Radio Free Europe / Radio Liberty ,
7, September 2007
By Liz Fuller

More than five years after Azerbaijan first embarked on talks intended to culminate in membership of the World Trade Organization (WTO), those talks remain suspended pending the adoption by the Azerbaijani parliament of the necessary legislation on trade liberalization.

The fifth round of talks, originally scheduled for December 2006, has been postponed several times due to that failure and to the unsatisfactory responses Azerbaijan provided to specific requests for information. According to the website 1news.az on August 25, the WTO secretariat has recently made clear that the fifth round of talks will take place only when Azerbaijan is prepared to get down to brass tacks and focus on specific issues.

The first round of talks with the WTO took place in June 2002, five years after Azerbaijan was granted observer status. Initially, the Azerbaijani leadership opted for a cautious and gradual approach: reaffirming in August 2005 the country's commitment to achieving WTO membership, President Ilham Aliyev warned that "haste is inadmissible," Turan reported. (That stance is very similar to that adopted in talks with NATO: while repeatedly emphasizing an interest in cooperation, Azerbaijan has still not formally expressed an explicit desire to join the alliance.)

In May 2006, the online daily echo-az.com quoted an unnamed government official as listing some of the problems still to be overcome, of which the most serious was the parliament's failure to start bringing legislation into line with WTO requirements. He said that of the 22 new laws that needed to be enacted and the 10 that required amendments, the parliament had only drafted a bill on standardization. In August 2006, Aliyev endorsed a program that envisaged completing the process by the end of 2007 with the aim of joining the WTO by 2010.

Slow Progress

Some progress has been made since then: on August 24, 2007, the daily zerkalo.az quoted an unnamed government source as saying that more than 10 bills have been drafted, including on patents, trademarks, and intellectual property. As of September 2007, the United States Agency for International Development (USAID) will make available $3.7 million to implement a program to expedite the process of bringing Azerbaijan's legislation into line with WTO requirements.

That the executive should seek to offload to the legislative branch responsibility for the lack of progress in talks with the WTO is hardly surprising. But passing the required legislation is not the only sticking point. There are apparently more fundamental considerations at stake, both economic and political.

For example, Azerbaijan has been tardy in conducting bilateral talks with other WTO members: as of late May 2007, it had successfully concluded such talks only with Georgia and Moldova. A further obstacle may be Azerbaijan's determination to enter the WTO as a "developing" country, rather than a "developed" country. (Underscoring that argument, President Aliyev has stressed in several recent addresses that Azerbaijan is "one of the most rapidly developing countries in the world.")

Deputy Foreign Minister Mahmud Mamedquliyev, who heads the negotiations with the WTO, was quoted in June 2006 as pointing out that Georgia, Armenia, and Kyrgyzstan were all accepted into the WTO as "developed" countries and consequently encountered unspecified "problems."

Generous Subsidies

The rationale for seeking the status of a "developing" country, Adalyat Muradov, secretary of the State Committee to Prepare for WTO Membership, told zerkalo.az on July 27, is that it would permit the Azerbaijani government to maintain subsidies to agriculture at 10 percent of GDP; for developed countries, the maximum is 5 percent.

Although agricultural output, according to Muradov, accounts for only 7 percent of Azerbaijan's GDP, the authorities clearly do not want to risk triggering massive protests on the part of the rural population by reducing the very generous subsidies and tax breaks to which farmers are currently entitled. (For example, the state covers up to 50 percent of the costs of machinery and fertilizers.) Nor is the Azerbaijani government keen to reduce the import tariffs currently imposed on agricultural produce, as doing so would drive prices down and make domestic produce less competitive, which could harm domestic producers.

Other unresolved issues include abolishing what the WTO terms "discriminatory" trade practices; creating equal conditions for domestic and foreign companies operating in Azerbaijan; and "regulating" monopolies. Here again, senior officials have proven reluctant to abandon protectionist measures: the National Bank, for example, objected in 2006 to a U.S. demand that the operations of branches of foreign banks in Azerbaijan should be regulated according to the legislation of the home country, not that of Azerbaijan.

The WTO insistence on dismantling monopolies is no less contentious. Azerbaijan has asked for an 11-year transition period to abolish Aztelecom's monopoly on international calls, far longer than the three years proposed by the United States and the European Union. On a personal level, the abolition of monopolies would pose a direct threat to high-level government officials who profit from controlling the import of specific commodities such as cigarettes, bananas, or cooking oil.

The overall impression that emerges is that Azerbaijan has, at least until recently, been playing for time, possibly waiting for the "trickle-down" effects of the export of its Caspian oil and gas to cushion the impact of the economic liberalization that WTO membership necessitates.

Indeed, the example of Russia and Kazakhstan, both states awash with petro-dollars and that are still negotiating their respective WTO bids, may have been adduced in support of that strategy. But in early June 2007, Heydar Babayev, who is economic development minister and chairman of the State Committee to Prepare for WTO Membership, said that both President Aliyev and Prime Minister Artur Rasizade unequivocally support the idea of joining the WTO as soon as possible.

Whether that stated priority can overcome entrenched resistance within the Azerbaijani leadership -- in particular reluctance to release sensitive economic data, and induce the parliament to meet the presidential deadline for enacting the required legislation -- remains an open question.