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 000100 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV KTDB TU OPIC USTR
SUBJECT:  TURKEY: 2006 INVESTMENT CLIMATE STATEMENT 
 
REF: 05 STATE 202943 
 
The following is the 2006 Investment Climate Statement for 
Turkey: 
 
¶1. Openness To Foreign Investment 
The Government of Turkey (GOT) views foreign direct 
investment as vital to the country's economic development 
and prosperity. Accordingly, Turkey has one of the most 
liberal legal regimes for FDI in the OECD.  With the 
exception of some sectors (see below), areas open to the 
Turkish private sector are generally open to foreign 
participation and investment.  However, all investors - 
regardless of nationality - face a number of challenges: 
excessive bureaucracy, weaknesses in the judicial system, 
high and inconsistently collected taxes, weaknesses in 
corporate governance, sometimes unpredictable decisions 
taken at the municipal level, and frequent, sometimes 
unclear changes in the legal and regulatory environment. 
Historically, investment has also been discouraged by high 
inflation and political and macroeconomic uncertainties. 
As a result, FDI inflows have historically been far below 
levels received by more investor-friendly emerging markets. 
Along with the GOT's far-reaching economic reform program, 
which is supported by the World Bank and IMF, the EU 
accession that was launched in 2005 has begun to address 
some of the structural impediments to FDI. 
Regulations governing foreign investment are, in general, 
transparent.  Turkey provides national treatment, including 
in the acquisition of real estate by foreign-owned corporate 
entities registered under Turkish law, and not have an 
investment screening system (only notification is required). 
In 2005, the Constitutional Court ruled unconstitutional 
legislation enabling property acquisition by non-Turkish 
individuals.  However, Parliament is considering new 
legislation that will provide limited acquisition rights to 
foreigners. 
The equity participation ratio of foreign shareholders is 
restricted to 25 percent in broadcasting and 49 percent in 
aviation and maritime transportation.  However, companies 
receive full national treatment once they are established. 
Establishment in financial services, including banking and 
insurance, and in the petroleum sector requires special 
permission from the GOT for both domestic and foreign 
investors.  In practice, regulators have not restricted 
foreign ownership in the financial sector: in 2005 a series 
of foreign acquisitions in the sector were approved, and 
several foreign financial houses had longstanding operations 
in Turkey. 
The GOT privatizes State Economic Enterprises through block 
sales, public offerings, or a combination of both.  The sale 
of 55 percent of Turk Telekom to Saudi Oger Telecom in 2005 
for USD 6.6 billion was a turning point for the Turkish 
privatization program.  Two other major privatizations in 
2005 were the sale of 51 percent of oil-refinery TUPRAS to 
Turkish business giant Koc Group (with Dutch Shell having a 
minor share of 2 percent), and the sale of 46 percent of 
Erdemir to another Turkish company Oyak Group (the Oyak 
Group then sold 41 percent of its winning consortium shares 
to Arcelor).  Turkish privatization revenues in 2005 totaled 
USD 16.8 billion, most of which will be collected in 
subsequent years. 
Bureaucratic "red tape" has been a significant barrier to 
companies, both foreign and domestic.  However recent laws 
have simplified company establishment procedures, reduced 
permit requirements, instituted a single company 
registration form, and enabled individuals to register their 
companies through local commercial registry offices of the 
Turkish Union of Chambers and Commodity Exchanges.  The 
government is also considering other measures to streamline 
other business procedures as part of its effort to improve 
the business climate. 
Turkey is also making progress in making the taxation system 
more investor-friendly.  In 2006, the basic corporate tax 
rate will be reduced from 30 to 20 percent and a uniform 
withholding tax of 15% will be applied to income from 
financial investment. 
Turkish law and regulation affecting the investment climate 
continues to evolve.  Potential investors should check with 
appropriate Turkish government sources for current and 
detailed information.  The following web site provides the 
text of regulations governing foreign investment and 
incentives as well as other useful background information: 
http://www.treasury.gov.tr/for_inv.htm.  Additional 
information is available at: 
http://www.investinginturkey.gov.tr 
¶2. Conversion And Transfer Policies 
Turkish law guarantees the free transfer of profits, fees 
and royalties, and repatriation of capital. This guarantee 
is reflected in Turkey's 1990 Bilateral Investment Treaty 
(BIT) with the United States, which mandates unrestricted 
and prompt transfer in a freely usable currency at a legal 
market-clearing rate for all funds related to an investment. 
There is no difficulty in obtaining foreign exchange, and 
there are no foreign exchange restrictions. However, 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. 
¶3. Expropriation And Compensation 
Under the BIT, expropriation can only occur in accordance 
with due process of law. Expropriations must be for public 
purpose and non-discriminatory. Compensation must be 
reasonably prompt, adequate, and effective. Under the BIT, 
U.S. investors have full access to the local court system 
and the ability to take the host government directly to 
third party international binding arbitration to settle 
investment disputes. There is also a provision for state-to- 
state dispute settlement. 
As a practical matter, the GOT occasionally expropriates 
private real property for public works or for State 
Enterprise industrial projects. The GOT agency expropriating 
the property negotiates and proposes a purchase price. If 
the owners of the property do not agree with the proposed 
price, they can go to court to challenge the expropriation 
or ask for more compensation. There are no outstanding 
expropriation or nationalization cases. 
¶4. Dispute Settlement 
There are several outstanding investment disputes between 
U.S. companies and Turkish government bodies, particularly 
in the energy and tourism sectors. 
Turkey's legal system provides means for enforcing property 
and contractual rights, and there are written commercial and 
bankruptcy laws.  However, the court system is overburdened, 
which sometimes results in slow decisions and judges lacking 
sufficient time to grasp complex issues. The judicial system 
is also perceived to be susceptible to external influence 
and to be biased against outsiders. Judgments of foreign 
courts, under certain circumstances, need to be executed by 
local courts before they are accepted and enforced. Monetary 
judgments are usually made in local currency, but there are 
provisions for incorporating exchange rate differentials in 
claims. 
Turkey is a member of the International Center for the 
Settlement of Investment Disputes (ICSID), and is a 
signatory of the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards. 
Turkey ratified the Convention of the Multinational 
Investment Guarantee Agency (MIGA) in 1987.  There is 
currently one arbitration cases pending before ICSID. 
Turkish law accepts binding international arbitration of 
investment disputes between foreign investors and the state. 
In practice, however, Turkish courts have on at least one 
occasion failed to uphold an international arbitration 
ruling involving private companies. 
¶5. Performance Requirements/Incentives 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
Law 5084, which went into effect in early 2004, encourages 
investment in provinces with annual per capita income below 
USD 1,500 and to high priority development regions. For low 
income provinces and under certain conditions, the law 
provides for withholding tax incentives on income tax, 
social security premium incentives, free land, and 
electricity price support. These incentives will remain in 
effect until the end of 2008, except for allocation of free 
public land, which has no expiration date. The same law also 
limits certain tax preferences previously enjoyed by 
Turkey's free zones (see below). 
There are no performance requirements imposed as a condition 
for establishing, maintaining, or expanding an investment. 
There are no requirements that investors purchase from local 
sources or export a certain percentage of output. Investors' 
access to foreign exchange is not conditioned on exports. 
There are no requirements that nationals own shares in 
foreign investments, that the shares of foreign equity be 
reduced over time, or that the investor transfer technology 
on certain terms. There are no government imposed conditions 
on permission to invest, including location in specific 
geographical areas, specific percentage of local content - 
for goods or services - or local equity, import 
substitution, export requirements or targets, employment of 
host country nationals, technology transfer, or local 
financing. 
The GOT does not require that investors disclose proprietary 
information, other than publicly available information, as 
part of the regulatory approval process. Enterprises with 
foreign capital must send their activity report, submitted 
to the general assembly of shareholders, auditor's report, 
and balance sheets to the Treasury's Foreign Investment 
Directorate every year by May. 
With the exceptions noted under "Openness to Foreign 
Investment" and "Transparency of the Regulatory System," 
Turkey grants all rights, incentives, exemptions and 
privileges available to national capital and business to 
foreign capital and business on a most-favored-nation (MFN) 
basis. American and other foreign firms can participate in 
government-financed and/or subsidized research and 
development programs on a national treatment basis. 
Turkey harmonized its export incentive regime with the 
European Union in 1995, prior to the start of the Customs 
Union. Turkey currently offers a number of export 
incentives, including credits through the Turkish Eximbank, 
energy incentives, and research and development incentives. 
Foreign investors can participate in these export incentive 
programs on a national treatment basis. More information on 
Turkey's trade regime can be found at 
www.foreigntrade.gov.tr. 
Military procurement generally requires an offset provision 
in tender specifications. The offset guidelines were 
modified to encourage direct investment and technology 
transfer. 
¶6. Right To Private Ownership And Establishment 
With the exceptions noted above, private entities may freely 
establish, acquire, and dispose of interests in business 
enterprises, and foreign participation is permitted up to 
100 percent. 
Competitive equality is the standard applied to private 
enterprises in competition with public enterprises with 
respect to access to markets, credit, and other business 
operations.  Turkey has an independent Competition Board. 
¶7. Protection Of Property Rights 
Secured interests in property, both movable and real, are 
recognized and enforced. There is a recognized and reliable 
system of recording such security interests. For example, 
there is a land registry office where real estate is 
registered. Turkey's legal system protects and facilitates 
acquisition and disposal of property rights, including land, 
buildings, and mortgages, although some parties have 
complained that the courts are slow in rendering decisions 
and that they are susceptible to external influence (see 
"Dispute Settlement"). 
Turkey's intellectual property rights regime has improved in 
recent years, but still presents serious problems.  Turkey 
remained on the U.S. Special 301 Priority Watch List in 2005 
due to concerns about insufficient protection for 
confidential pharmaceutical test data and continued high 
 
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levels of piracy and counterfeiting of copyright and 
trademark materials. 
 
Turkey's copyright law provides 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, Turkish courts 
have failed to render deterrent penalties to pirates as 
provided in the copyright law but have instead applied the 
Turkish Cinema Law, which has much lower penalties. 
Recently enacted legislation contained 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 rights 
holder.  However, the law also reduces potential prison 
sentences for piracy convictions.  U.S. industry estimated 
losses to piracy in 2004 at $50 million for motion pictures, 
$15 million for records/music and $23 million for books. 
There are signs that anti-piracy measures introduced in 2004 
may be having a positive impact on industry. 
 
Turkey is a signatory to a number of international 
conventions, including the Stockholm Act of the Paris 
Convention, the Patent Cooperation Treaty, and the 
Strasbourg Agreement. 
 
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 research and development "pipeline". 
 
Turkey's recently amended Patent Law provides for penalties 
for infringement of up to 3 years in prison, or 47,000 YTL 
(approximately $32,000) in fines, or both, and closure of 
the business for up to one year.  However, research-based 
companies in the pharmaceuticals sector have criticized 
provisions which delay the initiation of infringement suits 
until after the patent is approved and published, permit use 
of a patented invention to generate data needed for the 
marketing approval of generic pharmaceutical products, and 
give judges wider discretion over penalties in infringement 
cases.  There is concern that amendments proposed this year 
to the patent law could lead to weaker enforcement and 
penalties and dilute basic intellectual and industrial 
property protections. 
 
Turkey does not currently have a system for patent linkage, 
which could create confusion and possibly allow generic 
pharmaceutical manufacturers to register a copy of a brand 
name drug with a valid Turkish patent. 
 
The Ministry of Health introduced limited protection for 
confidential test data submitted in support of applications 
 
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to market pharmaceutical products in a regulation issued in 
January and revised in June 2005.  However, several of the 
regulation's provisions severely undermine protection for 
confidential test data.  Data exclusivity is limited to 
 
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original products licensed in a European Customs Union 
country after January 1, 2001, for which no generic 
manufacturers had applied for licenses in Turkey as of 
January 1, 2005, and the term of exclusivity is limited to 
the duration of the drug patent.  Also, the six-year term of 
data protection starts on the date of licensing in a 
European Customs Union country, implying a shorter term of 
protection because of the length of the marketing approval 
process in Turkey. 
 
Trademark holders also contend that there is widespread and 
often sophisticated counterfeiting of their marks in Turkey, 
especially in apparel, film, cosmetics, detergent and other 
products. 
 
Turkey recently 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. 
Further information on the intellectual property situation 
in Turkey is available in the National Trade Estimate 
report, available at the U.S. Trade Representative's 
website: www.ustr.gov. 
¶8. Transparency Of The Regulatory System 
The GOT has adopted policies and laws that in principle 
should foster competition and transparency. However, foreign 
companies in several sectors claim that regulations are 
sometimes applied in a nontransparent manner. 
Turkish legislation generally requires competitive bidding 
procedures in the public sector.  Law 4734 on Public 
Procurement established a board to oversee public tenders. 
Law 4761 lowered the original minimum bidding threshold at 
which foreign companies can participate in state tenders. 
The law gives preference to domestic bidders, Turkish 
citizens and legal entities established by them, as well as 
to corporate entities established under Turkish law by 
foreign companies. The public procurement law has been 
amended eight times since its enactment and may be further 
amended in the future. 
In general, labor, health and safety laws and policies do 
not distort or impede investment, although legal 
restrictions on discharging employees may provide a 
disincentive to labor-intensive activity in the formal 
economy. Certain tax policies distort investment decisions. 
High taxation of cola drinks discourages investment in this 
sector. Generous tax preferences for free zones have 
provided a stimulus to investment in these zones, though 
these preferences will be trimmed in the future (see free 
zones section). Similarly, incentives for investment in 
certain low-income provinces appear to be stimulating 
investment there (see "Performance 
Requirements/Incentives"). 
¶9. Efficient Capital Markets And Portfolio Investment 
The government has taken a number of important steps in 
recent years to strengthen and better regulate the banking 
system, whose weaknesses had contributed to macroeconomic 
instability over the previous decade and played an important 
role in the 2000-2001 financial crisis.  A 2005 revision of 
the Banking Law helps to bring the bank regulatory framework 
closer to European Union norms.  The new law will tighten 
bank regulation, notably by broadening the range of 
expertise inspectors can draw on when conducting on-site 
inspections. 
An independent Banking and Regulation Supervision Agency 
(BRSA) monitors and supervises Turkey's banks. The BRSA is 
headed by a board whose seven members are appointed by the 
cabinet for six-year terms.  In addition, bank deposits are 
protected by an independent deposit insurance agency, the 
State Deposit Insurance Fund (SDIF). 
Because of high local borrowing costs and short repayment 
periods, foreign and local firms frequently seek credit from 
international markets to finance their activities. As of end- 
2005, there are 46 commercial banks (including 13 foreign 
banks) and 13 development or investment banks operating in 
Turkey. Sector assets as of August 2005 totaled 
approximately USD 260 billion, or about 74 percent of GNP, 
according to BRSA data. 
There is a regulatory system established to encourage and 
facilitate portfolio investments, though it needs 
improvements in transparency, accounting, and enforcement 
provisions to bring it up to U.S. and EU standards.  The 
Istanbul Stock Exchange (ISE), formed in 1986, is becoming a 
significant emerging market stock exchange.  As of December 
31 2005, 282 companies were listed on the exchange. However, 
Turkey has yet to develop other capital markets. The Capital 
Markets Board is responsible for overseeing the activities 
of capital markets, including activities of ISE-quoted 
companies, and securities and investment houses. The Turkish 
private sector is dominated by a number of large holding 
companies, whose upper management is family-controlled. Most 
large businesses continue to float publicly only a minority 
portion of company shares in order to limit outside 
interference in company management. There has been no 
attempt at a hostile takeover by either international or 
domestic parties in recent memory. 
¶10. Political Violence 
In recent years, terrorist bombings -- some with significant 
numbers of casualties -- have struck religious, political, 
and business targets in a variety of locations in Turkey. 
The potential remains throughout Turkey for violence and 
terrorist actions against U.S. citizens and interests, both 
by transnational and indigenous terrorist organizations. 
In November 2003 the Al-Qa'ida network was responsible for 
four large suicide bombings in Istanbul that, among other 
targets, hit western interests. Indigenous terrorist groups 
also continue to target Turkish as well as U.S. and Western 
interests. In June 2004 the indigenous terrorist group 
PKK/KADEK/KONGRA GEL announced an end to their "unilateral 
ceasefire." Since the announcement, there have been repeated 
attacks against Turkish targets in the southeast region of 
Turkey, where the group has traditionally concentrated its 
activities. In addition, there have been bombings and other 
incidents in Istanbul, Bodrum, Antalya, Cesme, Kusadasi and 
Mersin. Other terrorist groups, including the Turkish group 
Revolutionary People's Liberation Party/Front (DHKP/C), 
continue to target Turkish officials and various civilian 
facilities and may use terrorist activity to make political 
statements. In 2002, 2003,  2004, and 2005 civilian venues 
such as courthouses, fast food restaurants, and public 
transportation were the targets of minor bomb attacks, 
resulting in small numbers of casualties. Similar, random 
bombings are likely to continue in unpredictable locations. 
Americans traveling to Southeastern Turkey, the site of 
PKK/KADEK/KONGRA GEL actions, should exercise caution. 
Although the Turkish government takes air safety seriously 
and maintains strict controls, particularly on international 
flights, hijacking attempts have occurred as recently as 
¶2003. For the latest security information on Turkey and 
throughout the world, travelers should monitor the State 
Department web site http://travel.state.gov, where the 
current Worldwide Caution Public Announcement, Travel 
Warnings, and Public Announcements can be found. 
¶11. Corruption 
Corruption is perceived to be a major problem in Turkey by 
private enterprise and the public at large, particularly in 
government procurement. American companies operating in 
Turkey have complained about being solicited, with varying 
degrees of pressure, by municipal or local authorities for 
"contributions to the community". Parliament continues to 
probe corruption allegations involving senior officials in 
previous governments, particularly in connection with energy 
projects. 
Recent public procurement reforms were designed to make 
procurement more transparent and less susceptible to 
political interference, including through the establishment 
of an independent public procurement board with the power to 
void contracts. The judicial system is also perceived to be 
susceptible to external influence and to be biased against 
outsiders to some degree. 
Turkish legislation outlaws bribery and some prosecutions of 
government officials for corruption have taken place, but 
enforcement is uneven. Turkey ratified the OECD Convention 
on Combating Bribery of Public Officials, and passed 
implementing legislation in January 2003 to provide that 
bribes of foreign officials, as well as domestic, are 
illegal and not tax deductible. In 2005, Turkey's Foreign 
Affairs Committee approved a draft law ratifying the UN 
Convention Against Corruption, which was signed in 2003. 
Amendments in 2005 to Turkey's Criminal Code make it 
unlawful to promise or to give any advantage to foreign 
government officials in exchange for their assistance in 
providing improper advantage in the conduct of international 
business.  In the event that such a crime makes an unlawful 
benefit to a legal entity, such legal entity shall be 
subject to certain security measures.  The provisions of the 
Criminal Law regarding the bribing of foreign governmental 
officials are in line with the provisions of the Foreign 
Corrupt Practices Act of 1977 of the United States (the 
"FCPA"). 
There are, however, a number of differences between the 
Turkish law and the FCPA.  For example, there is not an 
exception under the Turkish law for payments to facilitate 
or expedite performance of a "routine governmental action" 
in terms of the FCPA.  Another difference between the 
provisions of the FCPA and the Turkish law is that the FCPA 
does not provide for a punishment of imprisonment, while the 
Turkish law provides a punishment of imprisonment from four 
years to 12 years.   The Prime Ministry's Inspection Board, 
which advises a new Corruption Investigations Committee, is 
responsible for investigating major corruption cases. Nearly 
every state agency has its own inspector corps responsible 
for investigating internal corruption. The parliament can 
establish investigative commissions to examine corruption 
allegations concerning Cabinet Ministers for the Prime 
Minister.  A majority vote is needed to send these cases to 
the Supreme Court for further action. 
Transparency International has an affiliated NGO in 
Istanbul. Transparency International noted that Turkey 
improved its fight against corruption in 2005, moving Turkey 
from 77th to 65th in the transparency ranking of 159 
countries. 
¶12. Bilateral Investment Agreements 
Since 1985, Turkey has been negotiating and signing 
agreements for the reciprocal promotion and protection of 
investments. Turkey has signed bilateral investment treaties 
with 74 countries and has initiated negotiations with nine 
countries. 54 of these agreements are now in force, 
including with the United States, United Kingdom, Germany, 
the Netherlands, Belgium, Luxembourg, Denmark, Austria, 
Sweden, Switzerland, Spain, Finland, Italy, Portugal, 
Hungary, Poland, Romania, Tunisia, Kuwait, Bangladesh, 
China, Japan, South Korea, Indonesia, Croatia, Cuba, the 
Czech Republic, Estonia, Russian Federation, Azerbaijan, 
Kazakhstan, Georgia, Tajikistan, Ukraine, Uzbekistan, 
Belarus, Lithuania, Latvia, Slovakia, Macedonia, Pakistan, 
Turkmenistan, Moldova, Kyrgyzstan, Albania, Bulgaria, 
Argentina, Bosnia, Malaysia, Egypt, Mongolia, Greece, 
Israel, Afghanistan, Ethiopia, and Iran. 
Turkey's bilateral investment treaty with the United States 
came into effect on May 18, 1990. A bilateral tax treaty 
between the two countries took effect on January 1, 1998. 
Turkey has avoidance of double taxation agreements with 61 
countries. 
¶13. OPIC And Other Investment Insurance Programs 
The Overseas Private Investment Corporation (OPIC) offers a 
full range of programs in Turkey, including political risk 
insurance for U.S. investors, under its bilateral agreement 
with Turkey. OPIC is also active in financing private 
investment projects implemented by U.S. investors in Turkey. 
OPIC-supported direct equity funds, including the USD 200 
million Soros Private Equity Fund can make direct equity 
investments in private sector projects in Turkey. Small- and 
medium-sized U.S. investors in Turkey are also eligible to 
utilize the new Small Business Center facility at OPIC, 
offering OPIC finance and insurance support on an expedited 
basis for loans from USD 100,000 to USD 10 million. In 1987, 
Turkey became a member of the Multinational Investment 
Guarantee Agency (MIGA). 
The U.S. Government annually purchases approximately USD 24 
million of local currency. Embassy purchases are made at 
prevailing market rates, which fluctuate in accordance with 
Turkey's free floating exchange rate regime. 
¶14. Labor 
Turkey has a youthful population of 71 million, 65.5 percent 
of which is in the 15-64 age group and 28.8 percent in the 0- 
14 age group.  Of the total population, 60.3 percent live in 
urban areas.  The Turkish labor force numbers  24.9 million 
(22.6 million employed and 2.4 million unemployed); 35.9 
percent of the workforce is in agriculture. The official 
unemployment rate was 9.7 in the third quarter of 2005. 
The literacy rate in Turkey is 88.3 percent (95.7 percent 
among men and 81.1 percent among women).  Students are 
required to complete eight years of schooling and to remain 
in school until they are 15 years old.  Those who complete 
primary school education account for 96.1 percent of the 
population, of which only 30.3 percent complete vocational 
or higher educations, including distance education. 
Turkey has an abundance of unskilled and semi-skilled labor. 
Although the Ministry of Education launched projects within 
the framework of EU programs to meet the needs of high-tech 
industries, there is a shortage of qualified workers. 
Individual high-tech firms, both local and foreign-owned, 
have generally conducted their own training programs for 
such job categories. Vocational training schools for some 
commercial and industrial skills exist in Turkey at the high 
school level. Formal apprenticeship programs remain in 
place, although informal training is dying out in some 
traditional occupations. Turkey's labor force has a 
reputation for being hardworking, productive and dependable. 
Labor-management relations have been generally good in 
recent years. Employers are obliged by law to negotiate in 
good faith with unions that have been certified as 
bargaining agents. Strikes are usually of short duration and 
almost always peaceful. Approximately 2.9 million of the 11 
to 12 million wage and salary earners are unionized.  The 
law prohibits discrimination on the basis of union 
membership but discrimination occurs occasionally in 
practice.  There is no obligation for a worker to become a 
member of any union and there is no obligation to make a 
collective labor agreement for any sector.  However, in 
order to be covered by a collective labor agreement, a 
worker should be a member of a union.  In order to be a 
bargaining agent, a union must have a membership of more 
than half of the workers employed in a work place and 
include at least 10 percent of the workers employed in that 
specific sector.  The Labor Law sets a series of steps to be 
followed, including mediation by an Arbitration Board, 
before a union may initiate a strike.  Facilitating labor- 
employer relations is among the responsibilities of the 
Economic and Social Council, which aims at maintaining an 
effective dialogue between the state and social parties to 
encourage compromise in industrial relations. 
Turkey has signed many International Labor Organization 
(ILO) conventions protecting workers' rights, including 
conventions on Freedom of Association and Protection of the 
Right to Organize; Rights to Organize and to Bargain 
Collectively; Abolition of Forced Labor; Minimum Wage; 
Occupational Health and Safety; Termination of Employment 
and Elimination of the Worst Forms of Child Labor. Since 
1980, Turkey has faced criticism by the ILO, particularly 
for shortcomings in enforcement of ILO Convention 87 
(Convention Concerning Freedom of Association and Protection 
of the Right to Organize) and Convention 98 (Convention 
Concerning the Application of the Principles of the Right to 
Organize and to Bargain Collectively).  However, in 1995 and 
2001, constitutional amendments reduced restrictions on 
freedom of association and political activity on trade 
unions. The restrictions on the right to strike under 
Article 54 of the Constitution were preserved intact.  Civil 
servants (defined broadly as all employees of the central 
government ministries, including teachers) are allowed to 
form trade unions and to engage in limited collective 
negotiations, but are prohibited from striking. 
The Job Security Bill provides basic job security for 
workers and requiring a valid reason for the termination of 
the labor contract at the initiative of the employer.  Labor 
Law 4857 provided employers with greater flexibility in the 
organization of work and weakened to a certain extent the 
job security provided by the 2002 law.  It contains many new 
provisions in conformity with international regulations of 
the ILO and the EU. 
There are no special laws or exemptions from regular labor 
laws in the country's 21 free trade and export processing 
zones, although these zones are otherwise regulated by Free 
Trade Zones Law 3218. 
Use of technology is encouraged at work.  There is a special 
law concerning establishment of Technology Development Zones 
(called "techno-parks").  The state also contributes to 
research and development activities either though 
reimbursement or providing subsidies.  The personnel 
expenses, cost of machinery, equipment and software, 
consultancy and other services, fees paid to scientific 
institutions, registration fees for patent and industrial 
designs to the Patent Institute, and the cost of R&D related 
materials may be reimbursed up to 60% by the state.  This 
aid may be extended for up to 3 years. 
¶15. Foreign Trade Zones/Free Ports 
Firms operating in Turkey's 21 free zones have historically 
enjoyed many advantages.  The zones are open to a wide range 
of activities, including manufacturing, storage, packaging, 
trading, banking, and insurance. Foreign products enter and 
leave the free zones without payment of any customs or 
duties. Income generated in the zones is exempt from 
corporate and individual income taxation and from the value- 
added tax, but firms are required to make social security 
contributions for their employees. Additionally, 
standardization regulations in Turkey do not apply to the 
activities in the free zones, unless the products are 
imported into Turkey. Sales to the Turkish domestic market 
are allowed, with goods and revenues transported from the 
zones into Turkey subject to all relevant import 
regulations. There are no restrictions on foreign firms 
operations in the free zones. Indeed, the operator of one of 
Turkey's most successful free zones located in Izmir is an 
American firm. 
Under Law 5084, taxpayers who possessed an operating license 
as of February 6, 2004, will not have to pay income or 
corporate tax on their earnings in the zone for the duration 
of their license. Earnings based on sale of goods 
manufactured in a zone will be exempt from income and 
corporate tax until the end of the year in which Turkey 
becomes a member of the European Union. Earnings secured in 
a free zone under corporate tax immunity and paid as 
dividends to real person shareholders in Turkey or to real 
person or legal-entity shareholders abroad will be subject 
to 10 percent withholding tax. The tax immunity of the wage 
and salary income earned by persons employed in the zones by 
taxpayers possessing an operating license as of February 6, 
2004, will remain in effect until December 31, 2008, or the 
expiration date of the operating license, whichever is 
earlier. The implications of the new rules are complex, and 
interested parties may want to consult with a tax advisor 
and/or the Foreign Trade Undersecretariat (web site: 
www.dtm.gov.tr). 
¶16. Foreign Direct Investment Statistics 
With the foreign investment permit requirement in place 
until 2003, the Turkish Treasury collected detailed sector 
and country of origin data for authorized FDI. Data 
collected since the abolition of the permit requirement, by 
the Central Bank and other entities, may not be directly 
comparable to data collected prior to 2003. 
According to Turkish Treasury data, as of November 2005, 
there are 10,984 foreign firms invested and operating in 
Turkey. The aggregate actual inflows reached USD 21.7 
billion. In 2004, EU countries accounted for 79.5 percent of 
FDI inflows to Turkey, OECD countries accounted for 16.7 
percent, and Middle East countries for 3.8 percent. Over the 
past two decades, the Netherlands (32.3 percent) has been 
the top source of foreign investment, followed by Germany 
(10.1 percent), United Kingdom (10.0 percent) and the U.S. 
(9.7 percent) Because of the absence of a bilateral tax 
treaty until 1998, much U.S.-origin capital was invested in 
Turkey through third-country subsidiaries. According to U.S. 
Commerce Department data, U.S. company investment amounted 
to about USD 2 billion in 2003. By unofficial estimates, the 
U.S. may be one of the largest sources of foreign investment 
in Turkey. 
In 2004, about 75.8 percent of foreign direct investment 
took place in services, 18.0 percent in manufacturing, 5.9 
percent in mining and 0.3 percent in agriculture. 
FDI Inflow by Years (million USD) 
Year  Actual Inflow(Cumulative)  Inflow/GDP  No firms 
 
1980-1988                                    1,172 
1989      663                      0.80      1,525 
1990      684                      0.67      1,856 
1991      907                      0.69      2,123 
1992      911                      0.78      2,330 
1993      746                      0.56      2,554 
1994      636                      0.64      2,830 
1995      934                      0.66      3,163 
1996      914                      0.53      3,582 
1997      852                      0.54      4,068 
1998      953                      0.49      4,533 
1999      813                      0.41      4,950 
2000    1,707                      0.85      5,328 
2001    3,288                      2.21      5,841 
2002    1,042                      0.48      6,280 
2003    1,702                      0.71      6,511 
2004    2,765                      0.92      8,661 
2005*   3,742                      1.42     10,984 
TOTAL  21,666                               10,984 
Source: Central Bank of Turkey, State Institute of 
Statistics, 
(*)January through September 2005. 
(**) Includes capital inflows, foreign loans and real estate 
investment. 
FDI Stock by Source Country (end of 2004/ million USD) 
Country        Value        Share (percent) 
Netherlands    9,526          32.3 
Germany        2,969          10.1 
United Kingdom 2,952          10.0 
U.S.A          2,859           9.7 
France         2,450           8.3 
Italy          1,207           4.1 
Switzerland    1,072           3.6 
Finland        1,043           3.5 
Belgium          864           2.9 
Japan            846           2.8 
Canada           825           2.8 
Others         2,897           9.8 
Total         29,510         100.0 
Source: Central Bank of Turkey. 
The investment permit requirement lifted as of 2004. 
Turkey's External Investment by Country (As of December 
2005) 
Country        Amount         Share 
           (USD millions) 
Netherlands   2,485.2         31.9 
Azerbaijan    1,891.6         24.3 
United Kingdom  521.0          6.7 
Germany         461.9          5.9 
Kazakhstan      442.2          5.7 
Luxembourg      249.9          3.2 
United States   186.7          2.4 
Russia          170.4          2.2 
Romania         158.4          2.0 
Switzerland     108.8          1.4 
France           94.3          1.2 
Others        1,020.7         13.1 
Total         7,791.1        100.0 
Source: General Directorate of Banking and Foreign Exchange, 
Treasury 
Major foreign investors 
Turkey's foreign investors include Telecom Italia, Renault, 
Toyota, Fiat, Castrol, Enron Power, Citibank, Pirelli Tire, 
Unilever, RJR Nabisco, Philip Morris, United Defense, Honda, 
Hyundai, Bosch, Siemens, DaimlerChrysler, Chase Manhattan, 
AEG, Bridgestone-Firestone, Cargill, Novartis, Coca Cola, 
Colgate-Palmolive, General Electric, ITT, Ford Motor Co., 
Lockheed Martin, Goodyear, Aventis, McDonald's, Nestle, 
Mobil, Pepsi, Pfizer, Procter and Gamble, InterGen, Abbot 
Laboratories, Aria, Bechtel, Shell, Delphi-Packard, 
Toreador/Madison Oil, AES, GE, NRG, Normandy Mining, Marsa- 
Kraft-Jacobs Suchard, ESBAS A.S., Archer Daniels Midland, 
Merck, Sharp Dohme, Bunge, and Bausch and Lomb. 
McEldowney