AZERBAIJAN: TECHNICAL SUPPORT STRATEGY AND PROGRAM

UNCLAS SECTION 01 OF 03 BAKU 000476

SIPDIS

SENSITIVE
SIPDIS

DEPT PLEASE PASS USTR PAUL BURKHEAD AND ELIZABETH HAFNER

E.O. 12958: N/A
TAGS: ECON ETRD EAID USTR PREL AJ
SUBJECT: AZERBAIJAN: TECHNICAL SUPPORT STRATEGY AND PROGRAM
FOR WTO ACCESSION

REF: (A) STATE 45995 (B) BAKU 319

SENSITIVE BUT UNCLASSIFIED -- NOT FOR INTERNET DISTRIBUTION
-- PLEASE HANDLE ACCORDINGLY


1. (SBU) Democratic and economic reform is essential to
Azerbaijan's long-term stability and prosperity.
Azerbaijan's WTO accession process is a vital instrument of
reform efforts, as it will put in place the legal, regulatory
and institutional framework necessary for Azerbaijan to
emerge as a rule-based market-oriented, transparent
democracy. Acceleration of the WTO accession process is
perhaps the best and only tool that can be effective in
forcing fundamental change in an economy dominated by
monopolies and corruption. We believe that renewed US
assistance to support Azerbaijan's WTO accession efforts --
particularly assistance that focuses on establishing an open,
transparent legal system -- is a critical part of our overall
reform strategy.


2. (SBU) We welcome the Department and USTR's interest in
renewed technical assistance for Azerbaijan's WTO accession
process, and agree that any U.S. WTO accession support should
be based on clear evidence of political will and commitment
by the GOAJ (Reftel A). Embassy also agrees that solid
benchmarks and a constant evaluation of progress will be a
part of the U.S. assistance. In addition, Embassy welcomes
any assistance and expertise U.S. agencies can offer to
bolster U.S. assistance efforts in Azerbaijan. Embassy feels
that recent GOAJ measures and statements signal a new and
serious commitment to WTO accession (Reftel B).


3. (SBU) Embassy feels it is important to take advantage of
the current window of opportunity to accelerate Azerbaijan's
WTO accession process and proposes to implement an ambitious
WTO accession support program, in addition to the current
targeted efforts being carried out by USAID over the next six
weeks. U.S. efforts will focus on providing time-effective
expert feedback on GOAJ's accession status, including the
legal and regulatory reform measures which need to be
completed to accelerate progress at the WTO working party
level meetings. These efforts will be closely coordinated
with U.S. experts in Washington and Geneva. We do not propose
to provide assistance that will strengthen Azerbaijan's
position vis-a-vis the United States in our bilateral
negotiations. The U.S. expects the GOAJ to support the
accession process in several ways and we will insist that the
GOAJ be responsible for paying for all translation services.
In addition, the GOAJ has already committed to paying for
supplementary WTO support staff at the Ministry of Economic
Development (MED) and Ministry of Foreign Affairs (MFA); it
also has stepped up its public education and advocacy
efforts. Cost-sharing of discrete portions of the technical
assistance may also be examined.

STATUS OF GOAJ WTO EFFORTS
--------------


4. (SBU) The recently completed review of the status of the
GOAJ's WTO efforts sponsored by USAID has revealed the
complexity of Azerbaijan's WTO efforts. Based on more than
20 meetings at 15 ministries and state agencies, the WTO
expert confirmed that there is widespread political will to
accede to the WTO, driven mainly by a desire to accede before
Russia. In addition, there is a widespread belief within the
GOAJ that economic gains from WTO membership will outweigh
any costs or losses and that WTO membership will fully
integrate Azerbaijan into the world economy.


5. (SBU) There is resolve at all ministries to complete
drafting of all 22 pieces of legislation included in the
Legislative Action Plan which are due no later than June 30,

2007. In addition to the pending draft laws developed thus
far, there are an additional 25 to 30 pieces of legislation
and regulatory decrees which would need to be developed.
These cover a broad range of critical areas including but not
limited to trade-in-goods, financial services,
telecommunications, energy, customs, IPR public procurement,
and the competition law regime. The GOAJ has indicated that
it would submit all draft legislation to Working Party
Members for comment prior to adoption.


6. (SBU) Fulfilling the current legislative action plan is
considered the highest priority task necessary to satisfy the
Presidential Decree regarding draft WTO legislation and meet
initial commitments made to WTO WP Members. Ministries and
state bodies are concerned that they will be unable to meet

BAKU 00000476 002 OF 003


the June 30 deadline and uphold Azerbaijan's commitments to
WTO WP Members. In addition, the GOAJ is concerned that the
initial drafts of proposed new legislation will not meet WTO
requirements and Members' expectations due to the lack of
technical capacity within the GOAJ and inadequate technical
assistance to ensure drafts are fully in line with WTO
agreements.


7. (SBU) Various ministries and state bodies understand that
the Legislative Action Plan is not comprehensive and that
there is a need for additional reforms. Government
ministries and agencies do not have the technical expertise,
however, to identify the missing reforms. The GOAJ's
commitment to replace old non-compliant laws with new, fully
WTO compliant laws, is a positive sign. Legal drafting is
progressing slowly and only five drafts have been completed
to date: the Draft Law on Technical Regulations, the Draft
amending the Law on Copyrights and Related Rights, the Draft
amending the Law on Patent, the Draft Amending the Tax Code,
and Draft Cabinet of Ministers Resolution on Excise Taxes.


8. (SBU) Two of the three drafts due to the Presidential
Apparat no later than the end of March 2007 have been
prepared but have not yt been submitted to the Working
Group on Legislaive Changes. These are the drafts amending
the Law on Copyrights and Related Rights and the Law on
Patent. The draft amending the Law on Currency Control has
not been prepared. The GOAJ expects to send the remaining
drafts from ministries and state agencies over the next four
weeks to the Working Group on Legislative Changes for review
and approval. A Draft Customs Code (to replace the existing
code) is being finalized at the Customs Committee.


9. (SBU) Only two WTO related laws were adopted in recent
years: the Law on Phytosanitary Control (May 2006) and the
Law on Veterinary Service (May 2005). According to the WTO
consultant, the quality and adequacy of recently adopted laws
and drafts is questionable. Preliminary reading and
discussions with authorities indicate a lack of full
compliance with the WTO agreements. Many officials within
the GOAJ have misunderstandings and misperceptions regarding
compliance with WTO. Many believe that there is no need to
reflect all provisions of WTO agreements in national
legislation given that the Constitution stipulates that
international treaties supersede national legislation. In
certain cases, key rules and principles of WTO agreements
appear to be deferred in the Legislative Action Plan for
adoption in Cabinet resolutions rather than in laws. This
situation appears to apply to technical barriers to trade
(TBT),Customs Valuation and Rules of Origin.


10. (SBU) There is limited and insufficient WTO-related
international technical assistance to the GOAJ. In meetings
with the WTO consultant, government ministries and state
bodies expressed enthusiasm for immediate technical
assistance to assist in reviewing and drafting legislation
called for in the Legislative Action Plan. There is a need
for massive translation of many existing legislation and all
draft ones (estimated at around 600 pages of legal text).
The GOAJ is concerned that drafts may not be adequately
translated into English and may lead to confusion and
unnecessary questions by WP Members. Embassy will insist
that the GOAJ pay for all translation of documents; we will
provide the GOAJ with any needed assistance in finding
appropriate translation service companies. Deputy Minister
of Economic Development Jabbarov separately explained to us
that this is not a question of funding; the GOAJ lacks WTO
experts who can translate technical, WTO-specific legislative
language into Azerbaijani.


11. (SBU) The GOAJ is aware that WTO membership may likely
have negative impact in certain sectors. There is a need for
additional education and economic and sectoral analysis to
assess impact and identify actions for adjusting to mitigate
any negative impact. Throughout the GOAJ, there is a lack of
experience, skills and understanding of methodology to
undertake negotiations, particularly bilateral negotiations
on market access for goods and services. There is a lack of
experience in classification of agricultural subsidies and
negotiating multilateral agreements. Coordination among
ministries appears adequate while government coordination and
cooperation with the private sector is poor. The WTO
Accession Division at the Ministry of Economic Development is
understaffed. Currently there are only four employees,
including a legal expert, SPS/TBT specialist, and service
specialist, although the GOAJ has pledged to increase this
number and is requesting funding for up to 90 new

BAKU 00000476 003 OF 003


WTO-specific positions in its new budget.

U.S. WTO ASSISTANCE GOALS
--------------


12. (SBU) The WTO consultant's initial conclusions highlight
that the GOAJ lacks the technical capacity to effectively
organize and finalize the complex range of legislative and
regulatory reform documents which will be required to achieve
this goal. The scope of remaining WTO work combined with the
tremendous lack of capacity within the GOAJ strongly argues
against a selective or partial engagement approach and
underscores the importance of an intensive near-term
engagement across a broad-range of legislative and regulatory
reform areas to take advantage of the new political will to
accelerate the accession process. Embassy believes that the
most effective approach is to provide intensive expert
on-the-ground support to review and facilitate effective
revision of draft laws developed by local experts and to
train local technical teams which will be required to carry
out this work. For these purposes, we propose a major
USAID-supported and field-based technical support and
training effort to be closely coordinated with interagency
representatives in Washington and Geneva.


13. (SBU) The breadth of the necessary reform measures and
the extraordinary limitations on the GOAJ's technical and
organizational capacity to meet this challenge, underscores
the importance of providing intensive immediate local
technical and training support. This effort is required in
order to help the GOAJ respond effectively to what may be its
last effective chance to get working group discussions back
on track. In the absence of intense technical assistance the
legislative and regulatory reform package which GOAJ will
likely submit to Geneva this summer will almost undoubtedly
be deficient in relation to core WTO compliance requirements.
This would lengthen the working party negotiation period and
gradually sap working party focus and interest in the
Azerbaijan's accession process.


14. (SBU) The core goal of the technical assistance and
training support program will be to systematically build
understanding of, and buy-in for, WTO accession-related
legal, regulatory, and institutional reform requirements
along with support for reform in the range of working party
review areas. It is important to note that original drafting
will be done by Azerbaijani experts, and of course no
technical support will be provided for the development of
GOAJ negotiating positions. These areas will be the
exclusive provenance of the GOAJ.


15. (SBU) Local USG support efforts will be coordinated with
those of other major donors, including the European Union,
World Bank, and the Asian Development Bank. Our initial
review has indicated that no cohesive or focused efforts are
being provided by other donors in a manner that
comprehensively covers support needs in any major accession
area. At a broader level, we are committed to rapidly
establishing an operational on-the-ground coordinating
process which will both ensure non-duplication of efforts and
maximize our capacity to generate and report back on the
WTO-related support programs of other donors. This is
particularly important in areas such as sanitary and
phytosanitary control (SPS) where the advice and support
provided by other donors may not be consistent with that
provided by USG-financed experts.


16. (SBU) Embassy proposes to implement the envisaged WTO
support program through a USAID-funded task order by June

2007. Embassy will continue the ongoing interagency
discussion and coordination of efforts to ensure effective
review of the results of the current limited support program,
scheduled to end in late May. This support program will
provide long-term technical assistance in several areas
including agriculture, trade and investment, legal and
regulatory reform, and customs administration. In addition,
short-term assistance may include SPS support and
macroeconomics. Assistance to Parliament either directly or
through ongoing USAID technical assistance programs is also
considered due to the central role Parliament plays in the
legislative process.
DERSE