US embassy cable - 04ANKARA1350

UNCLAS SECTION 01 OF 02 ANKARA 001350 
 
SIPDIS 
 
 
SENSITIVE 
 
 
TREASURY FOR OASIA (LEICHTER AND MILLS) 
 
 
E.O. 12958: N/A 
TAGS: ECON, TU, ECIN 
SUBJECT: TURKISH COMPETITION POLICY - EU ACCESSION REQUIRES 
BETTER ALIGNMENT OF THEORY AND PRACTICE 
 
1.  (SBU) Summary.  According to officials of the 
Representation of the European Commission to Turkey (EC 
Representation), over the past six years the Turkish 
Competition Authority (CA) has made good progress in those 
few sectors where it has chosen to focus. However, many 
sectors remain concentrated and non-competitive. Much work 
thus remains to be done before Turkey,s economy can be 
considered fully in compliance with the EU's strict 
competition policies. Of particular concern to the EC 
Representation are state aids, and the fact that Parliament 
continues to enact laws that contradict the Customs Union 
treaty. End summary. 
 
 
---------- 
Background 
---------- 
 
 
2.  (U) Turkey does not have a long-standing culture of 
market competition. The idea of a free market economy was 
first introduced in the 1982 constitution. However, only with 
the 1994 Competition Law were statutory restrictions placed 
on anti-competitive practices, and not until the CA was 
established in 1997 did an effective mechanism exist to 
enforce the law. (Turkish law permits private suits, but 
these are quite rare.) Thus, until quite recently, price 
fixing, market sharing and monopolies were both widespread 
and widely accepted. 
 
 
3.  (SBU) The CA consists of an eleven member Board, which 
adjudicates cases, and a professional staff of 120  persons, 
which prepares and presents cases. The Board is appointed by 
the Council of Ministers following a complicated nominating 
process. It is formally (and, apparently, practically) 
independent. Appeals from Board decisions are taken to the 
Council of State (the supreme administrative court). The CA 
staff is uniformly considered well-trained and professional. 
However, the Board and Council have received mixed reviews, 
since not all of their members are considered well-versed in 
either the Competition Law or competition theory. 
 
 
4.  (U) From CA,s organization in 1997 through June 2003, a 
total of 2218 cases were filed, of which 1822 were resolved. 
However, most cases are appealed, and the appellate process 
has been quite slow. (New legislation is expected to help 
solve this problem.)  In 2003, the CA imposed a record USD 20 
million fine on the mobile phone operators Turkcell and 
Telsim, due to their refusal to provide nation-wide roaming 
services to competitors. 
 
 
5.  (SBU) The Competition Law meets EU standards and the EC 
Representation is generally happy with the work of the CA. 
Problems nonetheless remain, some of which may be serious 
enough to affect the start of EU accession negotiations. 
 
 
---------- 
Private Sector Oversight 
---------- 
 
 
6.  (SBU) According to the EC Representation, the CA has 
focused mainly on the cement and telecommunications 
industries. Many other &crucial8 sectors remain 
concentrated (autos, white goods, electrical goods, 
alcohol/tobacco, banking, insurance and media), and since 
Turkey has not adopted a long-range competition policy, are 
likely to remain so. 
 
 
---------- 
Regulated Sectors 
---------- 
 
 
7.  (SBU) The EC Representation wants the relationship 
between the Competition Authority and regulatory authorities 
to be formalized, since oversight functions are now shared. 
For instance, BRSA has sole authority to approve mergers 
between banks having up to a 20% market share. The CA is 
negotiating protocols with the various regulatory 
authorities, and the EC Representation acknowledges that 
progress is being made. 
 
 
---------- 
Procurement 
---------- 
 
 
8.  (SBU) The EC Representation says that Turkey,s 
procurement policies are not fully aligned with the 
&acquis,8 since Turkish companies are given a 15% price 
preference, and the timing for international tenders is much 
shorter than for domestic tenders. The CA experts Econoff 
consulted, by contrast, do not think current procurement 
practices present a problem. In any event, while the CA,s 
opinion on a proposed tender must be sought, it is 
non-binding and is usually ignored. (Note: Turkey has 
recently established an independent body to review all public 
procurements. A World Bank official told Econoff that the 
body has demonstrated &real independence8 by rejecting some 
transactions. End Note.) 
 
 
---------- 
Monopolies 
---------- 
 
 
9.  (SBU) The GOT,s slow pace of privatization worries the 
EC Representation, since under the Customs Union Turkey is 
obligated to liberalize its public monopolies. Moreover, 
privatization sometimes merely perpetuates in private hands 
the monopoly previously held by the state. Indeed, from time 
to time such has been GOT,s professed policy, since 
extension of monopoly privileges to the purchaser increases 
the value of the SEE. For instance, recent legislation that 
was intended to benefit the purchaser of Tekel,s alcohol 
unit imposes import restrictions that, much to the EC 
Representation,s displeasure, violates the Customs Union. 
 
 
10.  (SBU) The EC Representation also complains that 
Parliament continues to enact statutes that extend monopoly 
rights to political favorites. Since the Competition Act, as 
a general statute, is subordinate to special acts, the CA 
cannot stem this tide. Surprisingly, a CA expert specifically 
denied that this was an ongoing problem. 
 
 
---------- 
State Aids 
---------- 
 
 
11.  (SBU) The European Commission expects candidate 
countries to establish an independent monitoring authority to 
regulate state aids. (Article 92 of the Rome Treaty forbids 
state aid &which distorts or threatens to distort 
competition.8) Rather than give the CA authority over state 
aids, GOT plans to assign this function to the State Planning 
Organization (SPO), which is not an independent body. 
Accordingly, the EC Representation says it will review each 
of the SPO,s decisions very closely, and expects the SPO to 
reject some state aids, to show its &operational 
independence.8 This is an &urgent priority8 for the EU, 
and if not handled properly could be an impediment to the 
institution of accession negotiations. 
EDELMAN