VZCZCXRO3499
PP RUEHAG RUEHDBU RUEHDF RUEHIK RUEHLN RUEHLZ RUEHROV RUEHSK RUEHSL
RUEHSR RUEHVK RUEHYG
DE RUEHKB #0732/01 2541327
ZNR UUUUU ZZH
P 111327Z SEP 09
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC PRIORITY 1738
INFO RUCNCIS/CIS COLLECTIVE PRIORITY
RUCNMEM/EU MEMBER STATES  PRIORITY
RUEHAK/AMEMBASSY ANKARA PRIORITY 3528
RUEHSI/AMEMBASSY TBILISI PRIORITY 1876
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

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