US embassy cable - 04SANAA2784

UNCLAS SECTION 01 OF 02 SANAA 002784 
 
SIPDIS 
 
STATE FOR NEA/ARP, EB/IPR, EB/TRD 
STATE PLEASE PASS TO USTR FOR J.BUNTIN 
STATE ALSO FOR USAID ANE 
 
E.O. 12958: N/A 
TAGS: ECON, ETRD, KMPI, YM, ECON/COM 
SUBJECT: WTO UPDATE FOR YEMEN - FIVE YEARS AND COUNTING 
 
1. Summary/Comment. While accession to the World Trade 
Organization is still five to seven years out, with the first 
working party meeting to be held in Geneva on November 30 Yemen 
will enter a new, more difficult stage of trade negotiations. 
Through the Integrated Framework (IF) process sponsored by the 
Dutch, the ROYG and donors developed an action plan for joining 
the WTO.  Supporters of accession now must garner support from 
ROYG Ministries, Parliament, and powerful business interests to 
adopt measures necessary to accede.  End summary/comment. 
 
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First Working Party Meeting in November 
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2. Yemen was granted observer status to the WTO in 1999.  In July 
2000 the WTO set up a working party process for Yemen's 
accession.  Yemen submitted its Memorandum of Foreign Trade 
Regime in 2000 and will hold its first working party meeting 
November 30 in Geneva. Nagib Hamim, WTO Technical Advisor at the 
Ministry of Industry and Trade, (MIT) explained, "this is when 
the hard work begins."  Hamim will travel to Washington as part 
of the ROYG delegation to the Trade Investment Framework 
Agreement (TIFA) talks in November.  MIT has the lead in 
preparing for accession and acts as secretariat for the Council 
of Ministers that approves all major documents. 
 
 
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Integrated Framework Rejuvenated? 
--------------------------------- 
 
3. Yemen concluded the diagnostic phase of the World Trade 
Organization's Integrated Framework (IF) Process with the 
completion of the Diagnostic Trade Integration Study in June 
2003.  Due to bureaucratic delays, Yemen is now beginning to 
implement the action plan.  The ROYG is planning to conduct an IF 
workshop to integrate WTO accession planning with Yemen's most 
significant economic planning document: the Poverty Reduction 
Strategy (PRS) for 2006-2010.  Until it is integrated into the 
PRS, WTO accession will remain an afterthought to those outside 
of the Ministry of Industry and Trade. 
 
4. The European Union is presently spending seven million Euros 
over five years to help Yemen accede by providing training, 
computers and technical advisors.  USG assistance compliments the 
EU assistance program and will likely focus on Customs Valuation 
reform and reforming Yemen's competition law. 
 
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What Must Yemen do? 
------------------- 
 
5. The most significant step the ROYG will have to take is 
garnering Parliamentary support for several key legislative 
changes, to include: 
-- Upgrading IPR laws (septel); 
-- Redrafting the competition law to dilute the power of big 
companies; 
-- Revising a new commercial law that limits non-Yemenis to a 49 
percent share a company (septel); 
-- Opening the telecommunications and financial sectors' and 
-- Amending provisions of the labor law that hinder private 
companies from hiring persons of their choice and limit the 
number of foreigners to 10 percent of total employment 
 
6. Aside from legal amendments, Yemen must also "bind its tariff 
structure," and implement the General Investment Law of 2002 
which provides for equal treatment of foreigners and domestic 
investors and protects against nationalization. 
 
7.  Planning for WTO accession is beginning to gain momentum 
outside of the Ministry of Industry and Trade.  The upcoming 
Trade Investment Framework Talks have encouraged Deputy Prime 
Minister Sofan to take up the trade reform and he is actively 
encouraging other ministries to adopt necessary changes for 
accession.  Most experts agree that WTO accession is "stretching" 
limited ROYG resources due to lack of well trained civil 
servants, limited English capacity, and coordination problems 
between ministries. 
 
 
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Businessmen Hold Key to Success 
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8. Yemen's powerful business community is fearful of accession 
and is capable of blocking necessary legislative reforms if they 
fear their business interests might be harmed.  In 2004, the 
Yemen Federation of Chambers of Commerce lobbied effectively to 
delay implementation of Yemen's General Sales Tax, designed to 
reduce Yemen's dependence on oil revenue for state income.  The 
government must also take significant steps to improve the 
investment climate for businessmen so they can see tangible 
benefits in joining international trade regimes.  The first 
priority for Yemen's business community is reducing smuggling. 
In some cases, as much as fifty to seventy percent of one market 
is dominated by smuggled goods and legitimate Yemeni business 
suffer.  If WTO accession and reduced smuggling can be linked, 
the business community may be swayed to support accession.