WTO MEETING BREATHES NEW LIFE INTO TRADE REFORMS

UNCLAS SECTION 01 OF 02 SANAA 002063

SIPDIS

SIPDIS

PLEASE PASS TO USTR FOR CECILIA KLEIN AND DAWN SHACKLEFORD;
USAID EGAT/EG FOR PATTERSON BROWN.

E.O. 12958: N/A
TAGS: PREL PGOV ECON ETRD EAID ECIN KMCA KMPI YM
SUBJECT: WTO MEETING BREATHES NEW LIFE INTO TRADE REFORMS

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1. SUMMARY: When it comes to trade reform, Yemen may finally
be willing to do business. The ROYG's World Trade
Organization (WTO) negotiating team recently returned from
the third Working Party meeting in Geneva reporting
significant progress. Despite some differences on tariff
rates, the ROYG felt its offers were well received, and that
WTO accession was possible in the near future. The United
States and the European Union applied coordinated pressure on
Yemen to implement key elements of its action plans, asking
Yemen to demonstrate a genuine commitment to trade reform.
This message was understood, and the ROYG is once again
interested in utilizing support from the Trade and Investment
Framework Agreement (TIFA) with the United States to move
forward in key areas, including customs valuation and
commercial codes. A new reform-minded Cabinet is strongly
supportive of WTO accession, as is President Saleh, opening
up a window of opportunity for renewed cooperation. END
SUMMARY.

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Yemen Gets Serious About Accession
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2. On July 17, Econoffs met with Hamoud al-Nagar, WTO
Director at the Ministry of Trade, following the July 7 WTO
Working Party meeting in Geneva (the third such meeting).
Nagar appeared positive about Yemen's progress towards WTO
accession, and said that his team had constructive bilateral
meetings with the United States and the European Commission.
According to Nagar, the ROYG's most recent Goods and Services
offer represented a significant step forward, and was on par
with those of other Least Developing Countries in the WTO,
such as Nepal and Cambodia. Nagar pointed specifically to a
reduction in the average of binding tariffs from 62 percent
to 32 percent, and dropped three quarters of the protected
goods named in the previous offer.


3. "The mood in our government has changed dramatically,"
said Nagar. "In 2000, WTO was almost a dirty word. We were
afraid to talk about it." Since the Cabinet reshuffle in
February, however, Nagar noted that the ROYG was now firmly
pro-WTO. President Saleh's recent call for speedy accession
removed any doubts about the country's direction, according
to Nagar, who insisted that even the obstructionist Prime
Minister Bajammal was now firmly in the WTO camp. Nagar also
said that Yemen as interested in moving forward on a
bilateral trade agreement with the United States, as was
recently done with China.


4. One serious point of contention in Geneva, said Nagar,
was the U.S. suggestion that Yemen bind its tariff rates at
the current applied rates. Nagar argued that when
implementing World Bank and IMF reforms, in many cases the
ROYG reduced rates below the ceilings proposed in the current
WTO Goods and Services Offer. The ROYG should not be
punished for unilaterally lowering rates as part of an effort
to combat smuggling, argued Nagar. There may come a day when
Yemen will need added protection for a specific good,
specifically agricultural products, and the current offer
maintains some room for policy changes in the future. Nagar
expressed his hope that the United States would show
flexibility on this point.

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ROYG Loses Focus on TIFA...
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5. In the run-up to the Working Party meeting, Post
experienced a frustrating delay in its cooperation with the
ROYG. After a November 2004 TIFA meeting in Washington, the
USG agreed to provide technical assistance to the ROYG for
the accession process in such areas as intellectual property
rights (IPR),customs, standards/technical barriers to trade,
and sanitary and phytosanitary measures (SPS). The flagship
program was a USD 500,000 effort to support implementation of
WTO customs valuation standards, jointly funded by MEPI and
USAID. Initial success in training customs staff and
advising on proposed legislation soon stalled, however, when
it became clear that the ROYG had no strategy to implement
the new standards.


6. Customs valuation in turn became an indicator of the
ROYG's overall commitment to TIFA cooperation. Since the
2004 meeting, there were no additional meetings of the TIFA
ministerial group, and only one conference call for the
technical committee. Despite several USG offers, there were
few signs from the ROYG as to what assistance was required.
In addition, there was considerable confusion as to who

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within the ROYG was leading the TIFA process. Formal
leadership rested with the Ministry of Planning, while all
WTO-related matters were handled in the Ministry of Trade.
Lack of coordination between these and other ministries
resulted in complete deadlock.

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...USG Gets Their Attention
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7. Ambassador raised TIFA issues directly with the Ministers
of Finance, Trade and Planning to no effect. On June 6,
Ambassador addressed a letter to the Prime Minister (with
copies to the above ministers),noting delays in TIFA
cooperation and urging the ROYG to select a champion for the
cause. Post did not receive an official response, but the
letter was noted by officials in each ministry and reportedly
treated seriously.


8. In addition to bilateral discussions with the ROYG, Post
and USTR also worked together to establish a common position
among Working Party representatives in Geneva to press for
progress on implementation of proposed action plans. Post
worked informally to establish a common position with the
members of the European Commission, the Canadians, and the
Japanese. The message came across clearly in Geneva, as
Nagar reported an increased focus in the meetings on reducing
implementation times for compliance with WTO standards.

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New Hope For Trade Reform
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9. The focus on implementation appeared to have spurred
Nagar to action. As WTO Coordinator, Nagar is currently
working with the Customs Authority to create an action plan
for accepting WTO valuation standards. Nagar added that the
ROYG is seriously considering adoption of WTO agreements on
civil aviation and information technology, and welcomed the
suggestion that the MEPI-funded Commercial Law Development
Program (CLDP) could work with the Cabinet, Parliament, and
the private sector on Yemen's commercial code. He further
recommended that the ROYG convene a TIFA meeting in September
to focus on implementing action plans and completing a needs
assessment for the accession process. Nagar promised that
regardless of which ministry had the official lead, his
office would work hard to identify specific areas for TIFA
cooperation in advance of the next WTO Working Party meetings
in early 2007.

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"Now Is The Time For Action"
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10. COMMENT: Considering the newfound support for WTO
accession within the Government, Nagar stressed that this is
the time to push for trade reforms. Post could not agree
more. After more than one year of delays on TIFA programs,
and no clear indication of the ROYG's commitment to joining
WTO, there appears to be renewed willingness to engage on all
fronts. Post will explore the possibility of restarting
assistance for customs valuation within the new action plan,
move forward with CLDP's offer of legal assistance, and
explore other possibilities for cooperation under MEPI-funded
TIFA initiatives. These actions could potentially have a
ripple effect on the Government's broader reform plan, and
its standing with the Millennium Challenge Account -- a point
not lost on the Ministry of Trade. Ultimately, the ROYG's
follow-through on the proposed September TIFA meeting will
provide a clear test as to whether U.S.-Yemeni cooperation on
trade reform has new life. END COMMENT.
Khoury