Minsk Wants Bilateral WTO Negotiations

UNCLAS MINSK 001159

SIPDIS

SENSITIVE

SIPDIS

DEPT PASS TO USTR

E.O. 12958: N/A
TAGS: ETRD ECON ECIN WTRO BO
SUBJECT: Minsk Wants Bilateral WTO Negotiations

Refs: (A) Minsk 492, (B) Minsk 955, (C) Minsk 1145


1. (U) Summary: Econoff met September 13 with MFA representatives
Anton Kudasov, Deputy Director of the Directorate of Foreign Trade,
and Sergey Gulevich, Deputy Head of the Division of Foreign Trade
Policy, to discuss Belarus' accession to the World Trade
Organization. Kudasov argued strongly for capital based bilateral
negotiations with the U.S. prior to the next meeting in Geneva, on
the assumption only this would bring Belarus progress toward
joining the WTO. However, he does not believe WTO membership will
have much effect on the Belarusian economy (despite experts'
predictions),and does not think Belarus would be harmed if Russia
acceded first. Kudasov dismissed several potential hurdles to
Belarusian membership, such as border confiscations, the Golden
Share, and lack of IPR protection. End summary.


Want Capital Based Negotiations
--------------


2. (U) Kudasov said the GOB very strongly desires a meeting with
U.S. WTO negotiators in either Minsk or Washington in advance of
the October 24 meeting in Geneva, followed by bilateral
consultations with the U.S. in Geneva and Hong Kong. He claimed
the meetings in Geneva have not been as fruitful as the GOB would
like. Specifically, he thanked the U.S. side for providing
detailed guidance on services, and wants similarly detailed
guidance on how Belarus should progress in dealing with trade in
goods. Kudasov commented that the sooner Belarus and the U.S.
could begin discussing issues line by line the better, as Belarus
hopes to have a draft report ready by spring 2007. He argued that
a draft report is needed to help prod the Belarusian bureaucracy to
take actions to comply with WTO regulations. The GOB also asked
that the U.S. quickly conclude bilateral negotiations with Russia,
as Belarus closely coordinates its trade policy with Russia. The
GOB expects the U.S. and other countries to demand the same
commitments from Belarus as they will from Russia. Kudasov stated,
"It will not be politically acceptable to Minsk if demands on
Belarus differ from those on Russia."


WTO Will Not Adversely Affect Belarusian Economy?
-------------- --------------


3. (SBU) Kudasov believes joining the WTO will not greatly impact
Belarus' economy, mainly because a majority of Belarus' trade (50
to 70 percent) is already duty free to other members of the
Commonwealth of Independent States. He also did not believe that
any of the changes that Belarus will have to undertake would have
much of an effect. As an example, he argued that when Belarus and
Russia changed the way VAT is collected on their bilateral trade
last January, it had little impact on trade levels. [Note:
according to recent MFA statistics, trade with Russia fell 8.9
percent after the VAT change (ref C).]


4. (U) However, experts from the Economy Institute at Belarus'
Academy of Sciences disagree, believing WTO accession will disrupt
the economy. Specifically, they think joining the WTO will hurt
Belarusian light industry, construction, and communications, none
of which they argue are ready to compete internationally. The
Academy's experts told the press joining the WTO will increase the
number of loss-making companies in light industry. While Belarus
could conversely benefit from a lifting of EU quotas on textiles,
currently Belarusian industry is exporting below the level of the
quotas, so no surge in exports is likely after accession. They
also state that Belarus' communications industry, almost entirely
state owned, will not be able to compete with foreign firms.


Russia: Cooperation, but No Energy Price Increase
-------------- --------------


5. (U) Kudasov stated that Belarus is working closely with Russia
towards WTO accession. Minsk is copying Russian trade legislation
and is trying to harmonize fully its tariffs with Russia. [Note:
an official with the Russian-Belarusian Union State told the press
the two have unified 86 percent of tariffs.] He said Belarus' new
Law of Foreign Trade is nearly identical to Russia's, and both are
based on GATT principles. Kudasov denied that Belarus would face
any problems if Russia joins the WTO first, insisting that "this is
not a race," and said Russian accession would even solve a number
of trade problems. In particular, Kudasov complained about
existing Russian trade barriers to alcohol and pharmecutucals,
which he expects to fall once Russia joins the WTO.


6. (U) When asked, Kudasov denied that Russian accession would
result in Belarus paying higher rates for natural gas and oil, at
least in the short term. He expects Russia will continue offering
Belarus discounted energy for two to three years, after which
Russia would be forced to raise prices to secure needed investment
in new oil and gas fields. Belarus would likewise raise the amount
it charges for transit, which Kudasov believed would largely offset
the increased energy prices.


7. (U) On September 6 Belarus' Deputy Foreign Minister Aleksandr
Mikhnevich announced at the Belarusian-Russian Economic Forum that
Belarusian-Russian trade will be unaffected by the WTO as the two
states will continue to offer each other trade preferences and
"insist on developing mechanisms for mutual protection of the
common market of Belarus and Russia against unfair competition from
third countries. It is especially important for automobile,
chemical and light industries."


Confiscations? Not a Problem
--------------


8. (SBU) Several weeks ago the U.S. Department of Commerce issued a
warning to American businesses to avoid transiting goods through
Belarus because of a high rate of border confiscation. Ever since
Belarusian Customs and media have been loudly proclaiming there is
no problem with border confiscations. Kudasov acknowledged there
is somewhat of a confiscation problem, but stated it is only a
matter of Belarusian legislation and would have no impact on
joining the WTO. He said the GOB is preparing data on the true
scale of border confiscations, and that the head of the State
Customs Committee, Aleksandr Shpilevsky, would travel to Geneva in
October to discuss confiscations. [Note: the GOB earns significant
sums of money from confiscating transiting goods and reselling them
in a series of shops around the country (ref A). The Russian
Embassy in Minsk told us several times that Belarus confiscates USD
100 million worth of Russian goods each year, and the Kazakh
Embassy recently said they lose USD 60 million annually. A number
of other embassies, particularly the Polish and Lithuanian, also
complain of regular confiscations.]


No Golden Share Problem Either
--------------


9. (SBU) Likewise Kudasov denied that Belarus' use of the Golden
Share would prove any barrier to the WTO. He insisted Belarus uses
the Golden Share only in extremely rare cases, and then only to
protect workers when their salaries are not being paid or to
prevent social disturbances. Nonetheless, the GOB's Golden Share
expert will also travel to Geneva to explain the true state of
things to the WTO. [Note: The GOB has invoked the Golden Share to
take control of at least nine companies since the beginning of the
year. Their usual practice is to invoke this mechanism to take
temporary control of a company that has refused to sell a majority
share to the GOB, then issue to themselves large amounts of highly
undervalued shares until the state owns 99 percent of the firm (ref
B).]


IPR also Not an Issue
--------------


10. (U) Continuing in this vein, Kudasov refuted that Belarus'
current lax enforcement of IPR violations would cause any problems
with the WTO. He claimed the GOB has a commission which has
"defined responsibilities for implementing IPR enforcement," and
argued that protecting IPR was in the GOB's own interest,
particularly as President Lukashenko advances his plans to build a
high-tech park. These plans will force the GOB to begin enforcing
IPR violations.


Geographic Indicators
--------------


11. (U) Kudasov also commented that the GOB is very closely
following the debate over geographic indicators. He opined that
the WTO is coddling individual countries too much and giving too
much weight to their arguments to protect specific geographic
indicators. He would prefer for the European Union to reign in
certain member states (i.e. France) on this issue. [Note: Belarus
would be affected by this decision, if only because it produces
champagne, of sorts.]


Comment
--------------


12. (SBU) Kudasov provided a rosy picture of Belarus' WTO
negotiations and the Belarusian economy, which contradict that of
Belarus' own experts. His statements on trade with Russia,
confiscations, the Golden Share and IPR all strictly followed the
official GOB line that there is no problem. Other experts are less
sure; for example the World Bank is considering a study to see what
affects early Russian accession would have on Belarus. Kudasov was
clearly frustrated at the slow rate of negotiations, but believes
direct capital based talks with the U.S. (rather than real progress
by the GOB) are what is needed. This echoes the line Deputy
Foreign Minister Mikhnevich took with Ambassador recently.
Mikhnevich, who attended part of the last Geneva talks, urged the
U.S. to meet in Minsk or the U.S. to continue discussions.
Ambassador replied that the U.S. side was not terribly impressed
with the Belarusian performance in Geneva, and did not see enough
real progress to justify further meetings at this stage. It
appears though a priority of the MFA to push for meetings
regardless of the lack of seriousness in the GOB's WTO accession
efforts.

KROL