PARLIAMENTARY HEARINGS ON KAZAKHSTAN'S WTO ACCESSION

UNCLAS SECTION 01 OF 03 ASTANA 000631 SIPDIS SIPDIS DEPT FOR SCA/CEN - O'MARA DEPT PLEASE PASS TO USTR - ELIZABETH HAFNER ANKARA FOR AG COUNSELOR R. GIFFORD E.O. 12958: N/A TAGS: ECON ETRD WTO PREL KZ SUBJECT: PARLIAMENTARY HEARINGS ON KAZAKHSTAN'S WTO ACCESSION PROCESS ASTANA 00000631 001.4 OF 003 ¶1. Summary: Kazakhstan's Parliament held an Open Hearing on WTO Accession on October 20, in which key ministers summarized outstanding WTO issues and outlined the potential benefits and drawbacks of WTO accession. Both the ministers and parliamentarians passionately defended Kazakhstan's agricultural sector and subsidies. Experts from the textile sector painted a pessimistic picture of the sector's future in the face of "contraband" imports from abroad. Lead WTO negotiator Aitzhanova closed the hearing by reassuring the members of parliament that Kazakhstani producers already lived under WTO-like conditions; thus, fear of WTO accession was unwarranted. End summary. KAZAKHSTAN AND THE WTO: PROS AND CONS -------------- ¶2. On October 20, Kazakhstan's Parliament conducted its first-ever Open Hearing on WTO Accession, assembling key ministers, industry experts, business association representatives, and scholars to discuss Kazakhstan's progress toward accession. The DCM attended the high-profile event, which marked the first time during the accession process that a WTO General Secretary has visited Kazakhstan. ¶3. Deputy Prime Minister Karim Masimov opened the session by listing the benefits which WTO accession will bring Kazakhstan: the "Most Favored Nation" principle will help Kazakhstan get equal access to foreign markets; quotas levied on Kazakhstan's metallurgical exports will be disallowed; trade disputes will be resolved in accordance with WTO rules and regulations; the cost of transportation by land would be reduced, since member states will adopt uniform transportation tariffs; and custom procedures will become more transparent, thus reducing "gray" imports and increasing budget revenues. Speaking of possible negative consequences of accession, Masimov noted that they would fall mostly on the agricultural sector. ¶4. Ambassador Vessa Himanen, Chief of Kazakhstan's Working Party for Accession, cast Kazakhstan's prospects in a regional context by underscoring that Kazakhstan could be an engine of economic growth for the whole Central Asian region. Economic conditions for WTO accession are better than ever before, he declared, adding that Kazakhstan's negotiation process was on the right track and "allows us to look forward with optimism." ¶5. Deputy WTO General Secretary Alexandro Jara encouraged Kazakhstan to conclude the negotiation process as soon as possible. He noted that each economy was unique and thus required a different timetable for WTO accession. Jara stressed that a country's overall rate of growth or economic reform did not influence the speed of WTO accession; rather, such decisions depended on progress made toward implementing - and enforcing - WTO-compliant legislation. POSITION OF PARLIAMENTARIANS -------------- ¶6. Sergey Diachenko, the Mazhilis Deputy Chairman, remarked that WTO membership might pose a real threat to domestic industries, especially agriculture, and poor rural households might not be able to adjust themselves to new conditions. Domestic agriculture needs to be subsidized, he argued, since much of it takes place in "high-risk" agricultural areas. Further, Diachenko said, Kazakhstan's existing level of subsidies was relatively low in comparison with developed countries. Mazhilis Deputy Satypaldy Ibragimov compared Kazakhstan's average level of agricultural subsidies ($17 per hectare of cultivated land) to those of the United States ($107),Canada ($830),the EU ($855),and Switzerland ($4210). ¶7. Ibragimov provided a metaphor to describe the accession process. "If the WTO is a team led by United States," he said, "Kazakhstan would be a young player on this team. As the coach of the team, the United States should create favorable conditions for inexperienced, but prominent, players, such as Kazakhstan." Ibragimov suggested that, taking into account the breadth of the Kazakhstani economy, the global terrorism threat, and Kazakhstan's role in regional security, Kazakhstan's sustainable development was "not only in the national interest, but in the interests of the whole world." AGRICULTURE AND TEXTILES: KEY ISSUES -------------- ¶8. Minister of Industry and Trade Vladimir Shkolnik assured the audience that WTO membership would not harm the GOK's policy of diversifying the economy. Further, the GOK intended to continue to protect producers of local goods, especially agricultural products, by means of custom tariffs. Kazakhstan's trade regime was one of ASTANA 00000631 002.2 OF 003 the most liberal among CIS countries, Shkolnik said; in fact, Kazakhstani tariffs were comparable with tariffs of developed-country WTO members. In defense of this assertion, Shkolnik cited some comparative statistics: in Kazakhstan tariffs for agricultural products averaged 12.4%, and for industrial goods, 6.7%; for the EU,15.7% and 4.7%; for the U.S., 10.9% and 4%;, and 7.7% and 5.7% for Canada. Therefore, Shkolnik concluded, Kazakhstan should not go further in reducing tariffs. ¶9. Vice Minister of Agriculture Lilia Musina pointed out that Kazakhstan's agricultural subsidies were quite small, as a percentage of GDP, compared to other countries: in 2003-2005 Kazakhstan's subsidies amounted to about 2% of GDP, while in Norway they reached 47% of GDP, in EU countries - 23% of GDP, and in United States - 16%. (Comment: For these numbers to accurately reflect the intensity of agricultural subsidies, they would have to adjusted for the differing shares of agricultural production in GDP. End comment.) Musina also defended Kazakhstan's use of "yellow box" subsidies (domestic support subsidies which are considered trade-distorting),arguing that Kazakhstan's subsidies were not only within legal limits, but were extremely important to the national economy. According to Musina, out of Kazakhstan's average subsidy of $17 per hectare, $12.20 is for "green box" measures (those which don't distort trade and are allowed by WTO),and only $4.90 are "yellow box." Speaking of export subsidies, Musina argued that, because land-locked Kazakhstan faced high transportation costs to market, the GOK was justified in defending its negotiating position in this area. ¶10. The Head of the Textile Enterprises' Association, Lubov Khudova, painted a pessimistic picture of Kazakhstan's textile and apparel industries. The processing industry's share of total industrial output in Kazakhstan dropped from 2% to 0.6% over the 2000-2005 period, she noted, and in general the industry faced decreasing prospects, as existing enterprises were now closing 1.5 times faster than new ones were opening. Furthermore, she said, domestically produced goods were gradually being supplanted on the local market by imported goods: the share of domestic textiles and apparel in the local market was only 8%, and that of shoes, 1%. The volume of declared imports exceeded exports by a multiple of 24, she declared, with the growing needs of the population being met by undeclared counterfeit imports. ¶11. Khudova characterized this situation as a threat to the country's economic security, and insisted on a transition period after accession to the WTO. Moreover, in her opinion, the Security Council and the GOK needed to undertake measures to restrict the import of counterfeit goods and support the development of local textile and apparel industries. STEPS TOWARD THE WTO -------------- ¶12. Finance Minister Korzhova expressed the GOK's readiness to harmonize customs legislation and simplify custom procedures. Her suggestions for doing so included the following: unification of excise duties for imported and domestic goods (for instance, oil products); simplification of custom administration and custom clearance processes, especially for small individual entrepreneurs; and the provision of ex-officio right to custom authorities in the future. In addition, she stated that beginning January 1, 2007, customs officials would minimize bureaucratic requirements for transaction passports, all registration functions would be forwarded to currency authorities gradually, and registration periods would be extended an additional 180 days. AITZHANOVA SUMS UP THE PROCESS -------------- ¶13. Vice-Minister of Industry and Trade Zhanar Aitzhanova summarized major steps that needed to be done to finalize the accession process: unify railway tariffs; unify excise duties for imported and domestic products; decrease customs tariffs; limit the number of licensed activities; and address demands for legislative amendments concerning genetically modified products. ¶14. Aitzhanova told the audience that the United States and European Union were very active in the negotiations, particularly on questions related to market access for qualified laborers; textiles; access to the telecommunication, financial, and transport services markets; and on the issue of visitor access to the country and length of allowed stay. Aitzhanova also informed the audience that Kazakhstan would join the sectoral initiative. In conclusion, Aitzhanova stressed that there was nothing frightening about accession to the WTO; in fact, Kazakhstan's domestic producers ASTANA 00000631 003.2 OF 003 already lived under WTO conditions. ¶15. Comment: Given the importance of the WTO accession, post has created a Trade Policy Working Group to coordinate our activities. End comment. ORDWAY