Cablegate: Turkey-Iraq Trade Suffering From Instability and a Congested

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R 060627Z APR 07




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1. (SBU) Summary: Turkey's trade with Iraq has suffered in
recent months due to increased instability in Iraq, continuing
problems at Habur Gate and inadequate banking services. The
situation at Habur dismays many businessmen since, even though
the facilities there have been upgraded, it still takes 21 days
for trucks to cross the border. While Turkey remains the
dominant source of foreign trade and investment force in Iraq,
these trends could mean the post-war growth is leveling off or
even decreasing for some companies. This is bad news for the
economy of SE Turkey which benefited proportionately more than
the rest of the country. The Turkish-Iraqi Businessmen
Association (TIRIAD) has recommended measures to protect and
expand Turkey's role in the Iraq market, including making Habur
more efficient, cleaning up and improving the financial
infrastructure and having the GOT open a consulate in Irbil.
End summary.

Iraq Turmoil Endangering Turkey-Iraq Business
--------------------------------------------- -------------

2. (SBU) The deteriorating security situation in Iraq, including
rumors of a Turkish military incursion into northern Iraq, have
a significant impact on the ability of Turkish firms to do
business with Iraq. This is especially damaging for businesses
in the economically depressed southeast, where many companies
are dependent on trade across the Iraq border. Adana's Chamber
of Commerce recently announced to the press that turmoil in Iraq
is seriously endangering the region's exports there. Adana's
exports to the Middle East totaled approximately $300 million in
2005. The General Manager of Adana Cement Industry complained
that his company's exports to Iraq had decreased by 40 percent
in 2006. The General Manager of EMS plastic pipe company told
the press that his company hadn't exported anything to Iraq over
the past few months since tensions in northern Iraq had
increased. Cukurova Steel Silos Company reported that their
company rejects 50 percent of projects in Iraq because of the
lack of stability and the difficulty in guaranteeing payments
from Iraqi businesses. Furthermore, transit of fuel products to
Iraq's SOMO petroleum monopoly is down because of problems with
contracts, letters of credit, and smuggling investigations.
Even though this is a special transit arrangement, local
companies have benefited from some of the contracts.

3. (SBU) Since the Iraq war began in 2003 shippers have
complained about the long delays at Habur Gate, the only border
crossing between the two countries suitable for cargo.
Currently, a truck carrying non-perishable goods from Turkey to
Iraq can expect to wait up to three weeks on the Turkish side of
the border awaiting customs inspections and other formalities.
(U.S. military logisticians now factor these delays into their
plans and, although they pay more for the truckers' time, have
not experienced any supply disruptions for the past year.) The
construction of an expanded, fully computerized gate with 10
truck lanes on the Turkish side raised hope that Habur would no
longer be a bottleneck. But shippers complain that the old
inefficiencies remain, despite the new infrastructure. On a
given day, at most only 5 or 6 truck lanes are open, and Turkish
customs officials are slow at inspecting and processing the
trucks, a situation that keeps large numbers of trucks waiting
on the Turkish side sometimes for as long as a week or more
before being allowed to proceed across the border.

4. (SBU) In the border town of Cizre, Chamber of Commerce
President Adnan Elci, who was eagerly touting the benefits of
the new infrastructure in August, is now disillusioned that the
GOT has not fully staffed Habur, suggesting that the government
wants to restrict trade with Northern Iraq. Elci said that
Turkey's total exports to Iraq, including petroleum products and
construction materials, was around $2.75 billion in 2005,
representing 29 percent of total Turkish exports to the Middle
East, all being shipped via Habur gate. Elci said there were
hundreds of transportation companies with the required transport
licenses; twenty-thousand dump trucks, five-thousand trucks,
twenty-thousand tanker trucks doing business through Habur
border gate, but the number of truck shipments via Habur fell
from 563,000 in 2005, to 251,576 in 2006, representing a 48
percent decrease. In meetings with Iraqi businessmen, Elci
found that Iraqi businesses were in search of alternative supply
routes, possibly through neighboring countries other than
Turkey. Elci also noted that the slow-down in trade with Iraq is
bad for Turkey as a whole, it causes disproportionate suffering
for local business, which is heavily dependent on the transport

TIRIAD Forward Leaning on Turkey-Iraq Business

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--------------------------------------------- -----------------

5. (SBU) One organization trying to hold Turkey's foothold in
the Iraq market is the Turkish-Iraqi Businessmen's Association
(TIRIAD). In a recent visit to TIRIAD office in Mersin, former
Managing Director Ihsan Unat told us that TIRIAD was established
as a result of discussions among like-minded Turkish and Iraqi
businessmen who met at the 1st Iraq-Turkey Commercial Fair held
in Gaziantep last year. While acknowledging the impact that the
deteriorating security situation had on business between Turkey
and Iraq, Unat pointed out that a lack of trust resulting from
the poor business practices of some Turkish companies in Iraq
since the war have undermined the credibility of Turkish
businesses among Iraqi customers and partners. For Unat, this
lack of trust was primarily responsible for the slow growth of
commerce between the two countries. The lack of Turkish banks
or credit institutions willing to finance business in Iraq is
another problem impeding commerce between the two countries.

6. (SBU) Unat explained that TIRIAD was created to prevent these
problems from leading to lost opportunities for Turkish
businesses that are naturally well-positioned to lead in the
Iraqi market. Unat further explained that TIRIAD functions as a
bridge between Turkish companies and Iraqi clients and
customers. Because of the trust issue, Unat said, TIRIAD is
selective in accepting new members, and currently has only 35
members in Mersin, Adana, Gaziantep, Diyarbakir and Istanbul. He
noted that unlike the Mersin-based Turkish-Arab Businessmen
Association (TURAB), which aims to promote trade with 29 Arab
and Turkic countries, TIRIAD focuses its attention on Iraq only.
With 67 percent of Iraq's imports passing through Mersin Port
and Free Zone (based on 2005 data), the city is uniquely
positioned as a center for commercial exchange between Turkey
and Iraq.

7. (SBU) Of the 530 foreign companies registered at Irbil
Chamber of Commerce, 380 were Turkish up until August 2006,
according to Unat. The figure has dropped to around 270 today.
Unat regretted that, due to the negative reputation Turkish
firms had gained, their share in the Iraq market [Note:
Primarliy in northern Iraq. End note.] had declined from 80-90
percent down to 30 percent. Unat told us that the Irbil Chamber
of Commerce currently has about 30 Turkish companies on a black
list of companies that are forbidden from contracting business
relationships with Iraqi companies. Many Turkish firms have
been replaced in the market by firms from Germany, Jordan, South
Korea, and Iran. Unat explained that TIRIAD aims to turn this
trend around and raise the number of Turkish firms in Iraq to
over 500 in 2007, making Turkey the market leader there.

TIRIAD Proposes Solutions

8. (SBU) The most promising sectors for Turkish-Iraqi business
continue to be construction, processed food and agricultural
products. TIRIAD hopes to set up a year-round commercial fair
center in Irbil to promote Turkish companies, and plans to
organize a summit in Mersin to bring Iraqi and Turkish
businessmen together. In the more distant future, TIRIAD plans
to open trade centers in the buffer zone along the Turkey-Iraq
border, similar to those that Iran has already opened.

9. (SBU) Until the GOT's recent establishment of a consulate in
Mosul, Turkey's only consulate presence in Iraq was in Baghdad.
While most of the foreign countries doing business in northern
Iraq have established banks, business offices and consulates in
Irbil, TIRIAD has proposed to the GOT to also open a
consular/commercial office in Irbil to assist Turkish businesses
with passport, visa and commercial documentation; although the
new Mosul office should help in this regard. TIRIAD is further
encouraging Turkish banks to open offices in northern Iraq to
accommodate Turkish companies' financial transactions; and the
Association is pushing the GOT to expand construction at Habur
border gate to increase capacity from its current 2000 vehicles
per day to 5000 to 6000 vehicles per day.


10. (SBU) Despite political friction between the GOT and
Northern Iraq, strong trade relations have been a stabilizing
factor in the relationship - and a boon to companies across
Turkey. Although the cross-border trade has soared above
pre-war levels (truck crossings increased seven-fold from 2002
to 2004), it appears to be leveling off or even decreasing for

ADANA 00000051 003.2 OF 003

sectors that are sensitive to the instability within Iraq. Some
companies in the southeast are looking for markets in Syria,
Jordan and Iran as a means to recover from losses experienced
from the decline in trade across the border with Iraq. A
GOT-KRG rapproachment could change the mood, but currently
Turkish businesses in the southeast are increasingly skittish
about committing more resources to Iraq.

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