TURKEY-IRAN JEC RESULTS IN PLAN FOR EXPANDED TRADE

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000521 SIPDIS SIPDIS E.O. 12958: DECL: 03/08/2017 TAGS: ETRD PREL ENRG KNNP TU IR SUBJECT: TURKEY-IRAN JEC RESULTS IN PLAN FOR EXPANDED TRADE REF: A. ANKARA 479 ¶B. 06 ANKARA 6526 Classified By: ECON/C Tom Goldberger for Reasons 1.4 (b) & (d). ¶1. (C) Summary: Turkish Foreign Trade (FTU) officials provided a more positive readout of the recent Turkey-Iran Joint Economic Commission meeting than their MFA colleagues (ref A). They reported that the two sides agreed to begin negotiating a preferential trade agreement and also discussed Economic Cooperation Organization (ECO) issues, creation of "Border Trade Centers," and trade promotion and transportation issues. FTU officials went to great pains to assure us that Turkey will comply with any future UN resolution on Iran. They will meet with the MFA in the coming weeks to get an overview of Turkey's current policy. However, Turkey will likely not respond favorably to requests for unilateral action against Iran without the support of a UN resolution. End summary. -------------- PTA With Iran "In Due Time" -------------- ¶2. (C) In contrast to the MFA's readout of the recent Turkey-Iran Joint Economic Commission (JEC) meeting (ref A), Foreign Trade (FTU) officials were positive about the outcome of the discussions. FTU Head of Department for Middle East Agreements, Orhan Cakiroglu, told us that the JEC meetings (which lasted 3.5 days) were constructive. He added that prior to convening the JEC, FTU sought guidance from the MFA regarding political sensitivities in light of GOT efforts to begin enforcement of UNSCR 1737 that might cause them to reconsider. The MFA gave them its blessing, he said, and supported the agenda items discussed, including a proposed preferential trade agreement (PTA). The meetings were chaired by Turkish State Minister for Foreign Trade Kursad Tuzmen and Iranian FonMin Manouchehr Mottaki. ¶3. (C) This proposed PTA was the highlight of the meeting, according to Cakiroglu, and would include tariff concessions for certain Turkish industrial goods exports to Iran and Iranian agricultural exports to Turkey. The parties agreed to exchange lists of requested items for consideration and, if possible, opinions on those lists by the end of April. Turkish officials realize, however, that an agreement will take considerable time to negotiate. Currently, Iran exports approximately $5.5 billion to Turkey (most of which is oil and gas),but its non-oil imports increased from about $150 million to $500 million in 2006. The majority of the non-oil imports were iron and steel products, agricultural products, chemicals, and raw materials. Turkey believes that a PTA with Iran could raise their annual bilateral trade from $6.5 billion to $15 - 20 million. ¶4. (C) The parties also discussed at length Iran's ratification of the Economic Cooperation Organization Trade Agreement (ECOTA). ECO was established in 1985 by Iran, Pakistan and Turkey to promote economic, technical and cultural cooperation among its members. Current members are Afghanistan, Azerbaijan, Iran, Kazakhstan, Kyrgyzstan, Pakistan, Tajikistan, Turkey, Turkmenistan, and Uzbekistan. According to Cakiroglu, in April 2006, Iran announced that it would suspend ratification of the agreement for at least six months. During the JEC, Iran agreed to ratify the ECOTA by the end of March. Turkey's Parliament ratified it during the last week of February. -------------- Transportation Fees a Contentious Issue -------------- ¶5. (C) The remainder of the JEC focused on resolving issues related to "Border Trade Centers," a Turkish initiative to develop tariff-free trade between Iranian and Turkish border towns. FTU is not optimistic about the future of these BTCs, Cakiroglu added, because Iran has not been nor appears willing now to cooperate and thus, Turkey will probably drop it from future agendas. He was more enthusiastic, however, in detailing the specific trade promotion activities that the two sides agreed to conduct during the first half of 2007 (the second half being election season, which will keep Foreign Trade Minister Tuzmen occupied). These include expos and trade missions focusing on such sectors as construction, home textiles, and machinery. ¶6. (C) The greatest issue of contention remaining after the meetings was transportation. Iran recently raised fuel prices for Turkish truckers by 50% without informing the GOT. While the GOT has also raised fuel costs in Turkey by about ANKARA 00000521 002 OF 002 20%, they argue that this increase affects all nationalities and notification was given to foreign governments prior to the increase. While Iranian officials were hesitant to discuss the issue, they finally agreed after two days of discussions to a meeting at Turkey-Iran Border Gate on 10 - 12 April between the Ministries of Transportation and other relevant officials. ¶7. (C) Cakiroglu assured us that FTU will fully comply with any UN resolutions as it continues its current plans to expand trade with Iran. The MFA will hold a meeting with other Turkish ministries during the next few weeks to outline Turkey's policy towards Iran in light of international decisions. "All we care about is trade, and we kept the politics out of the JEC meetings," he added, noting that energy was not discussed during the meetings but rather at Mottaki's bilateral meetings with President Sezer, PM Erdogan, FonMin Gul and Energy Minister Guler. Iran's decision to send FonMin Mottaki was less last-minute than reported, he told us, in that the Iranian government decided late last year that its relations with its immediate neighbors would be handled directly by the Foreign Ministry. -------------- Turkey Wants Joint Trading Company -------------- ¶8. (C) In a separate meeting, Energy Ministry Under Secretary Sami Demirbilek briefed us on Energy Minister Guler's meeting with Mottaki. Demirbilek said the Turkish side made the same case it had made before: urging establishment of a joint gas trading company which would ensure complete reciprocity of gas transit rights in the two countries. Demirbilek elaborated that such a trading company that would handle Turkmen gas transiting Iran as well as Iranian gas transiting Turkey, would enable the Turks to gain visibility on Turkmen pricing to Iran. Turkey could then demand similar transit fees for transit of Turkey that Iran is exacting for transit of Iran, and/or use this knowledge in negotiations with Iran over its gas sales price. ¶9. (C) Unlike in past bilateral discussions, Mottaki accepted in principle the idea of reciprocity and agreed to follow-up discussions. On the other hand, Demirbilek noted that the Iranians had yet to follow up in the ten days following the meeting. He also recognized that Mottaki, as Foreign Minister, had an interest in putting a positive spin on things and may not represent the Iranian Government position. ¶10. (C) Demirbilek has previously described the Iranians as all-or-nothing and characterized their energy discussions as long and difficult. The Turks are focused on gaining a cheaper price and have taken the existing natural gas contract to international arbitration. The Iranians are obsessed with gaining transit via Turkey to Europe. The Iranians have proven unreliable in the past, subjecting Turkey to varying quality and arbitrary winter cut-offs. -------------- Multilateral, Not Unilateral Decisions -------------- ¶11. (C) Comment: FTU officials were frank and forthcoming with us about their meetings with Iran. They were also candid about Turkey's willingness to change this planned course of action only in compliance with a UN resolution. Turkish officials will most likely not respond favorably to any request for sanctions against Iran that does not have the UN's blessing and support. End comment. Visit Ankara's Classified Web Site at http://www.state.sgov.gov/p/eur/ankara/ WILSON