U.S. Department of State
Background Notes: Cyprus, October 1998

Bureau of Public Affairs

Released by the Bureau of European and Canadian Affairs

Official Name: Republic of Cyprus

PROFILE

Geography

People

Government

Economy

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. Private colleges and state-supported universities have been developed by both the Turkish and Greek communities.

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 AD 364, Cyprus was ruled by Byzantium. After brief possession by Richard the Lion-Hearted 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, however, left for Turkey during the 1920s. The island was annexed formally by the U.K. in 1914 at the outbreak of World War I and became a crown colony in 1925.

Cyprus gained its independence from the U.K. in 1960, after an anti- British campaign by the Greek Cypriot EOKA (National Organization of Cypriot Fighters), a guerrilla group which desired political union with Greece, or enosis. 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 Cypriot participation in the central government ceased. 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 hostile to Makarios for his alleged pro- communist leanings and for 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. Many Greek Cypriots fled south while many Turkish Cypriots fled north. Since then, the southern part of the country has been under the control of the Government of Cyprus and the northern part under an autonomous Turkish-Cypriot administration supported by the presence of Turkish troops. In 1983, that administration proclaimed itself the "Turkish Republic of Northern Cyprus," recognized only by Turkey. UN peacekeeping forces maintain a buffer zone between the two sides. Except for occasional demonstrations or infrequent incidents between soldiers in the buffer zone, there had been no violent conflict since 1974 until August 1996, when violent clashes led to the death of two demonstrators and escalated tension. 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.

GOVERNMENT

Since 1974, Cyprus has been divided de facto into the government- controlled southern two-thirds of the island and the Turkish-Cypriot northern one-third. The Government of the Republic of Cyprus has continued as the internationally recognized authority; in practice, its power extends only to the Greek Cypriot-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 power-sharing 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 formally set up their own institutions with a popularly 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" (T.R.N.C.). In 1985, they adopted a constitution and held elections--an arrangement recognized only by Turkey.

POLITICAL CONDITIONS

In February 1998, Greek Cypriots narrowly re-elected Glafcos Clerides, a seasoned politician from the conservative Democratic Rally Party, as president of the Republic of Cyprus.

Following his re-election, Clerides formed a government of national unity, with open invitations for participation of all political parties. His cabinet includes six ministers from Clerides' Democratic Rally party, two ministers from the EDEK (socialist) party, three from the Democratic Party (who broke ranks with party leader Spyros Kyprianou) and one from the United Democrats. 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 are also a potent political force, along with the independent Orthodox Church of Cyprus, which has some influence in temporal as well as ecclesiastical matters.

Turkish Cypriots held multi-party "parliamentary" elections in 1993, removing the long-ruling National Unity Party in favor of a coalition of the Democratic and Republican Turkish parties. However, in August 1996, a new coalition was formed between the two main rightist parties, the National Unity Party and the Democratic Party. The next "parliamentary" elections will take place in the fall of 1998. "T.R.N.C. President" Rauf Denktash won re-election in 1995 after an unprecedented second round of voting. He defeated the incumbent "Prime Minister," Dr. Dervis Eroglu.

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 federation of two nearly autonomous societies living side by side with limited contact, while Greek Cypriots envision a more integrated structure.

The last face-to-face meeting between the leaders of the two communities, President Clerides and Mr. Denktash, took place when the two were invited in June 1997 by the UN Secretary General to engage again in face-to-face negotiations. The two leaders met July 9-13, 1997, in Troutbeck, New York, to resume discussions to resolve intercommunal strife and reunite the island. They met for a second round in Switzerland, August 11-15, 1997. The U.S. also brokered two direct meetings between the two leaders, including one meeting in September 1997 to discuss security issues and a second meeting in November 1997 under the auspices of U.S. Special Presidential Emissary Richard C. Holbrooke to review informally the core issues of a settlement agreement. International efforts to promote a settlement to the Cyprus dispute began again in earnest following the February 1998 presidential election.

Principal Government Officials

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 UN.

ECONOMY

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 70% to the GDP and employs 62% of the labor force. Industry and construction contribute 24% and employ 25% of labor. Manufactured goods account for approximately 69% of domestic exports. Agriculture is responsible for 6% of GDP and 12% of the labor force. Potatoes and citrus are the principal export crops.

After robust growth rates in the 1980s (average annual growth was 6.1%), economic performance in the 1990s has been mixed: Real GDP growth was 9.7% in 1992, 1.7% in 1993, 6.0% in 1994, 6.0% in 1995, 1.9% in 1996 and 2.3% in 1997. This pattern underlines the economy's vulnerability to swings in tourist arrivals (i.e., to economic and political conditions in Cyprus, Western Europe, and the Middle East) and the need to restructure the economy. Declining competitiveness in tourism and especially in manufacturing will act as a drag on growth until structural changes are effected. Overvaluation of the Cypriot pound has kept inflation in check in recent years (3.5% in 1997) and is forecast to continue to do so in the foreseeable future. Economic prospects are good over the long term, and real growth in 1998 is expected to reach 3.0%.

Trade is vital to the Cypriot economy--the island is not self- sufficient in food and has few natural resources--and the trade deficit continues to grow. Exports rose by 1.3% in 1997, while imports rose by 2.2%, resulting in a trade deficit of $2.1 billion (2.7% higher than the previous year). Cyprus must import fuels, most raw materials, heavy machinery, and transportation equipment. More than 50% of its trade is with the European Union (especially the U.K.); the Middle East receives 20% of exports. Cyprus signed an Association Agreement with the European Union (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 has since linked the Cyprus pound to the European Monetary Unit (ECU). EU accession negotiations started on March 31, 1998. In 1991, Cyprus introduced a Value Added Tax (VAT), which is currently 8%. Cyprus ratified the new world trade agreement (GATT) in 1995 and began implementing it fully on January 1, 1996.

Cyprus has the fourth-largest ship registry in the world, with 2,758 ships and 25.5 million gross registered tons (GRTs). It is an open registry and includes ships from more than 43 countries, including Greece, Germany, and Russia.

Export Opportunities

Cyprus has been liberalizing its trade regime by eliminating import quotas and licenses and lowering tariffs on most products as a result of its obligations under the new world trade agreement and its Customs Union agreement with the European Union. As a result, U.S. products are becoming more competitive in Cyprus and prospects for further expansion of bilateral trade ties are excellent.

Government computerization and telecommunications development, two of the priorities of the government's 5-year development plan (1994-1998), provide excellent opportunities for U.S. exports. Sales of computer- assisted design systems, new capital equipment for textile, clothing, footwear production, medical equipment, environmental equipment, and services are also expected to grow. U.S. pressure resulted in the adoption of a new copyright law in 1994 and a new patent law in 1998.

Investment Climate

In February 1997, the government revised its policy on foreign direct investment, permitting 100% foreign ownership in certain cases. Regulations on foreign portfolio investment in the Cyprus Stock Exchange also have been liberalized. Additionally, Cyprus passed a modern banking law in July 1997, incorporating all the provisions and directives of the EU for the prudential supervision of credit institutions.

Cyprus has concluded treaties on double taxation with 26 countries, including the U.S., and has removed exchange restrictions on current international transactions. Non-residents and foreign investors may freely repatriate proceeds from investments in Cyprus.

Offshore Sector

The 1,049 full-fledged offshore companies--which are located in Cyprus but conduct business abroad only--qualify for various tax- and duty- free concessions. Foreign exchange earnings from offshore companies rose to $346 million in 1997. There are about 40 U.S.-owned firms in Cyprus; about half operate exclusively on an offshore basis.

U.S. firms are mainly engaged in the regional marketing of computers, computer graphics, telecommunications, printing equipment, household products, and soft drinks. Since 1994, re-entry visa provisions have been streamlined and 3-year work permits have been introduced for offshore employees.

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 Awards dinner, and organizes other events to promote U.S. products throughout the year. Total U.S. exports to Cyprus were about $700 million in 1997 (compared with $670 million in 1996), making the U.S. Cyprus' number-one supplier of total imports for the third year in a row. Exports include American tobacco and tobacco products, automatic data processing and other machinery, and cereals. Principal U.S. imports from Cyprus consist of clothing, footwear, steel tubes and pipes, dairy products, and various food items.

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 and experienced managers, plus inflation and the devaluation of the Turkish lira (which the Turkish Cypriots 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 "T.R.N.C.," supplying 55% of imports and absorbing 48% 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 "T.R.N.C." 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 $24.7 million in 1996 (or 35% of total exports) in 1996. Even so, the EU continues to be the "T.R.N.C.'s" second-largest trading partner, with a 24.7% share of total imports and 35% share of total exports.

Assistance from Turkey is the mainstay of the Turkish Cypriot economy. Under the latest economic protocol (signed January 3, 1997), Turkey undertakes to provide Turkish Cypriots loans totaling $250 million for the purpose of implementing projects included in the protocol related to public finance, tourism, banking, and privatization. Fluctuation in the Turkish lira, which loses about 50% of its value against the U.S. dollar every year, 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.

FOREIGN RELATIONS

The Government of Cyprus has historically followed a non-aligned foreign policy, although it increasingly identifies 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 and the Non-aligned Movement. Turkey does not recognize the Government of Cyprus.

Cyprus' 1990 application for full EU membership caused a storm in the Turkish Cypriot community, which argued that the move required their consent. Following the December 1997 EU Summit decisions on EU enlargement, accession negotiations began March 31, 1998.

The Government of Cyprus enjoys close relations with Greece. Cyprus is expanding relations with Russia, Israel, and Syria, from which it purchases most of its oil.

Cyprus is a member of the UN and most of its agencies as well as the World Bank, International Monetary Fund, Council of Europe, and the Commonwealth. In addition, the country has signed the General Agreement on Tariffs and Trade (GATT) and the Multilateral Investment Guarantee Agency Agreement (MIGA).

U.S.-CYPRUS RELATIONS

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. In June 1997, the U.S. appointed Ambassador Richard C. Holbrooke as Special Presidential Emissary for Cyprus.

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

The U.S. Embassy in Cyprus is located at the corner of Metochiou and Ploutarchou Streets in Engomi, Nicosia, Cyprus mailing address: PO Box 4536, Nicosia Cyprus. U.S. mailing address: PSC 815, FPO-AE 09836-0001. Tel. [357](2)776-400; Telex: 4160 AMEMY CY; Fax: [357](2)780-944; Consular Fax: [357](2)776-841; Web Page: http://www.americanembassy.org.cy/index.html

TRAVEL AND BUSINESS INFORMATION

The U.S. Department of State's Consular Information Program provides Travel Warnings and Consular Information Sheets. Travel Warnings are issued when the State Department recommends that Americans avoid travel to a certain country. Consular Information Sheetsexist for all countries and include information on immigration practices, currency regulations, health conditions, areas of instability, crime and security, political disturbances, and the addresses of the U.S. posts in the country. Public Announcements are issued as a means to disseminate information quickly about terrorist threats and other relatively short-term conditions overseas which pose significant risks to the security of American travelers. Free copies of this information are available by calling the Bureau of Consular Affairs at 202-647-5225 or via the fax-on-demand system: 202-647-3000. Travel Warnings and Consular Information Sheets also are available on the Consular Affairs Internet home page: http://travel.state.gov and the Consular Affairs Bulletin Board (CABB). To access CABB, dial the modem number: (301-946- 4400 (it will accommodate up to 33,600 bps), set terminal communications program to N-8-1 (no parity, 8 bits, 1 stop bit); and terminal emulation to VT100. The login is traveland the password is info (Note: Lower case is required). The CABB also carries international security information from the Overseas Security Advisory Council and Department's Bureau of Diplomatic Security. Consular Affairs Trips for Travelers publication series, which contain information on obtaining passports and planning a safe trip abroad, can be purchased from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954; telephone: 202-512-1800; fax 202-512-2250.

Emergency information concerning Americans traveling abroad may be obtained from the Office of Overseas Citizens Services at (202) 647- 5225. For after-hours emergencies, Sundays and holidays, call 202-647- 4000.

Passport Services information can be obtained by calling the 24-hour, 7-day a week automated system ($.35 per minute) or live operators 8 a.m. to 8 p.m. (EST) Monday-Friday ($1.05 per minute). The number is 1- 900-225-5674 (TDD: 1-900-225-7778). Major credit card users (for a flat rate of $4.95) may call 1-888-362-8668 (TDD: 1-888-498-3648)

Travelers can check the latest health information with the U.S. Centers for Disease Control and Prevention in Atlanta, Georgia. The CDC hotline at 877 FYI-TRIP (877 394-8747) gives the most recent health advisories, immunization recommendations or requirements, and advice on food and drinking water safety for regions and countries. This information is also on the web at: http://www.cdc.gov/travel/index.htm. A booklet entitled Health Information for International Travel (HHS publication number CDC-95-8280) is available from the U.S. Government Printing Office, Washington, DC 20402, tel. (202) 512-1800.

Information on travel conditions, visa requirements, currency and customs regulations, legal holidays, and other items of interest to travelers also may be obtained before your departure from a country's embassy and/or consulates in the U.S. (for this country, see "Principal Government Officials" listing in this publication).

U.S. citizens who are long-term visitors or traveling in dangerous areas are encouraged to register at the U.S. embassy upon arrival in a country (see "Principal U.S. Embassy Officials" listing in this publication). This may help family members contact you in case of an emergency.

Further Electronic Information:

Department of State Foreign Affairs Network. Available on the Internet, DOSFAN provides timely, global access to official U.S. foreign policy information. Updated daily, DOSFAN includes Background Notes; Dispatch, the official magazine of U.S. foreign policy; daily press briefings; Country Commercial Guides; directories of key officers of foreign service posts; etc. DOSFAN's World Wide Web site is at http://www.state.gov.

U.S. Foreign Affairs on CD-ROM (USFAC). Published annually by the U.S. Department of State, USFAC archives information on the Department of State Foreign Affairs Network, and includes an array of official foreign policy information from 1990 to the present. Contact the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. To order, call (202) 512-1800 or fax (202) 512-2250.

National Trade Data Bank (NTDB). Operated by the U.S. Department of Commerce, the NTDB contains a wealth of trade-related information. It is available on the Internet (www.stat-usa.gov) and on CD-ROM. Call the NTDB Help-Line at (202) 482-1986 for more information.

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