PARLIAMENTARY HEARINGS ON KAZAKHSTAN'S WTO ACCESSION

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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

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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

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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

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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