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PP RUEHDBU RUEHLN RUEHSK RUEHVK RUEHYG
DE RUEHKB #0635/01 2231224
ZNR UUUUU ZZH
P 111224Z AUG 09 ZDK PAR SVC
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 1591
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
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UNCLAS SECTION 01 OF 02 BAKU 000635 
 
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 EINV EIND AJ
SUBJECT: AZERBAIJAN: PARLIAMENT WANTS A MOLE IN EVERY 
FOREIGN COMPANY 
 
BAKU 00000635  001.2 OF 002 
 
 
¶1.  SUMMARY:  On August 10, 2009, the American Chamber of 
Commerce in Baku held an emergency meeting to discuss a law 
passed by Parliament on June 22, 2009, which requires that 
deputies of foreign companies in Azerbaijan shall be citizens 
of Azerbaijan chosen jointly by the foreign company and the 
GOAJ.  Business leaders are concerned that this is a plot by 
the GOAJ to place a high-level mole in every foreign company 
in Azerbaijan, and that the deputy's reporting would be used 
to help well-placed local competitors gain an edge over 
foreign companies.  If signed by President Aliyev, this law 
would violate the U.S.-Azerbaijan Bilateral Investment 
Treaty.  AmCham plans to write President Aliyev and ask him 
not to sign this legislation, and AmCham will ask the U.S. 
Embassy (among others) to sign this letter.  There seems to 
be confusion within the GOAJ on what has happened and what 
may happen next.  The full text of this legislation appears 
at the end of this cable.  End Summary. 
 
¶2.  A Chemonics/ USAID representative at the meeting (John 
Corrigan) listed two problems the GOAJ would have with the 
draft legislation if President Aliyev signed it into law: 
first, he says it conflicts with Azerbaijani law, which says 
that foreign and domestic investors shall be "granted equal 
legal regime."  The law passed by parliament June 22 
specifically singles out foreign companies for special 
treatment.  Business representatives said this argument might 
not be persuasive to President Aliyev, as he could simply 
order local businesses to also hire deputies chosen by the 
GOAJ. Second, Corrigan opined that this law would complicate 
Azerbaijan's WTO accession.  COMMENT: If the GOAJ did impose 
such a requirement on local companies (which certainly cannot 
be ruled out), we expect it would be selectively enforced 
within companies that fall out of political favor or in 
companies that attempt to compete against well-connected 
monopolists.  We are not certain that the GOAJ is 
sufficiently serious about WTO accession now that the latter 
point would much affect their calculations. End Comment. 
 
¶3.  There seems to be confusion within the GOAJ on what 
exactly has been decided, and what the next steps are. 
International Finance Corporation Project Manager Boris 
Divjak says that Zaur Gasimov, head of the Entrepreneurship 
Department at the Ministry of Economic Development, "made it 
clear that the legal motion has not originated from the MoED 
and distanced himself clearly, saying that he finds this to 
be in breach of various other investment climate and FDI 
initiatives they are pursuing ... Zaur claims that the draft 
amendment went through only one reading in the parliament of 
the required four and that it is a long way away from even 
being considered for the Presidential signing." 
 
¶4.  On the other hand, OSCE Economic and Environmental 
Officer Robert Zahn says that according to the International 
Relations Department of the Parliament, "the amendments were 
adopted after the first reading in Parliament on 30 June 2009 
and were submitted to the President for signature" and that 
"amendments require only one reading." 
 
¶5.  In a letter to AmCham Executive Director Nargiz 
Nasrullayeva-Muduroglu, Chingiz Asadullayev, the Deputy 
Chairman of the Parliament's Economic Policy Commission, 
writes: "the changes to the law on entrepreneurship have been 
discussed and adopted at Parliament's session and will come 
into force after they get signed by the President and get 
published in the official state newspaper." 
 
¶6.  If signed into law by President Aliyev, the draft 
legislation would bring Azerbaijan into conflict with its 
commitments in the U.S.-Azerbaijan Bilateral Investment 
Treaty.  Specifically, Article II, Section 1 states that 
"...each Party shall accord treatment no less favorable than 
it accords, in like situations, to investments in its 
territory of its own nationals or companies (hereinafter 
'national treatment') or to investments in its territory of 
nationals or companies of a third country (hereinafter 'most 
favored nation treatment').  Each Party shall ensure that its 
state enterprises, in the provision of their goods or 
services, accord national and most favored nation treatment 
to covered investments."  Furthermore, Article VII, Section 
1(a) states "Subject to its laws relating to the entry and 
sojourn of aliens, each Party shall permit to enter and to 
remain in its territory nationals of the other Party for the 
purpose of establishing, developing, administering or 
advising on the operation of an investment to which they, or 
a company of the other Party that employs them, have 
 
BAKU 00000635  002.2 OF 002 
 
 
committed or are in the process of committing a substantial 
amount of capital or other resources." 
 
¶7.  AmCham has said they will draft two letters to President 
Aliyev urging him not to sign this draft legislation into 
law.  The first copy will be sent from the three major 
business groups in Baku: AmCham, the British Business Group 
(BBG), and the German-Azerbaijan Business Association (DAWF). 
 AmCham proposes that the second copy would be signed by IFIs 
as well as the Embassies of Norway, France, Italy, the 
European Union, and the United States. 
 
¶8.  COMMENT: Considering the clear contradictions between 
this legislation and Azerbaijan's obligations under the 
U.S.-Azerbaijan Bilateral Investment Treaty, Embassy 
anticipates being able to support the AmCham's letter to 
President Aliyev.  Based on the content of AmCham's letter 
and the atmospherics of the situation as it develops, it may 
be appropriate for the Embassy or Washington to join with an 
additional letter to the President.  End Comment. 
 
¶9.  Below is the full text of "the Law on Making Changes to 
the Law on Entrepreneurship Activity," as translated from 
Azerbaijani to English by Chemonics: "Deputies of chiefs of 
branches and representative offices of foreign legal entities 
with foreign citizens or foreign legal entities as founders, 
as well as with more than 51 percent of their paid-in capital 
or shares owned by foreign citizens or foreign legal entities 
should be citizens of the Republic of Azerbaijan and 
nomination of these deputies should be agreed upon by 
relevant executive body of the Republic.  State registration 
of those branches and representative offices is only allowed 
after nomination of their deputy chiefs is agreed upon.  At 
least 90 percent of employees of branches and representatives 
of foreign citizens or foreign legal entities working in the 
fields of agriculture, hunting and forestry, fish breeding, 
mining, processing industry, electricity, gas and water 
production and distribution, construction, wholesale and 
retail sale, renovation of vehicles, domestic appliances and 
personal belongings, hotel and restaurant services, 
transportation, warehousing and communication, financial 
activity, real estate operations, lease and consumer 
services, education, health and social services, also other 
public utility and, social and personal services, as well as 
of foreign legal entities owned by foreign citizens or 
foreign legal entities which own 51 percent of shares or 
capital charter should be citizens of the republic of 
Azerbaijan." 
 
LU 
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