KAZAKHSTAN: RBK CUSTOMS UNION, WTO, AND THE WAY

UNCLAS SECTION 01 OF 02 ASTANA 001145 SENSITIVE SIPDIS STATE FOR SCA/CEN, EEB PLEASE PASS TO USTR E.O. 12958: N/A TAGS: PGOV PREL ECON ETRD WTRO RS BO KZ SUBJECT: KAZAKHSTAN: RBK CUSTOMS UNION, WTO, AND THE WAY FORWARD REF: A. ASTANA 1018 ¶B. ASTANA 1005 ¶C. ASTANA 0830 ¶1. (U) Sensitive but unclassified. Not for public Internet. ¶2. (SBU) SUMMARY: On July 9, Kazakhstan's WTO negotiator -- reiterated that Russia, Belarus, and Kazakhstan have suspended, not abandoned their individual WTO accession negotiations; -- revealed Russia will hire, probably before August 12, an independent international law firm to mark out a way forward with WTO; -- emphasized that President Nazarbayev sees the Russia-Belarus-Kazakhstan Customs Union as consistent with his long-standing commitment to Eurasian economic integration; -- said she hopes that Belarus will have "the political will" to work smoothly with Russia in the customs union; -- expressed both appreciation for and skepticism about TIFA. END SUMMARY. ¶3. (SBU) During the Ambassador's one-on-one lunch with Kazakhstan's WTO negotiator and Vice Minister for Industry and Trade Zhanar Aitzhanova on July 9, she said that the June 9 announcement in Moscow that Russia, Kazakhstan, and Belarus are suspending their individual WTO negotiations and would seek to enter WTO as the Russia-Belarus-Kazakhstan (RBK) Customs Union was caused fundamentally, at least on the Kazakhstani side, by their increasing frustration that the United States and European Union were making "disproportionate demands" that required more concessions from Kazakhstan than they were willing to give Kazakhstan in return. "It was increasingly clear that we were being asked to pay a higher price because we were late-comers to the game." Then the global financial crisis was the coup de grace that led to the final decision, she added. A DESIRE FOR REGIONAL INTEGRATION AND GLOBALIZATION ¶4. (SBU) Aitzhanova explained that while the final decision was made by the Russian and Kazakhstani Prime Ministers, PM Masimov obviously was speaking for President Nazarbayev. When the Ambassador suggested that some analysts in the West might see this as a win for Putin and his desire for Russia to gain greater influence in its former territories, Aitzhanova replied: "As a Harvard graduate, I'd say such analysts understand Moscow but they don't understand Kazakhstan. They don't seem to comprehend we can use the so-called Putinism and not just be its supposed victim. They don't understand Nazarbayev's intense commitment to Eurasian economic integration and to globalization. Nazarbayev's decision demonstrates his economic pragmatism, not his political ambition -- nor his political naivete." She added that Nazarbayev is intent on using the infrustructure of Russia while rejecting the ideology of the former Soviet Union. Aitzhanova made the argument that the RBK Customs Union will open the door for more direct foreign investment in Kazakhstan because potential investors will have a much larger market. After deploying this official talking point, she conceded that foreign investors might, on the other hand, choose Russia over Kazakhstan where they can take advantage of the larger labor pool and be closer to ports and other international lines of communication. "But at least Russia ASTANA 00001145 002 OF 002 will now open its doors wider for our agricultural products," she added. NEXT STEPS ¶5. (SBU) Aitzhanova conceded that Kazakhstan and Russia had not focused on WTO's distinction between a customs union and a customs territory when announcing their intention to enter WTO as a customs union. She emphasized that the individual countries' accession processes were simply suspended, not abandoned, and revealed that the customs union negotiators have agreed that Russia will hire an independent international law firm to determine the correct way forward with WTO for both the customs union and its individual members. She said Russia expects to choose the law firm before the next customs union commission meeting on August 12 in Moscow. ¶6. (SBU) In the meantime, Aitzhnova bemoaned that her work-load has tripled because of the breakneck speed at which Russia, Kazakhstan, and Belarus must review and harmonize their legislation. The customs union becomes official on January 1, 2010, and the borders actually open on July 1, ¶2011. Aitzhanova emphasized that where one country's legislation is more liberal, the negotiators have committed to accepting the more liberal version in order to benefit businesses. At the same time, the negotiators are analyzing their individual WTO commitments to try to factor in that variable. When asked if that might not require reopening already completed chapters with WTO, Aitzhanova sighed and said, "It's possible, but we'll wait for advice from the independent international law firm." Aitzhanova said she was aware that the June 9 announcment will create technical barriers for individual accession to WTO, but, she emphasized, "We never want to have political barriers with our partners because of the RBK Customs Union." THE BELARUS FACTOR ¶7. (SBU) The Ambassador noted that if the customs union members will want enter the WTO, even if individually, at about the same time, Belarus is years behind both Russia and Kazakhstan in its WTO accession negotiations. Aitzhanova sighed again and said, "We hope there will be political will to move forward quickly together." In reply to a comment that while the Russia-Kazakhstan relationship is noted for its calm stability, the Russia-Belarus relationship tends to be tempetuous from time to time, she repeated, "We hope for political will." THE CENTRAL ASIAN TIFA ¶8. (SBU) Commenting on the U.S.-initiated Central Asian Trade and Investment Framework Agreement (TIFA),Aitzhanova repeated what she had told Deputy Assistant U.S. Trade Representative for South and Central Asia Claudio Lilienfeld on April 27 (ref C). Kazakhstan appreciates participating in annual TIFA meetings, but after many years has seen no concrete results. She pointed out the political and economic disparaties of the five Central Asian states, their resistance to any significant regional cooperation, and the fact that Kazakhstan's economic progress and success intimidates the other four, which makes honest collaboration nearly impossible. She suggested that holding Kazakhstan up as a model during TIFA meetings only increases resentment among the other four. HOAGLAND