Cablegate: Winning the Battle but Losing the War - Bananas

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ANKARA 009037

SIPDIS

SENSITIVE

STATE FOR EUR/SE, EB/EPD, AND EB/TPP/ABT
DEPT PLEASE PASS USTR FOR NOVELLI, DBIRDSEY, JHOFEMEISTER,
AND SLOAN
USDA FOR FAS FOR ITP/BERTSCH, MACKE, MEYER, THORBURN
USDOC FOR DEFALCO

E.O. 12958: N/A
TAGS: ETRD EAGR KPAO TU USTR
SUBJECT: Winning the Battle but Losing the War - Bananas

Sensitive but Unclassified. Not for Internet Distribution.

1. (SBU) Summary. In November 2002, the Government of
Turkey agreed to remove a number of non-tariff barriers on
banana imports in response to a WTO case initiated by the
Government of Ecuador. Although the barriers were
eliminated, the GOT raised import tariffs by 29% from an
already high 120%. Problems with Turkey's import regime
have also discouraged companies from investing in Turkey.
However, Turkey's eventual membership in the European Union
may revive interest in investment in the food sector. End
Summary.

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The Banana Wars
---------------

2. (SBU) On December 12, AgCounselor met with a banana
importer to discuss resolution/withdrawal of a WTO case
initiated by the Government of Ecuador against Turkey. Since
November 1999, companies had complained that the GOT has
restricted imports of bananas using a number of non-tariff
barriers. Among the barriers used by Turkey were delays in
issuing certificates of control up to 45 days; issuing
licenses only for small uneconomical amounts (10,000 boxes
or 50 tons, in the case of bananas); and lastly, limiting
the time required for completing pesticide applications
which proved difficult for many importers.

------------------
Let's go to Geneva
------------------

3. (SBU) In response to exporter complaints, Ecuador wanted
the WTO to address these issues. Over the past two years,
Ecuador and Turkey had consulted on the issue. According to
one importer, the Ministry of Foreign Trade realized that
they would lose the case and might be subject to sanctions.
As a result, in November 2002, the GOT agreed to eliminate
all the barriers. However, as a concession to the Ministry
of Agriculture, the GOT raised tariffs on banana imports
from 120 percent to 149 percent which is Turkey's bound
rate.

----------------------
Why We Have No Bananas
----------------------

4. (SBU) The banana case illustrates the extent of the
GOT's desire to protect local industry. Turkish banana
production meets only about 15 percent of total demand.
Given climate and soil conditions, Turkish producers cannot
significantly increase production to any great extent.
According to one importer, Turkey is now producing bananas
in green houses, which given energy costs is extremely
uneconomical. In fact, the high tariffs penalize the
Turkish consumer who must pay more a great deal more for
bananas. Turkish producers generally increase their own
prices to those of the imported bananas and reap the
profits. Tariffs on other fruits (apples and pears) are
about 60 - 65 % and are applied seasonally. It is
difficult, as far as importers are concerned, to see why a
country needs 149 or even 120 percent tax to protect its
industry. The tariff is even more costly since the season
for bananas is only 3 months while the tariff remains in
place for the entire year.

-------------------------
Effect still undetermined
-------------------------

5. (SBU) In 2001, banana imports decreased by 30 percent,
although this decline was attributed more to the economic
downturn rather than the tariffs. The import problems have
discouraged companies from investing in any facilities in
Turkey. Now, however given the possibility of Turkish EU
membership on the rise, companies may again explore the
possibility of investing in this market.

----------------------------------
Will the new government be better?
----------------------------------
6. (SBU) There is a general feeling among traders that the
situation may improve with the new government. In November
2002 after the withdrawal of the non-tariff barriers,
certificates of control were issued in a week and for
unlimited quantities. Pesticide requirements also have
become somewhat more flexible. Under the previous
government, the MHP party viewed all imports as a threat to
Turkish agriculture. Although the jury is still out, people
are hopeful that the situation will change for the better.

--------------------------------------------- -----------
Comment: Agriculture - Problems but Hope for the Future?
--------------------------------------------- -----------

7. (SBU) In general, the worst problems in U.S.-Turkish
bilateral trade are in the agriculture sector. For the most
part, non-tariff barriers are more prevalent in agriculture
products versus industrial products. The banana affair is
good example of Turkey's approach to trade. The threat of
WTO action compelled the GOT to resolve the trade dispute.
Of course, in the case of bananas, it took the GOT 2 years
to reach that point. At the same time, the GOT will often
go to great lengths to protect its domestic agriculture
often at the expense of the Turkish consumer who spends
close to 50% of his/her income on food. Trade problems seem
to have discouraged foreign companies from investing in
Turkey fearing similar problems with Turkey's application of
investment rules. It's a good sign that, at least
initially, companies believe that the new government will
create a more positive atmosphere for trade and investment.
In addition, potential EU membership may encourage companies
to invest here in the hope of basing food production and
processing facilities in Turkey to supply EU countries with
food products.

Pearson

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