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UNCLAS SECTION 01 OF 06 ANKARA 007003 
 
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 240980 
 
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 was reduced 
significantly as a result of the customs union. 
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.  The Turkish 
government often increases tariffs on grains during the 
domestic harvest.  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.  A non-transparent 
licensing system results in costly delays, demurrage 
charges, and other uncertainties that stifle trade for 
many agricultural products.  For the past four years, 
the Ministry of Agriculture and Rural Affairs (MARA), 
through its quarantine service, stopped issuing import 
licenses for rice and corn prior to the harvest. 
 
In concert with its licensing system, Turkey has 
recently implemented import quota programs for rice and 
corn.  Import quotas, often dependent on procurement of 
domestic crops, tend to evolve throughout the marketing 
year, making it very difficult for commercial traders 
to plan their import programs, thus disrupting trade. 
 
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 and wine imports. 
The government has privatized the alcohol operations of 
TEKEL (a parastatal company) and is in the process of 
privatizing TEKEL's tobacco operations. 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. 
 
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. 
 
U.S. CE-marked products, particularly medical devices, 
are often detained by Turkish customs authorities for 
inspection.  In some cases, U.S. products are subject 
to additional tests, despite their CE marks, while EU 
CE-marked products gain immediate entry to the Turkish 
market. 
 
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. 
 
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.  In 2004, however, the Turkish Grain Board 
(TMO) has been selling domestic wheat to flour and 
pasta manufacturers against their exports of flour and 
pasta.  This is an implicit subsidy as TMO is selling 
the manufacturers wheat at world prices, which are well 
below domestic prices.  It is too early to quantify the 
size of this subsidy.  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.  Turkey was elevated from the Special 301 
Watch List to the Priority Watch List in 2004, due to 
concerns about lack of pharmaceuticals data exclusivity 
protection and continued high levels of piracy and 
counterfeiting of copyright and trademark materials. 
 
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.  Legislation enacted in March 2004 
contains several strong anti-piracy provisions, 
including a ban on street sales of all copyright 
products and authorization for law enforcement 
authorities to take action without a complaint by the 
rightholder.  However, the law also reduces potential 
prison sentences in piracy convictions.  U.S. industry 
estimated losses to piracy in 2003 at USD 50 million 
for motion pictures, USD 15 million for records/music 
and USD 25 million for books.  There are signs that 
anti-piracy measures introduced in 2004 may be reducing 
these losses. 
 
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." 
 
Parliament amended the Patent Law in June 2004.  The 
new law provides for penalties for infringement of up 
to 3 years or 47 billion TL (approximately USD 32,000) 
in fines, or both, and closure of the business for up 
to one year.  However, some companies in the 
pharmaceuticals sector have criticized provisions which 
give judges wider discretion over penalties in 
infringement cases, delay the initiation of 
infringement suits until after the patent is approved 
and published, and permit use of a patented invention 
to generate data needed for the marketing approval of 
generic pharmaceutical products. 
 
The Health Ministry has accepted applications to 
register generic copies of products which have a valid 
patent in Turkey; in the absence of a system for patent 
linkage, it may become possible for generics 
manufacturers to register a copy of a brand name drug 
with a valid Turkish patent, with enormous damage to 
the interests of the patent owner. 
 
The key intellectual property concern for research- 
based pharmaceutical companies is Turkey's lack of data 
exclusivity protection for confidential test data. 
U.S. industry contends that numerous products 
infringing data exclusivity have been approved or are 
pending review by the Turkish Health Ministry. 
 
Trademark holders also contend that there is widespread 
and often sophisticated counterfeiting of their marks 
in Turkey, especially in apparel, pharmaceuticals, 
film, cosmetics, detergent and other products. 
 
In 2004, Turkey published its first Plant Variety 
Protection (PVP) Law.  A subsidiary of a major U.S. 
seed company, however, has been unable to obtain 
protection for its commercial seed under this new law, 
reportedly at great cost to the company. 
 
SERVICES BARRIERS 
 
Telecommunications Services 
 
State-owned Turk Telecom 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 
¶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. 
 
In November 2004, the Privatization Administration 
announced the tender for a block sale of 55 percent of 
Turk Telecom.  Law 5189 of 2004 lifted the limit on 
foreign ownership of Turk Telekom. 
 
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. However, private sector investment 
has often been 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 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, maritime 
transportation and many value-added telecommunications 
services (such as GSM, satellite and data, though 
telecommunications legislation has been amended to 
allow certain company-specific exceptions to these 
limits).  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.  I n 2001 the Parliament 
approved a law expanding the scope of international 
arbitration in Turkish contracts.  However, at least 
one American company reports that the judicial system 
in Turkey has not recognized international arbitration 
judgments. 
 
The Turkish government passed legislation in February 
2001 that aims to introduce a fully liberalized energy 
market, under which private firms will develop projects 
with the approval of an independent regulatory body, 
the Energy Market Regulatory Authority.  With respect 
to electricity, the state company has been unbundled 
into production, transmission, distribution, and 
trading companies, but little progress has been made in 
privatizing power generation and distribution. Targeted 
liberalization of the natural gas sector has also faced 
delays.  The state pipeline company BOTAS will remain 
predominant, but legislation requires phased transfer 
of 80 percent of its gas purchase contracts. 
Privatization of natural gas distribution is slowly 
proceeding. 
 
As the result of a 1997 court decision, the Turkish 
Government has blocked full repatriation of investments 
by oil companies under Article 116 of the 1954 
Petroleum Law, which protected foreign investors from 
the impact of lira depreciation.  Affected companies 
have challenged the 1997 decision and the case is 
currently in the Turkish court system. 
 
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, 
particularly in government procurement.  The judicial 
system is also perceived to be susceptible to external 
influence and to be biased against outsiders to some 
degree.  American companies operating in Turkey have 
complained about contributions to the community 
solicited, with varying degrees of pressure, by 
municipal or local authorities. 
 
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. 
 
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 (TOR) of which has 
launched an international arbitration case.  In 2002, 
the government requested 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 indirectly pressed 
them unilaterally to lower their prices while the 
license application process is still underway.  Despite 
lack of action on new licenses, the Turkish Government 
has continued to purchase electricity produced per the 
existing contracts. 
 
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