US embassy cable - 05ALMATY428

UNCLAS  ALMATY 000428 
 
SIPDIS 
 
 
DEPARTMENT FOR EUR/CACEN JMUDGE, EUR/ACE JMCKANE 
TREASURY FOR CENTRAL ASIA DESK OFFICER MGAERTNER 
COMMERCE FOR CENTRAL ASIA DESK OFFICER DSTARKS 
DEPT PLEASE PASS TO USTR KKUHLMANN 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECON, EFIN, PGOV, KZ, ECONOMIC 
SUBJECT: KAZAKHSTAN: DAS KENNEDY'S MEETING WITH DPM AND 
TRADE MINISTER MYNBAYEV 
 
REFTEL: ALMATY 304 
 
1. (SBU) This cable contains an action request for USTR, 
para. 10. 
 
2. (U) Summary: EUR DAS Laura Kennedy and Ambassador Ordway 
called on Deputy Prime Minister and Minister of Industry and 
Trade Sauat Mynbayev February 3 in Astana.  They discussed 
Jackson-Vanik, WTO accession, the Minister's prospective 
attendance at the inaugural TIFA Council meeting, and his 
trip to San Diego for the Kazakhstan Investment Conference. 
Mynbayev expressed interest in combining his San Diego trip 
with WTO consultations.  DAS Kennedy and the Ambassador also 
raised the issue of AIG's attempts to obtain payment of a 
$10 million arbitral award originating in a 1998 
expropriation.  Deputy Minister of Foreign Affairs Aleksey 
Volkov also attended.  End summary. 
 
Jackson-Vanik 
------------- 
 
3. (SBU) Mynbayev and DAS Kennedy briefly discussed 
Kazakhstan's prospects for graduation from Jackson-Vanik 
treatment.  DAS Kennedy emphasized the Administration's 
position that extraneous linkages and conditions should not 
influence the application of the Jackson-Vanik law, but the 
ultimate decision is for the Congress.  She also told 
Mynbayev that sustained progress on WTO accession would 
bolster Kazakhstan's case for graduation. 
 
WTO 
--- 
 
4. (SBU) Mynbayev shared his views on the WTO accession 
state of play.  He expressed satisfaction that the last 
Working Party meeting resulted in the transformation of 
Kazakhstan's factual summary into draft a draft working 
party report that would form the basis for discussion of 
Kazakhstan's commitment.  Regarding Kazakhstan's offer on 
goods, he opined that Kazakhstan had liberalized enough. 
Turning to agriculture, he acknowledged that the level of 
support Kazakhstan would be allowed after accession was 
still a contentious issue.  He cited this as a major issue 
in negotiations with the Europeans, but said that a basic 
consensus existed within the CIS.  (Note: Mynbayev did not 
specify whether he was referring to CIS countries that are 
already in WTO, other aspirant countries or both.  End 
note.)  He also said that Kazakhstan was progressing toward 
agreement with Europe on labor migration issues.  However, 
he also stated unequivocally that the U.S. is the key 
partner in the accession negotiations. 
 
5. (SBU) In response to DAS Kennedy's mention of 
intellectual property rights (IPR), Mynbayev acknowledged 
the urgency of the issue.  He felt that Kazakhstan had made 
sufficient improvements to its legislation.  However, he 
admitted that there are still problems with how the IPR laws 
are applied, because practitioners and stakeholders do not 
yet understand the changes. 
 
San Diego Travel, TIFA 
---------------------- 
 
6. (U) DAS Kennedy also asked Mynbayev about his planned 
trip to San Diego for the March 12 "Kazakhstan Investors' 
Conference."  Mynbayev said that the conference would be 
similar to events the GOK has sponsored in other countries 
to promote its Innovative-Industrial Strategy and encourage 
investment outside of the oil sector, especially in 
processing industries.  Mynbayev told DAS Kennedy that he 
hopes to schedule consultations on WTO accession while he is 
in the United States.  Separately, he confirmed that 
Minister of Economy and Budget Planning Kairat Kelimbetov 
(who has no role in the WTO accession negotiations) will 
represent Kazakhstan at the upcoming World Bank meetings in 
Washington. 
 
7. (SBU) DAS Kennedy also expressed the hope that Mynbayev 
would be able to attend the inaugural TIFA Council in April. 
 
 
Mynbayev was noncommittal.  Asked if Kazakhstan was 
considering any specific proposals, Mynbayev responded that 
Kazakhstan was concerned with "systematic" questions and 
noted how different Kazakhstan's level of development is 
from that of its neighbors.  DAS Kennedy observed that 
Kazakhstan's leading position among Central Asia's economies 
causes the U.S. to value highly Kazakhstan's contributions 
and leadership in the TIFA consultations. 
 
AIG Arbitration 
--------------- 
 
8. (SBU) Finally, DAS Kennedy raised the issue of AIG's 
attempts to collect the $10 million it was awarded in 
arbitration by the International Center for the Settlement 
of Investment Disputes (ICSID).  (Background: AIG received a 
favorable ruling from ICSID in a case arising from the 1998 
expropriation of an AIG subsidiary's interest in an Almaty 
real estate project.  Having made no progress in having the 
ruling honored, AIG convinced a British court to issue a 
third-party debt order on the assets of the GOK National 
Fund in the UK.  Kazakhstan will challenge the order in a 
hearing in London in July.  End Background.) 
 
9. (SBU) Mynbayev did not seem familiar with the case.  He 
offered the opinion that if the issue was one of real 
estate, then the Almaty city government (which has oblast 
status) would actually be the liable party.  DFM Volkov was 
familiar with the original dispute, but indicated that he 
was not familiar with the arbitration award.  The Ambassador 
told Mynbayev that the issue at hand is broader than the $10 
million.  He pointed out that if the GOK continues in the 
British courts and loses, then the precedent that the 
National Fund does not benefit from sovereign immunity would 
be disastrous for Kazakhstan.  However, if Kazakhstan paid 
the arbitration award voluntarily, that question would be 
moot.  He further pointed out that if AIG's quest for 
payment became a protracted, public struggle, it could 
negatively affect the "investment-grade" sovereign credit 
rating the GOK has worked assiduously to build.  It would 
also affect the overall investment climate negatively at a 
time when the country is trying to attract foreign 
investments to sectors other than oil. 
 
10.  (SBU) Mynbayev's response was noncommittal, although he 
(and particularly DFM Volkov) clearly received the U.S. 
message of concern.  DAS Kennedy told them she would also 
pursue the matter with the Minister of Justice and the 
Foreign Minister. 
 
Comment 
------- 
 
11. (SBU) Mynbayev was far more talkative and animated in 
this meeting than his previous one with the Ambassador 
(reftel), and he went into considerably more detail on the 
WTO state of play.  We recommend that USTR try to 
accommodate Mynbayev's travel to the U.S. and schedule 
appropriate consultations.  With respect to AIG, Mynbayev 
seemed to take U.S. concerns on board, but offered little 
response.  However, his unfamiliarity with the case may be 
understandable considering that he was not among the 
officials AIG contacted in its attempts to settle the 
dispute.  We are hopeful that DAS Kennedy and Ambassador 
Ordway's stark presentation of the stakes in this meeting 
was a good start to bringing the GOK around to the 
conclusion that ignoring AIG is simply not in the country's 
long-term interest. 
 
12. (U) DAS Kennedy did not have the opportunity to clear 
this cable before departing post. 
 
13. (U) Minimize for Dushanbe considered. 
 
Ordway 
 
 
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