US embassy cable - 02ANKARA9037

UNCLAS SECTION 01 OF 02 ANKARA 009037 
 
SIPDIS 
 
 
SENSITIVE 
 
 
STATE FOR EUR/SE, EB/EPD, AND EB/TPP/ABT 
DEPT PLEASE PASS USTR FOR NOVELLI, DBIRDSEY, JHOFEMEISTER, 
AND SLOAN 
USDA FOR FAS FOR ITP/BERTSCH, MACKE, MEYER, THORBURN 
USDOC FOR DEFALCO 
 
 
E.O. 12958: N/A 
TAGS: ETRD, EAGR, KPAO, TU, USTR 
SUBJECT: Winning the Battle but Losing the War - Bananas 
 
 
Sensitive but Unclassified.  Not for Internet Distribution. 
 
 
1.  (SBU) Summary.  In November 2002, the Government of 
Turkey agreed to remove a number of non-tariff barriers on 
banana imports in response to a WTO case initiated by the 
Government of Ecuador.  Although the barriers were 
eliminated, the GOT raised import tariffs by 29% from an 
already high 120%.  Problems with Turkey's import regime 
have also discouraged companies from investing in Turkey. 
However, Turkey's eventual membership in the European Union 
may revive interest in investment in the food sector.  End 
Summary. 
 
 
--------------- 
The Banana Wars 
--------------- 
 
 
2.  (SBU) On December 12, AgCounselor met with a banana 
importer to discuss resolution/withdrawal of a WTO case 
initiated by the Government of Ecuador against Turkey. Since 
November 1999, companies had complained that the GOT has 
restricted imports of bananas using a number of non-tariff 
barriers.  Among the barriers used by Turkey were delays in 
issuing certificates of control up to 45 days; issuing 
licenses only for small uneconomical amounts (10,000 boxes 
or 50 tons, in the case of bananas); and lastly, limiting 
the time required for completing pesticide applications 
which proved difficult for many importers. 
 
 
------------------ 
Let's go to Geneva 
------------------ 
 
 
3.  (SBU) In response to exporter complaints, Ecuador wanted 
the WTO to address these issues.  Over the past two years, 
Ecuador and Turkey had consulted on the issue. According to 
one importer, the Ministry of Foreign Trade realized that 
they would lose the case and might be  subject to sanctions. 
As a result, in November 2002, the GOT agreed to eliminate 
all the barriers.  However, as a concession to the Ministry 
of Agriculture, the GOT raised tariffs on banana imports 
from 120 percent to 149 percent which is Turkey's bound 
rate. 
 
 
---------------------- 
Why We Have No Bananas 
---------------------- 
 
 
4.  (SBU) The banana case illustrates the extent of the 
GOT's desire to protect local industry.  Turkish banana 
production meets only about 15 percent of total demand. 
Given climate and soil conditions, Turkish producers cannot 
significantly increase production to any great extent. 
According to one importer, Turkey is now producing bananas 
in green houses, which given energy costs is extremely 
uneconomical.  In fact, the high tariffs penalize the 
Turkish consumer who must pay more a great deal more for 
bananas. Turkish producers generally increase their own 
prices to those of the imported bananas and reap the 
profits. Tariffs on other fruits (apples and pears) are 
about 60 - 65 % and are applied seasonally.  It is 
difficult, as far as importers are concerned, to see why a 
country needs 149 or even 120 percent tax to protect its 
industry.  The tariff is even more costly since the season 
for bananas is only 3 months while the tariff remains in 
place for the entire year. 
 
 
 
 
 
 
------------------------- 
Effect still undetermined 
------------------------- 
 
 
5. (SBU) In 2001, banana imports decreased by 30 percent, 
although this decline was attributed more to the economic 
downturn rather than the tariffs.  The import problems have 
discouraged companies from investing in any facilities in 
Turkey.  Now, however given the possibility of Turkish EU 
membership on the rise, companies may again explore the 
possibility of investing in this market. 
 
 
---------------------------------- 
Will the new government be better? 
---------------------------------- 
6.  (SBU) There is a general feeling among traders that the 
situation may improve with the new government. In November 
2002 after the withdrawal of the non-tariff barriers, 
certificates of control were issued in a week and for 
unlimited quantities.  Pesticide requirements also have 
become somewhat more flexible.  Under the previous 
government, the MHP party viewed all imports as a threat to 
Turkish agriculture.  Although the jury is still out, people 
are hopeful that the situation will change for the better. 
 
 
--------------------------------------------- ----------- 
Comment: Agriculture - Problems but Hope for the Future? 
--------------------------------------------- ----------- 
 
 
7. (SBU) In general, the worst problems in U.S.-Turkish 
bilateral trade are in the agriculture sector.  For the most 
part, non-tariff barriers are more prevalent in agriculture 
products versus industrial products.  The banana affair is 
good example of Turkey's approach to trade.  The threat of 
WTO action compelled the GOT to resolve the trade dispute. 
Of course, in the case of bananas, it took the GOT 2 years 
to reach that point.  At the same time, the GOT will often 
go to great lengths to protect its domestic agriculture 
often at the expense of the Turkish consumer who spends 
close to 50% of his/her income on food.  Trade problems seem 
to have discouraged foreign companies from investing in 
Turkey fearing similar problems with Turkey's application of 
investment rules.  It's a good sign that, at least 
initially, companies believe that the new government will 
create a more positive atmosphere for trade and investment. 
In addition, potential EU membership may encourage companies 
to invest here in the hope of basing food production and 
processing facilities in Turkey to supply EU countries with 
food products. 
 
 
Pearson