Vol. 3, No. 4 (February 15, 2010)

The pros and cons of WTO membership for Azerbaijan

Vugar Bayramov
Chairman of Board
Center for Economic and Social Development of Azerbaijan

Since the recovery of its independence, Azerbaijan has constantly been pursuing opportunities to expand its foreign trade, an effort that some argue would be helped if Baku were to become a member of the World Trade Organization.  In fact, Azerbaijan began the accession process in 1997 but submitted the required memorandum on its foreign trade regime on April 22, 1999.  And since that time, there have been a series of exchanges between Azerbaijan and the WTO working party on Azerbaijan which includes, among others, Australia, Japan, the European Union and the United States.
During a meeting in June 2009, Azerbaijan and these governments discussed a variety of issues related to import customs duties, subsidies in agriculture and the like but failed to reach a consensus.  As a result, the working party submitted a series of new questions to the Azerbaijan mission.  At the same time, Azerbaijani officials have been working with the WTO to develop legal arrangements and to come up with amendments to existing laws and rules on tariffs and services. 
In the course of this process, some concerns have been raised about accession and its implications for Azerbaijan.  Since Azerbaijan’s tariffs on imported goods are quite low and far lower than those of neighboring countries, Azerbaijan may not see the increase in trade from WTO membership that other states could expect.  At present, Azerbaijani important customs duties range from zero to 15 percent, with an average of about 10 percent, and it has committed to lowering this average to a range of 5-6 percent.  Many other countries had far higher tariffs: Turkey for example imposed a duty on seasonal agricultural products of as much as 200 percent. 
Another concern is that the WTO is now taking a tougher line on those countries, like Azerbaijan, currently seeking membership even though the Doha round suggested that the countries now applying are precisely the ones who need the benefits the WTO can provide as long as their domestic industries enjoy some protection from the exports of countries who have benefited from earlier development.    
After Azerbaijan formally applied to the WTO for membership, Baku established a National Coordination Group to oversee the problems of adapting Azerbaijani laws and rules to WTO requirements.  The Group consists of representatives from relevant ministries, state committees, other agencies.  Subsequently, in order to be in a position to continue negotiations, Baku created a special commission of senior government officials in August 2003.  And it in turn formed nine working groups to analyze such issues as agrarian financing, intellectual property rights, social issues, investment adjustments, service issues, technical barriers, and the like.  Overseeing these various bodies and ensuring they work in parallel is special secretariat. 
As part of the accession process, Azerbaijan must review all its international trade arrangements and train local specialists on the WTO, as well as arranging visits for the Negotiating Party.  All this taken together will allow Azerbaijan to expand its relations with other countries on the basis of ever greater trust.  Azerbaijan already has relations with some international trade organizations, such as the Islamic Development Bank and the Asian Development Bank.  As Azerbaijan pursues WTO membership, it must work with each of these under the aegis of the UN and IMF. 
To achieve WTO status, Azerbaijan must amend some of its existing laws to bring them into correspondence with WTO rules.  One area where there are going to be particular difficulties concerns agricultural subsidies because, just as in the case of tariffs, Azerbaijan starts with a very low amount compared to other countries and thus has less to trade away for other goals.  Azerbaijan faces the challenge of protecting domestic agriculture against massive imports from countries where there are high agricultural subsidies, such as Sweden where farmers receive on average 33,000 US dollars in government aid each year. 
In addition to these substantive issues, there are some procedural problems in the accession process.  Some officials in Azerbaijan do not fully understand the requirements of the WTO process, and thus it is essential that Baku form a group of competent cadres to make sure the process works to Azerbaijan’s advantage.  That will require a clear division of responsibilities between the WTO and Azerbaijan and among various Azerbaijani institutions, government and private. 
At present, Azerbaijan ranks 140th among 146 states in terms of corruption and 103rd out of 16 states in terms of economic liberalization, thus creating other challenges for WTO accession.  And all these things worsen Azerbaijan’s position now and after accession. 
It is far from certain whether the government will be able to take all the steps necessary to address these problems.  But that by itself does not mean that Azerbaijan should not or cannot pursue accession.  WTO membership will bring significant benefits to society, especially among those involved in the export market, and it will help Azerbaijan integrate itself into the world with far greater access to the markets of other countries.
But besides real benefits, WTO access will involve some real losses as well, something that should be both acknowledged and addressed.  Among these are:
adaptation regress as a result of the production of non-competitive goods and provision of services;
reduced receipts from customs duties;
increased expenses for patents for technology imports;
government spending to compensate for local industries driven out of business by foreign competition;
societal adjustments of expenditure patterns given new flows of imports; and 
reduced efficiency of investments because of changes in the relative efficiency of domestic and foreign producers given reduced customs duties. 
If WTO accession is to be a success, Azerbaijan must promote the development of the economy with an eye on the consequences of that accession.  Baku officials must not forget that WTO accession is not so much a goal as a means to achieving broader goals.  Having become members, we can increase our integration into the world economy, achieve more liberalization in foreign trade, and simplify customs supervision procedures, among other things.  And we hope that accession will also give Azerbaijan greater access to international financial institutions, something that should by means of careful negotiation boost the country’s economic well-being.