US embassy cable - 04ANKARA655

UNCLAS SECTION 01 OF 02 ANKARA 000655 
 
SIPDIS 
 
 
DEPT FOR EB AND EUR/SE 
DEPT PLEASE PASS USTR FOR LERRION 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
SENSITIVE 
 
 
E.O. 12958: N/A 
TAGS: ETRD, TU 
SUBJECT:  Foreign Trade Undersecretary on WTO 
Negotiations, Regional and Bilateral Trade Issues 
 
 
SENSITIVE BUT UNCLASSIFIED - PROTECT ACCORDINGLY 
 
 
Ref: (A) State 6662 (B) Ankara 6048 
 
 
Summary 
------- 
 
 
1. (SBU) Foreign Trade Undersecretary Tuncer Kayalar and 
Department Head Hasan Yalcin told us on January 30 that 
they found USTR Zoellick's letter on the WTO 
negotiations to be very encouraging, particularly on 
ending export subsidies in agriculture.  Kayalar 
reviewed GOT efforts to conclude a series of trade 
agreements in the region and elsewhere, in part to align 
Turkish trade policy with that of the EU.  He also 
contended that continued high Syrian tariffs are 
blocking use of the railways to trade fuels with Iraq 
and to relieve congestion at the Habur Gate.  Kayalar 
maintained that a Turkey QIZ would have no benefit for 
Turkey unless textiles and other sensitive sectors were 
included in its scope.  He expressed some concern that 
the strong lira was beginning to hurt Turkish exports. 
We urged Kayalar to support rapid implementation of data 
exclusivity protection for pharmaceuticals.  End 
Summary. 
 
 
WTO Negotiations 
---------------- 
 
 
2. (U) In a January 30 meeting with Econ Counselor and 
Econoff, Foreign Trade Undersecretary Kayalar and 
Multilateral Affairs Department Head Hasan Yalcin said 
they were encouraged by USTR Zoellick's letter (ref A) 
on moving the WTO negotiations forward in 2004.  Yalcin 
told us that Turkey views very positively the proposal 
for a definite end date for export subsidies and an end 
to the subsidy component of export credits in 
agriculture.  He added that, although many developing 
countries had reacted positively to the letter, the EU's 
position on export subsidies would be key.  Yalcin told 
us that State Minister Tuzmen planned to send a written 
response to the letter in the near future. 
 
 
Liberalizing Trade in Line with the Customs Union 
--------------------------------------------- ---- 
 
 
2. (SBU) Kayalar said that Turkey is actively pursuing 
trade liberalization with a number of countries in the 
region, within the framework of aligning its trade 
arrangements with the EU under the customs union.  A 
free trade agreement with Morocco was to have been 
signed in late January, but the signing will be 
postponed until the visit of the Moroccan Prime 
Minister; the timing of this visit has not been 
finalized.  Kayalar said he expected FTAs with Tunisia 
and "Palestine" to be completed after the Moroccan FTA 
signing.  Turkey continues to negotiate with Jordan on a 
possible FTA.  Outside the region, Turkey is also keen 
to negotiate an FTA with Mexico, which Kayalar 
characterized as closed to Turkish exports following the 
EU - Mexico FTA. 
 
 
3. (SBU) Kayalar told us that Turkey is pressing 
Brussels to intercede with its FTA partners on the need 
to negotiate with Turkey.  Turkey would prefer that the 
EU and Turkey negotiate new FTAs with third parties in 
parallel, or that future EU FTAs include a clause 
requiring that the third party negotiate an FTA with 
Turkey.  Note:  In adopting Europe's common external 
tariff under the customs union, Turkey made steep, 
unilateral cuts in tariffs on third country products, 
including on those from the EU's FTA partners.  Those 
partners will thus realize relatively small gains in 
Turkish market access under an FTA with Turkey, but will 
have to give up relatively high levels of protection 
against Turkish imports.  This, the Turks have long 
said, creates an incentive for those countries to drag 
out FTA negotiations and diverts trade.  End Note. 
 
 
Neighboring Countries 
--------------------- 
4. (SBU) Kayalar said Turkey is keen to liberalize trade 
in border regions with Syria and Iran.  He predicted 
that Turkey and Iran would soon come to agreement on a 
border trade scheme, and said the Syrians were 
considering a similar arrangement.  To relieve 
congestion at the Habur border crossing, the GOT would 
like to trade fuels with Iraq by rail through Syria. 
However, the rail link is not being used due to 
continued Syrian insistence on high transit fees (ref 
B). 
 
 
Textiles and the QIZ 
-------------------- 
 
 
5. (SBU) The Undersecretary told us that he had not as 
yet received a readout on the Prime Minister's 
Washington meetings and was not sure whether Qualifying 
Industrial Zones (QIZs) had been raised.  He 
acknowledged that MFA took the position that Turkey 
should pursue a QIZ excluding textiles and other import- 
sensitive goods.  However, Kayalar maintained that only 
the Turkish apparel industry could benefit from the QIZ, 
largely because U.S. tariffs outside that sector were 
very low or nonexistent.  He did say that one Turkish 
fish processing company had expressed interest in a QIZ, 
but this did not appear to be feasible unless the QIZ 
could consist of a single factory. 
 
 
6. (U) Kayalar remarked that Turkey's apparel 
manufacturers were investing abroad.  He noted that he 
had visited Uzbekistan earlier in January, and that that 
country has garnered about USD 300 million in Turkish 
investment, including a factory exporting to Fruit of 
the Loom. 
 
 
Data Exclusivity 
---------------- 
 
 
7. (SBU) EconCouns raised Assistant USTR Novelli's 
letter to Kayalar urging implementation of data 
exclusivity protection for pharmaceuticals.  Kayalar 
stated that the GOT was considering delayed 
implementation (at the end of 2007).  EconCouns replied 
that this would be perceived negatively in Washington, 
and could result in Turkey's elevation in the Watch List 
system in the 2004 Special 301 cycle.  Kayalar said he 
would represent the USG position to others in the GOT, 
but added that no action was likely before the municipal 
elections in March 2004. 
 
 
Turkey's Trade Deficit 
---------------------- 
 
 
8. (SBU) Kayalar told us he was pleased with Turkish 
exporters' record sales in 2003, but that the strong 
lira was beginning to put a dent in future orders.  He 
characterized the level of imports, at some USD 8.5 
billion in December, as alarming.  While acknowledging 
the central bank's dedication to cutting inflation 
through a strong lira, Kayalar opined that Turkish 
exports could not continue to compete globally at 
current exchange rates. 
Edelman