US embassy cable - 04ANKARA2697

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 002697 
 
SIPDIS 
 
 
DEPARTMENT FOR E, EB AND EUR/SE' 
NSC FOR MCKIBBEN AND BRYZA 
TREASURY FOR OASIA - LOEVINGER, MILLS, AND ATKINS 
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO 
 
 
E.O. 12958: DECL: 05/10/2014 
TAGS: ECON, PREL, EINV, ETRD, PTER, TU 
SUBJECT: ADVANCING OUR ECONOMIC INTERESTS IN TURKEY AHEAD 
OF THE NATO SUMMIT 
 
 
1.  (U) Classified by Ambassador Eric S. Edelman.  Reason: 
1.4(b,d) 
 
 
2.  (C) Summary:  We have time to make one more hard push to 
advance our core economic interests in Turkey ahead of the 
end-June Presidential visit and NATO Summit.  We need to use 
every opportunity during this period to encourage the 
complacent GOT to broaden and deepen economic reform, to 
resolve at least a few of the outstanding investment disputes 
that hurt both U.S. companies and Turkey's economic 
prospects, and to convince senior Turkish officials that they 
need to strengthen their regime for fighting terrorist 
finance,  In anticipation of issues the Turks might raise 
during the President's visit, we should fulfill our 
commitments to schedule talks on trade and IPR issues, to 
provide the GOT with a report explaining how its failure to 
provide data exclusivity for pharmaceutical products violates 
WTO requirements, and to seek legislation on Qualifying 
Industrial Zones. End Summary. 
 
 
3.  (C) We have been telling the Turks for months that the 
end-June Presidential visit and NATO Summit are opportunities 
for them to showcase Turkey's economic recovery and 
prospects, and that it would be in their interest to do 
everything possible on the economic policy front to present a 
favorable picture.  We now have just enough time to make one 
more hard push in favor of further reform and resolution of 
outstanding problems, and also to fulfill commitments we have 
made that the Turks are likely to ask about when the 
President visits. 
 
 
4.  (C) Our top priority remains encouraging the GOT to do 
everything possible to sustain and enhance the economy's 
recovery.  Although conditions, particularly related to 
public finance and inflation, have improved dramatically over 
the past year, the economy remains vulnerable due to very 
high public debt, a growing current account deficit, and a 
still-dismal business environment.  The government deserves 
credit for respecting Central Bank independence, generally 
maintaining fiscal discipline, and implementing enough 
reforms to stay on track with its IMF program.  However, it 
has also become complacent -- believing its own rhetoric that 
the past year's rally was due entirely to its policy prowess 
-- and has done far too little to implement the structural 
reforms needed to create well-regulated markets and encourage 
investment. 
 
 
5.  (C) The government's failure to take advantage of 
favorable global market conditions over the past year to 
consolidate gains (by aggressively implementing reforms) is 
largely responsible for the economy's current vulnerability 
in the face of rising global interest rates.  The recent 
market downturn might serve as a wake up call on the need for 
further reform, but we cannot bet on it.  Therefore, 
particularly in our private conversations with Turkish 
officials, we must avoid "happy talk" that reinforces the 
prevailing complacency.  Instead, we should press the 
government at every opportunity not only to stick to the IMF 
program, but to go beyond it by implementing the full range 
of structural reforms, including accelerated privatization, 
tax reform, not undermining independent regulators, more 
rapid liberalization of the telecom and energy sectors, and 
further steps to ensure a sound banking system. 
 
 
6.  (C)  We also need to continue pressing for resolution of 
the problems and disputes that have plagued existing U.S. 
investors and deterred potential new ones.  Despite intense 
efforts by the Ambassador and much positive rhetoric and 
promises of action from government ministers, the GOT has 
failed to resolve any of our high profile problems: 
Motorola's dispute with the Uzans, the Cargill zoning case, 
the lack of operating licenses for our energy BOTs, the 
failure of courts to enforce international arbitration 
decisions on behalf of Dillingham Construction (which is 
pulling out of the country), the lack of data exclusivity 
protection for our pharmaceutical companies, the Bedoian 
case, and others.  The government could easily resolve (at 
least partly) the Cargill problem by getting Parliament to 
pass zoning legislation that has been circulating for months. 
 The other problems are somewhat more complicated, but again 
the government could take steps to begin addressing them.  We 
need to continue stressing to GOT officials that U.S. 
companies are unlikely to invest in Turkey in the absence of 
progress on these cases, and that their economic recovery 
program will not succeed without a significant increase in 
foreign investment. 
 
 
7.  (C) We also want to push on two shorter-term commercial 
issues:  Boeing sales and Turkey's ban on rice imports. 
Turkish Airlines is planning to buy a number of aircraft as 
early as this summer.  We understand EU officials are putting 
substantial pressure on Turkish officials, suggesting that a 
decision to buy Airbus will help the EU make a positive 
decision in December on giving Turkey a date to begin 
acccession talks.  We should continue to urge GOT officials 
to make a decision based on merit (i.e. commercial reasons), 
and to ratify the Capetown Convention, which would enable 
U.S. ExIm to offer lower-cost financing that would help 
Boeing.  We also need to press GOT officials to eliminate a 
rice import ban, which appears to violate WTO rules, that has 
been in effect since August 2003. (Note:  The GOT insists it 
does not have a ban, but in practice the Ministry of 
Agriculture has refused to issue import licenses for rice.) 
Related to that is a newly-announced quota system, under 
which rice imports will be limited to those companies that 
also buy rice from the Turkish Grain Board (this is an effort 
to help the Board reduce its excess stocks).  This quota 
system also appears to violate WTO rules. 
 
 
8.  (C) A third priority is to convince senior GOT officials 
of the need to strengthen Turkey's regime to combat terrorist 
financing.  A recent U.S. interagency report described the 
weaknesses in the Turkish legal and administrative regime, 
and proposed fixes.  We plan to use this report to try to 
convince senior officials -- starting with Finance Minister 
Unakitan -- of the need for action.  This will require 
intense follow-up for a long period, but we think the 
pre-visit period presents us with the best possible 
opportunity to put the issue on the senior leadership's 
agenda. 
 
 
9.  (C) The Turkish leadership is likely to ask the President 
about the status of Qualifying Industrial Zone legislation, 
which we have committed to pursue.  We understand it will not 
be possible to drop the "catch-all" exclusion from the QIZ 
bill; the important point is to get legislation to the Hill 
well before the President meets with the Prime Minister 
(though we recognize all of the obstacles to its passage by 
Congress this year). 
 
 
10.  (C) At the December 2003 EPC meeting, we committed to 
(a) identify areas in which Turkish laws and regulations on 
intellectual property rights are not consistent with 
WTO/TRIPS, and provide a list to the Turkish side; and (b) 
consult on IPR, non-tariff measures, trade in textiles, and 
cooperation in the Doha Round.  On the first issue, we 
understand there is some reluctance in Washington to commit 
USG views to paper, but only by doing so can we satisfy our 
prior commitment and advance the possibility that the GOT 
will arrive at an acceptable policy on data exclusivity.  On 
the second set of issues, we have conveyed Washington's 
proposal to hold a digital video conference on IPR.  While 
the Turks have not formally responded, they have informally 
indicated that they would greatly prefer a face-to face 
meeting on this and other issues discussed at the EPC. 
Embassy recommends that, before the NATO Summit, Washington 
agencies formally propose a meeting on trade and investment 
issues, perhaps in the form of a Trade and Investment 
Framework Agreement (TIFA) meeting or a combined TIFA/EPC 
meeting, to be held in the fall of 2004. 
EDELMAN