This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 06 ANKARA 007777 
 
SIPDIS 
 
 
STATE FOR EB/TPP/MTA/MST 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR FOR GBLUE/LERRION 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: ETRD EINV EFIN ECON KIPR TU
SUBJECT:  DRAFT NATIONAL TRADE ESTIMATE REPORT 
 
 
Ref: STATE 310953 
 
 
The following is Embassy's input for the National Trade 
Estimate Report for Turkey: 
 
 
TRADE SUMMARY 
 
 
Turkey is a beneficiary of GSP, has Bilateral 
Investment and Tax Treaties with the United States, and 
has a customs union with the European Union. 
(Trade/investment statistics to be provided by 
Washington agencies). 
 
 
IMPORT POLICIES 
 
 
Tariffs and Quantitative Restrictions 
 
 
As a result of its 1996 customs union with the European 
Union, Turkey applies the EU's common external customs 
tariff for third country (including U.S.) imports and 
imposes no duty on non-agricultural items from EU and 
European Free Trade Association (EFTA) countries.  The 
simple average tariff for industrial products from the 
United States and other third countries dropped to 4.4 
percent in 2003.  Turkey's harmonization of trade and 
customs regulations with those of the EU and the 
overall decline in tariff rates benefits third country 
exporters. 
 
 
Turkey maintains high tariff rates (25 percent average 
Most-Favored-Nation rate) on many food and agricultural 
products to protect domestic producers.  Imports of 
animal products carry the highest tariffs, with ad 
valorem rates ranging up to 227.5 percent on meat 
products and edible meat offal.  The Turkish government 
often increases tariffs during the domestic harvest or 
during times of high stocks.  In 2003, the government 
increased the tariff on corn from 20 to 70 percent. 
High feed prices have negatively impacted Turkish 
livestock industries, particularly for beef and 
poultry.  Duties on fruits range from 61 percent to 149 
percent.  Processed fruits, fruit juices and vegetable 
tariffs range between 41 and 138 percent.  The GOT also 
levies high duties as well as excise taxes and other 
domestic charges on imported alcoholic beverages that 
increase wholesale prices by more than 200 percent. 
 
 
Import Licenses and Other Restrictions 
 
 
While import licenses generally are not required for 
industrial products, products which need after-sales 
service (e.g., photocopiers, ADP equipment, diesel 
generators) require licenses.  Non-tariff barriers 
result in costly delays, demurrage charges, and other 
uncertainties that stifle trade for many agricultural 
products. 
 
 
Private traders report that Turkish import policies are 
often implemented in a nontransparent manner.  In 
addition, gaps in communication between Ankara and 
regional offices often result in improper 
implementation of regulations.  Turkey is in the 
process of rewriting its import regulations for 
agriculture products in order to comply with EU 
regulations.  However, some new regulations have not 
been fully consistent with those of the EU.  For many 
products, no written standards exist.  For example, 
despite repeated requests, the GOT failed to provide 
guidelines for red meat imports.  For the past four 
years, the Ministry of Agriculture and Rural Affairs 
(MARA), through its quarantine service, stopped issuing 
import licenses for rice prior to the harvest.  In July 
2003, the GOT stopped issuing licenses and has not 
lifted this ban as of December. 
 
 
The import process for alcoholic beverages is 
exceedingly complicated, requiring both MARA control 
certificates and TEKEL (a parastatal company) permits 
which strictly limit trade and distribution channels 
and are made available under only limited and 
unpredictable circumstances.  The government is in the 
process of privatizing the alcohol operations of TEKEL. 
Recent changes in Turkish law call for a liberalization 
of the spirits and tobacco market over a five-year 
period, which should improve the competitive 
environment. 
 
 
Turkey applies discriminatory price controls for 
imported pharmaceuticals, allowing lower mark-ups for 
imported drugs relative to those produced domestically. 
U.S. pharmaceuticals companies claim this policy has 
cost them over USD 250 million since it was last 
modified in April 2001. 
 
 
STANDARDS, TESTING, LABELING AND CERTIFICATION 
The Turkish government has not consistently notified 
the WTO of changes in import policies and phytosanitary 
requirements, and implementation has been arbitrary. 
Importers have had increasing difficulty in obtaining 
information on sanitary and phytosanitary 
certifications.  The GOT often requires laboratory 
testing on items not normally subject to testing by 
trading partners, often without any scientific basis. 
Finally, the GOT often requires phytosanitary 
certification on quality issues that are normally 
handled on a contractual basis. 
 
 
The government requires laboratory tests and 
certification that quality standards are met for the 
importation of foods, human and veterinary drugs, and 
medical equipment and appliances intended for use by 
humans. 
 
 
GOVERNMENT PROCUREMENT 
 
 
Turkey is not a signatory of the WTO Government 
Procurement Agreement.  Although its laws require 
competitive bidding procedures for tenders, U.S. 
companies sometimes become frustrated over lengthy and 
often complicated bidding and negotiating processes. 
Some tenders, especially large projects involving co- 
production, are frequently opened, closed, revised, and 
opened again. 
 
 
In 2003, a new public tender law which establishes an 
independent board to oversee public tenders, and lowers 
the minimum bidding threshold at which foreign 
companies can participate in state tenders, entered 
into force.  However, the law gives a price preference 
of up to 15 percent for domestic bidders and is not 
applicable to domestic bidders who form a joint venture 
with foreign bidders.  Amendments to the law in 2003 
enlarged the definition of domestic bidder to include 
corporate entities established under Turkish law, 
including those established by foreign companies. 
 
 
Military procurement generally requires an offset 
provision in tender specifications.  The offset 
guidelines were recently modified to encourage foreign 
direct investment and technology transfer. 
 
 
The entry into force of a Bilateral Tax Treaty between 
the United States and Turkey in 1998 eliminated the 
application of a 15 percent withholding tax on U.S. 
bidders for Turkish government contracts. 
 
 
EXPORT SUBSIDIES 
 
 
Turkey employs a number of incentives to promote 
exports, although programs have been scaled back in 
recent years to comply with EU directives and WTO 
standards.  Historically, wheat and sugar were the main 
subsidized commodities.  Export subsidies, ranging from 
10 to 20 percent of export values, are granted to 16 
agricultural or processed agricultural products.  The 
Turkish Eximbank provides exporters with credits, 
guarantees, and insurance programs.  Certain tax 
credits also are available to exporters. 
 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
 
Turkey's intellectual property rights regime has 
improved in recent years, but still presents serious 
problems.  Beginning in 1995, the Turkish Parliament 
approved a series of patent, trademark and copyright 
laws in connection with Turkey's customs union with the 
EU and the WTO Agreement on Trade Related Aspects of 
Intellectual Property Rights (TRIPS).  In recognition 
of Turkey's progress in the IPR area, USTR removed 
Turkey from its Special 301 Priority Watch List and 
placed the country on its Watch List in 2002, where it 
remained in 2003. 
 
 
Turkey's 2001 copyright law substantially modernized 
the legal regime, providing deterrent penalties for 
copyright infringement.  However, it does not prohibit 
circumvention of technical protection measures, a key 
feature of the World Intellectual Property Organization 
(WIPO) "Internet" treaties.  In addition, the Turkish 
courts have failed to render deterrent penalties to 
pirates as provided in the copyright law.  They have 
instead applied the Turkish Cinema Law, which has much 
lower penalties.  The copyright industries' key demand 
is for better enforcement.  Currently, the police 
generally do not intervene in pirate production or 
sales unless the rightholder specifically requests that 
they do so.  U.S. industry estimated losses to piracy 
at USD 93 million in 2002. 
 
 
In 1995, new patent, trademark, industrial design, and 
geographic indicator laws revamped Turkey's foundation 
for industrial property protection.  Turkey also 
acceded to a number of international conventions, 
including the Stockholm Act of the Paris Convention, 
the Patent Cooperation Treaty, and the Strasbourg 
Agreement.  Although the Turkish Patent Institute (TPI) 
was established in 1994 to support technological 
progress, protect intellectual property rights and 
provide public information on intellectual property 
rights, it is currently understaffed. 
 
 
In accordance with the 1995 patent law and Turkey's 
agreement with the EU, patent protection for 
pharmaceuticals began on January 1, 1999.  Turkey has 
been accepting patent applications since 1996 in 
compliance with the TRIPS agreement "mailbox" 
provisions.  The patent law does not, however, contain 
interim protection for pharmaceuticals in the R&D 
"pipeline." 
 
 
The key intellectual property concern for research- 
based pharmaceutical companies is Turkey's lack of data 
exclusivity protection for confidential test data, 
which is required by the TRIPS agreement.  U.S. 
industry contends that at least 165 products infringing 
data exclusivity have been approved or are pending 
review by the Turkish Health Ministry, and that lack of 
data exclusivity protection costs U.S. companies some 
USD 400 million annually in lost sales.  Patent holders 
have also note that the Health Ministry has accepted 
applications to register generic copies of products 
which have a valid patent in Turkey. 
 
 
Trademark holders also contend that there is widespread 
and often sophisticated counterfeiting of their marks 
in Turkey.  According to one industry association, 
Turkey is the world's third-largest exporter of 
counterfeit products. 
 
 
SERVICES BARRIERS 
 
 
Telecommunications Services 
 
 
State-owned Turk Telekom currently provides voice 
telephony and most value-added and basic 
telecommunications services.  In the WTO negotiations 
on Basic Telecommunications Services, Turkey made 
commitments to provide market access and national 
treatment for all services at the end of 2005, and 
permitted value-added telecommunications services to be 
licensed to the private sector with a 49 percent limit 
on foreign equity investment.  In the interim, Turkey 
committed to provide national treatment for mobile, 
paging and private data networks.  In 2000, the Turkish 
government passed a law unilaterally accelerating the 
opening of the market for basic telephone services to 
January 1, 2004.  A 2001 law provides for 
liberalization of areas under the Turk Telecom monopoly 
once the state's share in that company falls below 50 
percent.  The Turkish government has not yet issued 
implementing regulations.  These laws also created an 
independent regulatory body - the Telecommunications 
Regulatory Board - and made licensing criteria publicly 
available.  U.S. firms complain that the licensing 
process still lacks transparency and that revenue 
sharing with Turk Telecom is required where competition 
is permitted.  There are three private GSM cellular 
operators in Turkey, with a fourth license held by Turk 
Telecom. 
 
 
The Turkish government plans to announce its strategy 
for privatizing Turk Telekom in the near future.  In 
November 2003, the Transport and Communications 
Minister said that the Council of Ministers had agreed 
on a block sale of a majority stake in Turk Telecom by 
the end of May 2004, with a possible sale of additional 
shares to the public after that date.  The Minister 
stated that foreign investors would be eligible to buy 
a majority stake in the company. 
 
 
Other Services Barriers 
 
 
There are restrictions on establishment in financial 
services, the petroleum sector, broadcasting, aviation 
and maritime transportation (see Investment Barriers 
section).  A 2003 law on work permits for foreigners 
repealed earlier legislation defining certain 
professions and services open only to Turkish citizens. 
This has significantly broadened the range of 
occupations in which foreigners can be engaged, but 
there are still restrictions for doctors, attorneys and 
several other professions. 
 
 
INVESTMENT BARRIERS 
 
 
The U.S.-Turkish Bilateral Investment Treaty (BIT) 
entered into force in May 1990.  Turkey has a liberal 
investment regime in which foreign investments receive 
national treatment. Once approved, firms with foreign 
capital are treated as local companies.  However, 
private sector investment is often hindered, regardless 
of nationality, by:  excessive bureaucracy; political 
and macroeconomic uncertainty; weaknesses in the 
judicial system; high tax rates; a weak framework for 
corporate governance; and frequent, sometimes unclear 
changes in the legal and regulatory environment. 
 
 
Almost all areas open to the Turkish private sector are 
fully open to foreign participation, but establishments 
in the financial and petroleum sectors require special 
permission.  The equity participation ratio of foreign 
shareholders is restricted to 20 percent in 
broadcasting and 49 percent in aviation, value-added 
telecommunications services, and maritime 
transportation.  Nonetheless, once investors have 
committed to the Turkish market, they sometimes find 
the rationale for their initial investments 
significantly undercut by arbitrary legislative action, 
such as laws imposing limits on the production corn 
sweeteners. 
 
 
The Turkish government accepts binding international 
arbitration of investment disputes between foreign 
investors and the state; this principle is enshrined in 
the U.S.-Turkish BIT.  For many years, there was an 
exception for "concessions" involving private 
(primarily foreign) investment in public services.  In 
1999, the Parliament passed a package of amendments to 
the constitution allowing foreign companies access to 
international arbitration for concessionary contracts. 
In 2000, the Turkish government completed implementing 
legislation for arbitration.  In 2001, the Parliament 
approved a law further expanding the scope of 
international arbitration in Turkish contracts. 
 
 
In 2003, Parliament passed legislation which 
streamlined the process of establishing a company in 
Turkey, and which eliminated screening of foreign 
investors in favor of a notification system, provided 
national treatment for foreign-owned entities in 
acquisition of real estate, and abolished of specific 
minimum capital requirements for foreign investors. 
The Turkish government passed legislation in February 
2001 that will introduce a fully liberalized energy 
market, under which private firms will develop projects 
with the approval of an independent regulatory body, 
but little progress has been made in privatizing power 
generation and distribution. 
 
 
ANTICOMPETITIVE PRACTICES 
 
 
As part of its customs union agreement with the EU, 
Turkey has pledged to adopt EU standards concerning 
competition and consumer protection.  In 1997, a 
government "Competition Board" commenced operations, 
putting into force a 1994 competition law.  Government 
monopolies in a number of areas, particularly alcoholic 
beverages and telecommunications services, have been 
scaled back in recent years, but currently remain a 
barrier to certain U.S. products and services. 
 
 
Corruption 
 
 
CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN 
TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT 
LARGE. 
 
 
Corruption appears to be most problematic in government 
procurement, with frequent allegations that contracts 
are awarded on the basis of personal and political 
relationships of businesspersons and government 
officials.  The judicial system is also perceived to be 
susceptible to external political and commercial 
influence to some degree. 
 
 
U.S. firms have sometimes alleged that corruption, or 
at a minimum, nontransparent practices, have been a 
barrier to direct foreign investment.  American 
companies operating in Turkey have complained about 
contributions to the community solicited, with varying 
degrees of pressure, by municipal or local authorities. 
 
 
The Turkish government conducted two significant anti- 
corruption operations in 2001, one in the energy 
ministry and the other in the public works ministry. 
Several individuals were charged with corruption and 
wrongdoing in government contract tenders.  Parliament 
continues to probe corruption allegations involving 
senior officials in previous governments, particularly 
in connection with energy projects.  In 2003, after the 
government intervention in a bank owned by the Uzan 
group, evidence of corrupt practices at the bank was 
discovered. 
 
 
Turkey ratified the OECD antibribery convention, and 
passed implementing legislation providing that bribes 
of foreign officials, as well as domestic, are illegal 
and not tax deductible.  In 2003, Turkey ratified the 
convention on Combatting Bribery of Foreign Public 
Officials in International Transactions, the Council of 
Europe's Civil Law on Corruption and the UN Convention 
against Transnational Organized Crime.  The GOT has 
signed the Council of Europe's Criminal Law on 
Corruption, but has not ratified it.  The Turkish 
Government signed the UN Convention Against Corruption 
in Dec 2003. 
 
 
OTHER BARRIERS 
 
 
Energy:   In 2001, the Turkish Government cancelled 46 
contracted power projects based on the build-operate- 
transfer (BOT) and transfer-of-operating-rights (TOR) 
models.  Turkey's constitutional court ruled in 2002 
that the government would have to either honor the 
contracts or compensate the companies involved.  To 
date, the Turkish government has not commenced 
negotiations with the companies, one of which has 
launched an international arbitration case.  In 2002, 
the government required BOT projects already in 
operation -- which include U.S.-owned companies -- to 
apply for new licenses from the new Energy Market 
Regulatory Authority (EMRA), and has pressed them 
unilaterally to lower their prices while the license 
application process is still underway. 
Cola tax:  Punitive taxation of cola drinks (raised in 
2002 to 47.5 percent under Turkey's "Special 
Consumption Tax") discourages investment by major U.S. 
cola producers. 
Corporate Governance:  Weaknesses in the protection of 
minority shareholder rights and regulatory oversight 
have left some American companies at a disadvantage in 
disputes with Turkish partners. 
Edelman