09.11.11

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Cablegate: Turkey’s Patents Trajectory on Bad TRIPS

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

Cablegate

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:


UNCLAS SECTION 01 OF 09 ANKARA 000100 
 
SIPDIS 
 
E.O. 12958: N/A 
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 
 
REF: 05 STATE 202943 
 
The following is the 2006 Investment Climate Statement for 
Turkey: 
 
¶1. Openness To Foreign Investment 
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 
foreigners. 
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 
in Turkey. 
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 
subsequent years. 
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 
the business climate. 
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 
financial investment. 
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 
information is available at: 

http://www.investinginturkey.gov.tr

¶2. Conversion And Transfer Policies 
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. 
¶3. Expropriation And Compensation 
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- 
state dispute settlement. 
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. 
¶4. Dispute Settlement 
There are several outstanding investment disputes between 
U.S. companies and Turkish government bodies, particularly 
in the energy and tourism sectors. 
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 
claims. 
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 
ruling involving private companies. 
¶5. Performance Requirements/Incentives 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
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 
Turkey's free zones (see below). 
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 
financing. 
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 "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 
Turkey's trade regime can be found at 
www.foreigntrade.gov.tr. 
Military procurement generally requires an offset provision 
in tender specifications. The offset guidelines were 
modified to encourage direct investment and technology 
transfer. 
¶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 
100 percent. 
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. 
¶7. Protection Of Property Rights 
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 
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 
 
SIPDIS 
levels of piracy and counterfeiting of copyright and 
trademark materials. 
 
Turkey's copyright law provides 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, 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 
copyright products and authorization for law enforcement 
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 
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". 
 
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 
property protections. 
 
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 
name drug with a valid Turkish patent. 
 
The Ministry of Health introduced limited protection for 
confidential test data submitted in support of applications 
 
SIPDIS 
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 
 
SIPDIS 
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 
process in Turkey. 
 
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 
products. 
 
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 
to the company. 
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 
website: www.ustr.gov. 
¶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 
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 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 
Requirements/Incentives"). 
¶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 
inspections. 
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 
State Deposit Insurance Fund (SDIF). 
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, 
according to BRSA data. 
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 
domestic parties in recent memory. 
¶10. Political Violence 
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. 
¶11. Corruption 
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. 
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 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 
"FCPA"). 
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 
the Supreme Court for further action. 
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 
countries. 
¶12. Bilateral Investment Agreements 
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 
countries. 
¶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. 
¶14. Labor 
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 
the ILO and the EU. 
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 
Trade Zones Law 3218. 
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 
aid may be extended for up to 3 years. 
¶15. Foreign Trade Zones/Free Ports 
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 
American firm. 
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: 
www.dtm.gov.tr). 
¶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 Turkey. 
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. 
FDI Inflow by Years (million USD) 
Year  Actual Inflow(Cumulative)  Inflow/GDP  No firms 
 
1980-1988                                    1,172 
1989      663                      0.80      1,525 
1990      684                      0.67      1,856 
1991      907                      0.69      2,123 
1992      911                      0.78      2,330 
1993      746                      0.56      2,554 
1994      636                      0.64      2,830 
1995      934                      0.66      3,163 
1996      914                      0.53      3,582 
1997      852                      0.54      4,068 
1998      953                      0.49      4,533 
1999      813                      0.41      4,950 
2000    1,707                      0.85      5,328 
2001    3,288                      2.21      5,841 
2002    1,042                      0.48      6,280 
2003    1,702                      0.71      6,511 
2004    2,765                      0.92      8,661 
2005*   3,742                      1.42     10,984 
TOTAL  21,666                               10,984 
Source: Central Bank of Turkey, State Institute of 
Statistics, 
(*)January through September 2005. 
(**) Includes capital inflows, foreign loans and real estate 
investment. 
FDI Stock by Source Country (end of 2004/ million USD) 
Country        Value        Share (percent) 
Netherlands    9,526          32.3 
Germany        2,969          10.1 
United Kingdom 2,952          10.0 
U.S.A          2,859           9.7 
France         2,450           8.3 
Italy          1,207           4.1 
Switzerland    1,072           3.6 
Finland        1,043           3.5 
Belgium          864           2.9 
Japan            846           2.8 
Canada           825           2.8 
Others         2,897           9.8 
Total         29,510         100.0 
Source: Central Bank of Turkey. 
The investment permit requirement lifted as of 2004. 
Turkey's External Investment by Country (As of December 
2005) 
Country        Amount         Share 
           (USD millions) 
Netherlands   2,485.2         31.9 
Azerbaijan    1,891.6         24.3 
United Kingdom  521.0          6.7 
Germany         461.9          5.9 
Kazakhstan      442.2          5.7 
Luxembourg      249.9          3.2 
United States   186.7          2.4 
Russia          170.4          2.2 
Romania         158.4          2.0 
Switzerland     108.8          1.4 
France           94.3          1.2 
Others        1,020.7         13.1 
Total         7,791.1        100.0 
Source: General Directorate of Banking and Foreign Exchange, 
Treasury 
Major foreign investors 
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. 
McEldowney


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.


UNCLAS SECTION 01 OF 12 ANKARA 000304 
 
SIPDIS 
 
STATE FOR EB/IFD/OIA 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR 
FAS FOR ITP/PAUL SPENCER 
USDOC FOR ITA/MAC/DDEFALCO 
 
E.O. 12958: N/A 
TAGS: EINV [Foreign Investments], KTDB [National Trade Data Bank], 
EFIN [Financial and Monetary Affairs], TU [Turkey] 
SUBJECT:  2005 INVESTMENT CLIMATE STATEMENT FOR TURKEY 
 
Ref: STATE 250356 
 
This is the first of two cables transmitting e following 
is the 2005 Investment Climate Statement for Turkey: 
 
¶1.  OPENNESS TO FOREIGN INVESTMENT 
 
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 
financial crisis. 
 
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 
allow FDI inflows to grow. 
 
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 
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.  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 
55 percent of the company. 
 
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 
area (see Section 5 - Performance 
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 
of land. 
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 
background information: 
http://www.treasury.gov.tr/for_inv.htm.  Additional 
information is available at: 

http://www.investinginturkey.gov.tr

¶2.  CONVERSION AND TRANSFER POLICIES 
 
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. 
 
¶3. EXPROPRIATION AND COMPENSATION 
 
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. 
 
¶4.  DISPUTE SETTLEMENT 
 
There are several outstanding investment disputes between 
U.S. companies and Turkish government bodies, particularly 
in the energy and tourism sectors. 
 
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 
differentials in claims. 
 
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 
private companies. 
 
¶5.  PERFORMANCE REQUIREMENTS/INCENTIVES 
 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
 
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 
the investment incentives. 
 
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 
transfer, or local financing. 
 
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 
permits. 
 
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 
www.foreigntrade.gov.tr. 
 
Military procurement generally requires an offset 
provision in tender specifications.  The offset guidelines 
were modified to encourage direct investment and 
technology transfer. 
 
¶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 
permitted up to 100 percent. 
 
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. 
 
¶7.  PROTECTION OF PROPERTY RIGHTS 
 
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 
and trademarked materials. 
 
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 
convictions. 
 
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 
pharmaceuticals in the R&D "pipeline." 
 
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 
the Turkish Health Ministry. 
 
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 
website:  www.ustr.gov. 
 
¶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.  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 
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 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 
Requirements/Incentives Section). 
 
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 
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.  The government is also 
considering other measures to streamline other business 
procedures as part of its effort to improve the business 
climate. 
 
¶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 
merge weak banks with stronger ones. 
 
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 
to Istanbul. 
 
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 
when conducting on-site inspections. 
 
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 
banks has stalled. 
 
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- 
setting consortia or organizations. 
 
¶10.  POLITICAL VIOLENCE 
 
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 
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, 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. 
 
¶11.  CORRUPTION 
 
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 
CORRUPT PRACTICES AT THE BANK EMERGED. 
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 UN Convention Against Corruption. 
 
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 
further action. 
 
Transparency International has an affiliated NGO in 
Istanbul. 
 
¶12.  BILATERAL INVESTMENT AGREEMENTS 
 
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 
Israel. 
 
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. 
 
¶14. LABOR 
 
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 
dependable. 
 
Labor-management relations have been generally good in 
recent years.  Employers are obliged by law to negotiate 
in good faith with unions that have been certified as 
bargaining agents.  Strikes are usually of short duration 
and almost always peaceful.  Since 1980 Turkey has faced 
criticism by the 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). 
 
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 
PROVIDED BY THE 2002 LAW. 
 
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, 
but are prohibited from striking. 
 
¶15.  FOREIGN TRADE ZONES/FREE PORTS 
 
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 
an American firm. 
 
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: 
www.dtm.gov.tr). 
 
¶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 
permits in 2003. 
 
FDI Inflow by Years (million USD) 
 
Year           Actual    Inflow/GDP      No firms 
                Inflow                   (Cumulative) 
1980-1988      1,172 
1989             663        0.80           1,525 
1990             684        0.67           1,856 
1991             907        0.69           2,123 
1992             911        0.78           2,330 
1993             746        0.56           2,554 
1994             636        0.64           2,830 
1995             934        0.66           3,163 
1996             914        0.53           3,582 
1997             852        0.54           4,068 
1998             953        0.49           4,533 
1999             813        0.41           4,950 
2000           1,707        0.85           5,328 
2001           3,288        2.21           5,841 
2002           1,042        0.48           6,280 
2003           1,702        0.71           6,511 
2004(*)        2,216             1.02            N/A 
TOTAL          20,140                      6,511 
 
Source: Central Bank of Turkey, State Institute of 
Statistics, 
(*)January through November 2004. 
(**) Includes capital inflows, foreign loans and real 
estate investment. 
 
FDI Inflow by Source Country (1999-2002/ million USD) 
 
Country        Cumulative Value    Share (percent) 
 
Italy               1,968               30.9 
Netherlands           962               15.1 
U.S.A.                793               12.4 
United Kingdom        647               10.1 
Germany               514                8.1 
Bahrain               323                5.1 
Japan                 267                4.2 
France                263                4.1 
Switzerland           104                1.6 
Belgium-Luxemburg      25                0.4 
Spain                  23                0.4 
Others                488                7.7 
 
Total               6,377              100.0 
 
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 
USD) 
Sector         Cumulative Value    Share (percent) 
 
Manufacturing       18,641           53.0 
Services            15,453           44.0 
Agriculture            616            1.8 
Mining                 442            1.2 
 
Total               35,152           100.0 
 
Source: General Directorate of Foreign Capital 
(*) as of June 2003 
 
 
Main Manufacturing Industry Sub-Sectors Receiving FDI 
Permits 
 
Industry Sub-Sector        Share in Manufacturing 
                                   Industry (percent)* 
 
Chemical Products                    18.3 
Food                                 14.7 
Transport Equipment                  12.3 
Electrical Machinery                  5.8 
Garment Industry                      3.9 
Iron and Steel                        3.4 
 
Source: General Directorate of Foreign Capital 
(*) as of June 2003 
 
Turkey's External Investment by Country (As of December 
2004) 
 
Country              Amount       Share 
                 (USD millions) 
Netherlands         2,248.8       34.8 
Azerbaijan          1,043.6       16.1 
United Kingdom        524.2        8.1 
Germany               472.1        7.2 
Kazakhstan                 434.5        6.7 
Luxembourg            248.7        3.9 
United States         179.8        2.8 
Russia                159.7        2.5 
France                 93.4        1.4 
Switzerland            84.9        1.3 
Others                976.5       15.1 
 
Total               6,466.2       100.0 
Source: General Directorate of Banking and Foreign 
Exchange, 
Treasury 
 
Major foreign investors 
 
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. 
Edelman

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


UNCLAS SECTION 01 OF 03 ANKARA 004548 
 
SIPDIS 
 
 
STATE FOR EB/IFD/OIA 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: EINV [Foreign Investments],
KTDB [National Trade Data Bank], 
EFIN [Financial and Monetary Affairs], TU [Turkey] 
SUBJECT:  2003 INVESTMENT CLIMATE STATEMENT FOR TURKEY - 
PART II 
 
Ref: STATE 128494 
 
 
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 
Investment Measures (TRIMS). 
 
 
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 
financing. 
 
 
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 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 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 
www.foreigntrade.gov.tr. 
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 
up to 100 percent. 
 
 
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. 
 
 
¶7.  PROTECTION OF PROPERTY RIGHTS 
 
 
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 Settlement"). 
 
 
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 
remains in 2003. 
 
 
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. 
 
 
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 R&D "pipeline." 
 
 
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 
pharmaceutical 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 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 
consideration. 
 
 
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 
administrative barriers to investment. 
Pearson


Coupled with:


UNCLAS SECTION 01 OF 13 ANKARA 004387 
 
SIPDIS 
 
 
STATE FOR EB/IFD/OIA 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
TAGS: EINV [Foreign Investments], 
KTDB [National Trade Data Bank], 
EFIN [Financial and Monetary Affairs], TU [Turkey] 
SUBJECT:  20032 INVESTMENT CLIMATE STATEMENT FOR TURKEY 
 
 
Ref: STATE 12849488106 
 
 
The following is the 20032 Investment Climate Statement 
for Turkey: 
 
 
¶1.  OPENNESS TO FOREIGN INVESTMENT 
 
 
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 
for the new law are not yet in place. 
 
 
(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 
regulations can be found at: 
www.dtm.gov.tr/english/doing/iginvest/invest/ htm and 
www.igeme.org.tr/introeng.htm 
 
 
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- 
establishment phase. 
 
 
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 investment law. 
 
 
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 
company's upcoming privatization. 
 
 
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 
Requirements/Incentives). 
 
 
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 
regulations can be found at: 
www.dtm.gov.tr/english/doing/iginvest/invest/ htm and 
www.igeme.org.tr/introeng.htm.) 
 
 
¶2.  CONVERSION AND TRANSFER POLICIES 
 
 
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. 
 
 
¶3.  EXPROPRIATION AND COMPENSATION 
 
 
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. 
 
 
¶4.  DISPUTE SETTLEMENT 
 
 
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 
to pursue a settlement. 
 
 
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 
differentials in claims. 
 
 
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 
Agency (MIGA) in 1987. 
 
 
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 
companies. 
 
 
¶5.  PERFORMANCE REQUIREMENTS/INCENTIVES 
 
 
Turkey is a party to the WTO Agreement on Trade Related 
Investment Measures (TRIMS). 
 
 
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 
dated May 6, 1998 Feb 18, 2001). 
 
 
 
 
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 
per capita income below USD 1,500. 
 
 
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 
financing. 
 
 
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 
by May. 
 
 
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 
issued later this year. 
 
 
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 
www.foreigntrade.gov.tr. 
 
 
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 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 
before parliament. 
 
 
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. 
 
 
¶7.  PROTECTION OF PROPERTY RIGHTS 
 
 
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 
Settlement"). 
 
 
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 
remains in 2003.1. 
 
 
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 
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.  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 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 
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 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 
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 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 
administrative barriers to investment. 
 
 
¶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 
consistent with international norms. 
 
 
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 
stronger ones. 
 
 
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- 
site monitoring. 
 
 
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 
memory. 
 
 
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- 
setting consortia or organizations. 
 
 
¶10.  POLITICAL VIOLENCE 
 
 
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 
are deemed "sensitive" by the GOT. 
 
 
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. 
 
 
¶11.  CORRUPTION 
 
 
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 
influence to some degree. 
 
 
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 
the UN Convention Against Corruption. 
 
 
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 
Istanbul. 
 
 
¶12.  BILATERAL INVESTMENT AGREEMENTS 
 
 
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, 
Mongolia, Greece and Israel. 
 
 
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 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 
Guarantee Agency (MIGA). 
 
 
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 
regime. 
 
 
¶14.  LABOR 
 
 
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 
dependable. 
 
 
Labor-management relations have been generally good in 
recent years.  Employers are obliged by law to negotiate 
in good faith with unions that have been certified as 
bargaining agents.  Strikes are usually of short 
duration and almost always peaceful.  Since 1980 Turkey 
has faced criticism by the International Labor 
Organization (ILO), particularly for shortcomings in 
enforcement of ILO Convention 98 (right to organize and 
collective bargaining).  In 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 
company. 
 
 
¶15.  FOREIGN TRADE ZONES/FREE PORTS 
 
 
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 
market are allowed. 
 
 
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 
American firm. 
 
 
¶16.  FOREIGN DIRECT INVESTMENT STATISTICS 
 
 
(Aysem - Please update entire section 
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 
activities in 20012. 
 
 
 
 
Total Foreign Direct     1999       2000       2001 
2002(*)         2003(*) 
Investment Stock 
USD millions           10,185     11,892     15,180 
18,500 15,749   18,000 (*) 
Sources:  General Directorate of Foreign Investment 
(*) U.S. Embassy estimate 
 
 
 
 
 
 
Cumulative Total Foreign Direct Investment Permits 
By country of origin, NovemberMarch 2002 
 
 
Country          Value ($mil.)       Share 
 
 
France              5,545.6 5,665      16.6     17.4 
Netherlands         4,331.6 5,336      15.7     13.6 
Germany             4,129.1 4,329      12.7     12.9 
United States       3,710.2 3,929      11.6     11.6 
United Kingdom      2,497.9 2,669       7.9     7.8 
Switzerland         2,125.8 2,261       6.7     6.7 
Italy               1,941.3 1,883       5.5     6.1 
Japan               1,745.4 1,819       5.4     5.5 
Belgium               385.6   485       1.4     1.2 
Saudi Arabia          318.1   321       1.0     1.0 
Others              5,142.1 5,308      15.6    16.1 
Total              31,872.7 33.995         100.0 
 
 
Source: General Directorate of Foreign Investment, 
Treasury. 
 
 
 
 
Foreign Direct Investment by Year (million USD) 
 
 
FDI permissions 
 
 
Year        Cumulative   Annual    Actual     No. Firms 
             Permits     Permits   Inflow 
 
 
To:  1988     3,050                              1,172 
1989          4,562      1,512       855         1,525 
1990          6,423      1,861     1,005         1,856 
1991          8,390      1,967     1,041         2,123 
1992         10,210      1,820     1,242         2,330 
1993         12,274      2,063     1,016         2,554 
1994         13,751      1,478       830         2,830 
1995         16,690      2,938     1,127         3,163 
1996         20,527      3,837       964         3,582 
1997         22,205      1,678     1,032         4,068 
1998         22,629      1,646       976         4,533 
1999         24,319      1,701       817         4,950 
2000         27,379      3,060     1,707         5,328 
2001         30,118      2,739     3,288         5,841 
2002 (*)     31,872        523       N/A         5,938 
             33,995      2,243       569         6,311 
Source: General Directorate of Foreign Investment,; (*) 
As of March November 2002. 
 
 
Actual FDI Inflow as Percentage of Turkish GDP 
 
 
Year              FDI flow        FDI flow/GDP 
                  (USD mil.)         (Pct.) 
 
 
Up to 1988        3,229 
1989                855             0.80 
1990              1,005             0.67 
1991              1,041             0.69 
1992              1,242             0.78 
1993              1,016             0.56 
1994                830             0.64 
1995              1,127             0.66 
1996                964             0.53 
1997              1,032             0.54 
1998                976             0.49 
1999                817             0.41 
2000              1,719             0.85 
2001              3,288             2.21 
2002                569             0.48 
 
 
Source: General Directorate of Foreign Investment, and 
the State Planning Organization. 
 
 
 
 
Turkey's FDI by Country (As of December 20021) 
 
 
Country           Amount (USD millions)    Share 
 
 
Netherlands       1,916.51,868.2       30.9 
40.2 
United Kingdom      519.4  523.1        8.9 
10.9 
Germany             440.6  532.7        8.8 
9.2 
Luxembourg          236.9  245.8        4.1 
5.0 
Russia              181.4  163.7        2.7 
3.8 
Azerbaijan          156.6  741.8       12.3 
3.3 
Kazakhstan          170.6  431.5        7.1 
3.6 
United States       185.8  192.6        3.2 
3.9 
Romania             117.9  122.7        2.0 
2.5 
Others              839.7 1,218.6      20.1 
17.6 
                  4,765.4 6,040.8                 100.0 
 
 
 
 
Source: General Directorate of Banking and Foreign 
Exchange, Treasury 
 
 
Major foreign investors 
 
 
Turkey's largest foreign investors include Telecom 
Italia, Renault, Toyota, Fiat, Castrol, Enron Power, 
Citibank, Pirelli Tire, Unilever, RJR Nabisco, Philip 
Morris, United Defense, Honda, Hyundai, Bosch, Siemens, 
DaimlerChrysler, Chase Manhattan, AEG, Bridgestone- 
Firestone, Cargill, Novartis, Coca Cola, Colgate- 
Palmolive, General Electric, General Motors-Opel, ITT, 
Ford Motor Co., Lockheed Martin, Gillette, Goodyear, 
Hilton International, Aventis, McDonald's, Nestle, 
Mobil, Pepsi, Pfizer, Procter and Gamble, InterGen and 
Shell. 
 
 
Pearson


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:


UNCLAS SECTION 01 OF 06 ANKARA 007003 
 
SIPDIS 
 
STATE FOR EB/TPP/MTA/MST 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR FOR GBLUE/LERRION 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
E.O. 12958: N/A 
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 
 
Ref: STATE 240980 
 
The following is Embassy's input for the National Trade 
Estimate Report for Turkey: 
 
TRADE SUMMARY 
 
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 
Washington agencies). 
 
IMPORT POLICIES 
 
Tariffs and Quantitative Restrictions 
 
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 
200 percent. 
 
Import Licenses and Other Restrictions 
 
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 
handled on a contractual basis. 
 
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 
humans. 
 
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 
market. 
 
GOVERNMENT PROCUREMENT 
 
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. 
 
EXPORT SUBSIDIES 
 
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 
exporters. 
 
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. 
 
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 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 
these losses. 
 
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 
rights, it is currently understaffed. 
 
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." 
 
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 
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, with enormous damage to 
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 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. 
 
SERVICES BARRIERS 
 
Telecommunications Services 
 
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 
fourth license held by Turk Telecom. 
 
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 
foreign ownership of Turk Telekom. 
 
Other Services Barriers 
 
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 
several other professions. 
 
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. 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 
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, 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 
judgments. 
 
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 
proceeding. 
 
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. 
 
ANTICOMPETITIVE PRACTICES 
 
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 
 
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 
municipal or local authorities. 
 
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 discovered. 
 
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. 
 
OTHER BARRIERS 
 
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 
existing contracts. 
 
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. 
cola producers. 
 
Corporate Governance:  Weaknesses in the protection of 
minority shareholder rights and regulatory oversight 
have left some American companies at a disadvantage in 
disputes with Turkish partners. 
Edelman


And finally:



UNCLAS SECTION 01 OF 06 ANKARA 007777 
 
SIPDIS 
 
 
STATE FOR EB/TPP/MTA/MST 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR FOR GBLUE/LERRION 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
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 
 
 
Ref: STATE 310953 
 
 
The following is Embassy's input for the National Trade 
Estimate Report for Turkey: 
 
 
TRADE SUMMARY 
 
 
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 
Washington agencies). 
 
 
IMPORT POLICIES 
 
 
Tariffs and Quantitative Restrictions 
 
 
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 
exporters. 
 
 
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. 
 
 
Import Licenses and Other Restrictions 
 
 
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. 
 
 
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 
lifted this ban as of December. 
 
 
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 
environment. 
 
 
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 
modified in April 2001. 
 
 
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 
handled on a contractual basis. 
 
 
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 
humans. 
 
 
GOVERNMENT PROCUREMENT 
 
 
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. 
 
 
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. 
 
 
EXPORT SUBSIDIES 
 
 
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 
remained in 2003. 
 
 
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 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 
at USD 93 million in 2002. 
 
 
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 
rights, it is currently understaffed. 
 
 
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." 
 
 
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 
which have a valid patent in Turkey. 
 
 
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 
counterfeit products. 
 
 
SERVICES BARRIERS 
 
 
Telecommunications Services 
 
 
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 
Telecom. 
 
 
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 
a majority stake in the company. 
 
 
Other Services Barriers 
 
 
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 
several other professions. 
 
 
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. 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 
sweeteners. 
 
 
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 
generation and distribution. 
 
 
ANTICOMPETITIVE PRACTICES 
 
 
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 
 
 
CORRUPTION IS PERCEIVED TO BE A MAJOR PROBLEM IN 
TURKEY BY PRIVATE ENTERPRISE AND THE PUBLIC AT 
LARGE. 
 
 
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 
influence to some degree. 
 
 
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 
discovered. 
 
 
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 
in Dec 2003. 
 
 
OTHER BARRIERS 
 
 
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 
application process is still underway. 
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. 
cola producers. 
Corporate Governance:  Weaknesses in the protection of 
minority shareholder rights and regulatory oversight 
have left some American companies at a disadvantage in 
disputes with Turkish partners. 
Edelman

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



UNCLAS SECTION 01 OF 06 ANKARA 009054 
 
SIPDIS 
 
 
STATE FOR EB/TPP/MTA/MST-AWHITTEN 
TREASURY FOR OASIA 
DEPT PLEASE PASS USTR FOR GBLUE/DBIRDSEY 
FAS FOR ITP/THORBURN 
USDOC FOR ITA/MAC/DDEFALCO 
 
 
E.O. 12958: N/A 
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 
 
 
Ref: STATE 225281 
 
 
The following is Embassy's input for the National Trade 
Estimate Report for Turkey: 
 
 
TRADE SUMMARY 
 
 
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). 
 
 
IMPORT POLICIES 
 
 
Tariffs and Quantitative Restrictions 
 
 
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 
not permit any meat imports. 
 
 
Import Licenses and other Restrictions 
 
 
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 
negative affect on trade. 
 
 
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 
this sector. 
 
 
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 
humans. 
 
 
GOVERNMENT PROCUREMENT 
 
 
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 
"best offers." 
 
 
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. 
 
 
EXPORT SUBSIDIES 
 
 
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 
are needed. 
 
 
SERVICES BARRIERS 
 
 
Accounting 
 
 
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 
letterheads and business cards. 
 
 
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 
because of nationality requirements. 
 
 
 
 
 
 
Legal Services 
 
 
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, 
staffed by Turkish lawyers. 
 
 
Architecture and Engineering 
 
 
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 
Turkey's IMF program. 
Telecommunications Services 
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 
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.  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 Telecom. 
 
 
Other Services Barriers 
 
 
There are restrictions on establishment in financial 
services, the petroleum sector, broadcasting, aviation 
and maritime transportation (see Investment Barriers 
section). 
 
 
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 
production corn sweeteners. 
 
 
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. 
 
 
ANTICOMPETITIVE PRACTICES 
 
 
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 
 
 
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 
influence to some degree. 
 
 
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 
and not tax deductible. 
 
 
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. 
 
 
OTHER BARRIERS 
 
 
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. 
cola producers. 
 
 
Corporate Governance:  Weaknesses in the protection of 
minority shareholder rights and regulatory oversight 
have left some American companies at a disadvantage in 
disputes with Turkish partners.

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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