MARCH 11 TURKEY-IRAN BUSINESS COUNCIL MEETING:

C O N F I D E N T I A L ISTANBUL 000152

SIPDIS

SIPDIS

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E.O. 12958: DECL: 03/24/2018
TAGS: ECON ETRD PREL PGOV IR TU
SUBJECT: MARCH 11 TURKEY-IRAN BUSINESS COUNCIL MEETING:
"DEFINITELY NOT A NEIGHBORLY LOVE-FEST"

REF: (A) ANKARA 216 (B) ISTANBUL 56 (C) ISTANBUL 104

Classified By: Consul General Sharon Wiener; reason 1.5.(d).


1. (C) Summary: A Consulate Istanbul contact who works for
Turkey's Foreign Economic Relations Board (DEIK) shared with
us internal DEIK reports summarizing the March 11 Turkey-Iran
"Joint Business Council" meeting in Iran. According to those
reports and our contact's impressions of the meeting, the
Iranian side was "going through the motions," smiling for the
press but complaining in the meetings that Turkey is not
cooperating enough with Iran, including in the banking
sector. No significant deals were agreed at the meeting
despite the presence of 40 Turkish company representatives,
though plans were made for a number of further meetings this
year. Although these recurring meetings rarely result in
significant commercial deals being inked, they still play to
Iran's claim that it is not economically isolated and indeed
carries on "normal" trade relations with neighbors. That
said, Turkey's frustration with some of Iran's business
practices and barriers to improved trade were palpable from
the meeting summaries. End summary.


2. (C) As previewed in ref C, a delegation of
representatives from the Turkish Union of Chambers and
Commodities Exchanges (TOBB),Foreign Economic Relations
Board (DEIK),GOT Undersecretariat for Foreign Trade, and
numerous Turkish companies participated March 11 in the "7th
Joint Business Council" meeting in Tehran with Iranian
government and commercial counterparts. A consulate contact
who works for DEIK and participated in the meeting (please
protect) recently shared with us DEIK's internal summaries of
the meeting, as well as his own impressions.

Turkish Delegation presentations
--------------


3. (C) According to a written summary of the meeting,
Iranian Chamber of Commerce Chairman Nahavandian opened the
meeting with a brief welcome ("surprisingly brief" according
to our contact) and turned the floor over to the Turkish
side. Turkey-Iran Business Council Chairman Ali Osman Ulusoy
and TOBB Chairman Hisarciklioglu gave presentations on the
state of Turkey-Iran commercial relations in which they noted
that:

-- Bilateral trade volume reached USD 8 billion in 2007, but
the trade remains highly imbalanced. Iran's exports to
Turkey (predominantly hydrocarbons) are five times greater
than Turkey's exports to Iran. (See ref A for more detail on
Turkish-Iran trade figures.)

-- The sale of Iran's Samand cars in Turkey and the recent
USD 650 million purchase by Turkish chemical company Gubretas
of Iran's largest fertilizer factory, Razi petrochemical, are
encouraging developments.

-- However, urgent action is needed to reduce customs duties
imposed by the Iranian government. The ECO Trade Agreement,
once fully ratified and implemented (five of ECO's ten
members have ratified it, including Iran and Turkey) should
help lower Iranian tariffs on Turkish goods, and thus
increase bilateral trade.

-- Turkey is disappointed by recently increased Iranian
duties levied against Turkish furniture and medium-density
fiberboard (MDF) exports.

-- Turkey is also unhappy about pirating in Iran of Turkish
intellectual property, including Turkish CDs and films, and
the lack of Iranian government action to stop it, which
discourages Turkish and other foreign investment in Iran.

-- The establishment of "modern" banking ties -- including an
improved technical capacity on the part of Iranian banks to
allow more efficient real-time communications and financial
transactions - is important. (Our DEIK contact said this
point was intended to be a subtle call for more transparency
in Iran's financial sector.)

--Turkey is ready to work with Iran to further develop
tourism infrastructures in both countries and to expand
bilateral tourism opportunities.

Bilateral with Iran's Trade Minister
--------------


4. (C) According to DEIK's internal meeting readout, in a
restricted side meeting with Turkish delegation leader
Hisarciklioglu, Iranian Trade Minister Mirkazemi suggested
that the GOI and GOT should encourage interaction between
their respective private sectors. Mirkazemi pointed to the
banking sector as an important example, agreeing that the two
banking sectors should be more closely linked and proposing
that Turkish and Iranian banks establish a joint private
bank. Mirkazemi also suggested Iranian and Turkish companies
should partner together to seek out investment opportunities
in third countries. He identified several bilateral
commercial agreements already in place -- a mutual investment
treaty, a double taxation agreement, a customs union
agreement, and various transportation agreements - as
examples of how Iran's and Turkey's economies are becoming
inter-linked. Mirkazemi asked for increased Turkish
investment in Iran and complained about Turkish quotas
imposed on certain Iranian goods. (The DEIK summary did not
identify which Iranian goods.)


5. (C) Hisarciklioglu underlined the importance to Turkey of
the ECO Trade Agreement and said Turkish investors were
actively investing in Iran. He noted that Turkish Foreign
Trade Minister Tuzmen will visit Iran with a business group
in coming weeks, and invited Mirkazemi to attend the ECOTA
Ministerial to be held in Ankara May 20-22, 2008. He
cautioned Mirkazemi, however, that Turkish investors are
justifiably wary after seeing the problems that Turkish
companies like TAV and Turkcell have had trying to do
business in Iran, and said he would like to see more "success
stories" like Gubretas,s recent purchase of Razi
Petrochemical (ref C).


6. (C) Hisarciklioglu pointed to a Turkish proposal to
establish a "joint arbitration board" to resolve commercial
conflicts between Turkey and Iran, noting that TOBB and
Iran's Chamber of Commerce, Industry, and Mines (ICCIM) have
agreed to develop this proposal. He further suggested that
official recognition by the GOT and GOI of such an
arbitration board would help give confidence to Turkish
companies to seek out new investments in Iran.

Bilateral with Iran's Transportation Minister
--------------


7. (C) According to DEIK's internal readout, Iranian
Transportation Minister Rahmati said that road, air,
maritime, and railway transportation infrastructure between
Turkey and Iran should be improved to facilitate increased
bilateral trade. He noted that he plans to participate in a
Regional Transportation Ministerial in Istanbul in early
April, followed by the "6th Joint Transportation Commission"
meeting between Turkish and Iranian Transport Ministries to
be held in Tehran in late April, where he will raise this
issue with Turkish Transportation Minister Binali Yilderim
and propose specific improvement projects. One example he
cited was the Lake Van (eastern Turkey) area's poor highway
links to Iran, which have forced Iran to consider funding an
improved railway link in that area to facilitate cross-border
trade. Hisarciklioglu defended Turkey's transportation
sector, asserting that it "ranks first in Europe and second
in the world" in terms of trucking volume and suggested that
it is on the Iranian side of the border where the most
pressing transportation infrastructure problems lie.


8. (C) Hisarciklioglu invited Rahmati to attend an
International Transportation Congress in Istanbul in May,
where "revitalization of the ancient Silk Road" -- i.e.,
expanding transportation links between Turkey, the Middle
East, and China -- will be discussed. Hisarciklioglu also
complained about Iran charging Turkish truck drivers a higher
road tax than Turkey charges Iranian truckers and asked
Rahmati to correct the imbalance.

Observations from a Turkish participant
--------------


9. (C) Consulate Istanbul's DEIK contact said that the
Iranian hosts were not as friendly or welcoming as they had
been the previous year. He characterized them as "going
through the motions" in holding the meeting: smiling and
shaking hands for the assembled press, but falling back on
tit-for-tat complaints and defensive posturing during the
discussions. "It was definitely not the neighborly love-fest
the Iranian press suggested it was." As one example, he said
that when Hisarciklioglu pointed out the bilateral trade
imbalance, Iranian Trade Minister Mirkazemi caustically
retorted that he had learned from his own father, a
successful businessman, that in business it pays to make
unfair complaints about the other side, which is why he chose
to become a government Minister instead.


10. (C) Our contact assessed that no significant commercial
deals were agreed at the meeting despite the presence of 40
Turkish company representatives, though plans were made for a
number of follow-up bilateral commercial meetings this year.
He also told us that despite the suggestion that some DEIK
staff had made last month to Hisarciklioglu to propose that
Iran facilitate bilateral trade payments to Turkey by
depositing a large sum of money in a Turkish branch of Bank
Mellat (ref C, para 7),Hisarciklioglu did not raise the idea
with Iranian interlocutors.


11. (C) Tehran atmospherics: Our contact noted that the
Tehran traffic was lighter in early March 2008 than it had
been during last year's meeting in Iran. His Iranian hosts
admitted that ongoing petrol rationing precluded poorer
drivers, who could not afford to buy black market rationing
cards, from partaking in leisure driving around the city. He
also saw no visible evidence that Iran was about to hold
parliamentary elections three days later (March 14),and
found it noteworthy that the topic of elections never came up
in any meetings with Iranian counterparts, "even as idle
chit-chat."


12. (C) Comment: Based on this inside look at the meeting,
a primary benefit to the Iranian regime of continuing this
series of twice-annual "joint business council meetings" with
Turkey is that it plays to Iran's claims that it is not
economically isolated and instead carries on "normal" trade
relations with its neighbors. Any actual commercial deals
that Iran can secure from Turkey under Joint Business Council
auspices -- such as a joint banking venture -- would be icing
on the cake. For Turkey's part, it's Chamber of Commerce and
participating companies have a single objective: persuading
Iran to buy more Turkish goods. For the most part Turkish
companies have yet to fully weigh this objective against the
legal and political risks of doing business with a country
facing a tightening international sanctions regime. On the
other hand, the numerous complaints about doing business with
Iran posited by the head of the Turkish delegation during
this meeting suggests palpable Turkish frustration and
chafing at the commercial hassles of trying to do business
with Iran. End Comment.
WIENER