KAZAKHSTAN: LEAD WTO NEGOTIATIOR REQUESTS FLEXIBILITY

UNCLAS SECTION 01 OF 02 ASTANA 000497

SENSITIVE
SIPDIS

STATE FOR SCA/CEN, S/SRAP, EUR/RUS, EEB
STATE PLEASE PASS TO USTR

E.O. 12958: N/A
TAGS: PGOV PREL ECON EINV EFIN EAID RS KZ
SUBJECT: KAZAKHSTAN: LEAD WTO NEGOTIATIOR REQUESTS FLEXIBILITY

REF: (A) 08 ASTANA 2445; (B) 08 Astana 2570


1. (U) Sensitive but unclassified. Not for public Internet.


2. (SBU) SUMMARY: On February 18, the Ambassador met with Vice
Minister of Industry and Trade Zhanar Aitzhanova to discuss the
status of Kazakhstan's WTO accession negotiations with the United
States. Aitzhanova expressed frustration with the negotiations,
claiming that the United States is asking for more concessions from
Kazakhstan than it has from other countries. She noted, "We started
this [WTO negotiation] process [with the United States] before the
global economic crisis. It's a very different world now." She said
that she is currently focusing on WTO negotiations with other
countries, and at the same time working intensely on the proposed
customs Union with Russia and Belarus because of the "real immediate
benefits" of the latter. END SUMMARY.

KAZAKHSTAN TO CONTINUE WTO NEGOTIATIONS


3. (SBU) During a February 18 meeting with the Ambassador,
Kazakhstan's lead WTO accession negotiator, Vice Minister of
Industry and Trade Zhanar Aitzhanova, explained that despite
frustrations with the accession process, Kazakhstan remains
committed ultimately to entering the WTO. Aitzhanova had just
returned from a trip to Saudi Arabia, and said that Kazakhstan is
currently working to intensify its WTO negotiations with the Saudis,
who are seeking challenging commitments from Kazakhstan in energy.


CUSTOMS UNION FORMATION ADVANCING RAPIDLY


4. (SBU) Aitzhanova detailed advancements made in the formation of
the Russia-Belarus-Kazakhstan customs union (ref A),though admitted
that it is highly unlikely Russia and Kazakhstan will meet the
proposed April 1 deadline for the establishment of unified customs
tariffs. According to Aitzhanova, the Kazakhstani government is
currently "making its case" at political and technical levels in
Moscow, with negotiations expected to resume in Kazakhstan after the
March 22 Nauryz holiday. "It is not easy," she argued, "but the
customs union is a two-sided process. Unlike WTO negotiations where
there is little flexibility, with Russia, everything is open to
negotiation and political intervention."

NEGOTIATIONS ON SERVICES STALLED


5. (SBU) Aitzhanova insisted that both she and her team are and
will remain responsive to U.S. WTO negotiators. Aitzhanova noted
that there is still significant work to be done on agricultural
issues, specifically about livestock and poultry, where U.S. firms
directly compete with Kazakhstani ones. She expressed frustration
at the status of negotiations with the United States on services.
As she described it, there continue to be three primary areas of
contention in the service negotiations: telecommunications,
personnel, and financial services. Aitzhanova claimed that on
services, both U.S. and the EU negotiators continue to demand far
more from the Kazakhstanis than they have from other countries. For
example, in telecommunications, Kazakhstan is willing to grant
European satellite service providers access to existing,
domestically-licensed telecommunication companies, but not general
access to the greater market, as the Europeans are demanding.
Kazakhstan is also being asked to give "open access" to the mass
media, including broadcasting -- but this goes too far the
Government of Kazakhstan.


6. (SBU) Regarding personnel services, including the hiring of
qualified specialists, Aitzhanova explained that while this issue
has been largely resolved with the EU, U.S. negotiators remain
committed to removing any Kazakhstani local-content provisions from
an accession agreement. "This issue is extremely important for
President Nazarbayev, and would be too large a concession for us"
said Aitzhanova, explaining that because almost 90% of the work in
Kazakhstan's extractive sector is performed by foreign companies,

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the government must protect and develop domestic industry and human
resources.


7. (SBU) In Aitzhanova's opinion, the United States is asking
Kazakhstan to sign more a more concessionary agreement that is has
asked of other countries, and singled out Vietnam as an example of a
country getting a better deal from us. Feeling perhaps that
Kazakhstan is becoming the victim of its own previous economic
successes, Aitzhanova said "Every time we point this out, we are
told that because the Kazakhstani government is so liberal, access
should be liberal." Over the course of the meeting, Aitzhanova
became increasingly frank in criticizing the WTO negotiation process
with the United States. "If this continues to be the case, we will
go to the customs union and get real immediate benefits," she
maintained. As for services, "We have nothing left to offer," she
said. "Washington recommends future digital video conferences, and
we are ready for them. But we will only repeat what we have said,"
Aitzhanova explained.

NEXT STEPS UNCERTAIN


8. (SBU) "Frankly, we feel frustrated," Aitzhanova continued, "I
know what you want, and frankly I do not have much to offer."
Aitzhanova also repeated several times her belief that she feels the
continued demands of the U.S. negotiators do not reflect the current
economic realities facing Kazakhstan. "My experience is that
negotiators are not always following what is going on in the world.
We need reality to be reflected. We started this [WTO negotiation]
process [with the United States] before the global economic crisis.
It's a very different world now." Aitzhanova intends to focus on
finalizing accession agreements
with Ecuador, Saudi Arabia, and El Salvador, but at the same time
will be responsive to USTR. (NOTE: With negotiations moving
forward with the EU on export duties, Aitzhanova claimed she might
be able sign an agreement on that specific issue during a planned
trip to Brussels later in March. END NOTE.)

CUSTOMS UNION LIKELY TO TRUMP WTO


9. (SBU) According to Aitzhanova, prolonged negotiations with USTR
on sensitive issues related to financial services, done in the light
of the deteriorating global financial situation, are very likely to
give the customs union with Russia and Belarus a particularly
attractive gloss. "There has been much talk, but little progress,
and now this is being overlapped by the customs union," said
Aitzhanova. "If we don't get something that reflects reality, we
will need to postpone the WTO decision. "Without more flexibility
from the United States, the customs union will take precedence."
Aitzhanova acknowledged that Kazakhstan ultimately will seek entry
into the WTO, and concluded that the Kazakhstanis know they must
participate in the global market place.


10. (SBU) Aitzhanova noted that Prime Minister Karim Masimov
continues to work flat-out on the economy, travelling in the regions
to address growing unemployment and "very concerned about what will
happen to the banks tomorrow." She confirmed that Masimov would
welcome a call from a senior Obama Administration official.

HOAGLAND