand.
As a result, two Turkish Cypriot businessmen, one with the
help of the USAID contractor and one with the help of a Greek
Cypriot partner, were able to identify European customers
willing to purchase the entire surplus Turkish Cypriot
production. This year the north produced around 9,000-10,000
tons of potatoes, around 4,000-5,000 of which were consumed
domestically. According to the USAID contractor, if the
quality of the potatoes proved acceptable, the buyers were
willing to pre-purchase entire future harvests.


6. (C) In early June, the Turkish Cypriot "Council of
Ministers" decided to provide export subsidies for sale of
potatoes regardless of whether Greek Cypriot ports were used
(although the subsidy would be even higher if the potatoes
were shipped through Famagusta or Kyrenia). On June 17,
however, Turkish Cypriot Chamber of Commerce President Erdil
Nami, who is close to the "government", mobilized opposition
to the deals by reporting their existence to the press and
claiming (inaccurately) that only Greek Cypriot trucks would
be used. (Note: under EU rules, the Chamber must issue
certificates of origin for any goods crossing the Green Line.
End note). Two members of the Chamber's board, including a
Vice President, led a small protest (around 18 people) which
temporarily stopped all work at the potato packing house. As
a result, the sellers came under intense pressure from
nationalist groups to stop the deals, and reportedly even
received death threats. On June 21, one seller reported to
us that he had received a phone call from "Agricultural
Minister" Oztoprak asking him to delay the shipment until
after the June 25 local elections, to which he agreed. On
June 23, however, Oztoprak called him back to report that he
had just received a call from "AnkQa" asking him to kill the
deals. In return, Turkey would compensate the Turkish
Cypriots for the potatoes and citrus it had been unable to
sell. As a result, the seller decided not to go forward. We
were unable to reach the second Turkish Cypriot businessman
but understand that he has also dropped his plans to export
potatoes to Europe but may still be trying to find a Greek
Cypriot buyer.


7. (SBU) For its part, the GoC Presidential Administration
went uncharacteristically out of its way to help make the
deal go through. It was willing to make an exception to its
politically-motivated restrictions on the use of Turkish
Cypriot commercial vehicles to enable the potatoes to be
transported to Limassol in Turkish Cypriot trucks. It was
also willing to expedite inspections at the checkpoints and
permit the use of the unauthorized Strovilia crossing point
to cut down the distance the trucks needed to travel.
Whether the GoC would honor its commitments, however, was
never tested.

Costs to Turkish Cypriots High
--------------

8. (C) The costs to the Turkish Cypriot community of blocking
such deals are high. The Turkish Cypriots lose:

-- Commercially. Important new commercial opportunities
have been lost, at least for now. The period that Cypriot
potatoes can demand high prices in Europe ends this week.
The Turkish Cypriot community remains dependent on Turkey and
Turkish middlemen for its exports of citrus and potatoes.
The amount of money they receive from Turkey will assuredly
be only a fraction of what Turkish Cypriot businesspeople
could earn by selling their products directly to Europe. The
Turkish Cypriots also lose any chance that the EU will
expedite approval for new products such as fish or honey to
cross the Green Line. This is especially damaging in the
case of fish, where demand in the south is high. Gaining
approval for these products is time consuming and labor
intensive and the EC does not want to go forward if the
Turkish Cypriots are likely to prevent full trade in these
goods. Stopping this trade also hurts Turkish Cypriot
traders' reputation in Europe, making it harder for them to
find buyers in the future, should trade in potatoes and
citrus (or other products) not be blocked.

-- Politically. The main rationale for killing the deal
appears to be a fear that using Greek Cypriot ports will

undermine the viability of Turkish Cypriot ports and
Turkish/Turkish Cypriot efforts to convince the EU to
eliminate all restrictions imposed on the use of ports in the
north. The EU, however, is well aware that the Turks and
Turkish Cypriots themselves blocked the deal and not the
Greek Cypriots, and the European Commission plans to report
this in its July public report on implementation of the Green
Line Regulation. Rather than convincing the EU that it
should act to approve its long-delayed "direct trade"
measures, blocking these deals is only convincing previous
sympathetic European Commission officials that the Turkish
Cypriots are not worth bothering with. By blocking trade,
the Turkish Cypriots are perversely supporting GoC claims
that Turkish Cypriot isolation is self-imposed and that Greek
Cypriot ports could satisfy all of the Turkish Cypriot
community's needs, if just given the chance.

Action Request
--------------

9. (C) We will continue to press the Turkish Cypriot Chamber
of Commerce and Turkish Cypriot officials, encouraging them
not to isolate themselves or hinder our efforts to foster
their economic development by finding new markets for their
products. Post recommends that the Department ask Embassy
Ankara to make similar demarches to their interlocutors,
adding the point that playing such games on Turkish Cypriot
trade issues is also likely to further sour the atmosphere of
this fall's review of progress in Turkey's EU accession
process.
SCHLICHER