US embassy cable - 05ANKARA7073

UNCLAS SECTION 01 OF 03 ANKARA 007073 
 
SIPDIS 
 
DEPT FOR EB/OIA, EB/CBA AND EUR/SE 
TREASURY FOR OASIA - MALACHY NUGENT 
USDOC/ITA/MAC/DAVID DEFALCO 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, PREL, SY, TU, SYRIA 
SUBJECT:  Turkish-Syrian Economic Relations Grow 
 
Sensitive but Unclassified.  This is a joint cable with 
Consulate Adana. 
 
1.  (SBU)  Summary.  Starting at very low levels, there 
has been substantial growth of Turkish business with 
Syria although bilateral trade and investment remain 
trifling as a share of Turkey's overall trade and 
economy.  Most of the benefits of the growth of the 
economic relationship have accrued to businesses in the 
impoverished Southeast, which also have the brightest 
hopes for future trade and investment growth.  If the UN 
decides to impose economic sanctions on Syria, probable 
objections from Southeastern businesses would find a 
sympathetic audience elsewhere in Turkey and politically 
complicate the Turkish government's ability to impose 
such measures.  End Summary. 
 
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Improving Trade Relations and Bilateral Agreements 
--------------------------------------------- ----- 
 
2.  (SBU)  Since the two countries began cooperating 
against the PKK in 1999, Turkish-Syrian commercial 
relations have been improving, albeit unevenly, along 
with political relations.  Relations accelerated after 
the AKP government came to power in 2002.  Turkey and 
Syria signed a bilateral "Free Trade Agreement" (FTA) in 
2004 as part of the regional EU Partnership process.  As 
a member of a customs union with the EU, Turkey is bound 
to attempt to negotiate parallel agreements to those 
established by the EU.  However, parallel with the EU's 
suspension of finalizing its Association Agreement with 
Syria, the GOT has held off submitting the "FTA" to the 
Turkish parliament and it has not entered into force.  We 
understand that the agreement would eliminate tariffs on 
non-agricultural goods (as with most EU agreements, the 
FTA does not include agriculture or services) over 12 
years.  The FTA no doubt exempts a long list of sensitive 
products.  In 2004, Turkey and Syria also concluded an 
Avoidance of Double-Taxation Agreement and an Agreement 
on Reciprocal Promotion and Protection of Investments. 
Unlike the FTA, these agreements entered into force in 
August 2005. 
 
3.  (SBU)  The AKP government has made a concerted effort 
to improve relations with neighboring countries (except 
Armenia) and Muslim countries.  Developing trade 
relations with neighboring countries has been a priority 
of State Minister Kurshad Tuzmen, who is responsible for 
trade and customs.  Since he took office in 2002, trade 
with neighboring countries has indeed grown from 5% to 
30% of Turkey's total trade.  Tuzmen, a member of 
Parliament from Gaziantep, seems to have a special 
interest in Syria.  He sometimes claims to have ancestral 
ties to and continuing family relations (and perhaps 
property) in northern Syria.  (In fact, cross border 
family relationships are quite common.) 
 
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Current Trade and Investment Flows 
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4. (SBU)  Turkish exports to Syria are mostly refined oil 
products, boilers, machinery, and automotive and auto 
parts (particularly after the Syrian Government lifted a 
ban on secondhand machinery imports in 2004).  Exports 
totaled $392 million in 2004.  Turkish 2004 imports of 
$358 million consisted of  cotton and wool, seeds, and 
fruits and vegetables.  (See data below.)  Syrian and 
Turkish officials have said they aim to increase the 
bilateral trade volume to $2 billion from its current 
$750 million level (equivalent to 0.5% of total Turkish 
foreign trade of $150 billion). 
 
5. (SBU) The largest known Turkish investment in Syria is 
the Akteks textile factory near Aleppo.  The factory, 
which produces yarn, burned down several years ago and 
the company still suffers from well-publicized unresolved 
insurance claims.  While this incident has added to the 
caution of Turkish businesses, business contacts in the 
Southeast see construction as a promising sector. 
Turkish construction companies tell Consulate Adana they 
have been granted USD 106 million in contracts in Syria 
and are hopeful that they will get a significant share in 
the upcoming tenders for infrastructure projects.  Major 
Turkish construction companies including as Nurol and 
Guris have offices in Syria and closely follow the 
opportunities in the construction sector. 
 
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Infrastructure Upgrades 
----------------------- 
 
6.  (SBU)  To complement the active Turkish consulate in 
Aleppo, Turkey has agreed to allow Syria to open a 
consulate in Gaziantep that would facilitate business 
contacts.  The leading Turkish business association, 
TOBB, has also constructed (on a BOT basis) a new border 
facility at Kilis that would provide a direct link 
between Gaziantep and Aleppo.  The Syrians have yet to 
finish the matching infrastructure on their side of the 
border.  Similarly, the Syrians have not built a planned 
border facility that would link Aleppo to the Turkish 
city of Sanliurfa.  The Turks have been refurbishing a 
mostly disused 40 km stretch of the Hijaz Railway between 
Islahiye and Meydan al-Ekbez on the Syrian border.   Once 
similar work is completed on the Syrian side, the line is 
slated to go back into service with two passenger and 
four freight trains per day, linking northern Syria more 
directly into the Turkey's western rail network. 
Finally, despite Turkey's efforts, the two countries have 
not been able cooperate on management of the shared 
Euphrates or Orontes River basins. 
 
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Benefits Mainly Felt in Turkey's Poor Southeast 
--------------------------------------------- -- 
 
7.  (SBU)  Within Turkey, most of the benefits of growing 
trade with Syria seem to be accruing to businesses in the 
impoverished Southeast.  However, local businesspeople 
tell Consulate Adana that trade growth is inhibited by 
lack of financing mechanisms, poor distribution channels, 
few credible banks and opaque Syrian business practices, 
as well as Syrian restrictions on imports.  None 
expressed real enthusiasm for doing business in Syria. 
Nonetheless, prior to the initial release of the Mehlis 
report last month, several business associations in the 
region issued press statements arguing that UN Sanctions 
on Syria would harm their newly established economic 
relationships. 
 
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Comment 
------- 
 
8. (SBU) Although trade volume with Syria amounts to a 
trifling 0.5% of total Turkish trade, most of the 
beneficiaries of the current $750-800 million in annual 
bilateral exchanges appear to be located in the 
Southeast.  Many businesses have looked to trade with 
Syria as one way to help pull the area out of its 
persistent poverty.  Southeastern businesses were the 
most vocal about losses due to the Iraq embargo.  If the 
UN were to impose economic sanctions on Syria, 
Southeastern businesspeople would be similarly vocal in 
opposition and would find a sympathetic audience 
elsewhere in the country, as well as in the bureaucracy 
and AKP government, further complicating the government's 
ability to implement such measures. 
 
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TRADE STATISTICS 
---------------- 
 
BILATERAL TRADE BETWEEN SYRIA AND TURKEY (USD 1,000) 
--------------------------------------------- ------- 
 
Year    TR Exports     TR Imports      Volume     Balance 
 
1995         272.1         258.1        530.2        14.0 
1996         307.8         311.5        619.3        -3.7 
1997         268.8         456.3        725.1      -187.5 
1998         308.9         308.0        616.9         0.9 
1999         232.2         307.0        539.2       -74.8 
2000         184.3         544.3        728.6      -360.0 
2001         281.1         463.5        744.6      -182.4 
2002         256.5         506.2        762.7      -249.7 
2003         410.8         413.3        824.1        -2.5 
2004         391.8         357.6        749.4        34.2 
 
Jan-Aug: 
2004         246.1         283.8        529.9       -37.7 
2005         348.4         171.9        520.3       176.5 
 
 
MAJOR TRADE ITEMS (USD mil, as of Jan-Jul 2005) 
--------------------------------------------- -- 
 
Turkish Exports 
--------------- 
Item                                 Value 
Mineral fuels, mineral oils          117.7 
Boilers, machinery                    27.0 
Man-made staple fibers                21.0 
Automotive and side industry          15.1 
Iron and Steel                        14.2 
Salt, sulphur, cement, etc.           13.8 
Plastics and Articles                 13.1 
Animal or Vegetable fats              13.0 
Articles of iron and steel            12.5 
Electrical machinery                   9.9 
Other                                 52.5 
 
Total                                309.8 
 
 
Turkish Imports 
--------------- 
Item                                 Value 
 
Mineral fuels, mineral oils           92.8 
Cotton                                48.2 
Salt, sulphur and cement               3.0 
Plastics and Articles                  2.8 
Iron and Steel                         2.6 
Edible vegetables                      2.3 
Oil seeds and fruits                   1.4 
Coffee and tea                         0.7 
Wool                                   0.6 
Wood                                   0.4 
Other                                  3.8 
 
Total                                158.6 
 
McEldowney