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

UNCLAS SECTION 01 OF 05 ANKARA 004742 
 
SIPDIS 
 
STATE FOR EUR/SE AND H 
 
E.O. 12958: N/A 
TAGS: PREL PGOV OREP TU
SUBJECT: SCENESETTER FOR THE SEPT. 2-3 VISIT OF SENATOR TED 
STEVENS TO TURKEY 
 
REF: STATE 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1. (SBU) SUMMARY: Your visit comes at a time when our 
bilateral relations are on the mend from a difficult period 
when events in Iraq and Turkey's focus on getting a date from 
the EU to start accession negotiations overshadowed our 
traditionally close cooperation.  With a growing economy, a 
scheduled Oct. 3 date to start EU negotiations, and following 
a series of high-level government exchanges culminating with 
the early June visits of PM Erdogan, FM Gul and DCHOD Basbug 
to Washington, Turkey has expressed its commitment to 
strengthen our partnership in areas where our interests 
converge, particularly in the Global War on Terrorism. 
However, the lack of coalition effort against the PKK 
(Kurdistan Workers' Party) in Iraq remains a sore point.  A 
recent upswing in terrorist attacks in Turkey attributed to 
the PKK and lack of momentum on Turkey's EU agenda have 
revealed divisions between the ruling, Islam-oriented AKP 
government and secular state institutions, and indecision 
that suggest a policy inertia which could impede the 
government's ability to move forward to further Turkey's EU 
bid and its broader policy programs.  END SUMMARY. 
 
Political Divisions 
------------------- 
 
¶2. (SBU) By the numbers Turkey should be facing smooth 
sailing politically.  Ruling Islam-oriented AK Party (AKP) 
has an almost two-thirds majority in parliament and controls 
almost all major and second-tier Turkish cities.  There is no 
viable political alternative at the moment or in the 
foreseeable future.  The AKP government has passed long 
overdue political and human rights reforms -- at least on 
paper -- and has led Turkey close to an Oct. 3 start date for 
EU accession negotiations.  Sharply lower inflation and high 
economic growth have allowed the government to argue for 
continued patience on the economic front. 
 
¶3. (SBU) However, a broad cross-section of Turks is worried 
that Turkey is headed for a significant political day of 
reckoning, even a constitutional crisis, between the core 
institutions of the state, which have a secular vision of 
Turkey, and AKP, which step by step is putting into effect 
policies reflecting an Islamist-oriented concept of Turkey 
and its foreign policy.  Core state institutions (Presidency, 
high judiciary, armed forces, and bureaucracy) are deeply 
concerned by what they see as AKP's failure to put into 
effect comprehensive and workable policies to combat both PKK 
and Islamist terrorism.  They are equally concerned by what 
they see as AKP's broad attempts to subvert the secular 
nature of public institutions by trying to pack the 
Constitutional Court and other high courts, by preparing to 
pass constitutional amendments which would sharply cut back 
secular controls, by cutting off opposition parties' right of 
debate (akin to the filibuster) to ram controversial 
legislation through parliament, by appointing Islamists to 
key bureaucratic posts, and by cutting off effective 
bureaucratic control of Koran courses (thus leaving Turkey 
vulnerable to medrese-type courses run by fanatics). 
 
¶4. (SBU) In addition, both the U.S. and EU are concerned by 
an anti-missionary, anti-Christian, anti-Jewish atmosphere 
fostered by AKP and its policies regarding minority religions 
in Turkey and by AKP's weak stance toward al Qaida, Zarkawi, 
and other Islamist terrorists. 
 
Security Relations on the Upswing 
--------------------------------- 
 
¶5. (SBU)  Defense relations have traditionally been the 
strongest aspect of our bilateral relationship, although they 
have always had their ups and downs.  One of the troughs was 
in March 2003 when the Turkish Parliament voted against 
allowing U.S. troops to enter northern Iraq from Turkey and 
the following July when US forces arrested Turkish soldiers 
in northern Iraq for plotting against a local mayor.  The 
successful June 2004 NATO Summit in Istanbul and President 
Bush's visit to Ankara put the relationship back on a more 
positive footing.  However, the relationship suffered again 
in late 2004 and early 2005 due to the continued unpopularity 
of the coalition effort in Iraq (over 95% of the population 
opposed the war) and lack of Turkish leadership in defending 
our relationship.  Military-to-military relations are on the 
mend despite the Turkish military's continued frustration at 
our lack of kinetic action against the PKK terrorist 
organization's camps and leaders in northern Iraq.  It was 
the Deputy Chief of the General Staff (DCHOD), General Ilker 
Basbug, who turned this situation around by expounding on the 
importance of Turkey's relations with the U.S. despite some 
problems, at a nationally-televised press conference on 
January 26.  The Chief of the General Staff (CHOD) followed 
suit in April at a speech to the Turkish War Academy, in 
which he reaffirmed that the Turkish-American relationship 
was mutually beneficial and too broad in scope and too strong 
to be weakened by any short-term event. 
 
Partner in GWOT 
--------------- 
 
¶6. (U) Turkey has provided valuable assistance and 
cooperation to the global war on terrorism (GWOT).  Ankara 
offered to send peacekeeping troops to Iraq in October 2003 
(an offer Iraq declined), approved the use of Incirlik Air 
Base for tankers to refuel aircraft on support missions for 
both OEF and OIF, authorized the transit of US troops on 
rotation from Iraq, and permits the transit of fuel, 
coalition supplies and humanitarian goods (from OIF's 
inception until the end of CY04, over USD 2.5 billion in 
coalition sustainment and humanitarian assistance, or about 
25% of all sustainment and 66% of humanitarian fuel shipments 
to Iraq.)  In April 2005, the GOT granted the US permission 
to establish a cargo hub at Incirlik.  Operations begin in 
June which have significantly increased the efficiency of the 
delivery of supplies to Iraq.  By moving cargo operations 
closer to Afghanistan and Iraq, 6 US military C-17 aircraft 
are able to move the amount of cargo it would take 9-10 
military aircraft to move from Germany.  Turkey has also 
permitted the basing of a US FAA plane at Incirlik to conduct 
navigational aid checks at all Iraq air fields.  Turkey fully 
and publicly supported the participation of all Iraqis in the 
Jan. 30 elections and remains active in reconstruction 
efforts, including providing fuel and electricity for Iraq, 
and training in Turkey for Iraqi diplomats and politicians, 
and (through the NATO training mission) Iraqi Security 
Forces. 
 
¶7. (U) On Aug. 8, Turkey completed its second International 
Security Assistance Force (ISAF) Command (II and VII) in 
Afghanistan, which it held for six months and during which 
time it contributed over 1,600 troops.  Turkey is currently 
looking at options to further contribute to ISAF.  Turkey 
also contributes to reconstruction and training efforts in 
Afghanistan.  It is involved in the reconstruction of schools 
and is exploring possible counter-narcotics training programs 
for Afghan police both in Turkey and Afghanistan, as well as 
alternative livelihood options for poppy farmers.  Following 
PM Erdogan's May visit to Afghanistan, he pledged an 
additional $100M in assistance to the country. 
 
¶8. (U)  Beyond Afghanistan and Iraq, the US and Turkey 
coordinate military assistance to Georgia and Azerbaijan, 
improving their abilities to protect important energy 
transport routes.  Turkey subscribes to every arms control 
arrangement it is eligible to join, including the 
Proliferation Security Initiative (PSI).  It will host the 
first PSI combined air, land, and sea exercise in May 2006. 
Ankara has also been supportive of international efforts to 
press Iran to meet its commitments to the IAEA, fully backing 
the EU-3 dialogue.  The one issue on which we disagree is 
Syria, where Turkey believes engagement will be more 
effective than isolation to halt Syria's support of terrorism. 
 
¶9. (U) The Turkish military's Partnership for Peace Training 
(PFP) Center provides counter-terrorism and other training to 
personnel from PfP partner countries.  In June, TGS 
inaugurated a NATO Center of Excellence for the Defense 
Against Terrorism that will provide more specialized training 
opportunities for both NATO partner nations, Allies and, 
under NATO's Iraq training mission, Iraqis as well.  The US 
is supporting this center through the provision of rotational 
trainers and via George C. Marshall European Center for 
Security Studies trainer-training programs. 
 
Defense Industry Cooperation Weak 
--------------------------------- 
 
¶10. (SBU) While overall mil-mil relations are improving, our 
defense industry relationship is declining.  Turkey has 
historically preferred US military equipment for NATO and US 
inter-operability reasons and in April 2005 signed a $1 
billion Foreign Military Sale agreement to upgrade Turkey's 
F-16 fleet; Lockheed Martin will perform the work on behalf 
of the USG.  However, no US firm has won a significant 
commercially competed defense contract since Boeing was 
awarded a contract in 2002 for Air Early Warning and Control 
(AEW&C) aircraft.  In 2004, three tenders (UAVs, Main Battle 
Tanks, ATAK -- attack helicopter) were canceled.  Bell 
Helicopter, which had won the original ATAK tender in 1997, 
lost it when the Turkey canceled the tender due to Bell's 
inability to commit to significant technology transfer.  The 
tender was reissued in Feb. 2005 under onerous Terms and 
Conditions requiring significant technology transfer and 
heavy liability clauses.  Bell Helicopter withdrew from 
competition and Boeing threatened the same.  In an attempt to 
ensure US participation, Turkey revised the tender to reduce 
some liability requirements and reissued it on May 18. 
Boeing is evaluating the changes but remains unconvinced that 
the terms have been revised enough to allow its 
participation.  We understand that the tender is being 
revised yet again to address some specification issued raised 
by non-US contenders in hopes of keeping them in the 
competition.  Bids are due Sept. 13. 
 
¶11. (SBU) One bright spot is the June 26 agreement -- after 
three years of negotiation -- between Turkey and Sikorsky 
Helicopter for a $390M sale of 12 Seahawk helicopters, with 
an option to buy 5 more.  However, the sale is contingent on 
the extension of an existing EXIM facility that had been 
extended previously and will run out in 2011.  Sikorsky has 
told us it is considering bidding on a tender recently issued 
for 52 helicopters for the Turkish Forestry Service and 
Turkish Armed Forces.  If EXIM is unable to extend its 
facility for the Seahawk deal, Sikorsky's broader business 
interests could be negatively impacted. 
 
¶12. (U) Turkey is a Level III participant in the Joint Strike 
Fighter (F-35) program and has pledged to buy around 100 
planes, potentially making it the second or third largest 
purchaser after the US military.  However, it has requested 
significant ($6B) local procurement which will be difficult 
to meet. 
 
Stagnation on Cyprus 
-------------------- 
 
¶13. (SBU) Overall settlement efforts are at a standstill 
following the 2004 referendum in which Greek Cypriots 
rejected the Annan Plan (Turkish Cypriots approved it). 
Cypriot President Papadapoulos has refused SYG Annan,s 
request that the Greek Cypriots side state its objections to 
the Plan with "clarity and finality" as a first step in 
further settlement efforts.  Papadopolous feels no pressure 
to show flexibility given that the Republic of Cyprus was 
taken into the EU in May 2004. 
 
¶14. (SBU) Papadopoulos has also stymied EU attempts to ease 
Turkish Cypriot isolation through aid and direct trade.  The 
U.S. has done more than any other country to ease Turkish 
Cypriot isolation, including establishing a $30.5 million 
"Cyprus Partnership for Economic Growth" (CyPEG) designed to 
help develop Turkish Cypriots businesses; several delegations 
of Congressmen and staffers have also visited northern Cyprus 
directly rather than traveling through the south.  Turks 
appreciate these efforts. 
 
Bumpy Road to the EU 
-------------------- 
 
¶15. (U) Turkey and the EU are set to open accession 
negotiations October 3.  Turkey,s July extension of its EU 
Customs Union to the ten new EU members, including Cyprus, 
was marred in the view of some EU member states by Turkey's 
declaration that it will not recognize the Republic of Cyprus 
absent a comprehensive settlement.  French PM de Villepin,s 
and President Chirac's subsequent statements that Turkey 
should also formally recognize Cyprus added an element of 
doubt.  The EU will take this up this matter just before your 
visit, at a September 1-2 foreign ministers, meeting. 
 
¶16. (SBU) EU members are working to agree on a negotiating 
framework for Turkey prior to October 3.  The UK, as EU Term 
President, is working behind the scenes to prevent members 
from inserting language that could cause the Turks to balk at 
opening talks including, for example, suggestions that Turkey 
will have to settle for less than full membership, i.e., a 
privileged partnership. 
 
Economy on the Rise 
------------------- 
 
¶17. The Turkish economy is recovering from the sharp 
financial crisis of 2001 thanks to the implementation of some 
structural reforms -- such as the creation of an independent 
central bank, cutbacks in government spending, and bank 
regulatory reform -- as well as strong inflows of emerging 
market portfolio investment.  GDP grew 8.9% in 2004 and is 
expected to grow at about 5% this year, while inflation is 
currently below 10% and declining.  The depth of Turkey's 
financial problems and the partial implementation of reforms 
leave the country vulnerable to a change in global market 
sentiment that could be triggered either by domestic 
developments or a rise in U.S. and global interest rates.  A 
large current account deficit (over %5 of GDP) is financed 
largely by short-term inflows.  Foreign direct investment has 
not materialized as a stable source of financing or growth, 
primarily due to the generally opaque legal and regulatory 
environment. 
 
¶18. The benefits of growth are not being felt by average 
Turks.  Annual per capita income is currently about $4000. 
The current official rate of unemployment is approximately 
10% (there is widespread underemployment) and 
deep poverty is widespread, particularly in urban sprawl and 
rural areas.  Given the young population (30% is below the 
age of 15), generating sustained growth is critical for 
Turkey to raise incomes and maintain political and economic 
stability.  Unfortunately, the structural reforms necessary 
to sustain such rates of growth have been slow in coming. 
The privatization program has been disappointing, and the 
share of unregistered (and untaxed) activity in total GDP is 
estimated at 40-60%.  Some of these issues are being 
addressed through active IMF and World Bank programs.  The 
IMF recently approved a new three-year, $10 billion program 
after prolonged government foot-dragging and the World Bank's 
loan portfolio totals $4.3 billion.  The EU accession process 
will also entail reforms, but the most difficult ones will be 
back-loaded and will entail large costs, such as for upgrades 
needed to meet EU environmental standards. 
 
¶19. In large part because of the slowness of reforms and 
liberalization and the unwelcoming legal environment, 
economic relations with the United States are not 
commensurate with Turkey's economic size or potential. 
Understandably, Turkey has given a priority to developing 
economic relations with EU countries.  However, the U.S. 
share of Turkey's imports declined from 7.6% in 1999 to 3.5% 
($3.4 billion) in 2004.  The largest U.S. export category is 
$500 million in raw cotton that is transformed into textiles 
for export to Europe and the U.S.  Other leading U.S. exports 
are machinery, chemicals, and scrap metals.  Total U.S. 
investment is paltry: approximately $2 billion, concentrated 
in the food products, banking and automotive sectors.  The 
highest profile U.S. companies are 
Coca Cola, Citibank, Pepsi, Cargill and Ford; the latter has 
a successful joint venture with a leading Turkish firm 
producing light trucks for domestic use and export to Europe. 
  A track record of high-profile disputes involving arbitrary 
Turkish court rulings and Turkish defaults on contracts  has 
deterred greater investment.  Approximately $1 billion in 
Turkish imports entered the United States under the 
Generalized System of Preferences (GSP) program in 2004. 
 
¶20. We also have serious issues over market access for U.S. 
agricultural products, including rice and breeding cattle, as 
well as a potentially restrictive biotechnology law being 
considered by the Turkish parliament.  Turkey plays a key 
role in ensuring global energy security.  The 1.0 
million-barrels-per-day Baku-Tblisi-Ceyhan pipeline should be 
completed later this year, and approximately 3 million 
barrels flow through the congested and environmentally 
sensitive Turkish Straits every day.  Turkey imports nearly 
all of its domestic energy supplies, including large 
quantities of natural gas from Russia and Iran.  It recently 
announced plans to develop nuclear generating capacity, but 
it is not clear how this would be financed. 
MCELDOWNEY