TURKMENISTAN 2008 NATIONAL TRADE ESTIMATE REPORT

UNCLAS SECTION 01 OF 03 ASHGABAT 001205

SIPDIS

SIPDIS

STATE FOR SCA/CEN AND EB/TPP/BTA
PLEASE PASS USTR/GBLUE

E.O. 12958: N/A
TAGS: ETRD ECON EFIN TX
SUBJECT: TURKMENISTAN 2008 NATIONAL TRADE ESTIMATE REPORT

TRADE SUMMARY
According to the U.S. Census Bureau, the U.S. trade surplus with
Turkmenistan was $37 million in 2006 against a surplus of $102
million in 2005 (64% decrease). The U.S. exports in 2006 were $113
million, down by $124 million from 2005 (52% decrease). U.S.
imports from Turkmenistan in 2006 were $76 million, down by $59
million (44% decrease).
The U.S. FDI stock in Turkmenistan was only $40 million in 2005 (no
statistics available for 2006).
The Governments of Turkmenistan and the United States began
negotiations on a bilateral investment treaty after independence in
1991, but talks were suspended in early 1994. The Government of
Turkmenistan expressed interest in renewing the talks in 1998, but
negotiations have not recommenced. However, in 2004, Turkmenistan
signed the regional Trade and Investment Framework Agreement with
the United States, Kazakhstan, Kyrgyzstan, Tajikistan and
Uzbekistan. Turkmenistan is not a member of -- nor does it have
observer status at -- the World Trade Organization (WTO).
Turkmenistan has not publicly announced plans for accession.
The United States Government considers the Convention with the Union
of Soviet Socialist Republics on Matters of Taxation, which entered
into force in 1976, to continue to be in effect and applicable
between the United States and Turkmenistan. There have been no
formal discussions on a new dual taxation treaty, although the new
government in Ashgabat has requested this .
Turkmenistan's economy is closely controlled by the state, and,
although the government for many years regularly proclaimed its wish
to attract foreign investment, it made little effort, up to now, to
change the state control mechanisms and restrictive
currency-exchange system that created a difficult foreign investment
climate. The president publicly expressed his frustration with
Turkmenistan's complex, opaque web of on- and off-budget funds
during a cabinet-level meeting in August 2007.
IMPORT POLICIES
While Turkmenistan imports the vast majority of its industrial
equipment and consumer goods, it restricts imports in many ways,
including through high import duties, a highly restrictive currency
policy, subsidies and price controls, and graft and excessive
bureaucracy.
The top economic development priority of the Government of
Turkmenistan since independence in 1991 has been self-sustainability
in food supplies and an increase in import-substituting production
using hydrocarbon revenues. However, 94 goods and materials are
subject to customs duties upon importation into Turkmenistan. Goods
and materials not on the list are subject to a 5% customs duty
payment. In August 2006, Turkmenistan increased its excise tax on
imported beer (50%) and wine (100%).
Taxes on domestically produced beer and hard liquor remain at
previous rates: 10% and 15%-40% respectively. Most of these
imported goods are therefore unaffordable to the vast majority of
the country's citizens.
The dual exchange rate regime remains an impediment for foreign
firms, making repatriation of profits at best complicated, and at
worst impossible. Firms are forced to exchange currency at the
official rate of approximately 5,000 manat to one dollar, rather
than the still-legal unofficial rate of 23,800 manat to one dollar.
Government ministries have proceeded cautiously on currency reform
due to fears that rapid change would financially devastate
government ministries.
Slow, bureaucratic customs procedures that are rife with corruption
unquestionably inhibit imports. Overall, as Turkmenistan's laws are
created and enforced by those who only know a command economy, and
who have had little exposure to the outside world since
independence, graft encountered at the famously tight borders should
not be underestimated in its negative effect on imports. Obstacles
are created by customs authorities, such as unnecessary additional
paperwork to hold up customs clearance and citing nonexistent laws
or regulations in order to encourage graft. Such measures can
extend customs clearance for years, as one major American trade
partner in Turkmenistan has experienced.
According to Turkmenistan's Law on Foreign Investment, goods and
properties that are imported temporarily, including those under
subcontracts, can be imported into the country without duties, but
only for the duration of an existing contract. Goods cannot be
imported under consignment contracts. Payment for all goods

ASHGABAT 00001205 002 OF 003


exported to Turkmenistan is required to be made only upon the
delivery of the goods.
In addition, the lack of adequate legal and judicial frameworks for
the protection of a foreign trade partners' contractual rights, as
well as the lack of transparency and provision for oversight and
recourse, are detrimental to import levels.
Turkmenistan requires that all export and import contracts,
including civil construction projects, be registered at the State
Commodity and Raw Materials Exchange (SCRME) and the Ministry of
Economy and Finance. The procedure applies not only to the
contracts signed at the SCRME, but to contracts signed between third
parties. The SCRME is government-owned and is the only exchange in
the country. The contract registration procedure includes an
assessment of "price justification." All import contracts must be
registered before goods are delivered to Turkmenistan.
According to the export/import contract registration procedure, the
process should not exceed 15 days. However, 2-3 month delays in
registration are not uncommon. Theprocedure is rigidly prescribed,
and import (and export) deals require 3 import passports to be
signed and checked against the original contract and the Turkmen
legislation by the Customs, the Central Bank of Turkmenistan and the
importer's bank. Without the passport, the importer's bank is
prohibited from making a payment on the deal. Any of the above
three entities may reject an import contract passport or request
additional information on the seller of goods.
STANDARDS, TESTING, LABELING AND CERTIFICATION
Turkmenistan is a member of the International Standard Organization
(ISO) since 1993. The United States and Turkmenistan do not have an
intergovernmental agreement on standards, metrology and
certification which would simplify certification of various
products, services and processes.
Turkmenistan uses National Standards of Turkmenistan (TDS) and
General Interstate Standards (GOST). GOST standards have been
developed by 12 FSU countries and incorporate former Soviet Union
standards. Turkmenistan is a member of the ISO, and Turkmen
national standards are developed to meet international standards.
All imported and exported goods must be certified as adhering to
quality standards set by the Main State Standards Inspectorate.
Gauging equipment also needs to be calibrated by the Standards
Inspectorate.
Certificates of conformance for food products must be accompanied
with the product description in the Russian language.
In 1998 Turkmenistan introduced a sanitary certification requirement
for food products imported into Turkmenistan. The State Sanitary
and Epidemiological Inspectorate (SSEI) conducts radiological,
radiochemical and chemical tests of imported food products to issue
certificates of quality.
In 2004 Turkmenistan passed the law on quality and safety of food
products. According to the law, a food product having less than 70
percent of its shelf life starting from the date of origin may not
be imported into the country. Importation of GMO-based food
products is not allowed. Imported food items should be labeled in
the Turkmen or Russian language.
GOVERNMENT PROCUREMENT
Turkmenistan's economy is dominated by the state-owned sector. In
2002, the country introduced unified tender rules for all public
entities. The rules apply to the procurement of both goods and
services, including construction projects. Turkmenistan does not
have a centralized body that procures all entities. Comparable
goods are often purchased at different prices by different
organizations. The tender processes are not transparent, and
falsification of bids and cancellation of tender results are common
place. The tender rules permit closed tenders. "Companies with
good standing" are allowed to participate in closed tenders. The
determining factor in selecting tender winners is price, not value.
Announcement of most tenders is made only in local mass media and in
Turkmen and/or Russian languages.
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
Significant deficiencies remain in Turkmenistan's intellectual
property protection regime. Due to these deficiencies, there is an
ongoing review of Turkmenistan's status as a beneficiary country
under the U.S. Generalized System of Preferences (GSP) Program.
Turkmenistan has been on the Special 301 Watch List since 2000.
Turkmenistan's Civil and Criminal Codes provide some degree of IPR
protection and punishment for copyright violations and the Civil

ASHGABAT 00001205 003 OF 003


Code provides for counterfeited goods confiscation by a court
decision, but Turkmenistan has yet to adopt more explicitly and
comprehensive administrative and civil procedures and criminal
penalties for IPR violations. Turkmenistan has not adopted a
separate Copyright Law and consequently does not provide any
protection to foreign sound recordings or pre-existing works.
Turkmenistan is neither a member of the Berne Convention nor the
Geneva Phonograms Convention, and it has not yet signed the WIPO
Internet Treaties.
It is a challenge to purchase legal recorded material in
Turkmenistan. Current border enforcement is weak. As a result,
pirated recordings freely cross into Turkmenistan for sale.
Additional personnel and training courses are needed for more
effective border enforcement. Turkmenistan does not provide for
either civil or criminal ex parte search procedures needed for
effective anti-piracy enforcement.
SERVICES BARRIERS
The National Bank of Pakistan is the only wholly-owned foreign bank
in Turkmenistan. Turkmen-Turkish Bank is the only Joint Venture.
Banks are tightly controlled by the Government. All international
payments are routed via the Central Bank of Turkmenistan.
OTHER BARRIERS
INTRANSPARENCY OF THE REGULATORY SYSTEM
The government does not use transparent policies to foster
competition and foreign investment. Laws have frequent references
to by-laws that are often not publicly available. Most by-laws are
passed in the form of presidential resolutions. Such resolutions
are not categorized by subject, which makes it difficult to find
relevant cross references. Previously, government officials acted
on the president's verbal instructions, rather than written orders
or governing legislation. Most often, the personal relations of
government officials have played a decisive role in determining how
and when government regulations are applied.
Bureaucratic procedures are confusing and cumbersome. There is no
single body that coordinates registration and activities of domestic
and foreign companies. The government does not generally provide
information support to investors, and officials use the lack of
information to their personal benefit. Foreign companies may spend
months conducting due diligence in Turkmenistan.
A serious impediment to foreign investment is the lack of knowledge
on internationally-recognized business practices and concepts and
lack of English speakers. Good quality English-language material on
Turkmenistan legislation is scarce, and there are very few business
consultants to assist investors.
CORRUPTION
Turkmenistan has legislation to combat corruption, but the laws are
ineffective and corruption is rampant. The non-transparency of the
economic system provides fertile soil for corruption, and the common
assumption is that nearly any decision desired can be obtained for a
price. U.S. firms have identified widespread government corruption,
usually in the form of requests for bribes, as an obstacle to
investment and business throughout all economic sectors and regions.
It is most pervasive in the areas of government procurement and
performance requirements. Turkmenistan joined the UN Convention
against Corruption in March 2005.
The non-government organization Transparency International, ranked
Turkmenistan 142 among 163 countries in the world in its Corruption
Perceptions Index for 2006.

HOAGLAND