VZCZCXRO6263
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHTA #0631/01 3260149
ZNR UUUUU ZZH
R 220149Z NOV 06 ZDK
FM AMEMBASSY ASTANA
TO RUEHC/SECSTATE WASHDC 7736
INFO RUCNCIS/CIS COLLECTIVE
RUEHAST/USOFFICE ALMATY
RUEHAK/AMEMBASSY ANKARA 1994

UNCLAS SECTION 01 OF 03 ASTANA 000631 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR SCA/CEN - O'MARA 
DEPT PLEASE PASS TO USTR - ELIZABETH HAFNER 
ANKARA FOR AG COUNSELOR R. GIFFORD 
 
E.O. 12958: N/A 
TAGS: ECON ETRD WTO PREL KZ
SUBJECT: PARLIAMENTARY HEARINGS ON KAZAKHSTAN'S WTO ACCESSION 
PROCESS 
 
ASTANA 00000631  001.4 OF 003 
 
 
¶1.  Summary:  Kazakhstan's Parliament held an Open Hearing on WTO 
Accession on October 20, in which key ministers summarized 
outstanding WTO issues and outlined the potential benefits and 
drawbacks of WTO accession.  Both the ministers and parliamentarians 
passionately defended Kazakhstan's agricultural sector and 
subsidies.  Experts from the textile sector painted a pessimistic 
picture of the sector's future in the face of "contraband" imports 
from abroad.  Lead WTO negotiator Aitzhanova closed the hearing by 
reassuring the members of parliament that Kazakhstani producers 
already lived under WTO-like conditions; thus, fear of WTO accession 
was unwarranted.  End summary. 
 
KAZAKHSTAN AND THE WTO: PROS AND CONS 
------------------------------------- 
 
¶2.  On October 20, Kazakhstan's Parliament conducted its first-ever 
Open Hearing on WTO Accession, assembling key ministers, industry 
experts, business association representatives, and scholars to 
discuss Kazakhstan's progress toward accession.  The DCM attended 
the high-profile event, which marked the first time during the 
accession process that a WTO General Secretary has visited 
Kazakhstan. 
 
¶3.  Deputy Prime Minister Karim Masimov opened the session by 
listing the benefits which WTO accession will bring Kazakhstan:  the 
"Most Favored Nation" principle will help Kazakhstan get equal 
access to foreign markets; quotas levied on Kazakhstan's 
metallurgical exports will be disallowed; trade disputes will be 
resolved in accordance with WTO rules and regulations; the cost of 
transportation by land would be reduced, since member states will 
adopt uniform transportation tariffs; and custom procedures will 
become more transparent, thus reducing "gray" imports and 
increasing budget revenues.  Speaking of possible negative 
consequences of accession, Masimov noted that they would fall mostly 
on the agricultural sector. 
 
¶4.  Ambassador Vessa Himanen, Chief of Kazakhstan's Working Party 
for Accession, cast Kazakhstan's prospects in a regional context by 
underscoring that Kazakhstan could be an engine of economic growth 
for the whole Central Asian region.  Economic conditions for WTO 
accession are better than ever before, he declared, adding that 
Kazakhstan's negotiation process was on the right track and "allows 
us to look forward with optimism." 
 
¶5.  Deputy WTO General Secretary Alexandro Jara encouraged 
Kazakhstan to conclude the negotiation process as soon as possible. 
He noted that each economy was unique and thus required a different 
timetable for WTO accession.  Jara stressed that a country's overall 
rate of growth or economic reform did not influence the speed of WTO 
accession; rather, such decisions depended on progress made toward 
implementing - and enforcing - WTO-compliant legislation. 
 
POSITION OF PARLIAMENTARIANS 
---------------------------- 
 
¶6.  Sergey Diachenko, the Mazhilis Deputy Chairman, remarked that 
WTO membership might pose a real threat to domestic industries, 
especially agriculture, and poor rural households might not be able 
to adjust themselves to new conditions.  Domestic agriculture needs 
to be subsidized, he argued, since much of it takes place in 
"high-risk" agricultural areas.  Further, Diachenko said, 
Kazakhstan's existing level of subsidies was relatively low in 
comparison with developed countries.  Mazhilis Deputy Satypaldy 
Ibragimov compared Kazakhstan's average level of agricultural 
subsidies ($17 per hectare of cultivated land) to those of the 
United States ($107), Canada ($830), the EU ($855), and Switzerland 
($4210). 
 
¶7.  Ibragimov provided a metaphor to describe the accession process. 
 "If the WTO is a team led by United States," he said, "Kazakhstan 
would be a young player on this team.   As the coach of the team, 
the United States should create favorable conditions for 
inexperienced, but prominent, players, such as Kazakhstan." 
Ibragimov suggested that, taking into account the breadth of the 
Kazakhstani economy, the global terrorism threat, and Kazakhstan's 
role in regional security, Kazakhstan's sustainable development was 
"not only in the national interest, but in the interests of the 
whole world." 
 
AGRICULTURE AND TEXTILES: KEY ISSUES 
------------------------------------ 
¶8.  Minister of Industry and Trade Vladimir Shkolnik assured the 
audience that WTO membership would not harm the GOK's policy of 
diversifying the economy.  Further, the GOK intended to continue to 
protect producers of local goods, especially agricultural products, 
by means of custom tariffs.  Kazakhstan's trade regime was one of 
 
ASTANA 00000631  002.2 OF 003 
 
 
the most liberal among CIS countries, Shkolnik said; in fact, 
Kazakhstani tariffs were comparable with tariffs of 
developed-country WTO members. In defense of this assertion, 
Shkolnik cited some comparative statistics: in Kazakhstan tariffs 
for agricultural products averaged 12.4%, and for industrial goods, 
6.7%; for the EU,15.7% and 4.7%; for the U.S., 10.9% and 4%;, and 
7.7% and 5.7% for Canada.  Therefore, Shkolnik concluded, Kazakhstan 
should not go further in reducing tariffs. 
 
 
¶9.  Vice Minister of Agriculture Lilia Musina pointed out that 
Kazakhstan's agricultural subsidies were quite small, as a 
percentage of GDP, compared to other countries: in 2003-2005 
Kazakhstan's subsidies amounted to about 2% of GDP, while in Norway 
they reached 47% of GDP, in EU countries - 23% of GDP, and in United 
States - 16%. (Comment: For these numbers to accurately reflect the 
intensity of agricultural subsidies, they would have to adjusted for 
the differing shares of agricultural production in GDP.  End 
comment.)  Musina also defended Kazakhstan's use of "yellow box" 
subsidies (domestic support subsidies which are considered 
trade-distorting), arguing that Kazakhstan's subsidies were not only 
within legal limits, but were extremely important to the national 
economy.  According to Musina, out of Kazakhstan's average subsidy 
of $17 per hectare, $12.20 is for "green box" measures (those which 
don't distort trade and are allowed by WTO), and only $4.90 are 
"yellow box."  Speaking of export subsidies, Musina argued that, 
because land-locked Kazakhstan faced high transportation costs to 
market, the GOK was justified in defending its negotiating position 
in this area. 
 
¶10.  The Head of the Textile Enterprises' Association, Lubov 
Khudova, painted a pessimistic picture of Kazakhstan's textile and 
apparel industries.  The processing industry's share of total 
industrial output in Kazakhstan dropped from 2% to 0.6% over the 
2000-2005 period, she noted, and in general the industry faced 
decreasing prospects, as existing enterprises were now closing 1.5 
times faster than new ones were opening.  Furthermore, she said, 
domestically produced goods were gradually being supplanted on the 
local market by imported goods: the share of domestic textiles and 
apparel in the local market was only 8%, and that of shoes, 1%. The 
volume of declared imports exceeded exports by a multiple of 24, she 
declared, with the growing needs of the population being met by 
undeclared counterfeit imports. 
 
¶11.  Khudova characterized this situation as a threat to the 
country's economic security, and insisted on a transition period 
after accession to the WTO.  Moreover, in her opinion, the Security 
Council and the GOK needed to undertake measures to restrict the 
import of counterfeit goods and support the development of local 
textile and apparel industries. 
 
STEPS TOWARD THE WTO 
-------------------- 
 
¶12.  Finance Minister Korzhova expressed the GOK's readiness to 
harmonize customs legislation and simplify custom procedures.  Her 
suggestions for doing so included the following: unification of 
excise duties for imported and domestic goods (for instance, oil 
products); simplification of custom administration and custom 
clearance processes, especially for small individual entrepreneurs; 
and the provision of ex-officio right to custom authorities in the 
future.  In addition, she stated that beginning January 1, 2007, 
customs officials would minimize bureaucratic requirements for 
transaction passports, all registration functions would be forwarded 
to currency authorities gradually, and registration periods would be 
extended an additional 180 days. 
 
AITZHANOVA SUMS UP THE PROCESS 
------------------------------ 
 
¶13.  Vice-Minister of Industry and Trade Zhanar Aitzhanova 
summarized major steps that needed to be done to finalize the 
accession process: unify railway tariffs; unify excise duties for 
imported and domestic products; decrease customs tariffs; limit the 
number of licensed activities; and address demands for legislative 
amendments concerning genetically modified products. 
 
¶14.  Aitzhanova told the audience that the United States and 
European Union were very active in the negotiations, particularly on 
questions related to market access for qualified laborers; textiles; 
access to the telecommunication, financial, and transport services 
markets; and on the issue of visitor access to the country and 
length of allowed stay.  Aitzhanova also informed the audience that 
Kazakhstan would join the sectoral initiative. In conclusion, 
Aitzhanova stressed that there was nothing frightening about 
accession to the WTO; in fact, Kazakhstan's domestic producers 
 
ASTANA 00000631  003.2 OF 003 
 
 
already lived under WTO conditions. 
 
¶15.  Comment:  Given the importance of the WTO accession, post has 
created a Trade Policy Working Group to coordinate our activities. 
End comment. 
 
ORDWAY