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

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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