VZCZCXRO5632
PP RUEHDA
DE RUEHAK #5401/01 2610746
ZNR UUUUU ZZH
P 180746Z SEP 06
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 8737
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 1290
RUEHDA/AMCONSUL ADANA 1110
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 ANKARA 005401 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT FOR EB A/S SULLIVAN 
PASS USTR FOR AUSTR DONNELLY AMD MERIDETH SANDLER 
USDOC FOR ITA/MAC/CRUSNACK 
TREASURY FOR JONATHAN ROSE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON TU
SUBJECT: REMOVING TURKEY'S GSP BENEFITS COUNTERPRODUCTIVE 
 
REF: A) ANKARA 5093, B) STATE 128359 
 
SUMMARY 
------- 
 
¶1.  (SBU)  Progress has been made and is still being made in opening 
Turkish markets to U.S. exports and resolving long standing problems 
like inadequate intellectual property protection.  Reducing Turkey's 
access to GSP benefits would deprive us of one of the few 
instruments we have to work with Turkey on market access issues, and 
would likely work against Turkish support for our WTO and 
multilateral objectives.  On top of potential bilateral setbacks, 
loss of GSP benefits would have disproportionate impact on Turkey's 
struggling SME sector, potentially undermining recent economic 
gains.  If these companies lose the competitive edge they have 
enjoyed thanks to GSP benefits, the winners will be exporters from 
competitors like Europe, China and India and the losers would be 
U.S. consumers.  In Turkey, loss of GSP benefits -- ven in the 
context of a global review of the program -- would be viewed as a 
punishment and would increase the multiple challenges we face 
managing our relations with a key ally in a turbulent region.  End 
Summary. 
 
SETBACK TO BILATERAL ECONOMIC AGENDA 
------------------------------------ 
 
¶2.  (SBU)  Our bilateral economic dialogue has revived over the last 
year.  After a three-year hiatus, USTR and Turkey's Foreign Trade 
Undersecretariat (FTU) came together in January for a Trade and 
Investment Framework Agreement (TIFA) Council meeting, which 
improved the atmosphere for reducing trade impediments.  We are 
currently working to schedule an Economic Partnership Commission 
(EPC) meeting, the first in three years. 
Turkey's State Minister for Foreign Trade, Kursad Tuzmen, made 2006 
the "Year of America" and has traveled extensively throughout the 
U.S. to promote trade and investment. 
 
¶3.  (SBU)  Turkey has made progress opening markets to U.S. imports 
and resolving business disputes that have long plagued commercial 
relations.  Although IPR and agricultural market access issues 
remain, the loss of GSP coverage may retard or reverse this 
progress.  Unlike other countries under review and unlike its main 
competitors in the region and world-wide, Turkey apparently cannot 
enter into other types of preferential trade agreements with the 
U.S. because of its membership in the European Customs Union.  GSP 
is thus one of the few benefits the U.S. can use with Turkey to 
promote our interests.  Taking away these benefits in one fell swoop 
for reasons exogenous to Turkey would deprive U.S. trade negotiators 
of one of the few instruments they have to advance U.S. companies' 
interests in better market access, including U.S. agricultural and 
pharmaceutical companies.  It is likely to preserve this flexibility 
that PhRMA wrote USTR in support of maintaining Turkey's eligibility 
for the GSP program. 
 
¶4.  (SBU)  While not an active player in the Doha Round, Turkey has 
been strongly supportive of the U.S. NAMA initiative.  It also 
worked closely with the U.S. textile industry on proposals designed 
to ease the transition from the end of the global textile quota 
system.  Turkey has not been particularly associated with the 
countries that have undermined Doha.  It should not be punished with 
them. 
 
SETBACK TO ECONOMIC STABILITY IN TURKEY 
--------------------------------------- 
 
¶5.  (SBU)  The United States has led the world investing in Turkey's 
economic stability and prosperity.  This includes our support for 
economic reforms bilaterally and under the auspices of the single 
largest IMF and World Bank programs worldwide.  In 2003, Congress 
appropriated $1 billion to support Turkey's economy during a time of 
heightened regional turmoil.  Although Turkey did not need to draw 
on these funds, this facility was a strong symbol of our ongoing 
commitment to Turkey and its economic welfare.  Our efforts to 
encourage reforms and sound policies are paying off in the form of 
improved financial stability and broadly based economic growth. 
 
¶6.  (SBU)  This work is also not done.  Turkey's economic progress 
remains vulnerable both to external financial markets and to 
internal political developments.  There is risk of "reform fatigue" 
growing out of a perception that the benefits of better policy are 
not widely diffused.  Populist policy responses are always a danger 
here.  Turkey continues to suffer from high unemployment (8 - 10 
percent), poverty (25 percent), and vast regional income 
 
ANKARA 00005401  002 OF 002 
 
 
disparities.  These and other problems in the ethnically Kurdish 
southeast are reflected in high infant mortality and illiteracy 
rates that have made the area fertile ground for the siren song of 
PKK terrorism.  To address these disparities, the United States and 
IFIs have encouraged greater diversification within the economy and 
regionally.  In the export sector, we specifically encouraged 
reduced reliance on textile exports following the end of the Multi 
Fiber Agreement quota regime. 
 
SME'S BIGGEST LOSER 
------------------- 
 
¶7.  (SBU)  The vehicle for diversification is Turkey's small and 
medium enterprise sector, which accounts for 99 percent of 
registered companies, but a much smaller share of economic activity. 
 TUSIAD, the organization that represents big Istanbul-based 
business groups like Koc and Sabanci, estimates that its members 
account for 70 percent of Turkish exports.  Stronger SME performance 
domestically and in exports will create jobs and spread wealth and 
income more widely.  SME's in the jewelry, stone and olive oil 
sectors are the major beneficiaries of Turkey's GSP benefits and 
would feel a loss of access most acutely.  These companies operate 
in highly competitive sectors and believe their products would not 
be competitive in the U.S. market without GSP.  The potential of 
Turkey's SME's is highlighted by the economic success and relative 
tranquility of the southeastern city of aziantep, which recently 
hosted a U.S. Chambe of Commerce program aimed at developing SME 
sector trade and investment ties between our two countries. 
 
¶8.  (SBU)  Among Turkish SMEs, the most affected would be in the 
jewelry sector, which operates on very thin margins and very tight 
delivery schedules.  It accounted for 36 percent of Turkey's $1 
billion in GSP exports in 2005, including the waivers of competitive 
needs limitations (ref a).  Turkish jewelry producers maintain that 
only countries like India, Italy and China can produce the same 
quality of jewelry in the quantity that is produced in Turkey under 
the tight time constraints demanded by U.S. importers.  This makes 
it unlikely that less-developed countries not currently exporting to 
the United States could meet U.S. market needs after the removal of 
CNL waivers or access to GSP.  Turkey's regionally-based and rapidly 
growing olive oil industry, also a major GSP beneficiary, competes 
mainly with such more developed Mediterranean countries as Italy, 
Greece and Spain.  In both cases, the beneficiaries of Turkey's loss 
of GSP benefits would not be the poorest countries, and the costs 
would be born by U.S. consumers in the form of higher prices and 
reduced availability of products. 
 
COMMENT: POLITICAL CONSEQUENCES WILL ALSO RESULT 
--------------------------------------------- --- 
 
¶9. (SBU) This year has seen improvement in Turkish-U.S. relations, 
culminating in the signing of the Shared Vision and Strategic 
Framework document and a Turkish contribution to UNIFIL.  We are at 
the start of serious cooperation against the PKK.  Reflecting our 
improved ties, the President and Prime Minister Erdogan will meet 
next month.  Erdogan's government is facing strong opposition 
attacks for its cooperation with us on the PKK, Iraq, UNIFIL and 
other issues, and this criticism will rise as Turkey approaches 
parliamentary elections in 2007.  The withdrawal of GSP benefits and 
eligibility -- even in the context of a global review of the program 
-- would be viewed here as a punishment directed at Turkey.  This 
would increase the multiple challenges we face advancing the U.S. 
economic and political agenda with this key country at a time of 
regional turmoil.  End Comment. 
 
Wilson