TURKEY-RUSSIA SIGN CUSTOMS DEAL TO RESOLVE TRADE DISPUTE

UNCLAS ANKARA 001688

USDOC FOR ITA/MAC/CRUSNAK

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD TU
SUBJECT: TURKEY-RUSSIA SIGN CUSTOMS DEAL TO RESOLVE TRADE DISPUTE

Ref: Moscow 2697

1.(SBU) Summary: Turkey and Russia signed a Customs Protocol
September 18 to resolve a two-month long trade dispute between
Turkish exporters and Russian Customs (see reftel) that cost Turkish
exporters USD 500 million. The protocol would simplify Russian
customs procedures for those exporters who, on a voluntary basis,
agree to notify Russian authorities in advance about the content of
their shipments. Turkish exporters, however, believe this procedure
will disadvantage them with Russian importers (who insist on
under-invoicing) and that the "voluntary" advance declaration will
become a prerequisite for all shipments. Although both countries
denied the dispute was political, the timing of the Russian customs
measures -- starting days before the Georgia invasion -- has left
many Turks with the impression that this was a warning that Turkey's
exports can be disrupted whenever Russia wishes. End Summary.

2. (SBU) The governments of Russia and Turkey signed a "Simplified
Customs Line Protocol" on September 18to resolve a trade dispute
that has been ongoing since July. Turkish exporters had their
shipments delayed by 20-30 days by detailed inspections at Russian
ports of entry. The inspections were first focused on shipments
directly from Turkey, but then were extended to cover all Turkish
origin goods. The tension between the two countries peaked on
August 28, when Turkish Trade Minister Tuzmen announced that Turkey
would start red-line inspections on Russian goods, as retaliation,
but he was overruled by the Council of Ministers. Instead, the GOT
brought raised this issue with Russian Foreign Minister Lavrov
during in his visit to Turkey on September 2. Lavrov denied Russia
was discriminating against Turkish goods. The Head of the Russian
Federal Customs Service visited Turkey on September 5, and declared
the two sides were working on a simplified customs procedures system
to resolve Turkish exporters' problems.
3.(SBU) Turkish State Minister responsible for Customs Hayati Yazici
declared on September 19 that Turkey and Russia had signed a
Simplified Customs Line Protocol, which would provide for "VIP
treatment" to Turkish exporters who sent prior shipment declarations
to Russian customs. Yazici noted that the implementation was
voluntary but described it as "the best possible deal" that could be
signed with Russia. . Commenting on the reasons underlying the
recent dispute, Yazici said customs duties accounted for a
significant portion of Russian budget income, and the authorities
wanted to prevent tax evasion caused by unregistered and improperly
declared imports.

4. (SBU) The protocol removes six categories of Turkish goods from
the risk profile, meaning these will be exempt from 100% screening
at Russian customs: cement, fertilizers, automobile parts,
non-aluminum metals, paperboard and articles, and toys. According
to the protocol, companies providing their transport documents to
Russian Customs ahead of time will not be subject to physical
search. Russian Customs will prioritize those companies providing
their invoice and tariff details, in addition to the transport
information. Such companies will also be able to make use of bank
guarantees in their foreign trade operations.
5.(SBU) Turkish exporters were not satisfied with the protocol.
Their main concern is that the "voluntary" implementation will turn
into a requirement, and that those not providing their documents to
Russian Customs in advance will continue to suffer weeks of delay at
the border. The exporters also complain that the implementation
will hurt demand for Turkish goods in Russia, due to increased costs
with full customs declarations. Turkish exporters claim the Russian
importers ask them to price their goods at lower values in their
invoice, in order to avoid the tax burden. Turkish Exporters'
Association (TIM) responded cautiously to the protocol. TIM
President Mehmet Buyukeksi said they would watch the implementation
to see if it addressed the Turkish exporters' problems. Buyukeksi
noted that Russia claimed it would implement the same system with
all its trade partners, which Turkey would want to see happen to
avoid having its exports discriminated against for complying.
6.(SBU) Comment: Turkish authorities estimate the cost to Turkish
exporters of this two-month trade dispute at approximately USD500
million. Although the authorities in both countries denied the
dispute was political, the timing of the Russian customs measures --
starting days before the Georgia invasion -- has left many Turks
with the impression that this was also a warning that Turkey's
exports to Russia can be disrupted whenever Russia wishes, at high
cost to Turkish companies. End comment.

WILSON