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DE RUEHYE #0077/01 0230649
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R 230649Z JAN 07
FM AMEMBASSY YEREVAN
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INFO RUEHAK/AMEMBASSY ANKARA 1176
RUEHIT/AMCONSUL ISTANBUL 0518
RUCNCIS/CIS COLLECTIVE
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHDC 0013
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 03 YEREVAN 000077 
 
SIPDIS 
 
DEPT FOR EUR/CARC, EUR/ACE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD EINV ELNT PGOV PREL TU GG AM
SUBJECT:  OPENING THE TURKISH-ARMENIAN BORDER: BUSINESSES AND 
ACADEMICS SAY IT'S TIME 
 
YEREVAN 00000077  001.2 OF 003 
 
 
------- 
SUMMARY 
------- 
 
¶1. On January 13 and 14 the Armenian International Policy Research 
Group (AIPRG), with funding from USAID, the British Embassy, and the 
Eurasia Foundation, held a conference on "The Economic and Social 
Consequences of Opening the Armenia-Turkish Border."  While the 
caliber of the papers was mixed, the conference itself was generally 
well received and very well-attended with over 250 enrolled 
participants and 26 presenters (four of whom were Turkish).  The 
vast majority of presenters and all of the business representatives 
in attendance said Armenia would benefit significantly (with a 
potential 10-25 percent increase in GDP) if the border were opened. 
The conference was widely covered in the media and generated 
significant public dialogue on how best to move forward 
normalization of Turkish-Armenian relations.  END SUMMARY 
 
---------------------------- 
TWO PERCENT OR 40 - EXPERTS DEBATE THE IMPACT ON GDP 
---------------------------- 
 
¶2. One of the critical successful outcomes of this conference was to 
expand the pool of available academic scholarship on the economic 
impacts of border opening.  Prior to this conference, we knew of 
just two (controversial) economic studies on the potential economic 
benefits of opening the Turkish-Armenian border (closed by the 
Turkish Government in 1993).  The first, sponsored by the World 
Bank, was conducted in 2001 and suggested that opening the border 
with Turkey would increase Armenian exports by 200 percent and 
Armenian GDP by 40 percent.  A second study, conducted by the 
Armenian-European Policy and Legal Advice Center (AEPLAC) in 2005, 
suggested that the Armenian market had largely adjusted to the 
closed border and that the medium-term impact of border opening on 
GDP would be between 2-7 percent. 
 
¶3. Most presenters at this conference took issue with both studies. 
One paper suggested that border opening alone will lead to a 3-7 
percent increase in GDP, but there will also be benefits from lower 
external conflict risk ratings in the international marketplace 
leading to a 6-17 percent increase in GDP.  According to conference 
organizer and AIPRG Research Fellow Bryan Roberts, the reasonable 
upper bound for the medium-term impact of opening the border is an 
extremely impressive 10-25 percent of GDP. (NOTE:  Roberts' findings 
were muddied, however, especially on his external conflict risk 
assumptions mentioned above, by his failure to disentangle the 
effects of a Turkish-Armenian rapprochement and border opening, from 
the effects of a Nagorno Karabakh settlement, which Roberts presumed 
to go hand in hand with any chance of a Turkish border opening. This 
point was not made very clear in either his paper or presentation, 
but was one we elicited from him verbally on the margins.  END 
NOTE) 
 
------------------------------ 
A WIDE-RANGE OF TOPICS COVERED 
------------------------------ 
 
¶4. The papers presented at the conference were very wide-ranging and 
of mixed quality.  One paper argued persuasively for the merits of a 
phased opening of the border, starting at two crossing points and 
eventually expanding to six.  Presenters also considered the 
potential economic impact on Georgia of opening the Turkish-Armenian 
border (judged to be minimal because Armenian and Georgian goods are 
not close substitutes and therefore increased Armenian-Turkish trade 
will not lead to a significant amount of trade diversion from 
Georgia).  While a number of studies looked at the economic benefits 
of decreasing the distance Armenian and Turkish goods would have to 
travel, none considered the additional benefits that reopening the 
Kars-Gyumri railroad might have on freight forwarding costs, nor 
entirely new and perhaps unforeseen business/trade opportunities 
that would arise with an open border. 
 
¶5. In addition to the benefits of increased trade, a number of 
papers argued that Armenia would likely benefit from increased 
foreign direct investment as well, as an open border would lower 
Armenia's high external conflict risk thereby increasing investor 
confidence.  One study suggested that increased investor confidence 
could lead to a 50 percent increase in FDI and as much as a 10 
percent increase in Armenia's overall GDP.  There was one paper 
that, considering some of the potential benefits to Turkey, 
suggested that the larger cities in Turkey may actually benefit more 
than Turkey's impoverished eastern provinces, because the cities are 
better equipped to engage in international trade.  The general 
consensus of conference participants, however, was that the impact 
of a border opening would be much more significant for Armenia's 
smaller economy then for Turkey's much larger and diversified 
 
YEREVAN 00000077  002.2 OF 003 
 
 
economy.  All of the conference papers are available at 
www.AIPRG.net. 
 
--------------------------- 
BUSINESSES READY TO ENGAGE, PARTICULARLY IN CONSTRUCTION 
--------------------------- 
 
¶6. One of the most interesting components of the conference was a 
businessmen's roundtable.  Representatives from a number of 
prominent Armenian businesses said that they were anxious to see the 
border open.  They said they were ready for the increased 
competition and saw strong potential for Armenian exports to the 
Turkish market.  Cement and construction materials were identified 
as sectors where Turkish local production may not be sufficient to 
meet local demand, resulting in ripe opportunities for Armenian 
exporters.  Critical to this type of export would be the reopening 
of the Kars-Gyumri railroad, an issue which Armenian businesses have 
long championed.  According to TABDC Europe Coordinator Burcu 
Gultekin, a number of the participants discussed holding a similar 
conference in Turkey next year and brainstormed about other ways to 
promote better Armenian-Turkish business relations in the future. 
 
------------------------------- 
INEVITABLE POLITICAL COMMENTARY 
------------------------------- 
 
¶7. While the conference organizers were surprisingly successful at 
keeping the focus on economic analysis, there were some moments of 
inevitable political discussion.  At the opening of the conference, 
CDA called on participants and panelists to set politics aside.  The 
goal, he added was not just economic growth, but the increased 
stability and security which comes from economic integration. 
Deputy Armenian Foreign Minister Arman Kirakossian in his opening 
remarks clearly laid out the longstanding official GOAM position 
that Armenia is prepared to establish diplomatic relations "without 
precondition."  He continued by saying Azerbaijan is "trampling 
international law" by supporting the Azerbaijani position on NK, 
violating a "bilateral agreement" with the border closure (he did 
not specify which one, but we infer he meant the 1921 Kars Treaty 
between Turkey and the USSR) and carrying out a program to "oust" 
Armenia from the regional economy.  He also suggested that Turkey 
was failing to live up to its commitments as an EU candidate country 
and should work hard to normalize relations, particularly given that 
Armenia recently joined the European Neighborhood Program.  He 
underscored the need to reopen the Kars-Gyumri railroad and said 
that while economic and civil society contacts are useful, they 
cannot replace intergovernmental dialogue. 
 
--------------------------------------------- 
GOOD WILL AND A CALL FOR FACE-SAVING MEASURES 
--------------------------------------------- 
 
¶8. Turkish participants and scholars played an important role in the 
success of the conference and their presence in Yerevan and active 
engagement on the border issues was welcomed by Armenian scholars 
and businessmen alike.  Indeed, at one point an Armenian presenter 
and the Turkish discussant of her work embraced each other, a sign 
of the good will which the conference generated.  Managing Editor of 
the Turkish Policy Quarterly Erkut Emcioglu repeatedly underscored 
the need for Armenia to provide face-saving measures to allow Turkey 
to open the border.  He explained that Turkey's ties with Azerbaijan 
were strengthening and that it would be politically difficult for 
Turkey to change its position without some sort of concession from 
the Armenian side.  Turkish Co-Chairman of the Turkish-Armenian 
Business Development Council (TABDC) Kaan Soyak underscored this 
message, saying that the BTC pipeline made it increasingly risky for 
Turkey to take political decisions which might harm 
Turkish-Azerbaijani relations.  He said that the Azerbaijani lobby 
was growing stronger both in Ankara and the U.S. and suggested that 
Armenia needed to be more sensitive to political pressures in 
Turkey. 
 
------------------------ 
EXTENSIVE MEDIA COVERAGE 
------------------------ 
 
¶9. Armenian television stations and print media outlets, as well as 
foreign media outlets such as the Washington Post, extensively 
covered the conference, the U.S. Embassy Charge's opening remarks, 
and the preceding press conference announcing the event.  Media 
outlets reported that all participants, including representatives of 
the U.S. and Armenian governments and Turkish scholars, agreed that 
the opening of the border would be economically beneficial for both 
countries.  International coverage was generally positive.  The 
headline of a Reuters article carried in the Washington Post was 
"Turkish, Armenian Businesses Demand Border Opening." 
 
YEREVAN 00000077  003.2 OF 003 
 
 
 
¶10. Local editorial comments were mostly pessimistic, remarking that 
the conference would not be able to change the situation, especially 
since the border was closed by Turkey.  Azg, a center-right daily, 
published an article commenting that it was irrational to discuss 
issues that were obvious to everyone since no one could deny that 
opening the border would increase prosperity in both countries.  The 
author of the article also remarked that it did not make sense to 
hold the conference in Armenia since it was Turkey that closed the 
border.  Haykakan Zhamanak, a sensationalist daily, said that the 
conference's predictions of how much Armenia was losing due to the 
closed border were unimportant since it was clear that Armenia was 
suffering regardless of the dollar figure. 
 
-------- 
COMMENT: 
-------- 
 
¶11. Both Turkish and Armenian conference participants heralded this 
event as a significant step forward in advancing the opening of the 
Turkish-Armenian border.  Business representatives engaged in a 
productive dialogue and said they were anxious to find new ways to 
promote Turkish-Armenian trade.  Thanks to the conference, there is 
also a larger body of empirical data which can be used to persuade 
both the Armenian and Turkish governments of the merits of opening 
the border.  Normalization of relations between Armenia and Turkey 
is an important USG priority and a Mission MPP objective.  This 
conference advanced that objective in important ways and we will 
continue to look for opportunities to capitalize on the momentum of 
this event. 
 
GODFREY