VZCZCXRO5200
PP RUEHDA
DE RUEHAK #1928/01 3120502
ZNR UUUUU ZZH
P 070502Z NOV 08
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 7913
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/TREASURY DEPT WASHDC PRIORITY
RUEHIT/AMCONSUL ISTANBUL PRIORITY 4959
RUEHDA/AMCONSUL ADANA PRIORITY 3369
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 07 ANKARA 001928 
 
DEPT PASS USTR FOR GBLUE/MMOWREY 
DEPT FOR EEB/TPP/BTA 
TREASURY FOR OASIA 
USDOC/ITA/MAC/KNAJDI 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD ECON EFIN EINV TU
SUBJECT: DRAFT NATIONAL TRADE ESTIMATE REPORT 
 
REF: STATE 88447 
 
The following is Embassy Ankara's input for the 
National Trade Estimate Report for Turkey (text 
has also been emailed per instructions in 
reftel): 
 
TRADE SUMMARY 
 
The U.S. goods trade surplus with Turkey was 
$4.7 billion in January-August 2008, an increase 
of 291 percent from $1.2 billion in the same 
period of 2007. U.S. goods exports in the first 
eight months of 2008 were $7.5 billion, up 75.9 
percent from the previous year. Corresponding 
U.S. imports from Turkey were $2.9 billion, down 
6.9 percent. Turkey is currently the 31st 
largest export market for U.S. goods. 
 
According to Turkish Treasury data, the stock of 
U.S. foreign direct investment (FDI) in Turkey 
was $6.3 billion in 2007 (latest data 
available), up from $2.1 billion in 2006. U.S. 
FDI in Turkey is concentrated largely in the 
banking, manufacturing, and wholesale trade 
sectors. 
 
IMPORT POLICIES 
 
Tariffs and Quantitative Restrictions 
 
Turkey applies the EU's common external customs 
tariff to third-country nonagricultural imports 
(including from the United States) and imposes 
no duty on nonagricultural items from EU and 
European Free Trade Association (EFTA) 
countries. 
 
Turkey maintains high tariff rates (an average 
28.3 percent Most Favored Nation rate) on many 
food and agricultural product imports, which is 
estimated to cost U.S. importers over $500 
million per year in lost trade. Duties on fresh 
fruits range from 15.4 percent to 145.8 percent. 
Tariffs on processed fruit, fruit juice, and 
vegetables range between 19.5 percent and 130 
percent. The Turkish government also levies high 
duties, excise taxes and other domestic charges 
on imported alcoholic beverages that increase 
wholesale prices by more than 200 percent. 
 
Importers of rice, dried beans, wheat, barley, 
rye, oats, corn, and hazelnuts must comply with 
a reference price system, which sets the minimum 
prices on which duties are assessed, rather than 
using customs declarations or market prices. 
This reference system costs importers between an 
estimated $10 and $25 million per year. 
 
Import Licenses and Other Restrictions 
 
Import licenses are required for products that 
need after-sales service (e.g., photocopiers, 
advanced data processing equipment, and diesel 
generators), distilled spirits, and agricultural 
products. Lack of transparency in Turkey's 
import licensing system results in costly 
delays, demurrage charges, de facto bans and 
other uncertainties.  The Turkish government 
routinely stops issuing import licenses for 
domestically produced food (such as pulses, 
nuts, and dried fruits) during the harvest 
season to eliminate competition and keep prices 
high.  For some crops, like wheat, the 
government simply does not issue licenses and 
therefore maintains control over the level of 
imports through quotas.  In addition, 
documentation requirements for all food imports 
are inconsistent, non-transparent, and do not 
follow standard international practices.  This 
often results in shipments being held up at port 
over onerous certification requirements that 
have changed or are unclear.  The estimated cost 
 
ANKARA 00001928  002 OF 007 
 
 
of this barrier is between $100 and $500 
million. 
 
In November 2005, the United States brought a 
dispute against Turkey in the World Trade 
Organization (WTO) arguing that, inter alia, 
Turkey's tariff-rate quota (TRQ) scheme for 
rice, which contains an onerous domestic 
purchase requirement, and its refusal to issue 
import licenses for rice outside the TRQ, are 
inconsistent with Turkey's WTO obligations. In 
September, 2007, the dispute settlement panel 
agreed with the United States that Turkey's 
failure to grant licenses to import rice and its 
operation of a discretionary import licensing 
system for rice are in breach of Turkey's market 
access obligations under the WTO Agreement on 
Agriculture. The panel also agreed with the 
United States that Turkey's domestic purchase 
requirement, under which Turkey required 
importers of rice to purchase large quantities 
of domestic rice in order to import rice at 
preferential tariff rates, is in breach of the 
national treatment provisions of the WTO.  The 
reasonable period of time for Turkey to bring 
itself into compliance with the WTO's rulings 
and recommendations expired at the end of April 
¶2008.  Turkey and the United States are 
currently engaged in discussions to explore the 
possibility of entering into a Memorandum of 
Understanding that would set out commitments by 
Turkey on its import practices affecting U.S. 
rice.  It is estimated that this agreement, once 
finalized, will result in $25 to $100 million in 
increased trade. 
 
For some products, notably for meat and poultry, 
the Turkish government simply does not issue 
import licenses, thereby creating a de facto ban 
on imports of these products. Turkey has not 
allowed meat imports from any country since 1996 
and has not established any public health 
requirements for the entry of meat. Outbreaks of 
Bovine Spongiform Encephalopathy (BSE) and foot 
and mouth disease (FMD) in Europe strengthened 
Turkey's resolve to keep poultry and meat 
products out of its market. As a result of 
ongoing discussions, a protocol permitting the 
import of live breeding cattle from the United 
States was agreed to in July 2007. Turkey 
continues to require inspection and approval of 
all foreign poultry processing facilities at the 
expense of Turkish importers, a condition that 
has the effect of preventing poultry imports. 
Turkey maintains that the ban on meat imports 
relates to valid health concerns, but if imports 
were to be allowed it is estimated that the 
benefit to U.S. exporters would be worth $100 to 
$500 million. 
 
Despite liberalization of the spirits and 
tobacco markets - including a completed 
privatization of the state-owned alcoholic 
beverage company and the state-owned tobacco 
company, as well as privatization of imports of 
wine and alcoholic beverages - increases in 
consumption have been inhibited by inordinately 
high tariffs (85 percent to 100 percent) and 
special consumption taxes (275 percent), along 
with the value added-tax (VAT). In 2006, 
legislation was introduced to reduce the number 
of control certificates required to import 
distilled spirits from two to one, but full 
jurisdiction could not be transferred to just 
one entity, so the legislation was never 
enacted. Instead, the Turkish government has 
focused on improving the efficiency and speed of 
the process so as not to put an undue burden on 
importers. This topic was discussed at all 
recent Trade and Investment Framework Agreement 
(TIFA) Council meetings. 
 
STANDARDS, TESTING, LABELING, AND CERTIFICATION 
 
ANKARA 00001928  003 OF 007 
 
 
 
The Turkish government has a poor track record 
of notifying WTO Members of proposed or final 
technical regulations and phytosanitary 
requirements. Most changes in regulations become 
effective immediately upon publication with 
little or no notification to trading partners. 
This often results in significant disruptions in 
trade. Furthermore, laws and regulations do not 
appear to be implemented or enforced immediately 
or consistently at every port, creating 
unpredictability and making it difficult for the 
exporter and the importer to comply. The 
inconsistent requirements from port to port 
occasionally result in long delays or denial of 
entry for imported products, and the estimated 
cost of this barrier is between $10 and $25 
million per year.  The United States Government 
has raised the issue with the Turkish government 
on several occasions. 
 
Importers report difficulty in obtaining 
information on sanitary and phytosanitary (SPS) 
requirements. The United States Government has 
raised the issue of transparency with the 
Turkish government on multiple occasions, 
including informal discussions at the July 2007 
TIFA Council meeting, the October 2007 WTO 
Sanitary and Phytosanitary Committee meeting, 
and during Turkey's November 2007 Trade Policy 
Review by the WTO. In January 2008, Turkey 
notified the WTO of an SPS measure related to 
phytosanitary requirements for seed potatoes - 
the first Turkish notification since 2004. 
 
U.S. companies have reported that products 
bearing the EU certificate of conformity (CE 
mark), particularly medical devices, have been 
detained by Turkish customs authorities for 
inspection. In some cases, U.S. products 
apparently have been subjected to additional 
tests, despite their CE marks. For importation 
of distilled spirits, Turkish customs requires 
that between two and four bottles per 
consignment be submitted for unspecified 
analyses, raising the cost of importing. 
 
Turkey does not have any regulations related to 
biotechnology in force and the fourth draft of a 
National Biosafety Law is being reviewed by 
office of the Prime Ministry.  The previous 
draft would have effectively halted U.S. exports 
of soybeans, soy and corn-based products and 
affected cotton exports to Turkey.  The current 
draft has not been made public.  The total value 
of U.S. transgenic crop exports to Turkey was 
over $1 billion in 2007, all of which could be 
endangered depending upon how any future law is 
written.  The United States Government and 
private industry have been actively raising 
awareness among Turkish regulators as to the 
benefits and safety of biotech crops. 
 
GOVERNMENT PROCUREMENT 
 
Turkey is not a signatory to the WTO Agreement 
on Government Procurement; however, it is an 
observer to the WTO Committee on Government 
Procurement. 
 
Turkey's public tender law established an 
independent board to oversee public tenders. 
Foreign companies can participate in state 
tenders that are above an established threshold. 
The law provides a price preference of up to 15 
percent for domestic bidders, which is not 
available if they form a joint venture with 
foreign bidders. Turkey has expanded the 
definition of domestic bidder to include 
foreign-owned corporate entities established 
under Turkish law. Although Turkey's laws 
require competitive bidding procedures for 
tenders, U.S. companies have complained that 
 
ANKARA 00001928  004 OF 007 
 
 
they can be lengthy and overly complicated. 
 
Military procurement generally includes an 
offset requirement in the tender specifications. 
The offset guidelines were recently modified to 
encourage foreign direct investment and 
technology transfer. 
 
EXPORT SUBSIDIES 
 
Turkey employs a number of incentives to promote 
exports, although programs have been scaled back 
in recent years to comply with EU directives and 
WTO commitments. Export subsidies ranging from 
10 percent to 20 percent of export values are 
granted to 16 agricultural or processed 
agricultural product categories in the form of 
tax credits and debt forgiveness programs, and 
are paid for by taxes on exports of primary 
products such as hazelnuts and leather. The 
Turkish Grain Board generally sells domestic 
wheat at world prices (which are well below 
domestic prices) to Turkish flour and pasta 
manufacturers in quantities based upon their 
exports of flour and pasta. 
 
Similarly, the Turkish Sugar Law allows a 
certain amount of domestic sugar ("C quota") to 
be sold at world prices for utilization in 
products that will be exported.  The current 
price for this C quota sugar is $390/MT; while 
the normal domestic selling price is $1,370/MT. 
Exporters also do not pay import duties on the 
amount of sugar imported for use in their 
exported products.  The impact of this subsidy 
on U.S. exports to Turkey is estimated at less 
than 10 million dollars. 
 
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION 
 
Turkey's intellectual property rights regime 
(IPR) has improved markedly in recent years. As 
a result of notable progress on copyright 
enforcement, seizures of pirated goods, and 
imposition of deterrent penalties by the courts, 
Turkey was lowered to the Special 301 Watch list 
in 2008, from the Priority Watch List in 2007. 
In 2008, the Ministry of Culture published a new 
circular, reminding all government agencies of 
the requirement to use licensed software, which 
the software industry welcomed.  A new patent 
law is also under consideration by Parliament. 
 
In spite of this progress, the pharmaceutical 
sector continues to be concerned about 
protection for confidential test data against 
unfair commercial use.  Turkey provides six 
years of data exclusivity from the date a 
product is first approved in the Customs Union 
Zone which, due to lengthy approval times in 
Turkey, may mean that data exclusivity for a 
product approved elsewhere in Europe has already 
expired or is near expiration by the time the 
product can be brought to market in Turkey. 
 
Trademark holders contend that there is 
widespread and often sophisticated 
counterfeiting of their marks in Turkey, 
especially in apparel, film, cosmetics, 
detergent, and other products. 
 
SERVICES BARRIERS 
 
Telecommunications Services 
 
In November 2005, 55 percent of the government- 
owned Turk Telecom was sold to a foreign 
investor. Although Turkey has committed to 
ending Turk Telecom's exclusive rights on fixed 
telephony services, its delay in issuing 
implementing regulations has resulted in a delay 
in the establishment of alternative fixed line 
suppliers. The Telecommunications Authority (TK) 
 
ANKARA 00001928  005 OF 007 
 
 
has been actively issuing the regulations needed 
to promote a competitive market, but it still 
lacks adequate authority to provide effective 
enforcement.  The Turkish Parliament passed an 
Electronic Communication Law which would have 
given greater authority to TK, but it was vetoed 
by the President, requiring certain changes. 
The revised law is under consideration by 
Parliament, and passage is expected by the end 
of the year.  The new law aims to harmonize 
Turkey's communication legislation with the EU. 
It will also reduce the Ministry of Transport 
and Communications' (MOTC) influence over TK's 
decision making. This year, TK took some 
important steps to support market 
liberalization, such as the decision to start 
implementing mobile number portability (MNP) as 
of November 2008. This will also help encourage 
more companies to bid for the 3G license tender 
to be held at the end of November 2008. 
 
Applicable licensing regulations and tender 
announcements are published on the TK website. 
 
Cellular telephone and paging services are open 
to competition. 
 
Other Services Barriers 
 
There are restrictions on establishment in 
financial services, the petroleum sector, 
broadcasting, and maritime transportation (see 
Investment Barriers section). Turkish 
citizenship is required to practice as an 
accountant or certified public accountant, or to 
represent clients in Turkish courts. Legislation 
awaiting final approval by Parliament would 
permit foreign doctors to work in Turkey. 
 
INVESTMENT BARRIERS 
 
The United States-Turkey Bilateral Investment 
Treaty entered into force in May 1990. Almost 
all areas open to investment by the Turkish 
private sector are fully open to foreign 
participation without screening or prior 
approval, although establishment in the 
financial and petroleum sectors requires special 
permission. Foreign equity ownership is limited 
to 25 percent in broadcasting and 49 percent in 
maritime and air transportation. Parliament is 
considering draft legislation easing 
restrictions on foreign ownership in the media 
sector. 
 
Once investors have committed to the Turkish 
market, they have sometimes found their 
investments undermined by legislative action, 
such as the imposition of production limits. 
Turkish law calls for a liberalized energy 
market in which private firms are able to 
develop projects with a license obtained from 
the Energy Market Regulatory Authority, an 
independent regulatory body.  The state 
electricity utility has been unbundled into 
power generation, transmission, distribution, 
and trading companies, and after years of 
delays, the first four electricity distribution 
regions were privatized in 2008. The Turkish 
government plans to finalize privatization of 
distribution facilities and start privatization 
of generation facilities by the end of 2009. 
This ambitious schedule may be delayed by 
limited access to credit caused by the global 
financial situation.  Liberalization in the 
natural gas sector also has faced delays. The 
state pipeline company, BOTAS, will remain 
dominant in gas importation, but legislation 
requires a phased transfer of 80 percent of its 
gas purchase contracts to the private sector by 
¶2009.  Except for a small scale contract 
transfer tender in 2005, BOTAS has failed to 
reach its targets and still has an 86% share in 
 
ANKARA 00001928  006 OF 007 
 
 
the gas market. The Turkish government now 
realizes its goals for reducing BOTAS' market 
share are not realistic.  The government will 
soon introduce an amendment to the Natural Gas 
Market Law that will liberalize the importation 
of gas into Turkey but will drop provisions to 
downsize BOTAS.  Natural gas distribution in 
cities is dominated by the private sector. The 
only exceptions to this are the Ankara and 
Istanbul distribution networks, where the local 
administrations hold the distribution license. 
In 2008, a deal was reached to privatize 
Ankara's pipeline network, Baskent Gaz, but the 
financing for the deal fell through as a result 
of the global financial crisis and the future of 
the project is unclear. 
 
As the result of a 1997 court decision, the 
Turkish government blocked full repatriation of 
profits 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 but the judgments in almost all such 
lawsuits have been against the claimant 
companies. Oil and gas companies also have 
difficulty getting visas for workers to enter 
Turkey and complain that license fees and taxes 
are too high in the sector.  A new petroleum law 
that seeks to provide greater investment 
incentives and protections still awaits passage 
in the parliament. 
 
Obtaining work permits for professional or 
highly skilled foreign workers is a pervasive 
problem among both foreign and Turkish 
employers.  The process is time-consuming and 
requires extensive documentation, the 
adjudication process is lengthy (often exceeding 
the time for which the permit is requested), and 
the chances of approval are low. 
 
Foreign ownership of real estate in Turkey has 
long been a contentious issue.  In early 2008, 
the Constitutional Court issued two decisions 
that suspended portions of the Foreign Direct 
Investment Law and the Title Deed Law, which had 
allowed foreign individuals and companies to 
purchase land.  In response, the Turkish 
government passed new legislation to permit 
these purchases again, but imposed an upper 
limit on the amount of land that can be owned by 
foreign individuals - no foreign individual may 
own more than 2.5 acres and all foreign 
individuals together can own no more than 10 
percent of the land in any given development 
zone.  As information on the amount of land 
currently held by foreigners in any development 
zone is not readily available, this may in the 
future cause problems and legal challenges for 
individual investors seeking to purchase land in 
Turkey.  There are no limits on the amount of 
land that can be owned by foreign companies with 
a legal presence in Turkey, so long as the land 
is being used in accordance with their business 
activities. 
 
OTHER BARRIERS 
 
Corruption 
 
Turkey has ratified the OECD anti-bribery 
convention and passed implementing legislation 
that makes bribery of foreign and domestic 
officials illegal and not tax deductible. 
Despite this, many foreign firms doing business 
in Turkey perceive corruption to be a problem, 
particularly by some government officials and 
politicians. The judicial system is also 
perceived to be susceptible to external 
influence and to be somewhat biased against 
outsiders. 
 
 
ANKARA 00001928  007 OF 007 
 
 
Energy 
 
Turkey's decision to cancel 46 contracted power 
projects in 2001 led to a number of arbitration 
cases against the government, with the end 
result that most companies were compensated. 
However, this action and the uncertainty it 
generated, combined with GOT controlled prices 
despite rising fuel costs, delayed private 
investments in the sector from 2001-2008.  At 
the same time, demand for electricity increased 
substantially over this period, as the Turkish 
economy experienced record growth rates. In 
order to address the supply gap problem which 
Turkey is likely to face as of 2009, the 
government passed an energy security law in 2007 
and introduced a number of incentives to 
facilitate investment in the energy sector. 
Turkey also implemented an "automatic pricing 
mechanism" in 2008, according to which 
electricity prices are revised three times a 
year, based on changes in the FX rate, oil 
prices, and the consumer price index, and gas 
prices are adjusted monthly. 
 
Turkey passed its long-awaited Nuclear Power Law 
in 2008, and conducted a tender in September 
2008 to build a nuclear plant.  Several 
international companies, including U.S. firms, 
expressed interest in the tender.  However the 
government turned down the companies' request 
for a delay in the bidding deadline, and as a 
result only one Russian consortium submitted a 
bid.  The government has not yet indicated the 
final disposition of this bid or the manner in 
which bids for future projects will be 
considered.  A new law will need to be passed 
before another nuclear power plant tender can be 
conducted. 
 
Taxes 
 
Taxation of all cola drinks (raised in 2002 to 
47.5 percent under Turkey's "Special Consumption 
Tax") discourages investment by major U.S. cola 
producers. Turkey assesses a special consumption 
tax of 27 percent to 50 percent on all motor 
vehicles based on engine size, which has a 
disproportionate effect on U.S. automobiles. 
 
Corporate Governance 
 
A recent OECD report stated that Turkey's 
overall corporate governance outlook is positive 
because the authorities have already adopted, or 
are introducing, high quality corporate 
governance standards (including audit standards) 
and because transparency has improved 
significantly. The report cautions, however, 
that it is important for Turkey to improve 
further in the areas of control and disclosure 
of related party transactions and self-dealing, 
the protection of minority shareholders, and the 
role of the board in overseeing not only 
management but also controlling shareholders. 
 
Pharmaceuticals 
Aside from their intellectual property concerns 
detailed above, the pharmaceutical industry's 
sales have been affected by government price 
controls and an awkward and burdensome 
reimbursement system.  In 2008, Turkey 
implemented changes in its discounting scheme 
that increased the cost borne by pharmaceutical 
manufacturers.  U.S. research-based 
pharmaceutical firms are also concerned about 
achieving transparent and equitable treatment in 
upcoming reforms of the government's health care 
and pension system. 
 
WILSON