188550 1/23/2009 13:51 09ANKARA118 Embassy Ankara UNCLASSIFIED 09ANKARA117|09ANKARA85|09STATE4753 VZCZCXRO3653 PP RUEHDA RUEHVK DE RUEHAK #0118/01 0231351 ZNR UUUUU ZZH P 231351Z JAN 09 FM AMEMBASSY ANKARA TO RUEHC/SECSTATE WASHDC PRIORITY 8559 INFO RUEHBJ/AMEMBASSY BEIJING PRIORITY 0364 RUEHRL/AMEMBASSY BERLIN PRIORITY 4293 RUEHBR/AMEMBASSY BRASILIA PRIORITY 0121 RUEHSL/AMEMBASSY BRATISLAVA PRIORITY 0077 RUEHBM/AMEMBASSY BUCHAREST PRIORITY 1112 RUEHBU/AMEMBASSY BUENOS AIRES PRIORITY 0054 RUEHBY/AMEMBASSY CANBERRA PRIORITY 0300 RUEHJA/AMEMBASSY JAKARTA PRIORITY 0134 RUEHKL/AMEMBASSY KUALA LUMPUR PRIORITY 0096 RUEHLO/AMEMBASSY LONDON PRIORITY 3277 RUEHMD/AMEMBASSY MADRID PRIORITY 0452 RUEHME/AMEMBASSY MEXICO PRIORITY 0079 RUEHMO/AMEMBASSY MOSCOW PRIORITY 5650 RUEHNE/AMEMBASSY NEW DELHI PRIORITY 0493 RUEHOT/AMEMBASSY OTTAWA PRIORITY 0276 RUEHFR/AMEMBASSY PARIS PRIORITY 5466 RUEHPG/AMEMBASSY PRAGUE PRIORITY 0162 RUEHSA/AMEMBASSY PRETORIA PRIORITY 0125 RUEHRH/AMEMBASSY RIYADH PRIORITY 0659 RUEHRO/AMEMBASSY ROME PRIORITY 6718 RUEHUL/AMEMBASSY SEOUL PRIORITY 0228 RUEHSM/AMEMBASSY STOCKHOLM PRIORITY 0244 RUEHKO/AMEMBASSY TOKYO PRIORITY 1004 RUEHWR/AMEMBASSY WARSAW PRIORITY 0265 RUEHDA/AMCONSUL ADANA PRIORITY 3556 RUEHIT/AMCONSUL ISTANBUL PRIORITY 5280 RUEHVK/AMCONSUL VLADIVOSTOK PRIORITY 0102 RUEHGV/USMISSION GENEVA PRIORITY 1594 RUEHIN/AIT TAIPEI PRIORITY 0104 RUCNDT/USMISSION USUN NEW YORK PRIORITY 3515 RUEHBS/USEU BRUSSELS PRIORITY UNCLAS SECTION 01 OF 02 ANKARA 000118
DEPT FOR EEB/TPP/MTAA BNAFZIGER AND EUR/SE DMARSH DEPT PLEASE PASS USTR FOR RMALMROSE AND MMOWREY
E.O. 12958: N/A TAGS: ECON, EFIN, ETRD, PREL, WTO, TU SUBJECT: TURKEY - NO AUTOMOTIVE PACKAGE YET, BUT EXPECTED SOON
REF: A. A) STATE 4753 B. B) ANKARA 85 C. C) ANKARA 117
1. Summary. Turkey has not yet implemented a formal program to stimulate its automotive industry, but the sector has been publicly clamoring for support and action is expected soon. The automotive sector is one of Turkey's most important growth engines and it has been hit especially hard by the crisis. A GOT working group was only recently established to devise an automotive sector package. Based on press reports, such a program will likely be focused on tax incentives for both producers and consumers. There has not yet been any mention of an explicit linkage to exports or to local content requirements. As 80 percent of Turkey's automotive production is exported, however, any program will obviously have the effect of supporting exports. End summary.
2. As has been the case with most of its crisis response, the GOT has been dilatory in formulating a rescue package for its automotive sector. Calls for government support began late in 2008 when automotive exports began to nosedive, plummeting 35.4 percent in the fourth quarter from the same period in 2007 (and 45.4 percent in December alone). In early January 2009, press reports began to describe a potential GOT rescue package focused mostly on tax incentives. Among the ideas discussed were:
-- reductions in taxes for producers who maintain a certain level of employment or who work on developing environmentally-friendly vehicles;
-- temporarily reduced social security taxes for automotive workers;
-- lower energy prices for automotive production facilities;
-- tax discounts to consumers who buy environmentally-friendly vehicles; and
-- restarting a defunct program where consumers who trade in high-emission older vehicles receive a Special Consumption Tax exemption on a new vehicle purchase (Comment: The program was shut down because enterprising Turks established a secondary market in cheap, polluting vehicles to help get the tax exemption, defeating the purpose of the program. End Comment.)
3. Several GOT ministers, including Industry Minister Caglayan and Finance Minister Unakitan, have spoken about the need for a rescue package, but it was only on January 19 that the Economic Coordination Board established a working group to devise sectoral stimulus packages (with a focus on automobiles and textiles). This undersecretary-level group will include the State Planning Organization and the
ANKARA 00000118 002 OF 002
Ministries of Treasury and Finance. No date has been set for the group to present its proposals. The potential size and content of sectoral support packages is also an issue in ongoing GOT negotiations with the IMF (ref B). The GOT has yet to give the IMF the details of its proposed packages or to define how much they will cost. This is a further indication of how undefined the GOT program is at this point.
4. The automotive sector is one of the pillars of Turkey's economy and of its recent export-led growth. According to Foreign Trade Undersecretariat statistics, automotive manufacturing directly employs 46,000 people and the related parts and service industries employ an additional 1.25 million. Automotive goods are the second largest category of export goods (behind steel but ahead of textiles) and in 2008 exports reached USD 17.5 billion. The sector is highly dependent on exports, with over 80 percent of its production going overseas, mostly to Europe (much of the production comes from factories owned by European automakers). As a result, it has proven especially vulnerable to the downturn in Europe and exports have fallen dramatically.
5. Comment: While none of the measures described in para 2 have been explicitly linked to export promotion, any stimulus package that reduces producer costs will have the effect of making Turkey's automobiles more competitive both at home and abroad. Turkey can be expected to make some effort to ensure that any package meets WTO rules. At the U.S.-Turkey Trade and Investment Framework Agreement meeting on January 13, the GOT raised the U.S. automaker bailout and expressed its concern over whether the program violates the WTO. They seemed to take to heart AUSTR Christopher Wilson's point that a program that is crafted to avoid linkage to exports or to local content should be WTO-compliant (see ref C). End comment.
Visit Ankara's Classified Web Site at http://www.intelink.sgov.gov/wiki/Portal:Turk ey