Cablegate: Key Questions for New U.S.-Turkish Economic

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INFO RUEHIT/AMCONSUL ISTANBUL PRIORITY 6856
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SENSITIVE
SIPDIS

FROM AMBASSADOR JEFFREY
NSC FOR LIZ SHERWOOD-RANDLE, BRIDGET BRINK
DEPT PLEASE PASS USTR FOR CHRIS WILSON, MARK MOWREY
DEPT FOR E, SEEE MORNINGSTAR, EUR/SE, EEB/TPP/BTA, EEB/CBA
COMMERCE FOR CHERIE RUSNAK AND KRISTIN NAJDI
USDA FAS FOR OCRA

E.O. 12958: N/A
TAGS: ECON ETRD EINV USTR TU
SUBJECT: KEY QUESTIONS FOR NEW U.S.-TURKISH ECONOMIC
FRAMEWORK

1. (SBU) Following up on the successful announcement of the
new Framework for Strategic Economic and Commercial
Cooperation (FSECC) with Turkey during PM Erdogan's visit, we
now need to put meat on the
bones of the proposal. I and my staff will be working
closely with the Turks, but the USG will need to come to
consensus on what our vision for the FSECC is, what we expect
to achieve, and what we are willing to offer. To help frame
that discussion, I outline below what I believe to be the key
questions that need to be answered at this point. I have
also provided some context and suggestions following each
question, and a list of potential deliverables that we could
consider.

2. (SBU) How will the FSECC be orchestrated? What is the
timeline and what are the key milestones? How will the
Economic Partnership Commission (EPC) and Trade and
Investment Framework Agreement (TIFA) meetings fit in with
the FSECC?

The initial meeting of the FSECC has been tentatively set for
Spring 2010 in DC. That means we have to set up the Business
Council in the next few months. The first step is to agree
with the Turks on Terms of Reference for the Council,
followed by the Federal Register selection process. Even if
the terms can be agreed in January, the earliest the Council
could be stood up is probably mid-April. We should also
prepare ourselves for a protracted back and forth with the
GOT on the Terms of Reference, which could delay the Business
Council selection process.

In the interim, State and MFA could convene the EPC in Turkey
and USTR and the Foreign Trade Undersecretariat (FTU) can
convene the TIFA in Washington. We can use these two
meetings as planning sessions for the FSECC and an
opportunity to float proposals for deliverables for the
FSECC. The GOT has already begun its own interagency
preparations for the FSECC, so we should expect new proposals
from the Turkish side as well. Convening TIFA and EPC in the
near-term would provide a shot of momentum for the project
and allow the outcomes to feed into the FSECC. An EPC by
late March would allow time to evaluate any proposals before
an April FSECC, but that creates a tight timeline for
developing our EPC agenda.

We propose holding the first meetings of the Business Council
and FSECC in April in Washington. The FSECC could take up
proposals from EPC and TIFA, as well as new proposals coming
out of the Business Council.

So a rough timeline would be:

January 12 DOC provides draft Terms of Reference for the
Business Council

Late January Agreement is reached on Terms and Federal
Register notice is published (although there is a danger this
could take weeks depending upon GOT response times)

February/March TIFA meeting in Washington, proposals made for
FSECC

Late March EPC meeting in Ankara, proposals made for FSECC

March Selection process for Business Council

April Business Council meets in Washington, followed
by FSECC

3. (SBU) What deliverables can we offer to Turkey for the
FSECC? What deliverables should we seek from Turkey?

The Turks have made it clear that they expect tangible
results from this process. We need to come to the table with
some attractive proposals to increase trade, investment, and
bilateral cooperation that the interagency can agree on.
There are bilateral agreements already in train that we can

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complete or international agreements that the Turks could
sign. However, the key to success in this process, we
believe, will be effective private sector input and concrete
government follow-up.

A detailed but not exhaustive list of potential FSECC
deliverables, based largely on previous TIFA and EPC
discussions, is at the end of this cable.

4. (SBU) What are the obstacles to the formation of the
Business Council and how can we ensure participation by key
organizations such as the U.S. Chamber, American Turkish
Council, American Business Forum in Turkey, etc.?

The goal of the Business Council is to serve as an advisory
committee and provide recommendations -- we need to achieve
this goal with the cleanest possible structure that meets our
legal requirements.

Our understanding is that only actual companies will be able
to participate in the Business Council --
non-profits cannot join, at least on the U.S. side (the Turks
may have business association heads on their side). We want
U.S. business groups to participate in some form because they
know Turkey and represent a broad swathe of firms. One way
to encourage this would be for the Council to decide to
receive written reports and proposals from NGOs or create
some other mechanism for these organizations to provide input.

We should seek to include organizations such as the U.S.
Chamber of Commerce and its affiliates (the American Turkish
Council, the American Business Forum in Turkey, and the
Turkish American Business Association) in events on the
margins of the FSECC and Business Council meeting and/or
encourage them to host events such as receptions or speaking
programs. We will also need to work with these organizations
to encourage their membership to apply. We will need to
actively reach out to a broad range of companies to ensure
that the Business Council represents a variety of sectors and
not just the usual suspects, i.e. pharma and defense.

5. (SBU) How do we solicit ideas (and complaints) from
companies that are not currently doing business in Turkey (or
the U.S.)?

A problem with the Business Council model is that those
companies most likely to volunteer and be selected are
already doing business in Turkey. We will have a hard time
getting input from companies
that considered investing or trading in Turkey, but decided
against it. But their input may be more valuable if we want
to open up new growth and new markets rather than just
incrementally expanding existing business.

We had earlier floated the idea of doing a survey of all
member companies of the U.S. Chamber of Commerce and the
Turkish Union of Chambers and Commodity Exchanges (TOBB).
TOBB is willing to do this, but
the Chamber says it doesn,t have the resources to conduct
the survey and analyze results. Such a survey would be an
excellent way for the business NGOs to contribute to the
Business Council, and we may want to take this up again with
the Chamber and other groups.

6. (SBU) How do we encourage the GOT to select a
representative grouping from its own private sector?

The GOT is likely to designate the existing Turkish-American
Business Council (TAIK) of TOBB's Foreign Economic Relations
Board (DEIK) as the Turkish half of the private sector group.
This group already has a secretariat and staff and
incorporates most of the major companies doing business with
the U.S. We may want to encourage the GOT through the Terms
of Reference to expand the grouping to include
under-represented sectors or geographic regions, as well as
small and medium firms.

7. (SBU) If the ROZ legislation ever passes, how can we

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ensure that Turkish firms take full advantage of it?

The legislation for Reconstruction Opportunity Zones (ROZs)
in Afghanistan and Pakistan is of great interest to Turkish
firms and would be a tangible benefit to which we can point.
Turkish investment
in Af-Pak -- where they are known and trusted -- furthers
both our bilateral U.S.-Turkish and Af-Pak policy goals. If
the legislation passes, we should look for ways to get
Turkish companies on the ground quickly. We could offer
seminars and training for Turkish firms on how to maximize
ROZ benefits. Working with Embassies Kabul and Islamabad, we
also could identify particularly appropriate areas of
investment for Turkish firms, and look at ways to encourage
partnerships with U.S. firms.

8. (SBU) How do we highlight the many ways that the USG and
U.S. private sector contribute to the growth of the Turkish
economy and move the discussion beyond balance of trade
figures?

Given how fixated the GOT is on "correcting" its unfavorable
bilateral balance of trade with the U.S., we need to stress
how USG initiatives like the Energy Working Group, TDA,
Eximbank and OPIC also contribute to the Turkish economy.
The role of U.S. investment is pivotal - for example, Exxon's
investment in offshore exploration or Ford's investment in
co-production with Otosan. These investments, often in
production for export, provide significant benefits to
Turkey's bottom line, but are not credited to "the U.S.
account." Similarly, many U.S. companies trade with Turkey
via European subsidiaries to take advantage of the Customs
Union, so their contributions are credited the EU countries.
Finally, many U.S. exports to Turkey, such as cotton and
scrap metal, are used by Turkey to produce its own exports to
third markets.

Quantifying all of this would be difficult, and we may need
to look to outside experts to take on this project (perhaps
to a business school or other academic group.) To the extent
that we can put hard numbers on the non-bilateral trade
contribution of the USG and private sector, it will make it
easier to move the discussion into a more constructive
atmosphere instead of just focusing on eliminating a
supposedly "unfair" U.S. surplus.

9. (SBU) What is our long-term response on the Turkish
request for tangible trade programs such as a QIZ or an
expanded list of products eligible for GSP?

The GOT raises the idea of a Qualified Industrial Zone (QIZ)
in almost any meeting related to trade.
Our standard response has been that it would be difficult to
get through Congress. While accurate, that does not satisfy
the Turks, who think we should be willing to expend some
political capital on their behalf, as we do for other key
allies.

There are ways to make a QIZ more politically palatable to
Congress. The original QIZs in Egypt and Jordan were
designed to increase cooperation and strengthen ties with
Israel. We can make a compelling case for a similar
initiative with Turkey-Armenia and, to a lesser extent,
Turkey-Israel. These two countries also have powerful
lobbies on the Hill that could be enlisted to help make
Turkey's case, if there is an improvement in the political
environment with both countries. The case for a QIZ becomes
much stronger if it is tied to USG political goals in the
region, and this has the added bonus of putting the ball back
in the Turkish court, as a QIZ would be tied to their own
willingness to move politically. This is not to say that we
need to offer the Turks a QIZ, but we do need to think
creatively about how we can respond to likely Turkish
requests for trade benefits.

Turkey is likely to graduate completely from the Generalized
System of Preferences (GSP) program in the near future when
its GDP per capita makes it an "upper income country" as

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defined by the World Bank. This is a welcome sign of
Turkey's economic success, but there is little that can be
done about the
negative impact it will have on Turkish exporters. We should
encourage Turkey to start thinking now about new types of
bilateral or multilateral trade agreements (e.g, a sectoral
FTA in agriculture, which is excluded from the Customs Union,
joining the WTO Government Procurement Agreement, etc.) that
would provide new trade access to the U.S. market, to
substitute for its inevitable loss of GSP. Turkey
needs to accept that if it really is an economic power, it
cannot continue benefiting from programs designed for
developing countries. Our trade relations going forward will
have to be based on mutually beneficial agreements between
developed-world partners. That will be a tough sell, but
it,s a message we need to start delivering now, reinforcing
the message that we view Turkey as an economic partner, not
an aid recipient.

10. (SBU) Below is a list of potential FSECC deliverables.
Items drawn from the EPC or TIFA Action Plans are noted.

-- Agreements and Trade Preference Systems

* Mutual

Sign the Agricultural Memorandum of Understanding (EPC,
although this may be difficult given the current problems in
biotech)

Finalize and sign the Science and Technology Cooperation
Agreement (EPC, although actual signing ceremony and
follow-on work should take place separately from EPC, with
participation from science agencies)

Sign a Letter of Intent on business matchmaking between the
Small Business Administration and its Turkish equivalent
(KOSGEB) (EPC)

Sign a Framework Agreement between the Export-Import Banks of
the two countries to allow for joint financing of projects in
third countries

Sign a reciprocal maritime agreement, increasing the
flexibility of U.S. and Turkish maritime service providers to
operate in the other country's market (TIFA)

Agree on a Memorandum of Understanding to recognize CE marks
on U.S.-origin products entering Turkey via Europe or to
recognize U.S. quality standards as being equivalent to
European for customs purposes

Explore possibility of a preferential trade agreement,
perhaps in conjunction with a South Caucasus initiative
involving the U.S., Turkey, Azerbaijan, Armenia and Georgia.

* U.S.

Continue to push for passage of pending ROZ legislation for
Afghanistan and Pakistan, opening opportunities for Turkish
firms in that area, and plan ROZ seminars for Turkish firms
if the legislation passes (both EPC and TIFA)

Explore possibility of creating an ROZ in northern Iraq

Explore potential for expanding the existing Qualified
Industrial Zone (QIZ) program to Turkey (with Israeli
participation) or creating a new QIZ program for
Turkey-Armenia (with minimum Turkish participation
requirements in an Armenian QIZ or minimum Armenian
participation requiremetns in a Turkish QIZ)

* Turkey

Sign WTO Government Procurement Agreement (EPC)

Join Cape Town Treaty on aircraft financing (EPC)

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-- Intergovernmental Cooperation and Measures to Facilitate
Trade and Investment

* Mutual

Form an Intellectual Property Rights Working Group to discuss
issues of mutual interest and develop strategies for
addressing each country's IPR concerns (TIFA)

Finalize Trade Development Agency (TDA) proposals on energy
and climate change feasibility studies and explore
possibility of a reverse trade mission on nuclear energy

Increase cooperation between the U.S. Embassy and the
Investment Support and Promotion Agency of Turkey (ISPAT) to
identify marketing opportunities in the United States and to
reach key audiences

Establish a Pharmaceutical Sector Working Group, chaired by
the Ministry of Health, to explore ways to increase the
opportunities for trade and investment in pharamceuticals and
look at methods for establishing Turkey as a platform for
pharmaceutical research, production, and export (already
begun, although recent developments in the pharmaceutical
sector have made progress difficult)

Survey the two business communities to see if there are
specific fixes that they would like to see implemented to
remove existing obstacles to trade and investment

Develop a program for graduate-level students or entry-level
officials to work in the trade and investment-related
agencies of the other country

Explore ways to work jointly to facilitate Turkish and U.S.
trade and investment in Iraq, the Caucasus, Afghanistan,
Pakistan and other areas of particular interest (both EPC and
TIFA)

* U.S.

Complete pest risk assessment to allow fresh fig and
pomegranate exports to U.S. (EPC)

* Turkey

Pass new patent law (EPC)

Provide reciprocal treatment for business and investor
visas/work permits for U.S. citizens investing in or working
in Turkey (EPC)

-- Increasing Awareness and Information Exchanges

* Mutual

Hold seminars in both countries on import-export rules
(customs, agricultural sanitary requirements, etc.), how to
do business in the other country, what financing tools are
available, what special visas can be utilized, etc. (TIFA)

Bring USTR experts to talk about how to maximize Turkish
usage of its Generalized System of Preferences eligibility
(TIFA)

Conduct and orientation and training program for the
Undersecretariat of Foreign Trade on how the U.S. Commercial
Service works to promote U.S. goods and services abroad, and
provide assistance in developing similar Turkish programs

Develop training tools for customs officers in both countries
on how export documents are certified in the exporting
country and what documents are sufficient to meet local
regulations (for example, certificates issued by U.S. states)

* U.S.

Work to increase awareness of U.S. ExIm Bank and OPIC

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products and how they can help finance Turkish companies' and
municipalities' projects

Identify Turkish sectors that could benefit from TDA
feasibility studies or TDA-funded orientation trips to see
U.S. operations

Continue outreach on the "Invest in America" initiative (EPC)

-- Increasing Partnership between Private Sectors

* Mutual

Encourage the U.S. Chamber of Commerce and TOBB to create an
online B2B portal (based on existing TOBB architecture) to
facilitate business matchmaking and provide information on
doing business in the other country, such as customs
requirements with exemplars

Encourage business associations to organize trade missions
for their memebers to the other country and to develop annual
plans to advance U.S.-Turkish commercial relations

Ask business associations in both countries to encourage
their members to attend trade fairs focused on the other
country

Encourage greater cooperation between specific industry
assocaitions in each country

* U.S.

Hold the American Society of Travel Agents (ASTA) annual
conference in Istanbul in April 2010 to highlight Turkey's
potential as a tourist destination (will already happen)

* Turkey

Create an annual award program to recognize the top Turkish
firms that import from or export to the United States
Jeffrey

"Visit Ankara's Classified Web Site at http://www.intelink.s
gov.gov/wiki/Portal:Turkey"

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