US embassy cable - 05SANAA145

UNCLAS SECTION 01 OF 02 SANAA 000145 
 
SIPDIS 
 
SENSITIVE 
 
STATE PLEASE PASS TO USTR BUNTIN AND HICKS 
ABU DHABI FOR MEPI OFFICE 
 
E.O. 12958: N/A 
TAGS: KMPI, ECON, ETRD, YM, ECON/COM 
SUBJECT: YEMEN MOVING FAST ON WTO, MAYBE TOO FAST 
 
1. (SBU) Summary.  Yemen is making progress in trade reforms 
necessary for WTO accession and possible Free Trade Agreement 
(FTA) with the US.  Key ministries have a broad mandate 
within the ROYG to create the necessary legislation and 
regulations to comply with international standards.  They 
have created an effective inter-ministerial mechanism to 
direct these activities.  Significant obstacles remain, 
however, and the ROYG will have to demonstrate to the WTO 
that it is actually able to implement the planned reforms. 
ROYG aspirations to accede to the WTO within one year, while 
admirable, may be too ambitious.  Two representatives of Booz 
Allen Hamilton (BAH), funded by MEPI, shared these 
preliminary conclusions during a visit to Sanaa Jan. 11-12. 
As part of an effort to assess the ROYG's progress towards 
WTO, they visited officials at the Ministry of Finance (MOF), 
the Ministry of Industry and Trade (MOIT), Ministry of 
Culture (MOC), several regulatory agencies, as well as the 
head of the Sanaa Chamber of Commerce.  End Summary. 
 
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FOR WTO, YEMEN UNDER THE RADAR 
------------------------------ 
 
2. (U) Two representatives from BAH met with members of the 
ROYG to discuss next steps to follow after the recent Trade 
Investment Framework Agreement (TIFA) talks in Washington. 
The delegation came to assess Yemen's progress on trade 
reform, both with respect to WTO accession and plans for the 
Middle East Free Trade Area.  Though mostly informational, 
discussions revealed several substantive issues.  Head of the 
WTO planning at the Ministry of Industry and Trade, Nagib 
Hamim demonstrated the ROYG's planning through a matrix of 
necessary legislation in such areas as customs, IPR, quality 
control, and SBS/TBT standards.  MOIT coordinates an 
inter-ministerial process, both at the official and technical 
levels, to direct the overall reform process and to delegate 
legislative responsibilities.  Draft laws exist in many of 
the required fields, but at this point, Hamim said, no 
legislation has been passed. 
 
3. (U) Hamim said his Ministry and others are working to 
accede to the WTO by the end of 2004 a goal articulated by 
the Ministry of Planning after returning from the November 
TIFA talks in Washington.  Hamim told Pol/Econoffs in private 
that the chances of achieving this goal, while not 
impossible, are slim.  One BAH contractor noted that given 
the experiences of other countries and the current WTO focus 
on Saudi Arabia and Russia, even if Yemen were completely 
prepared for negotiations they would likely not gain 
attention in Geneva until 2006. 
 
4. (U) The EU is currently providing seven million Euros over 
five years, but many areas of reform, including IPR and 
SBS/TBT standards, are not covered by these funds. 
Pol/Econoffs and several observers have pointed out that ROYG 
ministries lack the legal experience necessary to draft new 
laws and proposals for accession.  BAH noted that it is 
difficult to find attorneys who are competent in both WTO and 
Yemeni law. 
 
----------------------------------- 
ROYG and Regulation: Time to Let Go 
----------------------------------- 
 
5. (U) Ministry of Finance Director General for External 
Relations Ibrahim Al-Nahari stressed Yemen's strong banking 
laws and monetary policy, but suggested that there is a need 
for clearly defined regulatory bodies, separate from the 
ministries.  Al-Nahari gave the example of health policy, 
which is currently formulated within the Ministry of Health 
in the form of legislation rather than independently 
determined regulations.  (Note:  Al-Nahari was less 
convincing on insurance regulation, which he said should be 
determined in the MOF.  End note.) 
 
6. (U) Kamal Al-Jebry, Director General of the Public 
Telecommunications Corporation (PTC) made a similar 
observation.  The Minister of Telecommunications is currently 
also the Chairman of the PTC and the head of Yemen's telcom 
regulatory body, which is part of the Ministry.  In addition, 
al-Jebry said, the Minister is acting CEO of the state-owned 
telephone company, which competes with the private sector in 
the wireless market.  In order to avoid accusations of 
conflict of interest, as well as to generate confidence among 
foreign investors, Al-Jebry believes that Yemen needs an 
independent telecommunications regulatory commission. 
 
----------------------------------- 
Business Community Not Playing Ball 
----------------------------------- 
 
7. (U) Hamim pointed out that differences within the private 
sector are hampering reform progress.  By absenting 
themselves from the process, business leaders prevent the 
ROYG from negotiating to protect their interests at WTO 
talks.  Hamim said that the private sector is afraid of 
competition, suspicious of the government, and believes the 
ROYG is rushing the process.  A conversation with Mahfoud 
Shammakh, Chairman of the Sanaa Chamber of Commerce, 
confirmed these doubts.  Shammakh claimed that the business 
community will accept accession, but Yemen needs "to get its 
house in order first," through business training and 
anti-corruption measures.  A BAH representative echoed the 
long-standing Post position that improvements in the business 
climate could be achieved through the WTO process, but 
Shammakh was not receptive. 
 
---------------------------- 
WTO:  Still a Long Way to Go 
---------------------------- 
 
8. (U) The BAH delegation concluded that ROYG officials do 
not understand the distance they must still cover to reach a 
viable negotiating position with the WTO.  They have the 
enthusiasm to craft the necessary laws and regulations, but 
lack a clear strategy for implementation.  BAH contended that 
the ROYG must establish credibility with the WTO by passing 
at least some of the proposed laws in Parliament if the rest 
of its plans are to be taken seriously. 
 
9. (U) BAH confirmed that all ROYG agencies involved in WTO 
accession will require significant technical assistance and 
training to follow through on accession demands.  The 
delegation also viewed corruption in the judiciary as an 
obstacle to accession, as it interferes with IPR enforcement, 
customs disputes, and nearly every aspect of fair trade.  BAH 
suggested that the ROYG is unsure of how to proceed in the 
services sector and will be surprised by the changes 
necessary for trade reform.  Liberalizing the 
telecommunications sector, for instance, is certain to prove 
unpopular within the government. (Note.  ROYG moves in this 
sector in the past year reflect an increase in government 
involvement rather than a move towards liberalization -- to 
be reported septel.  End note.) 
 
10. (SBU) Comment.  There are many promising signs that the 
ROYG is committed to the accession process.  On Nov. 29, the 
Cabinet approved accession to the Bern Convention on IPR. 
The President recently announced that the ROYG plan to reduce 
customs tariffs to 5-10 percent, down from current rates of 
up to 25 percent.  Despite severe capacity limitations, 
government agencies are making serious attempts to comply 
with WTO standards.  However, many of these systems must be 
created from scratch, and the accession schedule creates 
tight time constraints.  In addition, there is no clear 
political strategy or timetable for passing the necessary 
legislation.  Trade laws do not have priority in Parliament 
and the legislative process is time-consuming. Moreover with 
Parliament's newfound strength the executive may have less 
leverage to enact the needed legislation for accession. 
Without clear political will from both executive and 
legislative bodies, it is unlikely that Yemen will meet its 
goal of WTO accession by 2006. 
 
11. (SBU) Comment continued: Post suspects (and BAH agreed) 
that Sofan's one-year goal could complicate Yemen's WTO 
process.  If the ROYG pushes accession too quickly, without 
investing in regulatory reforms necessary for implementation 
the benefits of WTO accession may not be realized.  At the 
same time, a rushed process that results in failure in Geneva 
could deflate the ROYGs current enthusiasm for trade reforms. 
End comment. 
KRAJESKI