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Cablegate: Turkish Competition Policy - Eu Accession Requires

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 001350

SIPDIS


SENSITIVE


TREASURY FOR OASIA (LEICHTER AND MILLS)


E.O. 12958: N/A
TAGS: ECON TU ECIN
SUBJECT: TURKISH COMPETITION POLICY - EU ACCESSION REQUIRES
BETTER ALIGNMENT OF THEORY AND PRACTICE

1. (SBU) Summary. According to officials of the
Representation of the European Commission to Turkey (EC
Representation), over the past six years the Turkish
Competition Authority (CA) has made good progress in those
few sectors where it has chosen to focus. However, many
sectors remain concentrated and non-competitive. Much work
thus remains to be done before Turkey,s economy can be
considered fully in compliance with the EU's strict
competition policies. Of particular concern to the EC
Representation are state aids, and the fact that Parliament
continues to enact laws that contradict the Customs Union
treaty. End summary.


----------
Background
----------


2. (U) Turkey does not have a long-standing culture of
market competition. The idea of a free market economy was
first introduced in the 1982 constitution. However, only with
the 1994 Competition Law were statutory restrictions placed
on anti-competitive practices, and not until the CA was
established in 1997 did an effective mechanism exist to
enforce the law. (Turkish law permits private suits, but
these are quite rare.) Thus, until quite recently, price
fixing, market sharing and monopolies were both widespread
and widely accepted.


3. (SBU) The CA consists of an eleven member Board, which
adjudicates cases, and a professional staff of 120 persons,
which prepares and presents cases. The Board is appointed by
the Council of Ministers following a complicated nominating
process. It is formally (and, apparently, practically)
independent. Appeals from Board decisions are taken to the
Council of State (the supreme administrative court). The CA
staff is uniformly considered well-trained and professional.
However, the Board and Council have received mixed reviews,
since not all of their members are considered well-versed in
either the Competition Law or competition theory.


4. (U) From CA,s organization in 1997 through June 2003, a
total of 2218 cases were filed, of which 1822 were resolved.
However, most cases are appealed, and the appellate process
has been quite slow. (New legislation is expected to help
solve this problem.) In 2003, the CA imposed a record USD 20
million fine on the mobile phone operators Turkcell and
Telsim, due to their refusal to provide nation-wide roaming
services to competitors.


5. (SBU) The Competition Law meets EU standards and the EC
Representation is generally happy with the work of the CA.
Problems nonetheless remain, some of which may be serious
enough to affect the start of EU accession negotiations.


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Private Sector Oversight
----------


6. (SBU) According to the EC Representation, the CA has
focused mainly on the cement and telecommunications
industries. Many other &crucial8 sectors remain
concentrated (autos, white goods, electrical goods,
alcohol/tobacco, banking, insurance and media), and since
Turkey has not adopted a long-range competition policy, are
likely to remain so.


----------
Regulated Sectors
----------


7. (SBU) The EC Representation wants the relationship
between the Competition Authority and regulatory authorities
to be formalized, since oversight functions are now shared.
For instance, BRSA has sole authority to approve mergers
between banks having up to a 20% market share. The CA is
negotiating protocols with the various regulatory
authorities, and the EC Representation acknowledges that
progress is being made.


----------
Procurement
----------


8. (SBU) The EC Representation says that Turkey,s
procurement policies are not fully aligned with the
&acquis,8 since Turkish companies are given a 15% price
preference, and the timing for international tenders is much
shorter than for domestic tenders. The CA experts Econoff
consulted, by contrast, do not think current procurement
practices present a problem. In any event, while the CA,s
opinion on a proposed tender must be sought, it is
non-binding and is usually ignored. (Note: Turkey has
recently established an independent body to review all public
procurements. A World Bank official told Econoff that the
body has demonstrated &real independence8 by rejecting some
transactions. End Note.)


----------
Monopolies
----------


9. (SBU) The GOT,s slow pace of privatization worries the
EC Representation, since under the Customs Union Turkey is
obligated to liberalize its public monopolies. Moreover,
privatization sometimes merely perpetuates in private hands
the monopoly previously held by the state. Indeed, from time
to time such has been GOT,s professed policy, since
extension of monopoly privileges to the purchaser increases
the value of the SEE. For instance, recent legislation that
was intended to benefit the purchaser of Tekel,s alcohol
unit imposes import restrictions that, much to the EC
Representation,s displeasure, violates the Customs Union.


10. (SBU) The EC Representation also complains that
Parliament continues to enact statutes that extend monopoly
rights to political favorites. Since the Competition Act, as
a general statute, is subordinate to special acts, the CA
cannot stem this tide. Surprisingly, a CA expert specifically
denied that this was an ongoing problem.


----------
State Aids
----------


11. (SBU) The European Commission expects candidate
countries to establish an independent monitoring authority to
regulate state aids. (Article 92 of the Rome Treaty forbids
state aid &which distorts or threatens to distort
competition.8) Rather than give the CA authority over state
aids, GOT plans to assign this function to the State Planning
Organization (SPO), which is not an independent body.
Accordingly, the EC Representation says it will review each
of the SPO,s decisions very closely, and expects the SPO to
reject some state aids, to show its &operational
independence.8 This is an &urgent priority8 for the EU,
and if not handled properly could be an impediment to the
institution of accession negotiations.
EDELMAN

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