ACTION REQUEST: TURKEY GSP WAIVER REVIEW

UNCLAS STATE 069109

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD PREL
SUBJECT: ACTION REQUEST: TURKEY GSP WAIVER REVIEW


1. This is an action request; please see paragraph 8.


2. SUMMARY AND ACTION REQUEST: The USG is concluding the
2007 Generalized System of Preferences (GSP) Annual Review,
which includes the review of the competitive need limitation
(CNL) waiver for Turkish exports of gold jewelry (except
necklaces and neckchains) to the United States. Post is
requested to meet with appropriate GOT officials to convey
that under the GSP statute, which establishes a
non-discriminatory and rules-based approach to all of the
products under review, we will be making a recommendation to
the President on whether to revoke the CNL waiver for gold
jewelry from Turkey. Post is also requested to convey that
the petitioned request for a new waiver for copper cables and
plaited bands from Turkey will likely be approved. END
SUMMARY AND ACTION REQUEST.

BACKGROUND


3. In December 2006, Congress extended the GSP program
through December 31, 2008, and also amended the GSP statute
to create a "super-competitive" category. The statutory
language provides that the President should revoke any CNL
waiver that has been in effect for at least five years, if a
GSP-eligible product from a specific country has an annual
trade level in the previous calendar year that exceeds 150
percent of the annual dollar-value limit ($195 million in
2007) or exceeds 75 percent of all U.S. imports.


4. Based on an application of the statutory criteria, the
President revoked CNL waivers for eight products from six
countries in the 2006 review, including gold jewelry (except
necklaces and neck chains) from India and Thailand.


5. The gold jewelry product from India and Thailand that was
the subject of last year's revocations is the same product
that is under review from Turkey in this year's review.
Because Turkey's CNL waiver had been in effect for four years
during last year's review, it was not subject to the
"super-competitive" criteria. Based on an application of the
"super-competitive" criteria this year, the United States
Trade Representative is recommending that the President
revoke the CNL waivers for four products, including gold
necklaces and neck chains from India and gold jewelry (except
necklaces and neck chains) from Turkey.


6. We know that these exports are important to Turkey.
While imports of this product accounted for 21 percent of
imports from Turkey under GSP, our bilateral trade
relationship of $4.6 billion (2007) is strong and comprises a
diversity of exports of which this type of gold jewelry
accounts for only 5 percent.


7. The loss of duty-free treatment for gold necklaces and
neck chains from India, which is the second largest import
under GSP from Turkey, may provide an important market
opening for Turkish jewelry manufacturers. If imports of
this product from Turkey were to exceed the CNL in the
future, we look forward to working with the GOT and industry
to submit a petition for a waiver of the CNL to ensure that
Turkish exporters can take advantage of this opportunity. A
petition from the Istanbul Metal and Minerals Exporters
Association (IMMIB) to grant a new CNL waiver for copper
cables and plaited bands was approved as part of this year's
GSP review. This product has been the third largest import
under GSP from Turkey, with exports growing 185 percent
between 2006 and 2007.

ACTION REQUEST


8. Department requests that Ambassador Wilson provide the
GOT with advance notice of our deliberations, and raise with
appropriate GOT officials on June 27, 2008 the decisions that
are pending concerning the revocation of the CNL waiver for
gold jewelry from Turkey and the grant of a petition for a
new waiver for copper cables and plaited bands from Turkey.
Informed by the GOT's reaction, a final recommendation to the
President will be made. A response from Post regarding the
GOT's reaction is requested no later than the opening of
business on Saturday, June 28, Washington time. The
Ambassador may draw from the points below.


9. As a result of the review of products meeting the
statutory "super-competitive" thresholds that were added by
Congress in 2006, the United States Trade Representative is
recommending that the President revoke the CNL waiver for
gold jewelry (not including necklaces and neck chains) from
Turkey. As you know, while future imports will be subject to
the MFN rate of 5.5 percent for this product after waiver
revocation, Turkey will continue to have access to our
market.


10. This action, if taken, is based solely on the
implementation of U.S. law and is in no way a reflection on
our bilateral relationship. The United States continues to
view Turkey as a strong strategic partner and values its
friendship with Turkey.


11. The GSP statute, as amended in 2006, directs that the
President "should" revoke CNL waivers for products that
exceed the super-competitive thresholds. In 2007, the year
on which the review is based, the threshold was $195 million.
Imports of gold jewelry from Turkey were about $233 million,
exceeding the statutory threshold by 19 percent. Turkey has
already benefited from four years of a CNL waiver on this
product.


12. Based on the statutory directive, with one exception
involving carnations from Colombia, with which we have signed
a free trade agreement, we have adopted a consistent approach
with respect to revocation of CNL waivers in order to ensure
that we administer a rules-based GSP program. This resulted
in revocation of the CNL waiver for gold jewelry from India
and Thailand, among other products, in last year's review.
The revocation this year of the gold jewelry waiver for
Turkey is consistent with a rules-based approach.


13. As you know, the WTO allows for preferential tariff
programs under GSP but requires that they be administered in
a non-discriminatory manner. India successfully challenged
the EU's GSP program on the basis that it created arbitrary
distinctions in treatment among beneficiaries. If we exempt
Turkey from revocation of its CNL waiver, we are concerned
that our trading partners may well challenge the U.S. GSP
program in the WTO by claiming that they are not receiving
the same treatment under the GSP program.


14. The GSP program is currently scheduled to expire on
December 31, 2008, and the Congress will need to approve
legislation extending it before that date if the program is
to continue. In addition to securing reauthorization, we
also want to avoid any unhelpful amendments to the GSP
program as a whole. During the debate on renewal of GSP in
2006, there was an effort in Congress to graduate entire
countries from the program - such as the top ten users of
GSP, including Turkey - rather than the targeted graduation
of individual products demonstrated to be globally
competitive that was ultimately approved by Congress. The
"super-competitive" provision was the compromise that averted
such Congressional action.


15. Based on the ten months of trade data since last year's
GSP Annual Review, previous revocations of CNL waivers for
products demonstrated to be super-competitive have not had
significant adverse consequences for imports of those
products. During this period, when all U.S. imports of gold
jewelry have dropped significantly, the U.S. import share of
gold jewelry from Thailand declined by one percentage point
(10.1 to 9.2 percent),while India's import share declined by
12 percentage points (36.4 to 24.2 percent),but the country
continues to provide to the United States nearly one-quarter
of all U.S. imports of gold jewelry.


16. If imports of gold jewelry from Turkey in 2008 were to
drop below the CNL level of $135 million, the product may be
redesignated for GSP eligibility.


17. While imports of this product accounted for 21 percent
of imports from Turkey under GSP, our bilateral trade
relationship of $4.6 billion (2007) is strong and comprises a
diversity of exports of which this type of gold jewelry
accounts for only 5 percent.


18. We also recognize the significance of the U.S. GSP
program to Turkey as well as the diversification of its
exports, and we have approved a new CNL waiver for copper
cables and plaited bands that will ensure that imports of
that product from Turkey continue to enter duty-free under
GSP. This product has been the third largest import under
GSP from Turkey, with exports growing 185 percent between
2006 and 2007.


19. We look forward to working with the GOT to diversify and
strengthen imports from Turkey under GSP in the future.


20. Because Turkey benefits from the GSP program, we would
not want to endanger Turkey's continued benefits, given
Congressional consideration of renewing the GSP program and
the prospect of a challenge by our trading partners in the
WTO.


21. It is impossible to know what would happen to Turkey's
exports of gold jewelry if the waiver were to be revoked.
Even under a worst-case scenario, we would expect that Turkey
would continue to export significant quantities of gold
jewelry to the United States. To the extent there are
dramatic changes in Turkey's import levels, the product may
be eligible for reinstatement of GSP benefits.


22. We would welcome your views on the points I have just
made.
RICE