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

UNCLAS SECTION 01 OF 09 ANKARA 001709 
 
SIPDIS 
 
 
SENSITIVE 
 
 
E.O. 12958: N/A 
TAGS: PREL ETRD MOPS MARR TU IZ
SUBJECT: IRAQI/CPA-TURKEY TRADE TALKS HELD IN ANKARA, MARCH 
10-11, PROGRESS ON BTA CONTRACTS, NOT ON SECOND BORDER 
GATE, GOOD EXCHANGE OF VIEWS SETS STAGE FOR FUTURE TALKS 
 
REF: A. 03 ANKARA 7444 
     ¶B. ANKARA 1653 
 
 
(U) Sensitive but unclassified. 
 
 
------- 
Summary 
------- 
 
 
¶1. (SBU) Iraqi/CPA-Turkey trade talks in Ankara, March 10-11 
laid out positions of both sides on a range of bilateral 
trade issues, including energy, water, bilateral trade 
agreements and the possibility of opening a second border 
gate.  While talks on most issues were characterized by 
active participation on both sides, the Turks were unwilling 
to engage the Iraqis on alternatives to the Turkish proposal 
for a second border gate between Turkey and Iraq.  The 
Turkish press played the talks as Turkey making multiple 
trade related requests and the US rejecting all of them.  The 
talks set the stage for the next round, post-June 30, at 
which the Iraqis will represent themselves without CPA 
advisors. End Summary. 
 
 
¶2. (SBU) A 16-person Iraqi/CPA delegation, led by Senior 
Advisor to the MFA Amb. Ron Neumann and Trade Ministry 
Director General Ahmad al-Mukhtar met with representatives 
from the Turkish MFA, Undersecretariat for Foreign Trade and 
Turkish General Staff in Ankara March 10-11.  The agenda 
included second border gate issues, electricity and oil 
issues, water issues and outstanding contracts under the 
January 2000 Bilateral Trade Arrangement (BTA).  A joint 
statement reflecting the discussion is at para 24. 
 
 
--------------------------------------------- - 
Political Outlook - TAL and Regional Stability 
--------------------------------------------- - 
 
 
¶3. (SBU) The talks began March 10 in a session chaired by 
Turkish MFA Deputy Undersecretary Kilic.  Kilic asked for a 
briefing on the political outlook in Iraq, and Amb. Neumann 
gave a short presentation on the Transitional Administrative 
Law (TAL) explaining that it laid the groundwork for a 
promising future, was the result of very difficult 
negotiations among the Iraqi Governing Council and between 
the IGC and the CPA.  He noted that the TAL had struck a good 
balance and that, as one IGC member put it, showed the Iraqis 
were learning a new habit - compromise (see Ref B for report 
of Amb. Neumann's meeting with senior MFA officials on the 
TAL).  Iraqi MFA Amb. Taha Shukor al-Abbasi assured the Turks 
that the signing of the TAL reflected a national consensus 
and demonstrated the unity of Iraq.  He said Iraq was working 
hard with all means available to normalize relations with its 
neighbors and needed to find a friendly settlement of 
differences.  Amb. Taha said he had in mind an MOU on good 
neighborly relations between Turkey and Iraq's MFAs and that 
Iraq was working on a text.  He also noted that the Iraqi 
Minister for Foreign Affairs had stated in Kuwait that Iraq 
was willing to sign a non-aggression treaty with all of its 
neighbors, and was ready to discuss this with the Turkish 
MFA.  Iraqi MFA Amb. Sabah Omran said Turkey should 
understand Iraq's difficulties as brothers and give Iraq a 
chance to find compromise solutions.  Iraq was depending on 
Turkish and US support.  Kilic noted that Iraq, its 
government and its future were a regional and an 
international matter, and that efforts would be required to 
create regional stability through security.  He assured the 
Iraqis that Turkey saw eye-to-eye with them on the majority 
of issues. 
 
 
------------------------------ 
Iraq-Turkey Economic Relations 
------------------------------ 
 
 
¶4. (SBU) Turning to the general state of the economic 
relationship, Kilic noted that Turkey had been providing 
assistance to Iraq since the war, and that Turkey's 
experience, knowledge and location were all valuable for 
Iraqi commerce and reconstruction.  He pointed to the good 
international reputation enjoyed by Turkish contractors, who 
could be particularly important for reconstruction.  Turkey 
also was in a position to, and wanted to help in the telecom 
sector, in banking and in meeting Iraq's electrical power 
needs.  He suggested that Turkey and Iraq could further 
develop and expand their business relations.  Turkey 
supported relations between the private sectors of the two 
countries, he added, noting that the future was not in 
government-run business.  The Turkish Union of Chambers of 
Commerce and Industry TOBB) was highly developed.  Its recent 
visit to Iraq was a good beginning and should be repeated by 
both sides.  Trade fairs were also important.  Turkey wanted 
to see an increase in trade with Iraq.  Kilic suggested the 
possibility of re-establishing the border trade mechanism 
that had been advantageous in the past.  Turkish MFA 
Coordinator for Iraq Reconstruction Amb. Okcun added that 
Turkey would organize a trade fair for Iraq in Gaziantep in 
April.  TOBB wanted to visit northern and southern Iraq soon, 
and wants to hold trade fairs in various parts of Iraq. 
Kilic said Turkey would welcome the restoration of oil flow 
in the Iraq-Turkey oil pipeline. 
 
 
¶5. (SBU) Amb. Neumann replied that Iraq and CPA agreed that 
increasing prosperity would increase stability and make more 
room for reform.  Private sector was clearly the way to go. 
The Iraqi/CPA general approach to contracts was that all 
interested parties should apply, and that the competition 
would be open.  The best work for the best price was the 
policy and the law.  Iraqi Ministry of Trade official Muhanad 
Saleem noted that it would be very important to have a 
Turkish trade fair in Baghdad.  Turkey should be at the 
Baghdad International Trade Fair later in 2004.  He noted 
that most halls at the fair grounds were badly damaged and 
needed renovation.  Kilic said that the first concrete 
outcome of the talks was that both sides were interested in 
trade fairs, and that Turkey would look seriously into being 
at the Baghdad fair in November. 
 
 
------------------------ 
Second Border Gate/Habur 
------------------------ 
 
 
¶6. (SBU) Kilic noted that issues related to the border 
crossing at Habur/Ibrahim Khalil had at times been a problem. 
 Capacity was an issue and there would be an increasing need 
for more vehicles to cross.  This led to discussion of 
opening a second crossing.  He said Turkey had been 
encouraged by the position Iraq took on the issue in December 
(Ref A).  He said there was an immediate need to look at a 
second gate.  Turkey had studied the recent note on the issue 
from the Iraqi MFA.  This was a technical issue and the MFA's 
diplomatic note had been general.  To go forward there needed 
to be an overall understanding.  There was no question that a 
second gate was needed, but the Turkish idea was 
diversification of the route.  The Iraqi suggestion for a 
second gate near Habur that connected to the existing road 
network did not serve that purpose at all, he said.  The 
existing route, Kilic continued, is congested and crosses 
mountains (Note: the Iraqi proposed route avoids the 
mountains and congestion on the Iraqi route is not a problem. 
 End note).  Turkey wants to bypass the difficult terrain and 
connect with the "mainstream" Iraqi road network.  If Turkey 
could not reach "Iraq" via its proposed route, it would 
consider doing so via Syria.  Iraq's objection that the 
Turkish route is parallel to the oil pipeline follows from 
the fact that the pipeline goes along the easiest route, as 
Turkey wants the roads to do.  Turkey was not convinced that 
proximity of the road would jeopardize the pipeline's 
security.  In fact, Kilic said, it might enhance it.  If 
security were the main obstacle, the road could be moved 
parallel but further from the pipeline.  Kilic conceded that 
the Turkish proposal, including a new bridge across the 
Tigris and 80 km of new road, would cost more than the Iraqi 
counterproposal of connecting to the existing roads, but cost 
need not concern Iraq.  It would be paid for by an 
international consortium and would not be dependent on Iraqi 
financing.  He concluded by saying Turkey did not see the 
Iraqi counterproposal as preferable or viable.  It would, he 
said, be much better to diversify the road network. 
 
 
¶7. (SBU) In the most strident presentation of the day, 
Turkish MFA Econ Deputy Director General Shakir Fakili 
suggested that because in February, on average 3040 
trucks/day had crossed Habur and in March the figure was a 
record 3930, that Habur's saturation point had been reached. 
Almost USD 1 billion in trade had crossed Habur in 2003, 
including Ground Lines of Communication supplies.  The main 
problem was that Iraqi officials at Ibrahim Khalil were 
charging arbitrary fees and fines, forcing Turkish truckers 
to buy gas at 12 cents/liter vice 1 cent/liter for Iraqis, 
and forcing them to buy the gas from specific stations 
identified by the Kurdistan Democratic Party (KDP).  He also 
complained that radioactive scrap metal had been allowed to 
be sent to Turkey.  The KDP, he asserted, was using the gate 
for political ends.  They had confiscated books, flags and 
maps.  These were, he stated, examples of the KDP's 
narrow-minded sectarian policy. 
 
 
¶8. (SBU) Amb. Neumann noted that both sides agreed there 
needed to be a new crossing and expansion of the cross-border 
traffic for trade.  Route selection was always difficult and 
required serious discussion between experts.  He pointed out 
that the existing route is not/not now congested, and that 
specialists could work to fix traffic flow issues.  The 
Iraqi/CPA side had not seen a detailed list of costs for the 
Turkish proposal.  There was currently a huge list of 
unfunded projects in Iraq.  If this were to be funded 
internationally, he said, finding the funds would be a big 
issue.  If Turkey was offering to pay the full price, that 
would change the matter.  Cost analyses were needed and 
estimates needed to be agreed upon.  He noted the major issue 
for Turkey seemed not to be where the crossing was located, 
but where the route in Iraq ran, "an interesting topic for 
bilateral discussions."  Neumann noted that Turkey had made 
the important commitment to work for 1850 trucks/day in each 
direction in December, that the Iraqi/CPA side understood 
that was a big undertaking, that Turkey had made good 
progress, and that Iraq and CPA were grateful.  He hoped 
Turkey could continue to work to reach the target.  Neumann 
pointed out that the TAL makes customs fees the exclusive 
purview of the federal government, but that the law was only 
three days old and would take some time to get to full 
implementation.  CPA Lawyer Robert Maguire explained that for 
Iraq to be in compliance with WTO regulations Iraq needed to 
operate one uniform customs regime.  On the matter of the 
seized books, Amb. Neumann urged everyone to show restraint 
and support for the spirit of Iraqi nationalism as the best 
guarantee of each Iraqi's rights. 
 
 
¶9. (SBU) Amb. Taha noted that the Iraqi position factored in 
not just the pipeline, but plans for a railroad station and 
line in the area.  He noted that a crossing could be opened 
east of Habur at Kani Masi quickly and have technical experts 
look at the situation at the other proposed crossings near 
Habur to resolve the differences there.  Kilic suggested that 
a working group take up the issue separately and see how far 
they could get with it.  In the working group, the Turkish 
side refused to discuss the Iraqi proposed route or crossing 
site. 
 
 
------ 
Energy 
------ 
 
 
¶10. (SBU) Kilic opened the energy discussion noting that 
Turkey was prepared to increase the electricity it sold to 
Iraq and to assist with oil pipeline repairs.  Turkish MFA 
Econ Dept Head Akif Ayhan reported that Turkey had sent a 
BOTAS delegation to Iraq to share experience and discuss 
upgrading the SCADA system.  BOTAS was ready to continue its 
cooperation and to send another delegation to Iraq.  Turkey 
was prepared to provide up to 1,000 MGW of electricity, but 
the transmission lines and border connections needed 
upgrading which required financing.  If the financing could 
be found, he said, this could be done.  The BOTAS rep said 
BOTAS needed to know what technical equipment was needed in 
Iraq for the pipeline and needed information on the level of 
SCADA investment.  CPA Oil Ministry Advisor Gary Holcomb gave 
a detailed presentation on the steps CPA and Iraq were taking 
to protect and refurbish the oil infrastructure, 
demonstrating, as Amb. Neumann pointed out, considerable 
commitment from the Iraqi/CPA side.  Kilic said the 
presentation was reassuring and helpful. 
 
 
¶11. (SBU) Kilic raised an issue of two Turkish companies that 
had signed production sharing agreements with the Patriotic 
Union of Kurdistan (PUK) for oilfields in northern Iraq. 
Kilic said the PUK had confirmed the agreements after 
liberation, that construction of rigs was underway and that 
surveys of the fields were complete.  He said Turkey expected 
the PUK would ensure CPA/IGC endorsement of the agreements. 
Okcun added that Turks had discussed this with PUK leader and 
IGC member Jalal Talabani two weeks earlier, and that 
Talabani had said he would raise it with CPA.  Amb. Neumann 
replied that one important element in the TAL was that Iraq's 
natural resources would be controlled by the national 
authorities.  CPA and Iraq hoped Turkey would regard this as 
positive.  Anything that was agreed outside of the national 
framework would need a new review.  He added that 
international law limited the legal rights of CPA to make 
commitments for Iraq on the future control of its resources. 
Holcomb added that he was aware of a number of other 
proposals in Iraq for the same oil fields with other Turkish 
companies and companies from other countries.  It had always 
been CPA policy to tell parties that such agreements must be 
taken up with the legitimate Iraqi government.  He encouraged 
all parties interested and involved to meet with Ministry of 
Oil representatives so that once a legitimate government was 
in place, negotiations could begin.  In a separate meeting 
the following day, Mukhtar asked that Turkey await Iraq's 
formulation of a national energy policy before pressing the 
claims of the Turkish companies under their Production 
Sharing Agreement contracts. 
 
 
¶12. (SBU) Iraqi Ministry of Oil Director General Radhwan 
al-Saadi said that his Ministry had heard rumors about these 
contracts but had never been informed about them formally or 
informally.  Such contracts, he said, could not be taken 
lightly.  He said he did not know why Turkish companies 
negotiated these agreements.  They had to have known that 
they needed national authority.  The Ministry was now looking 
at economic models, taxation issues, royalty issues, modes 
and duration of contracts for national policy decisions. 
Without a national policy on such matters, it was too early 
to discuss production sharing.  If there were to be a 
decision to open oil fields to outside competition, it would 
be free and open.  Kilic took note of this.  In a private 
conversation on March 11, Kilic acknowledged to Amb. Neumann 
the contradiction in Turkey's policy of insisting that Iraq's 
natural resources be under national government authority yet 
pressing for the honoring of production sharing agreements 
signed with the PUK.  He assured Neumann that he was under 
instruction to emphasize that Turkey was not rejecting the 
authority if the Transitional Iraqi Authority or of the TAL. 
 
 
¶13. (SBU) Kilic then had the BOTAS rep describe an integrated 
Iraq-Turkey natural gas project that he said had been 
underway since 1996 with a twenty-year perspective to deliver 
gas to Europe.  There were also some pending payment issues. 
Returning to oil issues, he noted that the UN had transferred 
all authority to CPA for Oil-for-Food issues.  Some crude had 
been sent without payment being received.  There were also 
pending compensation issues.  Turkey had applied for USD 1.2 
billion, but the UN only accepted USD 170 million and only 
paid USD 45 million.  Director General al-Saadi replied that 
the gas fields project was a large one with an international 
consortium, but the project deal had not been signed or 
approved.  Regarding UN compensation, he noted this was a 
UNCC issue and completely out of Iraqi hands, but CPA agreed 
to look into it.  The Iraqi/CPA side also undertook to 
provide the Turks with information regarding the condition of 
the Iraqi side of the Iraq-Turkey oil pipeline and on 
outstanding fees, and agreed to study the Turkish proposal of 
technical assistance. 
 
 
¶14. (SBU) Holcomb and the head of SOMO's Crude Oil Department 
3, Salar B. Afrif, met separately with MFA, BOTAS and TPAO 
(state oil company) representatives to discuss energy issues 
in more detail.  The Turkish side raised a number of issues 
connected to the Kirkuk-Yumurtalik pipeline.  The Turkish 
side noted that Iraq had not made scheduled payments for the 
oil pipeline in 2002 and 2003.  Afrif indicated that he 
thought Iraq had made a payment for January 1, 2002 through 
June 2, 2003.  Holcomb promised to help settle the issue, and 
both sides agreed to exchange information on payments 
followed by a meeting in Baghdad.  BOTAS officials said they 
were pleased that oil was flowing through the pipeline and 
asked for more information on the physical conditions to help 
them better operate the Turkish stretch of the pipeline.  For 
example, BOTAS officials noted that the current flow rate was 
quite low, which caused vibration problems requiring 
compensating measures.  They also noted that the oil 
contained high water content (2 percent). 
 
 
¶15. (SBU) TPAO President Dinc reported that Turkish firms are 
interested in oil and gas projects in Iraq.  He said that the 
Turkish market was the best option for the eventual export of 
Iraqi natural gas in the north, and that much of this gas 
would be used to supply western Europe.  TPAO was also very 
interested in oil-field work and production in northern Iraq. 
 He reported that TPAO has modern equipment and experienced 
crews, which are ready to quickly begin work in Iraq.  He 
also said TPAO is prepared to offer training to Iraq's oil 
officials and workers.  Holcomb was grateful for the 
information and expressed surprise that he had not heard of 
the Turkish offer earlier.  He suggested that Turkish 
resources could be used for oil field work-overs to begin 
soon.  On natural gas, Holcomb explained that Iraq will 
develop its natural gas sources, but exports were not an 
immediate priority.  Most of this new gas production would be 
used first for domestic purposes, especially power 
generation, he explained. 
 
 
------- 
Banking 
------- 
 
 
¶16. (SBU) Kilic noted that Turkish banks in Iraq would 
eliminate the courier problems at Habur (including disputes 
over fees they are charged), and that Ziraat Bank has made a 
formal application.  Amb. Neumann explained that the three 
banks that were granted licenses made the best offers.  A new 
tendering process was being developed.  He noted that Turkish 
banks could open offices in Iraq now, though without a 
license they could not open branches. 
 
 
-------------- 
Transportation 
-------------- 
 
 
¶17. (SBU) Kilic reported that the number of road attacks in 
Iraq on Turkish truckers was high and increasing.  He said he 
would appreciate the Iraqi/CPA side taking note and the 
coalition enhancing security of Turkish drivers.  Amb. 
Neumann said that route security was critical and that the 
CPA/Iraqi side took note.  There was no higher priority than 
winning the fight for security. 
 
 
--------------- 
Tenders in Iraq 
--------------- 
 
 
¶18. (SBU) Kilic said Turkey aspired to have Turkish 
contractors get construction tenders due to their 
qualifications and experience.  He welcomed the decision to 
give Turkey prime contractor status and said Turkey was also 
ready for subcontracting.  Turkish companies had already 
signed a large number of contracts.  Amb. Neumann said we 
were trying to be fully transparent in the tender process. 
If it seemed to Turkey that we were not, he asked the Turks 
to please let us know.  He urged the Turks not to rely on 
invitations to participate but to actively follow the tenders 
when they are announced.  Okcun said Turkish companies were 
complaining that they were not getting timely information on 
tenders.  They often had only a few days to put together 
their project proposals.  The CPA/Iraqi side promised to look 
into this problem and see what they could do to help. 
 
 
----- 
Water 
----- 
 
 
¶19. (SBU) The Iraqis asked for data on this year's rain and 
snow fall, and on the quantity of water being released 
downstream by Turkey so Iraq could do its seasonal planning. 
Kilic said he supported such an exchange of data.  As 
neighbors, there was no reason not to cooperate, but this 
should be a two-way street.  He asked the Iraqis to share 
with Turkey Iraqi data on its water supply usage and 
irrigation data.  (Some of this data was exchanged the next 
day).  Kilic then explained that Iraq, Syria and Turkey had 
been planning to discuss water in a tripartite commission, 
but much had changed since the last tripartite meeting. 
Turkey wanted any new steps to re-invigorate cooperation and 
help find better ways to share the use of water. 
 
 
------------- 
Foreign Trade 
------------- 
 
 
¶20. (SBU) In the meetings at the Foreign Trade 
Undersecretariat, some of the same ground was covered on 
border fees.  The Turks complained that one company in 
northern Iraq had the export monopoly for scrap metal and 
that the only way Turks could export it was to pay the KDP 
USD 80/ton.  Director General Mukhtar replied that on the 
border fees, Iraq would do its best to eliminate them, but 
they were a source of Kurdish revenue and the KDP would not 
give them up "just like that."  The IGC, he said, would solve 
this matter.  It was a political issue.  On scrap, there were 
two rules banning its export: one IGC rule and one CPA rule. 
A set of regulations would soon be issued to regulate the 
export.  Maguire added that any export of scrap now was a 
smuggling operation and against the laws of Iraq.  The Turks 
replied that in that case, Turkey would ban the import of 
scrap into Turkey from Iraq.  Mukhtar said he welcomed that. 
 
 
--------------------------- 
Resolution of BTA Contracts 
--------------------------- 
 
 
¶21. (SBU) The two sides agreed to a framework for processing 
the BTA (Bilateral Trade Agreement)-registered and funded 
contracts that were interrupted by the war.  The Iraqi side 
explained that it was disadvantaged by the widespread looting 
and destruction of government offices and was dependent on 
the Turkish side for copies of the contracts and statements 
of the bank accounts. (The BTA arrangement required 70 
percent of the value of the exported crude be credited to 
Turkiye Halk Bankasi A.S. in Turkey.  The remaining 30 
percent was deposited on behalf of SOMO in an unknown bank in 
Lebanon.  The balance on the Turkiye account had at one point 
risen to USD 578 million, of which USD 302 million had been 
authorized by SOMO to be paid to Turkish producers for 
completed shipments, an additional USD 19 million had been 
paid for partial shipments and a final USD 18.5 million had 
been paid without Iraqi approval.)  The Iraqi side demanded 
proof that the USD 18.5 million of products had been 
produced, shipped and accepted by Iraq before the war. 
Turkish Foreign Trade reps said that under the BTA there was 
USD 60 million available for use in Iraqi purchases of 
Turkish goods for export and Turkey wanted Iraq to utilize 
that fund.  Al-Saadi replied that it was Iraq's money.  Iraq 
wanted clear records and to receive all, but only, the goods 
agreed upon.  Then the sides must establish the amount 
remaining in the account.  To resolve the remaining 
contractual issues, the Turkish producers must revalidate the 
need for the products with the various Iraqi ministries and 
state owned enterprises.  In cases where the Iraqi side is 
still interested in receiving the products, the sides agreed 
they would be promptly shipped.  Agreement was reached to 
ship USD 140 million of railroad locomotives to the Iraqi 
Ministry of Transportation.  Agreement was also reached on 
shipment of commercial oil drilling products to the Iraqi 
Ministry of Oil.  In cases where the Iraqi end-user either no 
longer existed or no longer needed the specified product, the 
Iraqi side argued the contracts would be "closed out."  The 
Turkish side said that whether or not they should be 
terminated was for discussion and decision by the Turkish 
government and each Iraqi ministry involved.  The Iraqi side 
insisted that funds which were not pledged to existing 
"registered and funded" contracts must be deposited in the 
DFI.  The Turkish side initially claimed that there were many 
more contracts (USD 257 million) existing than remaining 
credit available (USD 237 million) in the account, but also 
claimed that the entire account should be viewed as a general 
fund to match against Turkish production contracts.  The 
concluding statement reflects the parties' disagreement on 
this point. 
 
 
-------------------- 
Border Trade Centers 
-------------------- 
 
 
¶22. (SBU) The Turks suggested establishing Border Trade 
Centers for free trade by local residents in areas around the 
borders to prevent smuggling and legalize local border trade. 
 they said this had worked well at three locations on 
Turkey's border with Iran.  Habur was too busy to handle such 
an arrangement, but once a location was agreed for the second 
crossing, this could be done.  Mukhtar said if it worked, it 
could help promote good relations and suggested that one 
small pilot project be introduced first, once a suitable 
location is determined. 
 
 
¶23. (SBU) The Turks noted that they had submitted a draft for 
a preferential trade arrangement and hoped that Iraq and 
Turkey could find agreement without violating WTO rules. 
Mukhtar replied that the draft had been circulated to various 
Ministries for comment, and many comments had already been 
provided.  This could be discussed at the next round of 
bilateral talks.  If there was agreement, it could be signed 
sometime after June 30 and would add credibility to Turkey's 
relations with the new Iraq Government. 
 
 
¶24. (U) Begin Text of Agreed Statement: 
 
 
The Turkish and Iraqi Delegations met in Ankara on March 9 - 
12, 2004 to discuss common concerns. The two neighbors 
recognized that economic cooperation provides the necessary 
stability for democracy and reform. They intend to further 
develop their mutually beneficial trade and investment 
relations. They discussed the following points: 
 
 
¶1. The Turkish side raised financial, operational and 
security issues of the Kirkuk-Yumurtalik pipeline. The Iraqi 
side explained in satisfactory detail the significant efforts 
it has undertaken to provide security for the 
Kirkuk-Yumurtalik pipeline including building ground and air 
guard forces, a construction program for increased valve 
shutoffs, and providing hazardous response teams to reduce 
any economic and environmental damage. The Turkish side said 
that the Turkish domestic market and transportation of 
natural gas to Europe via Turkey constitutes the best option 
for Iraqi natural gas exports. Turkish companies BOTAS and 
TPAO expressed their willingness to develop five gas fields 
in Iraq, and TOPRAS expressed its desire to purchase oil from 
SOMO at the Ceyhan Terminal. 
 
 
¶2. The two sides recognize that the current border gate at 
Ibrahim Khalil-Habur is inadequate to support their growing 
bilateral trade, and that a second border crossing point 
would benefit both sides. The Turkish side did not accept the 
Iraqi technical response to the Turkish technical proposal. 
Further technical studies will be required. 
 
 
¶3. The Turkish side noted the recent establishment of three 
border trade centers on the border with another neighbor, and 
agreed to use the results of this experiment in plans for 
establishing similar sites on the Turkish-Iraqi border. 
 
 
¶4. The Turkish side intends to provide seasonal data on 
snowfall and reservoir levels sufficient for Iraq to develop 
its water plan for this year. The Turkish side wants to 
receive relevant data from the Iraqi side regarding their 
reservoir levels and irrigation projects. Both sides 
recognize the benefit of discussions about available water 
resources and how they may be most efficiently used. 
 
 
¶5.   Both sides recognized the need to promptly resolve the 
Border Trade Arrangement (BTA) of January 14 -16,2000. 
 
 
a. The Iraqi side looks forward to receiving a full 
comprehensive statement of the deposits and recent 
withdrawals from the BTA related bank accounts. The Turkish 
side will also report the remainder of the cash balance 
described in paragraph 5 of the January 14-16, 2000 minutes, 
and will disburse this pursuant to proper instructions from 
the Iraqi side. 
 
 
b. The original procedures for delivery and acceptance of 
Turkish products to the Iraqi end user is the way to close 
out the remaining BTA registered and funded contracts. The 
Iraqi Ministry of Trade will remind the other relevant Iraqi 
Ministries of the need to observe these procedures with 
regard to outstanding BTA registered and funded contracts. 
 
 
c. The Iraqi side notes the disbursement of approximately USD 
18.5 million to Turkish companies for goods delivered to Iraq 
where conformity with original procedures needs to be 
established. The Turkish side is obliged to obtain and 
provide to the Iraqi side all documents that would justify 
these disbursements. In the event that insufficient documents 
exist, the parties will revisit the issue. 
 
 
d. Since the recent conflict constituted circumstances beyond 
the control of either party and prevented the timely 
performance of the BTA registered and funded contracts, the 
Turkish producers will be requested to contact their Iraqi 
end users and revalidate the Iraqi need for the products. If 
the Iraqi end user validates this continued need, the 
contracts will be performed and closed out following the 
original procedure. Examples of where this should be promptly 
begun include BTA registered and funded contracts 
specifically identified to the Turkish side where the end 
users are the Iraqi Ministry of Transportation's railroad 
related contracts and Iraqi Ministry of Oil's contracts, as 
shown in the attached annex (not attached in this cable). 
 
 
e. If the Turkish producer no longer wants to produce the 
specified product at the contract rate, or the Iraqi end user 
no longer needs the specified product at the contract rate, 
in the Iraqi view the contract is terminated. In the Turkish 
view the contract should be submitted for consideration of 
termination to the Iraqi ministries concerned and the Turkish 
side (Undersecretariat of Foreign Trade). 
 
 
f. The fact that an Iraqi end user no longer has a legal 
existence would normally constitute a force majeure event; 
the Turkish side may provide full contract documentation to 
the Iraqi Ministry of Trade and request guidance on whether 
the product specified in the contract could be accepted by a 
different Iraqi end user.  The Iraqi Ministry of Trade will 
use its best efforts to locate an alternate end user to 
permit performance of the BTA registered and funded contract. 
 
 
g. It is the position of the Iraqi side that after 
performance of the BTA registered and funded contracts, any 
money remaining in the BTA related bank accounts should be 
transferred to the Development Fund for Iraq.  It is the 
Turkish position that all money in the BTA account should be 
utilized by the Iraqi side for BTA contracts. 
 
 
¶6. The Iraqi side has circulated the Turkish draft 
Preferential Trade Agreement among its ministries for 
comment; both sides are very interested in discussing a 
mutually beneficial bilateral trade agreement that is 
consistent with the principles of the World Trade 
Organization. 
 
 
Witnessed by: Iraqi Side: 
Ambassador Sabah J. Omran, Ministry of Foreign Affairs; 
Director General Ahmad Al-Mukhtar, Ministry of Trade; 
Director General Radhwan Al-Saadi, Ministry of Oil; 
Director General Falah Hasan Habsi, Ministry of 
Transportation. 
 
 
Turkish Side: 
Director General Tevfik Mengu, Prime Ministry, 
Undersecretariat of Foreign Trade. 
End text of statement. 
 
 
¶25. (U) CPA has cleared this message. 
EDELMAN