gemini://gemini.techrights.org/2011/09/11/origin-of-turkey-patents/

Posted in Cablegate, Europe at 4:48 am by Dr. Roy Schestowitz

Summary: Turkey’s route into patents as mentioned repeatedly in diplomatic cables from Ankara

YESTERDAY we went through and accumulated several Cablegate cables from Turkey. As part of becoming a good citizen/member of the European Union, Turkey has been changing some of its domestic and foreign inclinations. Patents appear to be among those.

The cables say that “Turkey is a signatory to a number of international conventions, including the Stockholm Act of the Paris Convention, the Patent Cooperation Treaty, and the Strasbourg Agreement.

“In accordance with the 1995 patent law and Turkey’s agreement with the EU, patent protection for pharmaceuticals began on January 1, 1999. Turkey has been accepting patent applications since 1996 in compliance with the TRIPS agreement “mailbox” provisions. The patent law does not, however, contain interim protection for pharmaceuticals in the research and development “pipeline”.”

The phrases above are repeated in many cables, the latest of which is this:

TAGS: ECON [Economic Conditions], EINV [Foreign Investments],

KTDB [National Trade Data Bank], TU [Turkey],

OPIC [Overseas Private Investment Corporation],

USTR [Office of the Special Representative for Trade Negotiations]

SUBJECT: TURKEY: 2006 INVESTMENT CLIMATE STATEMENT

The following is the 2006 Investment Climate Statement for

The Government of Turkey (GOT) views foreign direct

investment as vital to the country's economic development

and prosperity. Accordingly, Turkey has one of the most

liberal legal regimes for FDI in the OECD. With the

exception of some sectors (see below), areas open to the

Turkish private sector are generally open to foreign

participation and investment. However, all investors -

regardless of nationality - face a number of challenges:

excessive bureaucracy, weaknesses in the judicial system,

high and inconsistently collected taxes, weaknesses in

corporate governance, sometimes unpredictable decisions

taken at the municipal level, and frequent, sometimes

unclear changes in the legal and regulatory environment.

Historically, investment has also been discouraged by high

inflation and political and macroeconomic uncertainties.

As a result, FDI inflows have historically been far below

levels received by more investor-friendly emerging markets.

Along with the GOT's far-reaching economic reform program,

which is supported by the World Bank and IMF, the EU

accession that was launched in 2005 has begun to address

some of the structural impediments to FDI.

Regulations governing foreign investment are, in general,

transparent. Turkey provides national treatment, including

in the acquisition of real estate by foreign-owned corporate

entities registered under Turkish law, and not have an

investment screening system (only notification is required).

In 2005, the Constitutional Court ruled unconstitutional

legislation enabling property acquisition by non-Turkish

individuals. However, Parliament is considering new

legislation that will provide limited acquisition rights to

The equity participation ratio of foreign shareholders is

restricted to 25 percent in broadcasting and 49 percent in

aviation and maritime transportation. However, companies

receive full national treatment once they are established.

Establishment in financial services, including banking and

insurance, and in the petroleum sector requires special

permission from the GOT for both domestic and foreign

investors. In practice, regulators have not restricted

foreign ownership in the financial sector: in 2005 a series

of foreign acquisitions in the sector were approved, and

several foreign financial houses had longstanding operations

The GOT privatizes State Economic Enterprises through block

sales, public offerings, or a combination of both. The sale

of 55 percent of Turk Telekom to Saudi Oger Telecom in 2005

for USD 6.6 billion was a turning point for the Turkish

privatization program. Two other major privatizations in

2005 were the sale of 51 percent of oil-refinery TUPRAS to

Turkish business giant Koc Group (with Dutch Shell having a

minor share of 2 percent), and the sale of 46 percent of

Erdemir to another Turkish company Oyak Group (the Oyak

Group then sold 41 percent of its winning consortium shares

to Arcelor). Turkish privatization revenues in 2005 totaled

USD 16.8 billion, most of which will be collected in

Bureaucratic "red tape" has been a significant barrier to

companies, both foreign and domestic. However recent laws

have simplified company establishment procedures, reduced

permit requirements, instituted a single company

registration form, and enabled individuals to register their

companies through local commercial registry offices of the

Turkish Union of Chambers and Commodity Exchanges. The

government is also considering other measures to streamline

other business procedures as part of its effort to improve

Turkey is also making progress in making the taxation system

more investor-friendly. In 2006, the basic corporate tax

rate will be reduced from 30 to 20 percent and a uniform

withholding tax of 15% will be applied to income from

Turkish law and regulation affecting the investment climate

continues to evolve. Potential investors should check with

appropriate Turkish government sources for current and

detailed information. The following web site provides the

text of regulations governing foreign investment and

incentives as well as other useful background information:

http://www.treasury.gov.tr/for_inv.htm. Additional

Turkish law guarantees the free transfer of profits, fees

and royalties, and repatriation of capital. This guarantee

is reflected in Turkey's 1990 Bilateral Investment Treaty

(BIT) with the United States, which mandates unrestricted

and prompt transfer in a freely usable currency at a legal

market-clearing rate for all funds related to an investment.

There is no difficulty in obtaining foreign exchange, and

there are no foreign exchange restrictions. However, as the

result of a 1997 court decision, the Turkish Government has

blocked full repatriation of investments by oil companies

under Article 116 of the 1954 Petroleum Law, which protected

foreign investors from the impact of lira depreciation.

Affected companies have challenged the 1997 decision and the

case is currently in the Turkish court system.

Under the BIT, expropriation can only occur in accordance

with due process of law. Expropriations must be for public

purpose and non-discriminatory. Compensation must be

reasonably prompt, adequate, and effective. Under the BIT,

U.S. investors have full access to the local court system

and the ability to take the host government directly to

third party international binding arbitration to settle

investment disputes. There is also a provision for state-to-

As a practical matter, the GOT occasionally expropriates

private real property for public works or for State

Enterprise industrial projects. The GOT agency expropriating

the property negotiates and proposes a purchase price. If

the owners of the property do not agree with the proposed

price, they can go to court to challenge the expropriation

or ask for more compensation. There are no outstanding

expropriation or nationalization cases.

There are several outstanding investment disputes between

U.S. companies and Turkish government bodies, particularly

Turkey's legal system provides means for enforcing property

and contractual rights, and there are written commercial and

bankruptcy laws. However, the court system is overburdened,

which sometimes results in slow decisions and judges lacking

sufficient time to grasp complex issues. The judicial system

is also perceived to be susceptible to external influence

and to be biased against outsiders. Judgments of foreign

courts, under certain circumstances, need to be executed by

local courts before they are accepted and enforced. Monetary

judgments are usually made in local currency, but there are

provisions for incorporating exchange rate differentials in

Turkey is a member of the International Center for the

Settlement of Investment Disputes (ICSID), and is a

signatory of the New York Convention of 1958 on the

Recognition and Enforcement of Foreign Arbitral Awards.

Turkey ratified the Convention of the Multinational

Investment Guarantee Agency (MIGA) in 1987. There is

currently one arbitration cases pending before ICSID.

Turkish law accepts binding international arbitration of

investment disputes between foreign investors and the state.

In practice, however, Turkish courts have on at least one

occasion failed to uphold an international arbitration

¶5. Performance Requirements/Incentives

Turkey is a party to the WTO Agreement on Trade Related

Law 5084, which went into effect in early 2004, encourages

investment in provinces with annual per capita income below

USD 1,500 and to high priority development regions. For low

income provinces and under certain conditions, the law

provides for withholding tax incentives on income tax,

social security premium incentives, free land, and

electricity price support. These incentives will remain in

effect until the end of 2008, except for allocation of free

public land, which has no expiration date. The same law also

limits certain tax preferences previously enjoyed by

There are no performance requirements imposed as a condition

for establishing, maintaining, or expanding an investment.

There are no requirements that investors purchase from local

sources or export a certain percentage of output. Investors'

access to foreign exchange is not conditioned on exports.

There are no requirements that nationals own shares in

foreign investments, that the shares of foreign equity be

reduced over time, or that the investor transfer technology

on certain terms. There are no government imposed conditions

on permission to invest, including location in specific

geographical areas, specific percentage of local content -

for goods or services - or local equity, import

substitution, export requirements or targets, employment of

host country nationals, technology transfer, or local

The GOT does not require that investors disclose proprietary

information, other than publicly available information, as

part of the regulatory approval process. Enterprises with

foreign capital must send their activity report, submitted

to the general assembly of shareholders, auditor's report,

and balance sheets to the Treasury's Foreign Investment

With the exceptions noted under "Openness to Foreign

Investment" and "Transparency of the Regulatory System,"

Turkey grants all rights, incentives, exemptions and

privileges available to national capital and business to

foreign capital and business on a most-favored-nation (MFN)

basis. American and other foreign firms can participate in

government-financed and/or subsidized research and

development programs on a national treatment basis.

Turkey harmonized its export incentive regime with the

European Union in 1995, prior to the start of the Customs

Union. Turkey currently offers a number of export

incentives, including credits through the Turkish Eximbank,

energy incentives, and research and development incentives.

Foreign investors can participate in these export incentive

programs on a national treatment basis. More information on

Military procurement generally requires an offset provision

in tender specifications. The offset guidelines were

modified to encourage direct investment and technology

¶6. Right To Private Ownership And Establishment

With the exceptions noted above, private entities may freely

establish, acquire, and dispose of interests in business

enterprises, and foreign participation is permitted up to

Competitive equality is the standard applied to private

enterprises in competition with public enterprises with

respect to access to markets, credit, and other business

operations. Turkey has an independent Competition Board.

Secured interests in property, both movable and real, are

recognized and enforced. There is a recognized and reliable

system of recording such security interests. For example,

there is a land registry office where real estate is

registered. Turkey's legal system protects and facilitates

acquisition and disposal of property rights, including land,

buildings, and mortgages, although some parties have

complained that the courts are slow in rendering decisions

and that they are susceptible to external influence (see

Turkey's intellectual property rights regime has improved in

recent years, but still presents serious problems. Turkey

remained on the U.S. Special 301 Priority Watch List in 2005

due to concerns about insufficient protection for

confidential pharmaceutical test data and continued high

levels of piracy and counterfeiting of copyright and

Turkey's copyright law provides deterrent penalties for

circumvention of technical protection measures, a key

feature of the World Intellectual Property Organization

(WIPO) "Internet" treaties. In addition, Turkish courts

have failed to render deterrent penalties to pirates as

provided in the copyright law but have instead applied the

Turkish Cinema Law, which has much lower penalties.

Recently enacted legislation contained several strong anti-

piracy provisions, including a ban on street sales of all

authorities to take action without a complaint by the rights

holder. However, the law also reduces potential prison

sentences for piracy convictions. U.S. industry estimated

losses to piracy in 2004 at $50 million for motion pictures,

$15 million for records/music and $23 million for books.

There are signs that anti-piracy measures introduced in 2004

may be having a positive impact on industry.

Turkey is a signatory to a number of international

conventions, including the Stockholm Act of the Paris

Convention, the Patent Cooperation Treaty, and the

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for pharmaceuticals

began on January 1, 1999. Turkey has been accepting patent

applications since 1996 in compliance with the TRIPS

agreement "mailbox" provisions. The patent law does not,

however, contain interim protection for pharmaceuticals in

the research and development "pipeline".

Turkey's recently amended Patent Law provides for penalties

for infringement of up to 3 years in prison, or 47,000 YTL

(approximately $32,000) in fines, or both, and closure of

the business for up to one year. However, research-based

companies in the pharmaceuticals sector have criticized

provisions which delay the initiation of infringement suits

until after the patent is approved and published, permit use

of a patented invention to generate data needed for the

marketing approval of generic pharmaceutical products, and

give judges wider discretion over penalties in infringement

cases. There is concern that amendments proposed this year

to the patent law could lead to weaker enforcement and

penalties and dilute basic intellectual and industrial

Turkey does not currently have a system for patent linkage,

which could create confusion and possibly allow generic

pharmaceutical manufacturers to register a copy of a brand

The Ministry of Health introduced limited protection for

confidential test data submitted in support of applications

to market pharmaceutical products in a regulation issued in

January and revised in June 2005. However, several of the

regulation's provisions severely undermine protection for

confidential test data. Data exclusivity is limited to

original products licensed in a European Customs Union

country after January 1, 2001, for which no generic

manufacturers had applied for licenses in Turkey as of

January 1, 2005, and the term of exclusivity is limited to

the duration of the drug patent. Also, the six-year term of

data protection starts on the date of licensing in a

European Customs Union country, implying a shorter term of

protection because of the length of the marketing approval

Trademark holders also contend that there is widespread and

often sophisticated counterfeiting of their marks in Turkey,

especially in apparel, film, cosmetics, detergent and other

Turkey recently published its first Plant Variety Protection

(PVP) Law. A subsidiary of a major U.S. seed company,

however, has been unable to obtain protection for its

commercial seed under this new law, reportedly at great cost

Further information on the intellectual property situation

in Turkey is available in the National Trade Estimate

report, available at the U.S. Trade Representative's

¶8. Transparency Of The Regulatory System

The GOT has adopted policies and laws that in principle

should foster competition and transparency. However, foreign

companies in several sectors claim that regulations are

sometimes applied in a nontransparent manner.

Turkish legislation generally requires competitive bidding

procedures in the public sector. Law 4734 on Public

Procurement established a board to oversee public tenders.

Law 4761 lowered the original minimum bidding threshold at

which foreign companies can participate in state tenders.

The law gives preference to domestic bidders, Turkish

citizens and legal entities established by them, as well as

to corporate entities established under Turkish law by

foreign companies. The public procurement law has been

amended eight times since its enactment and may be further

In general, labor, health and safety laws and policies do

not distort or impede investment, although legal

restrictions on discharging employees may provide a

disincentive to labor-intensive activity in the formal

economy. Certain tax policies distort investment decisions.

High taxation of cola drinks discourages investment in this

sector. Generous tax preferences for free zones have

provided a stimulus to investment in these zones, though

these preferences will be trimmed in the future (see free

zones section). Similarly, incentives for investment in

certain low-income provinces appear to be stimulating

¶9. Efficient Capital Markets And Portfolio Investment

The government has taken a number of important steps in

recent years to strengthen and better regulate the banking

system, whose weaknesses had contributed to macroeconomic

instability over the previous decade and played an important

role in the 2000-2001 financial crisis. A 2005 revision of

the Banking Law helps to bring the bank regulatory framework

closer to European Union norms. The new law will tighten

bank regulation, notably by broadening the range of

expertise inspectors can draw on when conducting on-site

An independent Banking and Regulation Supervision Agency

(BRSA) monitors and supervises Turkey's banks. The BRSA is

headed by a board whose seven members are appointed by the

cabinet for six-year terms. In addition, bank deposits are

protected by an independent deposit insurance agency, the

Because of high local borrowing costs and short repayment

periods, foreign and local firms frequently seek credit from

international markets to finance their activities. As of end-

2005, there are 46 commercial banks (including 13 foreign

banks) and 13 development or investment banks operating in

Turkey. Sector assets as of August 2005 totaled

approximately USD 260 billion, or about 74 percent of GNP,

There is a regulatory system established to encourage and

facilitate portfolio investments, though it needs

improvements in transparency, accounting, and enforcement

provisions to bring it up to U.S. and EU standards. The

Istanbul Stock Exchange (ISE), formed in 1986, is becoming a

significant emerging market stock exchange. As of December

31 2005, 282 companies were listed on the exchange. However,

Turkey has yet to develop other capital markets. The Capital

Markets Board is responsible for overseeing the activities

of capital markets, including activities of ISE-quoted

companies, and securities and investment houses. The Turkish

private sector is dominated by a number of large holding

companies, whose upper management is family-controlled. Most

large businesses continue to float publicly only a minority

portion of company shares in order to limit outside

interference in company management. There has been no

attempt at a hostile takeover by either international or

In recent years, terrorist bombings -- some with significant

numbers of casualties -- have struck religious, political,

and business targets in a variety of locations in Turkey.

The potential remains throughout Turkey for violence and

terrorist actions against U.S. citizens and interests, both

by transnational and indigenous terrorist organizations.

In November 2003 the Al-Qa'ida network was responsible for

four large suicide bombings in Istanbul that, among other

targets, hit western interests. Indigenous terrorist groups

also continue to target Turkish as well as U.S. and Western

interests. In June 2004 the indigenous terrorist group

PKK/KADEK/KONGRA GEL announced an end to their "unilateral

ceasefire." Since the announcement, there have been repeated

attacks against Turkish targets in the southeast region of

Turkey, where the group has traditionally concentrated its

activities. In addition, there have been bombings and other

incidents in Istanbul, Bodrum, Antalya, Cesme, Kusadasi and

Mersin. Other terrorist groups, including the Turkish group

Revolutionary People's Liberation Party/Front (DHKP/C),

continue to target Turkish officials and various civilian

facilities and may use terrorist activity to make political

statements. In 2002, 2003, 2004, and 2005 civilian venues

such as courthouses, fast food restaurants, and public

transportation were the targets of minor bomb attacks,

resulting in small numbers of casualties. Similar, random

bombings are likely to continue in unpredictable locations.

Americans traveling to Southeastern Turkey, the site of

PKK/KADEK/KONGRA GEL actions, should exercise caution.

Although the Turkish government takes air safety seriously

and maintains strict controls, particularly on international

flights, hijacking attempts have occurred as recently as

2003. For the latest security information on Turkey and

throughout the world, travelers should monitor the State

Department web site http://travel.state.gov, where the

current Worldwide Caution Public Announcement, Travel

Warnings, and Public Announcements can be found.

Corruption is perceived to be a major problem in Turkey by

private enterprise and the public at large, particularly in

government procurement. American companies operating in

Turkey have complained about being solicited, with varying

degrees of pressure, by municipal or local authorities for

"contributions to the community". Parliament continues to

probe corruption allegations involving senior officials in

previous governments, particularly in connection with energy

Recent public procurement reforms were designed to make

procurement more transparent and less susceptible to

political interference, including through the establishment

of an independent public procurement board with the power to

void contracts. The judicial system is also perceived to be

susceptible to external influence and to be biased against

Turkish legislation outlaws bribery and some prosecutions of

government officials for corruption have taken place, but

enforcement is uneven. Turkey ratified the OECD Convention

on Combating Bribery of Public Officials, and passed

implementing legislation in January 2003 to provide that

bribes of foreign officials, as well as domestic, are

illegal and not tax deductible. In 2005, Turkey's Foreign

Affairs Committee approved a draft law ratifying the UN

Convention Against Corruption, which was signed in 2003.

Amendments in 2005 to Turkey's Criminal Code make it

unlawful to promise or to give any advantage to foreign

government officials in exchange for their assistance in

providing improper advantage in the conduct of international

business. In the event that such a crime makes an unlawful

benefit to a legal entity, such legal entity shall be

subject to certain security measures. The provisions of the

Criminal Law regarding the bribing of foreign governmental

officials are in line with the provisions of the Foreign

Corrupt Practices Act of 1977 of the United States (the

There are, however, a number of differences between the

Turkish law and the FCPA. For example, there is not an

exception under the Turkish law for payments to facilitate

or expedite performance of a "routine governmental action"

in terms of the FCPA. Another difference between the

provisions of the FCPA and the Turkish law is that the FCPA

does not provide for a punishment of imprisonment, while the

Turkish law provides a punishment of imprisonment from four

years to 12 years. The Prime Ministry's Inspection Board,

which advises a new Corruption Investigations Committee, is

responsible for investigating major corruption cases. Nearly

every state agency has its own inspector corps responsible

for investigating internal corruption. The parliament can

establish investigative commissions to examine corruption

allegations concerning Cabinet Ministers for the Prime

Minister. A majority vote is needed to send these cases to

Transparency International has an affiliated NGO in

Istanbul. Transparency International noted that Turkey

improved its fight against corruption in 2005, moving Turkey

from 77th to 65th in the transparency ranking of 159

Since 1985, Turkey has been negotiating and signing

agreements for the reciprocal promotion and protection of

investments. Turkey has signed bilateral investment treaties

with 74 countries and has initiated negotiations with nine

countries. 54 of these agreements are now in force,

including with the United States, United Kingdom, Germany,

the Netherlands, Belgium, Luxembourg, Denmark, Austria,

Sweden, Switzerland, Spain, Finland, Italy, Portugal,

Hungary, Poland, Romania, Tunisia, Kuwait, Bangladesh,

China, Japan, South Korea, Indonesia, Croatia, Cuba, the

Czech Republic, Estonia, Russian Federation, Azerbaijan,

Kazakhstan, Georgia, Tajikistan, Ukraine, Uzbekistan,

Belarus, Lithuania, Latvia, Slovakia, Macedonia, Pakistan,

Turkmenistan, Moldova, Kyrgyzstan, Albania, Bulgaria,

Argentina, Bosnia, Malaysia, Egypt, Mongolia, Greece,

Israel, Afghanistan, Ethiopia, and Iran.

Turkey's bilateral investment treaty with the United States

came into effect on May 18, 1990. A bilateral tax treaty

between the two countries took effect on January 1, 1998.

Turkey has avoidance of double taxation agreements with 61

¶13. OPIC And Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) offers a

full range of programs in Turkey, including political risk

insurance for U.S. investors, under its bilateral agreement

with Turkey. OPIC is also active in financing private

investment projects implemented by U.S. investors in Turkey.

OPIC-supported direct equity funds, including the USD 200

million Soros Private Equity Fund can make direct equity

investments in private sector projects in Turkey. Small- and

medium-sized U.S. investors in Turkey are also eligible to

utilize the new Small Business Center facility at OPIC,

offering OPIC finance and insurance support on an expedited

basis for loans from USD 100,000 to USD 10 million. In 1987,

Turkey became a member of the Multinational Investment

The U.S. Government annually purchases approximately USD 24

million of local currency. Embassy purchases are made at

prevailing market rates, which fluctuate in accordance with

Turkey's free floating exchange rate regime.

Turkey has a youthful population of 71 million, 65.5 percent

of which is in the 15-64 age group and 28.8 percent in the 0-

14 age group. Of the total population, 60.3 percent live in

urban areas. The Turkish labor force numbers 24.9 million

(22.6 million employed and 2.4 million unemployed); 35.9

percent of the workforce is in agriculture. The official

unemployment rate was 9.7 in the third quarter of 2005.

The literacy rate in Turkey is 88.3 percent (95.7 percent

among men and 81.1 percent among women). Students are

required to complete eight years of schooling and to remain

in school until they are 15 years old. Those who complete

primary school education account for 96.1 percent of the

population, of which only 30.3 percent complete vocational

or higher educations, including distance education.

Turkey has an abundance of unskilled and semi-skilled labor.

Although the Ministry of Education launched projects within

the framework of EU programs to meet the needs of high-tech

industries, there is a shortage of qualified workers.

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. Formal apprenticeship programs remain in

place, although informal training is 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. Approximately 2.9 million of the 11

to 12 million wage and salary earners are unionized. The

law prohibits discrimination on the basis of union

membership but discrimination occurs occasionally in

practice. There is no obligation for a worker to become a

member of any union and there is no obligation to make a

collective labor agreement for any sector. However, in

order to be covered by a collective labor agreement, a

worker should be a member of a union. In order to be a

bargaining agent, a union must have a membership of more

than half of the workers employed in a work place and

include at least 10 percent of the workers employed in that

specific sector. The Labor Law sets a series of steps to be

followed, including mediation by an Arbitration Board,

before a union may initiate a strike. Facilitating labor-

employer relations is among the responsibilities of the

Economic and Social Council, which aims at maintaining an

effective dialogue between the state and social parties to

encourage compromise in industrial relations.

Turkey has signed many International Labor Organization

(ILO) conventions protecting workers' rights, including

conventions on Freedom of Association and Protection of the

Right to Organize; Rights to Organize and to Bargain

Collectively; Abolition of Forced Labor; Minimum Wage;

Occupational Health and Safety; Termination of Employment

and Elimination of the Worst Forms of Child Labor. Since

1980, Turkey has faced criticism by the ILO, particularly

for shortcomings in enforcement of ILO Convention 87

(Convention Concerning Freedom of Association and Protection

of the Right to Organize) and Convention 98 (Convention

Concerning the Application of the Principles of the Right to

Organize and to Bargain Collectively). However, in 1995 and

2001, constitutional amendments reduced restrictions on

freedom of association and political activity on trade

unions. The restrictions on the right to strike under

Article 54 of the Constitution were preserved intact. 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.

The Job Security Bill provides basic job security for

workers and requiring a valid reason for the termination of

the labor contract at the initiative of the employer. Labor

Law 4857 provided employers with greater flexibility in the

organization of work and weakened to a certain extent the

job security provided by the 2002 law. It contains many new

provisions in conformity with international regulations of

There are no special laws or exemptions from regular labor

laws in the country's 21 free trade and export processing

zones, although these zones are otherwise regulated by Free

Use of technology is encouraged at work. There is a special

law concerning establishment of Technology Development Zones

(called "techno-parks"). The state also contributes to

research and development activities either though

reimbursement or providing subsidies. The personnel

expenses, cost of machinery, equipment and software,

consultancy and other services, fees paid to scientific

institutions, registration fees for patent and industrial

designs to the Patent Institute, and the cost of R&D related

materials may be reimbursed up to 60% by the state. This

Firms operating in Turkey's 21 free zones have historically

enjoyed many advantages. The zones are open to a wide range

of activities, 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. Sales to the Turkish domestic market

are allowed, with goods and revenues transported from the

zones into Turkey 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

Under Law 5084, taxpayers who possessed an operating license

as of February 6, 2004, will not have to pay income or

corporate tax on their earnings in the zone for the duration

of their license. Earnings based on sale of goods

manufactured in a zone will be exempt from income and

corporate tax until the end of the year in which Turkey

becomes a member of the European Union. Earnings secured in

a free zone under corporate tax immunity and paid as

dividends to real person shareholders in Turkey or to real

person or legal-entity shareholders abroad will be subject

to 10 percent withholding tax. The tax immunity of the wage

and salary income earned by persons employed in the zones by

taxpayers possessing an operating license as of February 6,

2004, will remain in effect until December 31, 2008, or the

expiration date of the operating license, whichever is

earlier. The implications of the new rules are complex, and

interested parties may want to consult with a tax advisor

and/or the Foreign Trade Undersecretariat (web site:

¶16. Foreign Direct Investment Statistics

With the foreign investment permit requirement in place

until 2003, the Turkish Treasury collected detailed sector

and country of origin data for authorized FDI. Data

collected since the abolition of the permit requirement, by

the Central Bank and other entities, may not be directly

comparable to data collected prior to 2003.

According to Turkish Treasury data, as of November 2005,

there are 10,984 foreign firms invested and operating in

Turkey. The aggregate actual inflows reached USD 21.7

billion. In 2004, EU countries accounted for 79.5 percent of

FDI inflows to Turkey, OECD countries accounted for 16.7

percent, and Middle East countries for 3.8 percent. Over the

past two decades, the Netherlands (32.3 percent) has been

the top source of foreign investment, followed by Germany

(10.1 percent), United Kingdom (10.0 percent) and the U.S.

(9.7 percent) Because of the absence of a bilateral tax

treaty until 1998, much U.S.-origin capital was invested in

Turkey through third-country subsidiaries. According to U.S.

Commerce Department data, U.S. company investment amounted

to about USD 2 billion in 2003. By unofficial estimates, the

U.S. may be one of the largest sources of foreign investment

In 2004, about 75.8 percent of foreign direct investment

took place in services, 18.0 percent in manufacturing, 5.9

percent in mining and 0.3 percent in agriculture.

Year Actual Inflow(Cumulative) Inflow/GDP No firms

Source: Central Bank of Turkey, State Institute of

(**) Includes capital inflows, foreign loans and real estate

FDI Stock by Source Country (end of 2004/ million USD)

The investment permit requirement lifted as of 2004.

Turkey's External Investment by Country (As of December

Source: General Directorate of Banking and Foreign Exchange,

Turkey's 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, ITT, Ford Motor Co.,

Lockheed Martin, Goodyear, Aventis, McDonald's, Nestle,

Mobil, Pepsi, Pfizer, Procter and Gamble, InterGen, Abbot

Laboratories, Aria, Bechtel, Shell, Delphi-Packard,

Toreador/Madison Oil, AES, GE, NRG, Normandy Mining, Marsa-

Kraft-Jacobs Suchard, ESBAS A.S., Archer Daniels Midland,

Merck, Sharp Dohme, Bunge, and Bausch and Lomb.

Here is the corresponding cable from the previous year, 2005 (also originating in the Ankara-based embassy). Some of the text overlaps, so one was probably an extension of the earlier.

TAGS: EINV [Foreign Investments], KTDB [National Trade Data Bank],

EFIN [Financial and Monetary Affairs], TU [Turkey]

SUBJECT: 2005 INVESTMENT CLIMATE STATEMENT FOR TURKEY

This is the first of two cables transmitting e following

is the 2005 Investment Climate Statement for Turkey:

The Government of Turkey (GOT) views foreign direct

investment as vital to the country's economic development

and prosperity. Accordingly, Turkey has one of the most

liberal legal regimes for FDI in the OECD. With the

exception of some sectors (see below), areas open to the

Turkish private sector are generally open to foreign

participation and investment. However, all companies -

regardless of nationality of ownership - face a number of

obstacles: excessive bureaucracy, weaknesses in the

judicial system, high and inconsistently collected taxes,

weaknesses in corporate governance, sometimes

unpredictable decisions taken at the municipal level, and

frequent, sometimes unclear changes in the legal and

regulatory environment. Historically, investment has also

been discouraged by high inflation and political and

macroeconomic uncertainties, though Turkey has become much

more stable in the years following the 2001 economic and

As a result, FDI inflows, at well below one percent of GDP

over the last decade, have been far below FDI received by

more investor-friendly emerging markets and also below

Turkey's potential. The GOT's far-reaching economic

reform program agreed with the World Bank and IMF, and

motivated also by multilateral agreements and EU

accession, has begun to address these problems and should

Regulations governing foreign investment are, in general,

transparent. Legislation approved by Parliament in 2003

(Law 4875 on Direct Foreign Investment) repealed 1954

legislation on foreign investment. The 2003 law

liberalized the foreign direct investment regime by

eliminating screening of foreign investors in favor of a

notification system and providing national treatment in

acquisition of real estate by foreign-owned entities

registered under Turkish law. The law also abolished

specific minimum capital requirement for foreign

investments (general capital requirements apply to all

companies); the requirement to seek permission from

Treasury if a capital increase would change the

participation ratio between the foreign investor and any

local partners; and the requirement for Turkish companies

to register with Treasury any licensing, management, or

franchising agreements concluded with foreign persons.

Foreign investors are subject to restrictions on

establishment in certain sectors. The equity

participation ratio of foreign shareholders is restricted

to 20 percent in broadcasting and 49 percent in aviation,

maritime transportation, and many value-added

telecommunication services (though telecommunications

legislation has been amended to allow certain company-

specific exceptions to these limits). However, companies

receive full national treatment once they are established.

Establishment in financial services, including banking and

insurance, and in the petroleum sector requires special

permission from the GOT for both domestic and foreign

The GOT privatizes State Economic Enterprises through

block sales, public offerings, or a combination of both.

Foreign investors generally receive national treatment in

privatization programs. Law 5189 of 2004 removed the

limit on foreign ownership of Turk Telecom, the dominant

provider of voice and other telecommunications services.

The company's privatization plan foresees a block sale of

The Turkish Parliament passed legislation in 2003

streamlining the company registration process (see Section

8 - Transparency of the Regulatory System). Another 2003

law on work permits for foreign citizens gave the Labor

and Social Security Ministry additional authority in this

Requirements/Incentives). Inflation accounting was

introduced at the end of 2003. Law 5177, published in

June 2004, amended existing legislation on mining with a

view toward making this sector more accessible to foreign

investment by streamlining permit requirements and

procedures and removing limits on mining on certain types

At the end of 2003, Parliament replaced a complex series

of taxes on financial instruments with a 15 percent tax on

all of them. In 2005, Turkey also plans to reduce the

rate of corporate tax and to broaden the set of goods and

services eligible for lower value added tax rates.

Turkish law and regulation affecting the investment

climate continues to evolve. Potential investors should

check with appropriate Turkish government sources for

current and detailed information. The following web site

provides the text of regulations governing foreign

investment and incentives as well as other useful

http://www.treasury.gov.tr/for_inv.htm. Additional

Turkish law guarantees the free transfer of profits, fees

and royalties, and repatriation of capital. This

guarantee is reflected in Turkey's Bilateral Investment

Treaty with the United States, which mandates unrestricted

and prompt transfer in a freely usable currency at a legal

market-clearing rate for all funds related to an

investment. There is no difficulty in obtaining foreign

exchange. However, as the result of a 1997 court

decision, the Turkish Government has blocked full

repatriation of investments by oil companies under Article

116 of the 1954 Petroleum Law, which protected foreign

investors from the impact of lira depreciation. Affected

companies have challenged the 1997 decision and the case

is currently in the Turkish court system.

Under the 1990 Bilateral Investment Treaty with the United

States (codifying existing Turkish law), expropriation can

only occur in accordance with international law and due

process. Expropriations must be for public purpose and

non-discriminatory. Compensation must be reasonably

prompt, adequate, and effective. Under the Bilateral

Investment Treaty, U.S. investors have full access to the

local court system and the ability to take the host

government directly to third party international binding

arbitration to settle investment disputes. There is also

a provision for state-to-state dispute settlement.

As a practical matter, the GOT occasionally expropriates

private property for public works or for State Enterprise

industrial projects. The GOT agency expropriating the

property negotiates and proposes a purchase price. If the

owners of the property do not agree with the proposed

price, they can go to court to challenge the expropriation

or ask for more compensation. There are no outstanding

expropriation or nationalization cases.

There are several outstanding investment disputes between

U.S. companies and Turkish government bodies, particularly

Turkey's legal system provides means for enforcing

property and contractual rights, and there are written

commercial and bankruptcy laws. The court system is

overburdened, however, which sometimes results in slow

decisions and judges lacking sufficient time to grasp

complex issues. The judicial system is also perceived to

be susceptible to external influence and to be biased

against outsiders. Judgments of foreign courts, under

certain circumstances, need to be reconsidered by local

courts before they are accepted and enforced. . Monetary

judgments are usually made in local currency, but there

are provisions for incorporating exchange rate

Turkey is a member of the International Center for the

Settlement of Investment Disputes (ICSID), and is a

signatory of the New York Convention of 1958 on the

Recognition and Enforcement of Foreign Arbitral Awards.

Turkey ratified the Convention of the Multinational

Investment Guarantee Agency (MIGA) in 1987.

Turkish law accepts binding international arbitration of

investment disputes between foreign investors and the

state; this principle is included in the U.S.-Turkish

Bilateral Investment Treaty (BIT). In practice, however,

Turkish courts have on at least one occasion failed to

uphold an international arbitration ruling involving

¶5. PERFORMANCE REQUIREMENTS/INCENTIVES

Turkey is a party to the WTO Agreement on Trade Related

Turkey provides investment incentives to both domestic and

foreign investors. These include a corporate tax

exemption of 40 percent of specified investment expenses

deductible from future taxable profits for investments

greater than 5,000 new TL (approximately USD 3,700). (New

Turkish currency was issued on January 1, 2005, with 1 new

Turkish lira equal to 1,000,000 (old) Turkish lira.)

Certain other incentives may require an incentive

certificate from the Turkish Treasury Undersecretariat.

Law 5084, which went into effect in early 2004, encourages

investment in provinces with annual per capita income

below USD 1,500 as well as to high priority development

regions. For low income provinces and under certain

conditions, the law provides for withholding tax

incentives on income tax; social security premium

incentives; free land; and electricity price support.

These incentives will remain in effect until the end of

2008, except for allocation of free public land, which has

no expiration date. The same law also limits certain tax

preferences previously enjoyed by Turkey's free zones (see

below). The Turkish Government is reported to be

considering expanding the number of provinces eligible for

There are no performance requirements imposed as a

condition for establishing, maintaining, or expanding an

investment. There are no requirements that investors

purchase from local sources or export a certain percentage

of output. However, domestic or foreign investors who

commit to realizing USD 10,000 of exports upon completion

of the investment may be exempt from certain fees and

taxes, such as those related to land registration or

company establishment. Investors' access to foreign

exchange is not conditioned on exports.

There are no requirements that nationals own shares in

foreign investments, that the shares of foreign equity be

reduced over time, or that the investor transfer

technology on certain terms. There are no government

imposed conditions on permission to invest, including

location in specific geographical areas, specific

percentage of local content - for goods or services - or

local equity, import substitution, export requirements or

targets, employment of host country nationals, technology

The GOT does not require that investors disclose

proprietary information, other than publicly available

information, as part of the regulatory approval process.

Enterprises with foreign capital must send their activity

report, submitted to the general assembly of shareholders,

auditor's report, and balance sheets to the Treasury's

Foreign Investment Directorate every year by May.

With the exceptions noted under Section 1 "Openness to

Foreign Investment" and Section 8 "Transparency of the

Regulatory System", Turkey grants all rights, incentives,

exemptions and privileges available to national capital

and business to foreign capital and business on an MFN

basis. American and other foreign firms can participate

in government-financed and/or subsidized research and

development programs on a national treatment basis.

Expatriates may be assigned as managers or technical

staff. We are aware of one case in the tourism sector in

which denial of a residence permit has hindered operations

for a foreign investor. A 2003 law (no. 4817) on work

authorizations for foreign nationals gave the Ministry of

Labor and Social Security more authority over work

Outside of the agricultural sector and many services,

Turkey generally has a liberal foreign trade regime.

There are no discriminatory or preferential export or

import policies directly affecting foreign investors.

Turkey harmonized its export incentive regime with the

European Union in 1995, prior to the start of the Customs

Union. Turkey currently offers a number of export

incentives, including credits through the Turkish

Eximbank, energy incentives, and research and development

incentives. Foreign investors can participate in these

export incentive programs on a national treatment basis.

More information on Turkey's trade regime can be found at

Military procurement generally requires an offset

provision in tender specifications. The offset guidelines

were modified to encourage direct investment and

¶6. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

With the exceptions noted in Section 1, private entities

may freely establish, acquire, and dispose of interests in

business enterprises, and foreign participation is

Competitive equality is the standard applied to private

enterprises in competition with public enterprises with

respect to access to markets, credit, and other business

operations. Turkey is adopting the EU's competition

policy; a Competition Board was established in 1997 to

implement the 1994 competition (anti-monopoly) law.

Secured interests in property, both movable and real, are

recognized and enforced. There is a recognized and

reliable system of recording such security interests. For

example, there is a land registry office where real estate

is registered. Turkey's legal system protects and

facilitates acquisition and disposal of property rights,

including land, buildings, and mortgages, although some

parties have complained that the courts are slow in

rendering decisions and that they are susceptible to

external influence (see "Dispute Settlement").

Turkey's intellectual property rights regime has improved

in recent years, but still presents serious problems.

Turkey was elevated from the Special 301 Watch List to the

Priority Watch List in 2004, due to concerns about lack of

pharmaceuticals data exclusivity protection and continued

high levels of piracy and counterfeiting of copyrighted

Turkey's 2001 copyright law substantially modernized the

legal regime, providing deterrent penalties for copyright

infringement. However, it does not prohibit circumvention

of technical protection measures, a key feature of the

World Intellectual Property Organization (WIPO) "Internet"

treaties. In addition, the Turkish courts have generally

not rendered deterrent penalties to pirates as provided in

the copyright law. Legislation enacted in March 2004

contains several strong anti-piracy provisions, including

a ban on street sales of all copyright products and

authorization for law enforcement authorities to take

action without a complaint by the rightholder. However,

the law also reduces potential prison sentences in piracy

In 1995, new patent, trademark, industrial design, and

geographic indicator laws revamped Turkey's foundation for

industrial property protection. Turkey also acceded to a

number of international conventions, including the

Stockholm Act of the Paris Convention, the Patent

Cooperation Treaty, and the Strasbourg Agreement. The

Turkish Patent Institute (TPI) was established in 1994 to

support technological progress, protect intellectual

property rights and provide public information on

intellectual property rights, but its effectiveness has

reportedly been limited by lack of resources.

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for

pharmaceuticals began on January 1, 1999. Turkey has been

accepting patent applications since 1996 in compliance

with the TRIPS agreement "mailbox" provisions. The patent

law does not, however, contain interim protection for

Parliament amended the Patent Law in June 2004. The new

law provides for penalties for infringement of up to 3

years or 47,000 new TL (approximately USD 35,000) in

fines, or both, and closure of the business for up to one

year. However, some companies in the pharmaceutical

sector have criticized provisions that give judges wider

discretion over penalties in infringement cases, delay the

initiation of infringement suits until after the patent is

approved and published, and permit use of a patented

invention to generate data needed for the marketing

approval of generic pharmaceutical products.

The Health Ministry has accepted applications to register

generic copies of products which have a valid patent in

Turkey; in the absence of a system for patent linkage, it

may become possible for generics manufacturers to register

a copy of a brand name drug with a valid Turkish patent,

damaging the interests of the patent owner.

The key intellectual property concern for research-based

pharmaceutical companies is Turkey's lack of data

exclusivity protection for confidential test data. U.S.

industry contends that numerous products infringing data

exclusivity have been approved or are pending review by

Trademark holders also contend that there is widespread

and often sophisticated counterfeiting of their marks in

Turkey, especially of apparel, pharmaceuticals, film,

cosmetics, detergent and other products.

In 2004, Turkey published its first Plant Variety

Protection (PVP) Law. However, at least one subsidiary of

a U.S. seed company has been unable to obtain protection

for its commercial seed under this new law.

Further information on the intellectual property situation

in Turkey is available in the National Trade Estimate

report, available at the U.S. Trade Representative's

¶8. TRANSPARENCY OF THE REGULATORY SYSTEM

The GOT has adopted policies and laws that in principle

should foster competition and transparency. However,

foreign companies in several sectors claim that

regulations are sometimes applied in a nontransparent

Turkish legislation generally requires competitive bidding

procedures in the public sector. In 2003, Law 4734 on

Public Procurement entered into force. The law

established a board to oversee public tenders, and lowered

the minimum bidding threshold at which foreign companies

can participate in state tenders. The law gives

preferences to domestic bidders, Turkish citizens and

legal entities established by them, as well as to

corporate entities established under Turkish law by

foreign companies. The public procurement law may be

In general, labor, health and safety laws and policies do

not distort or impede investment, although legal

restrictions on discharging employees may provide a

disincentive to labor-intensive activity in the formal

economy. Certain tax policies distort investment

decisions. High taxation of cola drinks discourages

investment in this sector. Generous tax preferences for

free zones have provided a stimulus to investment in these

zones, though these preferences will be trimmed in the

future (see free zones section). Similarly, incentives

for investment in certain low-income provinces appear to

be stimulating investment there (see Performance

Bureaucratic "red tape" has been a significant barrier to

companies, both foreign and domestic. Law 4884 of June

2003 simplifies company establishment procedures. The law

repeals the permit requirement from the Industry and

Commerce Ministry for certain firms, institutes a single

company registration form and enables individuals to

offices of the Turkish Union of Chambers and Commodity

Exchanges. The goal is to enable registration to be

completed in as little as one day and to encourage

electronic sharing of documents. The government is also

considering other measures to streamline other business

procedures as part of its effort to improve the business

¶9. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

The government has taken a number of important steps in

recent years to strengthen and better regulate the banking

system, whose weaknesses had contributed to macroeconomic

instability over the previous decade and played an

important role in the 2000-2001 financial crisis.

A 1999 banking law established an independent Banking and

Regulation and Supervision Agency (BRSA) to monitor and

supervise Turkey's banks. The BRSA, which began

functioning in 2000, is headed by a board whose seven

members are appointed by the cabinet for six-year terms.

The law's provision's also toughened conditions for

establishing new banks or branches, set credit limits to

protect bank solvency, and strengthen regulatory and

sanctioning powers, including authorizing the board to

The law also created an independent deposit insurance

agency, the State Deposit Insurance Fund (SDIF). Until

2004, BRSA and SDIF had the same board and shared staff

and offices, though they were separate legal entities.

Since the beginning of 2004, BRSA and SDIF's boards and

staffing have been separated and SDIF's headquarters moved

During and after the 2000-2001 financial crisis, many

Turkish banks became insolvent or undercapitalized, and

SDIF, in coordination with BRSA, took over 21 financial

institutions. This includes Imar Bank, which was taken

over on July 4, 2003. The SDIF has recapitalized these

banks, and has been selling or liquidating them, at the

same time as it is negotiating repayment agreements from

the banks' former owners covering these banks' portfolio

of credits to affiliated companies. The BRSA also has

issued a regulation limiting the extent of connected

lending (between a bank and related corporate entities)

and requiring frequent BRSA on-site monitoring.

In early 2005, the government is preparing a new banking

law that helps to bring the bank regulatory framework in

line with European Union norms. Once enacted, the new law

is expected to further tighten bank regulation, notably by

broadening the range of expertise inspectors can draw on

Following the 2001 crisis, the government restructured

state-owned banks, minimizing the scope for political

interference, liquidating one of the banks, and slating

these banks for eventual privatization. However, the

process of privatizing the three remaining state-owned

Because of high local borrowing costs and short repayment

periods, both foreign and local firms frequently seek

credit from international markets to finance their

activities. As of end-2004, there were 48 commercial

banks (including 12 foreign banks) and 14 development or

investment banks operating in Turkey. Total sectoral

assets were approximately USD 184 billion, or about 70

percent of GNP, as of July 2004 according to data from the

Banking Regulation and Supervision Board. The three state-

owned commercial banks and the top 4 privately-capitalized

banks hold approximately 74 percent of total assets.

There is a regulatory system established to encourage and

facilitate portfolio investments, though it needs

improvements in transparency, accounting, and enforcement

provisions to bring it up to EU and U.S. standards. The

Istanbul Stock Exchange (ISE), formed in 1986, is becoming

a significant emerging market stock exchange. As of

January 2005, 276 companies were listed on the exchange.

However, Turkey has yet to develop other capital markets.

The Capital Markets Board is responsible for overseeing

the activities of capital markets, including activities of

ISE-quoted companies, and securities and investment

houses. A new Capital Markets Law is under consideration.

The Turkish private sector is dominated by a number of

large holding companies, whose upper management is family-

controlled. Most large businesses continue to float

publicly only a minority portion of company shares in

order to limit outside interference in company management.

There has been no attempt at a hostile takeover by either

international or domestic parties in recent memory.

There are no laws or regulations that specifically

authorize private firms to adopt articles of incorporation

or association in order to limit or prohibit foreign

investment, participation, or control. Neither is there

any attempt by the private sector or government to

restrict foreign participation in industry standard-

Terrorist bombings -- some with significant numbers of

casualties -- over the past two years have struck

religious, political, and business targets in a variety of

locations in Turkey. The potential remains throughout

Turkey for violence and terrorist actions against U.S.

citizens and interests, both by transnational and

In November 2003 the Al-Qa'ida network was responsible for

four large suicide bombings in Istanbul that, among other

targets, hit western interests. Indigenous terrorist

groups also continue to target Turkish as well as U.S. and

Western interests. In June 2004 the indigenous terrorist

group PKK/KADEK/KONGRA GEL announced an end to their

"unilateral ceasefire." Since the announcement, there

have been repeated attacks against Turkish targets in the

southeast region of Turkey, where the group has

traditionally concentrated its activities. In addition,

there have been bombings and other incidents in Istanbul,

Bodrum, Antalya, and Mersin. Other terrorist groups,

including the Turkish group Revolutionary People's

Liberation Party/Front (DHKP/C), continue to target

Turkish officials and various civilian facilities and may

use terrorist activity to make political statements. In

2002, 2003, and 2004, civilian venues such as courthouses

and fast food restaurants were the targets of minor bomb

attacks, which have resulted in small numbers of

casualties among bystanders. Similar, random bombings are

likely to continue in unpredictable locations. Americans

traveling to Southeastern Turkey, the site of

PKK/KADEK/KONGRA GEL actions, should exercise caution.

Although the Turkish government takes air safety seriously

and maintains strict controls, particularly on

international flights, hijacking attempts have occurred as

recently as 2003. For the latest security information on

Turkey and throughout the world, travelers should monitor

the State Department web site http://travel.state.gov,

where the current Worldwide Caution Public Announcement,

Travel Warnings, and Public Announcements can be found.

CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN

TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT

LARGE, PARTICULARLY IN GOVERNMENT PROCUREMENT.

AMERICAN COMPANIES OPERATING IN TURKEY HAVE

COMPLAINED ABOUT BEING SOLICITED, WITH VARYING

DEGREES OF PRESSURE, BY MUNICIPAL OR LOCAL

AUTHORITIES FOR "CONTRIBUTIONS TO THE COMMUNITY".

PARLIAMENT CONTINUES TO PROBE CORRUPTION

ALLEGATIONS INVOLVING SENIOR OFFICIALS IN PREVIOUS

GOVERNMENTS, PARTICULARLY IN CONNECTION WITH ENERGY

PROJECTS. IN 2003, AFTER THE GOVERNMENT INTERVENED

IN A BANK OWNED BY THE UZAN GROUP, EVIDENCE OF

Recent public procurement reforms were designed to make

procurement more transparent and less susceptible to

political interference, including through the

establishment of an independent public procurement board

with the power to void contracts. The judicial system is

also perceived to be susceptible to external influence and

to be biased against outsiders to some degree.

Turkish legislation outlaws bribery and some prosecutions

of government officials for corruption have taken place,

but enforcement is uneven. Turkey ratified the OECD

Convention on Combating Bribery of Public Officials, and

passed implementing legislation in January 2003 to provide

that bribes of foreign officials, as well as domestic, are

illegal and not tax deductible. In 2003, Turkey signed

The Prime Ministry's Inspection Board, which advises a new

Corruption Investigations Committee, is responsible for

investigating major corruption cases. Nearly every state

agency has its own inspector corps responsible for

investigating internal corruption. The National Assembly

can establish investigative commissions to examine

corruption allegations concerning Cabinet Ministers for

the Prime Minister; a majority vote in the parliament is

needed to send these cases to the Supreme Court for

Transparency International has an affiliated NGO in

Since 1985, Turkey has been negotiating and signing

agreements for the reciprocal promotion and protection of

investments. Turkey has signed or initiated negotiations

on bilateral investment treaties with 69 countries. Fifty-

two of these agreements are now in force, including with

the United States, United Kingdom, Germany, the

Netherlands, Belgium, Luxembourg, Denmark, Austria,

Sweden, Switzerland, Spain, Finland, Italy, Portugal,

Hungary, Poland, Romania, Tunisia, Kuwait, Bangladesh,

China, Japan, South Korea, Indonesia, Croatia, Cuba, the

Czech Republic, Estonia, Russian Federation, Azerbaijan,

Kazakhstan, Georgia, Tajikistan, Ukraine, Uzbekistan,

Belarus, Lithuania, Latvia, Slovakia, Macedonia, Pakistan,

Turkmenistan, Moldova, Kyrgyzstan, Albania, Bulgaria,

Argentina, Bosnia, Malaysia, Egypt, Mongolia, Greece and

Turkey's bilateral investment treaty with the United

States came into effect on May 18, 1990. A bilateral tax

treaty between the two countries took effect on January 1,

1998. Turkey has signed avoidance of double taxation

agreements with 59 countries; 39 of these are in force.

¶13. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

The Overseas Private Investment Corporation (OPIC) offers

a full range of programs in Turkey, including political

risk insurance for U.S. investors, under its bilateral

agreement with Turkey. OPIC is also active in financing

private investment projects implemented by U.S. investors

in Turkey. OPIC-supported direct equity funds, including

the USD 200 million Soros Private Equity Fund can make

direct equity investments in private sector projects in

Turkey. Small- and medium-sized U.S. investors in Turkey

are also eligible to utilize the new Small Business Center

facility at OPIC, offering OPIC finance and insurance

support on an expedited basis for loans from USD 100,000

to USD 10 million. In 1987, Turkey became a member of the

Multinational Investment Guarantee Agency (MIGA).

The U.S. Government annually purchases approximately USD

24 million of local currency. Embassy purchases are made

at prevailing market rates, which fluctuate in accordance

with Turkey's free floating exchange rate regime.

The Turkish labor force numbers 25.3 million (22.9 million

employed and 2.4 million unemployed); 35.9 percent of the

workforce is in agriculture. The official unemployment

rate was 9.5 in the third quarter of 2004.

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

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 ILO, particularly for shortcomings in

enforcement of ILO Convention 87 (Convention concerning

Freedom of Association and Protection of the Right to

Organize) and Convention 98 (Convention concerning the

Application of the Principles of the Right to Organize and

IN 2002, PARLIAMENT APPROVED A JOB SECURITY BILL,

PROVIDING BASIC JOB SECURITY FOR WORKERS AND REQUIRING A

VALID REASON FOR THE TERMINATION OF THE LABOR CONTRACT AT

THE INITIATIVE OF THE EMPLOYER. THE LAW CAME INTO EFFECT

ON 15 MARCH 2003. IN 2003, THE LABOR LAW OF 1971 (NO.1475)

WAS REPLACED BY A NEW LABOR LAW (NO.4857), WHICH PROVIDED

EMPLOYERS WITH GREATER FLEXIBILITY IN THE ORGANIZATION OF

WORK AND WEAKENED TO A CERTAIN EXTENT THE JOB SECURITY

In 1995 and 2001, constitutional amendments reduced

restrictions on freedom of association and political

activity of trade unions. However, the restrictions on

the right to strike under Article 54 of the Constitution

were preserved intact. Under the Law on Collective Labor

Agreements, Strikes and Lockouts, some restrictions on the

right to strike were repealed in 1988. Civil servants

(defined broadly as all employees of central government

ministries, including teachers) are allowed to form trade

unions and to engage in limited collective negotiations,

Firms operating in Turkey's free zones have historically

enjoyed many advantages, but these will be limited in the

future by recent legislation. Twenty-one zones have been

established since passage of the Turkish law on free zones

in 1985. The zones are open to a wide range of

activities, 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. Sales to the Turkish domestic

market are allowed, with goods and revenues transported

from the zones into Turkey 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

Law 5084 revised the free zones law to effectively

eliminate certain income and corporate tax immunities for

the zones. Under the new rules, taxpayers who possessed

an operating license as of February 6, 2004 will not have

to pay income or corporate tax on their earnings in the

zone for the duration of their license. Earnings based on

sale of goods manufacturing in a zone will be exempt from

income and corporate tax until the end of the year in

which Turkey becomes a member of the European Union.

Earnings secured in a free zone under corporate tax

immunity and paid as dividends to real person shareholders

in Turkey or to real person or legal-entity shareholders

abroad will be subject to 10 percent withholding tax. The

tax immunity of the wage and salary income earned by

persons employed in the zones by taxpayers possessing an

operating license as of February 6, 2004 will remain in

effect until December 31, 2008, or the expiration date of

the operating license, whichever is earlier. The

implications of the new rules are complex, and interested

parties may want to consult with a tax advisor and/or the

Foreign Trade Undersecretariat (web site:

¶16. FOREIGN DIRECT INVESTMENT STATISTICS

With the foreign investment permit requirement in place

until 2003, the Turkish Treasury collected detailed

sectoral and country of origin data for authorized FDI.

Data collected since the abolition of the permit

requirement, by the Central Bank and other entities, is

not directly comparable to data collected prior to 2003.

According to Turkish Treasury data, as of June 2003, there

are 6,511 foreign firms invested and are operating in

Turkey. The Turkish government has provided permits for

foreign capital since 1980 amounting to USD 35.2 billion,

and aggregate actual inflows reached USD 16.4 billion. In

2003, EU countries accounted for 74.3 percent of

authorized new foreign investment, OECD countries

accounted for 93.7 percent, and Islamic countries for 3.7

percent. Over the past two decades, France (16.4 percent)

has been the top source of foreign investment, followed by

the Netherlands (15.8 percent), Germany (13.0 percent) and

the U.S. (11.5 percent) (Note that 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.

According to U.S. Commerce Department data, U.S. company

investment amounted to about USD 2 billion in 2003. By

unofficial estimates, the U.S. may be one of the largest

sources of foreign investment in Turkey.

In 2003, about 58.9 percent of authorized foreign

investment took place in manufacturing, 30.23 percent in

services, 10.3 percent in mining and 0.6 percent in

agriculture. The sub-sectors with the greatest amount of

authorized foreign investment include banking (10.6

percent); communications (9.4 percent); food, beverage and

tobacco processing (8.0 percent); and trade (6.5 percent).

Between 1980 and June 2003, 53.0 percent of actual capital

inflows were invested in manufacturing, 44.0 percent in

services, 1.8 percent in agriculture, and 1.2 percent in

mining. The finance and communications sectors received

the highest share of increased foreign direct investment

Source: Central Bank of Turkey, State Institute of

(**) Includes capital inflows, foreign loans and real

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

Country Cumulative Value Share (percent)

Source: Turkish Treasury Undersecretariat, General

Directorate of Foreign Investment. Updated information

has not been issued for the period following 2002.

Sectoral Breakdown of FDI Permits (1980-2003*/ million

Sector Cumulative Value Share (percent)

Source: General Directorate of Foreign Capital

Main Manufacturing Industry Sub-Sectors Receiving FDI

Industry Sub-Sector Share in Manufacturing

Source: General Directorate of Foreign Capital

Turkey's External Investment by Country (As of December

Source: General Directorate of Banking and Foreign

Turkey's 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,

ITT, Ford Motor Co., Lockheed Martin, Goodyear, Aventis,

McDonald's, Nestle, Mobil, Pepsi, Pfizer, Procter and

Gamble, InterGen, Abbot Laboratories, Aria, Bechtel,

Shell, Delphi-Packard, Toreador/Madison Oil, AES, GE, NRG,

Normandy Mining, Marsa-Kraft-Jacobs Suchard, ESBAS A.S.,

Archer Daniels Midland, Merck, Sharp Dohme, Bunge, and

The same text about patents seems to have been grafted even from 2003 reports, such as the following:

EFIN [Financial and Monetary Affairs], TU [Turkey]

SUBJECT: 2003 INVESTMENT CLIMATE STATEMENT FOR TURKEY -

The following is the second of four cables transmitting the

2003 Investment Climate Statement for Turkey:

¶5. PERFORMANCE REQUIREMENTS/INCENTIVES

Turkey is a party to the WTO Agreement on Trade Related

Turkey provides investment incentives to both domestic and

foreign investors, though these were scaled back in 2003.

These include a corporate tax exemption of 40 percent of

specified investment expenses deductible from future taxable

profits for investments greater than 5 billion TL

(approximately USD 3,600). Certain other incentives may

require an incentive certificate from the Turkish Treasury

Undersecretariat. Investment incentives are defined in a

May 2003 Finance Ministry decree. For more information on

the Turkish incentive system, please visit:

www.investinturkey.gov.tr/incentives.htm).

There are no performance requirements imposed as a condition

for establishing, maintaining, or expanding an investment.

There are no requirements that investors purchase from local

sources or export a certain percentage of output. However,

domestic or foreign investors who commit to realizing USD

10,000 of exports upon completion of the investment may be

exempt from certain fees and taxes, such as those related to

land registration or company establishment. Investors'

access to foreign exchange has no relation to exports.

There are no requirements that nationals own shares in

foreign investments, that the shares of foreign equity be

reduced over time, or that the investor transfer technology

on certain terms. There are no government imposed

conditions on permission to invest, including location in

specific geographical areas, specific percentage of local

content - for goods or services - or local equity, import

substitution, export requirements or targets, employment of

host country nationals, technology transfer, or local

The GOT does not request that investors disclose proprietary

information, other than publicly available information, as

part of the regulatory approval process. Enterprises with

foreign capital must send their activity report, submitted

to the general assembly of shareholders, auditor's report,

and balance sheets to the Treasury's Foreign Investment

With the exceptions noted under Section 1 "Openness to

Foreign Investment" and Section 8 "Transparency of the

Regulatory System", Turkey grants all rights, incentives,

exemptions and privileges available to national capital and

business to foreign capital and business, on a MFN basis.

American and other foreign firms can participate in

government-financed and/or subsidized research and

development programs on a national treatment basis.

Visa, residence, or work permit requirements have not

generally inhibited foreign investors. Expatriates may be

assigned as managers or technical staff. We are aware of

one case in the tourism sector in which denial of a

residence permit has hindered operations for a foreign

investor. A 2003 law (no. 4817) on work authorizations for

foreign nationals should give the Ministry of Labor and

Social Security more authority over work permits.

Implementing regulations are to be issued later this year.

Outside of the agricultural sector, Turkey generally has a

liberal foreign trade regime. There are no discriminatory

or preferential export or import policies directly affecting

foreign investors. Turkey harmonized its export incentive

regime with the European Union in 1995, prior to the start

of the Customs Union. Turkey currently offers a number of

export incentives, including credits through the Turkish

Eximbank, energy incentives, and research and development

incentives. Cash incentives for exporters have been

eliminated. Foreign investors can participate in these

export incentive programs on a national treatment basis.

More information on Turkey's trade regime can be found at

Military procurement generally requires an offset provision

in tender specifications when the estimated value of the

imported goods and/or services exceeds five million dollars.

Turkish procedures provide little incentive for U.S.

companies to satisfy offset requirements (the obligation to

invest or buy Turkish exports as a condition of winning

defense contracts) by investing in non-defense industries.

¶6. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

Foreign and domestic private entities have the right to

freely establish and own business enterprises and engage in

all forms of remunerative activity. As noted above,

restrictions exist in the establishment of firms in certain

sectors where the share of foreign ownership is limited to

20 percent in broadcasting and up to 49 percent in aviation,

maritime transportation, and value-added telecommunication

services. Certain activities are reserved for GOT owned

enterprises. For example, by law, Turk Telekom has a

monopoly until December 31, 2003 on providing basic

telephone services. Beyond these areas, private entities

may freely establish, acquire, and dispose of interests in

business enterprises, and foreign participation is permitted

Competitive equality is the standard applied to private

enterprises in competition with public enterprises with

respect to access to markets, credit, and other business

operations. Turkey is adopting the EU's competition policy;

a Competition Board was established in 1997 to implement the

Secured interests in property, both chattel and real are

recognized and enforced. There is a recognized and reliable

system of recording such security interests. For example,

there is a land registry office where real estate is

registered. Turkey's legal system protects and facilitates

acquisition and disposal of property rights, including land,

buildings, and mortgages, although some parties have

complained that the courts are slow in rendering decisions

and that they are susceptible to external influence (see

Turkey's intellectual property rights regime has improved,

but still presents problems. In 1995, the Turkish

Parliament approved new patent, trademark and copyright laws

in connection with preparations for Turkey's customs union

with the EU. In 2001, the Parliament enacted amendments to

the copyright law, which provide retroactive protection,

expand the list of protected items and include deterrent

penalties against piracy. These amendments brought Turkey

into compliance with the WTO Agreement on Trade Related

Aspects of Intellectual Property Rights (TRIPS) in most

areas. In recognition of Turkey's progress in the IPR area,

USTR removed Turkey from its Special 301 Priority Watch List

and placed the country on its Watch List in 2002, where it

Intellectual property holders have praised Turkey's 2001

legislation as a significant improvement in the legal

regime. In the software area, piracy rates have come down

in recent years following an anti-piracy campaign and a

directive to legalize software used in government bodies.

However, piracy rates for recorded music remain persistently

high. Trademark holders contend that there is widespread

and often sophisticated counterfeiting of their marks in

Turkey's 1995 patent law replaced a law originally passed in

1879. New trademark, industrial design, and geographic

indicator laws were passed at the same time, completely

revamping Turkey's foundation for industrial property

protection. Turkey also acceded to a number of

international conventions in 1995, including the Stockholm

Act of the Paris Convention, the Patent Cooperation Treaty,

and the Strasbourg Agreement. The Turkish Patent Institute

(TPI) was established in 1994 as an independent legal entity

(Law No. 4004, June 16, 1994) under the Ministry of Industry

and Trade. TPI's mission is to support technological

development in Turkey, establish and protect intellectual

property rights and provide public information on

intellectual property rights. Currently, TPI is

understaffed to affect countrywide protection.

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for pharmaceuticals

began on January 1, 1999. Turkey has been accepting patent

applications since 1996 in compliance with the TRIPS

agreement "mailbox" provisions. The patent law does not,

however, contain interim protection for pharmaceuticals in

The key IPR concern for research-based pharmaceutical

companies is Turkey's lack of data exclusivity protection,

which is required by the TRIPS agreement. The lack of data

exclusivity, combined with the lack of interim patent

protection, poses substantial problems for research-based

¶8. TRANSPARENCY OF THE REGULATORY SYSTEM

The GOT has adopted policies and laws, which in principle

should foster competition and transparency. However, foreign

companies in several sectors claim that regulations are

sometimes applied in a nontransparent manner. In 2002, the

GOT published a report on transparency and good governance

in Turkey's public sector and established an interagency

steering committee to implement it. The plan calls for:

greater public access to information from the government and

public sector entities; financial disclosure by elected

public officials; and decentralization of most public

The government in principle follows competitive bidding

procedures. In 2003, Law 4734 on Public Procurement entered

into force. The law established a board to oversee public

tenders, and lowered the minimum bidding threshold at which

foreign companies can participate in state tenders.

However, the law restricts preferences for domestic bidders

to Turkish citizens and legal entities established by them.

Domestic bidders who form joint ventures with foreign

bidders are not eligible for the preference. The public

procurement law may be further amended in the future.

In general, labor, health and safety laws and policies do

not distort or impede investment, although legal

restrictions on discharging employees may provide a

disincentive to labor-intensive activity in the formal

economy. Certain tax policies distort investment decisions.

High taxation of cola drinks discourage investment in this

sector. Generous tax preferences for free zones provide a

stimulus to investment in these zones, perhaps at the

expense of investment elsewhere in Turkey. These

preferences may be trimmed under legislation currently under

Particularly beyond the establishment phase, bureaucratic

"red tape" has been a significant barrier to companies,

both foreign and domestic. Parliament passed Law 4884 in

June 2003 which should simplify company establishment

procedures. The law repeals the permit requirement from the

Industry and Commerce Ministry for certain firms, institutes

a single company registration form and enables individuals

to register their companies through local commercial

registry offices of the Turkish Union of Chambers and

Commodity Exchanges. The goal is to enable registration to

be completed in as little as one day and to encourage

electronic sharing of documents. Turkish government

agencies are expected to issue implementing regulations

needed to bring the law into force. The government is also

considering other measures to streamline procedures for

establishing and operating a business in Turkey, based on

recommendations made in a World Bank-funded study on

EFIN [Financial and Monetary Affairs], TU [Turkey]

SUBJECT: 20032 INVESTMENT CLIMATE STATEMENT FOR TURKEY

The following is the 20032 Investment Climate Statement

Turkey has been pursuing liberal and outward-oriented

economic policies since the mid-1980s. The Government

of Turkey (GOT) views foreign direct investment as vital

to the country's economic development and prosperity.

Accordingly, on paper Turkey has one of the most liberal

legal investment regimes for FDI in of the OECD. With

the exception of some sectors (see below), areas open to

the Turkish private sector are generally open to

foreign participation and investment. However, aAll

companies - regardless of nationality of ownership -

face a number of obstacles: political and macroeconomic

uncertainties, excessive bureaucracy, weaknesses in the

judicial system, high tax rates, weaknesses in corporate

governance, arbitrary decisions taken at the municipal

level, and frequent, sometimes unclear changes in the

legal and regulatory environment. As a result, FDI

inflows, at well below one percent of GDP over the last

decade, have been far below that of more investor-

friendly emerging markets as well as of Turkey's

potential. The GOT's far-reaching program of economic

and political reform agreed with the World Bank and IMF,

and motivated also by multilateral agreements and EU

accession, should address many of these problems.

Regulations governing foreign investment are, in

general, transparent. A 1954 law on foreign investment

(Law No. 6224) was substantially modified and

liberalized by a 1995 Decree (Decree No. 95/6990) and

associated communiqu. Draft lLegislation approved

bysubmitted to Parliament in June 20032 (Law 4875 on

Direct Foreign Investment) would further liberalized the

foreign direct investment regime by: eliminating

screening of foreign investors in favor of a

notification system; providing national treatment in

acquisition of real estate to foreign-owned entities

registered under Turkish law; and abolishing the

specific minimum capital requirement for foreign

investments (general capital requirements for all

companies contained in the Turkish Commercial Code will

continue to apply). However, implementing regulations

(The text of regulations governing foreign investment

and incentives can be obtained on the Internet at:

www.treasury.gov.tr/english/ybsweb A summary of these

www.dtm.gov.tr/english/doing/iginvest/invest/ htm and

The General Directorate of Foreign Investments of the

Undersecretariat of the Treasury screens foreign

investments. Treasury has refused permission for a

number of small investments because the activity

involved was deemed to constitute retail trade rather

than investment, or because of security concerns about

the individual investors. Screening mechanisms are

routine and non-discriminatory, and have not generally

impeded serious investment. However, because domestic

investment proposals are not routinely screened, foreign

investors are not accorded national treatment in the pre-

Turkish law included several additionalspecifies several

other requirements for foreign investors, all of which

were scrapped in the new foreign investment law. These

included: Real or legal persons resident abroad must

invest a minimum of USD 50,000 investment requirement to

establish a corporation, become partners in an existing

company, or open a branch office; the requirement to .

Foreign investors wishing to increase their capital must

seek permission from Treasury if the capital increase

would change the participation ratio between the foreign

investor and any local partners; and. Turkish companies

wereare required to register with Treasury any

licensing, management, or franchising agreements

concluded with foreign persons. Foreign investors

owning ten percent or more of a company established in

Turkey must inform Treasury of their participation in

any directors' or shareholders' meetings. Note: The

foregoing requirements would be dropped by the draft

Foreign investors are subject to restrictions on

establishment in certain sectors. Establishment in

financial services, including banking and insurance, and

in the petroleum sector requires special permission from

the GOT. The equity participation ratio of foreign

shareholders is restricted to 20 percent in

broadcasting, and 49 percent in aviation, value-added

telecommunication services, and maritime transportation.

However, companies receive full national treatment once

they are established. Establishment in financial

services, including banking and insurance, and in the

petroleum sector requires special permission from the

GOT for both domestic and foreign investors.

The GOT privatizes State Economic Enterprises through

block sales, public offerings, or a combination of both.

Foreign investors generally receive national treatment

in privatization programs. Turkish law allows foreign

investors to acquire up to 45 percent of Turk Telecom,

the monopoly provider of voice and other

telecommunications services, with the Turkish government

retain a single "golden" (blocking) share, in the

The Turkish Parliament also passed legislation in June

2003 which should streamline the company registration

process (see Section 8 - Transparency of the Regulatory

System). Another new law on work permits for foreign

citizens which will take effect later in 2003 should

give the Labor and Social Security Ministry additional

authority in this area (see Section 5 - Performance

This report was prepared in July 2003. To find the text

of regulations governing foreign investment and

incentives, please consult the Internet at:

www.treasury.gov.tr/english/ybsweb. A summary of these

www.dtm.gov.tr/english/doing/iginvest/invest/ htm and

Turkish law guarantees the free transfer of profits,

fees and royalties, and repatriation of capital. This

guarantee is reflected in Turkey's Bilateral Investment

Treaty with the United States, which mandates

unrestricted and prompt transfer in a freely usable

currency at a legal market clearing rate for all funds

related to an investment. There is no difficulty in

obtaining foreign exchange. There are no limitations on

the inflow or outflow of funds for remittances.

Under the 1990 Bilateral Investment Treaty with the

United States (codifying existing Turkish law),

expropriation can only occur in accordance with

international law and due process. Expropriations must

be for public purpose and non-discriminatory.

Compensation must be reasonably prompt, adequate, and

effective. Under the Bilateral Investment Treaty, U.S.

investors have full access to the local court system and

the ability to take the host government directly to

third party international binding arbitration to settle

investment disputes. There is also a provision for

As a practical matter, the GOT occasionally expropriates

private property for public works or for State

Enterprise industrial projects. The GOT agency

expropriating the property negotiates and proposes a

purchase price. If the owners of the property do not

agree with the proposed price, they can go to court to

challenge the expropriation or ask for more

There are no outstanding expropriation or

nationalization cases. However, there are several

investment disputes between U.S. companies and Turkish

government bodies, particularly in the energy and

tourism sectors.. In one case, local authorities have

shut down an American-owned hotel and restaurant by

denying operating permission and residency permits,

apparently without legal basis. Claimant has reportedly

initiated four lawsuits against the provincial governor

and government agencies, but these cases have not yet

been decided by the courts. In the energy sector, the

Government of Turkey has not implemented a number of

contracts with U.S. firms for build-operate-transfer

(BOT) and transfer-of-operating-rights (TOR) power

projects. One company filed an international

arbitration case against the GOT in 2002. A 2002

Constitutional Court ruling requires the GOT to either

proceed with the projects according to the signed

contracts, or cancel them and compensate the companies

accordingly. The GOT has indicated it will seek a

negotiated settlement with those companies, but as of

mid-June, the GOT had not contacted any of the companies

Turkey's legal system provides means for enforcing

property and contractual rights. The court system is

overburdened, however, which sometimes resultsing in

slow decisions and judges lacking sufficient time to

grasp complex issues. The judicial system is also

perceived by the public and by business to be

susceptible to external political and commercial

influence to some degree. Judgments of foreign courts

need to be reconsidered by local courts before they are

accepted and enforced. Turkey has written and

consistently applied commercial and bankruptcy laws.

Monetary judgements are usually made in local currency,

but there are provisions for incorporating exchange rate

Turkey is a signatory of the Washington Convention, and

a member of the International Center for the Settlement

of Investment Disputes (ICSID), also known as the

Washington Convention, and is a signatory of the New

York Convention of 1958 on the recognition and

enforcement of foreign arbitral awards. Turkey ratified

the Convention of the Multinational Investment Guarantee

The Turkish government accepts binding international

arbitration of investment disputes between foreign

investors and the state; this principle is included in

the U.S.-Turkish Bilateral Investment Treaty (BIT). For

many years, there was an exception for "concessions"

involving private (primarily foreign) investment in

public services. In 1999, the Parliament passed

amendments to the constitution allowing foreign

companies access to international arbitration for

concessionary contracts. In 2000, the Turkish

government completed implementing legislation for

arbitration. In 2001, the Parliament approved a law

further expanding the scope of international arbitration

in Turkish contracts. In practice, however, Turkish

courts have on at least one occasion failed to uphold an

international arbitration ruling involving private

¶5. PERFORMANCE REQUIREMENTS/INCENTIVES

Turkey is a party to the WTO Agreement on Trade Related

Turkey provides a variety of investment incentives to

both domestic and foreign investors, though these were

scaled back in 2003. These include corporate tax

exemptions, with up to 40100 percent of specified

investment expenses - 200 percent for investments over

USD 250 million - deductible from future taxable profits

for investments about 5 billion TL (an incentive

certificate is not required for this exemption). In

addition, there are: ; exemptions from value-added taxes

for machinery and equipment purchased locally or

imported for the investment; duty-free import of

machinery and equipment (though not raw materials or

intermediate goods) to be used in the investment; and

soft loans for research and development. Investment

incentives are defined in a May 2003 Finance Ministry

decree. clearly specified in regulations (a government

decree issued March 25, 1998, and a related communiqu

In order to take advantage of investment incentives, an

investor must obtain an "incentive certificate" from the

Treasury. The size of the incentive depends upon the

geographic location, sector, and value of the

investment. Investment incentives are greater in the

less-developed "priority" and "normal" areas or sectors,

and eligibility depends on a minimum value. According to

the current incentive regime, a minimum fixed investment

of TL200 billion. (approximately USD 120,000 in July

2002) is required for priority regions, TL 400 billion

(approximately USD 240,000 in July 2002) for normal

regions and 600 billion TL (approximately USD 360,000 in

July 2002) for developed regions. (For more

information on the Turkish incentive system, please

visit: www.investinturkey.gov.tr/incentives.htm).

The GOT has introduced several special investment

incentives for the eastern and southeastern regions.

For example, new investments made in these provinces

before the end of 2000 are exempt from corporate and

income taxes for five years, investors can receive

substantial discounts on electricity payments, and state-

owned banks will provide reduced rate loans for

industrial or employment producing investments.The GOT

is considering further tax and social insurance premium

reductions for businesses investing in provinces with

There are no performance requirements imposed as a

condition for establishing, maintaining, or expanding an

investment. There are no requirements that investors

purchase from local sources or export a certain

percentage of output. However, domestic or foreign

investors who commit to realizing USD 10,000 of exports

upon completion of the investment may be exempt from

certain fees and taxes, such as those related to land

registration or company establishment. Investors'

access to foreign exchange has no relation to exports.

There are no requirements that nationals own shares in

foreign investments, that the shares of foreign equity

be reduced over time, or that the investor transfer

There are no government imposed conditions on permission

to invest, including location in specific geographical

areas, specific percentage of local content - for goods

or services - or local equity, import substitution,

export requirements or targets, employment of host

country nationals, technology transfer, or local

The GOT does not request that investors disclose

proprietary information, other than publicly available

information, as part of the regulatory approval process.

Enterprises with foreign capital must send their

activity report, submitted to the general assembly of

shareholders, auditor's report, and balance sheets to

the Treasury's Foreign Investment Directorate every year

With the exceptions noted under "Openness to Foreign

Investment", Turkey grants all rights, incentives,

exemptions and privileges available to national capital

and business to foreign capital and business, on a MFN

basis. American and other foreign firms can participate

in government-financed and/or subsidized research and

development programs on a national treatment basis.

With one exception noted under "Dispute Settlement",

vVisa, residence, or work permit requirements have not

generally inhibited foreign investors. Expatriates may

be assigned as managers or technical staff. We are

aware of one case in the tourism sector in which denial

of a residence permit has hindered operations for a

foreign investor. A 2003 law (no. 4817) on work

authorizations for foreign nationals should give the

Ministry of Labor and Social Security more authority

over work permits. Implementing regulations are to be

Turkey has a liberal foreign trade regime. There are no

discriminatory or preferential export or import policies

directly affecting foreign investors. Turkey harmonized

its export incentive regime with the European Union in

1995, prior to the start of the Customs Union. Turkey

currently offers a number of export incentives,

including credits through the Turkish Eximbank, energy

incentives, and research and development incentives.

Cash incentives for exporters have been eliminated.

Foreign investors can participate in these export

incentive programs on a national treatment basis. More

information on Turkey's trade regime can be found at

Military procurement generally requires an offset

provision in tender specifications when the estimated

value of the imported goods and/or services exceeds five

million dollars. Turkish procedures provide little

incentive for U.S. companies to satisfy offset

requirements (the obligation to invest or buy Turkish

exports as a condition of winning defense contracts) by

¶6. RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT

Foreign and domestic private entities have the right to

freely establish and own business enterprises and engage

in all forms of remunerative activity. As noted above,

restrictions exist in the establishment of firms in

certain sectors where the share of foreign ownership is

limited to 20 percent in broadcasting and up to 49

percent in aviation, maritime transportation, and value-

added telecommunication services. Certain activities

are reserved for GOT owned enterprises. For example, by

law, Turk Telekom has a monopoly until December 31, 2003

on providing basic telephone services. Beyond these

areas, private entities may freely establish, acquire,

and dispose of interests in business enterprises, and

foreign participation is permitted up to 100 percent.

However, non-resident investors in companies with

foreign capital must seek permission from the Treasury

prior to selling part or all of their shares to real or

legal persons resident in Turkey. Treasury approval is

not required for sales to other foreigners or for sales

of securities or capital market instruments through a

financial intermediary. Note: This restriction would

be removed by the draft foreign investment law currently

Competitive equality is the standard applied to private

enterprises in competition with public enterprises with

respect to access to markets, credit, and other business

operations. Turkey is adopting the EU's competition

policy; a Competition Board was established in 1997 to

implement the 1994 competition (anti-monopoly) law.

Secured interests in property, both chattel and real are

recognized and enforced. There is a recognized and

reliable system of recording such security interests.

For example, there is a land registry office where real

estate is registered. Turkey's legal system protects

and facilitates acquisition and disposal of property

rights, including land, buildings, and mortgages,

although some parties have complained that the courts

are slow in rendering decisions and that they are

susceptible to external influence (see "Dispute

In 1995, the Turkish Parliament approved new patent,

trademark and copyright laws in connection with

preparations for Turkey's customs union with the EU.

Turkey also acceded to a number of multilateral

intellectual property rights (IPR) conventions,

including the 1971 Paris Act of the Berne Copyright

Convention. In 2001, the Parliament enacted amendments

to the copyright law, which provide retroactive

protection, expand the list of protected items and

include deterrent penalties against piracy. These

amendments brought Turkey into compliance with the WTO

Agreement on Trade Related Aspects of Intellectual

Property Rights (TRIPS) in most areas. In recognition

of Turkey's progress in the IPR area, USTR removed

Turkey from its Special 301 Priority Watch List and

placed the country on its Watch List in 2002, where it

Although iIntellectual property holders have praised

Turkey's 2001new legislation as a significant

improvement in the legal regime, implementing

regulations in the area of broadcasting include an

arbitration provision which could lead to compulsory

licensing of musical and possibly other works. In the

software area, piracy rates have come down in recent

years following an anti-piracy campaign and a directive

to legalize software used in government bodies.

However, piracy rates for recorded music remain

persistently high. Trademark holders contend that there

is widespread and often sophisticated counterfeiting of

Turkey's 1995 patent law replaced a law originally

passed in 1879. New trademark, industrial design, and

geographic indicator laws were passed at the same time,

completely revamping Turkey's foundation for industrial

property protection. Turkey also adhered to a number of

international conventions in 1995, including the

Stockholm Act of the Paris Convention, the Patent

Cooperation Treaty, and the Strasbourg Agreement. The

Turkish Patent Institute (TPI) was established in 1994

as an independent legal entity (Law No. 4004, June 16,

1994) under the Ministry of Industry and Trade. TPI's

mission is to support technological development in

Turkey, establish and protect intellectual property

rights and provide public information on intellectual

property rights. Currently, TPI is understaffed to

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for

pharmaceuticals began on January 1, 1999. Turkey has

been accepting patent applications since 1996 in

compliance with the TRIPS agreement "mailbox"

provisions. The patent law does not, however, contain

interim protection for pharmaceuticals in the R&D

"pipeline." Lack of data exclusivity protection, which

is required by the TRIPS agreement, is the key IPR

concern for research-based pharmaceuticals companies.

¶8. TRANSPARENCY OF THE REGULATORY SYSTEM

The GOT has adopted policies and laws, which in

principle should foster competition and transparency.

However, foreign companies in several sectors claim that

regulations are sometimes applied in a nontransparent

manner. In 2002, the GOT published a report on

transparency and good governance in Turkey's public

sector and established an interagency steering committee

to implement it. The plan calls for: greater public

access to information from the government and public

sector entities; financial disclosure by elected public

officials; and decentralization of most public services.

The government in principle follows competitive bidding

procedures. In 20032, Law 4734 on Public Procurement

entered into force. The Turkey's Parliament approved

amendments to the state procurement law law, which

established a board to oversee public tenders, and

lowered the minimum bidding threshold at which foreign

companies can participate in state tenders. However,

the law restricts preferences for local bidders to

Turkish citizens and legal entities established by them.

The public procurement law may be further amended in the

In general, labor, health and safety laws and policies

do not distort or impede investment, although legal

restrictions on discharging employees may provide a

disincentive to labor-intensive activity in the formal

economy. Certain tax policies distort investment

decisions. High Turkish taxation of cola drinks

discourage investment in this sector. Generous tax

preferences for free zones provide a stimulus to

investment in these zones, perhaps at the expense of

investment elsewhere in Turkey. These preferences may

be trimmed under legislation currently under

considerationNew free zones law being drafted could

consider limiting tax-free status of these zones.

On paper, Turkey's foreign investment regime is liberal.

However, pParticularly beyond the establishment phase,

bureaucratic "red tape" has been remains a significant

barrier to companies, both foreign and domesticproblem.

Parliament passed Law 4884 in June 2003 which should

simplify company establishment procedures. The law

repeals the permit requirement from the Industry and

Commerce Ministry for certain firms, institutes a single

company registration form and enables individuals to

registry offices of the Turkish Union of Chambers and

Commodity Exchanges. The goal is to enable registration

to be completed in as little as one day and to encourage

electronic sharing of documents. Turkish government

agencies are expected to issue implementing regulations

needed to bring the law into force. The government is

also considering other imeasures mplementing an action

plan designed to streamline procedures for establishing

and operating a business in Turkey, based on

recommendations made in a World Bank-funded study on

¶9. EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

Turkey's financial system and policies facilitate the

free flow of financial resources. The private sector

has access to a variety of credit instruments. Legal,

regulatory and accounting systems are transparent and

There is a regulatory system established to encourage

and facilitate portfolio investments, though it needs

improvements in transparency, accounting, and

enforcement provisions to bring it up to EU and US

standards. The Istanbul Stock Exchange (ISE), formed in

1986, is becoming one of the major players among

emerging markets. As of midend-2001, 3102 companies

were listed on the exchange. However, Turkey has yet to

develop other capital markets. The Capital Markets

Board is responsible for overseeing the activities of

capital markets, including activities of the ISE- quoted

companies, and securitiesy and investment houses.

Commercial credit in Turkey is allocated according to

market terms. However, because of high local borrowing

costs (real interest rates can exceed 25 percent), short

repayment periods, and limited liquidity condition

during the current economic crisis, both foreign and

local investors frequently seek credit from

international markets to finance their activities. As

of September July 20031, there were 512 commercial banks

(including 1714 foreign banks) and 16 14 development or

investment banks operating in Turkey. Total sectoral

assets were approximately USD 130.111.8 billion, or

about 75 percent of GNP, as of July September 20031

according to data from the Banking Regulation and

Supervision Board. of Turkey. The threefour state-owned

commercial banks and the top six privately capitalized

banks hold approximately 69 percent of total assets.

The parliament passed a new bank regulatory law in June

1999, which was amended in December 1999 and May 2001.

The law created an independent agency, the Banking and

Regulation and Supervision Agency (BRSA), headed by a

board whose seven members would be appointed by the

cabinet for six-year terms. The law's provisions also

toughen conditions for establishing new banks or

branches, set credit limits to protect bank solvency,

and strengthen regulatory and sanctioning powers,

including authorizing the board to merge weak banks with

The BRSA was established in August 2000 to monitor and

supervise Turkey's banks under the new law. The Central

Bank transferred to it the State Deposit Insurance Fund.

Since 1997 the SDIF has taken over 21, banks,

includingtogether with the Imar Bankasi which was , a

bank owned by the Uzan Group, taken over on July 4,

2003., which had supervisory control of seven private

insolvent banks. In October 2000, the BRSA declared

another three banks insolvent and put them under the

Deposit Insurance Fund. During the November 2000

financial crisis, Demirbank, one of Turkey's ten largest

banks, became insolvent and was taken over by the

Deposit Insurance Fund. BRSA took over another two

banks in February 2001 and five more in July 2001,

bringing the total number of banks under its control to

¶19. The Government of Turkey has recapitalized the

private banks under its control, and is committed to

either selling or liquidating them by year-end 2002.

The process still continues for Pamukbank, Turkey's

sixth largest private bank. A Bbanking auditing and

recapitalization program in the first half of 2002

resulted in increased transparency, and better

accounting for non-performing loans, and the takeover of

Pamukbank, Turkey's sixth largest private bank. The

Bank Capital Restructuring program of the BRSA led to

more transparency in banks financial statements as a

result of application of athe 3-stage auditing process,

and application of international standards.

The BRSA is proceeding to issue new regulation limiting

the extent of connected lending (between a bank and

related corporate entities), modernizing banks'

accounting practices, and requiring frequent BRSA on-

One of the most significant achievements of the reform

program has been to restructure the state banks, which

continue to control more than one-half of Turkish

banking assets. The government liquidated one state

bank (Emlak Bank), is trying to privatize another (Vakif

Bank), and has significantly downsized (Ziraat Bankasi

and Halkbank). Also, it largely eliminated state bank

duty losses - unreimbursed subsidized loans from these

banks - which had created an enormous financial hole

that helped bring about the most recent financial crisis

The Turkish private sector is dominated by a number of

large holding companies, whose upper management is

controlled by prominent families. Most large businesses

continue to float publicly only a minority portion of

company shares in order to limit outside interference in

company management. Hostile takeovers are unknown in

Turkey. There has been no attempt at a hostile takeover

by either international or domestic parties in recent

There are no laws or regulations that specifically

authorize private firms to adopt articles of

incorporation or association to limit or prohibit

foreign investment, participation, or control. Neither

is there any attempt by the private sector or government

to restrict foreign participation in industry standard-

The general security situation throughout Turkey is

stable, but sporadic incidents involving terrorist

groups have occurred. The Turkish government is

committed to eliminating terrorist groups such as the

Kurdistan Workers' Party (PKK - now renamed Kadek) and

various leftist and fundamentalist groups. Although

these groups have not completely disbanded, their

operational capabilities have greatly diminished. These

groups have used terrorist activity to make political

statements, particularly in Istanbul and other urban

areas of Turkey. In 2000 and 2001, terrorists targeting

Turkish officials and various civilian facilities, such

as fast food restaurants, in Istanbul were responsible

for the deaths and injuries of several dozen people. In

2002 and 2003, civilian venues such as fast food

restaurants have been the targets of minor bomb attacks.

Operation Iraqi Freedom triggered largely peaceful

demonstrations in most major Turkish cities, but a

series of bombings also occurred in several of Turkey's

larger cities. The PKK retains a residual presence in

certain parts of southeastern Turkey, where two

provinces remain under a state-of-emergency, and several

Although the Turkish government takes air safety very

seriously and maintains strict controls, particularly on

international flights, hijacking attempts have occurred

as recently as 2001, when a flight attendant was killed

during a hijacking by Chechen terrorists. There have

been two hostage-taking incidents at luxury hotels in

Istanbul in the past year, both staged by pro-Chechen

terrorists and resolved without casualties.

CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN

TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT

LARGE. THE TURKISH GOVERNMENT CONDUCTED TWO

SIGNIFICANT ANTI-CORRUPTION OPERATIONS IN 2001,

ONE IN THE ENERGY MINISTRY AND THE OTHER IN THE

PUBLIC WORKS MINISTRY. SEVERAL INDIVIDUALS WERE

CHARGED WITH CORRUPTION AND WRONGDOING IN

GOVERNMENT CONTRACT TENDERS. THE OPERATIONS

RESULTED IN THE RESIGNATION OF BOTH MINISTERS AND

THE ARREST OF MANY HIGH-LEVEL OFFICIALS.

PARLIAMENT CONTINUES TO PROBE CORRUPTION IN THE

ENERGY MINISTRY AND OTHER GOVERNMENT BODIES.

Corruption appears to be most problematic in public

procurement, with frequent allegations that contracts

are awarded on the basis of personal and political

relationships of businesspersons and government

officials. The judicial system is also perceived to be

susceptible to external political and commercial

Turkish legislation outlaws bribery and some

prosecutions of government officials for corruption have

taken place, but enforcement is uneven.

Turkey has ratified the OECD antibribery convention, and

but has not yet passed the relevant implementing

legislation in January 2003 to which would explicitly

provide that bribes of foreign officials, as well as

domestic, are illegal and not tax deductible. Bribes

cannot be deducted from taxes as a business expense.

The Turkish government became a party to three

conventions of the Council of Europe in 2001: the

Strasbourg Convention on Laundering, Search, Seizure and

Confiscation of the Proceeds from Crime; the Criminal

Law on Corruption; and the Civil Law on Corruption. By

becoming a party to these conventions, the Turkish

government agreed to define corruption as a predicate

offense for money laundering and to address private

sector corruption, as well as public sector corruption,

as a crime. The Turkish government has signed the UN

Convention against Transnational Organized Crime in 2001

and has submitted a draft proposal to become a party to

U.S. firms have sometimes alleged that corruption, or at

a minimum nontransparent practices, have been a barrier

to direct foreign investment. American companies

operating in Turkey have complained about contributions

to the community solicited, with varying degrees of

pressure, by municipal or local authorities.

The Prime Ministry's Inspection BoardDepartment, which

advises a new Corruption Investigations Committee, is

responsible for investigating major corruption cases.

Nearly every state agency has its own inspector corps

responsible for investigating internal corruption. The

National Assembly can establish investigative

commissions to examine corruption allegations concerning

Cabinet Ministers for the Prime Minister; a majority

vote in the parliament is needed to send these cases to

the Ssupreme Ccourt for further action.

Transparency International has an affiliated NGO in

Since 1985, Turkey has been negotiating and signing

agreements for the reciprocal promotion and protection

of investments. Turkey has signed or initiated

negotiations on bilateral investment treaties with 65 79

countries. Forty-three six of these agreements are now

in force, including with the United States, United

Kingdom, Germany, the Netherlands, Belgium Luxembourg,

Denmark, Austria, Sweden, Switzerland, Spain, Hungary,

Poland, Romania, Tunisia, Kuwait, Bangladesh, China,

Japan, South Korea, Indonesia, Croatia, Cuba, the Czech

Republic, Estonia, Russian Federation, Kazakhstan,

Georgia, Tajikistan, Ukraine, Uzbekistan, Belarus,

Macedonia, Pakistan, Turkmenistan, Moldova, Kyrgyzstan,

Albania, Bulgaria, Argentina, Bosnia, Malaysia, Egypt,

Turkey's bilateral investment treaty with the United

States came into effect on May 18, 1990. A bilateral

tax treaty between the two countries took effect on

January 1, 1998. Turkey has signed avoidance of double

taxation agreements with 59 countries; 39 of these are

¶13. OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

The Overseas Private Investment Corporation (OPIC)

offers a full range of programs in Turkey, including

political risk insurance for U.S. investors, under its

bilateral agreement with Turkey. OPIC is also active in

financing private investment projects implemented by

U.S. investors in Turkey. OPIC-supported direct equity

funds, including the $USD 150 million Southeast Europe

Equity Fund (SEEF) can make direct equity investments in

private sector projects in Turkey. In 1987, Turkey

became a member of the Multinational Investment

The U.S. Government annually purchases approximately USD

11.319 million of local currency. Embassy purchases are

made at prevailing market rates, which fluctuate in

accordance with Turkey's free floating exchange rate

The Turkish labor force numbers around 20.24 million

persons, with nearly 35 percent employed in agriculture.

With an official unemployment rate of 12.31.8 percent in

the first quarter of 20032 and an average school-leaving

age of 14, 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.

Traditional apprenticeship programs, both formal and

informal, are also common. Turkey's labor force has a

reputation for being hardworking, productive and

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 May 2001 the Turkish

Government and public sector workers reached agreement

on collective agreements through 2002. In 2003,

Parliament approved The government is currently

considering a Job Security Bill, which will ensure

consultation between employers and labor groups over job

cuts and safety standards while easing some restrictions

on private employers' ability to lay off staff. The

constitutional right to strike is restricted. In 1995

and 2001 constitutional amendments were passed which

allow "civil servants" (defined broadly as all employees

of the central government ministries, including

teachers) to form trade unions and to engage in limited

collective bargaining, but prohibits them from striking.

Workers in the free zones are prohibited from striking

for the first 10 years following establishment of a

Since passage of the Turkish law on free zones in 1985,

210 zones have been established (Defne - can you check #

of zones). 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

GGoods 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

¶16. FOREIGN DIRECT INVESTMENT STATISTICS

According to Turkish Treasury data, as of April

November 2002, 5,938 6,311 foreign firms invested and

are operating in Turkey. Total authorized foreign

capital since 1980 was USD 31.9 34.0 billion, and

aggregate actual inflows reached USD 15.2 15.7 billion.

In 20012, EU countries accounted for 65.9 63.6 percent

of authorized new foreign investment, OECD countries

accounted for 90.2 90.4 percent, and Islamic countries

for 3.1 2.6 percent. Over the past two decades, France

(17.7 16.6 percent) has been the top source of foreign

investment, followed by the Netherlands (13.6 15.7

percent), Germany (12.8 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 has been

invested in Turkey through third-country subsidiaries.

By unofficial estimates the U.S. is actually the largest

source of foreign investment in Turkey.

In 20012, about 48.2 58.0 percent of authorized foreign

investment were in services, 45.9 39.8 percent in

manufacturing, and about 6.0 2.2 percent in mining and

agriculture combined. The sub-sectors with the greatest

amount of authorized foreign investment include banking

(18.9 10.3 percent); communications (10.9 percent);

trade (8.1 11.4 percent); food, beverage and tobacco

processing (5.3 11.9 percent); and insurance (7.7

percent) motor vehicles (6.5 percent); and electronics

and electrical machinery (1.5 percent). Between 1980

and November March 2002, 43.0 45.0 percent of actual

capital inflows were invested in services, 54.2 52.0

percent in manufacturing, 1.8 2.0 percent in

agriculture, and 0.98 1.0 percent in mining. The

finance, automotive and telecommunications food

industry, trade and finance sectors received the

highest share of increased foreign direct investment

permits in 20012002. British HSBC Bank's purchase of

Demirbank shares, Japanese Toyota S.A.'s investment in

the automotive sector, and investments made by Turkcell

with its Finnish partner Sonera Koc Financial Services

and Kent Food Products Industry participation

investments were the major foreign direct investment

Sources: General Directorate of Foreign Investment

Cumulative Total Foreign Direct Investment Permits

By country of origin, NovemberMarch 2002

Source: General Directorate of Foreign Investment,

Foreign Direct Investment by Year (million USD)

Year Cumulative Annual Actual No. Firms

Source: General Directorate of Foreign Investment,; (*)

Actual FDI Inflow as Percentage of Turkish GDP

Source: General Directorate of Foreign Investment, and

Turkey's FDI by Country (As of December 20021)

Source: General Directorate of Banking and Foreign

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 and

It is worth noting that the cables contain a lot of reuse and thus repetition, which makes the task of exploring them a little easier. This is furthermore repeated in the following two comprehensive cables:

DEPT PLEASE PASS USTR FOR GBLUE/LERRION

TAGS: ETRD [Foreign Trade], EINV [Foreign Investments],

EFIN [Financial and Monetary Affairs], ECON [Economic Conditions],

KIPR [Intellectual Property Rights], TU [Turkey]

SUBJECT: DRAFT NATIONAL TRADE ESTIMATE REPORT

The following is Embassy's input for the National Trade

Turkey is a beneficiary of GSP, has Bilateral

Investment and Tax Treaties with the United States, and

has a customs union with the European Union.

(Trade/investment statistics to be provided by

As a result of its 1996 customs union with the European

Union, Turkey applies the EU's common external customs

tariff for third country (including U.S.) imports and

imposes no duty on non-agricultural items from EU and

European Free Trade Association (EFTA) countries. The

simple average tariff for industrial products from the

United States and other third countries was reduced

significantly as a result of the customs union.

Turkey's harmonization of trade and customs regulations

with those of the EU and the overall decline in tariff

rates benefits third country exporters.

Turkey maintains high tariff rates (25 percent average

Most-Favored-Nation rate) on many food and agricultural

products to protect domestic producers. The Turkish

government often increases tariffs on grains during the

domestic harvest. High feed prices have negatively

impacted Turkish livestock industries, particularly for

beef and poultry. Duties on fruits range from 61

percent to 149 percent. Processed fruits, fruit juices

and vegetable tariffs range between 41 and 138 percent.

The GOT also levies high duties as well as excise taxes

and other domestic charges on imported alcoholic

beverages that increase wholesale prices by more than

While import licenses generally are not required for

industrial products, products which need after-sales

service (e.g., photocopiers, ADP equipment, diesel

generators) require licenses. A non-transparent

licensing system results in costly delays, demurrage

charges, and other uncertainties that stifle trade for

many agricultural products. For the past four years,

the Ministry of Agriculture and Rural Affairs (MARA),

through its quarantine service, stopped issuing import

licenses for rice and corn prior to the harvest.

In concert with its licensing system, Turkey has

recently implemented import quota programs for rice and

corn. Import quotas, often dependent on procurement of

domestic crops, tend to evolve throughout the marketing

year, making it very difficult for commercial traders

to plan their import programs, thus disrupting trade.

Turkey is in the process of rewriting its import

regulations for agriculture products in order to comply

with EU regulations. However, some new regulations

have not been fully consistent with those of the EU.

For many products, no written standards exist. For

example, despite repeated requests, the GOT failed to

provide guidelines for red meat and wine imports.

The government has privatized the alcohol operations of

TEKEL (a parastatal company) and is in the process of

privatizing TEKEL's tobacco operations. Recent changes

in Turkish law call for a liberalization of the spirits

and tobacco market over a five-year period, which

should improve the competitive environment.

STANDARDS, TESTING, LABELING AND CERTIFICATION

The Turkish government has not consistently notified

the WTO of changes in import policies and phytosanitary

requirements, and implementation has been arbitrary.

Importers have had increasing difficulty in obtaining

information on sanitary and phytosanitary

certifications. The GOT often requires laboratory

testing on items not normally subject to testing by

trading partners, often without any scientific basis.

Finally, the GOT often requires phytosanitary

certification on quality issues that are normally

The government requires laboratory tests and

certification that quality standards are met for the

importation of foods, human and veterinary drugs, and

medical equipment and appliances intended for use by

U.S. CE-marked products, particularly medical devices,

are often detained by Turkish customs authorities for

inspection. In some cases, U.S. products are subject

to additional tests, despite their CE marks, while EU

CE-marked products gain immediate entry to the Turkish

Turkey is not a signatory of the WTO Government

Procurement Agreement. Although its laws require

competitive bidding procedures for tenders, U.S.

companies sometimes become frustrated over lengthy and

often complicated bidding and negotiating processes.

In 2003, a new public tender law which establishes an

independent board to oversee public tenders, and lowers

the minimum bidding threshold at which foreign

companies can participate in state tenders, entered

into force. However, the law gives a price preference

of up to 15 percent for domestic bidders and is not

applicable to domestic bidders who form a joint venture

with foreign bidders. Amendments to the law in 2003

enlarged the definition of domestic bidder to include

corporate entities established under Turkish law,

including those established by foreign companies.

Military procurement generally requires an offset

provision in tender specifications. The offset

guidelines were recently modified to encourage foreign

direct investment and technology transfer.

The entry into force of a Bilateral Tax Treaty between

the United States and Turkey in 1998 eliminated the

application of a 15 percent withholding tax on U.S.

bidders for Turkish government contracts.

Turkey employs a number of incentives to promote

exports, although programs have been scaled back in

recent years to comply with EU directives and WTO

standards. In 2004, however, the Turkish Grain Board

(TMO) has been selling domestic wheat to flour and

pasta manufacturers against their exports of flour and

pasta. This is an implicit subsidy as TMO is selling

the manufacturers wheat at world prices, which are well

below domestic prices. It is too early to quantify the

size of this subsidy. Historically, wheat and sugar

were the main subsidized commodities. Export

subsidies, ranging from 10 to 20 percent of export

values, are granted to 16 agricultural or processed

agricultural products. The Turkish Eximbank provides

exporters with credits, guarantees, and insurance

programs. Certain tax credits also are available to

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Turkey's intellectual property rights regime has

improved in recent years, but still presents serious

problems. Turkey was elevated from the Special 301

Watch List to the Priority Watch List in 2004, due to

concerns about lack of pharmaceuticals data exclusivity

protection and continued high levels of piracy and

counterfeiting of copyright and trademark materials.

the legal regime, providing deterrent penalties for

circumvention of technical protection measures, a key

feature of the World Intellectual Property Organization

(WIPO) "Internet" treaties. In addition, the Turkish

courts have failed to render deterrent penalties to

pirates as provided in the copyright law. They have

instead applied the Turkish Cinema Law, which has much

lower penalties. Legislation enacted in March 2004

contains several strong anti-piracy provisions,

including a ban on street sales of all copyright

products and authorization for law enforcement

authorities to take action without a complaint by the

rightholder. However, the law also reduces potential

prison sentences in piracy convictions. U.S. industry

estimated losses to piracy in 2003 at USD 50 million

for motion pictures, USD 15 million for records/music

and USD 25 million for books. There are signs that

anti-piracy measures introduced in 2004 may be reducing

In 1995, new patent, trademark, industrial design, and

geographic indicator laws revamped Turkey's foundation

for industrial property protection. Turkey also

acceded to a number of international conventions,

including the Stockholm Act of the Paris Convention,

the Patent Cooperation Treaty, and the Strasbourg

Agreement. Although the Turkish Patent Institute (TPI)

was established in 1994 to support technological

progress, protect intellectual property rights and

provide public information on intellectual property

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for

pharmaceuticals began on January 1, 1999. Turkey has

been accepting patent applications since 1996 in

compliance with the TRIPS agreement "mailbox"

provisions. The patent law does not, however, contain

interim protection for pharmaceuticals in the R&D

Parliament amended the Patent Law in June 2004. The

new law provides for penalties for infringement of up

to 3 years or 47 billion TL (approximately USD 32,000)

in fines, or both, and closure of the business for up

to one year. However, some companies in the

pharmaceuticals sector have criticized provisions which

give judges wider discretion over penalties in

infringement cases, delay the initiation of

infringement suits until after the patent is approved

and published, and permit use of a patented invention

to generate data needed for the marketing approval of

The Health Ministry has accepted applications to

patent in Turkey; in the absence of a system for patent

linkage, it may become possible for generics

manufacturers to register a copy of a brand name drug

with a valid Turkish patent, with enormous damage to

The key intellectual property concern for research-

based pharmaceutical companies is Turkey's lack of data

exclusivity protection for confidential test data.

U.S. industry contends that numerous products

infringing data exclusivity have been approved or are

pending review by the Turkish Health Ministry.

Trademark holders also contend that there is widespread

and often sophisticated counterfeiting of their marks

in Turkey, especially in apparel, pharmaceuticals,

film, cosmetics, detergent and other products.

In 2004, Turkey published its first Plant Variety

Protection (PVP) Law. A subsidiary of a major U.S.

seed company, however, has been unable to obtain

protection for its commercial seed under this new law,

reportedly at great cost to the company.

State-owned Turk Telecom currently provides voice

telephony and most value-added and basic

telecommunications services. In the WTO negotiations

on Basic Telecommunications Services, Turkey made

commitments to provide market access and national

treatment for all services at the end of 2005, and

permitted value-added telecommunications services to be

licensed to the private sector with a 49 percent limit

on foreign equity investment. In the interim, Turkey

committed to provide national treatment for mobile,

paging and private data networks. In 2000, the Turkish

government passed a law unilaterally accelerating the

opening of the market for basic telephone services to

2004. A 2001 law provides for liberalization of areas

under the Turk Telecom monopoly once the state's share

in that company falls below 50 percent. The Turkish

government has not yet issued implementing regulations.

These laws also created an independent regulatory body

- the Telecommunications Regulatory Board - and made

licensing criteria publicly available. U.S. firms

complain that the licensing process still lacks

transparency and that revenue sharing with Turk Telecom

is required where competition is permitted. There are

three private GSM cellular operators in Turkey, with a

In November 2004, the Privatization Administration

announced the tender for a block sale of 55 percent of

Turk Telecom. Law 5189 of 2004 lifted the limit on

There are restrictions on establishment in financial

services, the petroleum sector, broadcasting, aviation

and maritime transportation (see Investment Barriers

section). A 2003 law on work permits for foreigners

repealed earlier legislation defining certain

professions and services open only to Turkish citizens.

This has significantly broadened the range of

occupations in which foreigners can be engaged, but

there are still restrictions for doctors, attorneys and

The U.S.-Turkish Bilateral Investment Treaty (BIT)

entered into force in May 1990. Turkey has a liberal

investment regime in which foreign investments receive

national treatment. However, private sector investment

has often been hindered, regardless of nationality, by:

excessive bureaucracy; political and macroeconomic

uncertainty; weaknesses in the judicial system; high

tax rates; a weak framework for corporate governance;

and frequent changes in the legal and regulatory

Almost all areas open to the Turkish private sector are

fully open to foreign participation, but establishments

in the financial and petroleum sectors require special

permission. The equity participation ratio of foreign

shareholders is restricted to 20 percent in

broadcasting and 49 percent in aviation, maritime

transportation and many value-added telecommunications

services (such as GSM, satellite and data, though

telecommunications legislation has been amended to

allow certain company-specific exceptions to these

limits). Nonetheless, once investors have committed to

the Turkish market, they sometimes find the rationale

for their initial investments significantly undercut by

arbitrary legislative action, such as laws imposing

limits on the production corn sweeteners.

The Turkish government accepts binding international

arbitration of investment disputes between foreign

investors and the state. I n 2001 the Parliament

approved a law expanding the scope of international

arbitration in Turkish contracts. However, at least

one American company reports that the judicial system

in Turkey has not recognized international arbitration

The Turkish government passed legislation in February

2001 that aims to introduce a fully liberalized energy

market, under which private firms will develop projects

with the approval of an independent regulatory body,

the Energy Market Regulatory Authority. With respect

to electricity, the state company has been unbundled

into production, transmission, distribution, and

trading companies, but little progress has been made in

privatizing power generation and distribution. Targeted

liberalization of the natural gas sector has also faced

delays. The state pipeline company BOTAS will remain

predominant, but legislation requires phased transfer

of 80 percent of its gas purchase contracts.

Privatization of natural gas distribution is slowly

As the result of a 1997 court decision, the Turkish

Government has blocked full repatriation of investments

by oil companies under Article 116 of the 1954

Petroleum Law, which protected foreign investors from

the impact of lira depreciation. Affected companies

have challenged the 1997 decision and the case is

As part of its customs union agreement with the EU,

Turkey has pledged to adopt EU standards concerning

competition and consumer protection. In 1997, a

government "Competition Board" commenced operations,

putting into force a 1994 competition law. Government

monopolies in a number of areas, particularly alcoholic

beverages and telecommunications services, have been

scaled back in recent years, but currently remain a

barrier to certain U.S. products and services.

Corruption is perceived to be a major problem in Turkey

by private enterprise and the public at large,

particularly in government procurement. The judicial

system is also perceived to be susceptible to external

influence and to be biased against outsiders to some

degree. American companies operating in Turkey have

complained about contributions to the community

solicited, with varying degrees of pressure, by

Parliament continues to probe corruption allegations

involving senior officials in previous governments,

particularly in connection with energy projects. In

2003, after the government intervention in a bank owned

by the Uzan group, evidence of corrupt practices at the

Turkey ratified the OECD antibribery convention, and

passed implementing legislation providing that bribes

of foreign officials, as well as domestic, are illegal

Energy: In 2001, the Turkish Government cancelled 46

contracted power projects based on the build-operate-

transfer (BOT) and transfer-of-operating-rights (TOR)

models. Turkey's constitutional court ruled in 2002

that the government would have to either honor the

contracts or compensate the companies involved. To

date, the Turkish government has not commenced

negotiations with the companies, one (TOR) of which has

launched an international arbitration case. In 2002,

the government requested BOT projects already in

operation -- which include U.S.-owned companies -- to

apply for new licenses from the new Energy Market

Regulatory Authority (EMRA), and has indirectly pressed

them unilaterally to lower their prices while the

license application process is still underway. Despite

lack of action on new licenses, the Turkish Government

has continued to purchase electricity produced per the

Cola tax: Punitive taxation of cola drinks (raised in

2002 to 47.5 percent under Turkey's "Special

Consumption Tax") discourages investment by major U.S.

Corporate Governance: Weaknesses in the protection of

minority shareholder rights and regulatory oversight

have left some American companies at a disadvantage in

DEPT PLEASE PASS USTR FOR GBLUE/LERRION

TAGS: ETRD [Foreign Trade], EINV [Foreign Investments],

EFIN [Financial and Monetary Affairs], ECON [Economic Conditions],

KIPR [Intellectual Property Rights], TU [Turkey]

SUBJECT: DRAFT NATIONAL TRADE ESTIMATE REPORT

The following is Embassy's input for the National Trade

Turkey is a beneficiary of GSP, has Bilateral

Investment and Tax Treaties with the United States, and

has a customs union with the European Union.

(Trade/investment statistics to be provided by

As a result of its 1996 customs union with the European

Union, Turkey applies the EU's common external customs

tariff for third country (including U.S.) imports and

imposes no duty on non-agricultural items from EU and

European Free Trade Association (EFTA) countries. The

simple average tariff for industrial products from the

United States and other third countries dropped to 4.4

percent in 2003. Turkey's harmonization of trade and

customs regulations with those of the EU and the

overall decline in tariff rates benefits third country

Turkey maintains high tariff rates (25 percent average

Most-Favored-Nation rate) on many food and agricultural

products to protect domestic producers. Imports of

animal products carry the highest tariffs, with ad

valorem rates ranging up to 227.5 percent on meat

products and edible meat offal. The Turkish government

often increases tariffs during the domestic harvest or

during times of high stocks. In 2003, the government

increased the tariff on corn from 20 to 70 percent.

High feed prices have negatively impacted Turkish

livestock industries, particularly for beef and

poultry. Duties on fruits range from 61 percent to 149

percent. Processed fruits, fruit juices and vegetable

tariffs range between 41 and 138 percent. The GOT also

levies high duties as well as excise taxes and other

domestic charges on imported alcoholic beverages that

increase wholesale prices by more than 200 percent.

While import licenses generally are not required for

industrial products, products which need after-sales

service (e.g., photocopiers, ADP equipment, diesel

generators) require licenses. Non-tariff barriers

result in costly delays, demurrage charges, and other

uncertainties that stifle trade for many agricultural

Private traders report that Turkish import policies are

often implemented in a nontransparent manner. In

addition, gaps in communication between Ankara and

regional offices often result in improper

implementation of regulations. Turkey is in the

process of rewriting its import regulations for

agriculture products in order to comply with EU

regulations. However, some new regulations have not

been fully consistent with those of the EU. For many

products, no written standards exist. For example,

despite repeated requests, the GOT failed to provide

guidelines for red meat imports. For the past four

years, the Ministry of Agriculture and Rural Affairs

(MARA), through its quarantine service, stopped issuing

import licenses for rice prior to the harvest. In July

2003, the GOT stopped issuing licenses and has not

The import process for alcoholic beverages is

exceedingly complicated, requiring both MARA control

certificates and TEKEL (a parastatal company) permits

which strictly limit trade and distribution channels

and are made available under only limited and

unpredictable circumstances. The government is in the

process of privatizing the alcohol operations of TEKEL.

Recent changes in Turkish law call for a liberalization

of the spirits and tobacco market over a five-year

period, which should improve the competitive

Turkey applies discriminatory price controls for

imported pharmaceuticals, allowing lower mark-ups for

imported drugs relative to those produced domestically.

U.S. pharmaceuticals companies claim this policy has

cost them over USD 250 million since it was last

STANDARDS, TESTING, LABELING AND CERTIFICATION

The Turkish government has not consistently notified

the WTO of changes in import policies and phytosanitary

requirements, and implementation has been arbitrary.

Importers have had increasing difficulty in obtaining

information on sanitary and phytosanitary

certifications. The GOT often requires laboratory

testing on items not normally subject to testing by

trading partners, often without any scientific basis.

Finally, the GOT often requires phytosanitary

certification on quality issues that are normally

The government requires laboratory tests and

certification that quality standards are met for the

importation of foods, human and veterinary drugs, and

medical equipment and appliances intended for use by

Turkey is not a signatory of the WTO Government

Procurement Agreement. Although its laws require

competitive bidding procedures for tenders, U.S.

companies sometimes become frustrated over lengthy and

often complicated bidding and negotiating processes.

Some tenders, especially large projects involving co-

production, are frequently opened, closed, revised, and

In 2003, a new public tender law which establishes an

independent board to oversee public tenders, and lowers

the minimum bidding threshold at which foreign

companies can participate in state tenders, entered

into force. However, the law gives a price preference

of up to 15 percent for domestic bidders and is not

applicable to domestic bidders who form a joint venture

with foreign bidders. Amendments to the law in 2003

enlarged the definition of domestic bidder to include

corporate entities established under Turkish law,

including those established by foreign companies.

Military procurement generally requires an offset

provision in tender specifications. The offset

guidelines were recently modified to encourage foreign

direct investment and technology transfer.

The entry into force of a Bilateral Tax Treaty between

the United States and Turkey in 1998 eliminated the

application of a 15 percent withholding tax on U.S.

bidders for Turkish government contracts.

Turkey employs a number of incentives to promote

exports, although programs have been scaled back in

recent years to comply with EU directives and WTO

standards. Historically, wheat and sugar were the main

subsidized commodities. Export subsidies, ranging from

10 to 20 percent of export values, are granted to 16

agricultural or processed agricultural products. The

Turkish Eximbank provides exporters with credits,

guarantees, and insurance programs. Certain tax

credits also are available to exporters.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

Turkey's intellectual property rights regime has

improved in recent years, but still presents serious

problems. Beginning in 1995, the Turkish Parliament

approved a series of patent, trademark and copyright

laws in connection with Turkey's customs union with the

EU and the WTO Agreement on Trade Related Aspects of

Intellectual Property Rights (TRIPS). In recognition

of Turkey's progress in the IPR area, USTR removed

Turkey from its Special 301 Priority Watch List and

placed the country on its Watch List in 2002, where it

the legal regime, providing deterrent penalties for

circumvention of technical protection measures, a key

feature of the World Intellectual Property Organization

(WIPO) "Internet" treaties. In addition, the Turkish

courts have failed to render deterrent penalties to

pirates as provided in the copyright law. They have

instead applied the Turkish Cinema Law, which has much

lower penalties. The copyright industries' key demand

is for better enforcement. Currently, the police

generally do not intervene in pirate production or

sales unless the rightholder specifically requests that

they do so. U.S. industry estimated losses to piracy

In 1995, new patent, trademark, industrial design, and

geographic indicator laws revamped Turkey's foundation

for industrial property protection. Turkey also

acceded to a number of international conventions,

including the Stockholm Act of the Paris Convention,

the Patent Cooperation Treaty, and the Strasbourg

Agreement. Although the Turkish Patent Institute (TPI)

was established in 1994 to support technological

progress, protect intellectual property rights and

provide public information on intellectual property

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for

pharmaceuticals began on January 1, 1999. Turkey has

been accepting patent applications since 1996 in

compliance with the TRIPS agreement "mailbox"

provisions. The patent law does not, however, contain

interim protection for pharmaceuticals in the R&D

The key intellectual property concern for research-

based pharmaceutical companies is Turkey's lack of data

exclusivity protection for confidential test data,

which is required by the TRIPS agreement. U.S.

industry contends that at least 165 products infringing

data exclusivity have been approved or are pending

review by the Turkish Health Ministry, and that lack of

data exclusivity protection costs U.S. companies some

USD 400 million annually in lost sales. Patent holders

have also note that the Health Ministry has accepted

applications to register generic copies of products

Trademark holders also contend that there is widespread

and often sophisticated counterfeiting of their marks

in Turkey. According to one industry association,

Turkey is the world's third-largest exporter of

State-owned Turk Telekom currently provides voice

telephony and most value-added and basic

telecommunications services. In the WTO negotiations

on Basic Telecommunications Services, Turkey made

commitments to provide market access and national

treatment for all services at the end of 2005, and

permitted value-added telecommunications services to be

licensed to the private sector with a 49 percent limit

on foreign equity investment. In the interim, Turkey

committed to provide national treatment for mobile,

paging and private data networks. In 2000, the Turkish

government passed a law unilaterally accelerating the

opening of the market for basic telephone services to

January 1, 2004. A 2001 law provides for

liberalization of areas under the Turk Telecom monopoly

once the state's share in that company falls below 50

percent. The Turkish government has not yet issued

implementing regulations. These laws also created an

independent regulatory body - the Telecommunications

Regulatory Board - and made licensing criteria publicly

available. U.S. firms complain that the licensing

process still lacks transparency and that revenue

sharing with Turk Telecom is required where competition

is permitted. There are three private GSM cellular

operators in Turkey, with a fourth license held by Turk

The Turkish government plans to announce its strategy

for privatizing Turk Telekom in the near future. In

November 2003, the Transport and Communications

Minister said that the Council of Ministers had agreed

on a block sale of a majority stake in Turk Telecom by

the end of May 2004, with a possible sale of additional

shares to the public after that date. The Minister

stated that foreign investors would be eligible to buy

There are restrictions on establishment in financial

services, the petroleum sector, broadcasting, aviation

and maritime transportation (see Investment Barriers

section). A 2003 law on work permits for foreigners

repealed earlier legislation defining certain

professions and services open only to Turkish citizens.

This has significantly broadened the range of

occupations in which foreigners can be engaged, but

there are still restrictions for doctors, attorneys and

The U.S.-Turkish Bilateral Investment Treaty (BIT)

entered into force in May 1990. Turkey has a liberal

investment regime in which foreign investments receive

national treatment. Once approved, firms with foreign

capital are treated as local companies. However,

private sector investment is often hindered, regardless

of nationality, by: excessive bureaucracy; political

and macroeconomic uncertainty; weaknesses in the

judicial system; high tax rates; a weak framework for

corporate governance; and frequent, sometimes unclear

changes in the legal and regulatory environment.

Almost all areas open to the Turkish private sector are

fully open to foreign participation, but establishments

in the financial and petroleum sectors require special

permission. The equity participation ratio of foreign

shareholders is restricted to 20 percent in

broadcasting and 49 percent in aviation, value-added

telecommunications services, and maritime

transportation. Nonetheless, once investors have

committed to the Turkish market, they sometimes find

the rationale for their initial investments

significantly undercut by arbitrary legislative action,

such as laws imposing limits on the production corn

The Turkish government accepts binding international

arbitration of investment disputes between foreign

investors and the state; this principle is enshrined in

the U.S.-Turkish BIT. For many years, there was an

exception for "concessions" involving private

(primarily foreign) investment in public services. In

1999, the Parliament passed a package of amendments to

the constitution allowing foreign companies access to

international arbitration for concessionary contracts.

In 2000, the Turkish government completed implementing

legislation for arbitration. In 2001, the Parliament

approved a law further expanding the scope of

international arbitration in Turkish contracts.

In 2003, Parliament passed legislation which

streamlined the process of establishing a company in

Turkey, and which eliminated screening of foreign

investors in favor of a notification system, provided

national treatment for foreign-owned entities in

acquisition of real estate, and abolished of specific

minimum capital requirements for foreign investors.

The Turkish government passed legislation in February

2001 that will introduce a fully liberalized energy

market, under which private firms will develop projects

with the approval of an independent regulatory body,

but little progress has been made in privatizing power

As part of its customs union agreement with the EU,

Turkey has pledged to adopt EU standards concerning

competition and consumer protection. In 1997, a

government "Competition Board" commenced operations,

putting into force a 1994 competition law. Government

monopolies in a number of areas, particularly alcoholic

beverages and telecommunications services, have been

scaled back in recent years, but currently remain a

barrier to certain U.S. products and services.

CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN

TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT

Corruption appears to be most problematic in government

procurement, with frequent allegations that contracts

are awarded on the basis of personal and political

relationships of businesspersons and government

officials. The judicial system is also perceived to be

susceptible to external political and commercial

U.S. firms have sometimes alleged that corruption, or

at a minimum, nontransparent practices, have been a

barrier to direct foreign investment. American

companies operating in Turkey have complained about

contributions to the community solicited, with varying

degrees of pressure, by municipal or local authorities.

The Turkish government conducted two significant anti-

corruption operations in 2001, one in the energy

ministry and the other in the public works ministry.

Several individuals were charged with corruption and

wrongdoing in government contract tenders. Parliament

continues to probe corruption allegations involving

senior officials in previous governments, particularly

in connection with energy projects. In 2003, after the

government intervention in a bank owned by the Uzan

group, evidence of corrupt practices at the bank was

Turkey ratified the OECD antibribery convention, and

passed implementing legislation providing that bribes

of foreign officials, as well as domestic, are illegal

and not tax deductible. In 2003, Turkey ratified the

convention on Combatting Bribery of Foreign Public

Officials in International Transactions, the Council of

Europe's Civil Law on Corruption and the UN Convention

against Transnational Organized Crime. The GOT has

signed the Council of Europe's Criminal Law on

Corruption, but has not ratified it. The Turkish

Government signed the UN Convention Against Corruption

Energy: In 2001, the Turkish Government cancelled 46

contracted power projects based on the build-operate-

transfer (BOT) and transfer-of-operating-rights (TOR)

models. Turkey's constitutional court ruled in 2002

that the government would have to either honor the

contracts or compensate the companies involved. To

date, the Turkish government has not commenced

negotiations with the companies, one of which has

launched an international arbitration case. In 2002,

the government required BOT projects already in

operation -- which include U.S.-owned companies -- to

apply for new licenses from the new Energy Market

Regulatory Authority (EMRA), and has pressed them

unilaterally to lower their prices while the license

Cola tax: Punitive taxation of cola drinks (raised in

2002 to 47.5 percent under Turkey's "Special

Consumption Tax") discourages investment by major U.S.

Corporate Governance: Weaknesses in the protection of

minority shareholder rights and regulatory oversight

have left some American companies at a disadvantage in

Going all the way back to 2002, the same few paragraphs about patents in Turkey can be found:

DEPT PLEASE PASS USTR FOR GBLUE/DBIRDSEY

TAGS: ETRD [Foreign Trade], EINV [Foreign Investments],

EFIN [Financial and Monetary Affairs], ECON [Economic Conditions],

KIPR [Intellectual Property Rights], TU [Turkey]

SUBJECT: DRAFT NATIONAL TRADE ESTIMATE REPORT

The following is Embassy's input for the National Trade

Turkey is a beneficiary of GSP, has Bilateral

Investment and Tax Treaties with the United States, and

is a member of the EU Customs Union. (Trade/investment

statistics to be provided by Washington agencies).

As a result of its 1996 customs union with the European

Union, Turkey applies the EU's common external customs

tariff for third country (including U.S.) imports and

imposes no duty on non-agricultural items from EU and

European Free Trade Association (EFTA) countries. The

weighted rate of protection for industrial products

from the United States and other third countries

dropped to 4.65 percent at the end of 2001. Turkey's

harmonization of trade and customs regulations with

those of the EU and the overall decline in tariff rates

is benefiting third country exporters as well.

Turkey maintains high tariff rates on many agricultural

and food products to protect domestic producers.

Duties for paddy and milled rice were recently raised

to 38 and 46 percent respectively. Corn and milling

wheat duties were reduced to 10 percent in early 2002,

however the duty on corn was increased to 40 percent

during the local harvest season and has yet to be

reduced again. In recent years, tariff rates for these

grains have been raised to prohibitively high levels in

the months following the domestic harvest. Barley

duties are maintained at 85 percent year-round. High

feed input prices have resulted in high prices for

poultry and beef, and have negatively impacted local

industries. Under its EU customs union and other

bilateral agreements, Turkey imports about 230,000 tons

of milling wheat, 100,000 tons durum and 28,000 tons of

rice duty-free. Duties on fruits range from 61 percent

(apples) to 149 percent (bananas). For processed

vegetables and fruits/fruit juices tariffs range from

41 to 138 percent. The Turkish Government also levies

high duties, as well as excise taxes and other domestic

charges, on imported alcoholic beverages that increase

wholesale prices by more than 200 percent. Turkey does

While import licenses generally are not required for

industrial products, products which need after-sales

service (e.g., photocopiers, ADP equipment, diesel

generators) require licenses. Non-tariff barriers

result in costly delays, demurrage charges, and other

uncertainties that stifle trade for many agricultural

products. Changes in import policies are not always

notified as required by WTO obligations. Import

permits for some products that previously were issued

by Ministry of Agriculture and Rural Affairs (MARA)

officials at ports of entry must now be cleared by

headquarters in Ankara. MARA is currently revising its

technical import requirements to harmonize with EU

standards. In the interim, for many products, no

written standards exist. Wheat import permits are only

issued to flour product exporters and EU-quota holders.

The MARA also stopped issuing permits for paddy rice

during the domestic rice harvest period in 2001 and

2002, and applied quantitative restrictions during the

rest of the year, which seriously constrained U.S.

export sales. Many quantitative and non-tariff

barriers for bananas have recently been resolved,

however the 149 percent tariff has had a significant

The import process for alcoholic beverages is

exceedingly complicated, requiring both MARA control

certificates and TEKEL (a parastatal company) permits

which strictly limit trade and distribution channels

and are made available under only limited and

unpredictable circumstances. The government is

preparing TEKEL for privatization, but it is still

unclear to what degree competition will be permitted in

STANDARDS, TESTING, LABELING AND CERTIFICATION

The GOT has not notified a number of changes in import

policies and phytosanitary requirements to the WTO.

These changes are often communicated verbally, rather

than in writing, with varying levels of enforcement.

In recent years, it has become more difficult for

importers to obtain sanitary and phytosanitary

certifications. For instance, MARA has begun to

require official certification for laboratory results

on certain food ingredient imports, including dioxin

levels. U.S. regulatory agencies do not require such

testing or certify these types of results.

While import licenses generally are not required for

industrial products, products which need after-sales

service (e.g., office equipment, white goods,

electronic and electrical consumer products, ADP

equipment, diesel generators) and medical and

agricultural commodities require licenses. In

addition, the government requires laboratory tests and

certification that quality standards are met for the

importation of foods, human and veterinary drugs, and

medical equipment and appliances intended for use by

Turkey is not a signatory of the WTO Government

Procurement Agreement. Although its laws require

competitive bidding procedures for tenders, U.S.

companies sometimes become frustrated over lengthy and

often complicated bidding and negotiating processes.

Some tenders, especially large projects involving co-

production, are frequently opened, closed, revised, and

opened again. There are often numerous requests for

In 2002, parliament approved a new public tender law

which establishes a board to oversee public tenders,

and lowers the minimum bidding threshold at which

foreign companies can participate in state tenders.

However, the law has not yet been implemented.

Military procurement generally requires an offset

provision in tender specifications when the estimated

value of the imported goods or services exceeds five

million dollars. The entry into force of a Bilateral

Tax Treaty between the United States and Turkey in 1998

eliminated the application of a 15 percent withholding

tax on U.S. bidders for Turkish government contracts.

Turkey employs a number of incentives to promote

exports, although programs have been scaled back in

recent years to comply with EU directives and WTO

standards. Historically, wheat and sugar were the main

subsidized commodities. In 2001, Turkey exceeded its

WTO obligations for subsidized barley exports. The

Turkish Eximbank provides exporters with credits,

guarantees, and insurance programs. Certain tax

credits also are available to exporters.

INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

In 1995, the Turkish Parliament approved new patent,

trademark and copyright laws in connection with

preparations for Turkey's customs union with the EU.

Turkey also acceded to a number of multilateral

intellectual property rights (IPR) conventions,

including the 1971 Paris Act of the Berne Copyright

Convention. In 2001, the Parliament enacted amendments

to the copyright law which provide retroactive

protection, expand the list of protected items and

include deterrent penalties against piracy. These

amendments brought Turkey into compliance with the WTO

Agreement on Trade Related Aspects of Intellectual

Property Rights (TRIPS) in most areas. In recognition

of Turkey's progress in the IPR area, USTR removed

Turkey from its Special 301 Priority Watch List and

placed the country on its Watch List in 2001.

Although intellectual property holders have praised

Turkey's new legislation as a significant improvement

in the legal regime, implementing regulations in the

area of broadcasting include an arbitration provision

which could lead to compulsory licensing of musical and

possibly other works. In the software area, piracy

rates have come down in recent years following an anti-

piracy campaign and a directive to legalize software

used in government bodies. Trademark holders contend

that there is widespread and often sophisticated

counterfeiting of their marks in Turkey.

Turkey's 1995 patent law replaced a law originally

passed in 1879. New trademark, industrial design, and

geographic indicator laws were passed at the same time,

completely revamping Turkey's foundation for industrial

property protection. Turkey also adhered to a number

of international conventions in 1995, including the

Stockholm Act of the Paris Convention, the Patent

Cooperation Treaty, and the Strasbourg Agreement.

In accordance with the 1995 patent law and Turkey's

agreement with the EU, patent protection for

pharmaceuticals began on January 1, 1999. Turkey has

been accepting patent applications since 1996 in

compliance with the TRIPS agreement "mailbox"

provisions. The patent law does not, however, contain

interim protection for pharmaceuticals in the R&D

"pipeline." Lack of data exclusivity protection, which

is required by the TRIPS agreement, is the key concern

for research-based pharmaceuticals companies.

Turkish police and prosecutors are working closely with

trademark, patent, and copyright holders to conduct

raids against pirates within Turkey. Although several

cases have been brought to conclusion successfully,

U.S. industry believes continued enforcement efforts

Foreigners are not permitted to acquire, own an

interest in, form a partnership with, merge with,

establish, or affiliate with Turkish accounting firms.

Owners and employees of accounting firms established in

Turkey cannot acquire, own an interest in, form a

partnership with, merge with, establish, or affiliate

with foreign firms. Names of foreign or affiliated

firms cannot be used in the legal name of an auditing

partnership or corporation, and cannot be used on

Regulations prohibit the formation of partnerships

among partners of different levels and titles. Also,

qualified non-Turkish auditors are not permitted to

practice on a basis equal to qualified Turkish auditors

because of non-recognition of foreign-country

professional certification and foreign education, and

The practice of Turkish law and membership of the bar

is restricted to Turkish nationals. A person cannot

provide legal advice on foreign or international law

without being licensed in the practice of Turkish law.

Turkish lawyers are not permitted to form partnerships

with foreign lawyers. However, some foreign law firms

have established liaison or branch offices in Turkey,

Licensing of architects and engineers is limited to

Turkish nationals. The Turkish government has

discretionary authority to grant a percentage

preference to domestic firms on public construction

projects. Licensing of architects and engineers is

limited to Turkish nationals. However, some large

infrastructure projects including dams, power plants,

highways, and railways are tendered for international

firms. The foreign firms usually have local partners.

All projects with foreign currency or foreign credit

guarantees allocated by the Turkish Treasury and State

Planning Organization are open to foreign engineering

and construction companies. However, Turkish Treasury

guarantees for new projects have been significantly

reduced in order to meet strict fiscal goals under

State-owned Turk Telekom currently provides voice

telephony and most value-added and basic

telecommunications services. The Turkish government

plans to privatize Turk Telekom, with the government

retaining a single "golden" (blocking) share. Foreign

investors will be able to acquire up to 45 percent of

Turk Telekom. The United States has urged the Turkish

government to pursue full and complete privatization.

In the WTO negotiations on Basic Telecommunications

Services, Turkey made commitments to provide market

access and national treatment for all services at the

telecommunications services to be licensed to the

private sector with a 49 percent limit on foreign

equity investment. In the interim, Turkey committed to

provide national treatment for mobile, paging and

private data networks. In 2000, the Turkish government

passed a law unilaterally accelerating the opening of

the market for basic telephone services to January 1,

2004. A 2001 law provides for liberalization of areas

under the Turk Telecom monopoly once the state's share

in that company falls below 50 percent. These laws

also created an independent regulatory body - the

Telecommunications Regulatory Board - and made

licensing criteria publicly available. U.S. firms

complain that the licensing process still lacks

transparency and that revenue sharing with Turk Telecom

is required where competition is permitted. There are

three private GSM cellular operators in Turkey, with a

There are restrictions on establishment in financial

services, the petroleum sector, broadcasting, aviation

and maritime transportation (see Investment Barriers

The U.S.-Turkish Bilateral Investment Treaty (BIT)

entered into force in May 1990. Turkey has a liberal

investment regime in which foreign investments receive

national treatment. There is a screening process for

foreign investments, which the government applies on an

MFN basis. Once approved, firms with foreign capital

are treated as local companies. Almost all areas open

to the Turkish private sector are fully open to foreign

participation, but establishments in the financial and

petroleum sectors require special permission. The

equity participation ratio of foreign shareholders is

restricted to 20 percent in broadcasting and 49 percent

in aviation, value-added telecommunications services,

and maritime transportation. Nonetheless, once

investors have committed to the Turkish market, they

sometimes find the rationale for their initial

investments significantly undercut by arbitrary

legislative action, such as laws imposing limits on the

The Turkish government accepts binding international

arbitration of investment disputes between foreign

investors and the state; this principle is enshrined in

the U.S.-Turkish BIT. For many years, there was an

exception for "concessions" involving private

(primarily foreign) investment in public services. In

1999, the Parliament passed a package of amendments to

the constitution allowing foreign companies access to

international arbitration for concessionary contracts.

In 2000, the Turkish government completed implementing

legislation for arbitration. In 2001, the Parliament

approved a law further expanding the scope of

international arbitration in Turkish contracts.

While Turkey's legal regime for foreign investment is

liberal, private sector investment is often hindered,

regardless of nationality, by: excessive bureaucracy;

political and macroeconomic uncertainty; weaknesses in

the judicial system; high tax rates; a weak framework

for corporate governance; and frequent, sometimes

unclear changes in the legal and regulatory

environment. The Turkish government is considering

legal and other changes to reduce red tape and

dismantle other barriers to investment. Key changes

under discussion include: elimination of screening of

foreign investors in favor of a notification system;

national treatment for foreign-owned entities in

acquisition of real estate; abolition of specific

minimum capital requirements for foreign investors.

Turkey is a member of several international dispute

settlement bodies. Nevertheless, until 1999, Turkish

courts did not recognize investors' rights to third

party arbitration under any contract defined as a

concession. This was particularly problematic in the

energy, telecommunications and transportation sectors.

Constitutional amendments, accepted by the Parliament

in 1999 granting access to international arbitration to

foreign investors, largely corrected this problem.

Investors in these sectors often expressed concern

about the lack of clarity in the government approval

process, lack of lender's step-in rights, the lack of

lender rights to termination, and disparities between

the rights of lenders and the rights of the Turkish

Government to claim force majeure. The Turkish

government passed legislation in February 2001 that

will introduce a fully liberalized energy market in

Turkey, under which private firms will develop projects

with the approval of an independent regulatory body.

As part of its customs union agreement with the EU,

Turkey has pledged to adopt EU standards concerning

competition and consumer protection. In 1997, a

government "Competition Board" commenced operations,

putting into force a 1994 competition law. Government

monopolies in a number of areas, particularly alcoholic

beverages and telecommunications services, have been

scaled back in recent years, but currently remain a

barrier to certain U.S. products and services.

CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN

TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT

LARGE. THE TURKISH GOVERNMENT CONDUCTED TWO

SIGNIFICANT ANTI-CORRUPTION OPERATIONS IN 2001,

ONE IN THE ENERGY MINISTRY AND THE OTHER IN THE

PUBLIC WORKS MINISTRY. SEVERAL INDIVIDUALS WERE

CHARGED WITH CORRUPTION AND WRONGDOING IN

GOVERNMENT CONTRACT TENDERS. THE OPERATIONS

RESULTED IN THE RESIGNATION OF BOTH MINISTERS

AND THE ARREST OF MANY HIGH-LEVEL OFFICIALS.

Corruption appears to be most problematic in government

procurement, with frequent allegations that contracts

are awarded on the basis of personal and political

relationships of businesspersons and government

officials. The judicial system is also perceived to be

susceptible to external political and commercial

Turkey has ratified the OECD antibribery convention,

but has not yet passed the relevant implementing

legislation which would explicitly provide that bribes

of foreign officials, as well as domestic, are illegal

U.S. firms have sometimes alleged that corruption, or

at a minimum nontransparent practices, have been a

barrier to direct foreign investment. American

companies operating in Turkey have complained about

contributions to the community solicited, with varying

degrees of pressure, by municipal or local authorities.

Energy: Over the last 5-7 years, U.S. firms have spent

tens of millions of dollars pursuing contracts for

power projects using the build-operate-transfer (BOT)

and transfer-of-operating-rights (TOR) models. The

constitutional court ruled in April 1992 that the GOT

would have to either honor the contracts or compensate

the companies involved. To date, the GOT has not

commenced negotiations with the companies, one of which

has launched an international arbitration case.

Because of the delay, the companies are now required to

submit license applications to the Energy Market

Regulatory Board (EMRA), which took control of such

licenses in September. In addition, BOT projects

already in operation filed suit against EMRA on October

2002, claiming that the license requirement was in

violation of their implementing contracts.

Cola tax: Punitive taxation of cola drinks (raised in

2002 to 47.5 percent under Turkey's new "Special

Consumption Tax") discourages investment by major U.S.

Corporate Governance: Weaknesses in the protection of

minority shareholder rights and regulatory oversight

have left some American companies at a disadvantage in

This post strives to provide a reference point regarding patents in Turkey even though it discusses much more than that. The bottom line is, patents in Turkey are a relatively recent development and a matter of assimilation, not reason, concurring with many people’s perception █

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● 09.11.11

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