AZERBAIJAN: WORKING PARTIES ARE NEITHER WORKING

UNCLAS SECTION 01 OF 03 BAKU 000732 SENSITIVE SIPDIS COMMERCE FOR D.STARKS EEB/CBA FOR T.GILMAN DEPT PLEASE PASS TO USTR FOR C. MORROW AND P. BURKHEAD E.O. 12958: N/A TAGS: ECON ETRA EINV EIND AJ SUBJECT: AZERBAIJAN: WORKING PARTIES ARE NEITHER WORKING NOR PARTIES REF: A) GENEVA 670 B) BAKU 635 C) BAKU 696 ¶1. (SBU) SUMMARY: Azerbaijan's actions at the July 2009 Working Party meetings in Geneva, coupled with Parliament's passage of the Entrepreneurship Law (which ultimately was not signed by President Aliyev) are sending mixed signals about Azerbaijan's interested in WTO accession. It is unclear if Azerbaijan is serious enough about accession to stop demanding negotiations on non-negotiable items; the picture may become clearer when Azerbaijan submits its factual summary in November. Embassy recommends that USTR await that document before making decisions on continued funding or continued talks. End Summary. ¶2. (SBU) Azerbaijan's "Politics and Defiance" at the July 2009 Working Party in Geneva (ref A) exasperated USTR negotiators, who commented that "none of the meetings could be considered productive in terms of moving Azerbaijan's accession forward. Rather, Azerbaijan's already inflexible positions in both bilateral and multilateral negotiations seem to have hardened, and a previous sense of urgency to move the process forward was replaced by an air of defiance." Following release of this report, Embassy Baku spoke with local contacts to learn more about Azerbaijan's position and whether its interest in WTO accession could still be considered serious. Is WTO Interest Waning? -------------- ¶3. (SBU) Well placed contacts here in Baku agree that accession momentum witnessed during 2007 and 2008 has faded in 2009. They believe that Azerbaijan's less constructive approach may reflect both a more conservative trade policy in response to the global financial crisis and changes in the composition of Azerbaijan's WTO negotiations team in late ¶2008. At that time, a number of reform-minded officials were sidelined, a new Minister of Economic Development was named, the role of the Ministry of Economic Development (MoED) was reduced and the WTO role of the Ministry of Foreign Affairs (MFA) was elevated. Specifically, Elmar Mammadov, assistant to lead negotiator Deputy Foreign Minister Mahmud Mammadguliyev, appears to have gained substantial influence in the GOAJ interagency process, and has insisted thus far that a tough approach is necessary to demonstrate to the Cabinet of Ministers that the negotiation team is doing all it can to gain the upper hand for Azerbaijan. On the other hand, local contacts do note that their working-level GOAJ counterparts are doing what they can to move quickly through complex local regulations, and therefore making some effort at progress. ¶4. (SBU) Meanwhile, MFA officials are sending mixed messages about combining unrelated political issues with WTO accession. Mammadguliyev, for example, recently complained to the Charge that USTR should ease up on the GOAJ in negotiations for two reasons: one, the GOAJ is a strong and important U.S. partner in security efforts in Afghanistan, and two, Azerbaijan is a poor country that needs a helping hand. (Comment: The idea that putting these two sales pitches together somehow makes each one less credible - or the idea that U.S. interlocutors might wonder why they needed help from an ally that is simultaneously "strong" and "poor" - did not seem to dawn on Mammadguliyev. End Comment.) In a later meeting with Econoff, his assistant Mammadov repeated that the USG should be kind to a "very good friend" like Azerbaijan, but then turned around and said that Azerbaijan's wanted to join "solely for economic reasons, not political reasons." Personnel Changes Not Encouraging -------------- ¶5. (SBU) By replacing Minister of Economic Development Heydar Babayev with Shahin Mustafayev, formerly of the Ministry of Taxation, President Aliyev seems to have sent a signal that he does not value the presence of recognized reformers in his cabinet. Although Mustafayev is nominally the Chair of the Inter-ministerial Commission on WTO Accession, all negotiating authority appears to have been delegated to Deputy Foreign Minister Mammadguliyev. The BAKU 00000732 002 OF 003 outsized role now being played by the Ministry of Foreign Affairs could reveal a deliberate GOAJ goal to seek a political solution to what should be a purely economic issue. MFA Repeats Geneva Points -------------- ¶6. (SBU) In a September 9 meeting with Mammadov, Econoff relayed USTR's message that if Azerbaijan does not improve the quality of its offers it is in danger of seeing its WTO accession bid go dormant prior to the next Working Party meeting. Mammadov responded by spending considerable time repeating the same points Mammadguliyev made in Geneva, as though he believed Econoff was authorized to engage in WTO negotiations on behalf of the USG. (Comment: His reliance on the same talking points and his never-ending focus on developing country status sent a disturbing signal that Azerbaijan still wants to negotiate the non-negotiable. End Comment.) When specifically asked by Econoff, "Are you saying this is your line, and that if you cannot get developing country status you will not join the WTO?" Mammadov did not give a direct answer but rather paused and said "it would be very difficult because the private sector is against this." (Comment: Embassy Baku has rarely seen the GOAJ make a decision based on what "the private sector" wants, at least not in the American definition of that term. These decisions are more likely made based on what is wanted by well-connected leaders in government and business - who are generally one and the same. End Comment.) ¶7. (SBU) As if to underscore the GOAJ "we'll accede only if we get everything we want" stance, Mammadov said that there were two schools of thought in the GOAJ right now: one argued they should push for WTO accession right away, and the other said they should wait until oil supplies run dry and the need for economic diversification is more immediate. At the end of the meeting, Mammadov said that the GOAJ line on whether or not to accede would be drawn at two issues: acquiring developing country status for Azerbaijan, and protecting sensitive (i.e. connected) sectors in market access talks. When asked if this meant the GOAJ would prefer not to join WTO rather than give up these demands, Mammadov again gave the same indirect answer: "it would be very hard." Playing the GOAJ's now well-worn "tough neighborhood" card, Mammadov said that if the USG truly wanted to see Azerbaijan open its energy sector, this would mean an end to laws that favored Western energy companies, and this could provide an entree to Russian and Iranian energy interests. COMMENT: Given recent events in Georgia and other politically sensitive issues in the region, Embassy believes that Azerbaijan's leadership does not seem genuinely interested in moving away from close alliances with the West at this time. End Comment. Re-emphasizing Concerns about the Law on Entrepreneurs -------------- -------------- ¶8. (SBU) Econoff also told Mammadov that USTR was extremely concerned about the "Entrepreneurship Law" that Parliament had passed this summer (ref B). This law had threatened to place a GOAJ-chosen "Deputy" (or Vice President) in every foreign company operating in Azerbaijan. One major concern was that such a "Deputy" would have reported on each company's internal activities to well-connected local competitors. Econoff noted the entire USG, as well as the American business community in Azerbaijan, was very glad President Aliyev did not sign this legislation, and chose instead to send it back to Parliament for review (ref C). Econoff asked Mammadov to relay to Mammadguliyev the message from USTR that had such a bill become law it could have immediately killed Azerbaijan's chances for WTO accession, as it could have sent the signal that Azerbaijan is not serious about opening for trade. Econoff also asked Mammadov to relay USTR's message that if a similar bill were passed in the future it would immediately halt progress on Azerbaijan's WTO accession. Mammadov appeared concerned at mention of this, and said it was the first time he had heard of such legislation. He promised to carry the message to Mammadguliyev, but he also asked Econoff to encourage the Embassy to relay this same message to the Minister for Economic Development. BAKU 00000732 003 OF 003 ¶10. (SBU) COMMENT: There is a sense in Azerbaijan that if negotiations take a very long time, and if you wear down the other party, you will win more. In his effort to drive a hard bargain, it appears Mammadguliyev and Mammadov have misjudged USTR's patience/ breaking point. We suspect that the change in negotiating tactics also reflects a reduced sense of urgency now that Azerbaijan (correctly) perceives Russia's negotiations as having stalled. The problem is that the GOAJ does not understand that if its talks also go dormant, restarting them will take substantially more time and effort than restarting Russia's talks. ¶11. (SBU) Comment Con't: Mammadov appears to believe that the USG interest in seeing Azerbaijan join the WTO is so strong that the USG will, in the end, start negotiating on items it today claims are non-negotiable. We recommend that USTR wait and see what Azerbaijan will put in its next Factual Summary, which it will submit to the WTO in early November. "They will come around on this," predicts USAID contractor Farhat Farhat, but it's not clear if they really will, and certainly implausible they will give up very much. After reading Azerbaijan's next submission, important decisions will need to be made by USAID about continued funding for technical assistance and by USTR about continued talks. End comment. LU