EXPORT BOOST

For about 18 years now Azerbaijan has been invested with the status of observer at the World Trade Organization (WTO). In that time there have been a series of negotiations, including multilateral rounds. There is a strong possibility that the negotiations with this international organization will soon receive a new impetus with the appreciable fall in world oil prices and the need to substantially increase the volumes of non-oil exports.

The latest round of multilateral and bilateral negotiations on Azerbaijan's membership of the WTO was held in Geneva at the beginning of March. "Our country held bilateral negotiations with representatives of the USA, Japan, Switzerland and Norway,'" the head of the negotiations group, Azerbaijani Deputy Foreign Minister Mahmud Mammadquliyev, said.

"We examined a number of topical subjects, but quite a few open questions remained which need to be finalized; specifically, we are talking about regulation of the agricultural market, a number of industrial goods and other matters." 

It was no surprise that the thrust of the multilateral negotiations with the WTO secretariat were aspects of the protection of the country's agricultural output, the subsidizing of agricultural producers and, in general, a discussion of Azerbaijan's trade policy. Basically, the negotiations covered questions of domestic support for the agrarian sector: we once again reaffirmed the importance of the development of agriculture - the main sector of the company's non-oil economy, and the need for protection and state support for this industry," Mahmud Mammadquliyev said. "A number of the WTO member-states have expressed their understanding of the policy of our government, which is giving strong support to agriculture, although some countries believe that we are providing an excessive volume of subsidies to the agrarian sector. However, we believe that this amount is completely in line with the provisions of the WTO agreement on agriculture which apply to countries entering the organization as developing countries." According to WTO regulations, countries that are classed as developing states have the right to subsidize the agrarian sector in the range of 10 per cent of the volume of GDP. At the same time, the same bar for the developed countries is set at 5 per cent. Basically, it is this factor - the question of a country's status - which is the main stumbling block during the multilateral negotiations that have been going on for several years now. The government believes that membership of the World Trade Organization is perfectly possible with the status of a developing country, based on the fact that despite the rapid development of the economy in recent years, the country is experiencing some difficulties over the million refugees and forced migrants.

This question remains open and, according to the Azerbaijani deputy foreign minister, the delegation agreed to a new round of negotiations in this direction. "We shall prepare a new schedule of domestic support for agriculture in Azerbaijan for 2012-2014. The WTO secretariat has pledged to send us its questions and comments on the new schedule before 15 April, and in turn our country will also prepare replies, after which the next meeting of the negotiating group will be appointed where these questions will be discussed proceeding from the realities of he latest situation," Mammadquliyev said. He said work had been stepped up within the framework of the working group for WTO entry: the secretariat in Geneva is currently preparing the questions of the member countries, and after the replies to them have been prepared arrangements will begin to fix the next date for a meeting of the working group.

By all accounts, the next round will definitely not be the last: such scrupulousness and even caution by the Azerbaijani negotiating group is fully justified. Despite Azerbaijan's tangible successes in the diversification of the economy, especially in the development of its non-oil sector, at the moment about 90 per cent of the country's exports are accounted for by raw hydrocarbons and products manufactured from them. Moreover, despite the dynamic development of light industry, agriculture, the processing and food industries, output produced in these sectors does not always meet international quality standards, and sometimes it is insufficiently competitive price-wise.

On the other hand, the export of Azerbaijani oil and petroleum products enjoys benefits as part of the GSP [Generalized Scheme of Preferences] system provided by the European Union and is competitive even without membership of the WTO. As far as the export of non-oil production is concerned, its main sales market today remains the former USSR countries, especially those states that are in the European Union. And in this context, forcing the process of acquiring WTO membership has up to now not been of real significance for us, a number of experts believe.

"One reason Azerbaijan is not forcing entry to the WTO is that it will most probably be accepted into this organization as a developed state," Member of Parliament and political expert Rasim Musabayov believes. "Azerbaijan's non-oil ex-ports are mainly orientated towards the markets of Russia, Kazakhstan, Ukraine and other CIS states where the rules of free trade operate, and in this direction our membership of the WTO will not create preconditions for a significant growth in trade."

On the contrary, the expert believes, membership of the WTO will compel Azerbaijan to open up its domestic market and compromise such sensitive spheres as agriculture and the banking and insurance sector which will experience strong pressure from American, European and even Turkish competitors.

These arguments are based on quite obvious facts. At the same time, there exist a number of other no less convincing factors that point to the need to complete the negotiations with the WTO in the next few years. Thus, the Azerbaijani government's long-term strategy is aimed at boosting the production of the competitive output of the non-oil sector and, which is particularly important, promoting it to world markets. A departure from the traditional import substitution in favour of a building-up of the export component has been dictated by the relative narrowness of the local market. The statistics of recent years show that in a number of areas of the non-oil sector - the production of fruit and vegetables and wine making, furniture and the building materials segment - the saturation of the domestic market has reached its peak and a further build-up in production volumes may be linked only with an increase in their export. This trend is particularly relevant today in a situation of an appreciable reduction in world oil prices, forcing the government to take all measures to reduce the country's dependence on the raw-material factor and to diversify the structure of exports. The Azerbaijani Central Bank's recent decision to lower the exchange rate of the manat against the leading world currencies also in many ways pursued the aim of increasing its competitiveness on foreign markets.

Be that as it may, the government's efforts to promote the export of its non-energy products are producing tangible results. According to the Azerbaijani State Statistics Committee, the total volume of non-oil exports in January 2015 was 124.2m dollars, which is an increase of 16 per cent on the figure for the first month of last year. In other words, these figures clearly reflect the overall dynamic growth of production in the export-orientated branches of the non-oil sector. The ratio of the non-oil sector in the production of gross domestic product increased from 38 per cent in 2003 to 48 per cent in 2013. Overall, the volume of industrial production for the period under review increased 2.7 times.

Work in this direction must be speeded up, especially in the context of an unfavourable market situation - a nearly two-fold fall in oil prices. "In 2015-2018 the Azerbaijani government plans to carry out a raft of measures aimed at building up non-oil exports. They include creating favourable conditions for foreign trade and assisting the development of business relations between Azerbaijani and foreign entrepreneurs," Deputy Minister of Economy and Industry Sevinc Hasanova believes. According to her prognosis, these steps will help to achieve a growth in non-oil export volumes of up to 24.7 per cent in the current year and to maintain this at a level of around 20 per cent through 2016-2018.

So, the speediest implementation of all these plans for the diversification of the economy will inevitably lead to a need to extend the geography of our non-oil exports and to promote them to Europe's integrated markets. And in this question membership of the WTO is a compulsory and unqualified condition for concluding an agreement on creating a free trade area between Azerbaijan and the EU.

OUR NOTE

The World Trade Organization today comprises over four-fifths of the world's countries who account for 97 per cent of world trade turnover. In 1997 Azerbaijan was one of the first countries to submit an application to join the WTO and since then has been conducting most complex negotiations, hoping to vindicate its claim for a lengthy period of grace and to obtain certain preferences in a number of branches of the economy once it acquires full-fledged membership of this international structure. These difficult negotiations have been completed with a number of states: protocols have been signed with Turkey, the Sultanate of Oman, the United Arab Emirates, Georgia and Kyrgyzstan, and agreements with China and Moldova are at the signature stage. Azerbaijan is currently conducting intensive negotiations with 18 member countries of the WTO.