Republic of Cyprus
Area: 9,251 sq. km. (3,572 sq. mi.); about the size of Connecticut.
Cities: Capital--Nicosia (pop. 197,800, 2000 fig.). Other cities--Limassol, Larnaca, Famagusta, Paphos, Kyrenia, Morphou.
Terrain: Central plain with mountain ranges to the north and south.
Climate: Mediterranean with hot, dry summers and cool, wet winters.
Nationality: Noun and adjective--Cypriot(s).
Population (2001 census): 793,000.
Annual growth rate: 1%.
Ethnic groups: Greek (77%), Turkish (18%), Armenian and other (4%).
Religions: Greek Orthodox, Muslim, Maronite, Roman Catholic, Armenian Orthodox.
Languages: Greek, Turkish, English.
Education: Years compulsory--6 in elementary; 3 in high school. Attendance--almost 100%. Literacy--about 99%.
Health: Infant mortality rate--9/1,000. Life expectancy--73 yrs. males; 78 yrs. females.
Work force (2002): Government-controlled area, 311,000--agriculture and mining 8.0%; manufacturing and utilities 12.5%; construction 8.8%; trade, hotels, and restaurants 28.42%; transport 7.0%; finance, real estate, and business 9.9%; government, education, and health 17.2%; and community and other services 8.2%. Turkish Cypriot-administered area--agriculture and mining 16.5%; manufacturing and utilities 9.6%; construction 15.6%; trade, hotels, and restaurants 10.7%; transport 9.0%; finance, real estate, and business 2.7%; government, education, and health 20.0%; and community and other services 15.9%.
Independence: August 16, 1960.
Constitution: August 16, 1960.
Branches: Executive--President elected to 5-yr. term.
Legislative--unicameral House of Representatives, members elected to 5-yr. terms. Judicial--Supreme Court; six district courts.
Administrative subdivisions: Six.
Political parties: Greek Cypriot Community--Democratic Rally (right); Democratic Party (center-right); AKEL (communist); KISOS (socialist); United Democrats (center-left). Turkish Cypriot Community--National Unity (right); Democratic party (center-right); Republican Turkish (left); Communal Liberation (center-left); National Revival (center-right); Patriotic Unity Movement (left); National Justice Party (ultra-nationalist).
Suffrage: Universal at age 18.
GDP (2002): $9.9 billion.
Annual real growth rate (2002): 2.2%.
Per capita GDP income (2002): Greek Cypriots--$14,499; Turkish Cypriots--about $4,610.
Agriculture and natural resources (4.6% of GDP): Products--potatoes and other vegetables, citrus fruits, olives, grapes, wheat, carob seeds. Resources--pyrites, copper, asbestos, gypsum, lumber, salt, marble, clay, earth pigment.
Industry and construction (19.3% of GDP): Types--mining, cement, construction, utilities, manufacturing, chemicals, non-electric machinery, textiles, footwear, food, beverages, tobacco. Services and tourism (76.1% of GDP): trade, restaurants, and hotels 23.3%; transport 11.2%; finance, real estate, and business 20.6%; government, education, and health 16.3%; and community and other services 4.8%.
Trade (2002): Exports--$926 million: citrus, grapes, wine, potatoes, clothing, footwear. Major markets--EU (especially the U.K. and Greece), Middle East, Russia. Imports--$3.8 billion: consumer goods, raw materials for industry, petroleum and lubricants, food and feed grains. Major suppliers--Greece, Italy, Germany, U.K. (U.S. trade surplus--projected for 2002: $237 million.)
PEOPLE AND HISTORY
Greek and Turkish Cypriots share many customs but maintain distinct identities based on religion, language, and close ties with their respective "motherlands." Greek is predominantly spoken in the south, Turkish in the north. English is widely used. Cyprus has a well-developed system of primary and secondary education. The majority of Cypriots earn their higher education at Greek, Turkish, British, or American universities. Both the Turkish and Greek communities have developed private colleges and state-supported universities.
Cypriot culture is among the oldest in the Mediterranean. By 3700 BC, the island was well inhabited, a crossroads between East and West. The island fell successively under Assyrian, Egyptian, Persian, Greek, and Roman domination. For 800 years, beginning in 364 AD, Cyprus was ruled by Byzantium. After brief possession by King Richard I (the Lion-Hearted) of England during the Crusades, the island came under Frankish control in the late 12th century. It was ceded to the Venetian Republic in 1489 and conquered by the Ottoman Turks in 1571. The Ottomans applied the millet system to Cyprus, which allowed religious authorities to govern their own non-Muslim minorities. This system reinforced the position of the Orthodox Church and the cohesion of the ethnic Greek population. Most of the Turks who settled on the island during the 3 centuries of Ottoman rule remained when control of Cyprus--although not sovereignty--was ceded to Great Britain in 1878. Many left for Turkey during the 1920s, however. The island was annexed formally by the United Kingdom in 1914 at the outbreak of World War I and became a crown colony in 1925.
Cyprus gained its independence from the United Kingdom and established a constitutional republic in 1960, after an anti-British campaign by the Greek Cypriot EOKA (National Organization of Cypriot Fighters), a guerrilla group that desired political union, or enosis, with Greece. Archbishop Makarios, a charismatic religious and political leader, was elected president.
Shortly after the founding of the republic, serious differences arose between the two communities about the implementation and interpretation of the constitution. The Greek Cypriots argued that the complex mechanisms introduced to protect Turkish Cypriot interests were obstacles to efficient government. In November 1963, President Makarios advanced a series of constitutional amendments designed to eliminate some of these special provisions. The Turkish Cypriots opposed such changes. The confrontation prompted widespread intercommunal fighting in December 1963, after which Turkish Cypriots ceased to participate in the government. Following the outbreak of intercommunal violence, many Turkish Cypriots (and some Greek Cypriots) living in mixed villages began to move into enclaved villages or elsewhere. UN peacekeepers were deployed on the island in 1964. Following another outbreak of intercommunal violence in 1967-68, a Turkish Cypriot provisional administration was formed.
In July 1974, the military junta in Athens sponsored a coup led by extremist Greek Cypriots against the government of President Makarios, citing his alleged pro-communist leanings and his perceived abandonment of enosis. Turkey, citing the 1960 Treaty of Guarantee, intervened militarily to protect Turkish Cypriots.
In a two-stage offensive, Turkish troops took control of 38% of the island. Almost all Greek Cypriots fled south while almost all Turkish Cypriots fled north. Since the events of 1974 UN peacekeeping forces have maintained a buffer zone between the two sides. Except for occasional demonstrations or infrequent incidents between soldiers in the buffer zone, the island was free of violent conflict from 1974 until August 1996, when violent clashes led to the death of two demonstrators and escalated tension. The situation has been quiet since 1996. There is little movement of people and essentially no movement of goods or services between the two parts of the island. Efforts to reunite the island under a federal structure continue, however, under the auspices of the United Nations.
Since 1974, Cyprus has been divided de facto into the government-controlled two-thirds of the island and the Turkish Cypriot one-third. The Government of the Republic of Cyprus has continued as the internationally recognized authority; in practice, its authority extends only to the government-controlled areas.
The 1960 Cypriot Constitution provided for a presidential system of government with independent executive, legislative, and judicial branches, as well as a complex system of checks and balances, including a weighted powersharing ratio designed to protect the interests of the Turkish Cypriots. The executive, for example, was headed by a Greek Cypriot president and a Turkish Cypriot vice president, elected by their respective communities for 5-year terms and each possessing a right of veto over certain types of legislation and executive decisions.
Following the 1974 hostilities, the Turkish Cypriots set up their own institutions with an elected "president" and a "prime minister" responsible to the "National Assembly" exercising joint executive powers. In 1983, the Turkish Cypriots declared an independent "Turkish Republic of Northern Cyprus" (TRNC). Only Turkey recognizes the "TRNC."
In February 2003, Greek Cypriots elected Tassos Papadopoulos, leader of the center right Democratic Party, as president of the Republic of Cyprus. President Papadopoulos was supported by a broad coalition of parties ranging from his own Democratic Party to communist AKEL.
None of the Greek Cypriot parties has been able to elect a president by itself or dominate the 56-seat House of Representatives. The 165,000 Greek Cypriot refugees also are a potent political force, along with the independent Orthodox Church of Cyprus, which has some influence in temporal as well as ecclesiastical matters.
"TRNC President" Rauf Denktash won re-election in 2000 to a 5-year term in office. Turkish Cypriot "parliamentary" elections last took place in 1998, and are scheduled to be held again in late 2003. National Unity Party (UBP) and Communal Liberation Party (TKP) established a ruling coalition, which lasted 2-1/2 years. In 2001, a new coalition with the National Unity Party and the Democratic Party was established.
The first UN-sponsored negotiations to develop institutional arrangements acceptable to both communities began in 1968; several sets of negotiations and other initiatives followed. Turkish Cypriots focus on bi-zonality, security guarantees, and political equality between the two communities. Greek Cypriots emphasize the rights of movement, property, settlement, and the return of territory. Turkish Cypriots favor a loose grouping of two nearly autonomous societies living side by side with limited contact. Greek Cypriots envision a more integrated structure.
President Clerides and Mr. Denktash began direct talks in January 2002 under the auspices of the UN Secretary General Kofi Annan. The two leaders set as a target date the end of June 2002 for reaching an overall solution. Three rounds of talks under the auspices of the UN were held from January to April, and a fourth round began in May. Secretary General Annan visited the island May 14-15, and met with each of the two leaders and had a joint dinner with both. The Secretary General expressed concern over the slow progress at the talks and urged the two leaders to step up the process in order to resolve the core issues by the end of June.
The June "deadline" passed without significant result, however. Both leaders were invited to New York in early October 2002 for meetings with UN officials, including the Secretary General. Agreement was reached to establish two ad hoc committees to discuss technical aspects of possible solution and for the leaders to resume direct talks in November, after Mr. Denktash recuperated from a heart operation. Annan said that he hoped to see substantive progress on the core issues of the Cyprus problem by year's end.
In November 2002, Secretary General Annan released a comprehensive plan for the resolution of the Cyprus issue. It was revised in early December. In the lead up to the December 2002 EU Copenhagen Summit, intensive efforts were made to gain both sides' signatures to the document prior to a decision on the island's EU membership. Neither side agreed to sign. The EU invited the Republic of Cyprus to join on December 16th.
Following the Copenhagen Summit, the UN continued dialogue with the two sides with the goal of reaching a settlement prior to Cyprus' signature of the EU accession Treaty on April 16, 2003. A third version of the Annan plan was put to the parties in February 2003. During another visit to the island that same month, the Secretary General asked that both leaders agree to put the plan to referendum. This most recent phase of talks collapsed in The Hague, on March 10, 2003, when the Turkish Cypriot leader, Rauf Denktash, told the Secretary General he would not put the Annan plan to referendum. (Greek Cypriot leader, Tassos Papadopoulos, did agree to hold a referendum if certain conditions were met.). The Secretary General will report on these developments to the UN Security Council in the spring of 2003.
Principal Government Officials
President of the Republic--Tassos Papadopoulos
Foreign Minister--George Iacovou
Minister of Finance--Marcos Kyprianou
Minister of Commerce, Industry, and Tourism--George Lillikas
Minister of Communications and Works--Kikis Kazamias
Minister of Justice and Public Order--Doros Theodorou
Ambassador to the United States--Erato Kozakou-Marcoulli
Ambassador to the United Nations--Sotos Zackheos
Cyprus maintains an embassy in the United States at 2211 R Street NW, Washington, DC 20008 (tel. 202-462-5772) and a Consulate General in New York City. Cyprus also maintains a trade center at 13 East 40th Street, New York, NY 10016 (tel. 212-686-6016). Turkish Cypriots maintain offices in Washington (tel. 202-887-6198) and at the Republic of Turkey's Mission to the United Nations.
Cyprus has an open, free-market, serviced-based economy with some light manufacturing. The Cypriots are among the most prosperous people in the Mediterranean region. Internationally, Cyprus promotes its geographical location as a "bridge" between West and East, along with its educated English-speaking population, moderate local costs, good airline connections, and telecommunications.
In the past 20 years, the economy has shifted from agriculture to light manufacturing and services. The service sector, including tourism, contributes 75.7% to the GDP and employs 70.7% of the labor force. Industry and construction contribute 19.3% and employ 21.3% of labor. Manufactured goods account for approximately 63.6% of domestic exports. Agriculture and mining is responsible for 4.9% of GDP and 8.0% of the labor force. Potatoes and citrus are the principal export crops.
The average rate of growth in the 1990s was 4.4%, compared with 6.1% in the 1980s. In 2002, economic growth dropped to 2.2%, compared with 4.0% in 2001 and 5.1% in 2000. In 2002, unemployment accelerated to 3.4% of GDP, from 3.0% the year before. Inflation also recorded an increase to 3.0% from 2.0% in 2001. As in recent years, the services sectors, and tourism in particular, provided the main impetus for growth. Economic activity in manufacturing remained about the same in 2002,while agricultural activity recorded a small increase.
Trade is vital to the Cypriot economy--the island is not self-sufficient in food and has few natural resources. The trade deficit increased by 4.0% in 2002, reaching $3.1 billion.
Cyprus must import fuels, most raw materials, heavy machinery, and transportation equipment. More than 50% of its trade is with the European Union, particularly with the United Kingdom.
Growth in 2003 is expected to remain around 2.0%-2.5%, largely due to the unstable environment prevailing internationally. Unemployment is expected to edge up to 3.5% in 2003, while inflation is forecast to reach 5.0%. Despite efforts to cut government spending and enhance revenue, the fiscal deficit is forecast to reach 4.0% of GDP in 2003, compared with 3.5% in 2002, remaining above Maastricht targets.
Cyprus adopted a new copyright law in 1994 and a new patent law in 1998. In 1997, the government introduced a more liberal regime for foreign investments and portfolio investment, complementing a modern banking law passed in the same year. At the same time, the government liberalized regulations for foreign portfolio investment in the Cyprus Stock Exchange. Additionally, the it has abolished investment restrictions for EU investors as of January 7, 2000. This has resulted in a healthy increase in investment over the last 2 years, particularly from the EU. The inflow of approved foreign investment in 2001 reached $74.1 million, compared with $85.7 million in 2000 and $56.6 million in 1999. Cyprus has 15 bilateral agreements for the encouragement and reciprocal protection of investments with the following countries: Armenia, Belgium, Bulgaria, Belarus, China, Egypt, Greece, Hungary, India, Israel, Lebanon, Poland, Russia, Romania, and the Seychelles. Another 40 bilateral investment agreements are currently under negotiation. Cyprus does not have a bilateral investment protection agreement with the United States.
Cyprus also has entered into bilateral double tax treaties with a total of 40 countries (including one with the United States). The main purpose of these treaties is the avoidance of double taxation of income earned in any of these countries. Under these agreements, a credit is usually provided for tax levied by the country in which the taxpayer resides for taxes levied in the other treaty country. The effect of these arrangements is normally that the taxpayer pays no more than the higher of the two rates.
International Business Center
Cyprus has good business and financial services, modern telecommunications, an educated labor force, good airline connections, a sound legal system, and a low crime rate. Cyprus' geographical location, tax incentives, and modern infrastructure also make it a natural hub for companies looking to do business with the Middle East, eastern Europe, the former Soviet Union and North Africa. As a result, Cyprus has developed into an important regional center for many International Business Companies (IBCs) conducting their offshore affairs from the island.
In 2001 the Central Bank issued 5,858 permits to nonresidents for new IBCs (compared with 5,713 permits in 2000). About 79% of new IBC registrations came from the EU, and another 11% from North America. IBCs in Cyprus, including shipping companies, generated foreign exchange earnings of U.S$454 million in 2001, an increase of 9.3% over 2000. Cyprus first started developing its offshore business sector in 1976. Since then, nonresidents have established nearly 50,000 IBCs, only about one-third of which are currently active. The Central Bank systematically deletes companies that are inactive or fail to submit annual accounts. Of the active IBCs, a total of 1,098 maintain fully fledged offices on the island, at least 30 of which are from the United States, including two oil companies, two computer companies, and several accounting firms.
In June/July 2002 the House passed tax reform legislation abolishing tax discrimination afforded to offshore companies by the end of 2005, in line with Cyprus' commitments to the EU and OECD. Under the new regime, corporate tax on profits for IBCs will rise from 4.25% to 10.0%--the same as for local companies--which may compromise future growth prospects for the sector, Ties with the European Union (EU) Cyprus signed an association agreement with the EU in 1972, which resulted in the establishment of a Customs Union between the two sides. Cyprus applied for full EU membership in 1990 and began formal accession negotiations with the EU on March 31, 1998. The need to prepare for EU membership has mobilized both the government and private sectors in Cyprus to undertake an extensive and far-reaching effort to harmonize Cypriot laws, standards, and regulations with those of the EU. This effort is rapidly transforming the whole economic structure of Cyprus. Structural reforms already implemented include liberalization of trade, liberalization of interest rates, abolition of investment restrictions for EU residents, abolition of most price controls, and introduction of private financing for the construction and operation of infrastructure projects.
Some of the challenges still around the corner for Cyprus include liberalization of utilities (including telecommunications and power generation), restructuring state subsidies, abolishing restrictions on land ownership by nonresidents, and addressing the issue of favorable tax treatment granted to international business companies. The EU Commission issued a progress report on October 9, 2002, noting that Cyprus, along with nine other countries, had closed all required chapters. At the Copenhagen Summit in mid-December 2002, the leaders of EU member countries approved Cyprus' membership. Cyprus will continue its preparations for accession in the period until May 1, 2004, the planned accession date.
On January 1, 1996, Cyprus began full implementation of the Uruguay Round agreement. Under this agreement, the Government of Cyprus eliminated quantitative restrictions and other non-tariff barriers to trade, allowing improved access to the Cypriot market. Cyprus is a full member of the World Trade Organization.
Additionally, completion of the first phase of the EU-Cyprus Customs Union agreement on January 1, 1998, liberalized the island's trade regime further, allowing most goods to be traded between Cyprus and the EU with a zero tariff rate. Under the same agreement, Cyprus also has adopted the EU's Common Customs Tariff (CCT) for most products from third (non-EU) countries. Significantly, the preference now given to EU products under the CCT is less than the preference Cyprus gave to EU countries under its previous tariff regime. These developments have helped make U.S. exports to Cyprus more competitive in recent years.
Best prospects for U.S. products and services in Cyprus include government and semi-government tenders in telecommunications equipment, air traffic control systems, medical equipment for a major new hospital, computer services, and construction of airports and marinas. Local municipalities are working on long-term plans for sewerage projects and for new highways. By far the most recent visible U.S. commercial success story in Cyprus was the decision in 2001 of Cyprus Airways to lease four new Boeing 737-800 aircraft, valued at more than $200 million, for its subsidiary Eurocypria. The island's private sector also has a growing appetite for U.S.-made office machines, computer software, and data processing equipment. Recent changes in the tariff regime have opened up many other opportunities for exporters to Cyprus.
Trade Between Cyprus and the United States
The U.S. Embassy in Nicosia sponsors a popular pavilion for American products at the annual Cyprus International State Fair, hosts the Commercial Excellence Awards dinner, and organizes other events to promote U.S. products throughout the year. Total U.S. exports to Cyprus are expected to decline to around $250 million in 2002, from $368.7 million in 2001. Principal U.S. exports to Cyprus include tobacco and cigarettes, office machines and data processing equipment, electrical equipment, passenger cars and wheat. Principal U.S. imports from Cyprus consist of portland cement, clothing, hunting rifle cartridges, canvas, dairy products, and fresh fish.
Turkish Cypriot Economy
The economic disparity between the two communities is pronounced. Although the Turkish Cypriot area operates on a free-market basis, the lack of private and governmental investment, shortages of skilled labor, plus inflation and the devaluation of the Turkish lira--which the Turkish Cypriots widely use as their currency--continue to plague the economy. A Greek Cypriot-organized economic boycott of the Turkish Cypriot region also has negatively affected the Turkish Cypriot economy.
Turkey is, by far, the main trading partner of the "TRNC," supplying 64% of imports and absorbing 57% of exports. In a landmark case, the European Court of Justice (ECJ) ruled on July 5, 1994 against the British practice of importing produce from Northern Cyprus based on certificates of origin and phytosanitary certificates granted by "TRNC" authorities. The ECJ decision stated that only goods bearing certificates of origin from the Government of Cyprus could be recognized for trade by EU member countries.
That decision resulted in a considerable decrease of Turkish Cypriot exports to the EU--from $36.4 million (or 66.7% of total Turkish Cypriot exports) in 1993 to $21.8 million in 2001 (or 35% of total exports) in 2001. Even so, the EU continues to be the "TRNC's" second-largest trading partner, with a 23% share of total imports and 35% share of total exports. Additionally, the economic crisis in Turkey has had a negative impact on "TRNC" foreign trade in the last 2 years. Total imports increased to $293 million in 2002 (from $272 million in 2001), while total exports increased to $48 million (from $35 million in 2001).
Assistance from Turkey is the mainstay of the Turkish Cypriot economy. Under the latest economic protocol (signed January 2001), Turkey undertakes to provide Turkish Cypriots loans and financial assistance totaling $350 million for the purpose of implementing projects included in the protocol related to public finance, tourism, banking, and privatization. Turkey also has agreed to provide a supplementary amount of $160 million to entrepreneurs in the form of low-interest loans with the purpose of supporting export-oriented industrial production and tourism. Fluctuation in the Turkish lira continues to exert downward pressure on the Turkish Cypriot standard of living.
Turkish Cypriot authorities have instituted a free market in foreign exchange and authorize residents to hold foreign-currency denominated bank accounts. This encourages transfers from Turkish Cypriots living abroad.
The Government of Cyprus has historically followed a nonaligned foreign policy, although as it prepares for EU membership it increasingly aligns itself with European positions within the EU's Common Foreign and Security Policy. Cyprus has long identified with the West in its cultural affinities and trade patterns and maintains close relations with Greece. Since 1974, the foreign policy of the Government of Cyprus has sought the withdrawal of Turkish forces and the most favorable constitutional and territorial settlement possible. This campaign has been pursued primarily through international forums such as the United Nations. (See Political Conditions.) Turkey does not recognize the Government of Cyprus.
The Government of Cyprus enjoys close relations with Greece. Cyprus is expanding relations with Russia, Israel, Egypt, and Syria, from which it purchases most of its oil. Cyprus is a member of the United Nations and most of its agencies as well as the World Trade Organization, the World Bank, International Monetary Fund, Council of Europe, and the Commonwealth. In addition, the country has signed the Multilateral Investment Guarantee Agency Agreement (MIGA).
The United States regards the status quo on Cyprus as unacceptable. Successive administrations have viewed UN-led intercommunal negotiations as the best means to achieve a fair and permanent settlement. The United States will continue actively to support and aid the UN Secretary General's efforts. The United States is working closely with Cyprus in the war on terrorism. A Mutual Legal Assistance Treaty, which has been in force since September 18, 2002, facilitates bilateral cooperation.
The United States has channeled $305 million in assistance to the two communities through the UN High Commissioner for Refugees and the Cyprus Red Cross since the mid-1970s. The United States now provides $15 million annually to promote bicommunal projects and finance U.S. scholarships for Greek and Turkish Cypriots.
Principal U.S. Officials
Deputy Chief of Mission--Edwin R. Nolan
Chief Political Officer--Robin S. Quinville
Economic/Commercial Officer--David W. Renz
Defense Attach�--Col. John A. Gagnon
Public Affairs Officer--Craig Kuehl
Consular Officer--Mark A. Leoni
Administrative Officer--Jeffrey R. Cellars
The U.S. Embassy in Cyprus is located at the corner of Metochiou and Ploutarchou Streets in Engomi, Nicosia; mailing address: PO Box 24536, Nicosia, Cyprus. U.S. mailing address: PSC 815, FPO-AE 09836-0001. Tel.  22 77 64 00; Telex: 4160 AMEMY CY; Fax:  22 78 09 44; Consular Fax:  22 77 68 41.