Sectoral Issues in Services Negotiation

 In order to objectively assess the level of commitments in services, a quantitative method of evaluation was introduced, and applied to all WTO members. In view of this analysis, findings with the current (conditional) Azerbaijan offer in the services negotiation are as follows:

- General level of commitment is quite higher than the WTO member average;

- Sectoral coverage and mode 3 commitments are also higher than the WTO member average;

- However, newly acceded WTO members, which mainly belong to the Central Asia and middle income countries, including Kyrgyz, Moldova, Georgia and Armenia, have made significantly higher level of commitment in services, even higher than that of Azerbaijan;

- Benchmark by the working party would not be the WTO average, rather the average of newly acceded members.

Based on the above findings, several recommendations are made:

- Sectoral coverage by Azerbaijan is similar to those newly acceding members, but the level of commitment is lower in the sectors of financial, construction, transportation, education and tourism services, thus further improvement would be needed in these sectors;

- Telecommunication sector has offered rather aggressive commitments, however, careful and thorough preparation would be needed during the 7-11 year transition period;

- Retail and energy related sectors did not make commitments mainly because of employment consideration, but protection may turn out to be an inefficient policy choice;

- Services offer could be an effective policy choice for regulatory reform in that the government measures in the committed sectors would be subject to Article VI domestic regulation and thus be streamlined, free from pressure by the domestic interest groups.

Analysis of Developing Country Status in the WTO System: Implication from the Korean Experience

Findings regarding the status of developing country status in the history of WTO accession are:

- No country with similar economic situation to that of Azerbaijan in the GATT as well as the WTO system was considered as a ¡°developed country¡±;

- It is to be noted that Korea was recognized as a developing country as far as agriculture was concerned;

- The status itself does not guarantee lower level market concession, thus focus should be given to the content of market concession, rather than the status itself. Also, in terms of legal bindings, WTO Agreements typically stipulate longer transition periods for developing countries, instead of weaker or discriminatory obligations;

- It is to be noted that Korea has made substantial concessions in return for the status of developing country and elimination of rice from tariffication, and also that certain WTO members may opt out of the WTO Agreements under Article XIII as US has done;

- Developing country status may have less signifcance, since during the DDA agricultural negotiation, it is likely that not only developing countries, but also ¡®recently acceded members¡¯ receive same benefit in reducing domestic support.

Following recommendations were given for the negotiation:

- The Working Party needed to be persuaded to agree on more rational trade and economic agenda instead of provoking symbolic political matters, as this matter can cause serious domestic political risk;

- It is to be stressed that the status of developing country should be determined based on the principle, not on the matter like market access negotiation to be bargained;

- It is urgent to establish and implement industrial development strategies promptly, without being challenged under the WTO rules.

How to Introduce and Establish a WTO-Consistent Trade Remedy System

 Introduction of trade remedy measures requires more than simple enactment of key legislations, but more strategic thinking, including structural reorganization of government agencies, coordination of relevant statues, and awareness of due process requirements. From this perspective, the following guidelines are to be considered in establishing trade remedy regimes:

- Maintain consistency with WTO Agreements

- Maintain discretion of the Investigating Authority

- Focus on procedural aspects

- Consider DDA negotiations

- Consider feasibility in actual applications

 Besides these guidelines, suggestions were made for specific projects to be implemented:

- Finalizing legislative preparation

- Creating Investing Authority

- Aligning investigation and reviews

- Restructuring judicial review mechanism

- Conducting feasibility test

- Active participation in the WTO dispute settlement procedure

- Review of existing measures

 Since Korea has established the regime from scratch and has developed it into one of the successful agencies of the government, the Korean experience can provide some insights.

 Additionally, the designation as a Non-Market Economy should be avoided, as such status would give more burden to Azerbaijan exports, and a plan to privatize major state-owned enterprises should be devised in order to escape from unnecessary subsidy allegations.

The Strategies for Industrial Diversification through Export Promotion

 Key findings on the Azerbaijan industrial structure are:

- Serious dependence on oil export, the end of oil production boom in the foreseeable future, and the signs of ¡®Dutch Disease¡¯;

- Industrial diversification is necessary for reducing vulnerability to price shocks, sustained employment and economic growth;

- Based on comparative advantage analysis, Azerbaijan has advantage in agriculture, agroprocessing, oil-industry and chemical and petrochemical industries, and most promising export markets would be CIS countries.

  In consideration of these findings and the Korean experience, it is recommended that:

- Export promotion, instead of import substitution is to be pursued to realize economies of scope and learning-by-exporting;

- Export Processing Zones could be a viable option to attract foreign direct investment;

- Sound macro-management favorable to exporters is necessary;

- Re-organizing bureaucratic systems could be an option for effective planning and implementation;

- Infrastructural development for transport and export routes are needed;

- Industry-neutral, instead of targeting, policy should be pursued.