US embassy cable - 03ANKARA6568

UNCLAS SECTION 01 OF 02 ANKARA 006568 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR E, EB/TPP, AND EUR/SE 
STATE PASS USTR FOR NOVELLI/ERRION 
TREASURY FOR OASIA - MILLS AND LEICHTER 
NSC FOR MCKIBBEN AND BRYZA 
 
 
E.O. 12958: N/A 
TAGS: ETRD, PREL, EINV, TU, IZ, IR 
SUBJECT: AMBASSADOR AND STATE MINISTER TUZMEN DISCUSS TRADE 
AND REGIONAL ECONOMIC COOPERATION 
 
 
 1.  (SBU) Summary:  The highlight of the Ambassador's 
October 14 call on State Minister Kursad Tuzmen was that -- 
for the first time in living memory -- Tuzmen did not push 
for U.S. lifting of textile quotas, saying the strong lira 
meant Turkish exporters could not even fill existing quotas. 
 Tuzmen stressed his belief that Turkey could only prosper if 
its neighbors enjoyed sustained economic growth, and that the 
best way to achieve this would be to encourage greater 
regional economic cooperation, including production sharing 
agreements in Turkey's Economic Free Zones.  The Minister 
said Turkish exports to Iraq were booming, and could reach 
$1.8 billion this year.  The GOT will continue to press for 
more trade with other neighbors, and hopes trade will 
encourage accelerated reform in places such as Iran and 
Syria.  End Summary. 
 
 
2.  (SBU) Ambassador began his October 14 call on State 
Minister (for Trade) Kursad Tuzmen by briefly outlining his 
thoughts on how to enhance the economic relationship.  He 
noted that Turkey's macroeconomic situation is improving, but 
the country needs to resolve some specific investment 
disputes that are serving as a disincentive to other American 
investment, and also needs to shift to higher-value added 
production and exports, particularly in light of the demise 
of the Multi-Fiber Agreement on January 1, 2005.  He 
suggested that non-textile QIZs might be a way to attract 
more investment and move up the value chain. 
 
 
3.  (SBU) Tuzmen predicted that exports would continue to 
drive growth in Turkey.  Since 1997, he has pursued a policy 
of enhancing trade with Turkey's neighbors.  In those six 
years, the share of Turkish exports to neighboring countries 
has risen from 3 percent to 12 percent; his goal is to reach 
30 percent.  "The regimes are not important to me -- I'm just 
trying to increase trade." 
 
 
4.  (SBU) Ambassador interjected that the nature of regimes 
does matter, as the lack of freedom in authoritarian regimes 
makes them less reliable trading partners.  He pointed to 
recent World Bank and UN studies that concluded that one of 
the major impediments to growth in the Arab world is bad 
governance.  Tuzman acknowledged the point, but said "they 
are my neighbors, and I have to live with them."  He added 
that the export of Turkish goods and culture would encourage 
reform and liberalization in neighboring regimes, and 
suggested that Iran already was undergoing significant change. 
 
 
5.  (SBU)  The Minister argued that the biggest problem in 
the region is low income, and that only trade and sustained 
economic growth would bring sustainable peace.  Moreover, 
Turkey could not prosper as long as its neighbors remained 
poor.  His hope is to pursue regional production sharing 
arrangements and development "clusters" (following Michael 
Porter's ideas), in which Turkey could shift some low-end 
production to its neighbors and move to higher end production 
itself.  He suggested that Turkey's Economic Free Zones, 
which enjoy substantial tax advantages, would be an ideal 
location for multinational clusters. 
 
 
6.  (SBU) Tuzmen said that designating parts of the Economic 
Free Zones as Qualifying Industrial Zones could be useful, 
but the U.S. needed to do a better job explaining how QIZ 
status could be helpful.  Most high tech goods, he noted, 
already enjoy duty-free status in the U.S., so the benefits 
of QIZ status were not clear.  Ambassdador responded that the 
GOT should look at QIZs not only for their tariff-free 
status, but as magnets for attracting investment, 
particularly into higher value-added sectors.  He noted that 
Turkey remained highly dependent on low-end exports, 
including textiles and garments. 
 
 
7.  (SBU) Tuzmen agreed.  He noted that Turkey had long 
pushed the U.S. to lift textile quotas ahead of the 
termination of the Multi-Fiber Agreement.  Now, however, the 
Turkish lira's appreciation had so hurt the competitiveness 
of Turkey's textile/garment industry that it could not even 
fill existing quotas.  He suggested agro-industry, organic 
agriculture, and industrial production in the GAP region as 
possibilities for future QIZs incorporated into an Economic 
Free Zone. 
 
 
8.  (SBU) Turning to Iraq, the Minister said Turkish exports 
were rising rapidly and could reach $1.8 billion this year 
(this is higher than his previous estimates).  He agreed that 
Turkish construction companies were also well placed to win 
significant amounts of business in reconstruction 
subcontracts.  He reiterated his view that greater trade and 
economic activity were crucial to peace and stability in 
Iraq, and said Turkey was "wide open" to ideas on how to 
increase bilateral commerce. 
EDELMAN