U.S.-Turkey Relations - E. Anthony Wayne
E. Anthony Wayne, Assistant Secretary for Economic and Business Affairs
Remarks to the American Turkish Council Conference
March 28, 2006
Growing the Economic Relationship
Greetings. It's wonderful to be here among such a distinguished crowd. I'm pleased to celebrate with you the 25th year of this conference and the long history of U.S.-Turkish relations. I would like to thank James Holmes and the American Turkish Council for inviting me to speak, and to acknowledge and welcome to the U.S. Trade Minister Kursad Tuzmen. I would also like to acknowledge the presence of ATC's chairman Brent Scowcroft, Turkey's Ambassador Nabi Sensoy and our U.S. Ambassador Ross Wilson.
This has been a good year for our relationship. I am glad that we are focusing on how we can work together to enhance our friendship, promote our shared values, and increase our people's prosperity.
* Over the past year, we've seen a number of high-level visits. In January 2006, the U.S.-Turkey Trade and Investment Framework Agreement (TIFA) Council met for the first time since 2002. All of this is an indication that our relationship is on the upswing.
* On the economic front, the last twelve months have also brought good news: the long-awaited opening of Turkey's EU accession talks, the initiation of an exit program with the IMF, and continued macroeconomic stability and growth. U.S. investment and trade are up, Turkey has seen some successful privatizations, and progress has been made on some ongoing investment disputes. Turkey's role as an energy hub and its potential in this arena have grown.
* Indeed, this year started off with a shock that focused Europe's attention on the need to find diverse, secure, reliable, and market-based sources of energy. Turkey has overnight been catapulted into world attention as the crucial link between Caspian Basin and Central Asian energy reserves and European and world markets. As we have in the past, the U.S. and Turkey will be cooperating on European energy security for years to come.
* Macroeconomic policy has created a strong environment for investment in Turkey: Inflation has gone from a high of 70% in 2002 to below 8% at the end of last year. 2005 was the first time in three decades that the Turkish inflation rate was in single digits. Real GDP grew by close to 8% in 2004 and by about 5% in 2005. Turkey's debt has gone from 78% of GDP in 2002 to about 62% in 2005.
* The IMF has advised that to continue this impressive performance, Turkey must rein in spending, reform the social security system, and broaden the tax base. It is also important the Turkey maintain the independence of its Central Bank. Moreover, Turkey's 6% current account deficit means Turkey, like the United States, must continue to attract stable capital inflows, and to do so must maintain continued growth and macroeconomic stability and pursue business-friendly policies. In other words, Turkey cannot rest on its laurels.
* The World Bank has also offered some good advice on actions Turkey can take to speed convergence with EU standards of living. Among the many recommendations are market reforms to improve the investment climate and measures to foster technology adoption and innovation.
Intellectual Property Protection
* Indeed, gains to developing countries like Turkey from promoting innovation can be massive. To achieve these gains requires effective intellectual property protection. o Weak IP laws and lax enforcement against piracy and counterfeiting take away the stimulus to innovate. o High levels of piracy and counterfeiting force legitimate businesses out of a country, taking with them with local investment, jobs and tax revenue. o Enforcing IP rights can help make a society safer by encouraging rule of law and discouraging the growth of organized crime networks. o Pirated products also divert badly needed tax revenues and help fuel corruption. o Turkey can accelerate its growth by fostering conditions that attract private investment, including a strong system of intellectual property protection.
* Turkey recorded a major foreign direct investment (FDI) inflow of $9.6 billion in 2005, after years of attracting very low FDI levels.
* U.S. companies are major contributors to the Turkish economy, investing billions of dollars and creating tens of thousands of jobs. And investment will continue to grow as the regulatory and investment environment improves.
* In recent years we have seen real progress. We are hopeful the fall 2005 agreement between Motorola and Turkish cellular operator Telsim Mobil Telekomunikasyon, for instance, will prove to be among the first of many successful resolutions of business investment cases involving U.S. companies.
* Turkey can further spur investment by eliminating policies that discourage investment. As an example, Pepsi, Coca-Cola, and other major U.S. soft drink companies have been fighting for years for the elimination or reduction of discriminatory "cola taxes" (as high as 47.5%). These U.S. companies have invested more than $500 million and created more than 7,000 jobs since 2000. Favorable resolution of the taxing scheme would lead to expansion of their operations, an increase in local employment, and eventually higher tax revenues.
* U.S. companies are also increasingly playing a role in the development of Turkey's energy and electricity sectors. Fair, transparent and open privatizations within this - - and other - - industries will be important to attracting U.S. interest and needed Western resources. And growth in this industry will have a multiplier effect.
Telecom and Information Technology
* Another area with the potential to create multiplier effects are the telecom and information technology sectors. The privatization of Turk Telecom last year provides an opportunity for accelerated growth and innovation in Turkey's telecommunications sector. A healthy telecom/IT sector can be a tremendous contributor to a modern, knowledge-based economy.
* Experience has shown that privatization alone is often not sufficient to create truly competitive conditions. A strong, independent regulator is also necessary to ensure that all participants can compete on an equal footing.
* Turkish regulators can also help create the conditions that will foster the growth of competing technology platforms, such as broadband access through both phone and cable lines. This could be a very important spur to increasing Internet usage in Turkey, which is currently only about 15%, as opposed to 40% in the EU.
* Government policy can also do its part. Turkey has among the highest tax rates on telecom services in the world, about 60%. Excessively high rates mean slower growth in a sector that should be a driver for the economy.
* Now with a majority of private ownership, the Turkish telecom and information technology sector is poised for rapid growth. An enabling policy and regulatory environment will be a decisive factor in how rapidly and completely these opportunities can be realized.
Turkey's Role as a Natural Gas Hub
* Given its geographic location, Turkey is already demonstrating its potential to serve as a hub for natural gas from the Caspian and Central Asia to Europe.
* To ensure its position as an important energy link, Turkey could benefit by considering the needs of both the consuming and producing countries that might ship gas through the country. In other words, you might think of both gas consumers and gas producers as potential customers for pipeline services. What it is it your customers are looking for? Based on our conversations with various officials, we believe they are looking for: o Diversity of sources of supply and transit. Neither producers nor consumers like monopolies. Attractive Investment Climate: Pipelines are expensive; they take an enormous amount of work and time to bring to fruition. As I think we've all witnessed with Baku-Ceyhan petroleum pipeline and the South Caucasus Gas Pipeline, you have to maintain an attractive investment climate to attract the enormous amounts of capital to build these projects. This means clear rules and regulations for investment, a reasonable tariff regime, and strong intergovernmental agreements
BTC a Crowning Achievement
* As we look back, the crowning achievement of regional political leaders and international energy companies is the Baku-Tbilisi-Ceyhan (BTC) oil pipeline. The pipeline was largely completed just last December; and oil has already begun to flow from Baku.
* Parallel to the BTC pipeline, partners are constructing a South Caucasus Pipeline to carry Azeri gas from the Shah Deniz field to Turkey.
* The U.S. Government is encouraging the governments of Kazakhstan and Azerbaijan to link North Caspian oil fields by tanker with the BTC pipeline. We believe that this effort must be held to very high commercial and legal standards, and we appreciate the assistance of Turkey in this effort, which has much at stake in terms of transit revenues.
Efforts to Bypass the Bosporus
* Expanding Russian oil production has led to increasing bottlenecks at the Bosporus Straits. In the winter of 2003-2004, a tanker backlog of 30 days or longer developed. Additional production in the Caspian, or even in the Black Sea, could further aggravate the situation.
* Russian and Turkish entities, as well as international energy companies, have begun exploring options for Bosporus bypasses, mainly in the form of pipelines. Various parties have put options on the table.
* The U.S. Government generally supports efforts to improve infrastructure and transport efficiency in the region. However, weighing the commercial viability of the various proposals, in our opinion, is the responsibility of the private sector, which will ultimately finance and construct any pipelines that may result.
* Meanwhile, the U.S. Government will work with the Government of Turkey to improve operational efficiency in managing traffic flow in the Bosporus and to protect the environment from a catastrophic spill.
* Turkey is a dynamic country with a talented population, with great energy and resources. Turkey has come a long way, and made successful choices. Those choices, though difficult, have led to unprecedented growth, low inflation and stability. As a friend, we wish Turkey well and feel confident it will continue to do the hard work to lead its people to growth and prosperity. We in the United States want to work together with Turkey to shape the kind of future we both would like to see, a future in which Turkey plays an ever increasing role in regional peace, stability and prosperity, a future in which Turkey is both anchored in Europe and a bridge to the East.
Released on April 3, 2006