REPORTS OF TURKEY-IRAN TRADE AGREEMENT ARE

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 000630 SIPDIS DEPT PLEASE PASS USTR FOR MMOWREY E.O. 12958: DECL: 04/29/2019 TAGS: ECON ETRD IR TU SUBJECT: REPORTS OF TURKEY-IRAN TRADE AGREEMENT ARE EXAGGERATED Classified By: Economic Counselor Dale Eppler for reasons 1.4 (b) and ( d). ¶1. (C) Summary. Some Turkish press outlets have reported that Turkish Foreign Trade Minister Kursad Tuzmen signed a preferential trade agreement with Iran during a trade mission to Tehran earlier this week. Yuksel Akca, Director General of Agreements at the Foreign Trade Undersecretariat, said that these reports are simply mistaken and that there was no new agreement signed. He did acknowledge that Iran had requested a bilateral preferential trade agreement, but stated that Turkey had rejected that proposal, preferring instead to lower tariffs via the multilateral Economic Cooperation Organization Trade Agreement (ECOTA) which entered into force last year and also includes Afghanistan, Pakistan, and Tajikistan. Under this agreement, most goods will enjoy maximum tariff rates of 20 percent within 8 years. Akca suggested that the press reports may have confused the implementation of ECOTA with a bilateral agreement. Tuzmen did, however, call for increased Turkish-Iranian trade and listed five proposals for future action: (1) an agreement on the free movement of goods, (2) a customs union, (3) a project to construct a rail passage north of Lake Van in eastern Turkey, (4) the removal of obstacles to highway transportation, and (5) the export of Iranian hydrocarbons through Turkish pipelines and ports. This envisions a greatly expanded trade relationship, but whether any of these proposals will ever be realized is uncertain. End Summary. ¶2. (C) Several Turkish press outlets reported that Foreign Trade Minister Kursad Tuzmen signed a bilateral preferential trade agreement with Iran during his recent trade mission to Tehran. When questioned about this report, Yuksel Akca, Foreign Trade Undersecretariat (FTU) Director General of Agreements, stated that this was simply a fabrication and that no new agreement had been signed. Akca, who participated in all of Tuzmen's meetings on the trip, acknowledged that Iranian officials raised the idea of a bilateral agreement, but said that Turkey rejected the proposal because it prefers to pursue tariff reductions with Iran through the multilateral mechanisms of the Economic Cooperation Organization (ECO),thereby tying Iran further into regional initiatives. ¶3. (C) Turkey and Iran are both signatories to the Economic Cooperation Organization Trade Agreement (ECOTA),the other ratifying members of which are Afghanistan, Pakistan, and Tajikistan. ECOTA entered into force approximately a year ago when Iran became the fifth ratifying member. Akca speculated that the press confusion may have arisen because the ECOTA tariff reduction schedules are finally being negotiated (several months behind schedule). They envision a reduction of maximum tariff rates on all goods to no more than 20 percent over the next six years for Turkey, Iran, and Pakistan and over the next eight years for Afghanistan and Tajikistan. ¶4. (SBU) While there may not have been any bilateral agreement signed, Tuzmen did call for a greatly increased trade relationship with Iran during a speech to a business group in Tehran. Stating that if the existing obstacles to trade are removed, Turkish-Iranian trade could easily double to USD 20 billion within five years, Tuzmen outlined five projects to achieve that goal: -- signing an agreement on the free movement of goods between the two countries; -- creating a unified customs zone; -- constructing a rail passage to the north of Lake Van so as to "link Europe to China" (the existing rail line requires the use of a train ferry to shuttle cars across the lake, limiting the size of trains that can utilize the route); -- removal of all obstacles to the free transit of goods along highways, including fees (of particular interest to Turkey, given its reliance on cross-Iran truck traffic to supply goods to Central Asia); and, -- transportation of Iranian natural gas via Turkish pipelines and Iranian oil via Turkish ports. ANKARA 00000630 002 OF 002 ¶5. (C) Comment: Tuzmen's speech certainly laid out a bold agenda for Turkish-Iranian trade, but it is unclear how much of this is mere showmanship for public consumption. Creating a customs union with Iran, for example, would pose numerous problems given that Turkey already has such a union with the EU. And Akca's downplaying of the meetings suggests that, at least for now, Turkey still prefers to deal with Iran multilaterally. Taken in the context of the global economic crisis and Turkey's desperate search for new markets, Tuzmen's speech also reflects the reality that Turkey is looking for ways to increase its access to the Iranian market (Turkish-Iranian trade is currently heavily slanted in Iran's favor). End comment. Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey Jeffrey