IRAQ WTO ACCESSION UPDATE: BACK TO SQUARE ONE ON

C O N F I D E N T I A L SECTION 01 OF 02 BAGHDAD 003807 SIPDIS E.O. 12958: DECL: 12/04/2015 TAGS: ETRD ECON PGOV IZ SUBJECT: IRAQ WTO ACCESSION UPDATE: BACK TO SQUARE ONE ON CUSTOMS LEGISLATION REF: A. BAGHDAD 3134 ¶B. BAGHDAD 2898 Classified By: A/CETI Michael Dodman for reasons 1.4 (b,d). ¶1. (C) SUMMARY: Customs and tariff legislation, a key but politically sensitive component of Iraq's WTO Legislative Action Plan, is once again apparently stalled within the Ministry of Finance (MOF). An exhaustive tariff schedule is nearly ready. However, senior MOF officials oppose the schedule's enabling legislation because it requires government consensus to change tariffs and because it creates interagency tribunals for dispute settlements (both WTO requirements),rather than granting the MOF unilateral authority in these areas. Also worrisome is the fact that the GOI has taken no steps toward establishing a reformed Customs Administration that will be capable of enforcing WTO-compatible customs legislation, once it does become law. END SUMMARY. Cart Before the Horse -------------- ¶2. (U) Technically, Iraq must enact two pieces of WTO-compatible legislation to fulfill the requirements of its "Legislative Action Plan for the Implementation of WTO Agreements" (LAP): a Customs Law, and a separate Customs/Tariff (C/T) Law. The former is an administrative and law enforcement document that, among other things, would create the legal authorities for revenue collection and for a restructured Customs Administration, and would define the procedures and regulations under which businesses must import and export goods and make their customs declarations. The C/T Law would lift the 5 percent "reconstruction levy" that the GOI currently applies to all imports; nullify other customs legislation currently in effect; and create the regulations for implementation of the Tariff Schedule. Both require approval from the Council of Ministers (COM) before being enacted into law by the Council of Representative (COR). The Tariff Schedule, which requires COM approval but not COR approval, is an annex to the C/T Law. In theory, the Customs Law must pass before the C/T Law can be passed, and the C/T Law must be in place in order for the new Tariff Schedule to be applied. ¶3. (C) In September, based on our conversations with Minister of Trade Abd al-Falah al-Sudani, MOF Director General for Customs Ahmed Jassim al-Itiya and other officials, Post reported that the COM appeared ready to approve a C/T draft �A;law and submit it to the COR, perhaps as early as the end of 2008 (Reftels). During a Sept. 10 meeting, Jassim even undertook to share the draft law with us prior to its moving forward (Reftel A). That never occurred, despite follow-up requests, and we now understand that Jassim only intended to share the Tariff Schedule, not the Customs or C/T drafts. In fact, USAID contractors assisting with the WTO LAP subsequently told us that the GOI had focused only on the draft Tariff Schedule; the C/T Law -- always politically sensitive, and the subject of much misunderstanding within the GOI -- remains mired in the MOF. Finance Minister Bayan Jabr recently announced publicly that the Tariff Schedule could receive COM approval soon. However, the fact that the GOI managed to create a new schedule without having reached consensus on enabling C/T legislation is a clear case of putting the cart before the horse and points out the capacity problems within the Customs Administration. Back to Square One -------------- ¶4. (C) In addition to capacity problems, senior MOF officials may have other motivations for dragging their feet. Any WTO-compatible C/T legislation: (1) must ensure that all QWTO-compatible C/T legislation: (1) must ensure that all changes to national tariff policies or rates represent "the will of the government," not simply a unilateral ministerial decision; and (2) must create an independent tribunal to resolve customs and tariff disputes. Under current Iraqi law, the MOF holds sole authority for both tariff rates and dispute resolution; according to USAID contractors providing technical assistance on customs reform to the MOF, both Minister Jabr and DG Jassim strongly oppose relinquishing those authorities. As for the Customs Law -- the prerequisite to the politically thorny C/T Law -- we appear to be back to square one. Although Jassim told us differently on Sept. 10, the MOF still reportedly believes that it can simply make minor revisions to existing Saddam-era legislation (Law 23 of 1984),even though that law is not WTO-compatible and fails to establish the necessary basis for enacting a sound C/T Law. Ministry officials argue that the GOI can pass amendments or promulgate regulations to "fill in the gaps," but such a process is sure to be long and laborious and, we predict, would certainly face great skepticism from a WTO Working Party. BAGHDAD 00003807 002 OF 002 The Institutional Challenge -------------- ¶5. (C) While draft laws remain stuck, creating institutions capable of enforcing them will present an even greater challenge for the GOI. The MOF must entirely redesign its Customs Administration and retrain its officers before it will be able to enforce the rigorous record-keeping, law enforcement and transparency mechanisms that WTO-compatible laws and regulations stipulate. At a minimum, the GOI must create entirely new administrative practices and submit them to the WTO for approval; a new procedures manual must be written; and the MOF must begin using internationally recognized forms, including the Single Administrative Document (SAD); and customs officers must be thoroughly re-trained. The MOF has initiated none of these reforms. In addition, Iraq is the only country in the region that does not participate in the Automated System for Customs Data (ASYCUDA) or a similar system, leaving it with no reliable, internationally intelligible way of gathering trade data, compiling statistics, or managing customs risks. Next Steps -------------- ¶6. (SBU) The Customs and C/T laws have emerged as among the most difficult components of Iraq's LAP. We do not envision the GOI moving the necessary bills forward soon, and passage could extend well into 2009 or beyond. Moreover, redesigning and retraining the Customs Authority to a level capable of implementing a WTO-compatible customs regime will take even longer. That said, the WTO accession process remains a crucial part of Iraq's reintegration into the world economic community, and it is in our interest to assist. On the policy level, the Embassy will continue to engage with MOF and other officials to urge forward movement, and on the technical level USAID contractors have added a customs expert to assist with legislative drafting and to provide training. CROCKER