This record is a partial extract of the original cable. The full text of the original cable is not available.
UNCLAS SECTION 01 OF 06 ANKARA 007003
STATE FOR EB/TPP/MTA/MST
TREASURY FOR OASIA
DEPT PLEASE PASS USTR FOR GBLUE/LERRION
FAS FOR ITP/THORBURN
USDOC FOR ITA/MAC/DDEFALCO
E.O. 12958: N/A
TAGS: ETRD EINV EFIN ECON KIPR TU
SUBJECT: DRAFT NATIONAL TRADE ESTIMATE REPORT
Ref: STATE 240980
The following is Embassy's input for the National Trade
Estimate Report for Turkey:
Turkey is a beneficiary of GSP, has Bilateral
Investment and Tax Treaties with the United States, and
has a customs union with the European Union.
(Trade/investment statistics to be provided by
Tariffs and Quantitative Restrictions
As a result of its 1996 customs union with the European
Union, Turkey applies the EU's common external customs
tariff for third country (including U.S.) imports and
imposes no duty on non-agricultural items from EU and
European Free Trade Association (EFTA) countries. The
simple average tariff for industrial products from the
United States and other third countries was reduced
significantly as a result of the customs union.
Turkey's harmonization of trade and customs regulations
with those of the EU and the overall decline in tariff
rates benefits third country exporters.
Turkey maintains high tariff rates (25 percent average
Most-Favored-Nation rate) on many food and agricultural
products to protect domestic producers. The Turkish
government often increases tariffs on grains during the
domestic harvest. High feed prices have negatively
impacted Turkish livestock industries, particularly for
beef and poultry. Duties on fruits range from 61
percent to 149 percent. Processed fruits, fruit juices
and vegetable tariffs range between 41 and 138 percent.
The GOT also levies high duties as well as excise taxes
and other domestic charges on imported alcoholic
beverages that increase wholesale prices by more than
Import Licenses and Other Restrictions
While import licenses generally are not required for
industrial products, products which need after-sales
service (e.g., photocopiers, ADP equipment, diesel
generators) require licenses. A non-transparent
licensing system results in costly delays, demurrage
charges, and other uncertainties that stifle trade for
many agricultural products. For the past four years,
the Ministry of Agriculture and Rural Affairs (MARA),
through its quarantine service, stopped issuing import
licenses for rice and corn prior to the harvest.
In concert with its licensing system, Turkey has
recently implemented import quota programs for rice and
corn. Import quotas, often dependent on procurement of
domestic crops, tend to evolve throughout the marketing
year, making it very difficult for commercial traders
to plan their import programs, thus disrupting trade.
Turkey is in the process of rewriting its import
regulations for agriculture products in order to comply
with EU regulations. However, some new regulations
have not been fully consistent with those of the EU.
For many products, no written standards exist. For
example, despite repeated requests, the GOT failed to
provide guidelines for red meat and wine imports.
The government has privatized the alcohol operations of
TEKEL (a parastatal company) and is in the process of
privatizing TEKEL's tobacco operations. Recent changes
in Turkish law call for a liberalization of the spirits
and tobacco market over a five-year period, which
should improve the competitive environment.
STANDARDS, TESTING, LABELING AND CERTIFICATION
The Turkish government has not consistently notified
the WTO of changes in import policies and phytosanitary
requirements, and implementation has been arbitrary.
Importers have had increasing difficulty in obtaining
information on sanitary and phytosanitary
certifications. The GOT often requires laboratory
testing on items not normally subject to testing by
trading partners, often without any scientific basis.
Finally, the GOT often requires phytosanitary
certification on quality issues that are normally
handled on a contractual basis.
The government requires laboratory tests and
certification that quality standards are met for the
importation of foods, human and veterinary drugs, and
medical equipment and appliances intended for use by
U.S. CE-marked products, particularly medical devices,
are often detained by Turkish customs authorities for
inspection. In some cases, U.S. products are subject
to additional tests, despite their CE marks, while EU
CE-marked products gain immediate entry to the Turkish
Turkey is not a signatory of the WTO Government
Procurement Agreement. Although its laws require
competitive bidding procedures for tenders, U.S.
companies sometimes become frustrated over lengthy and
often complicated bidding and negotiating processes.
In 2003, a new public tender law which establishes an
independent board to oversee public tenders, and lowers
the minimum bidding threshold at which foreign
companies can participate in state tenders, entered
into force. However, the law gives a price preference
of up to 15 percent for domestic bidders and is not
applicable to domestic bidders who form a joint venture
with foreign bidders. Amendments to the law in 2003
enlarged the definition of domestic bidder to include
corporate entities established under Turkish law,
including those established by foreign companies.
Military procurement generally requires an offset
provision in tender specifications. The offset
guidelines were recently modified to encourage foreign
direct investment and technology transfer.
The entry into force of a Bilateral Tax Treaty between
the United States and Turkey in 1998 eliminated the
application of a 15 percent withholding tax on U.S.
bidders for Turkish government contracts.
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
standards. In 2004, however, the Turkish Grain Board
(TMO) has been selling domestic wheat to flour and
pasta manufacturers against their exports of flour and
pasta. This is an implicit subsidy as TMO is selling
the manufacturers wheat at world prices, which are well
below domestic prices. It is too early to quantify the
size of this subsidy. Historically, wheat and sugar
were the main subsidized commodities. Export
subsidies, ranging from 10 to 20 percent of export
values, are granted to 16 agricultural or processed
agricultural products. The Turkish Eximbank provides
exporters with credits, guarantees, and insurance
programs. Certain tax credits also are available to
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
Turkey's intellectual property rights regime has
improved in recent years, but still presents serious
problems. Turkey was elevated from the Special 301
Watch List to the Priority Watch List in 2004, due to
concerns about lack of pharmaceuticals data exclusivity
protection and continued high levels of piracy and
counterfeiting of copyright and trademark materials.
Turkey's 2001 copyright law substantially modernized
the legal regime, providing deterrent penalties for
copyright infringement. However, it does not prohibit
circumvention of technical protection measures, a key
feature of the World Intellectual Property Organization
(WIPO) "Internet" treaties. In addition, the Turkish
courts have failed to render deterrent penalties to
pirates as provided in the copyright law. They have
instead applied the Turkish Cinema Law, which has much
lower penalties. Legislation enacted in March 2004
contains several strong anti-piracy provisions,
including a ban on street sales of all copyright
products and authorization for law enforcement
authorities to take action without a complaint by the
rightholder. However, the law also reduces potential
prison sentences in piracy convictions. U.S. industry
estimated losses to piracy in 2003 at USD 50 million
for motion pictures, USD 15 million for records/music
and USD 25 million for books. There are signs that
anti-piracy measures introduced in 2004 may be reducing
In 1995, new patent, trademark, industrial design, and
geographic indicator laws revamped Turkey's foundation
for industrial property protection. Turkey also
acceded to a number of international conventions,
including the Stockholm Act of the Paris Convention,
the Patent Cooperation Treaty, and the Strasbourg
Agreement. Although the Turkish Patent Institute (TPI)
was established in 1994 to support technological
progress, protect intellectual property rights and
provide public information on intellectual property
rights, it is currently understaffed.
In accordance with the 1995 patent law and Turkey's
agreement with the EU, patent protection for
pharmaceuticals began on January 1, 1999. Turkey has
been accepting patent applications since 1996 in
compliance with the TRIPS agreement "mailbox"
provisions. The patent law does not, however, contain
interim protection for pharmaceuticals in the R
Parliament amended the Patent Law in June 2004. The
new law provides for penalties for infringement of up
to 3 years or 47 billion TL (approximately USD 32,000)
in fines, or both, and closure of the business for up
to one year. However, some companies in the
pharmaceuticals sector have criticized provisions which
give judges wider discretion over penalties in
infringement cases, delay the initiation of
infringement suits until after the patent is approved
and published, and permit use of a patented invention
to generate data needed for the marketing approval of
generic pharmaceutical products.
The Health Ministry has accepted applications to
register generic copies of products which have a valid
patent in Turkey; in the absence of a system for patent
linkage, it may become possible for generics
manufacturers to register a copy of a brand name drug
with a valid Turkish patent, with enormous damage to
the interests of the patent owner.
The key intellectual property concern for research-
based pharmaceutical companies is Turkey's lack of data
exclusivity protection for confidential test data.
U.S. industry contends that numerous products
infringing data exclusivity have been approved or are
pending review by the Turkish Health Ministry.
Trademark holders also contend that there is widespread
and often sophisticated counterfeiting of their marks
in Turkey, especially in apparel, pharmaceuticals,
film, cosmetics, detergent and other products.
In 2004, Turkey published its first Plant Variety
Protection (PVP) Law. A subsidiary of a major U.S.
seed company, however, has been unable to obtain
protection for its commercial seed under this new law,
reportedly at great cost to the company.
State-owned Turk Telecom currently provides voice
telephony and most value-added and basic
telecommunications services. In the WTO negotiations
on Basic Telecommunications Services, Turkey made
commitments to provide market access and national
treatment for all services at the end of 2005, and
permitted value-added telecommunications services to be
licensed to the private sector with a 49 percent limit
on foreign equity investment. In the interim, Turkey
committed to provide national treatment for mobile,
paging and private data networks. In 2000, the Turkish
government passed a law unilaterally accelerating the
opening of the market for basic telephone services to
2004. A 2001 law provides for liberalization of areas
under the Turk Telecom monopoly once the state's share
in that company falls below 50 percent. The Turkish
government has not yet issued implementing regulations.
These laws also created an independent regulatory body
- the Telecommunications Regulatory Board - and made
licensing criteria publicly available. U.S. firms
complain that the licensing process still lacks
transparency and that revenue sharing with Turk Telecom
is required where competition is permitted. There are
three private GSM cellular operators in Turkey, with a
fourth license held by Turk Telecom.
In November 2004, the Privatization Administration
announced the tender for a block sale of 55 percent of
Turk Telecom. Law 5189 of 2004 lifted the limit on
foreign ownership of Turk Telekom.
Other Services Barriers
There are restrictions on establishment in financial
services, the petroleum sector, broadcasting, aviation
and maritime transportation (see Investment Barriers
section). A 2003 law on work permits for foreigners
repealed earlier legislation defining certain
professions and services open only to Turkish citizens.
This has significantly broadened the range of
occupations in which foreigners can be engaged, but
there are still restrictions for doctors, attorneys and
several other professions.
The U.S.-Turkish Bilateral Investment Treaty (BIT)
entered into force in May 1990. Turkey has a liberal
investment regime in which foreign investments receive
national treatment. However, private sector investment
has often been hindered, regardless of nationality, by:
excessive bureaucracy; political and macroeconomic
uncertainty; weaknesses in the judicial system; high
tax rates; a weak framework for corporate governance;
and frequent changes in the legal and regulatory
Almost all areas open to the Turkish private sector are
fully open to foreign participation, but establishments
in the financial and petroleum sectors require special
permission. The equity participation ratio of foreign
shareholders is restricted to 20 percent in
broadcasting and 49 percent in aviation, maritime
transportation and many value-added telecommunications
services (such as GSM, satellite and data, though
telecommunications legislation has been amended to
allow certain company-specific exceptions to these
limits). Nonetheless, once investors have committed to
the Turkish market, they sometimes find the rationale
for their initial investments significantly undercut by
arbitrary legislative action, such as laws imposing
limits on the production corn sweeteners.
The Turkish government accepts binding international
arbitration of investment disputes between foreign
investors and the state. I n 2001 the Parliament
approved a law expanding the scope of international
arbitration in Turkish contracts. However, at least
one American company reports that the judicial system
in Turkey has not recognized international arbitration
The Turkish government passed legislation in February
2001 that aims to introduce a fully liberalized energy
market, under which private firms will develop projects
with the approval of an independent regulatory body,
the Energy Market Regulatory Authority. With respect
to electricity, the state company has been unbundled
into production, transmission, distribution, and
trading companies, but little progress has been made in
privatizing power generation and distribution. Targeted
liberalization of the natural gas sector has also faced
delays. The state pipeline company BOTAS will remain
predominant, but legislation requires phased transfer
of 80 percent of its gas purchase contracts.
Privatization of natural gas distribution is slowly
As the result of a 1997 court decision, the Turkish
Government has blocked full repatriation of investments
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 and the case is
currently in the Turkish court system.
As part of its customs union agreement with the EU,
Turkey has pledged to adopt EU standards concerning
competition and consumer protection. In 1997, a
government "Competition Board" commenced operations,
putting into force a 1994 competition law. Government
monopolies in a number of areas, particularly alcoholic
beverages and telecommunications services, have been
scaled back in recent years, but currently remain a
barrier to certain U.S. products and services.
Corruption is perceived to be a major problem in Turkey
by private enterprise and the public at large,
particularly in government procurement. The judicial
system is also perceived to be susceptible to external
influence and to be biased against outsiders to some
degree. American companies operating in Turkey have
complained about contributions to the community
solicited, with varying degrees of pressure, by
municipal or local authorities.
Parliament continues to probe corruption allegations
involving senior officials in previous governments,
particularly in connection with energy projects. In
2003, after the government intervention in a bank owned
by the Uzan group, evidence of corrupt practices at the
bank was discovered.
Turkey ratified the OECD antibribery convention, and
passed implementing legislation providing that bribes
of foreign officials, as well as domestic, are illegal
and not tax deductible.
Energy: In 2001, the Turkish Government cancelled 46
contracted power projects based on the build-operate-
transfer (BOT) and transfer-of-operating-rights (TOR)
models. Turkey's constitutional court ruled in 2002
that the government would have to either honor the
contracts or compensate the companies involved. To
date, the Turkish government has not commenced
negotiations with the companies, one (TOR) of which has
launched an international arbitration case. In 2002,
the government requested BOT projects already in
operation -- which include U.S.-owned companies -- to
apply for new licenses from the new Energy Market
Regulatory Authority (EMRA), and has indirectly pressed
them unilaterally to lower their prices while the
license application process is still underway. Despite
lack of action on new licenses, the Turkish Government
has continued to purchase electricity produced per the
Cola tax: Punitive taxation of cola drinks (raised in
2002 to 47.5 percent under Turkey's "Special
Consumption Tax") discourages investment by major U.S.
Corporate Governance: Weaknesses in the protection of
minority shareholder rights and regulatory oversight
have left some American companies at a disadvantage in
disputes with Turkish partners.