Israeli Companies Fear Turkish Backlash

'Business relations with Turkey had been poor, but now they'll be really bad'

Relations with Turkey, which were already deteriorating following Operation Cast Lead in Gaza in January 2009, will be even more seriously damaged, according to Israeli businesspeople who operate in Turkey. They are worried in particular that Ankara will order a boycott of trade with Israel.

Turkish stocks sank as demonstrators protested against Israel at Taksim square in Istanbul yesterday

Hundreds of Israeli companies operate in Turkey, including Teva Pharmaceuticals, Elbit systems, Israel Aerospace Industries, Nilit, Iscar, Haifa Chemicals, Oil Refineries, Netafim, Tahal and many other major Israeli firms. In the financial sector, Bank Hapoalim and Kardan Investments are active in Turkey.

Some firms have offices in Turkey with Israeli representatives, while others use local agents. Turkish businesspeople are having a hard time selling Israeli goods to their customers these days, say sources, and it will only get worse now in the wake of the Gaza flotilla incident.

Defense industries have already given up on the Turkish market, though other exporters still find it hard to believe the era of growing exports to Turkey is over.

"Until now, there were poor business relations with Turkey, but from now on they will be really bad," Menashe Carmon, the chairman of the Israel-Turkey Business Council, told TheMarker yesterday. "You can feel the hostile attitude toward Israel, and everything identified with it, on the streets of Ankara and Istanbul."

"Even the moderate people in Turkey do not understand Israel's behavior, and on the streets there is an atmosphere of fury against Israel in the demonstrations around the Israeli consulate and in Taksim Square in Istanbul," said Carmon. "The consulate is enveloped by demonstrators carrying Palestinian flags and chanting anti-Israel slogans. They are calling Israel a pirate nation who takes over ships in the middle of the sea."

The bilateral treaty on commerce between the two countries requires Turkey to allow the free entry of goods and service from Israel, said Gill Nadel, an attorney specializing in international trade who also has Turkish clients.

Such commitments also stem from Turkey's membership in the World Trade Organization. "If Turkey bans the entry of Israeli goods, it will be a violation of the agreements," said Nadel.

In such a case Israel could invoke the section on settling disputes in the bilateral treaty, or ask for international arbitration as part of the WTO.

Both agreements allow Israel, in case the dispute is not settled, to apply sanctions against Turkey, said Nadel. If the Turkish party to a business agreement makes trouble, the Israeli side can petition the court designated in the treaty over a violation of the contract, or ask the Industry, Trade and Labor Ministry to act to apply the mechanism for settling disputes included in the treaty, explained Nadel. "At this stage we have not yet reached not honoring business agreements, and I do not believe we will reach that soon," he added.

Bank Hapoalim, which controls Turkish Bank Positif, said: "There is no change in the bank's policy as a result of the events."

Defense industries have already taken into account a halt in exports to Turkey, even before the latest incident. The Defense Ministry instructed companies not to export the most advanced equipment to Turkey, which could lead to a loss of many tenders, say industry sources. Israel's defense sales to Turkey is estimated at about $400 million a year.

Before Operation Cast Lead, Israel operated under the assumption that multi-year deals worth billions would be signed in coming years, but now there is complete agreement in the sector that this will no longer happen. "Turkey is no longer a strategic partner for Israel," said a defense industry source yesterday. "The relations were already so bad that the present incident makes no difference."

Israel Military Industries recently completed a project to upgrade Turkish tanks and signed an agreement with a Turkish firm to upgrade tanks in a third country. Elbit Systems and Israel Aerospace Industries signed a deal six months ago to supply intelligence and reconnaissance systems from their Elta and El-Op subsidiaries, to be installed on Turkish Air Force planes. The deal, estimated at $141 million, has not been canceled - yet. IAI has also supplied unmanned aerial vehicles recently, but it seems no new defense deals have been signed since between the two countries.