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