RUSSIAN CUSTOMS HOLDS UP TURKISH IMPORTS

C O N F I D E N T I A L MOSCOW 002697 SIPDIS DEPARTMENT FOR EUR/RUS STATE PLS PASS USTR (BHAFNER) E.O. 12958: DECL: 09/08/2018 TAGS: ETRD EINV ECON PREL TU RS SUBJECT: RUSSIAN CUSTOMS HOLDS UP TURKISH IMPORTS REF: A. ANKARA 1602 ¶B. ANKARA 1584 ¶C. MOSCOW 2579 ¶D. MOSCOW 2620 ¶E. MOSCOW 2655 Classified By: Ambassador John R. Beyrle, Reasons 1.4(b,d). ¶1. (C) SUMMARY: In the wake of the Georgia conflict, Turkish imports appear to be the latest target of Russian scrutiny following heightened trade tensions with the United States, EU, and Ukraine. Russian customs officials have imposed 100-percent inspections of every Turkish truck at the Russian border since July 16, except for those carrying perishable goods such as fruits and vegetables. The average wait-time at the border for Turkish imports of textiles, clothing, equipment and other goods has increased from 1-2 days before the inspections began, to at least 7 days, according to Turkish diplomats here in Moscow. If senior-level dialogue cannot resolve the situation within a few days, Turkish diplomats told us similar customs inspections could be imposed on Russian goods entering Turkey, and Turkey may withdraw its support for Russia's WTO accession. END SUMMARY. -------------- -------------- RUSSIA IMPOSES TOUGH CUSTOMS MEASURES ON TURKISH GOODS -------------- -------------- ¶2. (C) Since the outbreak of the Georgia conflict, the GOR has raised trade issues with many of Russia,s major trading partners. Russia has stated it will revisit WTO commitments on U.S. poultry imports and EU aviation fees (Refs C, D),and announced it is considering restrictive trade measures on Ukrainian imports (Ref E). Lengthy inspections of Turkish trucks at the Russian border appear to be the latest example of these Russian trade salvos. We met recently with the Turkish Embassy for a fuller understanding of the customs dispute with Russia. ¶3. (C) In a meeting with EconOff on September 4, Commercial Counselor Alper Kurtoglu from the Turkish Embassy in Moscow told us that Russian customs officials had been insisting on full inspections of every Turkish truck crossing the Russian border since July 16, except for trucks carrying perishable goods such as fruits and vegetables. Kurtoglu noted that most Turkish trucks enter Russia through the Black sea port of Novorossiisk, where they arrive via ship, already fully-loaded from Turkish Black Sea ports. The average wait time for Turkish trucks to clear Russian customs had increased from one or two days before the heightened inspections began, to at least seven days. In some cases, Turkish trucks had been held up for as long as 40 days. Although the embassy did not have any hard figures, Kurtoglu noted that estimates of the financial losses to Turkish exporters and logistics companies from the customs delays had been at least one billion dollars, with some press reports putting the potential damage as high as three billion dollars. ¶4. (C) Kortuglo said the stakes are high for Turkey. Statistics peg two-way trade between Russia and Turkey at $22.5 billion in 2007. Trade reached $16.8 billion during the first half of 2008, making Russia Turkey's biggest trading partner on the basis of total trade volume. While much of Russia's exports to Turkey are in the form of basic commodities like oil and gas, Turkey's exports to Russia include textiles, clothing, machinery, fruits and vegetables. Kurtoglu also noted that Russian tourists had become a significant source of revenue for Turkey. Some 2.5 million Russian tourists now visited Turkey every year, and Russian tourists had consistently occupied either the first or second spot in recent years for the greatest number of tourist arrivals. Turkish contractors have also been major players in Russia's construction boom and now have contracts worth at least $25 billion. -------------- RUSSIAN MOTIVATIONS -------------- ¶5. (C) Kurtoglu noted that initially Turkish officials believed the inspections had been implemented following Russian President Medvedev's June 20 visit to the Ivanovo region, the center of Russia's textile and clothing industry. During Medvedev's visit, domestic clothing and textile producers had reportedly complained about customs fraud from foreign competitors, and Medvedev had pledged to look into the matter. During Turkish demarches to Russian customs and foreign affairs officials since the burdensome inspections began on July 16, Russian customs officials acknowledged that there was an order from Medvedev to enhance inspections, but they had denied that Russia was singling out Turkish trucks for any discriminatory treatment at customs checkpoints. ¶6. (C) Kurtoglu said with the burdensome inspections having continued for over six weeks, some Turkish officials now believe that the inspections have continued for political reasons, perhaps to punish Turkey for granting passage through the Bosporus to U.S. naval vessels carrying humanitarian aid to Georgia. In Kurtoglu's view, the inspections were a blatant violation of WTO rules on technical barriers to trade. However, since Russia was not yet a WTO member, Turkey had little choice but to try to resolve the issue through diplomatic channels, or resort to retaliatory trade measures on Russian goods. -------------- TURKISH RETALIATION? -------------- ¶7. (SBU) Russian FM Lavrov and Turkish FM Ali Babacan discussed the trade dispute during Lavrov's visit to Istanbul on September 2. During a joint press conference, Lavrov stuck to the Russian denial that the recent imposition of stricter customs controls on Turkish trucks was discriminatory or politically motivated, but he pledged to help resolve customs clearance problems. Babacan had noted that he had discussed the issue with Lavrov in a sincere and constructive way and that it could be overcome with Russia's "cooperation and flexibility." Kurtoglu said Turkish PM Erdogan had also sought to downplay the trade tensions in September 3 public remarks, but if Russia did not resolve the issue quickly, Erdogan had said he would call Putin and raise the stakes. ¶8. (C) In that regard, Kurtoglu confirmed that in August 29 statements to the Turkish press, Trade Minister Tuzmen had threatened to impose similar customs inspections on Russian imports and to withdraw Turkey's support for Russia's WTO accession. Kurtoglu acknowledged that retaliatory inspection measures might be difficult for Turkey to implement, since most Russian imports to Turkey were basic natural resource commodities like oil, gas and mineral oil. Nonetheless, if customs clearance did not improve within the next few days, Kurtoglu said the Turkish Government would consider the option of retaliatory customs inspections of Russian imports to Turkey and withdrawal of Turkey's support for Russia's WTO accession. -------------- COMMENT -------------- ¶9. (C) As has been the case with the other trade fights Russia has picked lately, the GOR seems to believe that it is in the driver,s seat. It exports commodities, which other countries have to have while importing easily replaceable consumer goods. This is a novel re-leveraging of what others might see aQ third world trade relationship where the Russian economy exports raw materials with little or no value added while importing manufactured goods. Moreover, as Putin himself noted recently in connection with the EU, the dependence is two-way. Russia needs the income from its commodity exports, and those too can be replaced by other countries if Russia continues to prove itself an unreliable trade partner. BEYRLE