Geography
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.

People
Nationality: Noun and adjective--Cypriot(s).
Population (2006 est.): government-controlled area 778,700; area administered by Turkish Cypriots 264,172.
Annual population growth rate (2006 est.) government-controlled area: 1.6%; area administered by Turkish Cypriots: 0.98%
Ethnic groups (1960 census): 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--7.04/1,000. Life expectancy--77 yrs.; males 75 yrs.; females 80 years.
Work force: Government-controlled area (2005), 370,000: agriculture and mining--7.4%; industry--38.2%; and services--54.4%. Turkish Cypriot-administered area (2005), 95,000: agriculture--14.5%; industry--29%; and services--56.5%.

Government
Type: Republic.
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 Cypriots--Progressive Party of Working People or Anorthotikon Komma Ergazemenou Laou--AKEL (communist); Democratic Party or Dimokratikon Komma--DIKO (center-right); Democratic Rally or Dimokratikos Synagermos--DISY (right); Movement for Social Democracy or Eleftheron Dimokratikon--EDEK (socialist); United Democrats or Enomeni Dimokrates--ED (center-left). Turkish Cypriots--National Unity Party or Ulusal Birlik Partisi--UBP (right); Democrat Party or Demokrat Partisi--DP (center-right); Republican Turkish Party or Cumhuriyetci Turk Partisi--CTP (center-left); Freedom and Reform Party or Free Party--Ozgurluk ve Reform Partisi--OP (center-right); Peace and Democracy Movement or Baris ve Demokrasi Hareketi--BDH (center-left); Communal Liberation Party or Toplumcu Kurtulus Partisi--TKP (center-left); New Party or Yeni Parti. BDH and TKP have agreed to merge in June 2007 to form the Communal Democracy Party or Toplumcu Demokrasi Partisi--TDP.
Suffrage: Universal at age 18.

Economy*
GDP (2006): $18.23 billion.
Annual GDP real growth rate (2006): government-controlled area: 3.8%.
Per capita GDP income: Greek Cypriots (2006)--$23,672; Turkish Cypriots (2006)--$11,802.
Agriculture and natural resources (2006): 3.2% 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 (2006): 19.2% of GDP. Types--mining, cement, construction, utilities, manufacturing, chemicals, non-electric machinery, textiles, footwear, food, beverages, tobacco.
Services and tourism (2006): 77.6% of GDP. Trade, restaurants, and hotels 19.5%; transport 8.2%; finance, real estate, and business 24.9%; government, education, and health 20.5%; and community and other services 4.6%.
Trade (2006): Exports--$1,619 billion: citrus, grapes, wine, potatoes, pharmaceuticals, clothing, and footwear. Major markets--EU (especially the U.K. and Greece), Middle East, Russia. Imports--$6,345 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--for 2006: $100.6 million.)

* Section refers to the government-controlled area unless otherwise specified.

PEOPLE AND HISTORY
Since 1974, Cyprus has been divided de facto into the government-controlled two-thirds of the island and the remaining one-third of the island, which is administered by Turkish Cypriots. 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, and other European or American universities. Both the Greek Cypriot and Turkish Cypriot 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 three 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.

GOVERNMENT
Since 1974, Cyprus has been divided de facto into the government-controlled two-thirds of the island and the Turkish Cypriot-administered one-third. The Government of the Republic of Cyprus has continued to be the only internationally recognized authority; in practice, its authority extends only to the government-controlled area.

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. The Greek Cypriot-controlled Republic of Cyprus retains most elements of the presidential system of government expressed in the constitution, although it has cited the Turkish Cypriots' "withdrawal from government" and the "law of necessity" to enact structural changes that allow "effective governance."

Following the 1974 hostilities, the Turkish Cypriots set up their own institutions in the area they administered 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"). The United States does not recognize the "TRNC," nor does any country other than Turkey.

POLITICAL CONDITIONS
Historically, 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 from the area now administered by Turkish Cypriots are a potent political force, along with the independent Orthodox Church of Cyprus, which has some influence in secular as well as religious matters. In February 2003, Greek Cypriots elected Tassos Papadopoulos, leader of the center-right Democratic Party (DIKO), as president of the Republic of Cyprus. President Papadopoulos was supported by a broad coalition of parties ranging from his own DIKO to communist AKEL. Currently, AKEL-affiliated ministers fill four of 11 cabinet positions; DIKO holds three, EDEK two, and independents the remainder. All major parties hold seats in the National Council, the top advisory board to the president on Cyprus settlement issues, although opposition DISY withdrew from the body in February 2006.

Parliamentary elections last took place in May 2006. AKEL emerged the leading party, garnering 31% of votes cast, with DISY a close second with 30%; each is represented in parliament by 18 MPs. AKEL leads a legislative coalition that depends on DIKO (11 seats) and EDEK (5) support, while DISY heads the opposition.

Mehmet Ali Talat was elected in April 2005 as leader of the Turkish Cypriot community (as the so-called "President of the TRNC"), replacing long-time nationalist leader Rauf Denktash. Talat's political rise was due largely to his support of the UN Settlement Plan for Cyprus (the "Annan Plan"), which Rauf Denktash opposed, but which was supported by a majority of Turkish Cypriots in a 2004 referendum. Talat's political allies in the Republican Turkish Party (CTP) currently hold 25 of the 50 seats in the "TRNC National Assembly," and have had to establish a series of coalitions to form a stable "government." In January 2004, the CTP teamed up with the Democrat Party (DP) of Serdar Denktash, a coalition which continued in various forms--first with Talat as "Prime Minister" and then, after Talat's election as "President," under the leadership of CTP leader Ferdi Sabit Soyer--until September 2006. At that time, CTP formed a new coalition with the newly formed Freedom and Reform Party (Free Party, OP), with Soyer retaining his post as "PM" and OP party leader Turgay Avci replacing Serdar Denktash as "Deputy Prime Minister" and "Foreign Minister."

Attempts To Achieve a Cyprus Settlement
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 bizonality, 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.

The last major UN-led effort to deliver a Cyprus solution commenced in January 2002 with Secretary General Kofi Annan orchestrating direct talks between the Greek and Turkish Cypriot community leaders. Nine months later Annan released a comprehensive settlement proposal, informally called "the Annan Plan". Intensive efforts were made to gain both sides' support for the plan prior to the December 2002 European Union (EU) Summit in Copenhagen, where member states would determine the island's future status vis-à-vis the union. Neither side agreed to the Annan Plan before the summit.

UN-sponsored talks continued following Copenhagen. In February 2003, Tassos Papadopoulos was elected president of the Republic of Cyprus. A year later, President Papadopoulos and then-Turkish Cypriot leader Rauf Denktash resumed negotiations on the Annan Plan. A comprehensive settlement package was put to both sides in simultaneous referenda on April 24, 2004. Sixty-five percent of Turkish Cypriots endorsed the Annan Plan, but a larger majority of Greek Cypriots (76%) voted "no." The Secretary General later suspended his Good Offices Mission. Nonetheless, the EU invited the Republic of Cyprus (with Cyprus still divided) to join; the Republic of Cyprus became a full member on May 1, 2004, with the EU's acquis communautaire suspended in the area administered by Turkish Cypriots.

For two years following the Annan Plan referenda, the island saw little progress toward reunification. However, Under Secretary for Political Affairs Ibrahim Gambari, in his July 2006 visit to Cyprus, succeeded in securing commitment from both sides to commence exploratory talks, and on July 8, community leaders President Papadopoulos and Mr. Talat and met for the first time since 2004. They agreed to a UN-brokered negotiating framework that envisioned the establishment of technical committees to tackle everyday life issues and expert working groups to discuss substantive matters. While negotiators continue meeting frequently under the auspices of the UN Secretary General's Special Representative on Cyprus, the committees and working groups have yet to convene. Recent positive developments include the Turkish Cypriot removal of a controversial footbridge at Ledra Street/Lokmaci crossing in January 2007, and the Government of Cyprus' removal of a wall in the same area in March, both prerequisites to establishing a Buffer Zone pedestrian crossing in the heart of old Nicosia. A March 27, 2007 UN Security Council press statement welcomed these developments and urged the two communities to open the crossing and quickly begin implementing the July 8, 2006 agreement.

Bi-Communal Contact, Crossing Procedures
In April 2003, then-leader of the Turkish Cypriots Denktash relaxed many restrictions on individuals crossing between the two communities leading to relatively unimpeded bi-communal contact for the first time since 1974. Since the relaxation, there have been nearly 12,000,000 buffer zone crossings in both directions. Under the current regulations, Greek Cypriots must present identity documents to cross to the area administered by Turkish Cypriots, something many are reluctant to do. They are able to drive their personal vehicles in the area administered by Turkish Cypriots, provided they first obtain a policy from a Turkish Cypriot insurance provider. Turkish Cypriots are permitted to cross into the government-controlled area upon presentation of a Turkish Cypriot ID card or other identity documentation acceptable to Republic of Cyprus authorities. They must also obtain car insurance from an insurer in the government-controlled area to drive their personal vehicles there.

Until recently, visitors choosing to arrive at non-designated airports and seaports in the area administered by Turkish Cypriots were not allowed to cross the United Nations-patrolled "green line" to the government-controlled area. In June of 2004, however, Cypriot authorities implemented new EU-related crossing regulations that allowed Americans (and citizens of most other countries) to cross freely regardless of their port of entry into Cyprus. Visitors arriving in the government-controlled area are normally able to cross the green line without hindrance, although on occasion difficulties are encountered at both the Greek Cypriot and Turkish Cypriot checkpoints. The Government of Cyprus considers ports in the area administered by Turkish Cypriots to be illegal. Policy and procedures regarding such travel are subject to change. More information on current procedures may be obtained at the UN "Buffer Zone" Ledra Palace checkpoint in Nicosia or by referral to the U.S. consular information sheet on Cyprus at: http://www.travel.state.gov.

Principal Government Officials
President of the Republic--Tassos Papadopoulos
Foreign Minister--Yiorgos Lillikas
Minister of Commerce, Industry, and Tourism--Antonis Michaelides
Minister of Finance--Michalis Sarris
Minister of Interior--Neoclis Sylikiotis
Minister of Defense--Christodoulos Pashiardis
Minister of Communications and Works--Haris Thrasou
Minister of Justice and Public Order--Sofoclis Sofocleous
Ambassador to the United States-Andreas Kakouris
Permanent Representative to the United Nations--Andreas Mavroyiannis

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.

ECONOMY*
(* Section refers to the government-controlled area unless otherwise specified.)

Cyprus has an open, free-market, services-based economy with some light manufacturing. Cyprus' accession as a full member to the European Union as of May 1, 2004, has been an important milestone in its recent economic development. The Cypriots are among the most prosperous people in the Mediterranean region. Internationally, Cyprus promotes its geographical location as a "bridge" between three continents, 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. Currently, agriculture makes up only 3.2% of the GDP and employs 7.1% of the labor force. Industry and construction contribute 19.2% and employ 20.8% of the labor force. The services sector, including tourism, contributes 77.6% to the GDP and employs 72.1% of the labor force. As in recent years, the services sector, and tourism in particular, provided the main impetus for growth. Manufactured goods account for 58.3% of domestic exports, while potatoes and citrus constitute the principal export crops. The island has few proven natural resources. This may change, however, as in March 2007, the Government of Cyprus launched a licensing round to explore for possible offshore oil and gas reserves off its southern coast. Trade is vital to the Cypriot economy and most goods are imported. The trade deficit increased in 2006, reaching $5.7 billion. Cyprus must import fuels, food, most raw materials, heavy machinery, and transportation equipment. More than 68% of its trade in goods is with the European Union, particularly with Greece, Italy and the United Kingdom, compared to less than 2% with the United States

GNP growth rates have gradually begun to decline as the Cypriot economy has matured over the years. The average rate of growth went from 6.1% in the 1980s, to 4.4% in the 1990s to 3.5% from 2000 to 2006. In the last couple of years (2005 and 2006) growth has remained fairly strong at around 3.8%. Unemployment, at 3.8% of the total labor force in 2006, has remained fairly low, while inflation has been kept in check, declining to 2.2% in 2006 from 2.6% in 2005.

The economic outlook remains bright for Cyprus in 2007. Economic growth is projected to reach 3.6% in 2007, marginally lower than the 3.8% recorded the year before. Cyprus has managed to tame its fiscal deficit (down to 1.5% of GDP by the end of 2006) and its public debt (64.7% of GDP), and continues to keep inflation under control, meeting all the relevant Maastricht (EU convergence) criteria to adopt the Euro on January 1, 2008. In June 2007, the EU is expected to make the final decision to formally invite Cyprus to join the Eurozone. For a small country like Cyprus, adopting the Euro is expected to offer significant economic benefits, including a higher degree of price stability, lower interest rates, reduction of currency conversion costs and exchange rate risk, and increased competition through greater price transparency.

Provided the island gets final approval in June 2007 to adopt the Euro in 2008, Cyprus plans to allow both the Euro and the Cyprus Pound to circulate on the island for a period of one month after January 1, 2008. Commercial banks will exchange Cyprus pound banknotes and coins free of charge until June 30, 2008. The Central Bank will exchange national coins free of charge until the end of 2009 and national banknotes until the end of 2017. Dual pricing in Cypriot pounds and Euros will be mandatory from September 1, 2006 until July 31, 2008. The final conversion exchange rate between the Cypriot pound and the Euro is expected to be "locked" in July 2007. The following website offers additional information on the mechanics of Cyprus's adoption of the Euro: http://www.euro.cy

Investment Climate
Cyprus, a full EU member since May 1, 2004, has a liberal climate for investments. On October 1, 2004, the Republic of Cyprus lifted most investment restrictions concerning non-EU residents, completing earlier reforms (introduced in January 2000) concerning EU investors. Through this decision, the Republic of Cyprus has lifted most capital restrictions and limits on foreign equity participation/ownership, thereby granting foreign investors the same rights and benefits as national investors.

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' geographic 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, the European Union, and North Africa. As a result, Cyprus has developed into an important regional and international business center. According to the latest United Nations Conference on Trade and Development (UNCTAD) "World Investment Report 2006," Cyprus ranks among the world's leading countries per capita in terms of attracting foreign direct investment (FDI). Non-EU investors (both natural and legal persons) may now invest freely in Cyprus in most sectors, either directly or indirectly (including all types of portfolio investment in the Cyprus Stock Exchange). The only exceptions concern primarily the acquisition of property and, to a lesser extent, restrictions on investment in the sectors of tertiary education, banking, and mass media.

In 2005, the inflow of FDI reached U.S. $1.17 billion, compared with U.S. $1.08 billion in 2004. Most of the new investment in 2005 (58.9%) originated from the EU, particularly from Greece, the U.K., and Germany. Another 35.3% came from non-EU countries in Europe and 4.2% from the Americas. In terms of sectoral allocation, incoming FDI in 2005 went to the following sectors: mining and quarrying 1.7%; manufacturing 3.6%; construction 6.9%; real estate and business activities 32.9%; trade 25.3%; and other services 26.4%.

U.S. investors may benefit from Cyprus's abolition of EU-origin investment restrictions, provided they operate through EU subsidiaries. The inflow of U.S. FDI in Cyprus in 2005 reached U.S. $8.4 million, compared with U.S. $85.4 million in 2004. U.S. investment in Cyprus was unusually high in 2004 due to a large (U.S. $60.9 million), one-off project in business and management consultancy services. U.S. investment in 2005 was focused on mining and quarrying. A further breakdown of direct investment from the U.S. is unavailable as it is considered confidential by the Central Bank of the Republic of Cyprus. Projects involving U.S. investment in recent years have included a well-known U.S. coffee retailing franchise, a university, an information technology firm, an equestrian center, a hair products manufacturing unit, a firm trading in health and natural foodstuffs, and a financial services company.

European Union (EU)
Along with the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia, the Republic of Cyprus entered the EU on May 1, 2004. The EU acquis communautaire is suspended in the area administered by Turkish Cypriots pending a Cyprus settlement.

Export Opportunities
Best prospects for U.S. firms generally lie in services, high technology sectors, such as computer equipment and data processing services, financial services, environmental protection technology, medical and telecommunications equipment, desalination and water purification equipment and services, and tourism development projects such as casinos, marinas, and golf courses. Moreover, alternative energy sources and the energy sector in general, are attracting an increasing amount of attention, while the possible existence of natural gas and petroleum reserves off the southern and eastern coast of Cyprus opens up new prospects. U.S. food franchises and apparel licensors are also finding fertile ground for expansion in Cyprus.

The Government of Cyprus, through the Ministry of Commerce, announced its plans to license 11 offshore blocks for exploration and exploitation of oil and natural gas within its Exclusive Economic Zone (EEZ). The first licensing round officially opened to interested companies on February 15, 2007 and will close on August 16, 2007 (although this is subject to change). It is too early to determine the extent of the possible reserves. Unsubstantiated press reports, however, suggest that there may be as high as six to eight billion barrels of natural gas/petroleum deposits with an estimated value of U.S. $400 billion.

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 and organizes other events to promote U.S. products throughout the year. The U.S. runs a significant trade surplus with Cyprus, on the order of $100.6 million in 2006 (exports of $111.0 million versus imports of $10.5 million--according to Republic of Cyprus statistics).

Principal U.S. goods exports to Cyprus include office machines and data processing equipment; electrical appliances; optical, measuring, and medical equipment; tobacco and cigarettes; passenger cars; and wheat. Principal U.S. imports from Cyprus consist of dairy products, fresh fish, and mineral substances.

Bilateral business ties also encompass a healthy exchange in services. In 2006, the inflow of services (from the United States to Cyprus) was $552.8 million, against an outflow (from Cyprus to the United States) of $335.9 million, according to Republic of Cyprus statistics.

Turkish Cypriot Economy
The economy of the Turkish Cypriot-administered area is dominated by the services sector including the public sector, trade, tourism and education, with smaller agriculture and light manufacturing sectors. The economy operates on a free-market basis, although it continues to be handicapped by the political isolation of Turkish Cypriots, the lack of private and public investment, high freight costs, and shortages of skilled labor. Despite these constraints, the Turkish Cypriot economy turned in an impressive performance from 2003 to 2006, with estimated growth rates of 7.8% in 2006, 10.6% in 2005, 15.4% in 2004, and 11.4% in 2003. Over the same period, GDP per capita more than doubled; according to unofficial Turkish Cypriot statistics it reached $11,802 by the end of 2006. This growth has been buoyed by the relative stability of the Turkish Lira, the employment of around 5,000 Turkish Cypriots in the Greek Cypriot economy where wages are significantly higher, and by a boom in the education and construction sectors. In 2006, the services sector accounted for nearly two-thirds of GDP, industry and construction accounted for 22.5% of GDP, and agriculture 8.4%, according to Turkish Cypriot statistics. The partial lifting of travel restrictions between the two parts of the island in April 2003 has allowed movement of persons--over 12 million crossings to date--between the two parts of the island with no significant interethnic incidents.

Turkey remains, by far, the main trading partner of the area administered by Turkish Cypriots, supplying 65% of imports and absorbing around 50% 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 the area based on certificates of origin and phytosanitary certificates granted by "TRNC" authorities. The ECJ 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 $13.8 million in 2003 (or 28% of total exports). In August 2004, new EU rules allowed goods produced or substantially transformed in the area administered by Turkish Cypriots to be sold duty-free to consumers in the government-controlled area and through that area to the rest of the EU. To qualify, goods must also meet EU sanitary/phytosanitary requirements. Animal products are excluded from this arrangement. In May 2005, Turkish Cypriot authorities adopted a new regulation "mirroring" the EU rules and allowing certain goods produced in the government-controlled areas to be sold in the area administered by Turkish Cypriots. (However, suppliers cannot legally transport imported products over the green line in either direction.) Despite these efforts, direct trade between the two communities remains limited.

The EU continues to be the second-largest trading partner of the area administered by Turkish Cypriots, with a 22% share of total imports and 27% share of total exports. Total imports increased to $1.3 billion in 2006, while total exports decreased slightly to $65 million. Imports from the U.S. reached $9.3 million in 2006, while exports to the U.S. were less than $70,000.

Assistance from Turkey is crucial to the Turkish Cypriot economy. Under the latest economic protocol (signed in 2006), Turkey undertakes to provide Turkish Cypriots financial assistance totaling 1.875 billion New Turkish Lira (YTL--roughly $1.34 billion) over a three-year period (600 million YTL in 2007, 625 million YTL in 2008 and 650 million YTL in 2009). Turkey also provides millions of dollars annually in the form of low-interest loans to mostly Turkish entrepreneurs in support of export-oriented industrial production and tourism. Total Turkish assistance to Turkish Cypriots since 1974 is estimated to have exceeded $4 billion.

FOREIGN RELATIONS
The Republic of Cyprus 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 Republic 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 Republic of Cyprus.

The Republic of Cyprus enjoys close relations with many countries, including Greece, Russia, China, France, Israel, Egypt, Lebanon, and other countries in the region. 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 British Commonwealth. In addition, the government has signed 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 inter-communal negotiations as the best means to achieve a fair and permanent settlement.

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. Cyprus also signed a Proliferation Security Initiative Ship Boarding Agreement with the United States on July 25, 2005, which reinforces bilateral counter-terrorism cooperation.

The United States has channeled $305 million in assistance to the two communities through bi-communal projects, the UN Office of Project Services, the UN High Commissioner for Refugees, and the Cyprus Red Cross since the mid-1970s. The United States now provides approximately $13.5 million annually to promote bi-communal projects and finance U.S. scholarships for Greek and Turkish Cypriots. In 2004, following the Annan Plan process, the U.S. appropriated an additional $30.5 million to assist economic development in the Turkish Cypriot community, aiming to reduce the economic costs of any future settlement.