US embassy cable - 04ANKARA4274

C O N F I D E N T I A L SECTION 01 OF 02 ANKARA 004274 
 
SIPDIS 
 
TREASURY FOR MILLS, ADKINS 
NSC FOR BRYZA 
COMMERCE FOR ADVOCACY CENTER 
 
E.O. 12958:  DECL: 07/29/2009 
TAGS: EAIR, BEXP, FR, TU 
SUBJECT:  TURKEY LOOKS FOR ECONOMIC SWEETENERS FOR EU 
ACCESSION 
 
REF: A. PARIS 5495 
 
     B. BERLIN 2510 
 
Classified By: Robert S. Deutsch, Charge d'Affaires, a.i.  Reasons 1.4 
(b,g) 
 
1.  (C)  Summary.  In an apparent effort to secure France's 
support for Turkey's EU bid, Prime Minister Erdogan offered 
contracts or potential contracts to French companies during 
his July trip to Paris.  This includes Turkish Airlines' 
purchase of 36 mid-size Airbus jets, suggestions that Turkey 
is interested in engaging French companies to build nuclear 
power plants, and hints of preferences for French companies 
competing for Turkish military orders.  Playing politics with 
state-involved business deals remains a part of Turkey's (and 
probably France's) political culture.  But the economic cost 
to Turkey of making sub-optimal business deals is compounded 
by the likelihood that such deals will be long-forgotten when 
European leaders make their crucial decision about Turkey's 
EU accession next December.  End Summary. 
 
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France Trip Highlights Economic Ties 
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2.  (SBU)  Apart from discussions of French support for 
beginning EU accession negotiations with Turkey (reftels), 
Turkish officials tell us PM Erdogan's July 19-21 visit to 
Paris focused on developing bilateral economic ties.  Turkish 
MFA officials said that in addition to a letter of intent 
between Airbus and state-owned Turkish Airlines (THY) for the 
purchase of 36 new aircraft, the two sides concluded a 
bilateral investment treaty.  The Turkish press reported that 
there were also discussions of potential French participation 
in developing Turkish nuclear energy projects and the 
possibility of preferences for French companies in Turkish 
defense procurements. 
 
3.  (SBU)  In addition to meeting President Chirac, PM 
Raffarin, and other political figures, Erdogan addressed the 
French employers' association, MEDEF, and had a separate, 
private breakfast with a smaller group of French 
industrialists (who complained to him about Turkey's opaque 
investment climate).  Erdogan also gave press interviews 
highlighting economic ties to le Figaro and other journals. 
With $7 billion in bilateral trade last year, France is 
Turkey's fifth largest trade partner.  French companies have 
been authorized $5.7 billion in investments since 1980, 
making France Turkey's largest source of foreign direct 
investment.  MFA said that 500,000 Turks live in France, and 
noted that France is an important source of Turkish tourism 
revenue. 
 
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Airbus Deal Signed 
------------------ 
 
4.  (SBU)  The most concrete economic outcome of the visit 
was the letter of intent to purchase 36 Airbus plans that was 
announced in Paris and finalized July 22 by Airbus and THY at 
the Farnborough Air Show.  The order, which includes 12 
A321-200, 19 A320-200, and 5 A330-200 aircraft, is worth 
approximately $3 billion at list prices.  Also in 
Farnborough, THY and Boeing announced a THY order for 15 
737-800 aircraft.  The financial terms of the Airbus/THY 
arrangement are not public, although it local press 
speculation is  that a substantial discount, quoted at up to 
$1 billion, was involved.  A source close to the prime 
minister told us the agreement contains a cancellation 
penalty of $10 million, or approximately $300,000 per 
airplane. 
 
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No Nukes, Yet 
------------- 
 
5.  (SBU)  The nuclear discussions were more theoretical. 
Although Turkish energy officials have for some time been 
considering nuclear power plants as an option for meeting 
Turkey's growing electricity needs, Erdogan's comments seemed 
far ahead of the GOT bureaucracy and caused considerable 
surprise in Ankara.  Turkey's difficult financial situation 
is widely seen as making very expensive new projects like 
nuclear plants unfeasible.  Local press reports estimate the 
cost of the project suggested by Erdogan at $13 billion, with 
Turkey only in a position to provide $4 billion of this.  As 
in the case of the Airbus deal, the Turkish press linked 
Erdogan,s statements to Turkey,s efforts to win French 
endorsement for Turkey,s EU bid. 
 
6.  (C)  Energy Deputy U/S Cimen confirmed to us there had 
not been a "firm" decision to develop nuclear power in 
Turkey.  If such a decision were to be made, he believed 
Turkey would not try to finance the construction from its 
budget, but would look for private companies to build the 
plants on a "build-operate-transfer" (BOT) basis.  A second 
option, he said, would be to reach a bilateral agreement with 
an interested country "like the U.S., Canada or France." 
Under such an arrangement, all the contracts would be 
negotiated with the partner country.  Cimen confirmed that 
Erdogan had discussed this idea with Chirac, but emphasized 
that no final decision has been reached. 
 
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Comment 
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7.  (C)  The split in the THY order, with a considerably 
larger share going to Airbus, follows months of intense 
political pressure on Erdogan from European leaders, 
reportedly including Chirac, Schroeder and Blair.  The 
Europeans undoubtedly linked -- at least implicitly and 
probably explicitly -- Airbus getting the largest chunk of 
THY's order to support for Turkey's EU bid.  Boeing reps have 
told us the company is convinced that they left a better 
business offer on the table, particularly in the A320 
category.  They are disappointed at what seemed to them to be 
a clearly political choice. 
 
8.  (C)  Erdogan undoubtedly viewed such economic 
"deliverables" as sweeteners that would encourage French 
support for Turkey's EU bid.  Indeed, Chirac is reported to 
have said, "Let me call Schroeder," when Erdogan informed him 
of the airplane decision.  However, as reftel A suggests, the 
Turks are deluding themselves if they think such 
announcements will be remembered come an EU Summit decision 
in December on Turkey's accession process.  This was also 
confirmed by French Trade Minister Loos' ironic comment -- 
made, however, after the Farnborough announcement -- that 
buying Airbus "was not part of the Copenhagen criteria." 
DEUTSCH