WTO UPDATE FOR YEMEN - FIVE YEARS AND COUNTING

UNCLAS SECTION 01 OF 02 SANAA 002784

SIPDIS

STATE FOR NEA/ARP, EB/IPR, EB/TRD
STATE PLEASE PASS TO USTR FOR J.BUNTIN
STATE ALSO FOR USAID ANE

E.O. 12958: N/A
TAGS: ECON ETRD KMPI YM ECON COM
SUBJECT: WTO UPDATE FOR YEMEN - FIVE YEARS AND COUNTING


1. Summary/Comment. While accession to the World Trade
Organization is still five to seven years out, with the first
working party meeting to be held in Geneva on November 30 Yemen
will enter a new, more difficult stage of trade negotiations.
Through the Integrated Framework (IF) process sponsored by the
Dutch, the ROYG and donors developed an action plan for joining
the WTO. Supporters of accession now must garner support from
ROYG Ministries, Parliament, and powerful business interests to
adopt measures necessary to accede. End summary/comment.

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First Working Party Meeting in November
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2. Yemen was granted observer status to the WTO in 1999. In July
2000 the WTO set up a working party process for Yemen's
accession. Yemen submitted its Memorandum of Foreign Trade
Regime in 2000 and will hold its first working party meeting
November 30 in Geneva. Nagib Hamim, WTO Technical Advisor at the
Ministry of Industry and Trade, (MIT) explained, "this is when
the hard work begins." Hamim will travel to Washington as part
of the ROYG delegation to the Trade Investment Framework
Agreement (TIFA) talks in November. MIT has the lead in
preparing for accession and acts as secretariat for the Council
of Ministers that approves all major documents.


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Integrated Framework Rejuvenated?
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3. Yemen concluded the diagnostic phase of the World Trade
Organization's Integrated Framework (IF) Process with the
completion of the Diagnostic Trade Integration Study in June

2003. Due to bureaucratic delays, Yemen is now beginning to
implement the action plan. The ROYG is planning to conduct an IF
workshop to integrate WTO accession planning with Yemen's most
significant economic planning document: the Poverty Reduction
Strategy (PRS) for 2006-2010. Until it is integrated into the
PRS, WTO accession will remain an afterthought to those outside
of the Ministry of Industry and Trade.


4. The European Union is presently spending seven million Euros
over five years to help Yemen accede by providing training,
computers and technical advisors. USG assistance compliments the
EU assistance program and will likely focus on Customs Valuation
reform and reforming Yemen's competition law.

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What Must Yemen do?
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5. The most significant step the ROYG will have to take is
garnering Parliamentary support for several key legislative
changes, to include:
-- Upgrading IPR laws (septel);
-- Redrafting the competition law to dilute the power of big
companies;
-- Revising a new commercial law that limits non-Yemenis to a 49
percent share a company (septel);
-- Opening the telecommunications and financial sectors' and
-- Amending provisions of the labor law that hinder private
companies from hiring persons of their choice and limit the
number of foreigners to 10 percent of total employment


6. Aside from legal amendments, Yemen must also "bind its tariff
structure," and implement the General Investment Law of 2002
which provides for equal treatment of foreigners and domestic
investors and protects against nationalization.


7. Planning for WTO accession is beginning to gain momentum
outside of the Ministry of Industry and Trade. The upcoming
Trade Investment Framework Talks have encouraged Deputy Prime
Minister Sofan to take up the trade reform and he is actively
encouraging other ministries to adopt necessary changes for
accession. Most experts agree that WTO accession is "stretching"
limited ROYG resources due to lack of well trained civil
servants, limited English capacity, and coordination problems
between ministries.


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Businessmen Hold Key to Success
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8. Yemen's powerful business community is fearful of accession
and is capable of blocking necessary legislative reforms if they
fear their business interests might be harmed. In 2004, the
Yemen Federation of Chambers of Commerce lobbied effectively to
delay implementation of Yemen's General Sales Tax, designed to
reduce Yemen's dependence on oil revenue for state income. The
government must also take significant steps to improve the
investment climate for businessmen so they can see tangible
benefits in joining international trade regimes. The first
priority for Yemen's business community is reducing smuggling.
In some cases, as much as fifty to seventy percent of one market
is dominated by smuggled goods and legitimate Yemeni business
suffer. If WTO accession and reduced smuggling can be linked,
the business community may be swayed to support accession.