Cablegate: 2003 Investment Climate Statement for Turkey -

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




E.O. 12958: N/A

Ref: STATE 128494

The following is the last of four cables transmitting the
2003 Investment Climate Statement for Turkey:


The Turkish labor force numbers around 20.2 million persons,
with nearly 35 percent employed in agriculture. The
official unemployment rate was 12.3 percent in the first
quarter of 2003. Students are required to complete eight
years of schooling and to remain in school until they are 15
years old. Turkey has an abundance of unskilled and semi-
skilled labor. However, there is a shortage of qualified
workers for highly automated high-tech industries.
Individual high-tech firms, both local and foreign-owned,
have generally conducted their own training programs for
such job categories. Vocational training schools for some
commercial and industrial skills exist in Turkey at the high
school level. Apprenticeship programs, both formal and
informal, remain in place, although they are dying out in
some traditional occupations. Turkey's labor force has a
reputation for being hardworking, productive and dependable.

Labor-management relations have been generally good in
recent years. Employers are obliged by law to negotiate in
good faith with unions that have been certified as
bargaining agents. Strikes are usually of short duration
and almost always peaceful. Since 1980 Turkey has faced
criticism by the International Labor Organization (ILO),
particularly for shortcomings in enforcement of ILO
Convention 98 (right to organize and collective bargaining).
In 2003, Parliament approved a Job Security Bill, which
aims to ensure consultation between employers and labor
groups in some areas while providing employers with greater
flexibility in laying off staff.

The 1995 and 2001 constitutional amendments reduced
restrictions on the right to strike to a certain degree and
civil servants (defined broadly as all employees of the
central government ministries, including teachers) are
allowed to form trade unions and to engage in limited
collective negotiations, but are prohibited from striking.
A recent amendment to Free Zones Law No. 3218 rescinds the
prohibition against the right to strike in these zones.

The GOT and the civil service unions will begin negotiations
on a new two-year contract.


Since passage of the Turkish law on free zones in 1985, 21
zones have been established. The zones are open to a wide
range of activity, including manufacturing, storage,
packaging, trading, banking, and insurance. Foreign
products enter and leave the free zones without payment of
any customs or duties. Income generated in the zones is
exempt from corporate and individual income taxation and
from the value-added tax, but firms are required to make
social security contributions for their employees.
Additionally, standardization regulations in Turkey do not
apply to the activities in the free zones, unless the
products are imported into Turkey. In contrast to most
other free zones, sales to the Turkish domestic market are
Goods and revenues transported from the zones into Turkey
are subject to all relevant import regulations. There are
no restrictions on foreign firms operations in the free
zones. Indeed, the operator of one of Turkey's most
successful free zones located in Izmir is an American firm.


According to Turkish Treasury data, as of November 2002,
there are 6,311 foreign firms invested and are operating in
Turkey. The Turkish government has provided permits for
foreign capital since 1980 amounting to USD 34.0 billion,
and aggregate actual inflows reached USD 15.7 billion. In
2002, EU countries accounted for 63.6 percent of authorized
new foreign investment, OECD countries accounted for 90.4
percent, and Islamic countries for 2.6 percent. Over the
past two decades, France (16.6 percent) has been the top
source of foreign investment, followed by the Netherlands (
15.7 percent), Germany (12.7 percent) and the U.S. (11.6
percent) (Note: these figures are based on the amount of
authorized investment, not on actual capital inflows).
Because of the absence of a bilateral tax treaty until 1998,
much U.S.-origin capital was invested in Turkey through
third-country subsidiaries. By unofficial estimates the
U.S. may be the largest source of foreign investment in

In 2002, about 58.0 percent of authorized foreign
investment took place in services, 39.8 percent in
manufacturing, and about 2.2 percent in mining and
agriculture combined. The sub-sectors with the greatest
amount of authorized foreign investment include banking
(10.3 percent);; trade ( 11.4 percent); food, beverage and
tobacco processing ( 11.9 percent); and insurance (7.7
percent). Between 1980 and November 2002, 45.0 percent of
actual capital inflows were invested in services, 52.0
percent in manufacturing, 2.0 percent in agriculture, and
1.0 percent in mining. The food industry, trade and
finance sectors received the highest share of increased
foreign direct investment permits in 2002.

FDI Inflow by Years (million USD)

Year Actual Inflow/GDP No firms
Inflow (Cumulative)
1980-1988 1,172
1989 663 0.80 1,525
1990 684 0.67 1,856
1991 907 0.69 2,123
1992 911 0.78 2,330
1993 746 0.56 2,554
1994 636 0.64 2,830
1995 934 0.66 3,163
1996 914 0.53 3,582
1997 852 0.54 4,068
1998 953 0.49 4,533
1999 813 0.41 4,950
2000 1,707 0.85 5,328
2001 3,288 2.21 5,841
2002(*) 569 0.48 6,311

TOTAL 15,749 6,311

Source: General Directorate of Foreign Investment; (*)
January through November 2002.

FDI Inflow by Source Country (1999-2002/ million USD)

Country Cumulative Value Share (percent)

Italy 1,968 30.9
Netherlands 962 15.1
U.S.A. 793 12.4
United Kingdom 647 10.1
Germany 514 8.1
Bahrain 323 5.1
Japan 267 4.2
France 263 4.1
Switzerland 104 1.6
Belgium-Luxemburg 25 0.4
Spain 23 0.4
Others 488 7.7

Total 6,377 100.0

Turkey's External Investment by Country (As of December

Country Amount Share
(USD millions)
Netherlands 1,868.2 30.9
United Kingdom 523.1 8.9
Germany 532.7 8.8
Luxembourg 245.8 4.1
Russia 163.7 2.7
Azerbaijan 741.8 12.3
Kazakhstan 431.5 7.1
United States 192.6 3.2
Romania 122.7 2.0
Others 1,218.6 20.1
6,040.8 100.0

Source: General Directorate of Banking and Foreign Exchange,
Major foreign investors

Turkey's largest foreign investors include Telecom Italia,
Renault, Toyota, Fiat, Castrol, Enron Power, Citibank,
Pirelli Tire, Unilever, RJR Nabisco, Philip Morris, United
Defense, Honda, Hyundai, Bosch, Siemens, DaimlerChrysler,
Chase Manhattan, AEG, Bridgestone-Firestone, Cargill,
Novartis, Coca Cola, Colgate-Palmolive, General Electric,
General Motors-Opel, ITT, Ford Motor Co., Lockheed Martin,
Gillette, Goodyear, Hilton International, Aventis,
McDonald's, Nestle, Mobil, Pepsi, Pfizer, Procter and
Gamble, InterGen, Abbot Laboratories, Aria and Shell.

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