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DE RUEHAK #0123/01 0231143
ZNR UUUUU ZZH
R 231143Z JAN 07 ZDK
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 0653
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHIT/AMCONSUL ISTANBUL 1974
RUEHDA/AMCONSUL ADANA 1559

UNCLAS SECTION 01 OF 02 ANKARA 000123 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
PASS USTR FOR ERRION 
 
E.O. 12958: N/A 
TAGS: ETRD BEXP PREL TU
SUBJECT: Turkey: U.S. Companies Worried about Business 
 
 
ANKARA 00000123  001.2 OF 002 
 
 
¶1.  (SBU)  Summary.  Many U.S. companies in Turkey feel they are 
missing out on Turkey's economic boom.  They blame the persistence 
of traditional ways of doing business, including corruption and 
opaque regulatory practices, but also fault U.S. companies' lack of 
awareness of the substantial improvements in the business climate 
since 2002.  They fear that possible Congressional approval of a 
Resolution condemning an "Armenian genocide" would give European and 
Asian competitors an even stronger advantage.  End Summary. 
 
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U.S. MARKET SHARE FALLING 
------------------------- 
 
¶2.  (SBU)  At a January 17 meeting with American Business Forum 
(ABFT) members in Istanbul, U.S. company representatives described 
their ongoing frustrations with doing business in Turkey.  The three 
year old ABFT is one of the two U.S. Chamber of Commerce-designated 
"AmChams" in Turkey (the other being the Turkish American Business 
Association - TABA), but is the most representative of U.S. 
companies.  The businesspeople noted that U.S. business is not, 
overall, participating in the boom in the Turkish economy and trade. 
 For example, Turkey's imports from the U.S. have expanded by only 
37% since 2000, far less than the 114% growth of total Turkish 
imports.  Similarly, on the investment side, the representative of a 
U.S. bank noted that apart from a handful of very large recent 
investments in the financial services sector, American companies are 
not investing in Turkey, although more and more are shopping around 
for local acquisitions. 
 
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LACK OF TRANSPARENCY 
-------------------- 
 
¶3.  (SBU)  They attribute this, perhaps in equal measure, to 
American companies not being aware of new opportunities and to the 
persistence of traditional ways of doing business.  Corruption, lack 
of transparency, and an unpredictable judicial process remain 
problems across sectors.  Pharmaceutical companies, for instance, 
complain about an opaque, time consuming, and apparently arbitrary 
system for approval of social security reimbursement for new 
products.  This is crucial, since 90% of Turkey's health spending is 
funneled through the social security system.  In the burgeoning real 
estate sector, companies complain about payoff requests by local 
officials and problems getting regulatory approval to offer title 
insurance.  The operator of an industrial park said there remained a 
general lack of legal predictability, citing the unexpected 
revocation of tax breaks for investments in his park in Izmir.  In 
general, distortions related to the very high rates of tax evasion 
are a problem in almost all sectors. 
 
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LACK OF AWARENESS 
----------------- 
 
¶4.  (SBU)  Meanwhile, the business people say U.S. companies are 
missing opportunities because they have failed to take note of the 
real improvements in the regulatory and macro climate in the past 
few years.  Thus, U.S. companies are losing out on new business that 
is instead going to European and Asian companies, particularly for 
major projects.  The representative of a large U.S. engineering 
company pointed to the lack of U.S. interest in the Samsun-Ceyhan 
oil pipeline and related refinery projects, in which Italian, 
Russian and Indian companies are taking the lead.  Another noted the 
multitude of projects and conferences sponsored by the European 
Commission and EU members to help prepare Turkey for EU membership. 
U.S. companies are not formally excluded, but tend not to take 
advantage of the networking and consciousness-raising opportunities 
these projects and events provide. 
 
------------------------------------------ 
"GENOCIDE" RESOLUTION WOULD FURTHER DAMAGE 
------------------------------------------ 
 
¶5.  (SBU)  All of the companies expressed alarm over the possibility 
of Congress passing an "Armenian Genocide Resolution" this spring. 
They noted that business decisions here often follow public opinion 
and that how the Turkish government reacts to such a resolution - 
particularly in an election year - could have a decisive impact in 
shaping opinion, and hence on business relations.  The French 
National Assembly's approval of a bill criminalizing Armenian 
genocide-denial is inhibiting new business with French companies, 
even if existing business was little affected (this despite the 
likelihood that any U.S. resolution would be milder than that of the 
French).  The reaction against U.S. actions would, however, be 
harsher, they believe.  Thus, passage would further increase the 
edge of European and Asian companies.  Recovery from such a blow 
would be difficult but not impossible.  One businessman felt that 
 
ANKARA 00000123  002 OF 002 
 
 
decisive U.S. action against the PKK in Northern Iraq would reverse 
much of the damage from a resolution. 
 
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COMMENT 
------- 
 
¶6.  (SBU)  Comment: There have indeed been significant improvements 
in Turkey's business climate in the past five years, particularly in 
the creation of a stable macro environment and reduction of red 
tape.  This has led to a private investment- and consumption-led 
boom.  Istanbul is blossoming as a regional business center. One 
businessman noted, however, that even if Turkey is making progress, 
it is not doing so as quickly or consistently as comparable 
countries in Eastern Europe and Asia.  For example, Turkey is stuck 
in the middle of most "doing business" indices, such as those of 
Transparency International, the World Bank, and AEI's Index of 
Economic Freedom. This lack of relative progress may deter American 
companies more than it deters European. The group we met was not 
representative of all U.S. business here in that it did not include 
the U.S. companies that are successfully expanding their business 
here, like Microsoft, Cisco, Citibank and Ford.  Even so, these 
companies and others (like Cargill) have legitimate issues that they 
look forward to explaining to Economic Partnership Commission 
members next month in Istanbul and Ankara. 
Wilson