YEMEN MOVING FAST ON WTO, MAYBE TOO FAST

UNCLAS SECTION 01 OF 02 SANAA 000145

SIPDIS

SENSITIVE

STATE PLEASE PASS TO USTR BUNTIN AND HICKS
ABU DHABI FOR MEPI OFFICE

E.O. 12958: N/A
TAGS: KMPI ECON ETRD YM ECON COM
SUBJECT: YEMEN MOVING FAST ON WTO, MAYBE TOO FAST


1. (SBU) Summary. Yemen is making progress in trade reforms
necessary for WTO accession and possible Free Trade Agreement
(FTA) with the US. Key ministries have a broad mandate
within the ROYG to create the necessary legislation and
regulations to comply with international standards. They
have created an effective inter-ministerial mechanism to
direct these activities. Significant obstacles remain,
however, and the ROYG will have to demonstrate to the WTO
that it is actually able to implement the planned reforms.
ROYG aspirations to accede to the WTO within one year, while
admirable, may be too ambitious. Two representatives of Booz
Allen Hamilton (BAH),funded by MEPI, shared these
preliminary conclusions during a visit to Sanaa Jan. 11-12.
As part of an effort to assess the ROYG's progress towards
WTO, they visited officials at the Ministry of Finance (MOF),
the Ministry of Industry and Trade (MOIT),Ministry of
Culture (MOC),several regulatory agencies, as well as the
head of the Sanaa Chamber of Commerce. End Summary.

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FOR WTO, YEMEN UNDER THE RADAR
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2. (U) Two representatives from BAH met with members of the
ROYG to discuss next steps to follow after the recent Trade
Investment Framework Agreement (TIFA) talks in Washington.
The delegation came to assess Yemen's progress on trade
reform, both with respect to WTO accession and plans for the
Middle East Free Trade Area. Though mostly informational,
discussions revealed several substantive issues. Head of the
WTO planning at the Ministry of Industry and Trade, Nagib
Hamim demonstrated the ROYG's planning through a matrix of
necessary legislation in such areas as customs, IPR, quality
control, and SBS/TBT standards. MOIT coordinates an
inter-ministerial process, both at the official and technical
levels, to direct the overall reform process and to delegate
legislative responsibilities. Draft laws exist in many of
the required fields, but at this point, Hamim said, no
legislation has been passed.


3. (U) Hamim said his Ministry and others are working to
accede to the WTO by the end of 2004 a goal articulated by
the Ministry of Planning after returning from the November
TIFA talks in Washington. Hamim told Pol/Econoffs in private
that the chances of achieving this goal, while not
impossible, are slim. One BAH contractor noted that given
the experiences of other countries and the current WTO focus
on Saudi Arabia and Russia, even if Yemen were completely
prepared for negotiations they would likely not gain
attention in Geneva until 2006.


4. (U) The EU is currently providing seven million Euros over
five years, but many areas of reform, including IPR and
SBS/TBT standards, are not covered by these funds.
Pol/Econoffs and several observers have pointed out that ROYG
ministries lack the legal experience necessary to draft new
laws and proposals for accession. BAH noted that it is
difficult to find attorneys who are competent in both WTO and
Yemeni law.

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ROYG and Regulation: Time to Let Go
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5. (U) Ministry of Finance Director General for External
Relations Ibrahim Al-Nahari stressed Yemen's strong banking
laws and monetary policy, but suggested that there is a need
for clearly defined regulatory bodies, separate from the
ministries. Al-Nahari gave the example of health policy,
which is currently formulated within the Ministry of Health
in the form of legislation rather than independently
determined regulations. (Note: Al-Nahari was less
convincing on insurance regulation, which he said should be
determined in the MOF. End note.)


6. (U) Kamal Al-Jebry, Director General of the Public
Telecommunications Corporation (PTC) made a similar
observation. The Minister of Telecommunications is currently
also the Chairman of the PTC and the head of Yemen's telcom
regulatory body, which is part of the Ministry. In addition,
al-Jebry said, the Minister is acting CEO of the state-owned
telephone company, which competes with the private sector in
the wireless market. In order to avoid accusations of
conflict of interest, as well as to generate confidence among
foreign investors, Al-Jebry believes that Yemen needs an
independent telecommunications regulatory commission.

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Business Community Not Playing Ball
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7. (U) Hamim pointed out that differences within the private
sector are hampering reform progress. By absenting
themselves from the process, business leaders prevent the
ROYG from negotiating to protect their interests at WTO
talks. Hamim said that the private sector is afraid of
competition, suspicious of the government, and believes the
ROYG is rushing the process. A conversation with Mahfoud
Shammakh, Chairman of the Sanaa Chamber of Commerce,
confirmed these doubts. Shammakh claimed that the business
community will accept accession, but Yemen needs "to get its
house in order first," through business training and
anti-corruption measures. A BAH representative echoed the
long-standing Post position that improvements in the business
climate could be achieved through the WTO process, but
Shammakh was not receptive.

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WTO: Still a Long Way to Go
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8. (U) The BAH delegation concluded that ROYG officials do
not understand the distance they must still cover to reach a
viable negotiating position with the WTO. They have the
enthusiasm to craft the necessary laws and regulations, but
lack a clear strategy for implementation. BAH contended that
the ROYG must establish credibility with the WTO by passing
at least some of the proposed laws in Parliament if the rest
of its plans are to be taken seriously.


9. (U) BAH confirmed that all ROYG agencies involved in WTO
accession will require significant technical assistance and
training to follow through on accession demands. The
delegation also viewed corruption in the judiciary as an
obstacle to accession, as it interferes with IPR enforcement,
customs disputes, and nearly every aspect of fair trade. BAH
suggested that the ROYG is unsure of how to proceed in the
services sector and will be surprised by the changes
necessary for trade reform. Liberalizing the
telecommunications sector, for instance, is certain to prove
unpopular within the government. (Note. ROYG moves in this
sector in the past year reflect an increase in government
involvement rather than a move towards liberalization -- to
be reported septel. End note.)


10. (SBU) Comment. There are many promising signs that the
ROYG is committed to the accession process. On Nov. 29, the
Cabinet approved accession to the Bern Convention on IPR.
The President recently announced that the ROYG plan to reduce
customs tariffs to 5-10 percent, down from current rates of
up to 25 percent. Despite severe capacity limitations,
government agencies are making serious attempts to comply
with WTO standards. However, many of these systems must be
created from scratch, and the accession schedule creates
tight time constraints. In addition, there is no clear
political strategy or timetable for passing the necessary
legislation. Trade laws do not have priority in Parliament
and the legislative process is time-consuming. Moreover with
Parliament's newfound strength the executive may have less
leverage to enact the needed legislation for accession.
Without clear political will from both executive and
legislative bodies, it is unlikely that Yemen will meet its
goal of WTO accession by 2006.


11. (SBU) Comment continued: Post suspects (and BAH agreed)
that Sofan's one-year goal could complicate Yemen's WTO
process. If the ROYG pushes accession too quickly, without
investing in regulatory reforms necessary for implementation
the benefits of WTO accession may not be realized. At the
same time, a rushed process that results in failure in Geneva
could deflate the ROYGs current enthusiasm for trade reforms.
End comment.
KRAJESKI