Realizing the Potential of U.S. Turkey Economic Relations

Thank you Ambassador Holmes for that very kind introduction and I can say I want to try and keep this short. I know it’s at the end of a long day, but I can say with a certain amount of certitude that what you do say about my feelings towards Turkey and the importance of economic relationships, I think are very true, and it is a pleasure to be here.

I see many friends in the audience; it’s a pleasure again to be seeing Undersecretary Oppenheim, who was gracious enough, sir, to be here tonight. I know you’ve flown all night and just got off a plane, yet you’re still here, which is another reason I want to keep this short so you can get a little bit of rest. So from our perspective, it’s an exciting time to be talking about American-Turkey relations.

I think everybody here, in particular, knows that our two countries have done a lot over the last few years to revitalize the relationship and it is an honor to be speaking to this group, particularly at the end of the day where you’ve heard so many other American officials, particularly, I’m proud to say, my boss, Secretary of State Condoleezza Rice, who talked about a range of issues today over lunch: freedom, democracy, security, common values, and the Economic Partnership Commission.

You also heard from some of my colleagues, Matt Bryza, Chris Padilla from the Commerce Department, who talked about some of the work we are doing in the area of commercial relations, energy relations, and I know that in the other room tonight, also during the course of events today, there is also discussion of course on the security relationship with our Department of Defense colleagues, and our shared security concerns in Europe, the Middle East, and beyond. And I think what that agenda demonstrates more than anything is how broad and strong and important the relationship between Turkey and the United States is, and how seriously we in the United States take our commitment to continue to deepen the ties between our two countries.

So tonight what I want to very briefly, try to be brief, although I get excited about this topic, so bear with me, is to talk about what we are doing on revitalizing and deepening our economic relationship.

As the Secretary of State said this afternoon, in her lunch discussions, “governments that are democratic and free must also strive to ensure that their citizens are prosperous”, and that is what I think we are trying to do from both the government perspective and from a private sector perspective.

As Ambassador Holmes mentioned that I am fortunate to lead a bureau in the State Department, the Economic, Energy and Business Affairs Bureau, whose broad responsibilities cover a number of areas in economic-related issues globally. But I find myself, given the importance of Turkey, given the affection I have for the people and the country, focusing on U.S.-Turkey relations quite a lot in my job even though it extends really to global issues. And we have been working with our Turkish counterparts to focus on deepening the economic engagements. I want to mention I even have a very, very capable Turkish diplomat from the Ministry of Foreign Affairs who works in my bureau as an exchange program. He mentioned to me today that he wasn’t sure if the office director said that he was going to go to the Economic Partnership Commission meetings, and I said, well I think the last time I checked, I was your boss, so you should go.

But anyway, in terms of deepening the economic relationship between our two countries, this has been one of my most professionally rewarding parts of what I do, and I think it is given the importance of the strategic alliance between the United States and Turkey.

I’ll get off my ground a little bit here but I mentioned to some that I am a bit of a Korean war history buff and I realize that during the Korean war - and I am always amazed and struck by whenever you read the accounts of Turkish soldiers fighting with Americans, who by the way from the perspective of how they handle themselves in the battlefield, which is not often written about a lot in POW camps, with just a standard of excellence and virtue that any soldiers in the world try to meet.

So that deep, long relationship is very important to the United States and this is one reason why working on the economics relations is so rewarding to me. And it is also personally rewarding. I told this story to some of you, but one of the first counties I ever visited, I grew up in Ohio, I didn’t get out of America at all until college, so one of the first countries I ever visited was Turkey, in fact with a backpack and a buddy who traveled all over the country. And I just remember the history, culture, and most importantly the people. And it was the memory that sticks with me, three weeks, and it was one of the greatest trips I’ve ever had. And it is really, really rewarding now that I am in a position where I am working on a relationship as an official of the United States Government. So it is an honor to be doing this.

What I wanted to discuss tonight was to focus on three areas where we are working to improve and deepen our broader economic relationship. The first is in the area of enhancing our bilateral economic cooperation between the U.S. - Turkish Economic Partnership Commission. The second is in deepening our vital energy relationship and partnership, and third is in advancing the growing opportunities for regional economic cooperation between the United States and Turkey; both in terms of the governments and more importantly also in terms of the private sector.

First, the Economic Partnership Commission, EPC. And again it is great to see U/S Oppenheim here. He and I co chaired this commission together and, sir, I very much appreciate your leadership on these issues and I think you’ve been the central reason why this EPC has gained success over the last two years. But tomorrow we will be starting our two days of the EPC meetings. And it will be with the U.S. and Turkish private sector and colleagues from a broad array of inter-agency groups throughout the U.S. and Turkish governments.

This EPC was revitalized after the U.S.-Turkey shared vision of structural and structured dialogue that was concluded in the summer of 2006 by Secretary Rice and then-Foreign Minister Gul. And one of the things in that document—it urged the strengthening of our bilateral economic dialogue.

During that vision by then-former minister -- obviously now the president -- he also gave a speech, at an ATC dinner and which I was fortunate to attend, and I was particularly struck by the focus of his speech on what he called the “unrealized potential” of the U.S.-Turkey economic relationship. We have this very outstanding political security relationship, but when you look at the economic side, there’s a lot more we can do. And this was the focus of his speech, and it made quite an impression on me. And so one of the things we look to do is to actually revitalize this and really try to address this unrealized potential. So a good way of doing that is through the EPC.

So what does the Economic Partnership Commission do? It provides a cross-cutting forum to do a number of things Coordinate on ways to deepen US-Turkey economic engagement together to address the challenges and opportunities of globalization, and support each other in our private sectors and ensuring that our economic partnership can contribute to prosperity to both of our countries. And so we launched the first EPC meeting last year in Istanbul and Ankara, and found treatment in pockets such as security, science and technology, and how we can to contribute to building innovative societies and economies both in Turkey and the United States, bilateral trade and investment, and regional economic cooperation. And again, as I mentioned, what we will have in the next two days is very broad inter-agency cooperation, engagement on this. I led a delegation of over 20 US Government officials from a variety of different agencies, Treasury, USTR, State Department, Commerce, OPIC, USAID, and a very, very strong private sector here, which we think is key.

So one amazing thing that came out of the meeting is we devised an action plan to encourage trade and investment, regional news and cooperation, energy cooperation and efficiency, building ties between US and Turkish businesses. We published this on the website, we made it very transparent and then we tried very hard and still are trying to actually knock off the different items in the action plan, we got through the vast, vast majority of it so I think it has been a very good year.

And then we have open exchange of ideas, discussion, issues that are important to each of our countries. One of the things we will talk about over the course of the next two days is the economic reform program continuing in Turkey and so we think it is important with regards to issues such as intellectual property protection, reforms in social security, the new commercial bill, labor market flexibility, U.S. tax reforms. But also, there’ll be discussion on what we are doing.

As anyone who reads the paper knows, our economy is facing challenges, we’ve taken what we think is strong, robust action, and we will be discussing these issues as well. So it is a great opportunity in a forum that is rather informal but has high level and broad interagency engagement to look at ways to deepen our cooperation. So, again, I am very much looking forward to co-chairing the EPC with Undersecretary Oppenheim and I know that many of my colleagues throughout the interagency are looking forward to this as well.

The second topic I want to talk about is our restoring, deepening, and vital cooperation in the field of energy. I and think Secretary Rice said it best this afternoon, when she said, “We fully understand the growth in both of our countries, increasingly depends on new, more efficient and more vital environmentally friendly sources.”

Energy security is one of the central areas of the US-Turkish partnership and despite not being as resource rich as some of it neighbors, Turkey has a critical and increasingly vital role to play in the global energy sphere picture. Turkey’s geographic position makes it an ideal transit point for Caspian, Iraqi, North African, Middle Eastern gas headed for Europe and for oil headed for world markets and has been vitally important and critical for all in terms of being the protector caretaker across the Bosporus Straits which carry more than 300 million barrels of Caspian crude every day through it. So in an era of rising energy demand, Turkey’s position can serve its own increasing energy needs, can help it build strong, diversified markets in Europe and beyond, and that is what the focus of our discussions have been over the course of the last couple years.

Now we have some very big successes in this area. As all of you know, we have worked extremely closely over the course of several years, to accomplish what I think is still viewed as one of the key energy, environmental, and engineering feats over the last decades, which is the Baku-Tbilisi- Ceyhan pipeline, where you now not only have more than a million barrels of oil passing through that vital and strategic pipeline. And that is an example of the U.S.-Turkish and regional partnership that we hope to build on in the area of energy security. What we want to do in that regard, our Turkish colleagues, we want to continue to promote diversification in gas supplies from Caspian and Iraq, to develop and pursue renewable energy sources, and achieve our shared goals on transit and energy and security for Turkey and for Europe.

I had the distinct pleasure of being at the opening ceremonies when the BTC pipeline was opened and it truly was a celebration of regional cooperation, leadership like Turkey, inter-region, and deep cooperation in energy security issues with the United States. So despite the obvious challenges in the energy sector, given hundred and twelve dollar barrel of oil, we also see opportunity particularly between our two countries, Turkey will need estimates of up to $100 billion dollars investment in its energy sector between now and 2020 to continue to play a vital role as energy transit sector, strategic location, and continue its fast economic growth.

So we believe this opens the door for continued cooperation with American businesses, in all types of potential investments as I mentioned BTC is a landmark, literally, and symbolically, in public private cooperation it demonstrates what the US and Turkey working with partners in the region can accomplish together. If new opportunities await, obviously the BPC, the Caspian energy gas issues are often times the headline issues but we’ve seen other opportunities. Just recently, President Bush transmitted to Congress this past January the agreement for cooperation between the United States and Turkey concerning the peaceful uses of nuclear energy, also known as the “123 Agreement”, for its review. This civil nuclear agreement will come to force after 90 days, barring any negative action, and we think that this again provides significant opportunity for continued US Turkish cooperation at the government level and at the private sector level to work on expanding our cooperation in the energy sector.

The third area I want to discuss tonight is in the area of regional economic cooperation. And I think that this is a really critical issue. It is an issue that we talk about in the EPC, it’s an issue that we talked about in other forums and it is an issue that demonstrates the maturing aspect of the U.S.-Turkish economic relationship and Turkey’s regional leadership and the strength and force of its private sector.

One of the things that I’ve focused on in my job is this issue of economic isolationism, economic isolation in regions of the world and the problems that it could bring. Secretary Rice has stated that if you look at where the greatest threats in terms of national security issues have emerged over the last two decades, that we and our allies are trying to stabilize, they often share one thing in common, these are regions of the world that have yet to integrate into the global economy and realize its promise.

If you think about it, if you look at troubled spots, if you look at it from the perspective of, for example, where American troops are employed, often times, particularly in the post 9-11 world, they’re areas of the world that are very, very economically isolated. In Turkey, the constructive role to play in many of these areas, in the Middle East, Central Asia, the Caucasus, where it wields historical, economic, and cultural influence.

The Turkish private sector has shown what it could do, to help reconstruction and stabilization in Iraq; it has been involved since 2003 in designing construction projects as well, in expanding trade between Iraq and its northern neighbors. And as we know, Turkish truck drivers were instrumental in helping to bring Iraq’s economy back to life and some of these truck drivers unfortunately have paid for their services with their lives.

Turkey’s economic reach is not limited towards its immediate neighbors, because its special relationship with Israel in the Arab world, where it has also successfully played the role of ­honest broker and key economic player in these regions. In particular I want to laud, and congratulate TOBB and its leader, Chairman, and my friend, Rihfat Bey, who unfortunately cannot be here tonight for his leadership role in a number of different areas.

The most recent was the Ankara Forum for economic cooperation between Turkey, Israel and the Palestinians, where TOBB has been working with its partner to develop an industrial zone in the West Bank, which will help create jobs for Palestinians and contribute to economic growth and stability, and I know that it is an issue that Rihfat Bey has been very, very focused on, and again I want to applaud his leadership in TOBB. One of the things that we also discussed is EPC, and where we are making progress on - and again in terms of cooperation in other areas of the world, between the U.S. - Turkey, some of our initiatives, one in particular where soon will be launched what we call the reconstruction opportunity zones initiative, this is a trade preference program in Afghanistan and certain areas in Pakistan. It has already been introduced as legislation in the U.S. Congress and TOBB and the leaders of the Turkish private sector, in anticipation of this have met with the Pakistani and Afghan officials, business leaders to help take advantage of these opportunities, discuss investment and business opportunities in these regions, and we applaud that and are working together to improve that more.

So this is an area again where you see the U.S. government-Turkish government- private sector cooperating in other areas beyond our bilateral relationship. I think it is an important demonstration of a maturing economic relationship and trajectory in a trend that we hope to continue in the EPC and other areas.

Finally, as I have discussed regional economic issues, the importance of these, I would be remiss without mentioning an issue that I think everybody here is familiar with, and that is US full support of the Turkey’s work toward EU membership. We recognize that the accession negotiations are a matter between Ankara and Brussels, and EU member states, but nonetheless we strongly support not only the reforms that Turkey is undertaking in its EU obligations, but the way in which we think these reforms will help to further anchor Turkey in the west, and in Euro-Atlantic institutions.

So in conclusion, I want to note again what we see as the key elements of our economic engagement strategy which are looking at ways to enhance economic cooperation through the EPC and to deepen to continue to work on energy, and expand our regional cooperation which not only benefits Turkey’s private sector, the U.S. private sector, but many regions in Central Asia and the Middle East, which are so vital to our security.

So how are we doing? I think after our first EPC, coming upon our second EPC, it is a good question to ask. It is an important question, and from my personal perspective, it reminds me of a meeting that I’ve had, with then former Prime Minister Gul, that has made quite a lasting impression on me. I had the opportunity to meet with him when he was foreign minister, and during the summer of 2006 when I was in Ankara and Istanbul, and we were discussing ways to revitalize our economic relationship, really building on what he said, this was unrealized potential. And so, I mentioned in my meeting with him, his remarks about unrealized economic potential between our two countries, and his comments were very interesting and also very intimidating, when he said, “you know Mr. Sullivan, when you deal with economics, unlike the political route, which is sometimes hard to measure, the economic issues - they’re very easy to measure. So we will continue, we will launch the EPC, but I want a report card in a year on how we have done, and look at some of these economic measures.”

And so it is about a year, a couple of years since our last EPC, so I had my staff look up some of the numbers, hoping to get a report card back to the President and one of our support allies and I want to highlight a few of those.

I think our report card is pretty good. Foreign Direct Investments from the U.S. side we were talking at the table tonight, we definitely want that coming now from the Turkish side of the U.S.; but from the U.S. side first of all, from the Turkish economic side, very impressive, very dramatic. I think the numbers that we saw in 2007, 21.9 billion FDI into the Turkish economy. From the U.S. side, we went from FDI stocks in 2004 of $36 million to $4.5 billion in 2006 and then $8.5 billion in 2007.

If I were the president, I’d give us an A. but that is the private sector, not the government, but we will try to work on that. And trade, I think is also another strong story. U.S. exports to turkey has risen steadily since 2000, increased 15% since 2000 to 2007 and exports increased 49% so far in 2008 over the same period last year, so that is strong. U.S. imports from Turkey, so Turkish exports, have also done well, averaging 5% annual growth since 2000. The GSP program in particular, which has been a very, very strong performer in 2007, Turkish exports under the GSP program amounted to $1.1 billion and that is double the level since 2000.

So these are good numbers, and I think this is a decent report card, but I think we clearly could do better. So in other words, I think the unrealized potential in the economic realm given the long history between our two countries and the trust and deep relationships that exists, the unrealized potential still remains, but we are closing the gap, and I think what we are doing this week, if events like this continue, what we will try to do is to continue to work to close that gap.

So we will work on deepening our economic relationship, we see that work as vital, no problem as you said, and as business people you know even better than we do in the government that shared prosperity is the anchor of stability, anchor of security and ultimately, is the anchor of successful diplomacy, and long lasting relations between our two countries. Thank you for your attention, I very much enjoyed this evening in this company and I look forward to continue working on important issues in the coming days.