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Dianne Wampler  09/21/2006 04:36:30 PM  From  DB/Inbox:  Dianne Wampler

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UNCLAS SECTION 01 OF 02 ANKARA 005511 
 
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USDOC FOR ITA/MAC/CRUSNACK 
TREASURY FOR JONATHAN ROSE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON TU
SUBJECT: LETTER FROM FOREIGN TRADE MINISTER TUZMEN TO USTR SCHWAB 
REGARDING TURKEY'S GSP BENEFITS 
 
REF: A) ANKARA 5401, B) ANKARA 5093, C) STATE 128359 
 
¶1.  On September 19, we received the following letter from State 
Minister for Foreign Trade, Kursad Tuzmen, to USTR Schwab regarding 
Turkey's Generalized System of Preferences (GSP) benefits.  The 
letter provides a number of arguments for Turkey's retention of GSP. 
 As stated in refs A and B, this issue has become one of paramount 
importance for the Foreign Trade Undersecretariat (FTU) and Turkey's 
business community, and they are taking the review very seriously. 
 
¶2. Begin text of letter: 
 
REPUBLIC OF TURKEY MINISTRY OF STATE 
 
Ambassador Ms. Susan Schwab 
The US Trade Representative 
 
September 18, 2006 
 
Dear Susan: 
 
This correspondence is in response to the notice by your office of a 
review or the eligibility of certain GSP beneficiary countries, 
including Turkey, and of existing competitive need limitation 
waivers of which Turkey holds two. 
 
The conditions of trade and the global market are significantly 
different from those existing in 1975 when the Generalized System of 
Preferences was initiated by the United States and several other 
"developed" countries. Since then, the competitive factors and 
economic conditions affecting world trade have been dramatically 
altered by events such as the end of the Cold War and the entry of a 
number of "new" trading states in the global marketplace, formation 
of the World Trade Organization with attendant disciplines in 
non-tariff barriers (including the demise of global textile and 
apparel quotas), seventy dollar per barrel oil, economic crises in 
Asia, South America and in my country, and the burgeoning use of 
unilateral and bilateral programs by the United States and Europe to 
compete for low cost goods and market access. 
 
Throughout these challenging times, the United States has maintained 
one trade preference program that has offered a special dialogue and 
an effective incentive for many developing countries to adopt free 
market practices, economic diversification and related policies and 
practices of democratic civil society.  The Generalized System of 
Preferences has been one of the most successful trade policy tools 
in recent U.S. history.  This success has been achieved by 
recognizing that reducing tariff barriers to the products of 
companies and people in developing countries, like Turkey, gives 
them an opportunity to compete for a share of the U.S. market - an 
opportunity that they appreciate and readily embrace. Certainly 
Turkey has taken advantage of this opportunity. And Turkey asks that 
it continue to be able to avail itself of the opportunity to improve 
itself by doing business with the United States through the GSP 
program. 
 
When the GSP was adopted, it was contemplated that countries and 
products would "graduate" from its benefits.  Products are regularly 
removed but wholesale discharge of a country from GSP eligibility is 
rare.  In 1989, the President found that Hong Kong, the Republic of 
Korea, Singapore and Taiwan had reached a point in their economic 
development and international competitiveness that warranted their 
graduation, noting that these countries had "achieved an impressive 
level of economic development and competitiveness, which can be 
sustained without the preferences provided by the program."  I add 
the emphasis to the last part of the President's statement because 
it is critical to the decision about to be made regarding Turkey. 
 
Hindsight proves that the economies of the countries graduated in 
1989 were and are capable of sustained development and 
competitiveness.  While Turkey has made significant improvements in 
its economy in the past five years, it is not at all in the same 
shape as the economics mentioned above at the time of their 
graduation. 
 
Turkey has been working with the International Monetary Fund since 
1999 to restructure its economy. The work is not done, as the IMF 
Country Report on Turkey dated July 2006 indicates.  There are many 
economic indicators that show Turkey to be economically healthier 
than four years ago, but recent data also reveal the fragile nature 
of our recovery.  Our terms of trade are declining, largely due to 
the strength of our currency and the stress our textile exporters 
arc experiencing (they represent practically 30% of our overall 
annual export earnings) by reason of the intense global competition 
fostered by the demise of the global quota system. 
 
An UNCTAD report in 2005 noted that of seventy categories of leading 
products exported by major exporting "developing countries", Turkey 
only ranked in 28 and 10 of those were in the textile and apparel 
sectors (which are not eligible for GSP treatment) which are 
steadily being overwhelmed by countries like China, Pakistan and 
Malaysia.  Thus, my country may he a substantial exporter in a few 
sectors, but it is in serious need of diversification. 
Notwithstanding challenges such as these, Turkey maintains one of 
the lowest average ad valorem tariff rates on non-agricultural and 
non-fuel products in the world: in 2003 it was 4.3%. Compared to 
Brazi1 at 14.0% or India at 28.1 %, and it is evident that Turkey is 
willing to suffer the competitive strains required to strengthen its 
economy.  But it still needs support like the United States GSP 
program. 
 
Turkey's improvements are yet to be determined as "sustained" and 
have not shown themselves to have permeated many sectors that need 
to improve export performance.  Therefore, with respect to Turkey's 
access to the U.S. market for newly developing sectors in our 
economy, the GSP program remains a critical factor in our 
developmental equation. 
 
Assuming that the review of Turkey's economic condition leads your 
office to the conclusion that country graduation is not warranted at 
this time, I also would like to request that the one Turkish sector 
currently benefiting from CNL waivers, continue to receive the 
waivers.  Our gold jewelry exports to the United States (HTSUS 
numbers 7113.19:29 and 7113.19.50) have exceeded the monetary limit 
for GSP but hardly come close to demonstrating the ability to 
compete without the preference against country sources such as 
China, India, Italy, Hong Kong or Mexico.  Each country exports far 
more to the U.S. than Turkey (China, Hong Kong and Italy without GSP 
treatment, Mexico with the NAFTA advantage and India exporting four 
times the amount than Turkey to the U.S. also under a CNL waiver) 
and they will be more than able to pick off Turkish customers if a 
duty is imposed on jewelry imports from my country. 
 
In Turkey, the gold jewelry sector employs over 250,000 people, 
often incorporating whole families in the business.  With the price 
of gold nearly doubling in the last three years, Turkey is at a 
competitive disadvantage since it must source its gold from foreign 
sources. In order to keep that important sector alive, we need to 
maintain our competitiveness in markets such as the United States: 
Without the CNL waiver, it becomes practically impossible. 
 
Turkey is a developing and dynamic country with great promise.  For 
the past five years the people of Turkey have undertaken painful 
economic reform measures and have made enormous efforts to adjust to 
the realities of the new global market - while the country continues 
to adhere to its WTO obligations and maintains liberal rules and 
policies with respect to access to its market.  These actions should 
not be disregarded.  What is left of affirmative trade policy tools 
and programs for the United States to offer Turkey should remain in 
place while Turkey's efforts bear fruit, not terminated at a time 
when it would serve as a catalyst for serious economic and trade 
difficulties.  The GSP program is a vital factor in Turkey's 
eventual achievement of sustained economic development and 
international competitiveness. For that reason, I ask that you 
maintain Turkey's eligibility in the program. 
 
Sincerely Yours, 
 
Kursad Tuzmen 
 
Minister of State 
 
End text of letter. 
 
Wilson