By Tulay Karadeniz and Jonathon Burch
ANKARA (Reuters) - Turkey is likely to sign a $3.4 billion missile defense deal with a Chinese firm under U.S. sanctions, a senior official said on Thursday, a proposal that is already straining relations with Washington.
Turkey sees a growing threat of spillover from the war in neighboring Syria, as well as wider turbulence in the Middle East, and has been scrambling to bolster its air defenses.
Murad Bayar, Undersecretary of Defence Industries at the Defence Ministry, told reporters in Ankara that Turkey could finalize the deal with China Precision Machinery Import and Export Corp (CPMIEC) within six months.
Turkey's Defence Ministry said last week it had chosen CPMIEC's FD-2000 missile defense system over more expensive rival systems from Russian, U.S. and European firms. Despite Bayar's comments, Turkish leaders have stressed the deal is not final.
The United States has expressed "serious concerns" over North Atlantic Treaty Organisation member Turkey cooperating with CPMIEC, under sanctions for violations of the Iran, North Korea and Syria Nonproliferation Act.
But Foreign Minister Ahmet Davutoglu said Turkey, which shares a 900-km (560-mile) border with Syria and has NATO's second largest deployable military force, urgently needed to step up its air defenses.
"With the latest crisis in Syria and the crises in the Middle East, we have realized ... that however strong our armed forces are in terms of conventional weapons, they are not at the desired level to counter missile and related threats," he said in an interview on local television on Wednesday.
Turkey has seen Syria's conflict frequently spill across its frontier and has responded in kind when mortars and shells fired from Syria have hit its soil.
The government is also concerned about Syrian President Bashar al-Assad's chemical weapons arsenal, particularly after a sarin nerve gas attack on a Damascus suburb in August, and parliament voted on Thursday to extend a mandate authorizing sending troops into Syria if needed.
NATO sources have said Turkish collaboration with China on the system could raise questions of compatibility of weaponry and of security. For China, it would be a breakthrough in its bid to become a supplier of advanced weapons.
Bayar said Turkey was not sharing any information on NATO defense systems with China and Turkey was not bound to comply with sanctions placed on CPMIEC as they were not drawn up by the United Nations.
"This is a short list and China is in first place. We are going to invite the Chinese, the offer is on the table and we are going to turn this offer into a contract," Bayar said.
"It is highly likely, a great probability, we will sign the contract with the firm we have chosen in first place."
He said if the deal went ahead most of the production would be carried out in Turkey.
CPMIEC's bid of $3.44 billion had come in significantly lower than rival systems from Russian, U.S. and European firms and below Turkey's estimate of $4 billion, Bayar said.
He said the Franco/Italian Eurosam SAMP/T system was second and Raytheon Co, a U.S. company that builds the Patriot missile, was third. A Russian bid had been eliminated. All losing bids had come in above $4 billion, Bayar said.
Davutoglu said the selection was not politically motivated, and that the Chinese offer had met Turkey's primary demands of price and the ability to place much of the production in Turkey, although he reiterated that the decision was not final.
"It is as if people always think, 'this government has an agenda and is making its choice based on this'. No, this was a professional choice. A choice determined by the criteria put forward. But this is not a final choice," Davutoglu said.
"If only Eurosam, or the American and European system makers offered better conditions and we could choose them," he said.
Some defense analysts said they were surprised by Turkey's decision, having expected Raytheon or Eurosam to win the contract, and U.S. government and industry officials were reportedly not informed of the selection beforehand.
"The deal with the Chinese may be designed to put pressure on Raytheon to negotiate a more favorable deal for Turkey, in particular a more liberal technology and know-how transfer and co-production and perhaps on price," said Fadi Hakura, a Turkey expert at London's Chatham House think tank.
Industry experts have said they do not expect Raytheon to offer significant price concessions to secure the deal, given its big backlog of orders from other countries for the Patriot system and other missile defense equipment.
"Turkey's primary aim is to build a local defense manufacturing capacity," Hakura said, noting Turkey had been trying to build a domestic defense industry since the 1980s.
"Still, what the deal does is further poison the atmosphere of worsening relations between Washington and Ankara."
Turkey has long been one of the closest U.S. allies in the Middle Eastern region, bordering during the Cold War on the Soviet Union. The U.S. military exercised great influence over a Turkish military that strongly influenced domestic politics.
Under Prime Minister Tayyip Erdogan, elected in 2002, the role of the Turkish military in politics has been curbed. Political and military relations between Ankara and Washington, while still close, play a less central role, and this could be reflected in procurement policy.
NATO has said it is up to each country to decide what military capabilities they acquire but that compatibility with other members' systems is important. Davutoglu said members did not need to consider NATO's needs on everything as each country had its own national considerations.
Bayar said a delegation of Turkish industry and air force officials had witnessed test launches from all the firms but that the Chinese had allowed Turkey to pick its own scenario and offered it a tailored demonstration.
"We said we want this kind of a launch, and our delegation watched the launches as if they were the operators. These were real launches," Bayar said.
(Additional reporting by and Ayla Jean Yackley in Istanbul; Editing by Nick Tattersall, Anna Willard and Giles Elgood)