US embassy cable - 05MINSK1159

UNCLAS MINSK 001159 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ETRD, ECON, ECIN, WTRO, BO 
SUBJECT: Minsk Wants Bilateral WTO Negotiations 
 
Refs: (A) Minsk 492, (B) Minsk 955, (C) Minsk 1145 
 
1. (U) Summary: Econoff met September 13 with MFA representatives 
Anton Kudasov, Deputy Director of the Directorate of Foreign Trade, 
and Sergey Gulevich, Deputy Head of the Division of Foreign Trade 
Policy, to discuss Belarus' accession to the World Trade 
Organization.  Kudasov argued strongly for capital based bilateral 
negotiations with the U.S. prior to the next meeting in Geneva, on 
the assumption only this would bring Belarus progress toward 
joining the WTO.  However, he does not believe WTO membership will 
have much effect on the Belarusian economy (despite experts' 
predictions), and does not think Belarus would be harmed if Russia 
acceded first.  Kudasov dismissed several potential hurdles to 
Belarusian membership, such as border confiscations, the Golden 
Share, and lack of IPR protection.  End summary. 
 
 
Want Capital Based Negotiations 
------------------------------- 
 
2. (U) Kudasov said the GOB very strongly desires a meeting with 
U.S. WTO negotiators in either Minsk or Washington in advance of 
the October 24 meeting in Geneva, followed by bilateral 
consultations with the U.S. in Geneva and Hong Kong.  He claimed 
the meetings in Geneva have not been as fruitful as the GOB would 
like.  Specifically, he thanked the U.S. side for providing 
detailed guidance on services, and wants similarly detailed 
guidance on how Belarus should progress in dealing with trade in 
goods.  Kudasov commented that the sooner Belarus and the U.S. 
could begin discussing issues line by line the better, as Belarus 
hopes to have a draft report ready by spring 2007.  He argued that 
a draft report is needed to help prod the Belarusian bureaucracy to 
take actions to comply with WTO regulations.  The GOB also asked 
that the U.S. quickly conclude bilateral negotiations with Russia, 
as Belarus closely coordinates its trade policy with Russia.  The 
GOB expects the U.S. and other countries to demand the same 
commitments from Belarus as they will from Russia.  Kudasov stated, 
"It will not be politically acceptable to Minsk if demands on 
Belarus differ from those on Russia." 
 
 
WTO Will Not Adversely Affect Belarusian Economy? 
--------------------------------------------- ---- 
 
3. (SBU) Kudasov believes joining the WTO will not greatly impact 
Belarus' economy, mainly because a majority of Belarus' trade (50 
to 70 percent) is already duty free to other members of the 
Commonwealth of Independent States.  He also did not believe that 
any of the changes that Belarus will have to undertake would have 
much of an effect.  As an example, he argued that when Belarus and 
Russia changed the way VAT is collected on their bilateral trade 
last January, it had little impact on trade levels.  [Note: 
according to recent MFA statistics, trade with Russia fell 8.9 
percent after the VAT change (ref C).] 
 
4. (U) However, experts from the Economy Institute at Belarus' 
Academy of Sciences disagree, believing WTO accession will disrupt 
the economy.  Specifically, they think joining the WTO will hurt 
Belarusian light industry, construction, and communications, none 
of which they argue are ready to compete internationally.  The 
Academy's experts told the press joining the WTO will increase the 
number of loss-making companies in light industry.  While Belarus 
could conversely benefit from a lifting of EU quotas on textiles, 
currently Belarusian industry is exporting below the level of the 
quotas, so no surge in exports is likely after accession.  They 
also state that Belarus' communications industry, almost entirely 
state owned, will not be able to compete with foreign firms. 
 
 
Russia: Cooperation, but No Energy Price Increase 
--------------------------------------------- ---- 
 
5. (U) Kudasov stated that Belarus is working closely with Russia 
towards WTO accession.  Minsk is copying Russian trade legislation 
and is trying to harmonize fully its tariffs with Russia.  [Note: 
an official with the Russian-Belarusian Union State told the press 
the two have unified 86 percent of tariffs.]  He said Belarus' new 
Law of Foreign Trade is nearly identical to Russia's, and both are 
based on GATT principles.  Kudasov denied that Belarus would face 
any problems if Russia joins the WTO first, insisting that "this is 
not a race," and said Russian accession would even solve a number 
of trade problems.  In particular, Kudasov complained about 
existing Russian trade barriers to alcohol and pharmecutucals, 
which he expects to fall once Russia joins the WTO. 
 
6. (U) When asked, Kudasov denied that Russian accession would 
result in Belarus paying higher rates for natural gas and oil, at 
least in the short term.  He expects Russia will continue offering 
Belarus discounted energy for two to three years, after which 
Russia would be forced to raise prices to secure needed investment 
in new oil and gas fields.  Belarus would likewise raise the amount 
it charges for transit, which Kudasov believed would largely offset 
the increased energy prices. 
 
7. (U) On September 6 Belarus' Deputy Foreign Minister Aleksandr 
Mikhnevich announced at the Belarusian-Russian Economic Forum that 
Belarusian-Russian trade will be unaffected by the WTO as the two 
states will continue to offer each other trade preferences and 
"insist on developing mechanisms for mutual protection of the 
common market of Belarus and Russia against unfair competition from 
third countries.  It is especially important for automobile, 
chemical and light industries." 
 
 
Confiscations?  Not a Problem 
----------------------------- 
 
8. (SBU) Several weeks ago the U.S. Department of Commerce issued a 
warning to American businesses to avoid transiting goods through 
Belarus because of a high rate of border confiscation.  Ever since 
Belarusian Customs and media have been loudly proclaiming there is 
no problem with border confiscations.  Kudasov acknowledged there 
is somewhat of a confiscation problem, but stated it is only a 
matter of Belarusian legislation and would have no impact on 
joining the WTO.  He said the GOB is preparing data on the true 
scale of border confiscations, and that the head of the State 
Customs Committee, Aleksandr Shpilevsky, would travel to Geneva in 
October to discuss confiscations.  [Note: the GOB earns significant 
sums of money from confiscating transiting goods and reselling them 
in a series of shops around the country (ref A).  The Russian 
Embassy in Minsk told us several times that Belarus confiscates USD 
100 million worth of Russian goods each year, and the Kazakh 
Embassy recently said they lose USD 60 million annually.  A number 
of other embassies, particularly the Polish and Lithuanian, also 
complain of regular confiscations.] 
 
 
No Golden Share Problem Either 
------------------------------ 
 
9. (SBU) Likewise Kudasov denied that Belarus' use of the Golden 
Share would prove any barrier to the WTO.  He insisted Belarus uses 
the Golden Share only in extremely rare cases, and then only to 
protect workers when their salaries are not being paid or to 
prevent social disturbances.  Nonetheless, the GOB's Golden Share 
expert will also travel to Geneva to explain the true state of 
things to the WTO.  [Note: The GOB has invoked the Golden Share to 
take control of at least nine companies since the beginning of the 
year.  Their usual practice is to invoke this mechanism to take 
temporary control of a company that has refused to sell a majority 
share to the GOB, then issue to themselves large amounts of highly 
undervalued shares until the state owns 99 percent of the firm (ref 
B).] 
 
 
IPR also Not an Issue 
--------------------- 
 
10. (U) Continuing in this vein, Kudasov refuted that Belarus' 
current lax enforcement of IPR violations would cause any problems 
with the WTO.  He claimed the GOB has a commission which has 
"defined responsibilities for implementing IPR enforcement," and 
argued that protecting IPR was in the GOB's own interest, 
particularly as President Lukashenko advances his plans to build a 
high-tech park.  These plans will force the GOB to begin enforcing 
IPR violations. 
 
 
Geographic Indicators 
--------------------- 
 
11. (U) Kudasov also commented that the GOB is very closely 
following the debate over geographic indicators.  He opined that 
the WTO is coddling individual countries too much and giving too 
much weight to their arguments to protect specific geographic 
indicators.  He would prefer for the European Union to reign in 
certain member states (i.e. France) on this issue.  [Note: Belarus 
would be affected by this decision, if only because it produces 
champagne, of sorts.] 
 
 
Comment 
------- 
 
12. (SBU) Kudasov provided a rosy picture of Belarus' WTO 
negotiations and the Belarusian economy, which contradict that of 
Belarus' own experts.  His statements on trade with Russia, 
confiscations, the Golden Share and IPR all strictly followed the 
official GOB line that there is no problem.  Other experts are less 
sure; for example the World Bank is considering a study to see what 
affects early Russian accession would have on Belarus.  Kudasov was 
clearly frustrated at the slow rate of negotiations, but believes 
direct capital based talks with the U.S. (rather than real progress 
by the GOB) are what is needed.  This echoes the line Deputy 
Foreign Minister Mikhnevich took with Ambassador recently. 
Mikhnevich, who attended part of the last Geneva talks, urged the 
U.S. to meet in Minsk or the U.S. to continue discussions. 
Ambassador replied that the U.S. side was not terribly impressed 
with the Belarusian performance in Geneva, and did not see enough 
real progress to justify further meetings at this stage.  It 
appears though a priority of the MFA to push for meetings 
regardless of the lack of seriousness in the GOB's WTO accession 
efforts. 
 
KROL