The stock of U.S. foreign direct investment in Turkey was $1.1 billion in 1994, 8.7 percent greater than in 1993. U.S. direct investment in Turkey is largely concentrated in manufacturing and banking.

IMPORT POLICIES

Tariffs and Other Charges

In conjunction with its January 1, 1996 accession to a customs union with the European Union, Turkey has adopted a new import regime. The new regime applies the EU's common external customs tariff for third country imports and provides zero duty rates for non-agricultural items of EU/EFTA origin. It eliminates the Mass Housing Fund charge on almost all imports except for agricultural products and used construction machinery. According to Turkish government estimates, the duty rate reductions and the near elimination of the Mass Housing Fund charges yield a tariff reduction from 10.8 percent average to 3.6 percent average for third country imports, including the U.S.

The EU tariff system also simplifies the calculation of duties on U.S. goods, reducing administrative costs and providing a greater degree of predictability for exporters. However, because duties have been eliminated among Turkey, the European Union and EFTA member states, U.S. exporters, who will still be subject to Turkish duties, are at a disadvantage compared with their European competitors.

Consistent with its WTO commitments, Turkey maintains high border protection on many agricultural and food products.

The Turkish Parliament authorized the Turkish Government to join the World Trade Organization on January 26, 1995, backdating the bill to December 31, 1994. The Turkish Government still needs to implement measures to align its policies with the Uruguay Round commitments.

Import Licenses

Importers must obtain permission from relevant ministries for certain goods, including telecommunications equipment, some agricultural products, chemicals, pharmaceutical products, vehicles and coal. Importers are required to establish repair facilities in all seven regions of Turkey in order to obtain permission to import certain vehicles, office equipment, electrical and electronic household items.

GOVERNMENT PROCUREMENT

Offsets

U.S. firms sometimes become frustrated at the lengthy, often complicated bidding process for Turkish government tenders. While the government normally follows competitive bidding procedures, military procurements generally require an offset provision in tender specifications when the estimated tender value exceeds $1 million dollars.

EXPORT SUBSIDIES

Turkey has used several export subsidy programs. Producer-exporters may deduct eight percent of industrial export revenue in excess of $250,000 from their corporate taxable income. Non– producer industrial goods exporters are entitled to a four percent deduction. Turkish exporters can also benefit from tariff and surcharge exemptions on imported inputs, surcharge exemptions on export financing transactions and export credit schemes provided by the export-import bank.

LACK OF INTELLECTUAL PROPERTY PROTECTION

In 1995, Turkey significantly improved its intellectual property laws. Following years of slow progress, an agreement with the European Union creating a customs union forced Turkey to enact new patent, copyright, and other legislation. Turkey also accepted the Uruguay Round's TRIPs Agreement, as well as a number of important international conventions governing protection of intellectual and industrial property rights. Although some further amendment of legislation is needed and expected in 1996, the legal foundation for a modern IP regime is now in place; Turkey now needs to enforce the new laws and reduce widespread piracy.

In recent years, U.S. patent and copyright industries have petitioned USTR to designate Turkey a "priority foreign country" for its failure to provide adequate and effective protection for American rights holders. Thecopyright industry has also petitioned for removal of Turkey's beneficiary status under the Generalized System of Preferences Program (GSP). In a December 1995 out-of-cycle Special 301 review to assess Turkey's progress in implementing its commitments to the European customs union, USTR kept Turkey on the "priority watch list," noting 1995's legislative achievements but stressing the need for significantly greater efforts to enforce the laws.

Copyright

Unauthorized copying of U.S.-origin motion picture videos, sound recordings, computer software, and books is widespread. Illegal retransmission of copyrighted films and TV programs is a growing problem.

After nearly two years of debate, Parliament passed amendments to Turkey's 1951 Copyright Law in June 1995. Turkey acceded to the 1971 Paris Act of the Berne Convention in January 1996. The amended Copyright Law contains a number of significant improvements: expanding the term of protection to 70 years, broadening coverage to include software, and sharply increasing penalties for infringement. However, the new law remains deficient in several respects -- notably in the areas of protection of pre-existing works -- and further amendments will be needed to bring the law into compliance with TRIPs, Berne, and EU directives.

The 1986 Cinema, Video and Music Works Law does not provide sufficient penalties to serve as an effective deterrent against piracy. A new draft Cinema Law remained stuck in Parliamentary committees in 1995. The Turkish Government intends to revise the draft to make it compatible with the amended Copyright Law. The Government of Turkey has not yet agreed to remove provisions which discriminate against U.S. exporters by imposing higher registration fees for imported films than for domestically produced films.

Patents

In June 1995 Turkey enacted a new Patent Law, replacing a law originally passed in 1879. New Trademark, Industrial Design, and Geographic Indicators 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.

While the new Patent Law is a significant improvement over the previous law -- including a term of protection for new and existing patents of 20 years from date of filing -- it contains several flaws. Coverage of pharmaceutical products and processes is delayed until 1999 (consistent with Turkey's commitment to the European Union). There is no pharmaceutical pipeline protection. Turkish officials insist that the new law is completely TRIPs-compatible, but note that TRIPs, and Turkey's other international obligations, take precedence over domestic law.

It is difficult to assess the amount of U.S. export losses attributable to inadequate intellectual property protection in Turkey. U.S. copyright industries estimate losses due to piracy in 1995 of around $200 million; U.S. pharmaceutical firms put their annual losses at $60 million.

To counter widespread piracy, Turkey in 1996 needs to prove that it is willing and able to enforce aggressively the new laws. The announcement in January 1996 of a significant settlement between a major U.S. software firm and a large software pirate was an encouraging sign. Turkey is establishing a series of specialized IPR courts to hear cases tried under the new laws; although it will take some time to train judges and other personnel, these courts should significantly improve the ability of U.S. firms to protect their property rights in Turkey.