RRT ERBIL: KRG ACCUSES TURKEY OF RESTRICTING

C O N F I D E N T I A L SECTION 01 OF 03 BAGHDAD 003482

SIPDIS

SIPDIS

E.O. 12958: DECL: 10/21/2017
TAGS: PGOV PTER ECON TU IZ
SUBJECT: RRT ERBIL: KRG ACCUSES TURKEY OF RESTRICTING
COMMERCIAL TRAFFIC INTO NORTHERN IRAQ

Classified By: Classified By Jess Baily, Regional Coordinator for reaso
ns 1.4 (b) and (d).

This is a Regional Reconstruction Team (RRT) Cable.

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


1. (C) The top customs official at Iraq's second most
important transnational crossing for consumer and commercial
goods - the Ibrahim Khalil (IK) gate on the border with
Turkey - recently told RRTOff that the Turkish military is
severely restricting the flow of goods in both directions
through IK. Northern Iraq's economy remains heavily
dependent upon imports of consumer and commercial goods from
Turkey. The IK border crossing is a major source of customs
duty revenue for the Kurdistan Regional Government (KRG) and
the GoI, though the exact amount collected remains
undisclosed to all but a few senior KRG officials, and the
KRG likely underreports its receipts to the GoI.
Constriction of northern Iraq's primary artery for goods
reduces customs revenues and constrains the region's overall
economic development. It negatively impacts foreign direct
investment from Turkey and elsewhere into the Kurdistan
Region, as investors calculate the costs involved with slow
movement of vehicles through the IK gate.


2. (SBU) The Government of Turkey is keenly aware that
vehicle traffic through the IK (known in Turkey as "Habur
Gate") affects the KRG's economy far more than that of
Turkey. Turkey will therefore likely continue to use its
control over IK commercial vehicle traffic as a political
lever with which to influence the KRG's stance on the PKK and
other border security issues. Iran's recent closure of its
border with the Kurdistan Region heightened the importance of
Turkey's actions at the IK gate. Embassy Ankara visited
IK/Habur Gate in early October and will provide further
insight into the Turkish side of the border crossing via
septel. On a separate note, the KRG's Director General of
Customs at IK requested security-related assistance from the
USG, in order to help prevent any attack that could restrict
operations at that crucial entry point for foreign goods into
Iraq. End Summary.

Background
--------------


3. (C) RRTOff visited Hameed Ali, the KRG's Director General
of Customs, on September 13 at Iraq's Ibrahim Khalil (IK)
border crossing with Turkey. The Director General of Customs
at IK reports directly to the KRG's Minister of Finance in
Erbil. The IK crossing is northern Iraq's primary transit
point for foreign consumer and commercial goods. It ranks as
Iraq's second-busiest entry point for foreign goods, after
the seaport of Umm Qasr near Basrah. (NOTE: Our meeting with
Hameed Ali was not easily arranged, due to the sensitivity of
his position within the KRG. The KRG Finance Minister and
the Minister of Interior became personally involved and
ultimately approved RRTOff,s meeting with Ali. End Note.)


4. (SBU) Located within the IK compound on Iraq's border with
Turkey in the Dohuk Governorate, the U.S. Army maintains a
permanent force of approximately 100 soldiers who escort U.S.
military vehicles through the border crossing. RRTOff spoke
with the commander of these forces and received his latest
daily statistical update regarding both commercial and U.S.
military traffic through the border crossing. During the 30
days ended September 28, an average of 865 trucks per day was
processed from Turkey to Iraq, compared with 844 trucks per
day processed from Iraq to Turkey. The truck backlog at the
border totaled 7,470 (8.9 days) on the Iraqi side, compared
with 4,700 (5.4 days) on the Turkish side.

Cash Customs Duties Flow to KRG in Erbil
--------------


5. (SBU) According to Ali, imports entering Iraq through IK
are taxed at five percent, except for goods purchased by a
KRG or Iraqi ministry, the UN, NGOs and other international
organizations with customs duty exemption. Ali stated that
his operation includes 12 inspection bays and seven computers
used to enter data about each truck's contents. The top
three types of goods entering Iraq through IK in terms of
dollar value are construction materials, electrical
materials, and consumer electronics.


6. (SBU) Customs duties are paid in cash at IK by a truck's
driver, before the truck is allowed to depart the IK area.
All customs duties paid at IK are transferred directly to
Erbil. Ali said, "The KRG Ministry of Finance gets all the
money. I don't know what the KRG does with it after that."
The KRG regularly declares its IK customs receipts to the

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Ministry of Finance in Baghdad. The MoF then offsets these
declared amounts against funds sent to the KRG under the
national revenue sharing agreement. This gives the KRG
little incentive to fully declare the amount of its revenues
from IK. When asked about the annual dollar volume of
customs duties collected at IK, Ali referred RRTOff to the
KRG Finance Ministry in Erbil. The KRG has thus far not
provided the RRT with meaningful statistics concerning import
duties collected at IK. The figures are closely held. A
former KRG Finance Ministry official who now works for RTI in
Erbil said, "The total revenues (from IK) are known by only
very few individuals in the Barzani and Talabani families.
Even the Finance Minister himself may not know the total
collected there."


7. (SBU) Nevertheless, a rough estimate of Iraq's import duty
revenues from IK may be obtained by examining the volume of
total exports from Turkey to Iraq, as the vast majority of
those goods pass through IK. In 2006, Turkey exported $2.6
billion of goods to Iraq, down somewhat from $2.8 billion in

2005. From January through June 2007, Turkey's exports to
Iraq remained flat versus the same period in 2006. Assuming
80 percent of that dollar volume is subjected to Iraq's five
percent cash import tax, and ignoring non-Turkish goods
flowing into Iraq through IK, Iraq generates at least $100
million in annual customs duties from Turkish goods entering
Iraq through IK.

Turkish Military Control of
Commercial Truck Volume
--------------


8. (SBU) Ali stated that commercial traffic between Turkey
and Iraq through the IK crossing declined during June and
July 2007, due to concern about potential Turkish military
operations against the PKK in northern Iraq. He said traffic
declined even more following the recent national election in
Turkey. According to Ali, the Turkish military controls the
flow of trucks in both directions through IK. Ali said, "If
the Turkish military wouldn't interfere at the (IK) gate,
traffic would be much greater and smoother." In describing
the flow of vehicles on the Turkish side of IK, Ali said
Turkey's military "mans and controls" the first checkpoint
for both inbound and outbound vehicles at the border
crossing. Ali believes the Turkish military has severely
restricted the overall flow of traffic through the border.
According to Ali, Turkey's Minister of Trade recently told
him in Ankara that the ministry's "hands are tied" by the
Turkish military on this matter.


9. (SBU) Ali stated that cross border traffic at IK was much
greater 15 years ago. He said only one bridge connected
Turkey and Iraq at IK at that time, compared with the two
bridges open today. Ali said, "Every day back then, we had
3,000 trucks in and 3,000 trucks out. Today, Turkey's
military only allows about 800 trucks per day into Turkey,
and up to 1,000 trucks to leave Turkey into Iraq." Ali
refused to speculate about the reasons behind the Turkish
military's supposed restrictions on commercial vehicle
traffic through the IK gateway. He said, "The Turks say they
lack sufficient manpower to staff the crossing. I offered to
fund their manpower problem, to try to embarrass them into
taking some action, but of course they said no." Ali also
contended that the Turkish government has almost eliminated
fuel exports into Iraq through IK since September 2006,
despite pressure from Turkish fuel vendors who want the fuel
exports to resume. He stated that many Turkish businessmen
in Iraq continue to strongly appeal to him to somehow boost
traffic through IK.


10. (SBU) Ali stated that the Ministry of Finance in Baghdad
held a meeting on September 17 to assess the desirability of
opening a second gate at IK. According to Ali, the Iraq
Ministry of Foreign Affairs will soon contact Turkey's MFA to
commence the negotiations required to open a second gate.
Ali questioned whether this enhancement of the crossing's
physical infrastructure would result in increased traffic
volume at IK, given his view of the Turkish military's role.
Iraq's exports to Turkey account for less than 15 percent of
total bilateral trade, and on a tour of the area where trucks
wait to cross into Turkey, Ali noted that most return empty
after a ten day wait. Such delays, he added, act as a
material impediment to Turkish business activities and
potential investment in Iraq.

Request For Assistance from USG
--------------


11. (SBU) Ali requested that the USG encourage the government
of Turkey to increase traffic flow through IK. He said the
U.S. should help the Turkish Ministry of Trade understand
that increased traffic through IK is "good for both Turks and

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the Iraqi people." He stated, "The Turkish government should
brush aside the military at the gate." Ali also encouraged
the USG to resume its previous efforts, which he described as
"fruitful," to bring Turkish and Kurdish officials together
for discussions about IK issues. He said the last bilateral
meeting regarding IK issues was held in Ankara in November
2006, and that senior Turkish officials have since refused to
meet with him. The U.S. Army at IK told the RRT on September
18 that weekly meetings between Turkish and Iraqi customs
officials at IK have recently ceased, following the promotion
(and departure) of the Turkish Port Director. The U.S. Army
Captain who facilitates these meetings told RRTOff that "it
would be beneficial if the Turks would expedite the
replacement of the Port Director, so these meetings can
resume."


12. (SBU) With regard to security related assistance at IK,
Ali said, "We can't afford an attack here. This is our
(Kurdistan Region's) lifeline." He said he would welcome USG
funding to facilitate installation of cargo scanning systems
designed to detect explosives and other weapons before they
would enter Iraq through IK. In commenting on the potential
for weapons or explosives entering Turkey from Iraq, Ali
said, "Not one bomb has crossed from Iraq into Turkey through
here. Our men won't allow this." Turkish government and
military officials have claimed otherwise.

COMMENT
--------------


13. (C) The import customs duties generated at IK must
theoretically be placed into the GoI's revenue sharing pot
that is distributed to each of Iraq's governorates on a per
capita basis. In practice, however, the amount of IK
revenues reported by the KRG to the GoI is probably
understated, with the difference accruing to some combination
of the KDP, PUK and leading politicians in the Kurdistan
Region. This suspected skimming of IK revenues is at least
partially enabled by the cash payments of customs duties that
predominate at IK. In addition, the recordkeeping on-site
and within the KRG has been made purposefully opaque to
observers both inside and outside of the GoI. Without inside
information from one or more trusted sources, neither the GoI
nor the USG will be able to identify and assess the skimming
off of customs duties at IK.


14. (C) The flow level of commercial and consumer goods
through the IK gate directly impacts KRG and USG efforts to
support economic development in northern Iraq. All
indicators in Iraq point toward the Turkish military,
government, or some combination thereof restricting that flow
of goods. The Government of Turkey understands well that the
KRG depends upon vehicle traffic through the IK far more than
Turkey, especially given Iran's recent decision to close its
border crossings with the Kurdistan Region. Turkey will
likely continue to use its control over IK commercial vehicle
traffic as a political lever with the KRG, to be utilized in
varying degrees as Turkey attempts to influence KRG policies
and practices on security-related issues. Embassy Ankara
visited IK/Habur Gate in early October and will provide
insight into the Turkish side of the border crossing via
septel.
CROCKER